SINO AGRO FOOD, INC. AND SUBSIDIARIES
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sino
Agro Food, Inc. (the “
Company
” or “
SIAF
”) (formerly known as Volcanic Gold, Inc. and A Power
Agro Agriculture Development, Inc.) was incorporated on October 1, 1974 in the State of Nevada, United States of America.
The
Company was engaged in the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On
August 24, 2007, the Company entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“
CA
”)
and its subsidiaries Capital Stage Inc. (“
CS
”) and Capital Hero Inc. (“
CH
”). Effective the
same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital
Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.
On
August 24, 2007 the Company changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December
8, 2007, the Company changed its name to Sino Agro Food, Inc.
On
September 5, 2007, the Company acquired three existing businesses in the People’s Republic of China (the
“P.R.C.”
):
|
(a)
|
Hang Yu Tai Investment
Limited (“
HYT
”), a company incorporated in Macau, the owner of 78% equity interest in ZhongXingNongMu Ltd (“
ZX
”),
a company incorporated in the P.R.C.;
|
|
(b)
|
Tri-way Industries Limited
(“
TRW
”), a company incorporated in Hong Kong; and
|
|
(c)
|
Macau Eiji Company Limited
(“
MEIJI
”), a company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang
Sing Tai Agriculture Co. Ltd. (“
HST
”), a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in
2010.
|
On
November 27, 2007, MEIJI and HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture
Development Co. Ltd. (“
JHST
”), a company incorporated in the P.R.C. with MEIJI owning a 75% interest and HST
owning a 25% interest.
On
November 26, 2008, SIAF established Pretty Mountain Holdings Limited (“
PMH
”), a company incorporated in Hong
Kong with an 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power
Agriculture Co. Ltd. (“
SJAP
”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the
time, the remaining 55% equity interest in SJAP was owned by the following entities:
|
·
|
Qinghai Province Sanjiang
Group Company Limited (English translation) (“
Qinghai Sanjiang
”), a company incorporated in the P.R.C with
major business activities in the agriculture industry; and
|
|
·
|
Guangzhou City Garwor
Company Limited (English translation) (“
Garwor
”), a company incorporated in the P.R.C., specializing in sales
and marketing.
|
SJAP
is engaged in the business of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects
in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, P.R.C.
In
September 2009, the Company carried out an internal reorganization of its corporate structure and business, and formed a 100%
owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“
APWAM
”), which was formed in Macau.
APWAM then acquired PMH’s 45% equity interest in SJAP. By virtue of the acquisition, APWAM assumed all obligations and liabilities
of PMH under the Sino Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest
in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and
transfer. As a result, APWAM owned 45% of SJAP and Garwor owned the remaining 55%.
On
September 9, 2010, an application was submitted by the Company to the Companies Registry of Hong Kong for deregistration of PMH
under Section 291AA of the Hong Kong Companies Ordinance. On January 28, 2011, PMH was dissolved.
On
March 23, 2017, Qinghai Quanwang Investment Management Company Limited (“Quanwang”) acquired 8.3% equity interest
in SJAP for total cash consideration of $459,137. As of March 31, 2018, APWAM owned 41.25% of SJAP, Garwor owned 50.45% and Quanwang
owned the remaining 8.3%.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
CORPORATE INFORMATION
(CONTINUED)
|
On
February 15, 2011 and March 29, 2011, the Company entered into an agreement and a memorandum of understanding (an “
MOU
”),
respectively, to sell 100% equity interest in HYT group (including HYT and ZX) to Mr. Xin Ming Sun, a director of ZhongXingNong
Nu Co., Ltd for $45,000,000, with effective date of January 1, 2011.
On
February 28, 2011, the Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co Limited (“
EBAPCD
”)
, and the Company would indirectly own a 25% equity interest in future Sino Joint Venture Company (pending approval).
On
February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited
(“
EBAPFD
”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed
Jiang Men City A Power Fishery Development Co., Limited (“
JFD
”) in which it acquired a 25% equity interest,
while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration
of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest
in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations
of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580.
These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity
interest in JFD, representing majority of voting rights and controls its board of directors. On August 15, 2016, the acquisition
agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had
100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of
$238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award,
Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000
TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW
was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over
TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated
equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal
of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the
consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. On October
1, 2016, SIAF took up all assets and liabilities of TRW and JFD except fish farm. The Company converted the amount due from unconsolidated
equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to
36.60%.
On
April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“
ECF
”), all of which the
Company would indirectly own a 25% equity interest on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489
in ECF and the amount was settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang
Men City Hang Mei Cattle Farm Development Co., Limited (“
JHMC
”) and acquired additional 50% equity interest
for the total cash consideration of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition
was at our option according to the terms of the original development agreement. The Company presently owns 75% equity interest
in JHMC, representing majority of voting right and controls its board of directors. As of September 30, 2012, the Company had
consolidated the assets and operations of JHMC. This remains the case as of the date of this report.
On
July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“
HSA
”), in which the Company
owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. On April 5,
2017, SJAP transferred all of its equity interest to MEIJI. This remains the case of the date of this report.
On
November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100%
equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“
SAFS
”). As of March
31, 2017, the Company invested $77,664 in SAFS. During the year ended December 31, 2016, SAFS changed from a public to a private
company.
SJAP formed Qinghai Zhong He
Meat Products Co., Limited (“
QZH
”), with SJAP would owning 100% equity interest. On October 25, 2015, both
QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“
QQI
”) contributed additional capital
of $4,157,682 and $769,941, respectively. As a result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14%
equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on
its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared
100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholder
meetings. SJAP disposed its 85% equity interest in QZH for RMB2 (equivalent to $0) for cash and completed on December 30, 2017.
As a result, QZH was derecognized as variable interest entity of the company.
The
Company’s principal executive office is located at Room 3801, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District,
Guangzhou City, Guangdong Province, P.R.C., 510610.
The
nature of the operations and principal activities of the Company and its subsidiaries are described in Note 2.2.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
The
Company has adopted December 31 as its fiscal year end.
Name of subsidiaries
|
|
Place of incorporation
|
|
Percentage of interest
|
|
Principal activities
|
|
|
|
|
|
|
|
Capital Award Inc. (“CA”)
|
|
Belize
|
|
100% (12.31.2017: 100%) directly
|
|
Fishery development and holder of A-Power Technology master license.
|
|
|
|
|
|
|
|
Capital Stage Inc. (“CS”)
|
|
Belize
|
|
100% (12.31.2017: 100%) indirectly
|
|
Dormant
|
|
|
|
|
|
|
|
Capital Hero Inc. (“CH”)
|
|
Belize
|
|
100% (12.31.2017: 100%) indirectly
|
|
Dormant
|
|
|
|
|
|
|
|
Sino Agro Food Sweden AB (“SAFS”)
|
|
Sweden
|
|
100% (12.31.2017: 100%) directly
|
|
Dormant
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
Macau, P.R.C.
|
|
100% (12.31.2017: 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% (12.31.2017: 100%) directly
|
|
Investment holding
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)
|
|
P.R.C.
|
|
75% (12.31.2017: 75%) indirectly
|
|
HylocereusUndatus Plantation (“HU Plantation”).
|
|
|
|
|
|
|
|
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)
|
|
P.R.C.
|
|
75% (12.31.2017:75%) indirectly
|
|
Beef cattle cultivation
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
P.R.C.
|
|
76% (12.31.2017:76%) 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% (12.31.2017: 41.25%) indirectly
|
|
Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
|
2.3
|
BASIS OF PRESENTATION
|
The
consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States
of America (“
US GAAP
”).
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.
In the first quarter of 2018, the company adopted Accounting Standards Update (“ASU”) 2014-09 (ASC Topic 606), “Revenue
from Contracts with Customers” using the modified retrospective method in which the new guidance was applied retrospectively
to contracts that were not completed as of January 1, 2018. Results for the reporting period beginning after January 1,
2018 have been presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance
with previous guidance. See Note 2.8 for a further discussion of the adoption and the impact on the consolidated financial statements.
|
2.4
|
BASIS OF CONSOLIDATION
|
The
consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, MEIJI, JHST, JHMC, HSA, APWAM, SAFS and its variable interest entity, SJAP. All material inter-company transactions and balances
have been eliminated in consolidation. QZH was derecognized as variable interest entity on December 30, 2017.
SIAF,
CA, CS, CH, MEIJI, JHST, JHMC, HSA, APWAM, SAFS and SJAP are hereafter referred to as (the “Company”).
The
Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business
Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established
principles and requirement for how the acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in the acquisition as well as provides guidance for
recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these
pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition
and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting
for acquired contingencies depending on their nature. The Company’s adoption of these pronouncements will have an impact
on the manner in which it accounts for any future acquisitions.
|
2.6
|
NON - CONTROLLING
INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS
|
The
Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes
accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.
