The Company’s revenues generated
from the sale of goods was $32,247,645 for the quarterly period ended September 30, 2018, compared to $37,431,314 for the same
period ended September 30, 2019, reflecting an increase of 16%, or $5,183,669.
The Company’s cost of goods sold
was $31,138,118 for the quarterly period ended September 30, 2019, compared to $27,086,184 for the same period ended September
30, 2018, reflecting an increase of 15%, or $4,051,934.
Gross profits of the Company generated
from goods sold was $6,293,196 for the quarterly period ended September 30, 2019, compared to $5,161,464 for the same period ended
September 30, 2018, reflecting an increase of 22%, or $1,131,735.
The overall higher performance for the
corresponding period of 2019 to 2018 is primarily due to (i) the increase in SJAP’s sales of concentrated livestock feed
(up by $0.49 million), and (ii) the increase of MEIJI’s cattle sales (up by $5.36 million), resulting in an overall increase
in gross profits of $1.32 million for the corresponding period of 2019 to 2018, as shown in table above.
As illustrated in the table above, when
comparing Q3 2019 against the same period in 2018, the losses in revenue (negative variance of $0.08million, or -2%) and gross
profit (negative variance of 0.22 million, or -18%), can be viewed as normal under the current depressed market conditions. During
the quarter, SJAP’s concentrated livestock feed performed well with a steady increase in sales of $0.49 million, as the quality
of the products is slowly attracting demand from new livestock.
Live cattle prices have not changed much
during the quarter. Thus, the lower unit price / head was primarily due to smaller sized cattle being sold and the overall situation
of the local live cattle industry remaining depressed.
The increase in sales of bulk livestock feed was 180 MT in bulk
feed, from 1,228 MT in Q3 2018 to 1,408 MT in Q3 2019, and the decrease of 573 MT in concentrated livestock feed, from 4,626MT
in Q3 2018 to 4,053 MT in Q3 2019, which was compensated by the increase of unit sale price of $92 / MT, primarily due to the higher
unit sale prices for types of livestock other than cattle feed. All other sectors have been steady.
Revenue from our HSA business segment decreased
by $268,730, or -11%, from $2,390,188 for Q3 2018 to $2,121,458 for Q3 2019. Gross profit from HSA decreased by $143,659,
or-17% from $859,337 for Q3 2018 to $715,678 for Q3 2019, primarily due to seasonal variation having more sales in organic fertilizer
but at lower unit sale prices (of $206 / MT) and lesser sales in organic mixed fertilizer at higher unit sale prices of ($392 /
MT) as shown in table below.
During Q3 2019, we were hoping that HSA’s general manager
Mr. Jack Chan would have recovered from his illness and would be back at work to take care of HSA’s business affairs. However,
Mr. Chan is still under medical care and is predicted to be so for the rest of the year.
Therefore HSA’s business is currently being managed by
its assistant manager, until such time when Mr. Chan recovers.
Revenue from our plantation division decreased
by $184,677 (or -19%) from $988,029 for Q32018 to $803,352 for Q3 2019. The decrease was primarily due to lower harvest in fresh
vegetables from 870 MT in Q3 2018 to 785 MT of Q3 2019.
Because of the need for heavy capital funding
to redevelop the plantation into a more commercially viable proposition -- and because of its high maintenance cost in general,
-- JHST’s management decided to lease out the whole plantation to a third party until such time when the company will have
enough capital to redevelop the plantation.
Cattle Farm 1’s revenue increased
sales by $5,366,320 (or 67%) from Q3 2018’s $8,028,333 to Q3 2019’s $13,394,653, while gross profits increased by $1,114,619
(or 82%) from $1,353,565 in Q3 2018 to Q3 2019’s $2,468,183, reflecting a rising local demand for “Yellow Cattle”.
Stable market prices are encouraging and the increased number of heads being sold in this quarter included 357 head of cattle kept
in quarantine during Q2 2019.
Revenue from the corporate division increased
by $346,820 or (2%) from Q3 2018’s $17,298,242 to Q3 2019’s $17,645,062.
Gross profits from the corporate sector
increased by $371,504 or (23%) from $1,589,058 for Q3 2018 to $1,960,562 for Q3 2019, representing consistent performance of the
trading business within the Corporate sector. In this aspect, the Company is working on increasing the volume of imported frozen
food products to increase targeting progressive revenue and profit improvement starting in Q4 2019.
Revenues decreased by $6,502,372 from $6,502,372
for Q3 2018 to $0 for Q3 2019. Cost of services for consulting, service, commission, and management fees decreased by $5,469,059
from $5,469,059 for Q3 2018 to $0 for Q3 2019. Gross profits decreased by $1,033,313 from $1,033,313 for Q3 2018 to $0 for Q3 2019.
There was no capital expenditure by Tri-way on its farm development work during the quarter. However, CA has been working on cooperative
plans for an Indian fishery development project with a number of third party potential joint venture partners. The development
would initially aim at the “value added processing” of frozen raw Mexican White shrimps to be supplied from India to
China. The project negotiation was progressing well until our director (Mr. Ravidrans) caught dengue fever in October
2019. Presently he is recovering, and we are hoping to continue the development project progress as soon as possible when Mr. Ravidrans
recovers.
General and administrative
and interest expenses (including depreciation and amortization) decreased by $828,650 or 19% from $4,399,691 for Q3 2018 to $3,571,041
for Q32019. The decrease was primarily due to an increase in office and corporate expenses of $607,217, from $1,579,435 for Q3
2018 to $1,230,150 for Q3 2019.
Note
(5) to Table A 1 Non-controlling interests
Table (F) below
shows the derivation of non-controlling interest
|
|
Jiangmen City
Heng
|
|
|
Jiangmen City
Hang Mei
Cattle
|
|
|
Hunan
Shenghua
A Power
|
|
|
Qinghai
|
|
|
|
|
|
|
Sheng Tai
Agriculture
|
|
|
Farm
Development
|
|
|
Agriculture
Co.,
|
|
|
Sanjiang
A Power
|
|
|
|
|
Name of China subsidiaries
|
|
Development Co.
Ltd.(China)
|
|
|
Co.
Ltd.(China)
|
|
|
Limited
(China)
|
|
|
Agriculture Co
Ltd (China)
|
|
|
Total
|
|
Effective shareholding
|
|
|
75
|
%
|
|
|
75
|
%
|
|
|
76
|
%
|
|
|
41.25
|
%
|
|
|
|
|
Abbreviated names
|
|
|
(JHST)
|
|
|
|
(JHMC)
|
|
|
|
(HSA)
|
|
|
|
(SJAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) of the P.R.C. subsidiaries for the year in $
|
|
|
(2,154,482
|
)
|
|
|
4,926,503
|
|
|
|
1,337,061
|
|
|
|
584,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of profit sharing of non-controlling interest
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
58.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest's shares of Net incomes in $
|
|
|
(538,621
|
)
|
|
|
1,231,626
|
|
|
|
320,895
|
|
|
|
343,661
|
|
|
|
1,357,561
|
|
The net income attributed to non-controlling interest is $1,357,561
shared by (JHST, JHMC, HSA, SJAP collectively) for Q1-3 2019 as shown in Table (F) above.
