Quarterly Report (10-q)

Date : 11/14/2017 @ 4:34PM
Source : Edgar (US Regulatory)
Stock : Sino Agro Food, Inc. (QX) (SIAF)
Quote : 1.51  0.07 (4.86%) @ 1:27PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

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

 

For the quarter ended September 30, 2017

OR

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

 

For the transition period from ___________________________ to ___________________________

 

Commission file number:  000-54191

 

SINO AGRO FOOD, INC.

 (Exact Name of Registrant as Specified in Its Charter)

 

Nevada   33-1219070

(State of Other Jurisdiction of Incorporation or

Organization)

  (I.R.S. Employer Identification Number)
     

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

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

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

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to :

Sichenzia Ross Ference Kesner LLP

1185 Avenue of the Americas, 37th Floor

New York, NY 10036

Attn: Marc Ross, Esq.

 

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

 

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

 

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

 

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

 

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

 

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

 

As of September 30, 2017 there were 27,811,573 shares of our common stock issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations 3
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  34
Item 4. Controls and Procedures 34
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 35
Item 1A. Risk Factors 35
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 35
SIGNATURES   36

 

  - 2 -  

 

   

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL REPORT

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

 

INDEX TO QUARTERLY FINANCIAL REPORT

 

  PAGE
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 TO F-48

 

F- 1  

 

 

 

 

14/F., San Toi Building, 137-139 Connaught Road Central, Hong Kong.

Tel : (852) 2581 7500

Fax : (852) 2581 7588

 

INDEPENDENT ACCOUNTANT’S REPORT

 

To the Board of Directors and Stockholders of

Sino Agro Food, Inc.

(Incorporated in the State of Nevada, United States of America)

 

We have reviewed the consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries as of September 30, 2017 and December 31, 2016, the related consolidated statements of income and other comprehensive income for the three-months periods ended September 30, 2017 and 2016, and the nine-month periods ended September 30, 2017 and 2016, and cash flows for the nine-month periods ended September 30, 2017 and 2016. This interim financial information is the responsibility of the company’s management.

 

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

 

/s/ ECOVIS  David Yeung Hong Kong  
   
Hong Kong  
November 11, 2017  

 

F- 2  

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

    Note   September 30, 2017     December  31, 2016  
                 
ASSETS                    
Current assets                    
Cash and cash equivalents   7   $ 1,865,684     $ 2,576,058  
Inventories   8     80,345,197       62,592,272  
Costs and estimated earnings in excess of billings on uncompleted contracts   22     1,249,187       740,984  
Deposits and prepayments   9     93,935,479       84,845,966  
Accounts receivable, net of allowance for doubtful accounts   10     105,155,243       122,912,086  
Other receivables   11     58,789,381       47,120,800  
Total current assets         341,340,171       320,788,166  
Plant and equipment                    
Plant and equipment, net of accumulated depreciation   12     207,621,360       189,727,227  
Construction in progress   14     41,509,210       35,157,213  
Land use rights, net of accumulated amortization   15     54,504,006       53,673,690  
Total plant and equipment         303,634,576       278,558,130  
Other assets                    
Goodwill   16     724,940       724,940  
Proprietary technologies, net of accumulated amortization   17     9,719,678       10,090,697  
Interests in unconsolidated equity investees   18     144,519,533       139,133,443  
Long term investments   19     753,352       720,773  
Temporary deposits paid to entities for investments in Sino joint venture companies   20     15,644,998       15,644,998  
Total other assets         171,362,501       166,314,851  
                     
Total assets       $ 816,337,248     $ 765,661,147  
                     
LIABILITIES  AND STOCKHOLDERS’ EQUITY                    
                     
Current liabilities                    
Accounts payable and accrued expenses       $ 12,552,569     $ 8,789,324  
Billings in excess of costs and estimated earnings on uncompleted contracts   22     5,602,681       2,630,752  
Due to a director         850,274       2,070,390  
Other payables   23     5,095,113       5,962,092  
Borrowings - Short term bank loan   24     1,506,705       2,883,090  
Negotiable promissory notes   25     368,462       1,113,140  
Income tax payable         1,227       1,130  
          25,977,031       23,449,918  
                     
Non-current liabilities                    
Other payables   23     22,184,443       11,192,117  
Borrowings - Long term bank loan   24     6,026,819       5,766,182  
Notes payable       20,058,798       21,314,877  
          48,270,060       38,273,176  
                     
Commitments and contingencies         -       -  
                     
Stockholders’ equity                    
Preferred stock: $0.001 par value (10,000,000 shares authorized, 100 shares issued and outstanding as of September  30, 2017 and  December 31 , 2016, respectively)                    
Series A preferred stock:  $0.001 par value (100 shares designated, 100 shares issued and outstanding as of September 30, 2017 and  December 31, 2016, respectively)   26     -       -  
Series B convertible preferred stock:  $0.001 par value (10,000,000 shares designated, 0  shares issued  and outstanding as of September 30, 2017 and  December 31, 2016, respectively)   26     -       -  
Series F Non-convertible preferred stock:  $0.001 par value (1,000,000 shares designated, 0 shares issued  and outstanding as of September  30, 2017 and December 31, 2016, respectively)   26     -       -  
Common stock:  $0.001 par value (50,000,000 shares authorized, 27,811,573  and 22,726,859 shares issued  and outstanding as of September  30, 2017 and  December 31, 2016, respectively)   26     27,811       22,727  
Additional paid - in capital         168,193,890       155,741,280  
Retained earnings         467,117,365       454,592,652  
Accumulated other comprehensive income         2,209,103       (4,335,355 )
Treasury stock   26     (1,250,000 )     (1,250,000 )
Total Sino Agro Food, Inc. and subsidiaries stockholders’ equity         636,298,169       604,771,304  
Non - controlling interest         105,791,988       99,166,749  
Total stockholders’ equity         742,090,157       703,938,053  
Total liabilities and stockholders’ equity       $ 816,337,248     $ 765,661,147  

  

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

 

F- 3  

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

 

        Three months ended     Three months ended     Nine months ended     Nine months ended  
    Note   September 30, 2017     September 30, 2016     September 30, 2017     September 30, 2016  
Continuing operations                                    
Revenue                                    
- Sale of goods       $ 45,414,562     $ 88,280,225     $ 150,564,890     $ 207,057,021  
- Consulting and service income from development contracts         2,978,371       23,062,838       16,167,636       54,727,215  
- Commission and management fee         -       314,517       -       1,049,199  
    3     48,392,933       111,657,580       166,732,526       262,833,435  
Cost of goods sold   3     (39,612,509 )     (69,021,740 )     (128,230,874 )     (158,360,354 )
Cost of services   3     (2,234,070 )     (12,450,460 )     (11,016,962 )     (35,377,800 )
                                     
Gross profit         6,546,354       30,185,380       27,484,690       69,095,281  
General and administrative expenses         (3,254,065 )     (4,741,193 )     (15,133,146 )     (12,368,561 )
Net income from operations         3,292,289       25,44 4 ,187       12,351,544       56,726,720  
Other income (expenses)                                    
                                     
Government grant         -       -       457,288       1,617,615  
                                     
Other income         4,468       1,305,147       4,468       210,929  
                                     
Interest expense         (331,596 )     (1,013,094 )     (1,561,908 )     (3,155,277 )
Net income (expenses)         (327,128 )     292,053       (1,100,152 )     (1,326,733 )
                                     
Net income  before income taxes         2,965,161       25,736,240       11,251,392       55,399,987  
Provision for income taxes   4     -       -       -       -  
                                     
