Securities Registration Statement (s-1)

Date : 06/27/2019 @ 2:42PM
Source : Edgar (US Regulatory)
Stock : Sino Agro Food, Inc. (QX) (SIAF)
Quote : 0.2  0.0 (0.00%) @ 12:30PM

Securities Registration Statement (s-1)

 

 

 

 

As filed with the Securities and Exchange Commission on June 27, 2019

 

 Registration No. 333-_______

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

SINO AGRO FOOD, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   2020   33-1219070
         

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

  (IRS Employer Identification Number)

 

Sino Agro Food, Inc.

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

Tianhe District, Guangzhou City, P.R.C. 510610

( 860) 20 22057860

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Solomon Lee

Chief Executive Officer

Sino Agro Food, Inc.

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

Tianhe District, Guangzhou City, P.R.C. 510610

(860) 20 22057860

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Marc Ross, Esq.

Avital Perlman, Esq.

Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 37 th Floor

New York, New York 10036

Telephone: (212) 930-9700

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering: ¨

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Exchange Act. 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to Be Registered   Proposed Maximum
Aggregate
Offering Price
(1)
    Amount Of
Registration Fee
(2)
 
             
7% Series G Non-Convertible Cumulative Redeemable Perpetual Preferred Stock   $ 40,000,000.00     $ 4,848.00  
Warrants to Purchase Common Stock                
Common Stock Issuable Upon Exercise of Warrants   $ 10,000,000.00 (3)   $ 1,212.00  
Total   $ 50,000,000.00     $ 6,060.00  

 

(1) In the event of a stock split, stock dividend, or similar transaction involving the common stock, the securities registered shall automatically be increased to cover the additional securities issuable pursuant to Rule 416.
   
(2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. A portion of the registration fee is being offset against $1,803.04 paid by the Company upon the filing of a Registration Statement on Form S-1 on February 27, 2015 that was subsequently withdrawn (File Number 333-202357).
   
(3) The warrants are exercisable at a per share exercise price of $1.00 per share.  

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

 

 

 

 

 

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION, DATED JUNE 27, 2019

 

SINO AGRO FOOD, INC.

 

1,000,000 Shares of

7% Series G Non-Convertible Cumulative Redeemable Perpetual Preferred Stock

(Liquidation Preference $40.00 per Share)

 

10,000,000 Warrants to Purchase an Aggregate of 10,000,000 Shares of Common Stock, consisting of:

3,000,000 Series 1 Warrants to Purchase an Aggregate of 3,000,000 Shares of Common Stock

3,000,000 Series 2 Warrants to Purchase an Aggregate of 3,000,000 Shares of Common Stock

4,000,000 Series 3 Warrants to Purchase an Aggregate of 4,000,000 Shares of Common Stock

 

This prospectus relates to a direct public offering by Sino Agro Food, Inc. of a maximum of 1,000,000 shares of our 7% Series G Non-Convertible Cumulative Redeemable Perpetual Preferred Stock, which we refer to as the “ Series G Preferred Stock ,” at a price of $40 per share for maximum aggregate gross proceeds of $40,000,000.00.   Each share of our Series G Preferred Stock is being sold together with ten warrants, or “Warrants”, to purchase an aggregate of ten shares of common stock: (i) three Series 1 Warrants to purchase an aggregate of three shares of common stock, (ii) three Series 2 Warrants to purchase an aggregate of three shares of common stock, and (iii) four Series 1 Warrants to purchase an aggregate of four shares of common stock. The Series G Preferred Stock, Series 1 Warrants, Series 2 Warrants and the Series 3 Warrants, which we refer to as the "Warrants," are immediately separable and will be issued separately, but will be purchased together in this offering. This prospectus also covers shares of common stock issuable upon exercise of the Warrants.

 

The securities offered by us will be offered for a period not to exceed 180 days from the date of this prospectus. There is no minimum number of securities that must be sold in the offering, we will retain the proceeds from the sale of any of the offered securities, and funds will not be returned to investors. It is possible that no proceeds will be received by us or that if any proceeds are received, that such proceeds will not be sufficient to cover the costs of the offering. The securities are offered directly through our officers and directors.  No commission or other compensation related to the sale of the securities will be paid to our officers and directors. Our officers and directors will not register as a broker-dealer with the Securities and Exchange Commission in reliance on Rule 3a4-1 of the Securities Exchange Act of 1934, as amended.  The intended methods of communication include, without limitation, telephone and personal contact. For more information, see the section titled “Plan of Distribution” herein.

