SINO AGRO FOOD, INC. AND SUBSIDIARIES
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sino Agro Food, Inc. (the “
Company
”
or “
SIAF
”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) was incorporated
on October 1, 1974 in the State of Nevada, United States of America.
The Company was engaged in
the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the
Company entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“
CA
”)
and its subsidiaries Capital Stage Inc. (“
CS
”) and Capital Hero Inc. (“
CH
”). Effective the
same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital
Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.
On August 24, 2007 the Company
changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, the Company changed
its name to Sino Agro Food, Inc.
On September 5, 2007, the Company
acquired three existing businesses in the People’s Republic of China (the
“P.R.C.”
):
|
(a)
|
Hang Yu Tai Investment Limited (“
HYT
”), a
company incorporated in Macau, the owner of 78% equity interest in ZhongXingNongMu Ltd (“
ZX
”), a company
incorporated in the P.R.C.;
|
|
(b)
|
Tri-way Industries Limited (“
TRW
”), a company
incorporated in Hong Kong; and
|
|
(c)
|
Macau Eiji Company Limited (“
MEIJI
”), a company
incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“
HST
”),
a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in 2010.
|
On November 27, 2007, MEIJI
and HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“
JHST
”),
a company incorporated in the P.R.C. with MEIJI owning a 75% interest and HST owning a 25% interest.
On November 26, 2008, SIAF
established Pretty Mountain Holdings Limited (“
PMH
”), a company incorporated in Hong Kong with an 80% equity
interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“
SJAP
”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest
in SJAP was owned by the following entities:
|
·
|
Qinghai Province Sanjiang Group Company Limited (English translation)
(“
Qinghai Sanjiang
”), a company incorporated in the P.R.C with major business activities in the agriculture
industry; and
|
|
·
|
Guangzhou City Garwor Company Limited (English translation)
(“
Garwor
”), a company incorporated in the P.R.C., specializing in sales and marketing.
|
SJAP is engaged in the business
of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan,
in the vicinity of the Xining City, Qinghai Province, P.R.C.
In September 2009, the Company
carried out an internal reorganization of its corporate structure and business, and formed a 100% owned subsidiary, A Power Agro
Agriculture Development (Macau) Limited (“
APWAM
”), which was formed in Macau. APWAM then acquired PMH’s
45% equity interest in SJAP. By virtue of the acquisition, APWAM assumed all obligations and liabilities of PMH under the Sino
Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor.
The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and transfer. As a result,
APWAM owned 45% of SJAP and Garwor owned the remaining 55%.
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%.
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.
SINO AGRO
FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The Company has adopted December
31 as its fiscal year end.
Name of subsidiaries
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
|
|
|
|
|
|
|
Capital Award Inc. (“CA”)
|
|
Belize
|
|
100% (12.31.2018: 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
|
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”).
The Company adopted the accounting
pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including
assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement
for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquisition as well as provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction
between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require
an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending
on their nature. The Company’s adoption of these pronouncements will have an impact on the manner in which it accounts for
any future acquisitions.
|
2.6
|
NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS
|
The Company adopted the accounting
pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards
for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained
in ASC Topic “Consolidation.” It clarifies that a non-controlling interest in a subsidiary is an ownership interest
in the consolidated financial statements. The adoption of this standard has not had material impact on the Company’s consolidated
financial statements.
The preparation of consolidated
financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could
differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting
policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of
the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing asset
impairment tests of long-lived assets, estimates of the realization of deferred tax assets and inventory reserves.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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.
|
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.
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.
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.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Inventories are valued at the
lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its
location and conditions are accounted for as follows:
|
(a)
|
raw materials - purchase cost on a weighted average basis;
|
|
(b)
|
manufactured finished goods and work-in-progress - cost of direct
materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing
costs; and
|
|
(c)
|
retail and wholesale merchandise finished goods - purchase cost
on a weighted average basis.
|
Net realizable value is the
estimated selling price in the ordinary course of business, less estimated costs for completion and the estimated costs necessary
to make the sale.
Plant and equipment are stated
at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that
are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed,
its cost is recognized in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalization.
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial
year end.
Depreciation is calculated on
a straight-line basis over the estimated useful lives of the assets.
Plant and machinery
|
|
5 - 10 years
|
Structure and leasehold improvements
|
|
10 - 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.
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.
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.
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.
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.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The Company accounts for income
taxes under the provisions of ASC Topic 740 “Accounting for Income Taxes.” Under ASC Topic 740, deferred tax assets
and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
The provision for income tax
is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax
rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance
sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle,
deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent
that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.
Deferred income taxes are calculated
at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax
is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income
taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net
basis.
ASC Topic 740 also prescribes
a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or for one expected
to be taken, in a tax return. ASC Topic 740 also provides guidance related to, among other things, classification, accounting
for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related
to unrecognized tax benefits will be recorded as tax expense.
|
2.29
|
POLITICAL AND BUSINESS RISK
|
The Company’s operations
are carried out in the P.R.C. Accordingly, the political, economic and legal environment in the P.R.C. may influence the Company’s
business, financial condition and results of operations by the general state of the P.R.C.’s economy. The Company’s
operations in the P.R.C. are subject to specific considerations and significant risks not typically associated with companies
in North America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods
of taxation, among other things.
|
2.30
|
CONCENTRATION OF CREDIT RISK
|
Cash includes cash at banks
and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of March 31, 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
|
%
|
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.
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.
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.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company establishes standards
for reporting information about operating segments on a basis consistent with the Company’s internal organization structure
as well as business segments and major customers in consolidated financial statements. The Company operates in five principal
reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle
Farm Development Division and Corporate and Others Division. 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
|
|
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”).
|
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
|
|
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
|
|
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
|
|
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
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States of America
The Company was incorporated
in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and
no U.S. corporate tax has been provided for in the consolidated financial statements of the Company. 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.
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.
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
|
|
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
|
|
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
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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.
|
|
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
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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.
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.
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
|
|
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.
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.
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
|
|
|
|
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
|
|
|
|
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are no provisions in
the Company’s bank borrowings and long term debts that would accelerate repayment of debt as a result of a change in credit
ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to
retire debt prior to maturity, either at par or at a premium over par.
Short term bank loan
Name of lender
|
|
Interest rate
|
|
|
Term
|
|
March 31, 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.
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
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
|
|
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
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:-
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: