SINO AGRO FOOD, INC. AND SUBSIDIARIES
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Sino Agro Food, Inc. (the “
Company
” or “
SIAF
”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development,
Inc.) was incorporated on October 1, 1974 in the State of Nevada, United States of America.
The Company was engaged in the
mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the Company
entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“
CA
”) and
its subsidiaries Capital Stage Inc. (“
CS
”) and Capital Hero Inc. (“
CH
”). Effective the
same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital
Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.
On August 24, 2007 the Company
changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, the Company changed
its name to Sino Agro Food, Inc.
On September 5, 2007, the Company
acquired three existing businesses in the People’s Republic of China (the
“P.R.C.”
):
|
(a)
|
Hang
Yu Tai Investment Limited (“
HYT
”), a company incorporated in Macau,
the owner of 78% equity interest in ZhongXingNongMu Ltd (“
ZX
”),
a company incorporated in the P.R.C.;
|
|
(b)
|
Tri-way Industries Limited (“
TRW
”), a company
incorporated in Hong Kong; and
|
|
(c)
|
Macau Eiji Company Limited (“
MEIJI
”), a
company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co.
Ltd. (“
HST
”), a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in 2010.
|
On November 27, 2007, MEIJI and
HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“
JHST
”), a company incorporated in the P.R.C. with MEIJI owning a 75% interest and HST owning a 25% interest.
On November 26, 2008, SIAF established
Pretty Mountain Holdings Limited (“
PMH
”), a company incorporated in Hong Kong with an 80% equity interest.
On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“
SJAP
”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest
in SJAP was owned by the following entities:
|
•
|
Qinghai Province Sanjiang Group Company Limited (English translation)
(“
Qinghai Sanjiang
”), a company incorporated in the P.R.C with major business activities in the agriculture
industry; and
|
|
•
|
Guangzhou City Garwor Company Limited (English translation)
(“
Garwor
”), a company incorporated in the P.R.C., specializing in sales and marketing.
|
SJAP is engaged in the business
of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan,
in the vicinity of the Xining City, Qinghai Province, P.R.C.
In September 2009, the Company
carried out an internal reorganization of its corporate structure and business, and formed a 100% owned subsidiary, A Power Agro
Agriculture Development (Macau) Limited (“
APWAM
”), which was formed in Macau. APWAM then acquired PMH’s
45% equity interest in SJAP. By virtue of the acquisition, APWAM assumed all obligations and liabilities of PMH under the Sino
Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor.
The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and transfer. As a result,
APWAM owned 45% of SJAP and Garwor owned the remaining 55%. This remains the case as of the date of this report (the “
Report
”).
On September 9, 2010, an application
was submitted by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong
Kong Companies Ordinance. On January 28, 2011, PMH was dissolved.
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 March 31, 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.
On April 15, 2011, MEIJI applied
to form Enping City A Power Cattle Farm Co., Limited (“
ECF
”), all of which the Company would indirectly own
a 25% equity interest on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in ECF and the amount was
settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang Men City Hang Mei Cattle
Farm Development Co., Limited (“
JHMC
”) and acquired additional 50% equity interest for the total cash consideration
of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition was at our option according
to the terms of the original development agreement. The Company presently owns 75% equity interest in JHMC, representing majority
of voting right and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations
of JHMC. Up to March 31, 2017, MEIJI further invested $400,000 in JHMC.
On July 18, 2011, the Company formed
Hunan Shenghua A Power Agriculture Co., Limited (“
HSA
”), in which the Company owns a 26% equity interest,
and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. As of March 31, 2017, MEIJI and SJAP total
investment in HSA were $857,808 and 629,344, respectively.
On November 12, 2013, the Company
acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203
AB changed its name to Sino Agro Food Sweden AB (publ) (“
SAFS
”). As of March 31, 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. As of March 31, 2017, the SJAP’s
total investment in QZH was $4,645,489.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
The Company has adopted December
31 as its fiscal year end.
Name of subsidiaries
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
|
|
|
|
|
|
|
Capital Award Inc. (“CA”)
|
|
Belize
|
|
100% (12.31.2016: 100%) directly
|
|
Fishery development and holder of A-Power Technology master license.
|
|
|
|
|
|
|
|
Capital Stage Inc. (“CS”)
|
|
Belize
|
|
100% (12.31.2016: 100%) indirectly
|
|
Dormant
|
|
|
|
|
|
|
|
Capital Hero Inc. (“CH”)
|
|
Belize
|
|
100% (12.31.2016: 100%) indirectly
|
|
Dormant
|
|
|
|
|
|
|
|
Sino Agro Food Sweden AB (“SAFS”)
|
|
Sweden
|
|
100% (12.31.2016: 100%) directly
|
|
Dormant
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
Macau, P.R.C.
|
|
100% (12.31.2016: 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% (12.31.2016: 100%) directly
|
|
Investment holding
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd
(“JHST”)
|
|
P.R.C.
|
|
75% (12.31.2016: 75%) indirectly
|
|
HylocereusUndatus Plantation (“HU Plantation”).
|
|
|
|
|
|
|
|
Jiang Men City Hang Mei Cattle Farm Development Co., Limited
(“JHMC”)
|
|
P.R.C.
|
|
75% (12.31.2016:75%) indirectly
|
|
Beef cattle cultivation
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
P.R.C.
|
|
76% (12.31.2016:76%) indirectly
|
|
Manufacturing of organic fertilizer, livestock feed, and beef
cattle and sheep cultivation, and plantation of crops and pastures
|
|
|
|
|
|
|
|
Name of variable interest entity
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”)
|
|
P.R.C.
|
|
45% (12.31.2016: 45%) indirectly
|
|
Manufacturing of organic fertilizer, livestock feed, and beef
cattle and plantation of crops and pastures
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)
|
|
P.R.C.
|
|
100% (12.31.2016: 100%)indirectly
|
|
Cattle slaughter
|
|
|
|
|
|
|
|
Name of unconsolidated equity
investees
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
|
|
|
|
|
|
|
Tri-way Industries Limited (“TRW”)
|
|
Hong Kong, P.R.C.
|
|
23.89% (12.31.2016: 23.89%) directly
|
|
Investment holding, holder of enzyme technology master license
for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
|
|
|
|
|
|
|
|
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)
|
|
P.R.C
|
|
100% (12.31.2016: 100%) indirectly
|
|
Fish cultivation
|
*
This represents stockholding
percentage of total equity.
In addition, according to investment
agreement between QZH and QQI, (i) QQI only enjoyed interest 6% annually on its capital contribution and did not enjoy any profit
distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% (12.31.2016: 100%) on profit or loss after deduction
6% interest to QQI and enjoyed 100% (12.31.2016: 100%) voting rights of QZH’s board and stockholders meetings.
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
”).
Reverse stock split and new conversion
rate of Series B preferred stock to share of common stock on December 16, 2014, the Company implemented a 9.9-for-1 reverse stock
split. On December 17, 2014, the Company implemented new conversion rate of 9.9 for 1 share of common stock. All share information
contained within this report, including consolidated balance sheets, consolidated statements of income and other comprehensive
income, and footnotes have been retroactively adjusted for the effects of reverse stock split and new conversion rate of Series
B preferred stock to share of common stock.
|
2.4
|
BASIS
OF CONSOLIDATION
|
The consolidated financial statements
include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and
its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation.
SIAF, CA, CS, CH, MEIJI, JHST, JHMC,
HSA, APWAM, SAFS, SJAP and QZH are hereafter referred to as (the “Company”).