 

Each Warrant will have an initial exercise price of $1.00 per share of common stock. The Series 1 Warrants will be exercisable from January 1, 2022 through their termination on December 31, 2022. The Series 2 Warrants will be exercisable from January 1, 2023 through their termination on December 31, 2023. The Series 3 Warrants will be exercisable from January 1, 2024 through their termination on December 31, 2024.

 

The direct public offering will terminate on the earlier of (i) the date when the sale of all 1,000,000 shares of Series G Preferred Stock and accompanying 10,000,000 Warrants to purchase an aggregate of 10,000,000 shares of common stock is completed or (ii) 180 days from the date of this prospectus. In addition, if we abandon the offering for any reason prior to 180 days from the date of this prospectus, we will terminate the offering.

 

Dividends on the Series G Preferred Stock are cumulative from the date of original issue and will be payable on August 15 of each year (for calculating period January 1 to December 31 each year) commencing on August 15, 2020 (for dividends payable for fiscal year 2019), when, as and if declared by our board of directors. Dividends will be payable out of amounts legally available therefor at a rate equal to 7% per annum per $40.00 of stated liquidation preference per share, or $2.80 per share of Series G Preferred Stock per year.

 

On and after five years from the Dividend Record Date, we may, at our option, redeem the Series G Preferred Stock, in whole or in part, at any time or from time to time, at the rate of 15 shares of common stock for each share of Series G Preferred Stock, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If we elect to redeem any shares of Series G Preferred Stock, we may use any available cash to pay the redemption price.

 

The Series G Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up:

 

(i)             senior to all classes or series of our common stock and to all other equity securities issued by us, the terms of which specifically provide that such equity securities rank junior to the Series G Preferred Stock, other than equity securities referred to in clauses (ii) and (iii);

 

 

 

(ii)            junior to our Series A Preferred Stock and all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up;

 

(iii)            in parity with our Series B Preferred Stock and all equity securities issued by us with terms specifically providing that those equity securities rank equal to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (any such issuance would require the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series G Preferred Stock); and

 

(iv)           effectively junior to all of our existing and future indebtedness.

 

Prior to this offering, there has been no market for the Series G Preferred Stock or the Warrants. We plan to submit an application for the Series G Preferred Stock to be quoted on the OTCQX Premier operated by the OTC Markets Company under the symbol ______. We do not intend to have the Warrants be quoted on the OTCQX, any national securities exchange or any other nationally recognized trading system. Our common stock is quoted on the OTCQX Premier under the symbol SIAF.

 

No underwriter or person has been engaged to facilitate the sale of our securities in this offering. There are no underwriting commissions involved in this offering. We have agreed to pay all the costs of this offering other than customary brokerage and sales commissions.

 

Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” beginning on page 8 of this prospectus before making a decision to purchase our Series G Preferred Stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _____, 2019

 

  ii    

 

 

TABLE OF CONTENTS

 

  Page
PROSPECTUS SUMMARY 1
   
RISK FACTORS 8
   
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 23
   
USE OF PROCEEDS 24
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25
   
BUSINESS 70
   
DESCRIPTION OF PROPERTY 105
   
LEGAL PROCEEDINGS 106
   
DIRECTORS AND EXECUTIVE OFFICERS 107
   
EXECUTIVE COMPENSATION 109
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 111
   
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 110
   
PLAN OF DISTRIBUTION 112
   
TERMS  OF THE OFFERING 113
   
PROCEDURES FOR AND REQUIREMENTS FOR SUBSCRIBING 114
   
DESCRIPTION OF SECURITIES TO BE REGISTERED 115
   
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 122
   
EXPERTS 123
   
LEGAL MATTERS 123
   
WHERE YOU CAN FIND MORE INFORMATION 123
   
INDEX TO FINANCIAL STATEMENTS F-1

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell shares of our common stock and seeking offers to buy shares of our common stock only in jurisdictions where such offers and sales are permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

  iii    

 