Note (6) to Table A 1 Earnings per share (EPS)
Earnings per share increased by $0.07(basic)
and $0.07 (diluted) per share from EPS of $0.09 (basic) and$0.09 (diluted) for Q3 2018 to EPS of $0.16 (basic) and $0.16 (diluted)
for Q3 2019. The increase is primarily due to the increase of net income attributable to Sino Agro Food, Inc. and subsidiaries
by $4,650,984 from $3,465,562 for Q3 2018 to $8,116,546 million for Q3 2019.
Part B: Unaudited Consolidated Balance Sheets as of September
30, 2019 and December 31, 2018(audited)
Consolidated Balance sheets
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Changes
|
|
|
Note
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
671,544
|
|
|
|
4,950,799
|
|
|
|
(4,279,255
|
)
|
|
|
8
|
|
Inventories
|
|
|
51,539,209
|
|
|
|
54,582,241
|
|
|
|
(3,043,032
|
)
|
|
|
9
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
|
250,828
|
|
|
|
250,828
|
|
|
|
-
|
|
|
|
|
|
Deposits and prepaid expenses
|
|
|
40,281,740
|
|
|
|
52,241,190
|
|
|
|
(11,959,450
|
)
|
|
|
10.1
|
|
Accounts receivable
|
|
|
109,996,856
|
|
|
|
101,652,131
|
|
|
|
8,344,725
|
|
|
|
11
|
|
Other receivables
|
|
|
23,583,908
|
|
|
|
28,307,526
|
|
|
|
(4,723,618
|
)
|
|
|
15
|
|
Total current assets
|
|
|
226,324,085
|
|
|
|
241,984,715
|
|
|
|
(15,660,630
|
)
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation
|
|
|
237,870,893
|
|
|
|
230,645,659
|
|
|
|
7,225,234
|
|
|
|
12
|
|
Construction in progress
|
|
|
10,427,213
|
|
|
|
12,515,527
|
|
|
|
(2,088,314
|
)
|
|
|
13
|
|
Land use rights, net of accumulated amortization
|
|
|
51,202,746
|
|
|
|
53,814,281
|
|
|
|
(2,611,535
|
)
|
|
|
14
|
|
Total property and equipment
|
|
|
299,500,852
|
|
|
|
296,975,467
|
|
|
|
2,525,385
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
724,940
|
|
|
|
724,940
|
|
|
|
-
|
|
|
|
|
|
Proprietary technologies, net of accumulated amortization
|
|
|
8,461,545
|
|
|
|
8,937,071
|
|
|
|
(475,526
|
)
|
|
|
|
|
Investment in unconsolidated equity investee
|
|
|
221,805,006
|
|
|
|
207,074,626
|
|
|
|
14,730,380
|
|
|
|
|
|
Temporary deposit paid to entities for investments in future Sino Joint Venture companies
|
|
|
34,919,884
|
|
|
|
34,905,960
|
|
|
|
13,924
|
|
|
|
10.2
|
|
Total other assets
|
|
|
265,911,375
|
|
|
|
251,642,597
|
|
|
|
14,268,778
|
|
|
|
|
|
Total assets
|
|
|
791,736,312
|
|
|
|
790,602,779
|
|
|
|
1,133,533
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
9,103,498
|
|
|
|
8,280,358
|
|
|
|
823,140
|
|
|
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
5,386,711
|
|
|
|
5,348,293
|
|
|
|
38,418
|
|
|
|
|
|
Due to a director
|
|
|
861,182
|
|
|
|
2,046,499
|
|
|
|
(1,185,317
|
)
|
|
|
|
|
Other payables
|
|
|
46,214,186
|
|
|
|
42,523,811
|
|
|
|
3,690,375
|
|
|
|
16A
|
|
Borrowings-Short term bank loan
|
|
|
4,524,246
|
|
|
|
4,589,828
|
|
|
|
(65,582
|
)
|
|
|
|
|
Derivative liability
|
|
|
-
|
|
|
|
2,100
|
|
|
|
(2,100
|
)
|
|
|
|
|
Convertible note payable
|
|
|
-
|
|
|
|
3,894,978
|
|
|
|
(3,894,978
|
)
|
|
|
|
|
Income tax payable
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
66,089,823
|
|
|
|
66,685,867
|
|
|
|
(596,044
|
)
|
|
|
16
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
7,765,801
|
|
|
|
7,792,774
|
|
|
|
(26,973
|
)
|
|
|
|
|
Borrowing-Long term debt
|
|
|
5,231,162
|
|
|
|
5,536,938
|
|
|
|
(305,776
|
)
|
|
|
|
|
Total non-current liabilities
|
|
|
12,996,963
|
|
|
|
13,329,712
|
|
|
|
(332,749
|
)
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
49,977
|
|
|
|
49,866
|
|
|
|
111
|
|
|
|
|
|
Additional paid-in capital
|
|
|
181,533,918
|
|
|
|
181,501,056
|
|
|
|
32,862
|
|
|
|
|
|
Retained earnings
|
|
|
474,189,087
|
|
|
|
458,811,844
|
|
|
|
15,377,243
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
(23,088,295
|
)
|
|
|
(8,443,123
|
)
|
|
|
(14,645,172
|
)
|
|
|
|
|
Treasury stock
|
|
|
(1,250,000
|
)
|
|
|
(1,250,000
|
)
|
|
|
-
|
|
|
|
|
|
Total SIAF Inc. and subsidiaries' equity
|
|
|
631,434,687
|
|
|
|
630,669,643
|
|
|
|
765,044
|
|
|
|
|
|
Non-controlling interest
|
|
|
81,214,839
|
|
|
|
81,890,220
|
|
|
|
(675,381
|
)
|
|
|
|
|
Total stockholders' equity
|
|
|
712,649,526
|
|
|
|
712,559,863
|
|
|
|
89,663
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
|
791,736,312
|
|
|
|
793,552,597
|
|
|
|
(1,816,285
|
)
|
|
|
|
|
Note B. Cash and Cash Equivalents
The change in cash and cash equivalents
of $(4,279,255) was derived from cash and cash equivalents of $671,544 and $4,950,799 as of September 30, 2019 and December 31,
2018, respectively.