This guidance is primarily contained in ASC Topic “Consolidation.” It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated financial statements. The adoption of this standard has not had material
impact on the Company’s consolidated financial statements.
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby.
Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s
accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations
of the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing
asset impairment tests of long-lived assets, estimates of the realization of deferred tax assets and inventory reserves.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
On
January 1, 2018, the Company adopted Topic 606, using the modified retrospective transition method applied to those
contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are
presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with
our historic accounting under Topic 605. There was no adjustment to beginning retained earnings on January 1, 2018.
Under
Topic 606, revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount
that reflects the consideration the Company expect to be entitled to in exchange for those goods or services.
ASU
2014-09, “Revenue from Contracts with Customers” outlines a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific
guidance. ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to
transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues
and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and represent
separate performance obligations, how variable consideration (which may include change orders and claims) is recognized, whether
revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction
price.
ASU
2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifies the principal versus
agent guidance in ASU 2014-09. ASU 2016-08 clarifies how an entity determines whether to report revenue gross or net based on
whether it controls a specific good or service before it is transferred to a customer. ASU 2016-08 also reframes the indicators
to focus on evidence that an entity is acting as a principal rather than as an agent.
ASU
2016-10, “Identifying Performance Obligations and Licensing” amends certain aspects of ASU 2014-09. ASU 2016-10 amends
how an entity should identify performance obligations for immaterial promised goods or services, shipping and handling activities
and promises that may represent performance obligations. ASU 2016-10 also provides implementation guidance for determining the
nature of licensing and royalties arrangements.
ASU
2016-12, “Narrow-Scope Improvements and Practical Expedients” also clarifies certain aspects of ASU 2014-09 including
the assessment of collectability, presentation of sales taxes, treatment of noncash consideration, and accounting for completed
contracts and contract modifications at transition.
ASU
2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” allows an entity
to determine the provision for loss contracts at either the contract level or the performance obligation level as an accounting
policy election. The company determines its provision for loss contracts at the contract level.
ASU
2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”
clarifies that the scope and application of ASC 610-20 on accounting for the sale or transfer of nonfinancial assets and in substance
nonfinancial assets to noncustomers, including partial sales, applies only when the asset (or asset group) does not meet the definition
of a business.
ASU
2017-13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission
of Prior SEC Staff Announcements and Observer Comments” provides guidance related to the effective dates of the ASUs noted
above.
We
determine revenue recognition through the following steps:
|
·
|
identification
of the contract, or contracts, with a customer;
|
|
·
|
identification
of the performance obligations in the contract;
|
|
·
|
determination
of the transaction price;
|
|
·
|
allocation
of the transaction price to the performance obligations in the contract; and
|
|
·
|
recognition
of revenue when, or as, we satisfy a performance obligation.
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
2.8
|
REVENUE RECOGNITION (CONTINUED)
|
Consulting and service income
from development contracts
The
company recognizes c
onsulting and service income from development contracts
revenue over time, as performance
obligations are satisfied, due to the continuous transfer of control to the customer.
Consulting and service income from
development contracts
are generally accounted for as a single unit of account (a single performance obligation) and are
not segmented between types of services. The company recognizes revenue using the percentage-of-completion method, based
primarily on contract cost incurred to date compared to total estimated contract cost. The percentage-of-completion method
(an input method) is the most faithful depiction of the company’s performance because it directly measures the value of
the services transferred to the customer. Cost of revenue includes an allocation of depreciation and amortization.
Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are
included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an
agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer).
Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the
company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating
the amount. The company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically
produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is
incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the
period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred
unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs
as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments
on consulting and service income from development contracts are typically due within 360 days of billing, depending on the
contract.
Variable Consideration
The
nature of the company’s contracts gives rise to several types of variable consideration, including claims and unpriced change
orders; awards and incentive fees; and liquidated damages and penalties. The company recognizes revenue for variable consideration
when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The company estimates
the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted
amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining
whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope
and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the
claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of
deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view
of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing
revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or
unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost
when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges
are recognized when the same requirements described above for claims accounting have been satisfied.
The
company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty
periods typically extend for a limited duration following substantial completion of the company’s work on a project. Historically,
warranty claims have not resulted in material costs incurred.
Revenue
excludes sales and usage-based taxes where it has been determined that the Company is acting as a pass-through agent.
Government
grants are recognized when (i) the Company has substantially accomplished what must be done pursuant to the terms of the grant
that are established by the local government; and (ii) the Company receives notification from the local government that the Company
has satisfied all of the requirements to receive the government grants; and (iii) the amounts are received.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
|
2.9
|
COST OF GOODS SOLD
AND COST OF SERVICES
|
Cost
of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies. Cost of services consist primarily
direct cost and indirect cost incurred to date for development contracts and provision for anticipated losses for development
contracts.
|
2.10
|
SHIPPING AND HANDLING
|
Shipping
and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $786 and $7,747
for the three months ended March 31, 2018 and 2017, respectively.
Advertising
costs are included in general and administrative expenses, which totaled $400,754 and $631,717 for the three months ended March
31, 2018 and 2017, respectively.
|
2.12
|
RESEARCH AND DEVELOPMENT
EXPENSES
|
Research
and development expenses are included in general and administrative expenses, which totaled $0, and $0 for the three months ended
March 31, 2018 and 2017, respectively.
|
2.13
|
FOREIGN CURRENCY
TRANSLATION AND OTHER COMPREHENSIVE INCOME
|
The
reporting currency of the Company is the U.S. dollars. The functional currency of the Company is the Chinese Renminbi (RMB).
For
those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars
at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the
statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based
on the average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily
agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are
included in accumulated other comprehensive income in the statements of shareholders’ equity. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the statements of income and comprehensive income, as incurred.
Accumulated other comprehensive
income in the consolidated statement of shareholders’ equity amounted to $5,589,436 as of March 31, 2018 and $2,346,174
as of December 31, 2017. The balance sheet amounts with the exception of equity as of March 31, 2018 and December 31, 2017 were
translated using an exchange rate of RMB 6.29 to $1.00 and RMB 6.53 to $1.00, respectively. The average translation rates applied
to the statements of income and other comprehensive income and of cash flows for the three months ended March 31, 2018, and 2017
were RMB 6.36 to $1.00 and RMB 6.89 to $1.00, respectively.
|
2.14
|
CASH AND CASH EQUIVALENTS
|
The
Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents.
Cash and cash equivalents kept with financial institutions in the P.R.C. are not insured or otherwise protected. Should any of
those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for
any reason, the Company could lose the cash on deposit with that institution.
The Company maintains reserves
for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical
bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns
to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
The standard credit period for
most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable.
Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of March 31,
2018 and December 31, 2017 are $0.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Inventories
are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing
each product to its location and conditions are accounted for as follows:
|
(a)
|
raw materials - purchase
cost on a weighted average basis;
|
|
(b)
|
manufactured finished
goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation
capacity but excluding borrowing costs; and
|
|
(c)
|
retail and wholesale
merchandise finished goods - purchase cost on a weighted average basis.
|
Net
realizable value is the estimated selling price in the ordinary course of business, less estimated costs for completion and the
estimated costs necessary to make the sale.
Plant
and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost
of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each
major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement only
if it is eligible for capitalization. The assets’ residual values, useful lives and depreciation methods are reviewed, and
adjusted if appropriate, at each financial year end.
Depreciation
is calculated on a straight-line basis over the estimated useful lives of the assets.
Plant and machinery
|
5 - 10 years
|
Structure and leasehold improvements
|
10 - 30 years
|
Mature seeds and herbage cultivation
|
20 years
|
Furniture and equipment
|
2.5 - 10 years
|
Motor vehicles
|
4 - 10 years
|
An
item of plant and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period
the item is disposed.
Goodwill
is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not
individually identified or separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s
fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level
of each reporting unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation.
As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value
of the assets acquired in these acquisitions over the cost of the assets acquired.
|
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. On October 18, 2017, the Company withdrew its equity interest in RCU.
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 20 years.
The
cost of sleepy cods breeding technology license is capitalized as proprietary technologies when technological feasibility has
been established. Cost of granting sleepy cods breeding technology license is amortized using the straight-line method over its
estimated life of 25 years.
Bacterial
cellulose technology license and related trade mark are capitalized as proprietary technologies when technological feasibility
has been established. Cost of license and related trade mark is amortized using the straight-line method over its estimated life
of 20 years.
