Quarterly Report (10-q)

Date : 05/17/2019 @ 9:04PM
Source : Edgar (US Regulatory)
Stock : Sino Agro Food, Inc. (QX) (SIAF)
Quote : 0.2055  0.0 (0.00%) @ 9:02PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2019

 

OR

 

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

 

For the transition period from ___________________________ to ___________________________

 

Commission file number:  000-54191

 

SINO AGRO FOOD, INC.

 (Exact Name of Registrant as Specified in Its Charter)

 

Nevada   33-1219070

(State of Other Jurisdiction of Incorporation or

Organization)

  (I.R.S. Employer Identification Number)
     

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

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

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

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to :

Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 37th Floor

New York, NY10036

Attn: Marc J. Ross, Esq.

 

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

 

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

 

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

 

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

 

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

 

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

  

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

 

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

 

As of May 17, 2019, there were 49,996,085 shares of our common stock issued and outstanding.

 

 

     

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations 1
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 31
     
PART II – OTHER INFORMATION 32
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 32
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 32
SIGNATURES   33

  

     

 

  

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL REPORT

 

FOR THE THREE MONTHS ENDED MARCH 31, 2019

 

INDEX TO QUARTERLY FINANCIAL REPORT

 

    PAGE
CONSOLIDATED BALANCE SHEETS   F-1
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME   F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS   F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   F-4 to F-38

  

 

 

  

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

    Note   March 31, 2019     December  31, 2018  
        (Unaudited)     (Audited)  
ASSETS                    
Current assets                    
Cash and cash equivalents   5   $ 305,721     $ 4,950,799  
Inventories   6     56,402,108       54,582,241  
Costs and estimated earnings in excess of billings on uncompleted contracts   18     250,828       250,828  
Deposits and prepayments   7     53,290,057       52,241,190  
Accounts receivable, net of allowance for doubtful accounts   8     100,938,113       101,652,131  
Other receivables   9     31,103,922       28,307,526  
Total current assets         242,290,749       241,984,715  
Plant and equipment                    
Plant and equipment, net of accumulated depreciation   10     235,473,231       230,645,659  
Construction in progress   11     13,166,423       12,515,527  
Land use rights, net of accumulated amortization   12     54,289,629       53,814,281  
Total plant and equipment         302,929,283       296,975,467  
Other assets                    
Goodwill   13     724,940       724,940  
Proprietary technologies, net of accumulated amortization   14     8,816,670       8,937,071  
Interests in unconsolidated equity investees   15     209,435,455       207,074,626  
Temporary deposits paid to entities for investments in Sino joint venture companies   16     34,894,047       34,905,960  
Total other assets         253,871,112       251,642,597  
                     
Total assets       $ 799,091,144     $ 790,602,779  
                     
LIABILITIES  AND STOCKHOLDERS’ EQUITY                    
                     
Current liabilities                    
Accounts payable and accrued expenses       $ 10,425,270     $ 8,280,358  
Billings in excess of costs and estimated earnings on uncompleted contracts   18     5,407,136       5,348,293  
Due to a director         259,193       2,046,499  
Other payables   19     47,016,748       42,523,811  
Borrowings - Short term bank loan   20     4,677,755       4,589,828  
Derivative liability   21     -       2,100  
Convertible note payable   21     -       3,894,978  
Income tax payable         -       -  
          67,786,102       66,685,867  
                     
Non-current liabilities                    
Other payables   19     7,759,801       7,792,774  
Borrowings - Long term bank loan   20     5,643,006       5,536,938  
          13,402,807       13,329,712  
                     
Commitments and contingencies         -       -  
                     
Stockholders’ equity                    
Common stock:  $0.001 par value (50,000,000 shares authorized, 49,976,085 and 49,866,174 shares issued  and outstanding as of March  31, 2019 and  December 31, 2018, respectively)   22     49,976       49,866  
Additional paid - in capital         181,533,919       181,501,056  
Retained earnings         459,424,518       458,811,844  
Accumulated other comprehensive income         (5,316,005 )     (10,415,786 )
Treasury stock         (1,250,000 )     (1,250,000 )
Total Sino Agro Food, Inc. and subsidiaries stockholders’ equity         634,442,408       628,696,980  
Non - controlling interest         83,459,827       81,890,220  
Total stockholders’ equity         717,902,235       710,587,200  
Total liabilities and stockholders’ equity       $ 799,091,144     $ 790,602,779  

 

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

 

F- 1

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

 

    Note   Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 
        (Unaudited)     (Unaudited)  
Revenue                    
- Sale of goods       $ 28,267,649     $ 31,258,860  
- Consulting and service income from development contracts         991,002       2,472,404  
          29,258,651       33,731,264  
Cost of goods sold         (23,310,212 )     (25,863,020 )
Cost of services         (939,684 )     (1,784,322 )
Gross profit         5,008,755       6,083,922  
                     
General and administrative expenses         (3,757,288 )     (3,662,729 )
Net income from operations         1,251,467       2,421,193  
                     
Other income (expenses)                    
Government grant         293,870       -  
Share of income from unconsolidated equity investee         2,390,454       3,782,011  
Other income         -       878  
Loss on restructuring         (2,404,402 )     -  
Non-operating expenses         (219,727 )     (22,004 )
Interest expense         (477,806 )     (453,651 )
                     
Net income  (expenses)         (417,611 )     3,307,234  
                     
Net income  before income taxes         833,856       5,728,427  
                     
Provision for income taxes   4     -       -  
                     
Net income         833,856       5,728,427  
Less: Net (income) loss attributable to  non - controlling interest         (221,182 )     (655,708 )
Net income attributable to Sino Agro Food, Inc. and subsidiaries         612,674       5,072,719  
Other comprehensive income (loss) - Foreign currency translation (loss) income         6,448,205       21,880,850  
Comprehensive income         7,060,879       26,953,569  
Less: other comprehensive (income) loss attributable to non - controlling interest         (1,348,424 )     (11,253,610 )
Comprehensive income attributable to Sino Agro Food, Inc. and subsidiaries       $ 5,712,455     $ 15,699,959  
                     
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                    
                     
Basic   27   $ 0.01     $ 0.17  
Diluted   27   $ 0.01     $ 0.17  
Weighted average number of shares outstanding:                    
Basic   27     49,873,502       30,653,770  
Diluted   27     49,873,502       30,653,770  

  

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

 