Note (9) Breakdown of inventory
|
|
September 30, 2019
|
|
|
|
$
|
|
Bread grass
|
|
|
397,525
|
|
Beef cattle
|
|
|
14,985,211
|
|
Organic fertilizer
|
|
|
12,554,853
|
|
Forage for cattle and consumables
|
|
|
5,849,951
|
|
Raw materials for bread grass and organic fertilizer
|
|
|
15,993,746
|
|
Immature seeds
|
|
|
1,757,923
|
|
|
|
|
|
|
|
|
|
51,539,209
|
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Difference
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Bread grass
|
|
|
397,525
|
|
|
|
744,378
|
|
|
|
(346,853
|
)
|
Beef cattle
|
|
|
14,985,211
|
|
|
|
11,561,117
|
|
|
|
3,424,094
|
|
Organic fertilizer
|
|
|
12,554,853
|
|
|
|
14,266,923
|
|
|
|
(1,712,070
|
)
|
Forage for cattle and consumables
|
|
|
5,849,951
|
|
|
|
7,252,280
|
|
|
|
(1,402,329
|
)
|
Raw materials for bread grass and organic fertilizer
|
|
|
15,993,746
|
|
|
|
18,885,258
|
|
|
|
(2,891,512
|
)
|
Immature seeds
|
|
|
1,757,923
|
|
|
|
1,872,285
|
|
|
|
(114,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,539,209
|
|
|
|
54,582,241
|
|
|
|
(3,043,032
|
)
|
Note
(10) Breakdown of Deposits and Prepaid Expenses
|
|
September 30, 2019
|
|
|
|
$
|
|
Deposits for
|
|
|
|
|
- purchases of equipment
|
|
|
1,198,969
|
|
- acquisition of land use rights
|
|
|
169,659
|
|
- inventories purchases
|
|
|
6,676,335
|
|
- construction in progress
|
|
|
3,862,859
|
|
- issue of shares as collateral
|
|
|
25,761,658
|
|
Shares issued for employee compensation and overseas professional and bond interest
|
|
|
-
|
|
Others
|
|
|
2,631,797
|
|
|
|
|
40,301,277
|
|
Note (11): Breakdown of Accounts receivable:
|
|
September 30,2019
|
|
|
|
Accounts
receivable
|
|
|
0-30 days
|
|
|
31-90 days
|
|
|
91-120 days
|
|
|
over 120
days and
less than 1 year
|
|
|
Over 1 year
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering consulting service (CA)
|
|
|
62,557,029
|
|
|
|
-
|
|
|
|
-
|
|
|
|
707,819
|
|
|
|
3,007,521
|
|
|
|
58,841,689
|
|
Sales of imported seafood (SIAF)
|
|
|
25,230,007
|
|
|
|
-
|
|
|
|
17,645,062
|
|
|
|
7,584,945
|
|
|
|
-
|
|
|
|
-
|
|
Sales of Cattle and Beef Meats (MEIJI)
|
|
|
14,349,030
|
|
|
|
-
|
|
|
|
13,324,774
|
|
|
|
1,024,256
|
|
|
|
-
|
|
|
|
-
|
|
Sales of HU Flowers (Fresh & Dried) (JHST)
|
|
|
719,989
|
|
|
|
225,539
|
|
|
|
419,985
|
|
|
|
-
|
|
|
|
74,465
|
|
|
|
-
|
|
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)
|
|
|
3,653,510
|
|
|
|
961,063
|
|
|
|
1,224,247
|
|
|
|
576,594
|
|
|
|
891,607
|
|
|
|
-
|
|
Sales Fertilizer from (HSA)
|
|
|
3,487,291
|
|
|
|
669,405
|
|
|
|
1,338,810
|
|
|
|
793,104
|
|
|
|
685,972
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
109,996,856
|
|
|
|
1,856,007
|
|
|
|
33,952,877
|
|
|
|
10,686,718
|
|
|
|
4,659,565
|
|
|
|
58,841,689
|
|
% of total receivables
|
|
|
100
|
%
|
|
|
2
|
%
|
|
|
31
|
%
|
|
|
10
|
%
|
|
|
4
|
%
|
|
|
53
|
%
|
The bulk of the over 120-days accounts
receivable under CA’s consulting and service sector represents outstanding debt owed by Tri-way to the Company.
Information on trading terms and
provision for diminution in value of accounts receivable:
Our accounts receivable aging is less than
12 months old. Receivables from revenue derived from consulting and services billed for work completed are within our normal trading
terms of 180 days, and therefore no diminution in value is required, as the credit quality of the receivables is not in doubt.
SIAF’s receivables in consulting and services are mainly provided to WHX, WC1, and Shanghai wholesale centers collectively,
and the extended credit terms for this quarter for more than 120 days to WHX and WC1 is primarily to allow them more time to accommodate
their development of import sales in beef that requires much more working capital; this also applies to the higher credit terms
on CA’s sales of fish to WC1 and Shanghai WC.
Sales of fertilizer and bulk livestock
feed: These comprise sales made to regional farmers contracted by us to grow crops and pastures using and purchasing our fertilizer.
We in turn agree to buy their cattle that are fed with our bulk and concentrated cattle feed purchased from us. Under this arrangement,
our accounts receivable are normally carried forward until such time they can be offset against our account payables due to these
contracted farmers(that is, the amount owed for the amount of crops and pastures is ultimately offset against the amount of cattle
that we have purchased from them, respectively). As these debtors are our contract farmers and operate a profitable and viable
business with us and have a good track record we consider their credit quality is good and collection from them is not in doubt,
thus no diminution in value is required.
Information on concentration of
credit risk of revenue:
We have 4 major long-term customers
(referring to Customer A, B, C and D mentioned in the Financial Statement of this report under Note), who have accounted for 87.46%
of our consolidated revenues for Q32019, as shown in the table below:
|
|
|
2019Q3
|
|
|
|
|
% of total Revenue
|
|
|
|
Customer's Total Revenue
|
|
Customer A
|
|
|
35.65
|
%
|
|
|
13,345,198
|
|
Customer B
|
|
|
31.05
|
%
|
|
|
11,623,335
|
|
Customer C
|
|
|
16.09
|
%
|
|
|
6,021,727
|
|
Customer D
|
|
|
4.67
|
%
|
|
|
1,747,193
|
|
|
|
|
87.46
|
%
|
|
|
32,737,453
|
|
Customer A is Cattle Wholesale, represented
by Mr. Zhen Runchi, who buys our fattened cattle to sell in the Guangdong and Beijing cattle markets while supplying us with young
cattle. During Q3 2019, transactions through Mr. Zhen Runchi generated 35.65% of our total consolidated revenue (equivalent to
$13,345,198 out of our total revenue of $37,431,314).
Customer B is ShangHai Virgo Trading co.
Ltd, which is one of our major distributors of imported beef and seafood as well as our farmed seafood. We sold $11,623,335 of
goods to Virgo during Q3 2018 representing 31.05% of our total revenue of $37,431,314 during the quarter.