Net income         2,965,161       25,736,240       11,251,392       55,399,987  
Share of income from unconsolidated equity investee         1,379,672       -       5,452,523       -  
                                     
Net income from continuing operations         4,344,833       25,736,240       16,703,915       55,399,987  
Less: Net (income) loss attributable to  non - controlling interest         (893,985 )     (7,211,538 )     (4,179,202 )     (18,171,791 )
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries         3,450,848       18,524,702       12,524,713       37,228,196  
Discontinued operations                                    
Net income from discontinued operations         -       2,900,128       -       12,288,230  
Less: Net income attributable to non - controlling interest         -       (132,353 )     -       (820,973 )
Net income from discontinued operations attributable   to the Sino Agro Food, Inc. and subsidiaries         -       2,767,775       -       11,467,257  
Net income attributable to Sino Agro Food and subsidiaries         3,450,848       21,292,477       12,524,713       48,695,453  
Other comprehensive income (loss)
- Foreign currency translation gain (loss)
        569,938       (1,793,042 )     8,555,686       (4,975,721 )
Comprehensive income         4,020,786       19,499,435       21,080,399       43,719,732  
Less: Other comprehensive (income) loss attributable to  non - controlling interest         (983,217 )     226,668       (2,011,228 )     963,215  
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries       $ 3,037,569     $ 19,726,103     $ 19,069,171     $ 44,682,947  
                                     
Earnings per share attributable to the Sino Agro Food, Inc. and subsidiaries common stockholders:                                    
From continuing and discontinued operations                                    
Basic   28   $ 0.14     $ 1.04     $ 0.62     $ 2.45  
Diluted   28   $ 0.15     $ 0.95     $ 0.63     $ 2.24  
From continuing operations                                    
Basic   28   $ 0.14     $ 0.91     $ 0.62     $ 1.81  
Diluted   28   $ 0.15     $ 0.81     $ 0.63     $ 1.72  
                                     
Weighted average number of shares outstanding:                                    
                                     
Basic         24,231,617       20,376,225       20,309,014       19,900,082  
Diluted         26,357,758       22,754,892       22,496,396       22,434,847  

   

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

 

F- 4  

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

Nine months ended

September 30, 2017

   

Nine months ended

September 30, 2016

 
             
Cash flows from operating activities                
Net income for the period                
-     Continuing operations   $ 16,703,915     $ 55,399,987  
-     Discontinued operations     -       12,288,230  
Adjustments to reconcile net income for the period to net cash from operations:                
Share of income from unconsolidated equity investee     (5,452,523 )     -  
Depreciation     6,997,754       3,406,801  
Amortization     2,020,253       1,483,625  
Common stock issued for services     4,083,724       2,354,153  
Other amortized cost arising from convertible notes and others     2,074,106       2,509,296  
Changes in operating assets and liabilities:                
Increase in inventories     (17,752,925 )     (2,207,149 )
Increase in cost and estimated earnings in excess of billings on uncompleted contacts     (508,203 )     (250,828 )
Increase  in deposits and prepaid expenses     (2,395,890 )     (9,202,525 )
(Decrease) increase in due to a director     (1,220,116 )     299,243  
Increase  in accounts payable and accrued expenses     3,763,245       5,749,473  
Increase in other payables     10,125,347       14,573,279  
Decrease/(increase) in accounts receivable     17,756,843       (84,654 )
Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts     2,971,929       (7,053,426 )
Increase in other receivables     (11,668,581 )     (17,205,037 )
Net cash provided by operating activities     27,498,878       62,060,468  
Cash flows from investing activities                
Purchases of property and equipment and non-current assets held for sale     (14,552,588 )     (9,773,377 )
Interests in unconsolidated equity investees     -       (150,806 )
Payment for construction in progress     (7,073,340 )     (47,834,113 )
Net cash used in investing activities     (21,625,928 )     (57,758,296 )
Cash flows from financing activities                
Convertible note payable repaid through director’s account     (1,500,000 )     (7,676,760 )
Negotiable promissory notes repaid through director’s account     (900,000 )     -  
Long term debts repaid     --       (823,526 )
Short term bank loan repaid     (1,448,462 )     (3,849,707 )
Short term bank loan raised     -       6,738,544  
Capital contribution from non-controlling interest     434,809       -  
Net cash used in  financing activities     (3,413,653 )     (5,611,449 )
Effects on exchange rate changes on cash     (3,169,671 )     3,132,646  
                 
(Decrease) increase in cash and cash equivalents     (710,374 )     1,823,369  
Cash and cash equivalents, beginning of period     2,576,058       7,229,197  
Cash and cash equivalents, end of period   $ 1,865,684     $ 9,052,566  
                 
Supplementary disclosures of cash flow information:                
Cash paid for interest   $ 280,532     $ 224,059  
Cash paid for income taxes   $ -     $ -  
Non - cash transactions                
Common stock issued for services and employee compensation   $ 403,650     $ 7,963,889  
Common stock issue for debts issue and trade facilities   $ 12,054,044     $ 5,764,207  
Common stock purchased back for cancellation     -       (5,820,000 )
Transfer to plant and equipment from construction in progress   $ 1,506,705     $ 1,443,313  
Transfer to plant and equipment from deposits and prepayments   $ 5,484     $ 1,350,000  

 

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

 

F- 5  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On March 23, 2017, new investor, Qinghai Quanwang Investment Management Co., Limited (English translation) (“ Quanwang ”) a company incorporated in the P.R.C., introduced additional capital of $435,414 into SJAP. As a result, APWAM owned 41.25% of SJAP , Garwor owned the remaining 50.45%., and Quanwang owned the remaining 8.30%. This remains the case as of the date of this report (the “ Report ”).

 

F- 6  

 

 

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. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except fish farm. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations o f the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. The Company intends to convert the amount due from and into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter 2017, which would result in an equity interest in TRW increasing from its current 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. Up to September 30, 2017, MEIJI further invested $400,000 in JHMC.

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“ HSA ”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. As of September 30, 2017, MEIJI and SJAP total investment in HSA were $857,808 and 629,344, respectively.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“ SAFS ”). As of June 30, 2017, the Company invested $77,664 in SAFS. During the year ended December 31, 2016, SAFS changed from a public to a private company.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“ QZH ”) , with SJAP would owning 100% equity interest. As of March 31, 2017, the SJAP’s total investment in QZH was $4,645,489.

 

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

 

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

 

 

F- 7  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

  2.1 FISCAL YEAR

 

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

  

  2.2 REPORTING ENTITIES

 

Name of subsidiaries   Place of incorporation   Percentage of interest   Principal activities
             
Capital Award Inc. (“CA”)   Belize   100% (12.31.2016: 100%) directly   Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. (“CS”)   Belize   100% (12.31.2016: 100%) indirectly   Dormant
             
Capital Hero Inc. (“CH”)   Belize   100% (12.31.2016: 100%) indirectly   Dormant
             
Sino Agro Food Sweden AB (“SAFS”)   Sweden   100% (12.31.2016: 100%) directly   Dormant
             
Macau Eiji Company Limited (“MEIJI”)   Macau, P.R.C.   100% (12.31.2016: 100%) directly   Investment holding, cattle farm development, beef cattle and beef trading
             
A Power Agro Agriculture Development (Macau) Limited (“APWAM”)   Macau, P.R.C.   100% (12.31.2016: 100%) directly   Investment holding
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)   P.R.C.   75% (12.31.2016: 75%) indirectly   HylocereusUndatus Plantation (“HU Plantation”).
             