F- 2

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 
    (Unaudited)     (Unaudited)  
Cash flows from operating activities                
Net income for the period     833,856       5,728,427  
Adjustments to reconcile net income for the period to net cash from operations:                
Share of income from unconsolidated equity investee     (2,390,454 )     (3,782,011 )
Depreciation     2,542,874       2,658,508  
Amortization     564,051       569,361  
Share based compensation costs     411,883       226,113  
Government grant     (293,870 )     -  
Loss on restructuring     2,404,402       -  
Changes in operating assets and liabilities:                
Increase in inventories     (1,819,867 )     (5,725,242 )
Decrease in cost and estimated earnings in excess of billings on uncompleted contacts     -       998,359  
(Increase) decrease in deposits and prepaid expenses     (1,427,777 )     511,765  
(Decrease) increase in due to a director     (1,787,306 )     330,332  
Increase in accounts payable and accrued expenses     2,144,912       1,163,834  
(Decrease) increase in other payables     (1,841,516 )     1,045,261  
Decrease (increase) in accounts receivable     714,018     (3,595,709 )
Increase in tax payable     -       739  
Increase (Decrease) in billings in excess of costs and estimated earnings on uncompleted contracts     58,843     (57,622 )
Increase in other receivables     (2,796,396 )     (6,629,169 )
Decrease in amount due from unconsolidated investees     29,625       986,454  
Net cash used in operating activities     (2,652,722 )     (5,570,600 )
Cash flows from investing activities                
Purchases of property and equipment     (3,202,715 )     (2,422,169 )
Payment for construction in progress     -     (3,053,435 )
Receipt from government grant     293,870       -  
Net cash used in investing activities     (2,908,845 )     (5,475,604 )
Effects on exchange rate changes on cash     916,489       11,108,045  
                 
(Decrease) increase  in cash and cash equivalents     (4,645,078 )     61,841  
Cash and cash equivalents, beginning of period     4,950,799       560,043  
Cash and cash equivalents, end of period   $ 305,721     $ 621,884  
                 
Supplementary disclosures of cash flow information:                
Cash paid for interest   $ 149,000     $ 148,738  
Non - cash transactions                
Common stock issued for service and compensation   $ -     $ 3,082,384  
Common stock issued for settling debits   $ 32,973     $ -  

  

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

 

F- 3

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On March 23, 2017, Qinghai Quanwang Investment Management Company Limited (” Quanwang “) acquired 8.3% equity interest in SJAP for total cash consideration of $459,137. As of March 31, 2019, APWAM owned 41.25% of SJAP, Garwor owned 50.45% and Quanwang owned the remaining 8.3%.

  

F- 4

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION (CONTINUED)

 

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

 

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

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“ EBAPFD ”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“ JFD ”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors. On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before 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. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to 36.60%.

 

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

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“ HSA ”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. On April 5, 2017, SJAP transferred all of its equity interest to MEIJI. This remains the case of the date of this report.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“ SAFS ”). As of 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. On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“ QQI ”) contributed additional capital of $4,157,682 and $769,941, respectively. As a result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14% equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholders meetings. SJAP disposed its 85% equity interest in QZH for RMB2 (equivalent to $0) for cash and completed on December 30, 2017. As a result, QZH was derecognized as variable interest entity of the company.

 

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

 

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

 

F- 5

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

  2.1 FISCAL YEAR

 

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

  

  2.2 REPORTING ENTITIES

 

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

 

F- 6

 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.3 BASIS OF PRESENTATION

 

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

  

  2.4 BASIS OF CONSOLIDATION

 

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

 

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

 

  2.5 BUSINESS COMBINATION

 

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

 

  2.6 NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

  2.7 USE OF ESTIMATES

 

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

 

F- 7

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We determine revenue recognition through the following steps:

 

  l identification of the contract, or contracts, with a customer;

  l identification of the performance obligations in the contract;

  l determination of the transaction price;

  l allocation of the transaction price to the performance obligations in the contract; and

  l recognition of revenue when, or as, we satisfy a performance obligation.

 

F- 8

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION (CONTINUED)

 

Consulting and service income from development contracts

 

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

 

Variable Consideration

 

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

 

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

 

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

 

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

 

F- 9

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.9 COST OF GOODS SOLD AND COST OF SERVICES

 

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

 

  2.10 SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $0 and $786 for the three months ended March 31, 2019 and 2018, respectively.

 

  2.11 ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $377,946 and $400,754 for the three months ended March 31, 2019 and 2018, respectively.

 

  2.12 RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $426,115, and $0 for the three months ended March 31, 2019 and 2018, respectively.

 

  2.13 FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

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

 

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

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $(5,316,005) as of March 31, 2019 and $(10,415,786) as of December 31, 2018. The balance sheet amounts with the exception of equity as of March 31, 2019 and December 31, 2018 were translated using an exchange rate of RMB 6.73 to $1.00 and RMB 6.86 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the three months ended March 31, 2019, and 2018 were RMB 6.75 to $1.00 and RMB 6.36 to $1.00, respectively.

 

  2.14 CASH AND CASH EQUIVALENTS

 

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

 

  2.15 ACCOUNTS RECEIVABLE

 

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

 

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

  

F- 10

 

  

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.16 INVENTORIES

 

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

 

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

 

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

 

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

 

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

 

  2.17 PLANT AND EQUIPMENT

 

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

 

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

 

Plant and machinery   5 - 10 years
Structure and leasehold improvements   10 - 30 years
Mature seeds and herbage cultivation   20 years
Furniture and equipment   2.5 - 10 years
Motor vehicles   4 - 10 years

 

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

 

  2.18 GOODWILL

 

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

 

F- 11

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.19 PROPRIETARY TECHNOLOGIES

 

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

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 20 years.

 

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

 

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

 

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

 

  2.20 CONSTRUCTION IN PROGRESS

 

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

 

  2.21 LAND USE RIGHTS

 

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

 

  2.22 EQUITY METHOD INVESTMENTS

 

Investee entities, in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

  2.23 CORPORATE JOINT VENTURE

 

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

 

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

 

F- 12

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.24 VARIABLE INTEREST ENTITY

 

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

 

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

 

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

 

  2.25 TREASURY STOCK

 

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

 

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

 

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

 

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

 

F- 13

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.26 INCOME TAXES

 

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

 

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

 

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

 

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

 

  2.29 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, 2019 and December 31, 2018 amounted to $164,333 and $4,720,793, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers (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, 2019
    Three months ended
March 31, 2018
 
             
Customer A     30.79 %     31.66 %
Customer B     12.94 %     17.08 %
Customer C     27.93 %     14.82 %
Customer D     5.63 %     8.91 %
Customer E     4.81 %     - %
Customer F     - %     7.33 %
      82.10 %     79.80 %

 

F- 14

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.30 CONCENTRATION OF CREDIT RISK (CONTINUED)

 

        Percentage
of revenue
    Amount  
Customer A   Corporate and others Division     30.79 %   $ 9,010,021  
Customer B   Corporate and others Division     12.94 %   $ 3,787,039  
Customer C   Cattle Farm Development Division     27.93 %   $ 8,171,443  

 

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, 2019     December 31, 2018  
             
Customer A     11.89 %     12.76 %
Customer B     8.40 %     9.67 %
Customer C     10.53 %     10.05 %
Customer D     61.27 %     59.81 %
Customer E     - %     1.8 %
Customer F     1.63 %     - %
      93.72 %     94.09 %

 

As of March 31, 2019, amounts due from customers A, C and D are $11,997,693, $10,632,798 and $61,849,210, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

 

  2.31 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, 2019 and December 31, 2018, the Company determined no impairment losses were necessary.