Customer C is WSC 1, which is owned and
operated by Guangzhou City A Power NaWei Trading Co. Ltd (“APNW”). APNW distributes seafood to other wholesalers in
various cities in China. WSC 1 is ideally situated at the center of all interprovincial logistic services. At the same time, APNW
has obtained all relevant Import Quotas and Permits as of September 30, 2014. As such, SIAF relies on APNW’s import permits
for its import and export trades to be carried out in China. Sales affected through WSC 1 contribute 16.09% of our total consolidated
revenue (equivalent to $6,021,727 out of our total revenue of $37,431,314).
Customer D is Zhang Zhijie, and during Q3
2019 we sold $1,747,193 of goods, representing 4.67% of total revenue of $37,431,314.
The Company had 4 major customers whose
accounts receivable balance individually represented the following percentages of the Company’s total accounts receivables
during Q3 2019:
|
|
September 30, 2019
|
|
|
|
Total
|
|
|
|
|
|
|
% of total Accounts receivables
|
|
|
Accounts receivables
|
|
Customer A
|
|
|
56.87
|
%
|
|
|
62,557,029
|
|
Customer B
|
|
|
13.22
|
%
|
|
|
14,542,938
|
|
Customer C
|
|
|
13.11
|
%
|
|
|
14,349,030
|
|
Customer D
|
|
|
9.72
|
%
|
|
|
10,687,069
|
|
|
|
|
92.92
|
%
|
|
|
102,136,066
|
|
Note (12)
Property and equipment, net of accumulation
depreciation
|
|
September 30, 2019
|
|
|
|
(Unaudited)
|
|
Plant and machinery
|
|
$
|
17,559,162
|
|
Structure and leasehold improvements
|
|
|
195,526,199
|
|
Mature seeds and herbage cultivation
|
|
|
61,408,570
|
|
Furniture and equipment
|
|
|
692,452
|
|
Motor vehicles
|
|
|
576,042
|
|
|
|
|
275,762,425
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(37,891,532
|
)
|
Net carrying amount
|
|
$
|
237,870,893
|
|
Note (13) Construction in progress
|
|
September 30, 2019
|
|
|
|
(Unaudited)
|
|
Construction in progress
|
|
|
|
|
- Office, warehouse and organic fertilizer plant in HSA
|
|
|
|
|
- Organic fertilizer and bread grass production plant and office building
|
|
|
|
|
-Rangeland for beef cattle and office building
|
|
|
10,427,213
|
|
|
|
$
|
10,427,213
|
|
Note (14) Land Use Rights, net of
accumulated amortization:
Item
|
|
Owner
|
|
Location
|
|
Acres
|
|
|
Date Acquired
|
|
Tenure
|
|
|
Expiry dates
|
|
Cost $
|
|
|
Monthly amortization $
|
|
|
2019.09.30 Balance $
|
|
|
Nature
of
ownership
|
|
Nature
of
project
|
Hunan lot1
|
|
HS.A
|
|
Ouchi Village, Fenghuo
Town, Linli County
|
|
|
31.92
|
|
|
2011-4-5
|
|
|
43
|
|
|
2054-4-4
|
|
|
242,703
|
|
|
|
470
|
|
|
|
194,727
|
|
|
Lease
|
|
Fertilizer production
|
Hunan lot2
|
|
HS.A
|
|
Ouchi Village, Fenghuo Town,
Linli County
|
|
|
247.05
|
|
|
2011-7-1
|
|
|
60
|
|
|
2071-6-30
|
|
|
36,666,141
|
|
|
|
50,925
|
|
|
|
31,624,547
|
|
|
Management Right
|
|
Pasture growing
|
Hunan lot3
|
|
HS.A
|
|
Ouchi Village, Fenghuo Town,
Linli County
|
|
|
8.24
|
|
|
2011-5-24
|
|
|
40
|
|
|
2051-5-23
|
|
|
378,489
|
|
|
|
789
|
|
|
|
298,849
|
|
|
Land Use Rights
|
|
Fertilizer production
|
Hunan lot4
|
|
HS.A
|
|
Ouchi Village, Fenghuo Town,
Linli County
|
|
|
24.71
|
|
|
2018-6-1
|
|
|
50
|
|
|
2068-5-31
|
|
|
3,021,148
|
|
|
|
5,035
|
|
|
|
2,940,584
|
|
|
Lease
|
|
Pasture growing
|
Guangdong lot 1
|
|
JHST
|
|
Yane Village, Liangxi Town,
Enping City
|
|
|
8.23
|
|
|
2007-8-10
|
|
|
60
|
|
|
2067-8-9
|
|
|
1,064,501
|
|
|
|
1,478
|
|
|
|
848,644
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 2
|
|
JHST
|
|
Nandu Village of Yane Village,
Liangxi Town, Enping City
|
|
|
27.78
|
|
|
2007-3-14
|
|
|
60
|
|
|
2067-3-13
|
|
|
1,037,273
|
|
|
|
1,441
|
|
|
|
819,734
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 3
|
|
JHST
|
|
Nandu Village of Yane Village,
Liangxi Town, Enping City
|
|
|
60.72
|
|
|
2007-3-14
|
|
|
60
|
|
|
2067-3-13
|
|
|
2,267,363
|
|
|
|
3,149
|
|
|
|
1,791,847
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 4
|
|
JHST
|
|
Nandu Village of Yane Village,
Liangxi Town, Enping City
|
|
|
54.68
|
|
|
2007-9-12
|
|
|
60
|
|
|
2067-9-11
|
|
|
2,041,949
|
|
|
|
2,836
|
|
|
|
1,630,723
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 5
|
|
JHST
|
|
Jishilu Village of Dawan Village,Juntang
Town, Enping City
|
|
|
28.82
|
|
|
2007-9-12
|
|
|
60
|
|
|
2067-9-11
|
|
|
960,416
|
|
|
|
1,334
|
|
|
|
766,999
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 6
|
|
JHST
|
|
Liankai Village of Niujiang
Town, Enping City
|
|
|
31.84
|
|
|
2008-1-1
|
|
|
60
|
|
|
2068-12-31
|
|
|
821,445
|
|
|
|
1,141
|
|
|
|
660,578
|
|
|
Management Right
|
|
Fish Farm
|
Guangdong lot 7
|
|
JHST
|
|
Nandu Village of Yane Village,
Liangxi Town, Enping City
|
|
|
41.18
|
|
|
2011-1-1
|
|
|
26
|
|
|
2037-12-31
|
|
|
5,716,764
|
|
|
|
18,323
|
|
|
|
3,792,853
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 8
|
|
JHST
|
|
Shangchong Village of Yane Village,
Liangxi Town, Enping City
|
|
|
11.28
|
|
|
2011-1-1
|
|
|
26
|
|
|
2037-12-31
|
|
|
1,566,393
|
|
|
|
5,020
|
|
|
|
1,039,242
|
|
|
Management Right
|
|
HU Plantation
|
Guangdong lot 9
|
|
MEIJI
|
|
Xiaoban Village of Yane Village,
Liangxi Town, Enping City
|
|
|
41.18
|
|
|
2011-4-1
|
|
|
20
|
|
|
2031-3-31
|
|
|
5,082,136
|
|
|
|
21,176
|
|
|
|
2,922,228
|
|
|
Management Right
|
|
Cattle Farm
|
Qinghai lot 1
|
|
SJAP
|
|
No. 498, Bei Da Road, Chengguan
Town of Huangyuan County,Xining City, Qinghai Province
|
|
|
21.09
|
|
|
2011-11-1
|
|
|
40
|
|
|
2051-10-30
|
|
|
527,234
|
|
|
|
1,098
|
|
|
|
422,886
|
|
|
Land Use Right & Building
ownership
|
|
Cattle farm, fertilizer and
livestock feed production
|
Guangdong lot 10
|
|
JHST
|
|
Niu Jiang Town, Liangxi Town,