The
Company has determined that technological feasibility is established at the time a working model of products is completed. Proprietary
technologies are intangible assets of finite lives. Management evaluates the recoverability of proprietary technologies on an
annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350
“Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.
|
2.21
|
CONSTRUCTION IN PROGRESS
|
Construction
in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs
ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary
to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the
asset is ready for its intended use.
Land
use rights represent acquisition of rights to agricultural land from farmers and are amortized on the straight-line basis over
their respective lease periods. The lease period of agricultural land is in the range from 10 to 60 years. Land use rights purchase
prices were determined in accordance with the P.R.C. Government’s minimum lease payments on agricultural land and mutually
agreed to terms between the Company and the vendors.
|
2.23
|
EQUITY METHOD INVESTMENTS
|
Investee
entities, in which the company can exercise significant influence, but not control, are accounted for under the equity method
of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is
included in net income. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations.
Evidence of a loss in value might include but would not necessarily be limited to absence of an ability to recover the carrying
amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of
the investment.
|
2.24
|
CORPORATE JOINT VENTURE
|
A
corporation formed, owned, and operated by two or more businesses as a separate and discrete business or project (venture) for
their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the Company can exercise significant
influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the
Company’s share of the earnings or losses of these companies is included in net income.
A
loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss
in value might include, but would not necessarily be limited to, the absence of an ability to recover the carrying amount of the
investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
|
2.25
|
VARIABLE INTEREST
ENTITY
|
A
variable interest entity (“
VIE
”) is an entity (investee) in which the investor has obtained less than a majority
interest, according to the Financial Accounting Standards Board (FASB). A VIE is subject to consolidation if a VIE meets one of
the following three criteria as elaborated in ASC Topic 810-10, Consolidation:
|
(a)
|
equity-at-risk is not
sufficient to support the entity’s activities;
|
|
(b)
|
as a group, the equity-at-risk
holders cannot control the entity; or
|
|
(c)
|
the economics do not
coincide with the voting interest.
|
If
a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined
as the person or company with the majority of variable interests. A corporation formed, owned, and operated by two or more businesses
(ventures) as a separate and discrete business or project (venture) for their mutual benefit is defined as a joint venture.
Treasury
stock means shares of a corporation’s own stock that have been issued and subsequently reacquired by the corporation. Converting
outstanding shares to treasury shares does not reduce the number of shares issued but does reduce the number of shares outstanding.
These shares are not eligible to receive dividends. Accounting for excesses and deficiencies on treasury stock transactions is
governed by ASC 505-30-30.
State
laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding
shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:
|
(a)
|
to meet additional stock
needs for various reasons, including newly implemented stock option plans, stock for convertible bonds or convertible preferred
stock, or a stock dividend.
|
|
(b)
|
to make more shares available
for acquisitions of other entities.
|
The
cost method of accounting for treasury shares has been adopted by the Company. The purchase of outstanding shares and thus converting
them into treasury shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue
the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost
of acquiring outstanding shares for converting into treasury shares is charged to a contra account, in this case a contra equity
account that reduces the stockholder equity balance.
|
2.27
|
NON-CURRENT ASSETS
HELD FOR SALE AND DISCONTINUED
|
The
Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally
through a sale rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are
measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification
is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its
present condition. Property and equipment are not depreciated once classified as held for distribution. Assets and liabilities
classified as held for sale are presented separately as current items in the consolidated balance sheets. A disposal group qualifies
as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale,
and:
|
·
|
represents a separate major line of business or geographical
area of operations
|
|
·
|
is part of a single coordinated plan to dispose of
a separate major line of business or geographical area of operations, or
|
|
·
|
is a subsidiary acquired exclusively with a view to
resale
|
Discontinued
operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after
tax from discontinued operations in the consolidated statement of income and other comprehensive income.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
The
Company accounts for income taxes under the provisions of ASC Topic 740 “Accounting for Income Taxes.” Under ASC Topic
740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected
to reverse.
The
provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It
is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted
for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable
tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets
are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences
can be utilized.
Deferred
income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized, or the liability
is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly
to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities
on a net basis.
ASC
Topic 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position
taken, or for one expected to be taken, in a tax return. ASC Topic 740 also provides guidance related to, among other things,
classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest
and penalties accrued related to unrecognized tax benefits will be recorded as tax expense.
|
2.29
|
POLITICAL AND BUSINESS
RISK
|
The
Company’s operations are carried out in the P.R.C. Accordingly, the political, economic and legal environment in the P.R.C.
may influence the Company’s business, financial condition and results of operations by the general state of the P.R.C.’s
economy. The Company’s operations in the P.R.C. are subject to specific considerations and significant risks not typically
associated with companies in North America and Western Europe. The Company’s results may be adversely affected by changes
in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
|
2.30
|
CONCENTRATION OF
CREDIT RISK
|
Cash includes cash at banks
and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of March 31, 2018 and December
31, 2017 amounted to $464,259 and $327,019, respectively, none of which is covered by insurance. The Company has not experienced
any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.
The
Company had 5 major customers (A, B, C, D and E) whose business individually represented the following percentages of the Company’s
total revenue for the period indicated:
|
|
Three months ended
March 31, 2018
|
|
|
Three months ended
March 31, 2017
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
31.66
|
%
|
|
|
24.79
|
%
|
Customer B
|
|
|
17.08
|
%
|
|
|
7.93
|
%
|
Customer C
|
|
|
14.82
|
%
|
|
|
11.91
|
%
|
Customer D
|
|
|
8.91
|
%
|
|
|
-
|
%
|
Customer E
|
|
|
7.33
|
%
|
|
|
18.68
|
%
|
Customer F
|
|
|
-
|
%
|
|
|
17.90
|
%
|
|
|
|
79.80
|
%
|
|
|
81.21
|
%
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
2.30
|
CONCENTRATION OF CREDIT RISK (CONTINUED)
|
|
|
|
|
Percentage
of revenue
|
|
|
Amount
|
|
Customer A
|
|
Corporate and others Division
|
|
|
31.66
|
%
|
|
$
|
10,678,768
|
|
Customer B
|
|
Corporate and others Division
|
|
|
17.08
|
%
|
|
$
|
5,761,189
|
|
Customer C
|
|
Cattle Farm Development Division
|
|
|
14.82
|
%
|
|
$
|
4,998,083
|
|
Accounts
receivable are derived from revenue earned from customers located primarily in the P.R.C. The Company performs ongoing credit
evaluations of customers and has not experienced any material losses to date.
The
Company had 5 major customers whose accounts receivable balance individually represented the following percentages of the Company’s
total accounts receivable:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
60.62
|
%
|
|
|
27.13
|
%
|
Customer B
|
|
|
10.37
|
%
|
|
|
7.34
|
%
|
Customer C
|
|
|
8.43
|
%
|
|
|
7.49
|
%
|
Customer D
|
|
|
4.80
|
%
|
|
|
4.78
|
%
|
Customer E
|
|
|
4.77
|
%
|
|
|
-
|
%
|
Customer F
|
|
|
-
|
%
|
|
|
12.31
|
%
|
|
|
|
88.99
|
%
|
|
|
59.05
|
%
|
As of March 31, 2018, amounts
due from customers A and B are $52,478,526 and $8,979,732, respectively. The Company has not experienced any significant difficulty
in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.
|
2.31
|
IMPAIRMENT OF LONG-LIVED
ASSETS AND INTANGIBLE ASSETS
|
In
accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed
for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting
period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the
event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is
generally determined based on discounted future cash flow. As of March 31, 2018, and December 31, 2017, the Company determined
no impairment losses were necessary.
As
prescribed in ASC Topic 260 “
Earnings per Share,
” Basic Earnings per Share (“
EPS
”) is
computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding
during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number
of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The
effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received
by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average
market price during the period.
ASC 260-10-55 requires that
stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the year, or
retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial
statements, by considering it outstanding of the entirety of each period presented. Dilution is computed by applying the treasury
stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time
of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during
the year.
For the three months ended March
31, 2018 and 2017, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted
to $0.17 and $0.38, respectively. For the three months ended March 31, 2018 and 2017, diluted earnings per share attributable
to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.17 and $0.36, respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
2.33
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
ASC
Topic 220 “
Comprehensive Income”
establishes standards for reporting and displaying comprehensive income and
its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business
enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income
for all periods presented includes both the reported net income and net change in cumulative translation adjustments.
|
2.34
|
RETIREMENT BENEFIT
COSTS
|
P.R.C.
state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses
when employees have rendered service entitling them to the contribution made by the employer.
|
2.35
|
STOCK-BASED
COMPENSATION
|
The
Company has adopted both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50, “Equity-Based
Payments to Non - Employees” using the fair value method in which an entity issues its equity instruments to acquire goods
and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance
with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other
than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received,
or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified”
method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50,
stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as
expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.
|
2.36
|
FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value under
U.S. GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements
and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The
three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
|
Level 1
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
Level 2
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
Level 3
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
The carrying amounts of the
Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of
the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring
or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured
at fair value as of March 31, 2018 or December 31, 2017, nor gains or losses are reported in the statements of income and comprehensive
income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at
the reporting date for the fiscal period ended March 31, 2018 or 2017.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
|
2.37
|
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 will adopt the new standard effective January 1, 2019.