 

  2.32 EARNINGS PER SHARE

 

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

 

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

 

For the three months ended March 31, 2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted to $0.01 and $0.17, respectively. For the three months ended March 31, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.01 and $0.17, respectively.

 

F- 15

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

  2.33 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.

 

  2.34 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.

 

  2.35 STOCK-BASED COMPENSATION

 

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

 

  2.36 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, 2019 or December 31, 2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended March 31, 2019 or 2018.

 

F- 16

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.37 NEW ACCOUNTING PRONOUNCEMENTS

 

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

 

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

 

F- 17

 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION

 

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

 

    Three months ended March 31, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
                                     
Revenue   $ 991,002     $ 906,803     $ 6,403,084     $ 8,160,703     $ 12,797,059     $ 29,258,651  
                                                 
Net income (loss)   $ (75,822 )   $ (821,204 )   $ 470,344     $ 980,976     $ 58,380     $ 612,674  
                                                 
Total assets   $ 90,004,486     $ 43,221,005     $ 332,091,472     $ 43,664,450     $ 290,109,731     $ 799,091,144  

 

    Three months ended March 31, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
                                     
Revenue   $ 2,472,404     $ 1,050,228     $ 8,770,592     $ 4,998,083     $ 16,439,957     $ 33,731,264  
                                                 
Net income (loss)   $ 560,943     $ (340,166 )   $ 1,344,459     $ 350,674     $ 3,812,517     $ 5,728,427  
                                                 
Total assets   $ 81,042,358     $ 49,552,231     $ 357,336,786     $ 34,311,911     $ 286,272,364     $ 808,515,650  

 

F- 18

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

  

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

 

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

 

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

 

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

 

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

 

F- 19

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    Three ended March 31, 2019  
                Organic                    
    Fishery           Fertilizer and     Cattle Farm              
  Development     HU Plantation     Bread Grass     Development     Corporate and        
  Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity                                    
Sale of goods                                    
                                     
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   $ -     $ 906,803     $ -     $ -     $ -     $ 906,803  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       2,527,273       -       -       2,527,273  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       3,875,811       -       -       3,875,811  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       8,160,703       -       8,160,703  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       12,797,059       12,797,059  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     991,002       -       -       -       -       991,002  
    $ 991,002     $ 906,803     $ 6,403,084     $ 8,160,703     $ 12,797,059     $ 29,258,651  

 

F- 20

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    Three months ended March 31, 2018  
                Organic                    
    Fishery           Fertilizer and     Cattle Farm              
    Development     HU Plantation     Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity                                    
Sale of goods                                    
                                     
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   $ -     $ 1,050,228     $ -     $ -     $ -     $ 1,050,228  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       6,405,025       -       -       6,405,025  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       2,365,567       -       -       2,365,567  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       4,998,083       -       4,998,083  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       16,439,957       16,439,957  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     2,472,404       -       -       -       -       2,472,404  
    $ 2,472,404     $ 1,050,228     $ 8,770,592     $ 4,998,083     $ 16,439,957     $ 33,731,264  

 

F- 21

 

 

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, 2019  
                Organic                    
    Fishery     HU     Fertilizer and     Cattle Farm     Corporate        
    Development     Plantation     Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
                                     
Name of entity                                    
Sale of goods                                    
                                     
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   $ -     $ 712,968     $ -     $ -     $ -     $ 712,968  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       1,629,216       -       -       1,629,216  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       2,772,354       -       -       2,772,354  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       6,820,510       -       6,820,510  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       11,375,164       11,375,164  
    $ -     $ 712,968     $ 4,401,570     $ 6,820,510     $ 11,375,164     $ 23,310,212  

 

COST OF SERVICES

 

    Three months ended March 31, 2019  
                Organic                    
    Fishery           Fertilizer and     Cattle Farm     Corporate        
    Development     HU Plantation     Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
                                     
Name of entity                                                
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)   $ 939,684     $ -     $ -     $ -     $ -     $ 939,684  

   

F- 22

 

 

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, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic
Fertilizer and
Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity                                    
Sale of goods                                    
                                     
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   $ -     $ 894,722     $ -     $ -     $ -     $ 894,722  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA “)     -       -       1,613,685       -       -       1,613,685  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP “)     -       -       4,136,324       -       -       4,136,324  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH “)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       4,528,498       -       4,528,498  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       14,689,791       14,689,791  
    $ -     $ 894,722     $ 5,750,009     $ 4,528,498     $ 14,689,791     $ 25,863,020  

 

COST OF SERVICES

 

    Three months ended March 31, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic
Fertilizer and
Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
                                     
Name of entity                                                
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)   $ 1,784,322     $ -     $ -     $ -     $ -     $ 1,784,322  

 

F- 23

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  4. INCOME TAXES

 

United States of America

 

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

 

Undistributed Earnings of Foreign Subsidiaries

 

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

 

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

 

F- 24

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  4. INCOME TAXES (CONTINUED)

 

China

 

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

 

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

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the three months ended March 31, 2019 and 2018 as they are within the agriculture, and cattle sectors.

 

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 March 31, 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 March 31, 2019 and 2018.

 

No deferred tax assets and liabilities are of March 31, 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:

 

      Three months ended
March 31, 2019
      Three months ended
March 31, 2018
 
      (Unaudited)       (Unaudited)  
SIAF   $ -     $ -  
SAFS     -       -  
MEIJI and APWAM     -       -  
JHST, 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, 2019 and 2018. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

F- 25

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

  5. CASH AND CASH EQUIVALENTS

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
                 
Cash and bank balances   $ 305,721     $ 4,950,799  

  

  6. INVENTORIES

 

As of March 31, 2019, inventories are as follows:

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
Bread grass     666,989       744,378  
Beef cattle     14,186,719       11,561,117  
Organic fertilizer     14,616,370       14,266,923  
Forage for cattle and consumable     7,605,777       7,252,280  
Raw materials for bread grass and organic fertilizer     17,951,320       18,885,258  
Immature seeds     1,374,933       1,872,285  
    $ 56,402,108     $ 54,582,241  

  