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.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The Company’s revenue recognition
policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence
of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable,
and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk
of loss and title passes to the customer.
Government grants are recognized
when (i) the Company has substantially accomplished what must be done pursuant to the terms of the grant that are established
by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all
of the requirements to receive the government grants; and (iii) the amounts are received.
Multiple-Element Arrangements
To qualify as a separate unit of
accounting under ASC 605-25 “
Multiple Element Arrangements
”, the delivered item must have value to the customer
on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and
service under development contract, commission and management service.
Revenues from the Company’s
consulting and services under development contracts are performed under fixed-price contracts. Revenues under long-term contracts
are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards
Board (“
FASB
”) Accounting Standards Codification (“
ASC
”) Topic 605,
Revenue Recognition
(“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between
total estimated revenue and total estimated cost of a contract and recognize that profit over the contract term. The percentage
of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract
and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences
are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs
and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time an order
is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.
The percentage of completion method
requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract,
including the payment of amounts when due. If the Company determines that collectability is not assured, the Company will defer
revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the
Company determines that collectability is reasonably assured or through the completion of the project.
For fixed-price contracts, the Company
uses the ratio of costs incurred to date on the contract to management’s estimate of the contract’s total costs, to
determine the percentage of completion on each contract. This method is used as management considers expended costs to be the
best available measure of progression of these contracts. Contract costs include all direct material, subcontract and labor costs
and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts
for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract
costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in
job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements
may result in revisions to the estimated profit ability during the contract. These changes, which include contracts with estimated
costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss
on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the
loss was identified.
The Company does not provide warranties
to customers on a basis customary to the industry, however, customers can claim warranty directly from product manufacturers for
defects in equipment or products. Historically, the Company has experienced no warranty claims.
The Company provides various management
services to its customers in the P.R.C. based on a negotiated fixed-price contract. The clients usually pay the fees when the
services contract is signed and services are rendered. The Company recognizes these services-based revenues from contracts when
(i) management services are rendered; (ii) clients recognize the completion of services; and (iii) collectability is reasonably
assured. Fees received in advance are recorded as deferred revenue under current liabilities.
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 $7,747 and $31 for the three months ended
March 31, 2017 and 2016, respectively.
Advertising costs are included in
general and administrative expenses, which totaled $631,717 and $666,258 for the three months ended March 31, 2017 and 2016, respectively.
|
2.12
|
RESEARCH
AND DEVELOPMENT EXPENSES
|
Research and development expenses
are included in general and administrative expenses, which totaled $0, and $0 for the three months ended March 31, 2017 and 2016,
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 $(3,363,895) as of March 31, 2017 and $(4,335,355)
as of December 31, 2016. The balance sheet amounts with the exception of equity as of March 31, 2017 and December 31, 2016 were
translated using an exchange rate of RMB 6.90 to $1.00 and RMB 6.94 to $1.00, respectively. The average translation rates applied
to the statements of income and other comprehensive income and of cash flows for the three months ended March 31, 2017, and 2016
were RMB 6.89 to $1.00 and RMB 6.53 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.
The Company maintains reserves for
potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical
bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns
to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
The standard credit period for most
of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable.
Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of March 31,
2017 and December 31, 2016 are $0.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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.
Plant and equipment are stated at
cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that
are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed,
its cost is recognized in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalization.
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial
year end.
Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets.
Plant and machinery
|
5 - 10 years
|
Structure and leasehold improvements
|
10 - 20 years
|
Mature seeds and herbage cultivation
|
20 years
|
Furniture and equipment
|
2.5 - 10 years
|
Motor vehicles
|
5 - 10 years
|
An item of plant and equipment is
removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.
Goodwill is an asset representing
the fair economic benefits arising from other assets acquired in a business combination that are not individually identified or
separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s fiscal year, or
when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting
unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation. As a result of
this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets
acquired in these acquisitions over the cost of the assets acquired.
|
2.19
|
LONG
TERM INVESTMENT
|
On October 29, 2014, the Company
invested in Huangyuan County Rural Credit Union (“RCU”), Huangyuan County, Xining City, Qinghai Province, the P.R.C.
RCU is engaged in the financing and crediting business to agricultural projects for local farmers. The Company has a 5% stake
in RCU. The Company has no representative on the board of directors to oversee corporate operations. The Company accounts for
its long term investment at cost.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
2.20
|
PROPRIETARY
TECHNOLOGIES
|
A master license of stock feed manufacturing
technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility
has been established. Cost of acquisition of stock feed manufacturing technology master license is amortized using the straight-line
method over its estimated life of 20 years.
An aromatic cattle-feeding formula
was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been
established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated
life of 25 years.
The cost of sleepy cods breeding
technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting
sleepy cods breeding technology license is amortized using the straight-line method over its estimated life of 25 years.
Bacterial cellulose technology license
and related trade mark are capitalized as proprietary technologies when technological feasibility has been established. Cost of
license and related trade mark is amortized using the straight-line method over its estimated life of 20 years.
The Company has determined that
technological feasibility is established at the time a working model of products is completed. Proprietary technologies are intangible
assets of finite lives. Management evaluates the recoverability of proprietary technologies on an annual basis at the end of the
Company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and
Other”, the Company uses a fair-value-based approach to test for impairment.
|
2.21
|
CONSTRUCTION
IN PROGRESS
|
Construction in progress represents
direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction
in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for
their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended
use.
Land use rights represent acquisition
of rights to agricultural land from farmers and are amortized on the straight-line basis over their respective lease periods.
The lease period of agricultural land is in the range from 10 to 60 years. Land use rights purchase prices were determined in
accordance with the P.R.C. Government’s minimum lease payments on agricultural land and mutually agreed to terms between
the Company and the vendors.
|
2.23
|
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.
|
2.24
|
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
2.25
|
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.
Treasury stock means shares of a
corporation’s own stock that have been issued and subsequently reacquired by the corporation. Converting outstanding shares
to treasury shares does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares
are not eligible to receive dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by
ASC 505-30-30.
State laws and federal agencies
closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares must have a
legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:
|
(a)
|
to meet additional stock needs for various reasons, including
newly implemented stock option plans, stock for convertible bonds or convertible preferred stock, or a stock dividend.
|
|
(b)
|
to make more shares available for acquisitions of other entities.
|
The cost method of accounting for
treasury shares has been adopted by the Company. The purchase of outstanding shares and thus converting them into treasury shares
is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of
retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of acquiring outstanding
shares for converting into treasury shares is charged to a contra account, in this case a contra equity account that reduces the
stockholder equity balance.
|
2.27
|
NON-CURRENT
ASSETS HELD FOR SALE AND DISCONTINUED
|
The Company classifies non-current
assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than
through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when
the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property
and equipment are not depreciated once classified as held for distribution. Assets and liabilities classified as held for sale
are presented separately as current items in the consolidated balance sheets. A disposal group qualifies as discontinued operation
if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:
• represents a separate major
line of business or geographical area of operations
• is part of a single co-ordinated
plan to dispose of a separate major line of business or geographical area of operations, or
• is a subsidiary acquired
exclusively with a view to resale
Discontinued operations are excluded
from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations
in the consolidated statement of income and other comprehensive income.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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.
|
2.29
|
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.
|
2.30
|
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 March 31, 2017 and December
31, 2016 amounted to $3,866,321 and $2,395,355, respectively, none of which is covered by insurance. The Company has not experienced
any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.