 

PROSPECTUS SUMMARY

 

This summary highlights important information contained elsewhere in this prospectus. You should carefully read this prospectus and the documents incorporated by reference to understand fully our business and the terms of our Series G Preferred Stock as well as the tax and other considerations that are important to you in making your investment decision. You should consider carefully the “Risk Factors” section beginning on page 8 of this prospectus to determine whether an investment in the Series G Preferred Stock is appropriate for you. Unless the context otherwise requires, references in this prospectus to “SIAF,” the “Company,” “we,” “us” and “our” refer to Sino Agro Food, Inc. and its subsidiaries. For further information about us, see “Where You Can Find More Information.”

 

In this prospectus, unless the context requires otherwise, references to the “Company,” “Sino Agro,” “SIAF,” “we,” “our company” and “us” refer to Sino Agro Food, Inc., a Nevada corporation together with its subsidiaries.

 

SIAF is an agriculture technology and natural food holding company with principal operations in the People’s Republic of China. The Company acquires and maintains equity stakes in a cohesive portfolio of companies that SIAF forms according to its core mission to produce, distribute, market and sell natural, sustainable protein food and produce, primarily seafood and cattle, to the rapidly growing middle class in China. SIAF provides financial oversight and strategic direction for each company, and for the interoperation between companies, stressing vertical integration between the levels of the Company’s subsidiary food chain. The Company owns or licenses patents, proprietary methods, and other intellectual properties in its areas of expertise. SIAF provides technology consulting and services to joint venture partners to construct and operate food businesses, primarily producing wholesale fish and cattle. Further joint ventures market and distribute the wholesale products as part of an overall “farm to plate” concept and business strategy.

 

Revenues by division were as follows (in millions of U.S. dollars):

 

Division (on Sales of Goods)   2018     2017  
Fisheries (CA) (Discontinued operation from October 5, 2016)   $     $ -  
Organic Fertilizer (HSA, SJAP & QZH)     28.9       84.4  
(QZH derecognized as variable interest entity from December 30, 2017)                
Cattle (MEIJI)     29.6       20.4  
Plantation (JHST)     3.6       4.6  
Corporate, Marketing & Trading (SIAF)             71.8  
Total Revenues derived on sales of goods   $ 68.5     $ 181.2  

 

Division (on consulting & services)   2018     2017  
CA (Fishery related developments)   $       $ 17.0  
Total Revenues derived on consulting & services   $ 11.1     $ 17.0  

 

History

 

The Company, which was formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc., was incorporated on October 1, 1974 in the State of Nevada. The Company was formerly engaged in the mining and exploration business but ceased the mining and exploring business in 2005. On August 24, 2007, the Company entered into a merger and acquisition agreement with CA, a Belize corporation and its subsidiaries CS and CH. Effective of the same date, CA completed a reverse merger transaction with the Company.

  

For two years after its introduction in China, the Company operated in the dairy segment, but sold the dairy business in December of 2009 and began to implement its five-year plan to develop its vertically integrated business operations consisting of (i) cattle fattening and production of beef products and (ii) cultivation of fish and prawn and related products. The Company now operates as an engineering, technology and consulting company specializing in building and operating agriculture and aquaculture farms in China.

 

Our principal executive office is located at Room 3801, 38 th Floor, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, PRC, 510610.

 

Through December 31, 2017, we were contracted as turnkey contractor to the owners and developers of the C&S Project Companies and acted as the master engineer, pioneering the construction and building of farms, from raw land into fully operational facilities. In each development the Company completes the construction and building of infrastructure including staff quarters, offices, processing facilities, storage, and all related production facilities. Our management teams are responsible for developing all business activities into effective and efficient operations. From October 1, 2016, onward, Tri-way has assumed the role as developer of aquaculture projects in China with CA contracted to provide turnkey contracted services for those projects.

 

 

 

 

In just a few years, we have matured into a company dedicated to the agriculture and aquaculture industry in China. The Company currently maintains operations of its HU Plantation as well as its services in engineering consulting and specializing in the development of two major products, namely meat derived from the rearing of beef cattle and seafood derived from the growth of fish, prawns, eel and other marine species.