  7. DEPOSITS AND PREPAYMENTS

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Deposits for                
-  purchases of equipment   $ 2,196,214     $ 2,158,867  
-  acquisition of land use rights     178,200       174,851  
- inventories purchases     17,181,605       16,921,188  
- construction in progress     5,354,959       4,789,035  
- issue of shares as collateral     25,528,325       24,928,324  
Shares issued for employee compensation and overseas professional and bond interest     231,574       643,457  
Others     2,619,180       2,625,468  
    $ 53,290,057     $ 52,241,190  

 

  8. ACCOUNTS RECEIVABLE

 

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

 

Aging analysis of accounts receivable is as follows:

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
0 - 30 days   $ 8,749,198     $ 7,447,269  
31 - 90 days     19,554,466       22,684,605  
91 - 120 days     11,893,827       16,456,895  
over 120 days and less than 1 year     17,451,077       11,773,454  
over 1 year     43,289,545       43,289,908  
    $ 100,938,113     $ 101,652,131  

 

F- 26

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  9. OTHER RECEIVABLES

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Advanced to employees   $ 567,653     $ 561,330  
Advanced to suppliers     3,905,832       3,831,926  
Advanced to customers     14,114,204       14,114,249  
Advanced to developers     461,835       453,155  
Others     12,054,398       9,346,866  
    $ 31,103,922     $ 28,307,526  

 

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

 

  10. PLANT AND EQUIPMENT

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
Plant and machinery   $ 5,394,528     $ 5,299,631  
Structure and leasehold improvements     204,314,391       200,734,812  
Mature seeds and herbage cultivation     58,898,928       54,643,255  
Furniture and equipment     697,403       695,461  
Motor vehicles     599,689       590,416  
      269,904,939       261,963,575  
                 
Less: Accumulated depreciation     (34,431,708 )     (31,317,916 )
Net carrying amount   $ 235,473,231     $ 230,645,659  

 

Depreciation expenses were $2,542,874 and $2,658,508 for the three months ended March 31, 2019 and 2018, respectively

 

  11. CONSTRUCTION IN PROGRESS

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Construction in progress                
- Office, warehouse and organic  fertilizer plant in HSA     7,425       7,285  
- Oven room, road for production of dried flowers     -       -  
- Organic fertilizer and bread grass production plant and office building     6,989,159       6,484,045  
- Rangeland for beef cattle and office building     6,169,839       6,024,197  
- Fish pond and breeding factory     -       -  
      13,166,423       12,515,527  

 

F- 27

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  12. LAND USE RIGHTS

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Cost   $ 66,851,156     $ 65,779,178  
Less: Accumulated amortization     (12,561,527 )     (11,964,897 )
Net carrying amount   $ 54,289,629     $ 53,814,281  

 

    Amount  
       
Balance @1.1.2018   $ 65,573,223  
Exchange difference     205,955  
Balance @12.31.2018   $ 65,779,178  
Exchange difference     1,071,978  
Balance @3.31.2019   $ 66,851,156  

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 10 to 60 years. Amortization of land use rights were $418,757 and $422,580 for the three months ended March 31, 2019 and 2018, respectively.

 

  13. GOODWILL

 

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

 

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

 

  14. PROPRIETARY TECHNOLOGIES

 

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

 

On March 6, 2012, MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted a license to exploit sleepy cods breeding technology to grow out of sleepy cods for $2,270,000 for 50 years. SJAP booked bacterial cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 20 years starting from January 1, 2014.

 

 

F- 28

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  14. PROPRIETARY TECHNOLOGIES (CONTINUED)

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
Cost   $ 11,146,113     $ 11,113,267  
Less: Accumulated amortization     (2,329,443 )     (2,176,196 )
Net carrying amount   $ 8,816,670     $ 8,937,071  

 

Amortization of proprietary technologies was $145,294 and $146,781 for the three months ended March 31, 2019 and 2018, respectively. No impairments of proprietary technologies have been identified for the three months ended March 31, 2019 and 2018.

 

  15. INTERESTS IN UNCONSOLIDATED EQUITY INVESTEES

 

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

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before 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. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to 36.60%.

  

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Investments at cost                
-   TRW   $ 153,309,311     $ 150,918,857  
Amount due from a consolidated equity investee - TRW     56,126,144       56,155,769  
    $ 209,435,455     $ 207,074,626  

 

F- 29

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

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

 

Intended                    
unincorporated   Projects                
Investee   Engaged       March 31, 2019     December 31, 2018  
            (Unaudited)     (Audited)  
A   Trade center   *   $ 12,000,000     $ 12,000,000  
B   Fish Farm 2 GaoQiqiang Aquaculture   *     17,403,959       17,403,959  
C   Cattle farm 2   *     5,490,088       5,502,001  
            $ 34,894,047     $ 34,905,960  

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of March 31, 2018, the percentages of equity stakes of A (trade and seafood centers), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm 2) are 31%, 23% and 35% respectively.

 

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

 

  17. VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“ SJAP ”), which was incorporated in the P.R.C. As of March 31, 2019 , the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

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

 

F- 30

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  17. VARIABLE INTEREST ENTITY (CONTINUED)

 

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On March 31, 2018, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the changes are as follows:

 

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

 

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

 

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

 

F- 31

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  18. . CONSTRUCTION CONTRACT

 

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

 

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

  

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

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Billings   $ 48,467,593     $ 47,929,092  
Less:  Costs     (29,493,284 )     (29,094,568 )
Estimated earnings     (13,567,173 )     (13,486,231 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 5,407,136     $ 5,348,293  

  

  (iii) Overall

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Billings   $ 59,180,326     $ 58,641,825  
Less:  Costs     (35,679,545 )     (35,280,829 )
Estimated earnings     (18,344,473 )     (18,263,531 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 5,156,308     $ 5,097,465  

  

  19. OTHER PAYABLES

 

    March 31, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Due to third parties   $ 11,347,269     $ 13,068,387  
Straight note payable     35,669,479       29,367,999  
Promissory notes issued to third parties     7,759,801       7,792,774  
Due to local government     -       87,425  
    $ 54,776,549     $ 50,316,585  
                 
Less: Amount classified as non-current liabilities                
Promissory notes issued to third parties     (7,759,801 )     (7,792,774 )
Amount classified as current liabilities   $ 47,016,748     $ 42,523,811  

 

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

 

F- 32

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  20. BORROWINGS

 

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

 

Short term bank loan

 

Name of lender   Interest rate     Term   March 31, 2019     December 31, 2018  
              (Unaudited)     (Audited)  
China Development Bank
Qinghai City, the P.R.C
    4.7306 %   December 27, 2018 - December 27, 2019   $ 4,455,005     $ 4,371,265  
Add: current portion of long term
bank loan
              $ 222,750     $ 218,563  
                  4,677,755       4,589,828  