The Company had 5 major customers
(A, B, C, D and E) whose business individually represented the following percentages of the Company’s total revenue for
the period indicated:
|
|
Three months
ended
March 31, 2017
|
|
|
Three months
ended
March 31, 2016
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
24.79
|
%
|
|
|
-
|
%
|
Customer B
|
|
|
18.68
|
%
|
|
|
-
|
%
|
Customer C
|
|
|
17.90
|
%
|
|
|
21.03
|
%
|
Customer D
|
|
|
11.91
|
%
|
|
|
6.70
|
%
|
Customer E
|
|
|
7.93
|
%
|
|
|
-
|
%
|
Customer F
|
|
|
-
|
%
|
|
|
11.96
|
%
|
Customer G
|
|
|
-
|
%
|
|
|
10.34
|
%
|
Customer H
|
|
|
-
|
%
|
|
|
7.11
|
%
|
|
|
|
81.21
|
%
|
|
|
57.14
|
%
|
|
|
|
|
Percentage
of revenue
|
|
|
Amount
|
|
Customer A
|
|
Corporate and others Division
|
|
|
24.79
|
%
|
|
$
|
17,507,672
|
|
Customer B
|
|
Fishery Development Division
|
|
|
18.68
|
%
|
|
$
|
13,189,265
|
|
Customer C
|
|
Cattle Farm Development Division
|
|
|
17.90
|
%
|
|
$
|
12,640,866
|
|
Customer D
|
|
Corporate and others Division
|
|
|
11.91
|
%
|
|
$
|
8,412,087
|
|
Accounts receivable are derived
from revenue earned from customers located primarily in the P.R.C. The Company performs ongoing credit evaluations of customers
and has not experienced any material losses to date.
The Company had 5 major customers
whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
20.53
|
%
|
|
|
12.83
|
%
|
Customer B
|
|
|
19.58
|
%
|
|
|
19.61
|
%
|
Customer C
|
|
|
17.36
|
%
|
|
|
18.11
|
%
|
Customer D
|
|
|
6.69
|
%
|
|
|
7.52
|
%
|
Customer D
|
|
|
5.71
|
%
|
|
|
-
|
%
|
Customer E
|
|
|
-
|
%
|
|
|
5.96
|
%
|
|
|
|
69.87
|
%
|
|
|
64.03
|
%
|
As of March 31, 2017, amounts due
from customers A, B and C are $25,281,817, $24,106,909 and $21,376,576, 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
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 March 31, 2017 and December 31, 2016, the Company determined no impairment losses were necessary.
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 March
31, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing
and discontinued operations amounted to $0.38 and $0.43, respectively. For the three months ended March 31, 2017 and 2016, diluted
earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued
operations amounted to $0.36 and $0.39, respectively.
For the
three
months ended March 31, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders
for continuing operations amounted to $0.38 and $0.26, respectively. For the three months ended March 31, 2017 and 2016, diluted
earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations
amounted to $0.36 and $0.25, respectively.
|
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
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 March 31, 2017 or December 31, 2016, 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 March 31, 2017 or 2016.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
2.36
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
In February 2016, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02,
Leases (Topic 842)
(ASU 2016-02), which
generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the
balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early
adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements
and related disclosures.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)
(ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations.
The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it
is transferred to the customers. This guidance will be effective for us in the first quarter of 2018, with the option to adopt
it in the first quarter of 2017. We are still evaluating the effect that this guidance will have on our consolidated financial
statements and related disclosures.
In March 2016, the FASB issued Accounting
Standards Update No. 2016-09,
Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting
(ASU 2016-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option
to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications
on the statement of cash flows. This guidance will be effective for us in the first quarter of 2017, and early adoption is permitted.
We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued
Accounting Standards Update No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory
(ASU
2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than
inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter
of 2017. We currently anticipate adopting the new standard effective January 1, 2018, and do not expect the standard to have a
material impact on our consolidated financial statements.
In November 2016, the FASB issued
Accounting Standards Update No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(ASU 2016-18),
which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and
cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This
guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. We are still evaluating the effect
that this guidance will have on our consolidated financial statements and related disclosure
In
January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805): Clarifying the
Definition of a Business
(ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating
when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of
2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated
financial statements.
In January 2017, the FASB issued
Accounting Standards Update No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment
(ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should
recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the
amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a
prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated
financial statements.
Other accounting standards that
have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact
on the consolidated financial statements upon adoption.
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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. On October 5, 2016, (i) Jiang Men City A Power Fishery Development
Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW’), part of Fishery Division, were disposed
from the Company; and (ii). Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from
sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division – sale of goods was treated as
Discontinued operations. No geographic information is required as all revenue and assets are located in the P.R.C.
|
|
Three months
ended March 31, 2017
|
|
|
|
Continuing
operation
|
|
|
Discontinued
operation
|
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
Organic Fertilizer
|
|
|
Cattle Farm
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
and Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
Development
|
|
|
|
|
|
|
Division(1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (5)
|
|
|
Division(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,189,265
|
|
|
$
|
1,323,176
|
|
|
$
|
24,577,507
|
|
|
$
|
8,412,087
|
|
|
$
|
23,110,580
|
|
|
$
|
-
|
|
|
$
|
70,612,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,358,338
|
|
|
$
|
161,930
|
|
|
$
|
1,725,036
|
|
|
$
|
1,094,209
|
|
|
$
|
1,351,920
|
|
|
|
-
|
|
|
$
|
8,691,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
95,259,028
|
|
|
$
|
47,557,945
|
|
|
$
|
360,767,029
|
|
|
$
|
67,606,927
|
|
|
$
|
222,766,220
|
|
|
$
|
-
|
|
|
$
|
793,957,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31, 2016
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
operation
|
|
|
operation
|
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
Organic Fertilizer
|
|
|
Cattle Farm
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
and Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
Development
|
|
|
|
|
|
|
Division(1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (5)
|
|
|
Division(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,126,051
|
|
|
$
|
-
|
|
|
$
|
31,425,720
|
|
|
$
|
4,816,884
|
|
|
$
|
6,406,409
|
|
|
$
|
16,137,990
|
|
|
$
|
71,913,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,005,694
|
|
|
$
|
(417,964
|
)
|
|
$
|
4,768,496
|
|
|
$
|
346,669
|
|
|
$
|
(2,612,618
|
)
|
|
$
|
3,516,407
|
|
|
$
|
8,606,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
132,989,860
|
|
|
$
|
51,616,544
|
|
|
$
|
320,589,830
|
|
|
$
|
41,104,943
|
|
|
$
|
87,827,136
|
|
|
$
|
22,713,351
|
|
|
$
|
656,841,664
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
3.
|
SEGMENT INFORMATION (CONTINUED)
|
|
(1)
|
Operated by Capital Award, Inc. (“CA”) and Jiang
Men City A Power Fishery Development Co., Limited (“JFD”). On September 30, 2016, part of JFD was disposed from
the Company.
|
|
(2)
|
Operated by Jiang Men City Heng Sheng Tai Agriculture Development
Co., Limited (“JHST”).
|
|
(3)
|
Operated by Qinghai Sanjiang A Power Agriculture Co., Limited
(“SJAP”), Qinghai Zhong He Meat Products Co., Limited (“QZH”), A Power Agro Agriculture Development
(Macau) Limited (“APWAM”), and Hunan Shenghua A Power Agriculture Co., Limited (“HSA”).
|
|
(4)
|
Operated by Jiang Men City Hang Mei Cattle Farm Development
Co. Limited (“JHMC”) and Macau Eiji Company Limited (“MEIJI”).
|
|
(5)
|
Operated by Sino Agro Food, Inc. (“SIAF”) and Sino
Agro Food Sweden AB (publ) (“SAFS”).