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)   P.R.C.   75% (12.31.2016:75%) indirectly   Beef cattle cultivation
             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   P.R.C.   76% (12.31.2016:76%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
             
Name of variable interest entity   Place of incorporation   Percentage of interest   Principal activities
             
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”)   P.R.C.   41.25% (12.31.2016: 45%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
             
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   P.R.C.   100% (12.31.2016: 100%)indirectly   Cattle slaughter
             
Name of unconsolidated equity investees   Place of incorporation   Percentage of interest   Principal activities
             
Tri-way Industries Limited (“TRW”)   Hong Kong, P.R.C.   23.89 % (12.31.2016: 23.89%) directly   Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
             
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)   P.R.C   100% (12.31.2016: 100%) indirectly   Fish cultivation

 

This represents stockholding percentage of total equity.

 

In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoyed interest 6% annually on its capital contribution and did not enjoy any profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% (12.31.2016: 100%) on profit or loss after deduction 6% interest to QQI and enjoyed 100% (12.31.2016: 100%) voting rights of QZH’s board and stockholders meetings.

 

F- 8  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.3 BASIS OF PRESENTATION

 

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

 

Reverse stock split and new conversion rate of Series B preferred stock to share of common stock on December 16, 2014, the Company implemented a 9.9-for-1 reverse stock split. On December 17, 2014, the Company implemented new conversion rate of 9.9 for 1 share of common stock. All share information contained within this report, including consolidated balance sheets, consolidated statements of income and other comprehensive income, and footnotes have been retroactively adjusted for the effects of reverse stock split and new conversion rate of Series B preferred stock to share of common stock.

 

  2.4 BASIS OF CONSOLIDATION

 

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

 

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

 

  2.5 BUSINESS COMBINATION

 

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

 

  2.6 NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

  2.7 USE OF ESTIMATES

 

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

 

F- 9  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer.

 

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

 

Multiple-Element Arrangements

 

To qualify as a separate unit of accounting under ASC 605-25 “ Multiple Element Arrangements ”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

 

Revenues from the Company’s consulting and services under development contracts are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 605, Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, the Company will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

 

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract to management’s estimate of the contract’s total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs include all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profit ability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the loss was identified.

 

The Company does not provide warranties to customers on a basis customary to the industry, however, customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

 

The Company provides various management services to its customers in the P.R.C. based on a negotiated fixed-price contract. The clients usually pay the fees when the services contract is signed and services are rendered. The Company recognizes these services-based revenues from contracts when (i) management services are rendered; (ii) clients recognize the completion of services; and (iii) collectability is reasonably assured. Fees received in advance are recorded as deferred revenue under current liabilities.

 

F- 10  

 

 

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  $1,716, $2,988, $17,862 and 17,272 for the three months and the nine months ended September 30, 2017 and 2016, respectively.

  

  2.11 ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $382,424, $382,596, $1,386,186 and $1,163,547 for the three months ended and the nine months ended September 30, 2017 and 2016, respectively.

   

  2.12 RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $449,910, $0, $449,910 and $0 for the three months ended and the nine months ended September 30, 2017 and 2016, respectively.

 

  2.13 FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

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

 

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

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $2,643,911 as of September 30, 2017 and $(4,335,355) as of December 31, 2016. The balance sheet amounts with the exception of equity as of September 30, 2017 and December 31, 2016 were translated using an exchange rate of RMB 6.64 to $1.00 and RMB 6.94 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2017, and 2016 were RMB 6.80 to $1.00 and RMB 6.58 to $1.00, respectively.

 

  2.14 CASH AND CASH EQUIVALENTS

 

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

 

  2.15 ACCOUNTS RECEIVABLE

 

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

 

The standard credit period for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2017 and December 31, 2016 are $0.

 

F- 11  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.16 INVENTORIES

 

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

 

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

 

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

 

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

 

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

 

  2.17 PLANT AND EQUIPMENT

 

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

 

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

 

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

 

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

 

  2.18 GOODWILL

 

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

 

  2.19 LONG TERM INVESTMENT

 

On October 29, 2014, the Company invested in Huangyuan County Rural Credit Union (“RCU”), Huangyuan County, Xining City, Qinghai Province, the P.R.C. RCU is engaged in the financing and crediting business to agricultural projects for local farmers. The Company has a 5% stake in RCU. The Company has no representative on the board of directors to oversee corporate operations. The Company accounts for its long term investment at cost.

 

F- 12  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.20 PROPRIETARY TECHNOLOGIES

 

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

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25 years.

 

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

 

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

 

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

 

  2.21 CONSTRUCTION IN PROGRESS

 

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

 

  2.22 LAND USE RIGHTS

 

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

 

  2.23 EQUITY METHOD INVESTMENTS

 

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

 

  2.24 CORPORATE JOINT VENTURE

 

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

 

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

 

F- 13  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.25 VARIABLE INTEREST ENTITY

 

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

 

  (a) equity-at-risk is not sufficient to support the entity’s activities;

 

  (b) as a group, the equity-at-risk holders cannot control the entity; or

 

  (c) the economics do not coincide with the voting interest.

 

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

 

  2.26 TREASURY STOCK

 

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

 

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

 

  (a) to meet additional stock needs for various reasons, including newly implemented stock option plans, stock for convertible bonds or convertible preferred stock, or a stock dividend.

 

  (b) to make more shares available for acquisitions of other entities.

 

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

 

  2.27 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

 

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property and equipment are not depreciated once classified as held for distribution. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated balance sheets. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

 

  · represents a separate major line of business or geographical area of operations

 

  · is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

 

  · is a subsidiary acquired exclusively with a view to resale

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of income and other comprehensive income.

 

F- 14  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.28 INCOME TAXES

 

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

 

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

 

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

 

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

 

  2.29 POLITICAL AND BUSINESS RISK

 

The Company’s operations are carried out in the P.R.C. Accordingly, the political, economic and legal environment in the P.R.C. may influence the Company’s business, financial condition and results of operations by the general state of the P.R.C.’s economy. The Company’s operations in the P.R.C. are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

  2.30 CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 2017 and December 31, 2016 amounted to $1,775,634 and $2,395,355, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers (A, B, C, D and E) whose business individually represented the following percentages of the Company’s total revenue for the period indicated:

 

    Three months ended
September 30,
2017
    Three months ended
September 30,
2016
    Nine months ended
September 30,
2017
    Nine months ended
September 30,
2016
 
                         
Customer A     24.59 %     19.82 %     24.83 %     19.56 %
Customer B     21.89 %     - %     22.03 %     - %
Customer C     16.34 %     11.95 %     14.42 %     9.52 %
Customer D     10.32 %     6.68 %     9.22 %     7.56 %
Customer E     6.15 %     - %     9.70 %     - %
Customer F     - %     16.59 %     - %     14.17 %
Customer G     - %     4.74 %     - %     9.58 %
      79.29 %     59.78 %     80.20 %     60.39 %

 

        Percentage
of revenue
    Amount  
Customer A   Corporate and others Division     24.83 %   $ 41,405,509  
Customer B   Organic fertilizer and Bread Grass Division     22.03 %   $ 36,729,604  
Customer C   Cattle farm development and Hu plantation division     14.42 %   $ 24,034,972  

  

Accounts receivable are derived from revenue earned from customers located primarily in the P.R.C. The Company performs ongoing credit evaluations of customers and has not experienced any material losses to date.

 

The Company had 5 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable:

 

    September 30, 2017     December 31, 2016  
             
Customer A     21.02 %     19.61 %
Customer B     20.70 %     12.83 %
Customer C     18.82 %     18.11 %
Customer D     7.34 %     - %
Customer E     6.37 %     5.96 %
Customer F     - %     7.52 %
      74.25 %     64.03 %

 

As of September 30, 2017, amounts due from customers A, B and C are $22,106,909, $21,767,182 and $19,793,205, 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.