 

Long term bank loan

 

Name of lender   Interest rate     Term   March 31, 2019     December 31, 2018  
              (Unaudited)     (Audited)  
China Development Bank                    
Qinghai City, the P.R,C.     5.39 %   December 16, 2016 - December 15, 2026   $ 5,865,756     $ 5,755,501  
Less: current portion of long term
bank loan
              $ (222,750 )   $ (218,563 )
                  5,643,006       5,536,938  

   

On December 16, 2016, the Company obtained a 10-year long term loan of RMB40million (approximately $5.94million) from China Development Bank for the period from December 16, 2016 to December 15, 2026, bearing an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement and will be adjusted in line with any adjustment of the benchmark rate which is 5.39% (12.31.2017: 5.39%). The loan was guaranteed by Mr. Zhao Yilin and Ms. Song Haixian, Mr. Zhao Yilin’s wife. The loan was also secured by land use right with net carrying amount of $397,269 as of December 31, 2018 (12.31.2018: 397,269) and a batch of plant, machinery and equipment with net carrying amount of $5,326,385 (12.31.2018: 5,326,385). According to the loan agreement, RMB1,500,000 (approximately $218,563) was scheduled to be repaid by December 20, 2019.

 

On December 27, 2018, the Company obtained a 1-year short term loan of RMB30 million (approximately $4.37 million) from China Development Bank for the period from the December 27, 2018 to December 27, 2019, bearing fixed interest at 4.7306% per annum. This loan was guaranteed by Xining City SME Guarantee Corporation.

 

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

 

F- 33

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  21. CONVERTIBLE NOTE PAYABLES

 

On August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible Note (the “ Note 1 ”) in the aggregate principal amount of up to $33,300,000. The Company received the total advance of $11,632,450. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.

 

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

 

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

 

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

 

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

 

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

 

Under the agreement, the Company shall pay the note holder 120,000 common shares of SIAF or 32,000 common shares of TRW as an origination fee. The note bears a flat interest payment which shall be settled by 200,000 common shares of SIAF or 55,000 common shares of TRW. As of March 31, 2019, no settlement for both origination fee and interest payment.

 

The Company and the note holder entered into a restructuring agreement regarding the settlement of the Note 2. Both parties have agreed to restructure the indebtedness represented by Note 2 where SIAF executes a new promissory note in the principal amount of $6,301,480 to the note holder to be paid in 3 installments by August 31, 2019, October 30, 2019 and December 31, 2019, respectively.

 

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

  

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

 

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

 

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

 

F- 34

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  22. SHAREHOLDERS’ EQUITY

 

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

 

Common Stock:

 

On November 10, 2014, the Company approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) affecting both the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in the State of Nevada on December 16, 2014. Subsequent to the December 31, 2014, the Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 17,171,716 to 22,727,272.

 

The Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 22,727,272 to 27,000,000 and the amendment was filed on December 28, 2016. 

  

The Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 27,000,000 to 50,000,000 and the amendment was filed on August 24, 2017 with an effective date of August 25, 2017. 

 

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

 

During the three months ended March 31, 2019, the Company (i) issued 109,911 shares of common stock valued at fair value of $0.3 per share for $32,973 for settling of debts; the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

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

 

F- 35

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  23. OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $856 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2022; and (ii) 2,695 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $6,570, its lease expiring on July 8, 2020.

 

Lease expenses were $22,277 and $40,758 for the three months ended March 31, 2019 and 2018, respectively.

 

The future minimum lease payments as of March 31, 2019, are as follows:

 

Within 1 year   $ 89,202  
2 to 5 years     42,018  
 Over 5 years     -  
    $ 131,220  

  

F- 36

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  24. STOCK BASED COMPENSATION

  

The Company calculated stock-based compensation of $643,457 and $3,785,008 and recognized $411,883 and $226,113 for the three months ended March 31, 2019 and 2018. As of March 31, 2019, the deferred compensation balance for staff, professional and contractors was $231,574 and the deferred compensation balance of $231,574 was to be amortized over 3 months beginning on April 1, 2019.  As of March 31, 2018, the deferred compensation balance for staff, professional and contractors was $3,558,895 and the deferred compensation balances of $100,912, $375,600, and $3,082,383 were to be amortized over 3 months, 9 months and 1 year beginning on April 1, 2018, respectively

 

  25. CONTINGENCIES

 

As of March 31, 2019 and December 31, 2018, 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.

 

On September 19, 2015, the Company entered into a trade facility agreement with two independent third parties. Pursuant to the agreement, the Company provides collateral in the form of Company's common shares to a PRC based lender (the "Lender") and the Lender agrees to provide a revolving trade facility loan up to $20,000,000 to a PRC based borrower. The arrangement was commenced on February 15, 2016 and will be expired on February 15, 2019.

 

As of March 31, 2019, the Company has issued aggregate 4,809,979 (12.31.2018: 5,708,312) common shares as collateral.

 

On March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of New York against the Company, as well as four of its current directors, styled Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc., as the nominal defendant (Case No.: 1:19-cv-02680) (the “Complaint”). The Company’s Motion to Dismiss the Complaint is currently due on or before June 28, 2019.

 

The Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company. The Company believes that these claims are without merit and intend to vigorously defend the action. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.

 

  26. 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, 2019 and 2018, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     

Mr. Solomon Yip
Kun Lee,
Chairman

 

Tri-way Industries

Limited, (“TRW’)

Unconsolidated

equity investee

 

Included in due to a director, due to Mr. Solomon Yip Kun Lee is $259,953 and $2,046,499 as of March 31, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

 

Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is $57,586,312 and $57,354,208 as of March 31, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

Included in accounts receivable, due from Tri-way Industries Limited is $61,849,210 and $60,799,365 as of March 31, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment. 

 

The Company has consulting and service income from development contracts of $2,472,404 and $2,472,404 from Tri-way Industries Limited for the three months ended March 31, 2019 and 2018, respectively.