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
3.
|
SEGMENT INFORMATION (CONTINUED)
|
Further analysis of revenue:-
|
|
Three ended
March 31, 2017
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
operations
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
Fertilizer and
|
|
|
Cattle Farm
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
Development
|
|
|
|
|
|
|
Division (1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (6)
|
|
|
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity Sale of goods Capital Award, Inc. (“CA”)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development
Co., Limited (“JHST”)
|
|
|
-
|
|
|
|
1,323,176
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,323,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,764,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,764,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,104,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,104,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH”)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,708,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,708,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,412,087
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,412,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,110,580
|
|
|
|
-
|
|
|
|
23,110,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts Capital
Award, Inc. (“CA”)
|
|
|
13,189,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,189,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission and management fee Capital Award,
Inc. (“CA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
13,189,265
|
|
|
$
|
1,323,176
|
|
|
$
|
24,577,507
|
|
|
$
|
8,412,087
|
|
|
$
|
23,110,580
|
|
|
$
|
-
|
|
|
$
|
70,612,615
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
3.
|
SEGMENT INFORMATION (CONTINUED)
|
Further analysis of revenue:-
|
|
Three months
ended March 31, 2016
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
operations
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
Fertilizer and
|
|
|
Cattle Farm
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
Development
|
|
|
|
|
|
|
Division (1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (6)
|
|
|
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity Sale of goods Capital Award, Inc. (“CA”)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,137,990
|
|
|
$
|
16,137,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,113,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,113,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,655,548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,655,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH”)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,656,622
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,656,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,816,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,816,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,406,409
|
|
|
|
-
|
|
|
|
6,406,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts Capital Award, Inc. (“CA”)
|
|
|
12,719,097
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,719,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission and management fee Capital Award, Inc. (“CA”)
|
|
|
406,954
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
406,954
|
|
|
|
$
|
13,126,051
|
|
|
$
|
-
|
|
|
$
|
31,425,720
|
|
|
$
|
4,816,884
|
|
|
$
|
6,406,409
|
|
|
$
|
16,137,990
|
|
|
$
|
71,913,054
|
|
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
|
|
Three months
ended March 31, 2017
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
operations
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishery
|
|
|
HU
|
|
|
Fertilizer and
|
|
|
Cattle Farm
|
|
|
Corporate
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
Plantation
|
|
|
Bread Grass
|
|
|
Development
|
|
|
and others
|
|
|
Development
|
|
|
|
|
|
|
Division (1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
(5)
|
|
|
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity Sale of goods Capital Award, Inc. (“CA”)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development
Co., Limited (“JHST”)
|
|
|
-
|
|
|
|
455,501
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
455,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,770,068
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,770,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,226,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,226,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH”)
|
|
|
-
|
|
|
|
-
|
|
|
|
12,420,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,420,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,983,456
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,983,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,542,738
|
|
|
|
-
|
|
|
|
20,542,738
|
|
|
|
$
|
-
|
|
|
$
|
455,501
|
|
|
$
|
19,417,841
|
|
|
$
|
6,983,456
|
|
|
$
|
20,542,738
|
|
|
$
|
-
|
|
|
$
|
47,399,536
|
|
COST OF SERVICES
|
|
Three months
ended March 31, 2017
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
operation
|
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishery
|
|
|
|
|
|
Fertilizer and
|
|
|
Cattle Farm
|
|
|
Corporate
|
|
|
Fishery
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
Bread Grass
|
|
|
Development
|
|
|
and others
|
|
|
Development
|
|
|
|
|
|
|
Division (1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
(5)
|
|
|
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Award, Inc. (“CA”)
|
|
|
8,782,892
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,782,892
|
|
|
|
$
|
8,782,892
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,782,892
|
|
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
|
|
Three months
ended March 31, 2016
|
|
|
|
Continuing
operations
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
Fishery
Development
Division (1)
|
|
|
HU
Plantation
Division (2)
|
|
|
Organic
Fertilizer and
Bread Grass
Division (3)
|
|
|
Cattle Farm
Development
Division (4)
|
|
|
Corporate
and others
(5)
|
|
|
Fishery
Development
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity Sale of goods Capital Award, Inc. (“CA”)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,297,679
|
|
|
$
|
12,297,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA “)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,157,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,157,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP “)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,278,624
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,278,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH “)
|
|
|
-
|
|
|
|
-
|
|
|
|
12,755,788
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,755,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,590,411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,590,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,466,803
|
|
|
|
-
|
|
|
|
5,466,803
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,191,871
|
|
|
$
|
4,590,411
|
|
|
$
|
5,466,803
|
|
|
$
|
12,297,679
|
|
|
$
|
43,546,764
|
|
COST OF SERVICES
|
|
Three months
ended March 31, 2016
|
|
|
|
Continuing
operations
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
Fishery
Development
Division (1)
|
|
|
HU
Plantation
Division (2)
|
|
|
Organic
Fertilizer and
Bread Grass
Division (3)
|
|
|
Cattle Farm
Development
Division (4)
|
|
|
Corporate
and others
(5)
|
|
|
Fishery
Development
Division (1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity Consulting and service income for development
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Award, Inc. (“CA”)
|
|
|
9,510,872
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,510,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,510,872
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,510,872
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
United States of America
The Company was incorporated
in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and
no U.S. corporate tax has been provided for in the consolidated financial statements of the Company.
Undistributed Earnings of Foreign
Subsidiaries
The Company intends to use
the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly,
undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision
for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.
The Company appointed US tax
professionals to assist in filing income tax returns for the years ended December 31, 2016 in compliance with US Treasury Internal
Revenue Code and we filed our 2015 Tax returns with the Internal Revenue Service (“IRS”) in 2016.
As of March 31, 2017, the Company
reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties
assessed by the IRS in the United States of America.
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, SJAP and QZH since they are exempt from EIT for the three months ended
March 31, 2017 and 2016 as they are within the agriculture, and cattle sectors.
No EIT has been provided in
the financial statements of JFD since they are exempt from EIT for the three months ended March 31, 2016.
Belize
CA, CS and CH are international
business companies incorporated in Belize, and are exempt from corporate tax in Belize.
Hong Kong
No Hong Kong profits tax has
been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising
in Hong Kong for the three months ended March 31, 2016.
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 March 31, 2017 and 2016.
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
March 31, 2017 and 2016.
No deferred tax assets and
liabilities are of March 31, 2017 and December 31, 2016 since there was no difference between the financial statements carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are
expected to reverse.
Provision for income taxes
is as follows:
|
|
Three months ended
March 31, 2017
|
|
|
Three months ended
March 31, 2016
|
|
|
|
|
|
|
|
|
SIAF
|
|
$
|
-
|
|
|
$
|
-
|
|
SAFS
|
|
|
-
|
|
|
|
-
|
|
TRW
|
|
|
-
|
|
|
|
-
|
|
MEIJI and APWAM
|
|
|
-
|
|
|
|
-
|
|
JHST, JFD, JHMC, SJAP, QZH and HSA
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company did not recognize
any interest or penalties related to unrecognized tax benefits in the three months ended March 31, 2017 and 2016. 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.
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
5.
|
NET INCOME FROM DISCONTINUED OPEARTIONS
|
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
US$238.32 million from respective third parties and the master technology license at fair value of US$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 March 31, 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 the consolidated statement of profit and loss
account of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took all assets and liabilities of TRW and
JFD except plant and equipment - fish farm.