 

Background

After successfully developing many aquaculture fishery farms, cattle farms and related business operations (along with sales and marketing of produce and products) in Australia and Malaysia since 1998, our management team introduced our business activities in China in 2006. We are an engineering and consulting company that specializes in building and operating agriculture and aquaculture farms.

 

To accomplish this, we use our expertise and know how in specific agriculture and aquaculture technologies. Our “A Power Re-circulating Aquaculture System,” sometimes referred to herein as APRAS, is a patented and proven technology for indoor fish farming. We have developed modern techniques and technologies to grow, feed and house both fish and cattle. These are engineered into the designs of, and the management systems for, indoor and outdoor fishery and cattle farms. Our experience managing crops, and employing technologies, including hydroponic, to work within climate and growing conditions optimizes production of organic, green and natural agricultural produce.

 

In all of our developments we have acted as the master engineer, pioneering the construction and building of farms, from raw land into fully operational facilities. We complete the construction and building of infrastructure including staff quarters, offices, processing facilities, storage, and all related production facilities. Our management teams are responsible for developing all business activities into effective and efficient operations.

 

In just a few years, we have matured into a company dedicated to the agriculture and aquaculture industry in China. We currently maintain operation of our HU Plantation as well as our services in engineering consulting, specializing in the development of two major products, namely meat derived from the rearing of beef cattle and seafood derived from the growth of fish, prawns, eel and other marine species. 

 

Revenues are generated from activities that we divide into five stand-alone business divisions or units: (1) Fishery development, (2) Cattle & Beef, (3) Organic Fertilizer, (4) HU Plantation, and (5) Marketing and Trading. This fifth and newest division, “Marketing and Trading” represents our strongest push to vertically integrate the Company’s operations, furthering the Company’s overall “farm to plate” concept.

 

Corporate Acquisitions

On September 5, 2007, we acquired two businesses in the People’s Republic of China (“ PRC ”):

  

(a) Tri-Way Industries Ltd., Hong Kong (“ TRW ”) (formerly known as Tri-way Industries Limited), a company incorporated in Hong Kong; and

 

(b) Macau EIJI Co. Ltd., Macau (“ MEIJI ”) (formerly known as Macau Eiji Company Limited), a company incorporated in Macau, and the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“ HST ”), a PRC corporate Sino Foreign joint venture.

 

On November 27, 2007, MEIJI and HST established a corporate Sino Foreign joint venture, Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd, China (“ JHST ”) (formerly known as Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.), a company incorporated in the PRC with MEIJI owning a 75% interest and HST owning a 25% interest. HST was dissolved in 2010.

 

In September 2009, we formed a 100% owned subsidiary in Macau, A Power Agriculture Development (Macau) Ltd., China (“ APWAM ”) (formerly known as A Power Agro Agriculture Development (Macau) Limited). APWAM presently owns 45% of a corporate Sino Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“ SJAP ”). On March 23, 2017, a third party, Qinghai Quanwang Investment Management Company Limited acquired a 8.3% equity interest and APWAM owned 41.25% equity interest of SJAP as of December 31, 2017. SJAP is engaged in the business of manufacturing bioorganic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, PRC.

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City A Power Prawn Culture Development Co. Ltd., China (“ EBAPCD ”) (formerly known as Enping City Bi Tao A Power Fishery Development Co., Limited), which is incorporated in the PRC. TRW initially owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiangmen City A Power Fishery Development Co. Ltd, China (“ JFD ”) (formerly known as Jiang Men City A Power Fishery Development Co., Limited) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, we had invested $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, we acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. On April 1, 2012, we acquired an additional 25% equity interest in JFD for the amount of $1,702,580. Prior to October 5, 2016 we owned a 75% equity interest in JFD and controlled its board of directors. As of September 30, 2012, we had consolidated the assets and operations of JFD. From October 5, 2016 we brought out the remaining 25% equity interest in JFD for consideration of $4,517,426 and sold the 100% equity interest in JFD to TRW (inclusive of all original assets of its one farm, Fish Farm 1, which changed its name to Aqua Farm 1 and of other additional assets) for $33,538,480; and converted JFD into a Wholly Owned Foreign Entity (WOFE) such that TRW is holding 100% equity interest in JFD; and simultaneously (on October 5, 2016) JFD completed the acquisition of the assets and operation from owners and investors of four other aquaculture farms (namely Aqua Farms 2, 3 and 4) for $277,055,897 collectively and the acquisition of a Master License from CA for the rights of future development and operation of our APRAS farms in China for $30,000,000 resulting in our acquisition of a 23.89% equity interest in TRW at October 5, 2016. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in its equity interest in TRW increasing from 23.89% to 36.60%.