Enping City
|
|
|
6.27
|
|
|
2013-3-4
|
|
|
10
|
|
|
2023-3-3
|
|
|
489,904
|
|
|
|
4,083
|
|
|
|
167,384
|
|
|
Management Right
|
|
Processing factory
|
Guangdong lot 11
|
|
CA
|
|
Da San Dui Wei ,You Nan Village,
Conghua District of Guangzhou City
|
|
|
33.28
|
|
|
2014-10-28
|
|
|
30
|
|
|
2044-10-27
|
|
|
4,453,665
|
|
|
|
12,371
|
|
|
|
3,711,388
|
|
|
Management Right
|
|
Agriculture
|
|
|
JHST
|
|
Land improvement cost incurred
|
|
|
|
|
|
2013-12-1
|
|
|
|
|
|
|
|
|
3,914,275
|
|
|
|
6,155
|
|
|
|
3,483,459
|
|
|
Management Right
|
|
HU Plantation
|
Exchange difference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-6,155,167
|
|
|
|
|
|
|
|
-5,913,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
64,096,634
|
|
|
|
136,824
|
|
|
|
51,202,746
|
|
|
|
|
|
Note (15) Current Liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
9,103,501
|
|
|
15.A
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
5,386,711
|
|
|
|
Due to a director
|
|
|
861,182
|
|
|
|
Other payables
|
|
|
46,214,186
|
|
|
15B
|
Borrowings - Short term bank loan
|
|
|
4,524,246
|
|
|
|
|
|
|
66,089,826
|
|
|
|
Note
15A: Accounts payables and accrued expenses clarification:
Our
current trading environment is limited to a number of suppliers who offer prolonged credit terms, which means that most purchases
are paid for in cash or short credit terms (7 to 10 days). This grants us better bargaining ability to obtain cash discounts resulting
in the low trade account payables balance of $9,103,501, which is approximately 8.65% of total revenue of $105,291,144.
Note (15B): Analysis of Other Payables:
As of September 30, 2019, other payables
totaling $46,214,186 was composed of the following:
Straight note payable of $29,867,999 representing
a 10.5% Convertible Note in the aggregate principal amount of up to $33,300,000 issued on August 29, 2014. On July 18, 2017, the
Company and the note holder entered into a restructuring agreement regarding the settlement of the Note as follows:
(i) 50% in cash settlement of $15,589,000
to be paid in monthly installments.
(ii) The other 50% balance of $15,589,000
to be settled by the issuance of 5,196,333 common shares of the Company and 400,000 shares of Tri-way Industries Limited.
As of the date of this report, the Company
has paid $3.59 million with $11,999,000 remaining owed on the $15,589,000 settlements.
Over the past years, other advances and
deferred payments have been provided by other unrelated third parties, contractors, services providers, and agent fees etc. to
our subsidiaries. Some of these payments have been in the form of promissory notes or agreements at no fixed term of repayment
and with no interest; some at an interest rate between 3% to 8%, between a term of 1/2 to 5 years; and the remainder covered by
conditions settled through verbal arrangements with the Company. These sums amount to $16,346,187, which remains unpaid and outstanding
as of September 30, 2019.
Note (16) Non-current liabilities
Other payables of $7,765,801: During Q3
2019, the Company issued promissory notes amounting to $0 to unrelated third parties for advances granted by third parties collectively
to the Company (and/or to its subsidiaries). During Q3 2019, we redeemed $0 of Promissory Notes for advances granted by third parties
in past fiscal years to be settled by the issuance of shares and /or cash, leaving a balance of $7,765,801 of promissory notes
still due and outstanding as of September 30, 2019.
Part C. Nine Months Ended September
30, 2019 Compared to Nine Months Ended September 30, 2018(presented in summarized Charts below):
Revenue:
Revenues decreased by $1,184,860 or -1%
to $105,291,144 for the nine months ended September 30, 2019 from $106,476,004 for the nine months ended September 30, 2018. The
decrease was primarily due to the decrease of revenue generated from our fishery, beef, organic fertilizer, cattle farm, corporate,
and other operations, for reasons explained in earlier sections.
The following chart illustrates the changes
by category from the nine months ended September 30, 2019 to September 30, 2018
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Category
|
|
Q1 - Q3
|
|
|
Q1 - Q3
|
|
|
Difference
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Fishery
|
|
|
1,719,247
|
|
|
|
10,036,762
|
|
|
|
(8,317,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plantation
|
|
|
2,813,800
|
|
|
|
3,082,503
|
|
|
|
(268,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beef
|
|
|
1,040,589
|
|
|
|
5,011,148
|
|
|
|
(3,970,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic fertilizer
|
|
|
17,703,243
|
|
|
|
17,316,788
|
|
|
|
386,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cattle farm
|
|
|
34,105,641
|
|
|
|
19,100,254
|
|
|
|
15,005,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and others
|
|
|
47,908,624
|
|
|
|
51,928,549
|
|
|
|
(4,019,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
105,291,144
|
|
|
|
106,476,004
|
|
|
|
(1,184,860
|
)
|
Cost
Cost decreased by $1,631,694 or -2% to
$87,122,568 for the nine months ended September 30, 2019 from $88,754,262 for the nine months ended September 30, 2018. The decrease
was primarily due to the reciprocal decrease in sales generated from the Company’s fishery, plantation, beef, organic fertilizer,
cattle farm, corporate, and other operations for the nine months ended September 30, 2019 as compared to the nine months ended
September 30, 2018.The following chart illustrates the changes by category from the nine months ended September 30, 2019 to September
30, 2018.