In February 2018, the FASB issued
Accounting Standards Update No. 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income
(ASU 2018-02),
which allows companies
to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (the Tax Act), from accumulated other comprehensive
income to retained earnings. The new standard is effective for us beginning January 1, 2019, with early adoption permitted. We
are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and
the related disclosures.
In May 2014, the FASB issued
Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes the revenue
recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). ASU 2014-09 can
be adopted using one of two retrospective transition methods: 1) retrospectively to each prior reporting period presented or 2)
as a cumulative-effect adjustment as of the date of adoption. While the Company has not yet completed their evaluation, it has
reviewed ASU 2014-09 and does not expect this new guidance to have a material impact on its consolidated financial statements.
To the extent there is an impact, the Company will apply as a cumulative-effect adjustment as of the date of adoption.
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 when the transfer occurs, rather than when the asset has been sold to an outside party. We adopted the new standard
effective January 1, 2018, using the modified retrospective transition approach through a cumulative-effect adjustment to retained
earnings as of the effective date, which was not material to 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 statements of cash flows. We
adopted the new standard effective January 1, 2018, using the retrospective transition approach. The reclassified restricted cash
balances from investing activities to changes in cash, cash equivalents and restricted cash on the consolidated statements of
cash flows were nil for all periods presented.
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. We adopted the new standard effective January 1, 2018 on a prospective basis. The new standard did
not have a material impact on our consolidated financial statements.
Other accounting standards that
have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact
on the consolidated financial statements upon adoption.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company establishes standards
for reporting information about operating segments on a basis consistent with the Company’s internal organization structure
as well as business segments and major customers in consolidated financial statements. The Company operates in five principal
reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle
Farm Development Division and Corporate and Others Division. No geographic information is required as all revenue and assets are
located in the P.R.C. On December 30, 2017, QZH was disposed to third party and derecognized as variable interest entity on the
same date.
|
|
Three
months ended March 31, 2018
|
|
|
|
Fishery
|
|
|
|
|
|
Organic Fertilizer
|
|
|
Cattle Farm
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
and Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
|
|
|
|
Division(1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,472,404
|
|
|
$
|
1,050,229
|
|
|
$
|
8,770,591
|
|
|
$
|
4,998,083
|
|
|
$
|
16,439,957
|
|
|
$
|
33,731,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
560,943
|
|
|
$
|
(340,166
|
)
|
|
$
|
1,344,459
|
|
|
$
|
350,674
|
|
|
$
|
3,
812,517
|
|
|
$
|
5,
728,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
81,042,358
|
|
|
$
|
49,552,231
|
|
|
$
|
357,336,786
|
|
|
$
|
34,311,911
|
|
|
$
|
286,
272,364
|
|
|
$
|
808,
515,650
|
|
|
|
Three months ended March 31, 2017
|
|
|
|
Fishery
|
|
|
|
|
|
Organic Fertilizer
|
|
|
Cattle Farm
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
HU Plantation
|
|
|
and Bread Grass
|
|
|
Development
|
|
|
Corporate and
|
|
|
|
|
|
|
Division(1)
|
|
|
Division (2)
|
|
|
Division (3)
|
|
|
Division (4)
|
|
|
others (5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,189,265
|
|
|
$
|
1,323,176
|
|
|
$
|
24,577,507
|
|
|
$
|
8,412,087
|
|
|
$
|
23,110,580
|
|
|
$
|
70,612,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,358,338
|
|
|
$
|
161,930
|
|
|
$
|
1,725,036
|
|
|
$
|
1,094,209
|
|
|
$
|
1,351,920
|
|
|
$
|
8,691,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
95,259,028
|
|
|
$
|
47,557,945
|
|
|
$
|
360,767,029
|
|
|
$
|
67,606,927
|
|
|
$
|
222,766,220
|
|
|
$
|
793,957,149
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
SEGMENT INFORMATION
(CONTINUED)
|
|
(1)
|
Operated by Capital Award, Inc. (“CA”).
|
|
(2)
|
Operated
by Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”).
|
|
(3)
|
Operated
by Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”), 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”). On December 30, 2017, QZH was derecognized as variable interest
entity of the company.
|
|
(4)
|
Operated
by Jiang Men City Hang Mei Cattle Farm Development Co. Limited (“JHMC”) and
Macau Eiji Company Limited (“MEIJI”).
|
|
(5)
|
Operated
by Sino Agro Food, Inc. (“SIAF”) and Sino Agro Food Sweden AB (“SAFS”).
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
SEGMENT INFORMATION
(CONTINUED)
|
Further
analysis of revenue:
|
|
Three ended March 31, 2018
|
|
|
|
Fishery Development
Division (1)
|
|
|
HU Plantation Division
(2)
|
|
|
Organic Fertilizer and
Bread Grass Division (3)
|
|
|
Cattle Farm
Development Division (4)
|
|
|
Corporate and others
(6)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)
|
|
$
|
-
|
|
|
$
|
1,050,228
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,050,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,405,025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,405,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,365,567
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,365,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,998,083
|
|
|
|
-
|
|
|
|
4,998,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,439,957
|
|
|
|
16,439,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts Capital Award, Inc. (“CA”)
|
|
|
2,472,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,472,404
|
|
|
|
$
|
2,472,404
|
|
|
$
|
1,050,228
|
|
|
$
|
8,770,592
|
|
|
$
|
4,998,083
|
|
|
$
|
16,439,957
|
|
|
$
|
33,731,264
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
SEGMENT INFORMATION
(CONTINUED)
|
Further
analysis of revenue:
|
|
Three months ended March 31, 2017
|
|
|
|
Fishery Development
Division (1)
|
|
|
HU Plantation Division
(2)
|
|
|
Organic Fertilizer and
Bread Grass Division (3)
|
|
|
Cattle Farm Development
Division (4)
|
|
|
Corporate and others
(6)
|
|
|
Total
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)
|
|
$
|
-
|
|
|
$
|
1,323,176
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,323,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,764,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,764,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,104,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,104,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH”)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,708,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,708,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,412,087
|
|
|
|
-
|
|
|
|
8,412,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,110,580
|
|
|
|
23,110,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Award, Inc. (“CA”)
|
|
|
13,189,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,189,265
|
|
|
|
$
|
13,189,265
|
|
|
$
|
1,323,176
|
|
|
$
|
24,577,507
|
|
|
$
|
8,412,087
|
|
|
$
|
23,110,580
|
|
|
$
|
70,612,615
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
SEGMENT INFORMATION
(CONTINUED)
|
Further
analysis of cost of goods sold and cost of services:
COST
OF GOODS SOLD
|
|
Three
months ended March 31, 2018
|
|
|
|
Fishery
Development Division (1)
|
|
|
HU
Plantation Division (2)
|
|
|
Organic
Fertilizer and Bread Grass Division (3)
|
|
|
Cattle
Farm Development Division (4)
|
|
|
Corporate
and others (5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng
Tai Agriculture Development Co., Limited (“JHST”)
|
|
$
|
-
|
|
|
$
|
894,722
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
894,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,613,685
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,613,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,136,324
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,136,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,528,498
|
|
|
|
-
|
|
|
|
4,528,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,689,791
|
|
|
|
14,689,791
|
|
|
|
$
|
-
|
|
|
$
|
894,722
|
|
|
$
|
5,750,009
|
|
|
$
|
4,528,498
|
|
|
$
|
14,689,791
|
|
|
$
|
25,863,020
|
|
COST
OF SERVICES
|
|
Three months ended March 31, 2018
|
|
|
|
Fishery Development
Division (1)
|
|
|
HU Plantation Division
(2)
|
|
|
Organic Fertilizer and
Bread Grass Division (3)
|
|
|
Cattle Farm Development
Division (4)
|
|
|
Corporate and others
(5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Award, Inc. (“CA”)
|
|
$
|
1,784,322
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,784,322
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
3.