 

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On April 15, 2011, MEIJI applied to form Enping City A Power Beef Cattle Farm 2 Co. Ltd., China (“ EAPBCF ”), all of which we would indirectly own a 25% equity interest in as of November 17, 2011. On September 13, 2012 MEIJI formed Jiangmen City Hang Mei Cattle Farm Development Co. Ltd., a company incorporated in the PRC (“ JHMC ”) in which it owns 75% equity interest with an investment of $3,636,326, while withdrawing its 25% equity interest in ECF. As of September 30, 2012, we had consolidated the assets and operations of JHMC.

 

Cross-Listing on the Merkur Market

On January 13, 2016, securities representing beneficial interests in the shares of Common Stock, referred to as VPS Shares, began to be traded on the Oslo Børs’ Merkur Market under the symbol “SIAF-ME.” The shares of Common Stock continued to trade on the OTCQB under the symbol “SIAF.”

 

The Merkur Market is a multilateral trading facility operated by Oslo Børs ASA. The Merkur Market is subject to the rules in the Norwegian Securities Trading Act and the Securities Trading Regulations that apply to such marketplaces. These rules apply to companies admitted to trading on the Merkur Market, as do the marketplace’s own rules, which are less comprehensive than the rules and regulations that apply to companies listed on Oslo Børs and Oslo Axess. The Merkur Market is not a regulated market, and is therefore not subject to the Norwegian Stock Exchange Act or to the Stock Exchange Regulations. Investors should take this into account when making investment decisions.

 

Uplisting to the OTC QX Premier

On January 19, 2016, the Company’s shares of common stock began to be traded on the OTCQX ® Best Market in the U.S. under its existing ticker symbol “SIAF.” The Company upgraded to OTCQX Premier from the OTCQB ® Venture Market.

  

The OTCQX ® Market is the top tier of the U.S. over-the-counter markets operated by OTC Markets Company. It is reserved for established investor-focused companies meeting high financial and governance standards, and sponsored by professional third party advisors. SIAF has qualified to trade on OTCQX U.S. Premier, for which eligibility standards are higher still. For comparison, as of December 31, 2015, there were 942 companies traded on the OTCQB, 425 companies traded on the OTCQX and 98 companies traded on OTCQX U.S. Premier, of which only 17 are non-bank companies.

 

With OTCQX admission, OTC Market Company’s Blue Sky Monitoring Service provides the Company with a customized daily audit of its compliance status in all 50 states. Blue Sky compliance is mandatory for broker-dealers and registered investment advisors to solicit or recommend a security to investors.

 

U.S. investors can find current financial disclosure and Real-Time Level 2 quotes for the Company on www.otcmarkets.com .

 

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.0 billion or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act” and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

 

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

· only two years of audited consolidated financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” disclosure;

 

- 3 -  

 

 

· reduced disclosure about our executive compensation arrangements;

 

· no requirement that we hold non-binding advisory notes on executive compensation or golden parachute arrangements; and

 

· exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We have taken advantage of some of these reduced burdens, and thus the information we provide stockholders may be different from what you might receive from other public companies in which you hold shares.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

- 4 -  

 

 

THE OFFERING

 

The summary below describes the principal terms of the Series G Preferred Stock and Warrants. Certain of the terms and conditions described below are subject to important limitations and exceptions. Refer to the section of this prospectus entitled “Description of Series G Preferred Stock and Warrants” for a more detailed description of the terms of the Series G Preferred Stock.

 

Securities Being Offered:  

1,000,000 shares of Series G Preferred Stock, par value $0.001 per share, and 10,000,000 Warrants to purchase an aggregate of 10,000,000 shares of common stock, par value $0.001 per share.