Cost of goods sold and services
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Category
|
|
Q1 - Q3
|
|
|
Q1 - Q3
|
|
|
Difference
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Fishery
|
|
|
1,590,017
|
|
|
|
8,133,799
|
|
|
|
(6,543,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plantation
|
|
|
2,120,374
|
|
|
|
2,569,886
|
|
|
|
(449,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beef
|
|
|
1,043,537
|
|
|
|
4,121,113
|
|
|
|
(3,077,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic fertilizer
|
|
|
11,901,028
|
|
|
|
10,650,092
|
|
|
|
1,250,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cattle farm
|
|
|
27,890,578
|
|
|
|
16,711,195
|
|
|
|
11,179,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and others
|
|
|
42,577,034
|
|
|
|
46,568,177
|
|
|
|
(3,991,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
87,122,568
|
|
|
|
88,754,262
|
|
|
|
(1,631,694
|
)
|
Gross Profit
Gross profit increased by $446,834 or -13%
to $18,168,576 for the nine months ended September 30, 2019 from $17,721,742 for the nine months ended September 30, 2018.The increase
was primarily due to the corresponding increases in operation revenues.
The following chart illustrates the changes
by category from the nine months ended September 30, 2019 to September 30, 2018.
The gross profit by category is as follows:
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Category
|
|
Q1 - Q3
|
|
|
Q1 - Q3
|
|
|
Difference
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Fishery
|
|
|
129,230
|
|
|
|
1,902,963
|
|
|
|
(1,773,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plantation
|
|
|
693,426
|
|
|
|
512,617
|
|
|
|
180,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beef
|
|
|
-2,948
|
|
|
|
890,035
|
|
|
|
(892,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic fertilizer
|
|
|
5,802,215
|
|
|
|
6,666,696
|
|
|
|
(864,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cattle farm
|
|
|
6,215,063
|
|
|
|
2,389,059
|
|
|
|
3,826,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and others
|
|
|
5,331,590
|
|
|
|
5,360,372
|
|
|
|
(28,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,168,576
|
|
|
|
17,721,742
|
|
|
|
446,834
|
|
General and Administrative Expenses
and Interest Expenses
General and administrative expenses and
interest expenses (including depreciation and amortization) decreased by $1,932,480 or -15% to $11,133,951 for the nine months
ended September 30, 2019 from $13,066,431 for the nine months ended September 30, 2018. The change was primarily due to a
decrease in Office and corporate expenses to $3,280,542 for the nine months ended September 30, 2019 from $4,703,280 for the nine
months ended September 30 2018.
|
|
2019
|
|
|
2018
|
|
|
|
|
Category
|
|
Q1 - Q3
|
|
|
Q1 - Q3
|
|
|
Difference
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Office and corporate expenses
|
|
|
3,280,542
|
|
|
|
4,703,280
|
|
|
|
(1,422,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Wages and salaries
|
|
|
1,327,210
|
|
|
|
1,481,441
|
|
|
|
(154,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traveling and related lodging
|
|
|
14,271
|
|
|
|
17,183
|
|
|
|
(2,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor vehicles expenses and local transportation
|
|
|
30,215
|
|
|
|
37,613
|
|
|
|
(7,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainments and meals
|
|
|
244,767
|
|
|
|
35,092
|
|
|
|
209,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others and miscellaneous
|
|
|
1,086,385
|
|
|
|
1,279,843
|
|
|
|
(193,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,413,659
|
|
|
|
4,233,294
|
|
|
|
180,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
10,397,047
|
|
|
|
11,787,746
|
|
|
|
(1,390,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
736,904
|
|
|
|
1,278,685
|
|
|
|
(541,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,133,951
|
|
|
|
13,066,431
|
|
|
|
(1,932,480
|
)
|
Income Taxes
United States of America
The Company was incorporated
in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and
no U.S. corporate tax has been provided for in the consolidated financial statements of the Company. However, see the discussion,
below, under “Undistributed Earnings of Foreign Subsidiaries”.
Undistributed Earnings of Foreign
Subsidiaries
The Company intends to use the
remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States but some of these
profits may have to be used to satisfy U.S. income tax liabilities based on the operations of its controlled foreign subsidiaries.
Prior to 2017, depending on how and where their controlled foreign corporations were operated, U.S. companies did not always have
to pay tax on the earnings of their controlled foreign corporations, and the Company believes that prior to 2017 the earnings of
its controlled foreign corporations were not taxable in the United States until distributed to the Company. Accordingly, the Company
made no provision for U.S. Federal and State income tax. The Company filed yearly U.S. federal income tax returns from 2007 to
2017 on which it has reported that there was no tax due to the United States.
However, the Tax Cuts and Jobs
Act of 2017 (the “2017 Act”) now requires some U.S. companies (starting in 2018) to pay tax on the earnings of their
controlled foreign corporations based on complex formulas. The Company has not yet analyzed the impact of these changes on the
taxability in the United States of the earnings of its foreign subsidiaries and so does not know whether it has for 2018, or will
have for 2019 and future years, any earnings subject to U.S. federal income tax. In addition, the 2017 Act required U.S. companies
to repatriate, as of the end of 2017, their accumulated earnings to date. The Company has not yet determined whether it incurred
a U.S. tax liability as of the end of 2017 under this repatriation provision of the 2017 Act. The Company is seeking professional
advice from U.S. tax accountants as to the impact on the Company of the 2017 Act for 2017 and later years. In fiscal year 2017
the Company had an operating loss of $30,102,943 based on the consolidated financials of its controlled foreign corporations, but
it has had operating profits in previous years.
China
Beginning January 1, 2008, the
new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DE’s”)
and Foreign Invested Enterprises (“FIE’s”). The new standard EIT rate of 25% replaced the 33% rate currently
applicable to both DE’s and FIE’s. The Company is currently evaluating the impact that the new EIT will have on its
financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and
domestic enterprises. The unified corporate income tax rate is 25%.
Under new tax legislation in
China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise income taxes.
No EIT has been provided in
the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the nine months ended September
30, 2019 and 2018 as they are within the agriculture, and cattle sectors.
However, EIT has provide in
the financial statements of SJAP since it has generated income from trading of agricultural products for the nine months ended
September 30, 2019.
Belize
CA, CS and CH are international
business companies incorporated in Belize, and are exempt from corporate tax in Belize.
Macau
No Macau Corporate income tax
has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable
profits for the three months ended September 30, 2019 and 2018.
Sweden
No Sweden Corporate income tax
has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the three months ended September
30, 2019 and 2018.
No deferred tax assets and liabilities
are of September 30, 2019 and December 31, 2018 since there was no difference between the financial statements carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected
to reverse.
Provision for income taxes is
as follows:
|
|
Nine months ended
September 30, 2019
|
|
|
Nine months ended
September 30, 2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
SIAF
|
|
$
|
-
|
|
|
$
|
-
|
|
SAFS
|
|
|
-
|
|
|
|
-
|
|
MEIJI and APWAM
|
|
|
-
|
|
|
|
-
|
|
JHST, JHMC, SJAP, HSA
|
|
|
6,518
|
|
|
|
-
|
|
|
|
$
|
6,518
|
|
|
$
|
-
|
|
The Company did not recognize
any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2019 and 2018. The Company
had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by
the respective tax authorities.