|
SEGMENT INFORMATION
(CONTINUED)
|
Further
analysis of cost of goods sold and cost of services (Continued):
COST
OF GOODS SOLD
|
|
Three months ended March 31, 2017
|
|
|
|
Fishery
Development
Division (1)
|
|
|
HU
Plantation
Division (2)
|
|
|
Organic
Fertilizer and
Bread Grass
Division (3)
|
|
|
Cattle Farm
Development
Division (4)
|
|
|
Corporate
and others
(5)
|
|
|
Total
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)
|
|
$
|
-
|
|
|
$
|
455,501
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
455,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunan Shenghua A Power Agriculture Co., Limited (“HSA “)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,770,068
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,770,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP “)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,226,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,226,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qinghai Zhong He Meat Products Co., Limited (“QZH “)
|
|
|
-
|
|
|
|
-
|
|
|
|
12,420,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,420,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macau Eiji Company Limited (“MEIJI”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,983,456
|
|
|
|
-
|
|
|
|
6,983,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sino Agro Food, Inc. (“SIAF”)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,542,738
|
|
|
|
20,542,738
|
|
|
|
$
|
-
|
|
|
$
|
455,501
|
|
|
$
|
19,417,841
|
|
|
$
|
6,983,456
|
|
|
$
|
20,542,738
|
|
|
$
|
47,399,536
|
|
COST
OF SERVICES
|
|
Three months ended March 31, 2017
|
|
|
|
Fishery
Development
Division (1)
|
|
|
HU
Plantation
Division (2)
|
|
|
Organic
Fertilizer and
Bread Grass
Division (3)
|
|
|
Cattle Farm
Development
Division (4)
|
|
|
Corporate
and others
(5)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and service income for development contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Award, Inc. (“CA”)
|
|
$
|
8,782,892
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,782,892
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United
States of America
The
Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United
States of America and no U.S. corporate tax has been provided for in the consolidated financial statements of the Company.
Undistributed
Earnings of Foreign Subsidiaries
The
Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the
United States and accordingly, undistributed earnings of foreign subsidiaries are 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
INCOME TAXES (CONTINUED)
|
China
Beginning
January 1, 2008, the new Enterprise Income Tax (“
EIT
”) law replaced the existing laws for Domestic Enterprises
(“
DE’s
”) and Foreign Invested Enterprises (“
FIE’s
”). The new standard EIT rate
of 25% replaced the 33% rate currently applicable to both DE’s and FIE’s. The Company is currently evaluating the
impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax
rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.
Under
new tax legislation in China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise
income taxes.
No
EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the
three months ended March 31, 2018 and 2017 as they are within the agriculture, and cattle sectors.
No EIT has been provided in
the financial statements of QZH since they are exempt from EIT for the three months ended March 31, 2017 as it is within the cattle
sector. QZH was derecognized as variable interest entity on December 30, 2017.
Belize
CA,
CS and CH are international business companies incorporated in Belize and are exempt from corporate tax in Belize.
Macau
No
Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities
did not earn any assessable profits for the three months ended March 31, 2018 and 2017.
Sweden
No
Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss
for the three months ended March 31, 2018 and 2017.
No
deferred tax assets and liabilities are of March 31, 2018 and December 31, 2017 since there was no difference between the financial
statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which
the differences are expected to reverse.
Provision
for income taxes is as follows:
|
|
Three months ended
March 31, 2018
|
|
|
Three months ended
March 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
SIAF
|
|
$
|
-
|
|
|
$
|
-
|
|
SAFS
|
|
|
-
|
|
|
|
-
|
|
MEIJI and APWAM
|
|
|
-
|
|
|
|
-
|
|
JHST, JHMC, SJAP, QZH and HSA
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company did not recognize
any interest or penalties related to unrecognized tax benefits in the three months ended March 31, 2018 and 2017. The Company
had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by
the respective tax authorities.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
5.
|
CASH AND CASH EQUIVALENTS
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
621,884
|
|
|
$
|
560,043
|
|
As
of March 31, 2018, inventories are as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Bread grass
|
|
|
693,809
|
|
|
|
976,514
|
|
Beef cattle
|
|
|
9,401,381
|
|
|
|
5,903,442
|
|
Organic fertilizer
|
|
|
16,374,521
|
|
|
|
16,832,390
|
|
Forage for cattle and consumable
|
|
|
6,926,350
|
|
|
|
7,397,910
|
|
Raw materials for bread grass and organic fertilizer
|
|
|
21,822,473
|
|
|
|
19,113,274
|
|
Immature seeds
|
|
|
3,135,655
|
|
|
|
2,405,417
|
|
|
|
$
|
58,354,189
|
|
|
$
|
52,628,947
|
|
|
7.
|
DEPOSITS AND PREPAYMENTS
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Deposits for
|
|
|
|
|
|
|
|
|
- purchases of equipment
|
|
$
|
2,908,124
|
|
|
$
|
2,815,774
|
|
- acquisition of land use rights
|
|
|
3,371,501
|
|
|
|
3,244,567
|
|
- inventories purchases
|
|
|
22,757,154
|
|
|
|
24,282,950
|
|
- construction in progress
|
|
|
11,814,144
|
|
|
|
11,365,748
|
|
- issue of shares as collateral
|
|
|
25,761,658
|
|
|
|
25,427,293
|
|
Shares issued for employee compensation and overseas professional and bond interest
|
|
|
3,559,336
|
|
|
|
702,625
|
|
Others
|
|
|
2,632,238
|
|
|
|
2,620,693
|
|
|
|
$
|
72,
804,155
|
|
|
$
|
70,459,650
|
|
The
Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company.
As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of March
31, 2018 and December 31, 2017.
Aging
analysis of accounts receivable is as follows:
|
|
March 31, 2017
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
0 - 30 days
|
|
$
|
10,756,488
|
|
|
$
|
7,973,308
|
|
31 - 90 days
|
|
|
22,635,431
|
|
|
|
18,240,251
|
|
91 - 120 days
|
|
|
2,102,348
|
|
|
|
5,725,069
|
|
over 120 days and less than 1 year
|
|
|
7,783,315
|
|
|
|
21,551,845
|
|
over 1 year
|
|
|
43,289,545
|
|
|
|
29,480,945
|
|
|
|
$
|
86,567,127
|
|
|
$
|
82,971,418
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Advanced to employees
|
|
$
|
403,578
|
|
|
$
|
219,186
|
|
Advanced to suppliers
|
|
|
2,140,313
|
|
|
|
3,768,585
|
|
Advanced to customers
|
|
|
14,700,663
|
|
|
|
11,982,331
|
|
Advanced to developers
|
|
|
494,592
|
|
|
|
399,449
|
|
Others
|
|
|
9,570,500
|
|
|
|
4,310,927
|
|
|
|
$
|
27,309,646
|
|
|
$
|
20,680,478
|
|
Advanced
to employees, suppliers, customers and developers are unsecured, interest free and with no fixed terms of repayment.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Plant and machinery
|
|
$
|
5,683,042
|
|
|
$
|
5,501,975
|
|
Structure and leasehold improvements
|
|
|
217,026,839
|
|
|
|
209,378,338
|
|
Mature seeds and herbage cultivation
|
|
|
54,647,803
|
|
|
|
49,685,830
|
|
Furniture and equipment
|
|
|
704,173
|
|
|
|
699,494
|
|
Motor vehicles
|
|
|
634,686
|
|
|
|
614,792
|
|
|
|
|
278,696,543
|
|
|
|
265,880,429
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(23,008,740
|
)
|
|
|
(19,022,632
|
)
|
Net carrying amount
|
|
$
|
255,687,803
|
|
|
$
|
246,857,797
|
|
Depreciation
expenses were $2,658,508 and $2,143,810 for the three months ended March 31, 2018 and 2017, respectively.
|
11.
|
CONSTRUCTION IN PROGRESS
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Construction in progress
|
|
|
|
|
|
|
|
|
- Rangeland for beef cattle and office building
|
|
|
9,473,451
|
|
|
|
6,178,308
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Cost
|
|
$
|
67,756,251
|
|
|
$
|
65,573,223
|
|
Less: Accumulated amortization
|
|
|
(11,498,745
|
)
|
|
|
(10,735,192
|
)
|
Net carrying amount
|
|
$
|
56,257,506
|
|
|
$
|
54,838,031
|
|
|
|
Amount
|
|
|
|
|
|
Balance @1.1.2017
|
|
$
|
62,341,829
|
|
Exchange difference
|
|
|
3,231,394
|
|
Balance @12.31.2017
|
|
$
|
65,573,223
|
|
Exchange difference
|
|
|
2,183,028
|
|
Balance @3.31.2018
|
|
$
|
67,756,251
|
|
Land
use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land
is 10 to 60 years. Amortization of land use rights were $422,580 and $474,491 for the three months ended March 31, 2018 and 2017,
respectively.
Goodwill
represents the fair value of the assets acquired the acquisitions over the cost of the assets acquired. It is stated at cost less
accumulated impairment losses. Management tests goodwill for impairment on an annual basis or when impairment indicators arise.