Each share of our Series G Preferred Stock is being sold together with: (i) three Series 1 Warrants to purchase an aggregate of three shares of common stock, (ii) three Series 2 Warrants to purchase an aggregate of three shares of common stock, and (iii) four Series 1 Warrants to purchase an aggregate of four shares of common stock.

     
Offering Price per Share of Series G Preferred Stock:   $40.00
     
Offering Period:   The securities are being offered for a period not to exceed 180 days.
     
Gross Proceeds to our Company:   $0 if no securities are sold, $10,000,000 if 25% of the maximum number of securities are sold, $20,000,000 if 50% of the maximum number of securities are sold, $30,000,000 if 75% of the maximum number of securities are sold and $40,000,000 if the maximum number of securities are sold.    The gross proceeds exclude proceeds received upon exercise, if any, of the Warrants.  
     
Use of Proceeds*:   General working capital and capital for development purposes. 
     
Number of Series G Preferred Shares Outstanding Before the Offering:   0 as of the date of this prospectus.
     
Number of Series G Preferred Shares Outstanding After the Offering**:   0, if no securities are sold, 250,000 if 25% of the maximum number of securities is sold, 500,000 if 50% of the maximum number of securities is sold, 750,000 if 75% of the maximum number of securities is sold and 1,000,000 if 100% of the maximum number of securities is sold.
     
Number of Warrants Outstanding Before the Offering:   0 as of the date of this prospectus.
     
Number of Warrants Outstanding After the Offering:   No Warrants will be outstanding if no securities are sold.  Below are the number of Warrants that will be outstanding if 25%, 50%, 75% and 100% of the maxiumum number of securities are sold:

 

      25%   50%   75%   100%
Series 1 Warrants   Warrants to purchase 750,000 shares of common stock   Warrants to purchase 1,500,000 shares of common stock   Warrants to purchase 2,250,000 shares of common stock   Warrants to purchase 3,000,000 shares of common stock
Series 2 Warrants   Warrants to purchase 750,000   Warrants to purchase 1,500,000 shares of common stock   Warrants to purchase 2,250,000 shares of common stock   Warrants to purchase 3,000,000 shares of common stock

 

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Series 3 Warrants   Warrants to purchase 1,000,000 shares of common stock   Warrants to purchase 2,000,000 shares of common stock   Warrants to purchase 3,000,000 shares of common stock   Warrants to purchase 4,000,000 shares of common stock
                   
Total Warrants   2,500,000   5,000,000   7,500,000   10,000,000

 

Risk Factors:  

An investment in our securities involves a high degree of risk. You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 8 of this prospectus before deciding whether or not to invest in our Series G Preferred Shares and Warrants.

 

Liquidation Value:  

$40 per share.

 

Dividends:  

Dividends on the Series G Preferred Stock are cumulative from the date of original issue and will be payable on August 15 of each year (for calculating period January 1 to December 31 each year) commencing on August 15, 2020 (for dividends payable for fiscal year 2019), when, as and if declared by our board of directors. Dividends will be payable out of amounts legally available therefor at a rate equal to 7% per annum per $40.00 of stated liquidation preference per share, or $2.80 per share of Series G Preferred Stock per year.

 

Optional Redemption:  

On and after five years from the Dividend Record Date, we may, at our option, redeem the Series G Preferred Stock, in whole or in part, at any time or from time to time, at the rate of 15 shares of common stock for each share of Series G Preferred Stock, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If we elect to redeem any shares of Series G Preferred Stock, we may use any available cash to pay any accumulated and unpaid dividends.

 

Ranking:  

The Series G Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up:

 

(i)           senior to all classes or series of our common stock and to all other equity securities issued by us, the terms of which specifically provide that such equity securities rank junior to the Series G Preferred Stock, other than equity securities referred to in clauses (ii) and (iii);

 

(ii)           junior to the Series A Preferred Stock and all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up;

 

(iii)          in parity with the Series B Preferred Stock and all equity securities issued by us with terms specifically providing that those equity securities rank equal to the Series G Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (any such issuance would require the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series G Preferred Stock); and

 

(iv)         effectively junior to all of our existing and future indebtedness. 

 

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Voting:  

Holders of Series G Preferred Stock shall be entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to our shareholders for their action or consideration (whether at a meeting of our shareholders, by written action of shareholders in lieu of a meeting or otherwise). In any such vote, each share of Series G Preferred Stock shall carry the voting power of twenty (20) shares of common stock, subject to the provisions of the Nevada corporate law.