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 failed to file US tax
returns for the years ended December 31, 2007 through December 31, 2012 in compliance with US Treasury Internal Revenue Service
Code. The Company has reviewed its tax position with the assistance of US tax professionals and believes that there will be no
taxes and no penalties assessed by the Internal Revenue Service in the United States of America. The Company has appointed US tax
professionals to assist in the filing of these income tax returns. In this respect, we filed our tax returns with the Internal
Revenue Service on July, 2014.
No EIT has been provided in the financial
statements of SIAF, CA, JHST, JHMC, JFD, HAS, QZH, and SJAP since they are exempt from EIT for the nine months ended September
30, 2018 and 2017, as they are within the agriculture, dairy, and fishery sectors.
CA, CS, and CH are international business
companies incorporated in Belize, and are exempt from corporate tax in Belize.
No Hong Kong profits tax has been
provided in the consolidated financial statements, since TRW did not earn any assessable profits arising in Hong Kong for the nine
months ended September 30, 2019 and 2018.
No Macau Corporate income tax has been
provided in the consolidated financial statements, since APWAM and MEIJI did not earn any assessable profits for the nine months
ended September 30, 2019 and 2018.
No Sweden Corporate income tax has been
provided in the consolidated financial statements, since SAFS incurred a tax loss for the nine months ended September 30, 2019
and 2018.
No deferred tax assets and liabilities
exist as of September 30, 2019 and December 31, 2018, since there was no difference between the financial statements carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected
to reverse.
Off Balance Sheet Arrangements
None.
Liquidity and Capital Resources
As of September 30 2019, unrestricted cash
and cash equivalents amounted to $417,373 (see notes to the consolidated financial statements), and our working capital as of September
30, 2019 was $173,130,680.
As of September 30, 2019, our total long-term
debts are as follows:
Contractual Obligations
|
|
Less than 1 year
|
|
|
1-3years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
|
Total
|
|
Short Term Bank Loan
|
|
|
4,506,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,506,468
|
|
Negotiable promissory notes
|
|
|
977,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
977,155
|
|
Long Term Debts
|
|
|
|
|
|
|
5,669,429
|
|
|
|
|
|
|
|
|
|
|
|
5,669,429
|
|
Promissory Notes
|
|
|
|
|
|
|
10,826,560
|
|
|
|
|
|
|
|
|
|
|
|
10,826,560
|
|
convertible note payables
|
|
|
3,894,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,894,978
|
|
Cash provided by operating activities amounted
to $11,637,524 for Q1-3 2019. This compares with cash provided by operating activities totaling $27,498,878 for Q1-3 2018. The
decrease in cash flows provided by operating activities resulted primarily from the decrease in account receivable of $(11,912,622)
for Q1-3 2019 from $17,756,843 for Q1-3 2018.
Cash used in investing activities totaled
$(6,832,839) for Q1-3 2019. This compares with cash used in investing activities totaling $(21,625,928) for Q1-3 2018. The increase
in cash flows used in investing activities resulted primarily from purchases of property and equipment and non-current assets held
for sale of $(3,500) for Q1-3 2019 compared to $(14,552,588) for Q1-3 2018.
Cash used in financing activities totaled
$0 for Q1-3 2019. This compares with cash used in financing activities totaling $(3,413,653) for Q1-3 2018. The increase in cash
used in financing activities was primarily due to convertible notes repaid of $0 during Q1-3 2019 from $1,500,000 paid during Q1-3
2018.
CRITICAL ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated financial statements
for the nine months ended September 30, 2019 are prepared in accordance with generally accepted accounting principles in the United
States of America (“US GAAP”).
The unaudited quarterly financials for
the nine months ended September 30, 2019 results are for the months and do not necessarily indicate the results for a full year.
The information included in this interim report should be read in conjunction with the information included in the Company’s
annual report on Form 10-K for the fiscal year ended December 31, 2018.
BASIS OF CONSOLIDATION
The consolidated financial statements include
the financial statements of SIAF, its subsidiaries Capital Award, 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.
The results of companies acquired or disposed of during the year are included in the consolidated Financial Statements from the
effective date of acquisition.
BUSINESS COMBINATIONS
The Company adopted the accounting pronouncements
relating to business combinations (primarily contained in ASC Topic 805 “Business Combinations”), including assets
acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements 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 acquire 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. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.
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 our consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States 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 reliability of deferred tax assets and
inventory reserves.
REVENUE RECOGNITION
The Company’s revenue recognition
policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence
of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable,
and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk
of loss and title passes to the customer. Service revenue is recognized when services have been rendered to a buyer by reference
to the stage of completion. License fee income is recognized on the accrual basis in accordance with the underlying agreements.
Government grants are recognized upon (i)
the Company’s substantial accomplishment of what must be done pursuant to the terms of the policies and 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/or (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 fishery development
services contract 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 recognized
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, we 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 (excluding uninstalled direct materials) 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 included 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 profitability 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 possible loss was identified.
The Company does not provide warranties
to customers on a basis customary to the industry; however, the customers can claim warranty directly from product manufacturers
for defects in equipment or products. Historically, the Company has experienced no warranty claims.
The Company’s fishery development
consultancy services revenues are recognized when the relevant services are rendered, and are subject to a Chinese business tax
at a rate of 0% of the gross fishery development contract service income approved by the Chinese local government.
COST OF GOODS SOLD AND SERVICES
Cost of goods sold consists primarily of
direct purchase cost of merchandise goods, and related levies. Cost of services consists primarily of direct cost and indirect
cost incurred to date for development contracts and provision for anticipated losses on development contracts.
SHIPPING AND HANDLING
Shipping and handling costs related to
cost of goods sold are included in general and administrative expenses, which totaled $0, $1,716, $2,745 and $17,861 for the three
months and nine months ended September 30, 2019 and 2018, respectively.
ADVERTISING
Advertising costs are included in general
and administrative expenses, which totaled $375,221, $382,424, $1,175,724 and $1,386,186 for the three months and nine months ended
September 30, 2019 and 2018, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are included
in general and administrative expenses, which totaled $0, 449, 910, $0 and $449,910 for the three months and nine months ended
September 30, 2019 and 2018, respectively.
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 People’s Republic of China (“P.R.C”) are not insured or otherwise protected.
Should any of those institutions holding the Company’s cash become insolvent, or the Company is unable to withdraw funds
for any reason, the Company could lose the cash on deposit at that institution.
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential
credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate
the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis.
The standard credit period of most of the
Company’s customers is three months. Any amount that has an extended settlement date of over one year is classified as a
long term receivable. Management evaluates the collectability of the receivables at least quarterly. There were no bad debts written
off for the nine months ended September 30, 2019 or September 30, 2018.
INVENTORIES
Inventories are valued at the lower of
cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location
and conditions are accounted for as follows:
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raw materials - purchase cost on a weighted average basis;
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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
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retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.