In these instances, the Company recognizes an impairment loss when it is probable that the estimated cash flows are less than
the carrying value of the assets. To date, no such impairment loss has been recorded.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Goodwill from acquisition
|
|
$
|
724,940
|
|
|
$
|
724,940
|
|
Less: Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
Net carrying amount
|
|
$
|
724,940
|
|
|
$
|
724,940
|
|
|
14.
|
PROPRIETARY TECHNOLOGIES
|
By an agreement dated November
12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock
feed and bioorganic fertilizer and its related labels for $8,000,000. On October 1, 2015, the Company took up such assets at $5,473,720.
On March 6, 2012, MEIJI acquired
an aromatic-feed formula technology to produce aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted
a license to exploit sleepy cods breeding technology to grow out of sleepy cods for $2,270,000 for 50 years. SJAP booked bacterial
cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 20 years starting from January
1, 2014.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
14.
|
PROPRIETARY TECHNOLOGIES
(CONTINUED)
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
11,282,576
|
|
|
$
|
11,211,100
|
|
Less: Accumulated amortization
|
|
|
(1,777,153
|
)
|
|
|
(1,622,495
|
)
|
Net carrying amount
|
|
$
|
9,505,423
|
|
|
$
|
9,588,605
|
|
Amortization
of proprietary technologies was $146,781 and $145,788 for the three months ended March 31, 2018 and 2017, respectively. No impairments
of proprietary technologies have been identified for the three months ended March 31, 2018 and 2017.
|
15.
|
INTERESTS IN UNCONSOLIDATED
EQUITY INVESTEES
|
On
February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited
(“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed
Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while
withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration
of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest
in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations
of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580.
These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity
interest in JFD, representing majority of voting rights and controls its board of directors.
On August 15, 2016, the acquisition
agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had
100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of
$238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award,
Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000
TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW
was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over
TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated
equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal
of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the
consolidated statements of income and other comprehensive income of the Company for the year ended December 31, 2016. On October
1, 2016, SIAF took up all assets and liabilities of TRW and JFD except plant and equipment - fish farm. The Company converted
the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity
interest in TRW from 23.89% to 36.60%.
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 RMB 1,000,000. The investment has been fully impaired on December 31, 2017.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Investments at cost
|
|
|
|
|
|
|
|
|
- TRW
|
|
$
|
138,476,941
|
|
|
$
|
134,694,930
|
|
Amount due from a consolidated equity investee - TRW
|
|
|
57,586,312
|
|
|
|
58,572,766
|
|
|
|
$
|
196,063,253
|
|
|
$
|
193,267,696
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
16.
|
TEMPORARY DEPOSITS PAID
TO ENTITIES FOR EQUITY INVESTMENTS IN FUTURE SINO JOINT VENTURE COMPANIES
|
Intended
|
|
|
|
|
|
|
|
|
|
|
|
|
unincorporated
|
|
|
Projects
|
|
|
|
|
|
|
|
|
|
Investee
|
|
|
Engaged
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
A
|
|
|
Trade center
|
|
|
*
|
|
|
$
|
12,000,000
|
|
|
$
|
12,000,000
|
|
B
|
|
|
Fish Farm 2 GaoQiqiang Aquaculture
|
|
|
*
|
|
|
|
17,403,959
|
|
|
|
17,403,959
|
|
C
|
|
|
Cattle farm 2
|
|
|
*
|
|
|
|
5,491,485
|
|
|
|
5,513,263
|
|
|
|
|
|
|
|
|
|
|
$
|
34,895,444
|
|
|
$
|
34,917,222
|
|
The
Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”)
engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented
as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts
were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of March 31, 2018,
the percentages of equity stakes of A (trade and seafood centers), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm
2) are 31%, 23% and 35% respectively
.
|
*
|
The above amounts were
subject to conversion to an additional equity investment in the investees upon the completion of legal procedures of formation
of SJVCs.
|
|
17.
|
VARIABLE INTEREST ENTITY
|
On
September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang
A Power Agriculture Co. Limited (“
SJAP
”), which was incorporated in the P.R.C. As of March 31, 2018, the Company
has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock
feed, and beef cattle and plantation of crops and pastures.
Continuous
assessment of the VIE relationship with SJAP
The
Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests,
such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate.
A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated
financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities
of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s
expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or
are conducted on behalf of an investor that has disproportionately fewer voting rights.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
17.
|
VARIABLE INTEREST ENTITY
(CONTINUED)
|
The
Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent
to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal
cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of
these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate
to the use of historical data for the projection of future events. On March 31, 2018, the Company evaluated the above VIE testing
results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that
SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.
The
reasons for the changes are as follows:
|
·
|
Originally, the board of directors of SJAP consisted
of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder), and 3 from the Company, such
that the Company did not have majority interest represented on the board of directors of SJAP.
|
|
·
|
On May 7, 2010, Qinghai Sanjiang sold and transferred
its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the P.R.C.
approved the sale and transfer.
|
Consequently,
Garwor and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and
2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and
in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial
officer of SJAP. As a result, the financial statements of SJAP were included in the consolidated financial statements of the Company.
Continuous
assessment of the VIE relationship with QZH
The
Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests,
such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate.
A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated
financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities
of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s
expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights
of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive
the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or
are conducted on behalf of an investor that has disproportionately fewer voting rights.
The
Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent
to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal
cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of
these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate
to the use of historical data for the projection of future events. On March 31, 2017, the Company evaluated the above VIE testing
results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that
QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.
SJAP is sole stockholder of
QZH and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorship of QZH, such that the Company
now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement,
the Company’s management appointed the chief financial officer of QZH. As a result, the financial statements of QZH were
included in the consolidated financial statements of the Company for the three months ended March 31, 2017.
The
reasons for the QZH qualified as a VIE are as follows:
|
·
|
Originally, SJAP was
sole stockholder of QZH, owned 100% equity interest in QZH and controlled directorship of QZH.
|
|
·
|
On October 25, 2015,
both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“
QQI
”) contributed additional
capital of $4,157,682 and $769,941, respectively. As of result, SJAP decreased its equity interest from 100% to 86% and QQI owned
14% equity interest. 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% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholders
meetings.
|
|
·
|
Consequently, the Company
still 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 controlled QZH’s chief financial
officer appointment. As a result, the financial statements of QZH were included in the consolidated financial statements of the
Company.
|
As
of December 30, 2017, QZH was derecognized as a VIE.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
18.
.
|
CONSTRUCTION CONTRACT
|
|
(i)
|
Costs and estimated
earnings in excess of billings on uncompleted contracts
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Costs
|
|
$
|
9,265,019
|
|
|
$
|
8,208,912
|
|
Estimated earnings
|
|
|
7,688,323
|
|
|
|
6,740,289
|
|
Less: Billings
|
|
|
(16,702,514
|
)
|
|
|
(13,700,014
|
)
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
250,828
|
|
|
$
|
1,249,187
|
|
|
(ii)
|
Billings in excess of
costs and estimated earnings on uncompleted contracts
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Billings
|
|
$
|
41,954,194
|
|
|
$
|
41,543,554
|
|
Less: Costs
|
|
|
(24,311,874
|
)
|
|
|
(23,980,880
|
)
|
Estimated earnings
|
|
|
(11,959,877
|
)
|
|
|
(11,822,609
|
)
|
Billing in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
5,682,443
|
|
|
$
|
5,740,065
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Billings
|
|
$
|
58,656,708
|
|
|
$
|
55,243,568
|
|
Less: Costs
|
|
|
(33,576,893
|
)
|
|
|
(32,189,792
|
)
|
Estimated earnings
|
|
|
(19,648,200
|
)
|
|
|
(18,562,898
|
)
|
Billing in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
5,431,615
|
|
|
$
|
4,490,878
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Due to third parties
|
|
$
|
11,331,549
|
|
|
$
|
11,133,656
|
|
Straight note payable
|
|
|
29,367,999
|
|
|
|
29,367,999
|
|
Promissory notes issued to third parties
|
|
|
11,933,554
|
|
|
|
11,089,779
|
|
Due to local government
|
|
|
95,419
|
|
|
|
91,827
|
|
|
|
$
|
52,728,521
|
|
|
$
|
51,683,261
|
|
|
|
|
|
|
|
|
|
|
Less: Amount classified as non-current liabilities
|
|
|
|
|
|
|
|
|
Promissory notes issued to third parties
|
|
|
(11,933,554
|
)
|
|
|
(11,089,779
|
)
|
Amount classified as current liabilities
|
|
$
|
40,794,967
|
|
|
$
|
40,593,482
|
|
Due
to third parties are unsecured, interest free and have no fixed terms of repayment.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There
are no provisions in the Company’s bank borrowings and long term debts that would accelerate repayment of debt as a result
of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company
has the option to retire debt prior to maturity, either at par or at a premium over par.