Prior to loss of control over
TRW group, the Fishery Development Division represented a separate business segment. On October 5, 2016, (i) Jiang Men City A
Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW”), part of Fishery
Division, were disposed from the Company; and (ii) Capital Award Inc. (“CA”), part of Fishery Development Division,
ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division - sale of goods
was treated as Discontinued operations. The post-tax result of the Fishery Development Division has been disclosed as a discontinued
operation in the consolidated statements of income and comprehensive income. Loss of control over TRW and JFD were not subject
to business tax of PRC and income tax of PRC and Hong Kong.
|
Net income from discontinued operations
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
-Sale of goods
|
|
$
|
-
|
|
|
$
|
16,137,990
|
|
Cost of sales
|
|
|
-
|
|
|
|
(12,297,679
|
)
|
Gross profit
|
|
|
-
|
|
|
|
3,840,311
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
-
|
|
|
|
(184,968
|
)
|
Net income from operations
|
|
|
-
|
|
|
|
3,655,343
|
|
Interest expenses
|
|
|
-
|
|
|
|
(359
|
)
|
Income before tax from discontinued operations
|
|
|
-
|
|
|
|
3,654,984
|
|
Net gain from deemed disposal of subsidiaries, TRW and JFD
|
|
|
-
|
|
|
|
-
|
|
Net income before taxes
|
|
|
-
|
|
|
|
3,654,984
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net income from discontinued operations
|
|
|
-
|
|
|
|
3,654,984
|
|
Less: Net income attributable to the non-controlling interest
|
|
|
-
|
|
|
|
(323,904
|
)
|
|
|
|
|
|
|
|
|
|
Net income from discontinued
operations attributable to Sino Agro Food, Inc. and subsidiaries
|
|
$
|
-
|
|
|
$
|
3,331,080
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
6.
|
CASH AND CASH EQUIVALENTS
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
3,989,283
|
|
|
$
|
2,576,058
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
As of March 31, 2017, inventories are as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Sleepy cods, prawns, eels and marble goby
|
|
|
-
|
|
|
|
481,509
|
|
Beef and mutton
|
|
|
15,373,141
|
|
|
|
13,217,456
|
|
Bread grass
|
|
|
1,560,292
|
|
|
|
2,,115,815
|
|
Beef cattle
|
|
|
6,856,902
|
|
|
|
6,814,132
|
|
Organic fertilizer
|
|
|
19,660,154
|
|
|
|
15,901,153
|
|
Forage for cattle and consumable
|
|
|
5,601,004
|
|
|
|
6,536,517
|
|
Raw materials for bread grass and organic fertilizer
|
|
|
16,881,267
|
|
|
|
15,829,424
|
|
Immature seeds
|
|
|
1,995,507
|
|
|
|
1,696,266
|
|
|
|
$
|
67,928,267
|
|
|
$
|
62,592,272
|
|
8.
|
DEPOSITS AND PREPAYMENTS
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Deposits for
|
|
|
|
|
|
|
|
|
- purchases of equipment
|
|
$
|
6,621,547
|
|
|
$
|
5,555,471
|
|
- acquisition of land use rights
|
|
|
3,373,110
|
|
|
|
3,373,110
|
|
- inventories purchases
|
|
|
16,325,148
|
|
|
|
13,729,305
|
|
- aquaculture contracts
|
|
|
2,261,538
|
|
|
|
2,261,538
|
|
- consulting service providers and others
|
|
|
8,150,000
|
|
|
|
8,150,000
|
|
- construction in progress
|
|
|
13,719,339
|
|
|
|
13,719,339
|
|
- issue of shares as collateral
|
|
|
16,712,741
|
|
|
|
26,493,841
|
|
Prepayments - debts discounts and others
|
|
|
4,768,728
|
|
|
|
5,007,015
|
|
Shares issued for employee compensation and overseas professional and bond interest
|
|
|
1,991,407
|
|
|
|
3,982,812
|
|
Others
|
|
|
10,785,517
|
|
|
|
2,573,535
|
|
|
|
$
|
84,709,075
|
|
|
$
|
84,845,966
|
|
The Company has performed an
analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts
receivable are reflected as a current asset and no allowance for bad debt has been recorded as of March 31, 2017 and December
31, 2016. Bad debts written off for the three months ended March 31, 2017, and 2016 are $0.
Aging analysis of accounts
receivable is as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
0 - 30 days
|
|
$
|
20,810,266
|
|
|
$
|
28,550,628
|
|
31 - 90 days
|
|
|
31,809,911
|
|
|
|
29,905,888
|
|
91 - 120 days
|
|
|
38,135,240
|
|
|
|
39,219,847
|
|
over 120 days and less than 1 year
|
|
|
32,380,520
|
|
|
|
25,235,723
|
|
over 1 year
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
123,135,937
|
|
|
$
|
122,912,086
|
|
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Advanced to employees
|
|
$
|
489,034
|
|
|
$
|
260,007
|
|
Advanced to suppliers
|
|
|
13,654,788
|
|
|
|
9,428,841
|
|
Advanced to customers
|
|
|
18,048,833
|
|
|
|
19,469,256
|
|
Advanced to developers
|
|
|
10,776,490
|
|
|
|
7,500,000
|
|
Others
|
|
|
12,781,889
|
|
|
|
10,462,696
|
|
|
|
$
|
55,751,034
|
|
|
$
|
47,120,800
|
|
Advanced to employees, suppliers,
customers and developers are unsecured, interest free and with no fixed terms of repayment.
The Company entered loan agreements
with suppliers, customers and developers to assist them to procure project loans.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Plant and machinery
|
|
$
|
7,078,563
|
|
|
$
|
6,022,686
|
|
Structure and leasehold improvements
|
|
|
163,414,025
|
|
|
|
163,414,025
|
|
Mature seeds and herbage cultivation
|
|
|
33,469,146
|
|
|
|
28,781,286
|
|
Furniture and equipment
|
|
|
827,356
|
|
|
|
827,356
|
|
Motor vehicles
|
|
|
926,511
|
|
|
|
926,511
|
|
|
|
|
205,715,601
|
|
|
|
199,971,864
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(12,388,447
|
)
|
|
|
(10,244,637
|
)
|
Net carrying amount
|
|
$
|
193,327,154
|
|
|
$
|
189,727,227
|
|
Depreciation expenses were
$2,143,810 and $1,268,612 for the three months ended March 31, 2017 and 2016, respectively
12.
|
CONSTRUCTION IN PROGRESS
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
|
|
|
|
|
|
- Office, warehouse and organic fertilizer plant in HSA
|
|
$
|
4,630,658
|
|
|
$
|
4,474,428
|
|
- Oven room, road for production of dried flowers
|
|
|
5,652,993
|
|
|
|
3,603,863
|
|
- Organic fertilizer and bread grass production plant and office building
|
|
|
622,036
|
|
|
|
622,036
|
|
- Rangeland for beef cattle and office building
|
|
|
12,713,664
|
|
|
|
8,674,515
|
|
- Fish pond
|
|
|
17,782,371
|
|
|
|
17,782,371
|
|
|
|
$
|
41,401,722
|
|
|
$
|
35,157,213
|
|
Private ownership of agricultural
land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use
rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.26 acres with the lease expiring
in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which
consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571,
which consists of 84.5 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land
use rights acquired in 2011 was $35,405,750 which consisted of 287.27 acres in the Hunan Province, the P.R.C. and the leases expire
in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres
in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was
$489,904 which consisted of 6.26 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh
lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the
lease expires in 2044.