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Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost
less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible
for capitalization when the cost of replacing the parts is incurred. The assets’ residual values, useful lives and depreciation
methods are reviewed, and adjusted if appropriate, at the end of each year.
Depreciation is calculated on a straight-line
basis over the estimated useful life of the assets.
Milk cows
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10 years
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Plant and machinery
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5 - 10 years
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Structure and leasehold improvements
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10 - 20 years
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Mature seed and herbage cultivation
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20 years
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Furniture, fixtures and equipment
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2.5 - 10 years
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Motor vehicles
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5 - 10 years
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An item of property and equipment is removed
from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the item) is included in the consolidated statements of income in the period the item is disposed.
GOODWILL
Goodwill is an asset representing the fair
economic benefits arising from other assets acquired in a business combination that are not individually identified and 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 engaged in 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.
PROPRIETARY TECHNOLOGIES
The Company has determined that technological
feasibility is established at the time a working model of products is completed. Master license of stock feed manufacturing technology
was acquired and the costs of acquisition were capitalized as proprietary technologies when technological feasibility had been
established. Proprietary technologies are intangible assets of finite lives. Proprietary technologies are amortized using the straight
line method over their estimated lives of 25 years.
An aromatic cattle-feeding formula was
acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established.
Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25
years.
The cost of sleepy cod breeding technology
license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleepy
cod breeding technology license is amortized using the straight-line method over its entitled life of 25 years.
Bacterial cellulose technology license
and related trademark are capitalized as proprietary technologies when technological feasibility has been established. Cost of
license and related trademark is amortized using the straight-line method over its estimated life of 20 years.
Management evaluates the recoverability
of proprietary technologies on an annual basis of 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.
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
Land use rights represent acquisition of
land use right rights of agriculture land from farmers and are amortized on the straight line basis over the respective lease periods.
The lease period of agriculture land is in the range from 10 years to 60 years. Land use rights purchase prices were determined
in accordance with the P.R.C Government’s minimum lease payments of agriculture land and mutually agreed between the company
and the vendors. No independent professional appraiser performed a valuation of land use rights at the balance sheet dates.
CORPORATE JOINT VENTURE
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 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 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.
VARIABLE INTEREST ENTITY
An entity (investee) in which the
investor has obtained less than a majority-owned interest, according to the Financial Accounting Standards Board (FASB).
A variable interest entity (VIE) is subject to consolidation if a VIE is an entity meeting one of the following three criteria
as elaborated in ASC Topic 810-10, Consolidation.
(a)
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equity-at-risk is not sufficient to support the entity's activities
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(b)
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as a group, the equity-at-risk holders cannot control the entity; or
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(c)
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the economics do not coincide with the voting interest.
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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
TREASURY STOCK
Treasury stock consists of a Company’s
own stock which has been issued, but is subsequently reacquired by the Company. Treasury stock does not reduce the number of shares
issued but does reduce the number of shares outstanding. These shares are not eligible to receive cash 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 and converting them
into treasury shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:
(i) to meet additional stock needs for
various reasons, including newly implemented stock option plans, the issuance stock for convertible bonds or convertible preferred
stock, or a stock dividend;
(ii) to eliminate the ownerships interests of a stockholder;
(iii) to increase the market price of the stock that returns
capital to shareholders; and
(iv) to potentially increase earnings per share of the stock
by decreasing the shares outstanding on the same earnings.
The cost method of accounting for treasury
stock shares has been adopted by the Company. The purchase of outstanding 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 treasury stock shares reacquired is charged to a contra account, in this case
a contra equity account that reduces the stockholder equity balance.
INCOME TAXES
The Company accounts for income taxes under
the provisions of ASC 740 “Accounting for Income Taxes”. Under ASC 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 taxes area 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 relates to items credited or charged directly to equity, in which case
the deferred tax is also adjusted in the equity accounts. 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 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position
taken, or expected to be taken, in a tax return. ASC 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 in tax expense.
POLITICAL AND BUSINESS RISK
The Company's operations are carried out
in the PRC. Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political,
economic, and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS
In accordance with ASC 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, at the end of each fiscal year. An asset is considered impaired when estimated future cash
flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable,
the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September
30, 2019 and December 31, 2018, the Company determined no impairment losses were necessary.
EARNINGS PER SHARE
As prescribed in ASC Topic 260 “Earning
per Share”, Basic Earnings per Share (“EPS”) is computed by dividing net income available to common
stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing
net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus
potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through
the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically
used to repurchase the Company’s common stock at the average market price during the period.
For the three months ended September 30,
2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amounted
to $0.16 and $0.09, respectively. For the three months ended September 30, 2019 and 2018, diluted earnings per share attributable
to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.16 and $0.09, respectively.
For the nine months ended September 30,
2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted to $0.31
and $0.27, respectively. For the nine months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino
Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.31 and $0.27, respectively.
FOREIGN CURRENCY TRANSLATION
The reporting currency of the Company is
the U.S. dollar. 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; shareholder 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 weighted 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 consolidated statements of equity.
Translation 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. The balance sheet amounts with the exception of equity as of September
30, 2019 and December 31, 2018 were translated at RMB7.07 to $1.00 and RMB6.86 to $1.00, respectively. The average translation
rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine months ended September
30, 2019 and September 30, 2018 were RMB6.85 to $1.00 and RMB6.51 to $1.00, respectively.
Translation 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. The average translation rates applied to the consolidated statements
of income and comprehensive income and of cash flows for the years ended December 31, 2014 through 2018 were RMB6.14, RMB6.23,
RMB6.64, RMB 6.75 and RMB6.61, respectively
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.
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.
STOCK-BASED COMPENSATION
The Company adopts 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.
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 in accounting principles generally accepted
in the United States of America (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 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
September30, 2019 or December 31, 2018, nor gains or losses are reported in the statements of income and comprehensive income that
are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting
date for the nine months ended September 30, 2019 or 2018.
NEW ACCOUNTING PRONOUNCEMENTS
The Company does not expect any recent
accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.
In February 2017, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update No. 2017-02, Leases (Topic 842) (ASU 2017-02), 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 2017, the FASB issued Accounting
Standards Update No. 2017-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) (ASU 2017-08) 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 2018. We are still evaluating the effect that this guidance will have on our consolidated financial
statements and related disclosures.
In March 2017, the FASB issued Accounting
Standards Update No. 2017-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment
Accounting (ASU 2017-09) 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 2018, 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 2017, the FASB issued Accounting
Standards Update No. 2017-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2017-16),
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 2018.
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 2017, the FASB issued Accounting
Standards Update No. 2017-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2017-18), 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 2018, the FASB issued Accounting
Standards Update No. 2018-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU
2018-01), 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 2018, the FASB issued Accounting
Standards Update No. 2018-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU
2018-04), which eliminates step two from the goodwill impairment test. Under ASU 2018-04, 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.