 

F- 15  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.30 IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of June 30, 2017 and December 31, 2016, the Company determined no impairment losses were necessary.

 

  2.31 EARNINGS PER SHARE

 

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

 

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

 

For the three months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing and discontinued operations amounted to $0.14 and $1.04, respectively. For the three months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.15 and $0.95, respectively.

 

For the three months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing operations amounted to $0.14 and $0.91, respectively. For the three months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.15 and $0.81, respectively.

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing and discontinued operations amounted to $0.62 and $2.45, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.63 and $2.24, respectively.

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing operations amounted to $0.62 and $1.81, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.63 and $1.72, respectively.

  

  2.32 ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “ Comprehensive Income ” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

  2.33 RETIREMENT BENEFIT COSTS

 

P.R.C. state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution made by the employer.

 

  2.34 STOCK-BASED COMPENSATION

 

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

 

F- 16  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.35 FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

  Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

  Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

  Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2017 or December 31, 2016, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended September 30, 2017 or 2016.

 

F- 17  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.36 NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance will be effective for us in the first quarter of 2017, and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In October 2016, the FASB issued Accounting Standards Update No. 2016-16,  Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory  (ASU 2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We currently anticipate adopting the new standard effective January 1, 2018, and do not expect the standard to have a material impact on our consolidated financial statements.

 

In November 2016, the FASB issued Accounting Standards Update No. 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash  (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosure

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01,  Business Combinations (Topic 805): Clarifying the Definition of a Business  (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04,  Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment  (ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

F- 18  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle Farm Development Division and Corporate and Others Division. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW’), part of Fishery Division, were disposed from the Company; and (ii). Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division – sale of goods was treated as Discontinued operations. No geographic information is required as all revenue and assets are located in the P.R.C.

  

    For the three months ended September 30, 2017  
    Continuing
operation
    Discontinued
operation
       
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Division(1)     Total  
                                           
Revenue   $ 2,978,371     $ 1,486,465     $ 21,057,805     $ 7,281,156     $ 15,589,136     $ -     $ 48,392,933  
                                                         
Net income (loss)   $ 696,266     $ 10,010     $ 575,316     $ 684,685     $ 1,484,571     $ -     $ 3,450,948  
                                                         
Total assets   $ 74,754,393     $ 48,728,564     $ 379,508,585     $ 36,656,931     $ 276,688,775     $ -     $ 816,337,248  

 

    For the three months ended September 30, 2016  
    Continuing
operation
    Discontinued
operation
       
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Division(1)     Total  
                                           
Revenue   $ 23,377,355     $ 6,692,140     $ 48,697,145     $ 9,658,454     $ 23,232,486     $ 12,460,878     $ 124,118,458  
                                                         
Net income (loss)   $ 10,191,548     $ 2,479,488     $ 5,833,910     $ 1,060,267     $ (1,040,511 )   $ 2,767,775     $ 21,292,477  
                                                         
Total assets   $ 164,123,917     $ 49,180,420     $ 350,422,450     $ 36,538,577     $ 107,268,695     $ 8,381,108     $ 715,915,167  

 

    For the nine months ended September 30, 2017  
    Continuing     Discontinued        
    Operation     operation        
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Division(1)     Total  
                                           
Revenue   $ 16,167,636     $ 3,565,220     $ 67,135,311     $ 23,094,392     $ 56,769,967     $ -     $ 166,732,526  
                                                         
Net income (loss)   $ 5,006,568     $ (488,030 )   $ 3,086,832     $ 2,574,705     $ 1,840,866     $ -     $ 12,020,941  
                                                         
Total assets   $ 74,754,393     $ 48,728,564     $ 379,508,585     $ 36,656,931     $ 276,688,775     $ -     $ 816,337,248  

 

    For the nine months ended September 30, 2016  
    Continuing     Discontinued        
    Operation     operation        
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division(1)     Division (2)     Division (3)     Division (4)     others (5)     Division(1)     Total  
                                           
Revenue   $ 55,776,414     $ 12,194,399     $ 124,003,741     $ 21,555,101     $ 49,303,780     $ 57,480,332     $ 320,313,767  
                                                         
Net income (loss)   $ 19,838,145     $ 3,611,696     $ 15,989,599     $ 2,121,686     $ (4,332,930 )   $ 11,467,257     $ 48,695,453  
                                                         
Total assets   $ 164,123,917     $ 49,180,420     $ 350,422,450     $ 36,538,577     $ 107,268,695     $ 8,381,108     $ 715,915,167  

 

F- 19  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

  (1) Operated by Capital Award, Inc. (“CA”) and Jiang Men City A Power Fishery Development Co., Limited (“JFD”). On September 30, 2016, part of JFD was disposed from the Company.

 

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

 

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

 

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

 

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

 

F- 20  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

   

    For the three ended September 30, 2017  
    Continuing     Discontinued        
    operations     operations        
                Organic Fertilizer                           
    Fishery Development     HU Plantation     and Bread Grass     Cattle Farm Development     Corporate
and
    Fishery
Development
       
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       1,486,465       -       -       -       -       1,486,465  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       1,669,684       -       -       -       1,669,684  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       6,282,189       -       -       -       6,282,189  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       13,105,932       -       -       -       13,105,932  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       7,281,156       -       -       7,281,156  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       15,589,136       -       15,589,136  
                                                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     2,978,371       -       -       -       -       -       2,978,371  
                                                         
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -       -  
    $ 2,978,371     $ 1,486,465     $ 21,057,805     $ 7,281,156     $ 15,589,136     $ -     $ 48,392,933  

 

F- 21  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the three months ended September 30, 2016  
    Continuing     Discontinued        
    operations     operations        
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ 12,460,878     $ 12,460,878  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       6,692,140       -       -       -       -       6,692,140  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       5,248,212       -       -       -       5,248,212  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       14,054,405       -       -       -       14,054,405  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       29,394,528       -       -       -       29,394,528  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       9,658,454       -       -       9,658,454  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       23,232,486       -       23,232,486  
                                                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     23,062,838       -       -       -       -       -       23,062,838  
                                                         
Commission and management fee Capital Award, Inc. (“CA”)     314,517       -       -       -       -       -       314,517  
    $ 23,377,355     $ 6,692,140     $ 48,697,145     $ 9,658,454     $ 23,232,486     $ 12,460,878     $ 124,118,458  

 

F- 22  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2017  
    Continuing     Discontinued        
    Operations     operations        
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       3,565,220       -       -       -       -       3,565,220  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       5,393,285       -       -       -       5,393,285  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       21,695,718       -       -       -       21,695,718  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       40,046,308       -       -       -       40,046,308  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       23,094,392       -       -       23,094,392  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       56,769,967       -       56,769,967  
                                                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     16,167,636       -       -       -       -       -       16,167,636  
                                                         
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -       -  
    $ 16,167,636     $ 3,565,220     $ 67,135,311     $ 23,094,392     $ 56,769,967     $ -     $ 166,732,526  

 

F- 23  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2016  
    Continuing     Discontinued        
    Operations     operations        
    Fishery
Development
    HU Plantation     Organic Fertilizer
and Bread Grass
    Cattle Farm
Development
    Corporate and     Fishery
Development
       
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ 57,480,332     $ 57,480,332  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       12,194,399       -       -       -       -       12,194,399  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       15,561,982       -       -       -       15,561,982  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       35,484,854       -       -       -       35,484,854  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       72,956,905       -       -       -       72,956,905  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       21,555,101       -       -       21,555,101  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       49,303,780       -       49,303,780  
                                                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     54,727,215       -       -       -       -       -       54,727,215  
                                                         