 

F- 37

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  27. EARNINGS PER SHARE

 

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

   

    Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 
    (Unaudited)     (Unaudited)  
BASIC                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share   $ 612,674     $ 5,072,719  
                 
Basic earnings per share - continuing and discontinued operations   $ 0.01     $ 0.17  
Basic weighted average shares outstanding     49,873,502       30,653,770  

 

    Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 
    (Unaudited)     (Unaudited)  
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share   $ 612,674     $ 5,072,719  
Convertible note interest     -       -  
Net income used in computing diluted earnings per share   $ 612,674     $ 5,072,719  
                 
Diluted earnings per share   $ 0.01     $ 0.17  
                 
Basic weighted average shares outstanding     -       30,653,770  
                 
Add:                
weight average of common stock convertible from convertible note payables     -       -  
                 
Diluted weighted average shares outstanding     49,873,502       30,653,770  

 

F- 38

 

 

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

 

This Quarterly Report on Form 10-Q (the “ Form 10-Q ”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2019 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

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

 

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

 

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

 

Beef & Organic Fertilizer Division (Marked 1. (i) SJAP & QZH (Derecognized as variable interest entity on December 30, 2018) and (ii) HSA)
Plantation Division (Marked 2. JHST)
Fishery Division (Marked 3. A. CA Engineer & Technology and 3.B. Seafood sales — (Discontinued operation from October 5, 2016)
Cattle Farm Division (Marked 4. MEIJI and JHMC)
Corporate & Others Division (Marked 5. SIAF)

 

A summary of each business division is described below:

 

1. Beef and Organic Fertilizer Division refers to:

 

  (i) The operation of our partially owned subsidiary Qinghai Sanjiang A Power Agriculture Co., Ltd. (“SJAP”) in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle inclusive of: (a) cattle that are not being slaughtered in our own slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) are sold live to third party livestock wholesalers, and (b) cattle that are sold to QZH and slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a fully owned subsidiary of SJAP; as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), as one entity. SJAP and QZH are both variable interest entities over which we exercise significant control. As of December 30, 2018, QZH was derecognized as variable interest entity and its operating profit and/or loss no longer accretive to the Company’s 41.25% holding in SJAP, a variable interest entity. More details related to QZH’s discontinuance of operations is delineated throughout other sections of this report.

 

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

 

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

 

1

 

 

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

 

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

 

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

 

(B). Seafood Sales from CA’s projected farms; became a discontinued segment of operations from October 5, 2016 when Tri-way was disposed to other third parties in term Tri-way was reclassified as an unconsolidated equity investee on same date.

 

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

 

5. Corporate & Others Division refers to the trading segment of business operations of the Group named internally under Corporate division of Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects that are not included in the above categories, and not limited to corporate affairs.

 

2

 

 

MD & A OF CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

 

A (1) Income Statements (Unaudited)

 

In $   Three months ended     Three months ended              
    March 31,2019     March 31,2018     Difference     Note  
Continuing operations                                
Revenue     29,258,651       33,731,264       (4,472,613 )     1  
Sale of goods     28,267,649       31,258,860       (2,991,211 )        
Consulting, services, commission and management fee     991,002       2,472,404       (1,481,402 )        
Cost of goods sold and services     24,249,896       27,647,342       (3,397,446 )     2  
Cost of goods sold     23,310,212       25,863,020       (2,552,808 )        
Cost of services     939,684       1,784,322       (844,638 )        
Gross Profit     5,008,755       6,083,922       (1,075,167 )     3  
Other income (expenses)     (417,611 )     3,307,234       (3,724,845 )        
General and administrative expenses     (3,757,288 )     (3,662,729 )     (94,559 )     4  
Net income before income taxes     833,856       5,728,427       (4,894,571 )        
EBITDA     4,418,587       9,409,947       (4,991,360 )        
Depreciation and amortization (D&A)     3,106,925       3,227,869       (120,944 )     5  
EBIT     1,311,662       6,182,078       (4,870,416 )        
Net Interest     477,806       453,651       24,155          
Tax     -       -       -          
Net Income     833,856       5,728,427       (4,894,571 )        
Less:Net( income) loss attributable to Non - controlling interest     (221,182 )     (655,708 )     434,526       7  
Net income attributable to SIAF Inc. and subsidiaries     612,674       5,072,719       (4,460,045 )        
Weighted average number of shares outstanding                                
- Basic     49,873,502       30,653,770       19,219,732          
- Diluted     49,873,502       30,653,770       19,219,732          
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                             8  
Basic     0.01       0.17       (0.16 )        
Diluted     0.01       0.17       (0.16 )        

 

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

 

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

 

The table below shows the segmental sales, gross profit and corresponding cost of sales for the three months ended March 31, 2018 (Q1 2018) compared to the three months ended March 31, 2019 (Q1 2019).

 

3

 

 

          Sales of goods     Cost of Goods sold     Sales of Goods’ Gross profit  
      In US$   2019Q1     2018Q1     2019Q1     2018Q1     2019Q1     2018Q1  
                                           
SJAP     Sales of live cattle     1,776,009       2,064,737       1,569,934       1,705,466       206,075       359,271  
      Sales of feedstock     -       -       -       -       -       -  
      Bulk Livestock feed     202,490       686,912       90,379       317,127       112,111       369,785  
      Concentrate livestock feed     1,407,989       3,006,939       790,734       1,688,390       617,255       1,318,549  
      Sales of fertilizer     489,323       646,437       321,307       425,341       168,015       221,096  
      SJAP Total     3,875,811       6,405,025       2,772,354       4,136,324       1,103,457       2,268,701  
HSA     Sales of Organic fertilizer     879,805       1,016,046       687,804       844,159       192,001       171,887  
      Sales of Organic Mixed Fertilizer     1,647,468       1,349,521       941,412       769,526       706,056       579,994  
      HSA Total     2,527,273       2,365,567       1,629,216       1,613,686       898,057       751,881  
      SJAP’s & HS.A./Organic fertilizer total     6,403,084       8,770,592       4,401,570       5,750,009       2,001,514       3,020,582  
JHST     Sales of Fresh HU Flowers     -       -       -       -       -       -  
      Sales of Dried HU Flowers     -       -       -       -       -       -  
      Sales of Dried Immortal vegetables     -       -       -       -       -       -  
      Sales of Vegetable products     906,803       1,050,229       712,968       894,722       193,835       155,507  
      JHST/Plantation Total     906,803       1,050,229       712,968       894,722       193,835       155,507  
MEIJI           -       -       -       -       -       -  
      Sale of Live cattle (Aromatic)     8,160,703       4,998,083       6,820,510       4,528,498       1,340,193       469,584  
      MEIJI / Cattle farm Total     8,160,703       4,998,083       6,820,510       4,528,498       1,340,193       469,584  
SIAF                                                      
      Sales of goods through trading/import/export activities                                                
      on seafood     3,787,038       8,818,702       3,366,257       7,915,342       420,781       903,360  
      on imported beef and mutton     9,010,021       7,621,255       8,008,907       6,774,449       1,001,114       846,806  
      SIAF/ Others & Corporate total     12,797,059       16,439,957       11,375,164       14,689,791       1,421,895       1,750,166  
                                                       
      Group Total     28,267,649       31,258,860       23,310,212       25,863,020       4,957,437       5,395,839  
       Increases of Q1 2019 to Q1 2018 in $     -2,991,211                               -438,402          
       Increases of Q1 2019 to Q1 2018 in %     -10 %                             -8 %        

 

4

 

 

Overall comparison of the Income Statement of Q1 2018 to Q1 2019

 

The decrease of net income before income tax of $4.89 million (or -85.5%) from Q1 2018’s $5.72 million to Q1 2019’s $0.833 million was primarily due to following reasons:

 

The Company’s revenues from the sale of goods decreased by $2,991,211 or -10%, from $31,258,860 for the quarterly period ended March 31, 2018 compared to $28,267,649 for the same period ended March 31, 2019. The decrease was primarily due to decrease in revenue from the following sectors:

 

(i) SJAP’s combined sales in live cattle, feed stocks and fertilizer dropped $2.52 million (or -27%) from Q1 20186’s $6.4m to Q1 2018’s $3.88m.