SINO AGRO FOOD,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
13.
|
LAND USE RIGHTS (CONTINUED)
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
62,623,829
|
|
|
$
|
62,300,409
|
|
Less: Accumulated amortization
|
|
|
(9,101,210
|
)
|
|
|
(8,626,719
|
)
|
Net carrying amount
|
|
$
|
53,522,619
|
|
|
$
|
53,673,690
|
|
|
|
Amount
|
|
|
|
|
|
Balance @1.1.2016
|
|
$
|
65,961,071
|
|
Exchange difference
|
|
|
(3,660,662
|
)
|
Balance @12.31.2016
|
|
$
|
62,300,409
|
|
Exchange difference
|
|
|
323,420
|
|
Balance @3.31.2017
|
|
$
|
62,623,829
|
|
Land use rights are amortized
on the straight-line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years. Amortization
of land use rights were $474,491 and $450,102 for the three months ended March 31, 2017 and 2016, respectively.
Goodwill represents the fair
value of the assets acquired the acquisitions over the cost of the assets acquired. It is stated at cost less accumulated impairment
losses. Management tests goodwill for impairment on an annual basis or when impairment indicators arise. In these instances, the
Company recognizes an impairment loss when it is probable that the estimated cash flows are less than the carrying value of the
assets. To date, no such impairment loss has been recorded.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Goodwill from acquisition
|
|
$
|
724,940
|
|
|
$
|
724,940
|
|
Less: Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
Net carrying amount
|
|
$
|
724,940
|
|
|
$
|
724,940
|
|
15.
|
PROPRIETARY TECHNOLOGIES
|
By an agreement dated November
12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock
feed and bioorganic fertilizer and its related labels for $8,000,000. On October 1, 2015, the Company took up such assets at $5,473,720
from TRW. On October 5, 2016, TRW and JFD were derecognized as subsidiaries.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.
|
PROPRIETARY TECHNOLOGIES (CONTINUED)
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
11,118,320
|
|
|
$
|
11,108,131
|
|
Less: Accumulated amortization
|
|
|
(1,163,222
|
)
|
|
|
(1,017,434
|
)
|
Net carrying amount
|
|
$
|
9,955,098
|
|
|
$
|
10,090,697
|
|
Amortization of proprietary technologies
was $145,788 and $450,102 for the three months ended March 31, 2017 and 2016, respectively. No impairments of proprietary technologies
have been identified for the three months ended March 31, 2017 and 2016.
|
16.
|
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 March 31, 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.
On May 6, 2016, SJAP invested in
30% equity interest in Guangzhou Horan Taita Information Technology Co., Limited (“
HTIT
”), a company incorporated
in P.R.C. for $150,806.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Investments at cost
|
|
|
|
|
|
|
|
|
- TRW
|
|
$
|
83,869,286
|
|
|
$
|
83,869,286
|
|
- HITT
|
|
|
144,948
|
|
|
|
144,154
|
|
Amount due from a consolidated equity investee - TRW
|
|
|
55,120,003
|
|
|
|
55,120,003
|
|
Share of post-acquisition profits
|
|
|
2,758,855
|
|
|
|
-
|
|
|
|
$
|
141,893,092
|
|
|
$
|
139,133,443
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Investment in Huangyuan County Rural Credit Union
|
|
$
|
724,743
|
|
|
$
|
720,773
|
|
Less: Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
724,743
|
|
|
$
|
720,773
|
|
|
18.
|
TEMPORARY
DEPOSITS PAID TO ENTITIES FOR EQUITY INVESTMENTS IN FUTURE SINO JOINT VENTURE COMPANIES
|
Intended
|
|
|
|
|
|
|
|
|
|
|
|
|
unincorporated
|
|
|
Projects
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Investee
|
|
|
Engaged
|
|
|
|
|
|
|
|
|
|
A
|
|
|
Trade center
|
|
|
*
|
|
|
$
|
4,086,941
|
|
|
$
|
4,086,941
|
|
B
|
|
|
Fish Farm 2 GaoQiqiang Aquaculture
|
|
|
*
|
|
|
|
6,000,000
|
|
|
|
6,000,000
|
|
C
|
|
|
Cattle farm 2
|
|
|
*
|
|
|
|
5,558,057
|
|
|
|
5,558,057
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,644,998
|
|
|
$
|
15,644,998
|
|
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 March 31, 2017, the percentages
of equity stakes of A (trade center), 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.
|
|
19.
|
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 March 31, 2017, the Company has invested $2,251,359
in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle
and plantation of crops and pastures.
Continuous assessment of the VIE relationship with
SJAP
The Company may also have a controlling
financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates
entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that
has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from
other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most
significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or
the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are
not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual
returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf
of an investor that has disproportionately fewer voting rights.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
19.
|
VARIABLE
INTEREST ENTITY (CONTINUED)
|
The Company also quantitatively
and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its
variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to
determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and
probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical
data for the projection of future events. On March 31, 2017, the Company evaluated the above VIE testing results and concluded
that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE
of the Company. As result, the Company has consolidated SJAP as a VIE.
The reasons for the changes are
as follows:
• Originally, the board of
directors of SJAP consisted of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder),
and 3 from the Company, such that the Company did not have majority interest represented on the board of directors of SJAP.
• On May 7, 2010, Qinghai
Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining
City Government of the P.R.C. approved the sale and transfer.
Consequently Garwor and the Company
agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company,
such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s
Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of SJAP. As a result, the financial
statements of SJAP were included in the consolidated financial statements of the Company.
Continuous assessment of the VIE relationship with
QZH
The Company may also have a controlling
financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates
entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that
has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from
other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most
significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or
the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are
not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual
returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf
of an investor that has disproportionately fewer voting rights.
The Company also quantitatively
and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable
interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine
if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities
thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data
for the projection of future events. On March 31, 2017, the Company evaluated the above VIE testing results and concluded that
the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the
Company. As result, the Company has consolidated QZH as a VIE.
SJAP is sole stockholder of QZH
and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorship of QZH, such that the Company
now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement,
the Company’s management appointed the chief financial officer of QZH. As a result, the financial statements of QZH were
included in the consolidated financial statements of the Company.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
20
.
|
CONSTRUCTION
CONTRACT
|
|
(i)
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Costs
|
|
$
|
8,208,913
|
|
|
$
|
7,288,360
|
|
Estimated earnings
|
|
|
6,740,288
|
|
|
|
5,846,890
|
|
Less: Billings
|
|
|
(13,700,014
|
)
|
|
|
(12,394,266
|
)
|
Costs and estimated
earnings in excess of billings on uncompleted contracts
|
|
$
|
1,249,187
|
|
|
$
|
740,984
|
|
|
(ii)
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Billings
|
|
$
|
37,632,825
|
|
|
$
|
24,115,354
|
|
Less: Costs
|
|
|
(21,170,232
|
)
|
|
|
(13,907,143
|
)
|
Estimated earnings
|
|
|
(10,839,192
|
)
|
|
|
(7,577,459
|
)
|
Billing in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
5,623,401
|
|
|
$
|
2,630,752
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Billings
|
|
$
|
51,332,839
|
|
|
$
|
36,509,620
|
|
Less: Costs
|
|
|
(29,379,145
|
)
|
|
|
(21,195,503
|
)
|
Estimated earnings
|
|
|
(17,579,480
|
)
|
|
|
(13,424,349
|
)
|
Billing in excess of costs and estimated earnings on uncompleted
contracts
|
|
$
|
4,374,214
|
|
|
$
|
1,889,768
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Due to third parties
|
|
$
|
9,317,961
|
|
|
$
|
451,195
|
|
Due to debts loan
|
|
|
4,797,332
|
|
|
|
4,797,332
|
|
Promissory notes issued to third parties
|
|
|
11,192,117
|
|
|
|
11,192,117
|
|
Due to local government
|
|
|
1,239,310
|
|
|
|
713,565
|
|
|
|
$
|
26,546,720
|
|
|
$
|
17,154,209
|
|
|
|
|
|
|
|
|
|
|
Less: Amount classified as non-current liabilities
|
|
|
|
|
|
|
|
|
Promissory notes issued to third parties
|
|
|
(11,192,117
|
)
|
|
|
(11,192,117
|
)
|
Due to debts loan
|
|
|
(4,797,332
|
)
|
|
|
-
|
|
Amount classified as current liabilities
|
|
$
|
10,557,271
|
|
|
$
|
5,962,092
|
|
Due to third parties are unsecured,
interest free and have no fixed terms of repayment.