Short
term bank loan
Name of lender
|
|
Interest rate
|
|
|
Term
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
China Development Bank
Beijing City, the P.R.C
|
|
|
5.2835
|
%
|
|
November 29, 2017 - November 28, 2018
|
|
$
|
3,180,661
|
|
|
$
|
3,060,913
|
|
China Development Bank
Beijing City, the P.R.C
|
|
|
5.2835
|
%
|
|
December 14, 2017 - December 13, 2018
|
|
$
|
1,590,331
|
|
|
$
|
1,530,455
|
|
Add: current portion of long term
bank loan
|
|
|
|
|
|
|
|
$
|
79,517
|
|
|
$
|
76,522
|
|
|
|
|
|
|
|
|
|
|
4,850,509
|
|
|
|
4,667,890
|
|
Long
term bank loan
Name of lender
|
|
Interest rate
|
|
|
Term
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
China Development Bank
|
|
|
|
|
|
December 16, 2016 -
|
|
|
|
|
|
|
|
|
Beijing City, the P.R,C.
|
|
|
5.39
|
%
|
|
December 15, 2026
|
|
$
|
6,361,324
|
|
|
$
|
6,121,824
|
|
Less: current portion of long term
bank loan
|
|
|
|
|
|
|
|
$
|
(79,517
|
)
|
|
$
|
(76,522
|
)
|
|
|
|
|
|
|
|
|
|
6,281,807
|
|
|
|
6,045,302
|
|
On
November 30, 2017 and December 14, 2017, the Company obtained two 1-year short term loans of RMB20 million (approximately
$3.18 million) and RMB10 million (approximately $1.59 million) respectively from China Development Bank for the period from
November 29, 2017 to November 28, 2018 and December 14, 2017 to December 13, 2018 respectively, bearing fixed interest at
5.2835% per annum. Both loans were guaranteed by Xining City SME Guarantee Corporation.
On December 16, 2016, the
Company obtained a 10-year long term loan of RMB40 million (approximately $6.05 million) from China Development Bank for the
period from December 16, 2016 to December 15, 2026, bearing an annual interest rate at 110% of the benchmark rate of PBOC on
the date of the loan agreement and will be adjusted in line with any adjustment of the benchmark rate which is 5.39%
(12.31.2017: 5.39%). The loan was guaranteed by Mr. Zhao Yilin and Ms. Song Haixian, Mr. Zhao Yilin’s wife. The loan
was also secured by land use right with net carrying amount of $443,502 as of December 31, 2018 (12.31.2017: 429,982) and a
batch of plant, machinery and equipment with net carrying amount of $6,090,783 (12.31.2017: 5,954,915). According to the loan
agreement, RMB500,000 (approximately $79,517) was scheduled to be repaid by December 15, 2018.
The
above note agreements contained regular provisions requiring timely repayment of principals and accrued interests, payment of
default interest in the event of default, and without specific financial covenants. Management of the Company believes the Company
is in material compliance with the terms of the loan agreements.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
21.
|
NEGOTIABLE PROMISSORY
NOTES
|
On
August 29, 2015, TRW issued negotiable promissory notes to three fund companies and one individual for $3,450,000 and the company
acted as guarantor for repayment. As of October 1, 2016, the Company entered assignment agreement with TRW to take up liabilities
of negotiable promissory notes.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Negotiable promissory notes
|
|
$
|
977,155
|
|
|
$
|
977,155
|
|
Principal amount:
|
|
$
977,155
(12.31.2017: $722,167)
|
Interest payable:
|
|
$254,988 (12.31.2017: $254,988)
|
Interest rate:
|
|
2.5% (12.31.2017: 2.50%) per month on principal amount. Interest
shall be calculated on the basis of a 30/360-day count convention
|
Default interest rate
|
|
15% per month on principal amount. Interest shall be calculated
on the basis of a 30/360-day count convention
|
Interest payment
|
|
Accrued interest on the principal amount shall be paid by cash
in arrears on each interest payment date
|
Issue date:
|
|
August 29, 2015 and October 12, 2015
|
Repayment date:
|
|
Repaid in full within 283 calendar days from the
issue of notes
|
Conversion option:
|
|
Notes holders can exercise at any time from and including the
day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written
notices to TRW and the Company, the principal amount shall be converted to shares of the Company. The TRW may at their own
discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In
the event a dividend, share split or consolidation or spin-off (each a Corporate Event”) from the Company, the conversion
price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur.
|
Security:
|
|
Corporate guarantee by the Company
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
22.
|
CONVERTIBLE NOTE PAYABLES
|
On
August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor,
which purchased a 10.5% Convertible Note (the “
Note 1
”) in the aggregate principal amount of up to
$33,300,000. The Company received the total advance of $11,632,450. The Company shall offer investor a discount equal to 25%
of the amount of the principal advanced by the investor.
Interest
on the note shall accrue on the outstanding principal balance of this Note from August 29, 2014. Interest shall be payable quarterly
on the last day of each of March, June, September and December commencing September 30, 2014 provided, however, that note holder
may elect to require the Company to issue to the note holder a promissory note in lieu of cash in satisfaction of any interest
due and payable at such time. Any interest payment note shall be subject to the same terms as the note. The note has a maturity
date of February 28, 2020.
The
note is convertible, at the discretion of the note holder, into shares of the Company’s common stock (i) at any
time following an Event of Default, or (ii) for a period of thirty (30) calendar days following October 31, 2015 and
each anniversary thereof, at an initial conversion price per share of $1.00, (price prior to reversed split) subject to
adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and subject to the terms of
the note. As long as the note is outstanding, the investor shall have a right of first refusal, exercisable for thirty (30)
calendar days after notice to the note holder, to purchase securities proposed to be offered and sold by the Company.
The Company and the note holder
entered into a restructuring agreement regarding the settlement of the Note 1. Both parties have agreed to restructure the indebtedness
represented by Note 1 as follows: (a) SIAF issues 5,196,333 shares of its common stock and transfer 400,000 shares of TRW to the
note holder; and (b) SIAF executes a new promissory note in the principal amount of $15,589,000 to the note holder to be paid
in installments over a period of time. However, both parties remain open to negotiate an all-cash settlement of the Note 1.
As a result, the amount outstanding
under Note 1 was reclassified as other payables – straight note payable of $29,367,999 (see Note 19).
On October 20, 2017, the Company
issued another Convertible Note (the
“Note 2”
) with a principal amount of $4,000,000 due on February 28, 2018.
The note holder had the option to convert all or any part of the outstanding note into the common stock of the Company (the “Primary
Optional Conversion”) or TRW (the “Secondary Optional Conversion”) at any time for a period of eight months from
the note’s maturity date. The conversion price for Primary Optional Conversion is lesser of $1.5 per share or at 65% of the market
share price of the Company. While the conversion price for Secondary Optional Conversion is $3.41 per share subject to equitable
adjustment for stock split, stock dividend or right offerings.
Under the agreement, the Company
shall pay the note holder 120,000 common shares of SIAF or 32,000 common shares of TRW as an origination fee. The note bears a
flat interest payment which shall be settled by 200,000 common shares of SIAF or 55,000 common shares of TRW. As of March 31,
2018, no settlement for both origination fee and interest payment. The supplemental agreement to the Bond Subscription Agreement
with the Subscriber to extend the Bond Issue by a year to February 28, 2019 was in progress up to the reporting date. All other
terms and conditions of the Bond Subscription Agreement and the Conditions continue in full force and effect.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Convertible note due February 28, 2018
|
|
$
|
3,894,978
|
|
|
$
|
3,894,978
|
|
Less: classified as current liabilities
|
|
|
(3,894,978
|
)
|
|
|
(3,894,978
|
)
|
Non-current liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
The
fair value of the conversion option was approximately $211,320, the Company discounted the note and created a derivative liability,
which will be evaluated annually and adjusted for any change in value. For the year ended December 31, 2017, the Company recognized
the amortization of the discount of approximately $106,297.