 

(ii) The Corporate (SIAF trading) sector fell by $3.6m (-22%) from $16.4 million in Q1 2018 to $12.80 million in 2019 Q1.

 

The decrease was also caused by the Lunar Chinese New Year starting later than usual in 2018, disrupting logistics and transportation services, causing slowdowns in our seafood sales.

 

Revenues of the consulting and services (C&S) decreased by $1.48 million from Q1 2018’s $2.47 million to Q1 2019’s $0.99 million primarily due to Tri-way’s further tightening of its capital expenditure reducing the C&S work of CA.

 

The overall operating gross profit decreased by $2.87 million compared to Q1 2018’s $6.08 million to Q1 2019’s $0.94 million due primarily to the decrease in sales revenue leading to lower sales prices that in turn increased the margins for cost of goods sold reflecting cost of goods sold at 76.66% and 82.45% in Q1 2018 and Q1 2019 respectively.

 

Other income decreased by $3.72 million (or  -112%) from Q1 2018’s $3.31 million to Q1 2019’s -$0.42 million) primarily due to two factors:

 

(i) The restructure of a loan debt incurred in October 12 th 2017 of $6 million to include an additional loan debt of $0.30 million and accrued interests to be repaid from August 31 st 2019 for total amount of $7.35 million that was detailed under other payable of the MD&A section in our 10K 2018 report and is recapped in the MD&A section of this Q1 2019 report.

 

(ii) Tri-way’s sales were also affected as described elsewhere in this report.

 

The Company’s cost of goods sold decreased by $2.55m (-10%), from $25.86m for the quarterly period ended March 31, 2018 compared to $23.31m for the same period ended March 31, 2019. The decrease was primarily due to the decrease in goods sold from divisions mentioned above, collectively.

 

Gross profits of the Company generated from goods sold decreased by $0.44m (-8%), from $5.4m for the quarterly period ended March 31, 2018 compared to $4.96m for the same period ended March 31, 2019. The decrease was primarily due to a drop in sales of goods in the above-mentioned divisions.

 

5

 

 

The Company’s cost of goods sold decreased by $2.55m (-10%), from $25.86m for the quarterly period ended March 31, 2018 compared to $23.31m for the same period ended March 31, 2019. The decrease was primarily due to the decrease in goods sold from divisions mentioned above, collectively.

 

Gross profits of the Company generated from goods sold decreased by $0.44m (-8%), from $5.4m for the quarterly period ended March 31, 2018 compared to $4.96m for the same period ended March 31, 2019. The decrease was primarily due to a drop in sales of goods in the above-mentioned divisions.

 

1. (i) Primary Producing and Processing Sectors refer to SJAP and HSA operations

  

In US$                                          
          Sales of goods     Cost of Goods sold     Gross profit  
          2019Q1     2018Q1     2019Q1     2018Q1     2019Q1     2018Q1  
SJAP     Sales of live  cattle     1,776,009       2,064,737       1,569,934       1,705,466       206,075       359,271  
      Sales of feedstock                                     -          
      Bulk Livestock feed     202,490       686,912       90,379       317,127       112,111       369,785  
      Concentrate livestock feed     1,407,989       3,006,939       790,734       1,688,390       617,255       1,318,549  
      Sales of   fertilizer     489,323       646,437       321,307       425,341       168,015       221,096  
      SJAP Total     3,875,811       6,405,025       2,772,354       4,136,324       1,103,457       2,268,701  
      % of increase (+) or decrease (-)     -39 %             -33 %             -51 %        
HSA     Sales of  Organic fertilizer     879,805       1,016,046       687,804       844,159       192,001       171,887  
      Sales of Organic Mixed Fertilizer     1,647,468       1,349,521       941,412       769,526       706,056       579,994  
      HSA Total     2,527,273       2,365,567       1,629,216       1,613,686       898,057       751,881  
      SJAP's & HS.A./Organic fertilizer total     6,403,084       8,770,592       4,401,570       5,750,009       2,001,514       3,020,582  
      % of increase (+) or decrease (-)     -27 %             -23 %             -34 %        

 

The table below shows the itemized sale of goods and related cost of sales in quantity and unit price for the quarterly period ended March 31, 2018 compared to the same period ended March 31, 2019 for the beef and organic fertilizer divisions.

 

                2019Q1     2018Q1     Difference  
SJAP     Production and Sales of  live  cattle     Heads       1,092       829       263  
      Average Unit sales price     US$/head       1,626       2,491       (864 )
      Unit cost prices     US$/head       1,438       2,057       (620 )
      Production  and sales of feedstock                                
      Bulk Livestock feed     MT       1,150       3,775       (2,625 )
      Average Unit sales price     US$/MT       176       182       (6 )
      Unit cost prices     US$/MT       79       84       (5 )
      Concentrated livestock feed     MT       3,155       6,594       (3,439 )
      Average Unit sales price     US$/MT       446       456       (10 )
      Unit cost prices     US$/MT       251       256       (5 )
      Production and sales of fertilizer     MT       2,571       3,300       (729 )
      Average Unit sales price     US$/MT       190       196       (6 )
      Unit cost prices     US$/MT       125       129       (4 )

 

6

 

 

Combined revenue performance of SJAP & HSA was $6,403,084 and $8,770,592 for the quarterly periods ended March 31, 2018 and 2019 respectively, representing a decrease of 27% (or $2,367,508). The decrease is primarily due to:

 

A.1. All sectional activities of SJAP decreased in sales revenues and gross profits, which was primarily to the discontinuing operation of QZH and its cattle fattening activities leading to the reduced sales in bulk and concentrated livestock feed.

 

* Concentrated live-stock feed decreased by 1.6million, or -53%, from Q1 2018’s $3.01 million to Q1 2019’s $1.41 million, whereas the bulk stock feed decreased by $0.48 million (or -70%) from Q1 2018’s $0.68 million to Q1 2019’s $0.20 million.