Commission and management fee Capital Award, Inc. (“CA”)     1,049,199       -       -       -       -       -       1,049,199  
    $ 55,776,414     $ 12,194,399     $ 124,003,741     $ 21,555,101     $ 49,303,780     $ 57,480,332     $ 320,313,767  

 

F- 24  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2017  
    Continuing       Discontinued          
    operations       operations          
    Fishery     HU     Organic Fertilizer     Cattle Farm             Fishery          
    Development     Plantation     and Bread Grass     Development     Corporate and       Development          
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)       Division (6)       Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       1,248,695       -       -       -       -       1,248,695  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       1,228,851       -       -       -       1,228,851  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       4,289,390       -       -       -       4,289,390  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       12,654,496       -       -       -       12,654,496  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       6,319,872       -       -       6,319,872  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       13,871,205       -       13,871,205  
    $ -     $ 1,248,695     $ 18,172,737     $ 6,319,872     $ 13,871,205     $ -     $ 39,612,509  

 

COST OF SERVICES

 

    For the three months ended September 30, 2017  
    Continuing     Discontinued        
    operations     operations        
    Fishery           Organic Fertilizer     Cattle Farm           Fishery        
    Development     HU Plantation     and Bread Grass     Development     Corporate and     Development        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity                                                        
                                                         
Consulting and service income for development contracts                                                        
                                                         
Capital Award, Inc. (“CA”)     2,234,070       -       -       -       -       -       2,234,070  
    $ 2,234,070     $ -     $ -     $ -     $ -     $ -     $ 2,234,070  

 

F- 25  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2016  
    Continuing     Discontinued        
    operations     operations        
    Fishery     HU     Organic Fertilizer     Cattle Farm           Fishery        
    Development     Plantation     and Bread Grass     Development     Corporate and     Development        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Division (6)     Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ 9,291,339     $ 9,291,339  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       3,009,881       -       -       -       -       3,009,881  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       3,063,392       -       -       -       3,063,392  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       9,710,033       -       -       -       9,710,033  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       23,542,313       -       -       -       23,542,313  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       9,119,428       -       -       9,119,428  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       20,576,693       -       20,576,693  
    $ -     $ 3,009,881     $ 36,315,738     $ 9,119,428     $ 20,576,693     $ 9,291,339     $ 78,313,079  

 

COST OF SERVICES

 

    For the three months ended September 30, 2016  
    Continuing     Discontinued        
    operations     operations        
    Fishery           Organic Fertilizer     Cattle Farm     Corporate     Fishery        
    Development     HU Plantation     and Bread Grass     Development     and others     Development        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Division (6)     Total  
                                           
Name of entity                                                        
                                                         
Consulting and service income for development contracts                                                        
                                                         
Capital Award, Inc. (“CA”)     12,450,460     $ -     $ -     $ -     $ -     $ -     $ 12,450,460  
    $ 12,450,460     $ -     $ -     $ -     $ -     $ -     $ 12,450,460  

 

F- 26  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2017  
    Continuing
operations
    Discontinued
operations
       
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Fishery
Development
Division (6)
    Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       2,334,052       -       -       -       -       2,334,052  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       3,765,816       -       -       -       3,765,816  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       14,517,323       -       -       -       14,517,323  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       37,555,254       -       -       -       37,555,254  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       19,582,042       -       -       19,582,042  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       50,476,389       -       50,476,389  
    $ -     $ 2,334,052     $ 55,838,391     $ 19,582,042     $ 50,476,389     $ -     $ 128,230,874  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2017  
    Continuing
operations
    Discontinued
operations
       
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Fishery
Development
Division (6)
    Total  
                                           
Name of entity Consulting and service income for development contracts                                                        
                                                         
Capital Award, Inc. (“CA”)     11,016,962       -       -       -       -       -       11,016,962  
    $ 11,016,962     $ -     $ -     $ -     $ -     $ -     $ 11,016,962  

 

F- 27  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2016  
    Continuing
operations
    Discontinued
operations
       
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Fishery
Development
Division (6)
    Total  
                                           
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ 44,401,078     $ 44,401,078  
                                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       5,664,598       -       -       -       -       5,664,598  
                                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       9,373,214       -       -       -       9,373,214  
                                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       23,879,210       -       -       -       23,879,210  
                                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       55,598,165       -       -       -       55,598,165  
                                                         
Macau Eiji Company Limited (“MEIJI”)     -       -       -       20,392,263       -       -       20,392,263  
                                                         
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       43,452,904       -       43,452,904  
    $ -     $ 5,664,598     $ 88,850,589     $ 20,392,263     $ 43,452,904     $ 44,401,078     $ 202,761,432  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2016  
    Continuing
operations
    Discontinued
operations
       
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Fishery
Development
Division (6)
    Total  
                                           
Name of entity Consulting and service income for development contracts                                                        
                                                         
Capital Award, Inc. (“CA”)     35,377,800       -       -       -       -       -       35,377,800  
    $ 35,377,800     $ -     $ -     $ -     $ -     $ -     $ 35,377,800  

 

F- 28  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5. INCOME TAXES

 

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no U.S. corporate tax has been provided for in the consolidated financial statements of the Company.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

 

The Company appointed US tax professionals to assist in filing income tax returns for the years ended December 31, 2016 in compliance with US Treasury Internal Revenue Code and we filed our 2015 Tax returns with the Internal Revenue Service (“IRS”) in 2016.

 

As of September 30, 2017, the Company reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties assessed by the IRS in the United States of America.

 

F- 29  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5. INCOME TAXES (CONTINUED)

 

China

 

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

 

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

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA, SJAP and QZH since they are exempt from EIT for the nine months ended September 30, 2017 and 2016 as they are within the agriculture, and cattle sectors.

 

No EIT has been provided in the financial statements of JFD since they are exempt from EIT for the nine months ended September 30, 2016.

 

Belize

 

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

 

Hong Kong

 

No Hong Kong profits tax has been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2016.

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the nine months ended September 30, 2017 and 2016.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the nine months ended September 30, 2017 and 2016.

 

No deferred tax assets and liabilities are of September 30, 2017 and December 31, 2016 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

    Three months ended
September 30, 2017
    Three months ended
September 30, 2016
    Nine months ended
September 30, 2017
    Nine months ended
September 30, 2016
 
                         
SIAF   $ -     $ -     $ -     $ -  
SAFS     -       -       -       -  
TRW     -       -       -       -  
MEIJI and APWAM     -       -       -       -  
JHST, JFD, JHMC, SJAP, QZH and HSA     -       -       -       -  
    $ -     $ -     $ -     $ -  

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2017 and 2016. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

F- 30  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6. NET INCOME FROM DISCONTINUED OPERATIONS

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of US$238.32 million from respective third parties and the master technology license at fair value of US$30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in the consolidated statement of profit and loss account of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took all assets and liabilities of TRW and JFD except plant and equipment - fish farm. The Company intends to convert the amount due from and into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter 2017, which would result in an equity interest in TRW increasing from its current 23.89% to 36.60%. 

  

Prior to loss of control over TRW group, the Fishery Development Division represented a separate business segment. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW”), part of Fishery Division, were disposed from the Company; and (ii) Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division - sale of goods was treated as Discontinued operations. The post-tax result of the Fishery Development Division has been disclosed as a discontinued operation in the consolidated statements of income and comprehensive income. Loss of control over TRW and JFD were not subject to business tax of PRC and income tax of PRC and Hong Kong.