During the year ended December
31, 2015, the Company issued 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of
$4,797,332 from third party. The shares issued by the Company were valued at the trading price of the stock on the date the shares
were issued.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Da Tong National Development Rural Bank Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Da Tong County, Xining City, Qinghai Province, the P.R.C.
|
|
|
10
|
%
|
|
|
July
14 ,2016 -
May 28, 2017
|
|
|
$
|
2,898,971
|
^+@
|
|
$
|
2,883,090
|
|
Long term bank loan
Name of lender
|
|
Interest rate
|
|
|
Term
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Development Bank
|
|
|
|
|
|
|
December
9, 2016 -
|
|
|
|
|
|
|
|
|
|
Beijing City, the P.R,C.
|
|
|
5.39
|
%
|
|
|
December15,
2026
|
|
|
$
|
5,797,942
|
^*#
|
|
$
|
5,766,182
|
|
The above note agreements contained
regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of
default, and without specific financial covenants. Management of the Company believes the Company is in material compliance with
the terms of the loan agreements.
|
^
|
personal and corporate guaranteed by third parties.
|
|
*
|
secured by land use rights with net carrying amount of $416,260
(12.31.2016: $416,973).
|
|
+
|
secured by property and equipment with net carrying amount
of $1,011,177 (12.31.2016: $ 1,036,889)
|
|
@
|
secured by land use rights with net carrying amounts of $353,782
(12.31.2016: $363,092).
|
|
#
|
repayable $72,078, $216,232, $288,308, $432,464,
$432,464, $720,773, $720,773, $1,441,545 and $1,473,305 in 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026,
respectively (31.12.2016: repayable $72,078, $216,232, $288,308, $432,464, $432,464, $720,773, $720,773, $1,441,545 and $
1,441,545 in 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026, respectively).
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
23.
|
NEGOTIABLE
PROMISSORY NOTES
|
On August 29, 2015, TRW issued
negotiable promissory notes to three fund companies and one individual for $3,450,000 and the company acted as guarantor for repayment.
As of October 1, 2016, the Company entered assignment agreement with TRW to take up liabilities of negotiable promissory notes.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Negotiable promissory notes
|
|
$
|
1,190,801
|
|
|
$
|
1,113,140
|
|
Principal amount:
|
|
$1,035,479 (12.31.2016: $1,035,479)
|
Interest payable:
|
|
$155,322 (12.31.2016: $77,661)
|
Interest rate:
|
|
2.5% (12.31.2016: 2.50% %) per month on principal amount.
Interest shall be calculated on the basis of a 30/360 day count convention
|
Default interest rate
|
|
15% per month on principal amount. Interest shall be calculated
on the basis of a 30/360 day count convention
|
Interest payment
|
|
Accrued interest on the principal amount shall be paid by cash in
arrears on each interest payment date
|
Issue date:
|
|
August 29, 2015 and October 12, 2015
|
Repayment date:
|
|
Repaid in full within 283 calendar days from the
issue of notes
|
Conversion option:
|
|
Notes holders can exercise at any time from and including the
day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written
notices to TRW and the Company, the principal amount shall be converted to shares of the Company. The TRW may at their own
discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In
the event a dividend, share split or consolidation or spin-off (each a Corporate Event") from the Company, the conversion
price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur.
|
Security:
|
|
Corporate guarantee by the Company
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
24.
|
CONVERTIBLE
NOTE PAYABLES
|
On August 29, 2014, the Company
completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible
Note (the “
Note
”) in the aggregate principal amount of up to $33,300,000. The Company received the total advance
of $11,632,450. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.
Interest on the note shall accrue
on the outstanding principal balance of this Note from August 29, 2014. Interest shall be payable quarterly on the last day of
each of March, June, September and December commencing September 30, 2014 provided, however, that note holder may elect to require
the Company to issue to the note holder a promissory note in lieu of cash in satisfaction of any interest due and payable at such
time. Any interest payment note shall be subject to the same terms as the note. The note has a maturity date of February 28, 2020.
The note is convertible, at the
discretion of the note holder, into shares of the Company’s common stock (i) at any time following an Event of Default,
or (ii) for a period of thirty (30) calendar days following October 31, 2015 and each anniversary thereof, at an initial conversion
price per share of $1.00, subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions
and subject to the terms of the note. As long as the note is outstanding, the investor shall have a right of first refusal, exercisable
for thirty (30) calendar days after notice to the note holder, to purchase securities proposed to be offered and sold by the Company.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
10.50% convertible note of maturity date February 28, 2020
|
|
$
|
21,676,838
|
|
|
$
|
21,314,877
|
|
The Company calculated the
fair value of the convertible note and the beneficial conversion feature utilizing the Discounted Cash Flows model at the date
of the issuance of convertible note. The relative fair values were allocated to the liability and equity components of the debt.
Accordingly, a discount was created on the debt and this discount will be amortized to interest expense over the life of the debt.
Debt premium of $238,288 and $8,356 were amortized for the three months ended March 31, 2017 and 2016, respectively.
As of March 31, 2017, there was
$18,183,267(12.31.2016: 18,183,267) principal outstanding and accrued interest in the amount of $3,493,571 (12.31.2016: $3,131,610)
that was owed under the terms of the convertible note.
The above note agreement contained
regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of
default, default and optional conversion and without specific financial covenants. Management of the Company believes the Company
is in material compliance with the terms of the convertible note agreement.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Group’s share capital
as of March 31, 2017 and December 31, 2016 shown on the consolidated balance sheet represents the aggregate nominal value of the
share capital of the Company as of that date.
On March 22, 2010, the Company
designated 100 shares of Series A preferred stock at a par value per share of $0.001. As of the same date, 100 shares of Series
A preferred stock were issued at $1 per share for cash in the amount of $100.
The Series A preferred stock:
|
(i)
|
does not pay a dividend;
|
|
(ii)
|
votes together with the shares
of Common Stock of the Corporation as a single class and, regardless of the number of
shares of Series A Preferred Stock outstanding and as long as at least one of such shares
of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all
votes entitled to be voted at any annual or special meeting of shareholders of the Corporation
or action by written consent of shareholders. Each outstanding share of the Series A
Preferred Stock shall represent its proportionate share of the 80%, which is allocated
to the outstanding shares of Series A Preferred Stock; and
|
|
(ii)
|
ranks senior to common stockholders,
holders of Series B convertible preferred stockholders and any other stockholders on
liquidation.
|
The Company has designated 100
shares of Series A preferred stock with 100 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
25.
|
SHAREHOLDERS’
EQUITY (CONTINUED)
|
The Series B convertible preferred
stock:
On March 22, 2010, the Company
designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible
preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over
common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000
shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred
stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the Company and a stockholder,
Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of Directors, to exchange for
3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23, 2012, 3,000,000 shares of
Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its holding of 3,000,000 shares
of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned to the Company. On March
27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17, 2014, the Company approved an amendment
to certificate designation in respect of Series B preferred stock. Pursuant to the above new amendment, each holder of Series
B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of Series B preferred to
one fully paid and non-assessable share of common stock of par value $0.001 per share. On June 15, 2015, Series B preferred stockholder
exercised at the above conversion ratio to convert 7,000,000 shares of Series B preferred stock to 707,070 shares of common stock.