The
Company estimated the fair value of the derivative liabilities using the Binomial Option Pricing Model and the following key assumptions
during the three months ended March 31, 2018 and the year ended December 31, 2017.
|
|
March 31, 2018
|
Expected dividends
|
|
-
|
Expected term (years)
|
|
0.34
|
Volatility
|
|
52.09% - 54.32%
|
Risk-free rate
|
|
1.65% - 1.9%
|
The
following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted
for at fair value as of March 31, 2018 and December 31, 2017.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
LIABILITIES:
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities as of March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100
|
|
|
|
2,100
|
|
Derivative liabilities as of December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100
|
|
|
|
2,100
|
|
The
following table represents the change in the fair value of the derivative liabilities during the three months ended March
31, 2018.
|
|
|
|
Fair value of derivative liabilities as of December 31, 2017
|
|
$
|
2,100
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
Fair value of derivative liabilities as of March 31, 2018
|
|
$
|
2,100
|
|
The above note agreement contained
regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of
default, default and optional conversion and without specific financial covenants. Management of the Company believes the Company
is in material compliance with the terms of the convertible note agreement.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Group’s share capital
as of March 31, 2018 and December 31, 2017 shown on the consolidated balance sheet represents the aggregate nominal value of the
share capital of the Company as of that date.
On
March 22, 2010, the Company designated 100 shares of Series A preferred stock at a par value per share of $0.001. As of the same
date, 100 shares of Series A preferred stock were issued at $1 per share for cash in the amount of $100.
The
Series A preferred stock:
|
(i)
|
does not pay a dividend;
|
|
(ii)
|
votes together with
the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred
Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty
percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action
by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share
of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and
|
|
(ii)
|
ranks
senior to common stockholders, holders of Series B convertible preferred stockholders
and any other stockholders on liquidation.
|
The Company has designated
100 shares of Series A preferred stock with 100 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
23.
|
SHAREHOLDERS’
EQUITY (CONTINUED)
|
The
Series B convertible preferred stock:
On
March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001.
The Series B convertible preferred stock is redeemable; the stockholders are not entitled to receive any dividend and voting rights
but rank senior over common stockholders on liquidation and can convert to common stock on a one for one basis at any time. On
June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series
B convertible preferred stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the
Company and a stockholder, Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of
Directors, to exchange for 3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23,
2012, 3,000,000 shares of Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its
holding of 3,000,000 shares of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned
to the Company. On March 27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17, 2014, the Company
approved an amendment to certificate designation in respect of Series B preferred stock. Pursuant to the above new amendment,
each holder of Series B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of
Series B preferred to one fully paid and non-assessable share of common stock of par value $0.001 per share. On June 15, 2015,
Series B preferred stockholder exercised at the above conversion ratio to convert 7,000,000 shares of Series B preferred stock
to 707,070 shares of common stock.
There
were 0 shares of Series B convertible preferred stock issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.
The
Series F Non-Convertible Preferred Stock:
|
(i)
|
is not redeemable subject
to (iv);
|
|
(ii)
|
except for (iv), with respect to dividend rights, rights on
liquidation, winding up and dissolution, rank junior and subordinate to (a) all classes of Common Stock, (b) all other
classes of Preferred Stock and (c) any class or series of capital securities of the Company.
|
|
(iii)
|
shall not entitled to
receive any further dividend; and
|
|
(iv)
|
on May 30, 2014, the
holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from
the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F
with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records
of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized
but unissued “blank check” preferred stock of the Company.
|
On
August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive
one share of restricted Series F Non-Convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders
as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose
of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to
a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. However,
the Company was unable to issue the Series F Non-Convertible Preferred Stock as originally contemplated. Consequently, The Company’s
transfer agent was instructed to note in its record date rather than actual issue the Preferred F shares. On June 14, 2014, the
Company announced the delay in payment of the coupon until May 30, 2015. The company reserved the excess over the nominal amount
of the Series F Non-Convertible Preferred Stock of $3,124,737 as Series F Non-Convertible Preferred Stock redemption payable.
As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.
As a result, total issued and
outstanding of Series F Non-Convertible Preferred Stock as of March 31, 2018 and December 31, 2017 are 0 shares and grand total
issued and outstanding preferred stock as of March 31, 2018 and December 31, 2017 are 100 shares.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
23.
|
SHAREHOLDERS’
EQUITY (CONTINUED)
|
Common Stock:
On November 10, 2014, the Company
approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse
Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) affecting both
the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in
the State of Nevada on December 16, 2014. Subsequent to the December 31, 2014, the Board of directors and the holders of a majority
of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its
authorized shares of Common Stock from 17,171,716 to 22,727,272.
The Board of directors and
the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation
to increase its authorized shares of Common Stock from 22,727,272 to 27,000,000 and the amendment was filed on December 28, 2016.
During
the year ended December 31, 2017, the Company (i) issued 1,167,502 shares of employees and directors at fair value of $1.00 to
$3.45 per share for $1,452,984 for employee compensation; (ii) issued 500,800 shares of common stock valued to professionals at
fair value of $1 per share for $500,800 for service compensation; (iii) issued 4,074,979 shares of common stock ranging from $1.40
to $5.15 amounting to $12,054045 as collateral to secure trade and loan facilities, and the shares issued by the Company were
valued at the trading price of the stock on the date the shares were issued; and (iv) 892,735 shares of common stock issued for
$0 as top up securities for debts loans.
The Board of directors and
the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation
to increase its authorized shares of Common Stock from 27,000,000 to 50,000,000 and the amendment was filed on August 24, 2017
with an effective date of August 25, 2017.
During
the three months ended March 31, 2018, the Company (i) issued 72,450 shares of common stock valued to employees and directors
at fair value of $1.56 per share for $113,022 for employee compensation; (ii) issued 3.748,925 shares of common stock valued to
professionals and contractors at fair value ranging from $ 0.55 to $1.00 per share for 2,969,361 for service compensation; 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 33,184,250 and 29,362,875 shares of common stock issued and outstanding as of March 31, 2018 and December 31, 2017
respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
24.
|
OBLIGATION UNDER OPERATING
LEASES
|
The
Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $864 in Enping City, Guangdong
Province, P.R.C., its lease expiring on March 31, 2019; and (ii) 5,081 square feet of office space in Guangzhou City, Guangdong
Province, P.R.C. for a monthly rent of $12,722, its lease expiring on July 8, 2018.
Lease
expenses were $40,758 and $40,989 for the three months ended March 31, 2018 and 2017, respectively.
The
future minimum lease payments as of March 31, 2018, are as follows:
Within 1 year
|
|
$
|
49,641
|
|
2 to 5 years
|
|
|
-
|
|
Over 5 years
|
|
|
-
|
|
|
|
$
|
49,641
|
|
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
25.
|
STOCK BASED COMPENSATION
|
On June 30, 2017, the
Company issued employees 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. On December 31, 2017, the Company issued employees
total of 500,800 shares of common stock valued at fair value of $1 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. On December 31, 2017, the Company issued employees total of 1,050,502 shares of common stock
valued at fair value of $1 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 $1 per share.
The Company calculated stock-based compensation of $5,937,765 and recognized $4,184,638 for the year ended December 31, 2017. As of December 31, 2017, the
deferred compensation balance for staff was $201,825, and $500,800 were to be amortized respectively over 6 months and one year
beginning on January 1, 2018.
During the three months ended
March 31, 2018, the Company (i) issued 72,450 shares of common stock valued to employees and directors at fair value of $1.56
per share for $113,022 for employee compensation; (ii) issued 3.748,925 shares of common stock valued to professionals and contractors
at fair value ranging from $ 0.55 to $1.00 per share for 2,969,361 for service compensation; 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 calculated stock-based compensation of $3,785,008 and $3,982,813 and recognized $226,113 and $1,991,407 for the three months ended March 31, 2018
and 2017. As of March 31, 2018, the deferred compensation balance for staff, professional and contractors was $3,558,895 and the
deferred compensation balances of $100,912, $375,600, and $3,082,383 were to be amortized over 3 months, 9 months and 1 year beginning
on April 1, 2018, respectively.
As of March 31, 2018 and December
31, 2017, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect
on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements
of cash flows.
On September 19, 2015, the
Company entered into a trade facility agreement with two independent third parties. Pursuant to the agreement, the Company provides
collateral in the form of Company’s common shares to a PRC based lender (the “Lender”) and the Lender agrees to provide
a revolving trade facility loan up to $20,000,000 to a PRC based borrower. The arrangement was commenced on February 15, 2016
and will be expired on February 15, 2019.
As of March 31, 2018, the Company
has issued aggregate 4,809,979 (12.31.2017: 4,809,979) common shares as collateral.
|
27.
|
RELATED PARTY TRANSACTIONS
|
In addition to the transactions
and balances as disclosed elsewhere in these consolidated financial statements, during the three months ended March 31, 2018 and
2017, the Company had the following significant related party transactions:
Basic
earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities by including other
potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common
shares outstanding for the year, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings
per share are presented in the following table:
For
the three months ended March 31, 2017, full dilution effect of convertible note of $35,560,989 was taken into account for calculation
of the diluted earnings per share because convertible note holder can exercise the right to exercise to convert to common stock
by giving 1 month notice after October 1, 2015 under terms of convertible note agreement.