 

The Company did not retain any significant continuing involvements with discontinued operations - Fishery Development Division, and retained its investment in the discontinued operations as unconsolidated equity investee upon closing the transaction pursuant to ASC 205-20-50-24A and B. There was no option to repurchase a discontinued operation.

 

Net income from discontinued operations

 

    Three months ended
September 30, 2017
    Three months ended
September 30, 2016
    Nine months ended
September 30, 2017
    Nine months ended
September 30, 2016
 
                         
Revenue                                
-Sale of goods   $ -     $ 12,460,878     $ -     $ 57,480,332  
Cost of sales     -       (9,291,339 )     -       (44,401,078 )
Gross profit     -       3,169,539       -       13,079,254  
                                 
General and administrative expenses     -       (270,028 )     -       (791,347 )
                                 
Income from operations     -       2,899,511       -       12,287,907  
Interest income/(expenses)     -       617       -       323  
Net income from discontinued business     -       2,900,128       -       12,288,230  
Provision for income taxes     -       -       -       -  
Net income from discontinued operations     -       2,900,128       -       12,288,230  
Less: Net income attributable to the non-controlling interest     -       (132,3532 )     -       (820,973 )
                                 
Net income from discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries   $ -     $ 2,767,775     $ -     $ 11,467,257  

 

F- 31  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

7. CASH AND CASH EQUIVALENTS

 

    September 30, 2017     December 31, 2016  
                 
Cash and bank balances   $ 1,865,684     $ 2,576,058  

 

F- 32  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

8. INVENTORIES

 

As of September 30, 2017, inventories are as follows:

 

    September 30, 2017     December 31, 2016  
             
Sleepy cods, prawns, eels and marble goby     -       481,509  
Beef and mutton     23,435,619       13,217,456  
Bread grass     1,423,165       2,115,815  
Beef cattle     6,638,851       6,814,132  
Organic fertilizer     19,451,282       15,901,153  
Forage for cattle and consumable     8,787,059       6,536,517  
Raw materials for bread grass and organic fertilizer     18,534,940       15,829,424  
Immature seeds     2,074,281       1,696,266  
    $ 80,345,197     $ 62,592,272  

    

9. DEPOSITS AND PREPAYMENTS

 

    September 30, 2017     December 31, 2016  
             
Deposits for                
-  purchases of equipment   $ 6,733,546     $ 5,555,471  
-  acquisition of land use rights     3,373,110       3,373,110  
- inventories purchases     15,685,124       13,729,305  
- aquaculture contracts     2,261,538       2,261,538  
- consulting service providers and others     6,317,702       8,150,000  
- construction in progress     13,871,440       13,719,339  
- issue of shares as collateral     35,250,553       26,493,841  
Prepayments - debts discounts and others     3,812,152       5,007,015  
Shares issued for employee compensation and overseas professional and bond interest     302,738       3,982,812  
Others     6,327,576       2,573,535  
    $ 93,935,479     $ 84,845,966  

 

10. ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2017 and December 31, 2016. Bad debts written off for the three months ended and the nine months ended September 30, 2017, and 2016 are $0.

 

Aging analysis of accounts receivable is as follows:

 

    September 30, 2017     December 31, 2016  
             
0 - 30 days   $ 16,093,379     $ 28,550,628  
31 - 90 days     23,944,325       29,905,888  
91 - 120 days     11,707,115       39,219,847  
over 120 days and less than 1 year     53,410,424       25,235,723  
over 1 year     -       -  
    $ 105,155,243     $ 122,912,086  

 

F- 33  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

11. OTHER RECEIVABLES

 

    September 30, 2017     December 31, 2016  
             
Advanced to employees   $ 326,587     $ 260,007  
Advanced to suppliers     14,655,824       9,428,841  
Advanced to customers     18,635,244       19,469,256  
Advanced to developers     16,032,772       7,500,000  
Others     9,138,954       10,462,696  
    $ 58,789,381     $ 47,120,800  

 

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

 

The Company entered loan agreements with suppliers, customers and developers to assist them to procure project loans.

 

12. PLANT AND EQUIPMENT

 

    September 30, 2017     December 31, 2016  
             
Plant and machinery   $ 7,203,563     $ 6,022,686  
Structure and leasehold improvements     171,577,557       163,414,025  
Mature seeds and herbage cultivation     44,206,623       28,781,286  
Furniture and equipment     912,754       827,356  
Motor vehicles     963,254       926,511  
      224,863,751       199,971,864  
                 
Less: Accumulated depreciation     (17,242,391 )     (10,244,637 )
Net carrying amount   $ 207,621,360     $ 189,727,227  

 

Depreciation expense was $2,491,515, $1,142,872, $6,997,754 and $3,406,801 for the three months ended and the nine months ended September 30, 2017 and 2016, respectively.

 

14. CONSTRUCTION IN PROGRESS

 

    September 30, 2017     December 31, 2016  
             
Construction in progress                
- Office, warehouse and organic  fertilizer plant in HSA   $ 4,670,785     $ 4,474,428  
- Oven room, road for production of dried flowers     5,155,478       3,603,863  
- Organic fertilizer and bread grass production plant and office building     3,341,861       622,036  
- Rangeland for beef cattle and office building     10,558,715       8,674,515  
- Fish pond     17,782,371       17,782,371  
    $ 41,509,210     $ 35,157,213  

   

15. LAND USE RIGHTS

 

Private ownership of agricultural land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.26 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571, which consists of 84.5 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.27 acres in the Hunan Province, the P.R.C. and the leases expire in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was $489,904 which consisted of 6.26 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the lease expires in 2044.

 

F- 34  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

15. LAND USE RIGHTS (CONTINUED)

 

    September 30, 2017     December 31, 2016  
             
Cost   $ 64,703,394     $ 62,300,409  
Less: Accumulated amortization     (10,199,388 )     (8,626,719 )
Net carrying amount   $ 54,504,006     $ 53,673,690  

 

    Amount  
       
Balance @1.1.2016   $ 65,961,071  
Exchange difference     (3,660,662 )
Balance @12.31.2016   $ 62,300,409  
Exchange difference     2,402,985  
Balance @9.30.2017   $ 64,703,394  

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years. Amortization of land use rights was $567,309, $361,634, $1,572,669 and $1,053,668 for the three months and the nine months ended September 30, 2017 and 2016 respectively.

 

16. GOODWILL

 

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

 

    September 30, 2017     December 31, 2016  
             
Goodwill from acquisition   $ 724,940     $ 724,940  
Less: Accumulated impairment losses     -       -  
Net carrying amount   $ 724,940     $ 724,940  

 

17. PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On October 1, 2015, the Company took up such assets at $5,473,720 from TRW. On October 5, 2016, TRW and JFD were derecognized as subsidiaries.

 

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

 

F- 35  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

17. PROPRIETARY TECHNOLOGIES (CONTINUED)

 

    September 30, 2017     December 31, 2016  
             
Cost   $ 11,184,696     $ 11,108,131  
Less: Accumulated amortization     (1,465,018 )     (1,017,434 )
Net carrying amount   $ 9,719,678     $ 10,090,697  

 

Amortization of proprietary technologies was $152,440, $145,055, $447,584 and $429,937 for the three months and the nine months ended September 30, 2017 and 2016, respectively.  No impairments of proprietary technologies have been identified for the three months and the nine months ended September 30, 2017 and 2016.

 

18. 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 intends to convert the amount due from and into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter 2017, which would result in an equity interest in TRW increasing from its current 23.89% to 36.60%.