There were 0 shares of Series B
convertible preferred stock issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
The Series F Non-Convertible Preferred
Stock:
|
(i)
|
is not redeemable subject to
(iv);
|
|
(ii)
|
except for (iv), with respect
to dividend rights, rights on liquidation, winding up and dissolution, rank junior and
subordinate to (a) all classes of Common Stock,(b) all other classes of Preferred Stock
and (c) any class or series of capital securities of the Company.
|
|
(iii)
|
shall not entitled to receive
any further dividend; and
|
|
(iv)
|
on May 30, 2014, the holders
of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to
a coupon payment directly from the Company at the redemption rate of $3.40 per share.
Upon redemption, the Holder shall no longer own any shares of Series F with coupon that
have been redeemed, and all such redeemed shares shall disappear and no longer exist
on the books and records of the Company; redeemed shares of Series F which no longer
exist upon redemption shall thereafter be counted toward the authorized but unissued
“blank check” preferred stock of the Company.
|
On August 22, 2012, the Company’s
Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible
Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater
amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record
of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption
rate of $3.40 per share and be payable on May 30, 2014. However, the Company was unable to issue the Series F Non-convertible
Preferred Stock as originally contemplated. Consequently, The Company’s transfer agent was instructed to note in its record
date rather than actual issue the Preferred F shares. On June 14, 2014, the Company announced the delay in payment of the coupon
until May 30, 2015. The company reserved the excess over the nominal amount of the Series F Non-convertible Preferred Stock of
$3,124,737 as Series F Non-convertible Preferred Stock redemption payable. As of May 30, 2015, payment on the F series shares
has been made, and respective shares cancelled, accordingly.
As a result, total issued and outstanding
of Series F Non-Convertible Preferred Stock as of March 31, 2017 and December 31, 2016 are 0 shares and grand total issued and
outstanding preferred stock as of March 31, 2017 and December 31, 2016 are 100 shares.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
25.
|
SHAREHOLDERS’
EQUITY (CONTINUED)
|
Common Stock:
On November 10, 2014, the Company
approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse
Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) affecting both
the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in
the State of Nevada on December 16, 2014. Subsequent to the 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.
During the year ended December
31, 2015, the Company issued (i) 100,000 shares of common stock for $868,000 at $8.68 per share to settle debts due to third parties.
The Company executed several agreements with third parties to raise debts loan by issuance of the Company’s common stock.
The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess
of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts
of 132,000 and $270,586 has been credited to consolidated statements of income as other income for the year ended December 31,
2015 and 2014, respectively; (ii) 753,304 shares of common stock ranging from $6.96 to $8.91 amounting to as collateral to secure
debts loan of $4,797,332, and the shares issued by the Company were valued at the trading price of the stock on the date the shares
were issued; (ii) 1,135,000 shares of common stock ranging from $8.75 to $12.50 as collateral to secure trade finance facility
amounting to the extent of $7,600,000, and the shares issued by the Company were valued at the trading price of the stock on the
date the shares were issued and such shares returned to treasury stock after the contract period of three years (iii) 153,392
shares at $11.13 per share and 75,002 shares at $14.20 per share were issued for reverse split adjustments; (iv) 47,787 shares
of common stock valued to employees and directors at fair value of $15.20 per share for $726,315 for employee compensation; 7,000,000
shares of Series B preferred stock were converted into 707,070 shares under terms of issue; (v) cancelled 514 shares for $10.97
per share for reverse splits adjustments.
During the year ended December
31, 2016, the Company (i) issued 1,199,068 shares of common stock valued to employees and directors at fair value of $5.98 per
share for $7,169,823 for employee compensation; (ii) issued 132,787 shares of common stock valued to professionals at fair value
of $5.98 per share for $794,066 for service compensation; (iii) issued 2,461,247 shares of common stock ranging from $6.96 to
$8.91 amounting to $5,765,476 as collateral to secure debts loan of $4,797,332, and the shares issued by the Company were valued
at the trading price of the stock on the date the shares were issued; and the shares issued by the Company were valued at the
trading price of the stock on the date the shares were issued; and purchased 1,200,000 shares of common stock of $4.85 amounting
to $5,820,000 for cancellation.
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 22,727,273 to 27,000,000 and the amendment was filed on December 28, 2016.
The Company has 22,726,859 and
22,726,859 shares of common stock issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
26.
|
OBLIGATION
UNDER OPERATING LEASES
|
The Company leases (i) 2,178 square
feet of agriculture space used for offices for a monthly rent of $634 in Enping City, Guangdong Province, P.R.C., its lease expiring
on March 31, 2019; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of
$12,733, its lease expiring on July 8, 2018; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province,
P.R.C. for a monthly rent of $226, its lease expiring on May 1, 2018.
Lease expenses were $40,989 and
$75,991 for the three months ended March 31, 2017 and 2016, respectively.
The future minimum lease payments
as of March 31, 2017, are as follows:
Year ending December 31, 2017
|
|
$
|
120,993
|
|
Year ending December 31, 2018 and thereafter
|
|
|
127,191
|
|
|
|
$
|
248,184
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
27.
|
STOCK
BASED COMPENSATION
|
On May 10, 2016, the Company issued
directors and employees a total of 1,199,068 shares of common stock valued at fair value of $5.98 per share for services rendered
to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common
stock on the date of issuance of $5.98 per share. On the same date, the Company issued professionals a total of 132,787 shares
of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock
issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share.
The Company calculated stock based
compensation of $7,965,624 and recognized $4,345,993 for the year ended December 31, 2016. As of December 31, 2016, the deferred
compensation balance for staff was $3,982,813 and the deferred compensation balance of $3,982,813 was to be amortized over 6 months
beginning on January 1, 2017.
The Company calculated stock based
compensation of $3
,982,813 and $ 363,181, and recognized
$1,991,406 and $181,591 for the three months ended March 31, 2017 and 2016. As of March 31, 2017, the deferred compensation balance
for staff was $1,991,407 and the deferred compensation balance of $1,991,407 was to be amortized over 3 months beginning on April
1, 2017.
As of March 31, 2017 and December
31, 2016, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect
on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements
of cash flows.
The Company entered into loan and
pledge agreement with a Shanghai, P.R.C. based lender (the “lender”) The lender has various trading facilities and
has agreed to allow the Company or its nominee to use parts of trading facilities up to an amount of $20 million (31.12.2016:
$20 million) to be used in tranches and revolved up to a period of three years, of which $13,945,400 (31.12.2016: $13,982,640)
was utilized.
|
29.
|
RELATED
PARTY TRANSACTIONS
|
In addition to the transactions
and balances as disclosed elsewhere in these consolidated financial statements, during the three months ended March 31, 2017 and
2016, the Company had the following significant related party transactions:-
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:
For the three months ended
March 31, 2016, full dilution effect of convertible note of $35,560,989 was taken into account for calculation of the diluted
earnings per share because convertible note holder can exercise the right to exercise to convert to common stock by giving 1 month
notice after October 1, 2015 under terms of convertible note agreement.