 

Although the fertilizer also decreased by $0.16 million from Q1 2018’s $0.65 million to Q2 2019’s $0.49 million, it was mainly due to heavy sales during Q4 2018 and the prolonged period of the Lunar Chinese New Year which slowed down sales during the period.

   

The primary reason for the decreases of unit sales and cost price in the livestock feed and fertilizer segments is mainly due to depreciation of RMB during the quarter that translated into higher equivalent of US$.

 

  1. (ii). The operations of HSA in manufacturing and sales of organic fertilizer itemizing unit sales, costs and quantity of sales:

 

      In US$                                    
          Sales of goods     Cost of Goods sold     Gross profit  
          2019Q1     2018Q1     2019Q1     2018Q1     2019Q1     2018Q1  
HSA      Sales of Organic fertilizer     879,805       1,016,046       687,804       844,159       192,001       171,887  
       Sales of Organic Mixed Fertilizer     1,647,468       1,349,521       941,412       769,526       706,056       579,994  
       HSA Total     2,527,273       2,365,567       1,629,216       1,613,686       898,057       751,881  
       % of increase (+) or decrease (-)     7 %             1 %             19 %        

 

                2019Q1     2018Q1     Difference  
HSA     Fertilizer operation                                
      Organic Fertilizer     MT       3,518       4,162       (644 )
      Average Unit sales price     $/MT       250       244       6  
      Unit cost price     $/MT       196       203       (7 )
      Organic Mixed Fertilizer     MT       4,056       3,100       956  
      Average Unit sales price     $/MT       406       435       (29 )
      Unit cost price     $/MT       232       248       (16 )

 

Overall sales volume of Organic mixed fertilizer (OMF) has increased by 956 MT (30.8 %) from 3100 MT in Q1 2018 to 4056 MT in Q1 2019 with revenue and gross profit having increased to 22% and 22%, respectively for the same period; whereas sales of organic fertilizer (OF) decreased both in revenues and gross profit primarily due to that although OMF is a dearer product compares to OF yet OMF has the property to help to grow plants faster and stronger enhancing stronger demands this season.

 

During the first quarter, HSA reached an agreement to establish a joint venture (“JV”) with an organic chicken and egg farmer. HSA will provide its acreage and production facilities while the partner will provide capital funding and manage its chicken and egg operations. HSA will receive 40% of net profits. The JV partners are currently preparing relevant paperwork, including environmental reports, to obtain necessary permits. The Company cannot guarantee that the relevant permits will be issued in a timely manner or at all.

 

7

 

 

Plantation Division refers to the operations of JHST. JHST is engaged in the HU Plantation business where dragon fruit flowers (dried and fresh), cash vegetable crops and immortal vegetables are sold to wholesale and retail markets. No harvest or sales of HU flowers occurred during Q1 2019, which is a normal situation as harvest of HU flowers begins in late June each year, thus revenue in Q1 2019 derived from the sales of cash crops.

 

      In US$                                      
          Sales of goods     Cost of Goods sold     Gross profit  
          2019Q1     2018Q1     2019Q1     2018Q1     2019Q1     2018Q1  
JHST     Sales of Fresh HU Flowers                                                
      Sales of Dried HU Flowers                                                
      % of increases (+) or decreases (-)                                                
      Sales of Dried Immortal vegetables     -       -                                  
      % of increases (+) or decreases (-)                                                
      Sales of Vegetable products     906,803       1,050,229       712,968       894,722       193,835       155,507  
      % of increases (+) or decreases (-)     -14 %             -20 %             25 %        
      JHST/Plantation Total     906,803       1,050,229       712,968       894,722       193,835       155,507  
      % of increases (+) or decreases (-)     -14 %             -20 %             25 %        

 

                2019Q1     2018Q1     Difference  
JHST                                      
      Vegetable products     MT       880       998       (118 )
      Average Unit sales price     US$/MT       1,030       1,052       (22 )
      Unit cost prices     US$/MT       810       896       (86 )

 

The plantation is slowly recovering from the damages caused by the typhoon during the third quarter of 2018. During the quarterly period ended March 31, 2019, JHST started to replant the herbal plants, namely Pogestemon Patchouli” (“ PP ”) and the passion fruit plants, and sell primarily cash crop vegetables. JHST has also been evaluating and considering potential next best steps to be taken with respect to the plantation.

 

  · 3. Cattle Farm Division refers to the operations of Cattle Farm 1 under JHMC where cattle are sold live to third party livestock wholesalers who resell them mainly in Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms, such as Cattle Farm 2, or related projects .

 

In US$   Sale of Goods     Cost of Goods sold     Gross Profit (Sales)  
          2019Q1     2018Q1     2019Q1     2018Q1     2019Q1     2018Q1  
                                           
MEIJI                                                      
      Sale of Live cattle (Aromatic)     8,160,703       4,998,083       6,820,510       4,528,498       1,340,193       469,584  
      MEIJI / Cattle farm Total     8,160,703       4,998,083       6,820,510       4,528,498       1,340,193       469,584  
      % of increase or decrease (-)     63 %             51 %             185 %        

 

      Description of items   2019Q1     2018Q1     Difference  
MEIJI       Production and sale of Live cattle (Aromatic)     2,235       1,587       648  
      Average Unit sale price     3,651       3,149       502  
      Unit cost price     3,052       2,853       198  

 

Revenue from the cattle farm sales increased by $3,162,6204 (63%) from $4,998,083 for the quarterly period ended March 31, 2018 compared to $8,160,703 for the same period ended March 31, 2019. 

 

Cost of goods sold from cattle farm increased by $2,292,012 (51%) from $4,528,498 for the quarterly period ending March 31, 2018 compared to $6,820,510 for the same period ended March 31, 2019. The increase was primarily due to the corresponding decrease of sales.

 

Gross profit from cattle increased by $870,609 from $469,585 for the quarterly period ended March 31, 2018 to $1,340,193 for the same period ended March 31, 2019. The increase was primarily due to the corresponding decrease in revenue.

 

8

 

 

The reason for the increase in revenues and gross profits is primarily due to the increase of herbs grown on the farm and the steady increase in the unit sale price of the locally bred Asian Yellow Cattle. 

 

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

   

    In US$    Sales of goods       Cost of Goods sold       Gross profit  
        2019Q1     2018Q1       2019Q1       2018Q1       2019Q1       2018Q1  
SIAF   Sales of goods through trading/import/export activities                                            
    on seafood (via imports)   3,787,038     8,818,702       3,366,257       7,915,342       420,781       903,360  
    % of increases (+) and decreases (-)   -57%             -57 %             -53 %        
    on imported beef mainly   9,010,021     7,621,255       8,008,907       6,774,449       1,001,114       846,806  
    % of increases (+) and decreases (-)   18%             18 %             18 %