  

On May 6, 2016, SJAP invested in 30% equity interest in Guangzhou Horan Taita Information Technology Co., Limited (“ HTIT ”), a company incorporated in P.R.C. for $150,806.

 

    September 30, 2017     December 31, 2016  
             
Investments at cost                
-   TRW   $ 124,657,542     $ 83,869,286  
-   HITT     160,670       144,154  
Amount due from a consolidated equity investee - TRW     14,438,797       55,120,003  
Share of post-acquisition profits     5,262,524       -  
    $ 144,519,533     $ 139,133,443  

 

F- 36  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

19. LONG TERM INVESTMENT

 

    September 30, 2017     December 31, 2016  
             
Investment in Huangyuan County Rural Credit Union   $ 753,352     $ 720,773  
Less: Accumulated impairment losses     -       -  
    $ 753,352     $ 720,773  

 

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

 

Intended                    
unincorporated   Projects                
Investee   Engaged       September 30, 2017     December 31, 2016  
A   Trade center   *   $ 4,086,941     $ 4,086,941  
B   Fish Farm 2 GaoQiqiang Aquaculture   *     6,000,000       6,000,000  
C   Cattle farm 2   *     5,558,057       5,558,057  
            $ 15,644,998     $ 15,644,998  

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of Semptember 30, 2017, the percentages of equity stakes of A (trade center), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm 2) are 31%, 23% and 35% respectively.

 

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

 

21. VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“ SJAP ”), which was incorporated in the P.R.C. As of September 30, 2017, the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

 

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

 

F- 37  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

21. 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 September 30, 2017, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the changes are as follows:

 

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

 

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

 

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

 

Continuous assessment of the VIE relationship with QZH

 

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

 

The Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2017, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.

 

SJAP is sole stockholder of QZH and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorship of QZH, such that the Company now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of QZH. As a result, the financial statements of QZH were included in the consolidated financial statements of the Company.

 

F- 38  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

22 . CONSTRUCTION CONTRACT

 

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

 

    September 30, 2017     December 31, 2016  
             
Costs   $ 8,208,913     $ 7,288,360  
Estimated earnings     6,740,288       5,846,890  
Less:  Billings     (13,700,014 )     (12,394,266 )
Costs and estimated earnings in excess of billings on uncompleted contracts   $ 1,249,187     $ 740,984  

   

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

 

    September 30, 2017     December 31, 2016  
             
Billings   $ 40,590,477     $ 24,115,354  
Less:  Costs     (23,404,302 )     (13,907,143 )
Estimated earnings     (11,583,494 )     (7,577,459 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 5,602,681     $ 2,630,752  

   

  (iii) Overall

 

    September 30, 2017     December 31, 2016  
             
Billings   $ 54,290,491     $ 36,509,620  
Less:  Costs     (31,613,215 )     (21,195,503 )
Estimated earnings     (18,323,782 )     (13,424,349 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 4,353,494     $ 1,889,768  

   

23. OTHER PAYABLES

 

    September 30, 2017     December 31, 2016  
             
Due to third parties   $ 3,806,880     $ 451,195  
Due to debts loan     7,692,222       4,797,332  
Promissory notes issued to third parties     14,492,221       11,192,117  
Due to local government     1,288,233       713,565  
    $ 27,279,556     $ 17,154,209  
                 
Less: Amount classified as non-current liabilities                
Promissory notes issued to third parties     (14,492,221 )     (11,192,117 )
Due  to debts loan     (7,692,222 )     -  
Amount classified as current liabilities   $ 5,095,113     $ 5,962,092  

 

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

 

As of September 30, 2017, the Company issued 1,344,098 shares of common stock as collateral to secure debts loan of $7,692,222.

 

F- 39  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24. BORROWINGS

 

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

 

Short term bank loan

 

Name of lender   Interest rate     Term   September 30, 2017     December 31, 2016  
                       
Da Tong National Development Rural Bank Limited                            
Da Tong County, Xining City, Qinghai Province, the P.R.C.     10 %   July 14 ,2016 - May 28, 2017   $ -     $ 2,883,090  
Da Da Tong National Development Rural Bank Limited                            
Da Tong County, Xining City, Qinghai Province, the P.R.C.     10 %   June 7, 2017 - June 6, 2018     1,506,705 ^+@     -  
                $ 1,506,705     $ 2,883,090  

 

Long term bank loan

 

Name of lender   Interest rate     Term   September 30, 2017     December 31, 2016  
                             
China Development Bank
Beijing City, the P.R,C.
    5.39 %   December 9, 2016 - December 15, 2026   $ 6,026,819 ^*#   $ 5,766,182  

 

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

 

  ^ personal and corporate guaranteed by third parties.

 

  * secured by land use rights with net carrying amount of $309,257 (12.31.2016: $416,973).

 

  + secured by property and equipment with net carrying amount of $870,736 (12.31.2016: $ 1,036,889).

 

  @ secured by land use rights with net carrying amounts of $330,507 (12.31.2016: $363,092).

 

  # repayable $72,078, $216,232, $288,308, $432,464, $432,464, $720,773, $720,773, $1,441,545 and $1,702,182 in  2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026, respectively (31.12.2016: repayable $72,078, $216,232, $288,308, $432,464, $432,464, $720,773, $720,773, $1,441,545 and $ 1,441,545 in  2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026, respectively).

 

F- 40  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

25. NEGOTIABLE PROMISSORY NOTES

 

On August 29, 2015, TRW issued negotiable promissory notes to three fund companies and one individual for $3,450,000 and the company acted as guarantor for repayment. As of October 1, 2016, the Company entered assignment agreement with TRW to take up liabilities of negotiable promissory notes.

 

    September 30, 2017     December 31, 2016  
                 
Negotiable promissory notes   $ 368,462     $ 1,113,140  

 

Principal amount:   $135,479  (12.31.2016: $1,035,479)
Interest payable:   $232,983 (12.31.2016: $77,661)
Interest rate:   2.5% (12.31.2016: 2.50% %) per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Default interest rate   15% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Interest payment   Accrued interest on the principal amount shall be paid by cash  in arrears on each interest payment date
Issue date:   August 29, 2015  and  October 12, 2015
Repayment date:   Repaid in full within  283 calendar days from the issue of notes
Conversion option:   Notes holders can exercise at any time from and including the day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written notices to TRW and the Company, the principal amount shall be converted to shares of the Company. The TRW may at their own discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In the event a dividend, share split or consolidation or spin-off (each a Corporate Event”) from the Company, the conversion price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur.
Security:   Corporate guarantee by the Company

 

F- 41  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26. SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of September 30, 2017 and December 31, 2016 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

 

On March 22, 2010, the Company designated 100 shares of Series A preferred stock at a par value per share of $0.001. As of the same date, 100 shares of Series A preferred stock were issued at $1 per share for cash in the amount of $100.

 

The Series A preferred stock:

 

  (i) does not pay a dividend;

 

  (ii) votes together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and

 

  (ii) ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

 

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

 

F- 42  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26. SHAREHOLDERS’ EQUITY (CONTINUED)

 

The Series B convertible preferred stock:

 

On March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the Company and a stockholder, Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of Directors, to exchange for 3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23, 2012, 3,000,000 shares of Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its holding of 3,000,000 shares of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned to the Company. On March 27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17, 2014, the Company approved an amendment to certificate designation in respect of Series B preferred stock. Pursuant to the above new amendment, each holder of Series B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of Series B preferred to one fully paid and non-assessable share of common stock of par value $0.001 per share. On June 15, 2015, Series B preferred stockholder exercised at the above conversion ratio to convert 7,000,000 shares of Series B preferred stock to 707,070 shares of common stock.

 

There were 0 shares of Series B convertible preferred stock issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

 

The Series F Non-Convertible Preferred Stock:

 

  (i) is not redeemable subject to (iv);

 

  (ii) except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to (a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.

 

  (iii) shall not entitled to receive any further dividend; and

 

  (iv) on May 30, 2014, the holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. However, the Company was unable to issue the Series F Non-convertible Preferred Stock as originally contemplated. Consequently, The Company’s transfer agent was instructed to note in its record date rather than actual issue the Preferred F shares. On June 14, 2014, the Company announced the delay in payment of the coupon until May 30, 2015. The company reserved the excess over the nominal amount of the Series F Non-convertible Preferred Stock of $3,124,737 as Series F Non-convertible Preferred Stock redemption payable. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

 

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of September 30, 2017 and December 31, 2016 are 0 shares and grand total issued and outstanding preferred stock as of September 30, 2017 and December 31, 2016 are 100 shares.

 

F- 43  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26. SHAREHOLDERS’ EQUITY (CONTINUED)

 

Common Stock:

 

During the year ended December 31, 2016, the Company (i) issued 1,199,068 shares of common stock to employees and directors valued at fair value of $5.98 per share for $7,169,823 for employee compensation; (ii) issued 132,787 shares of common stock valued to professionals at fair value of $5.98 per share for $794,066 for service compensation; (iii) issued 2,461,247 shares of common stock ranging from $6.96 to $8.91 amounting to $5,765,476 as collateral to secure debts loan of $4,797,332, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued; and purchased 1,200,000 shares of common stock of $4.85 amounting to $5,820,000 for cancellation.

 

The Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 22,727,273 to 27,000,000 and the amendment was filed on December 28, 2016.

 

The 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 on August 24, 2017 with an effective date of August 25, 2017.

 

During the three months ended September 30, 2017, the Company issued 2,382,246 shares of common stock valued at fair value of $1.40 amounting to $3,335,144 as additional collateral to secure loan and trade facility shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

During the nine months ended September 30, 2017, the Company issued (i) 425,103 shares of common stock to employees and directors valued at fair value of $3.45 per share for $403,650 for employee compensation; (ii) 4,074,979 shares of common stock valued at fair value ranging from $1.4 to $5.15 amounting to $12,054,044 as additional collateral to secure loan and trade facility and 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 27,811,573 and 22,726,859 shares of common stock issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

 

F- 44  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27. OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2019; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733, its lease expiring on July 8, 2018; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, P.R.C. for a monthly rent of $226, its lease expiring on May 1, 2018.

 

Lease expenses were $42,790, $42,790, $126,569 and $226,524 for the three months ended and the nine months ended September 30, 2017 and 2016, respectively.

 

The future minimum lease payments as of September 30, 2017, are as follows:

 

Year ending December 31, 2017   $ 45,790  
Year ending December 31, 2018 and thereafter     123,680  
    $ 169,470  

 

F- 45  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

28. STOCK BASED COMPENSATION

 

On May 10, 2016, the Company issued directors and employees a total of 1,199,068 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share. On the same date, the Company issued professionals a total of 132,787 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share.

 

The Company calculated stock based compensation of $7,965,624 and recognized $4,345,993 for the year ended December 31, 2016. As of December 31, 2016, the deferred compensation balance for staff was $3,982,813 and the deferred compensation balance of $3,982,813 was to be amortized over 6 months beginning on January 1, 2017.

 

On June 30, 2017, the Company issued professionals a total of 117,000 shares of common stock valued at fair value of $3.45 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $3.45 per share.

 

The Company calculated stock based compensation of $4,386,463 and recognized $100,912, $1,990,972, $4,083,725 and $2,354,153 for the three months and the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the deferred compensation balance for staff was $302,738 and the deferred compensation balance of $302,738 was to be amortized over 9 months beginning on October 1, 2017.

 

29. CONTINGENCIES

 

As of September 30, 2017 and December 31, 2016, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements of cash flows.

 

The Company entered into loan and pledge agreement with a Shanghai, P.R.C. based lender (the “lender”) The lender has various trading facilities and has agreed to allow the Company or its nominee to use parts of trading facilities up to an amount of $20 million (31.12.2016: $20 million) to be used in tranches and revolved up to a period of three years, of which $16,626,325 (31.12.2016: $13,982,640) was utilized.

 

30. RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the nine months ended September 30, 2017 and 2016, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     
Mr. Solomon Yip
Kun Lee,
Chairman 
   Included in due to a director, due to Mr. Solomon Yip Kun Lee is $850,274 and $2,070,390 as of September 30, 2017 and December 31, 2016, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.
     
Tri-way Industries Limited, (“TRW’) Unconsolidated equity investee   Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is $14,438,797 and $55,120,003 as of September 30, 2017 and December 31, 2016, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.
     
    Included in accounts receivable, due from Tri-way Industries Limited is $21,767,182 and $15,771,795 as of September 30, 2017 and December 31, 2016, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.
     
    The Company has consulting and service income from development contracts of $2,978,371, $0, $16,167,636 and $0 from Tri-way Industries Limited for the three months and the nine months ended September 30, 2017 and 2016, respectively.

 

F- 46  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31. EARNINGS PER SHARE

 

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

 

    Three months ended
September 30, 2017
    Three months ended
September 30, 2016
 
          (Restated)  
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 3,450,848     $ 21,292,477  
Net income used in computing basic earnings per share - continuing operations   $ 3,450,848     $ 18,524,702  
Basic earnings per share - continuing and discontinued operations   $ 0.14     $ 1.04  
Basic earnings per share - continuing operations   $ 0.14     $ 0.91  
Basic weighted average shares outstanding     24,231,617       20,376,225  

 

    Three months ended
September 30, 2017
    Three months ended
September 30, 2016
 
          (Restated)  
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 3,450,848     $ 21,292,477  
Convertible note interest     526,543       404,877  
Net income used in computing diluted earnings per share   $ 3,977,391     $ 21,697,354  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.15     $ 0.95  

 

    Three months ended
September 30, 2017
    Three months ended
September 30, 2016
 
             
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 3,450,848     $ 18,524,702  
Convertible mote interest     526,543       404,877  
Net income used in computing diluted earnings per share   $ 3,997,391     $ 18,929,579  
                 
Diluted earnings per share - continuing operations   $ 0.15     $ 0.83  
                 
Basic weighted average shares outstanding     24,231,617       20,376,225  
                 
Add:                
weight average of common stock convertible from convertible note payables     2,126,141       2,378,667  
                 
Diluted weighted average shares outstanding     26,357,758       22,754,892  

  

F- 47  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31. EARNINGS PER SHARE (CONTINUED)

  

    Nine months ended
September 30, 2017
    Nine months ended
September 30, 2016
 
          (Restated)  
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 12,524,713     $ 48,695,453  
Net income used in computing basic earnings per share - continuing operations   $ 12,524,713     $ 37,228,196  
Basic earnings per share - continuing and discontinued operations   $ 0.62     $ 2.45  
Basic earnings per share - continuing operations   $ 0.62     $ 1.87  
Basic weighted average shares outstanding     20,309,014       19,900,082  

 

    Nine months ended
September 30, 2017
    Nine months ended
September 30, 2016
 
          (Restated)  
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 12,524,713     $ 48,695,453  
Convertible note interest     1,579,630       1,466,044  
Net income used in computing diluted earnings per share   $ 14,104,343     $ 50,161,497  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.63     $ 2.24  

 

    Nine months ended
September 30, 2017
    Nine months ended
September 30, 2016
 
             
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 12,524,713     $ 37,228,196