 

Warrant Terms:  

Each Warrant will have an initial exercise price of $1.00 per share of common stock. The Series 1 Warrants will be exercisable from January 1, 2022 through their termination on December 31, 2022. The Series 2 Warrants will be exercisable from January 1, 2023 through their termination on December 31, 2023. The Series 3 Warrants will be exercisable from January 1, 2024 through their termination on December 31, 2024.  

 

Listing:   Prior to this offering, there has been no market for the Series G Preferred Stock.  We plan to submit an application for the Series G Preferred Stock to be quoted on the OTCQX Premier operated by the OTC Markets Company under the symbol ______.  We do not intend to have the Warrants be quoted on the OTCQX, any national securities exchange or any other nationally recognized trading system.  Our common stock is quoted on the OTCQX Premier under the symbol SIAF. 
     
Transfer Agent   The registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series G Preferred Stock and the warrant agent for the Warrants will be Broadridge Corporate Issuer Solutions, Inc., or Broadridge, 1717 Arch Street, Suite 1300, Philadelphia, PA 19103.

 

* We will retain the proceeds from the sale of any of the offered securities, and funds will not be returned to investors. It is possible that no proceeds will be received by the Company or that if any proceeds are received, that such proceeds will not be sufficient to cover the costs of the offering. See “ Use of Proceeds ” below for further information.

 

** Does not include any shares of Series G Preferred Stock that may be issued to holders of our common stock in our concurrent exchange offer of Series G Preferred Stock for shares of common stock.

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. Potential investors should consider carefully the risks and uncertainties described below together with all other information contained in this prospectus before making investment decisions with respect to our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and our future growth prospects would be materially and adversely affected. Under these circumstances, the trading price and value of our common stock could decline resulting in a loss of all or part of your investment. The risks and uncertainties described in this prospectus are not the only ones facing our company. Additional risks and uncertainties of which we are not presently aware, or that we currently consider immaterial, may also affect our business operations.

 

This prospectus contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our customers’ or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as other sections in this prospectus, discuss the important factors that could contribute to these differences.

 

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

This prospectus also contains market data related to our business and industry. This market data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, results of operations, financial condition and the market price of our common stock.

 

Our current business operations are conducted in the PRC.  Because China’s economy and its laws, regulations and policies are different from those typically found in the West and are continually changing, we face certain risks, which are summarized below.

 

Risks Related to this Offering and Ownership of Shares of Our Series G Preferred Stock and Warrants

 

The Series G Preferred Stock is equity and is subordinate to our existing and future indebtedness and may be junior in rights and preferences to future preferred stock.

 

There is no firm commitment to purchase the Series G Preferred Stock and Warrants being offered, and as a result initial investors assume additional risk.

 

We expect, but do not guarantee, that we will offer up to $40,000,000 shares of Series G Preferred Stock and Warrants in this offering. This is a best efforts, no minimum offering. There is no binding commitment by anyone to purchase any of the shares being offered. We cannot give any assurance that any or all of the shares will be sold. We will retain any amount of proceeds received from the sale of our securities. Therefore, you will bear the risk that we will accept subscriptions for a nominal number of shares. Moreover, there is no assurance that our estimate of our liquidity needs is accurate or that new business development or other unforeseen events will not occur, resulting in the need to raise additional funds. As this offering is a best efforts financing, there is no assurance that this financing will be completed or that any future financing will be affected. Initial investors assume additional risk on whether the offering will be fully subscribed and how SIAF will utilize the proceeds.

 

The shares of Series G Preferred Stock are equity interests in SIAF and do not constitute indebtedness. The shares of Series G Preferred Stock will rank junior to all indebtedness and other non-equity claims on SIAF with respect to assets available to satisfy claims on SIAF, including in a liquidation of SIAF. Our existing and future indebtedness may restrict payment of dividends on the Series G Preferred Stock.

 

Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of preferred stock like the Series G Preferred Stock, (1) dividends are payable only when, as and if declared by our Board (or a duly authorized committee of the board), (2) dividends do not cumulate if they are not declared and (3) as a corporation, we are subject to restrictions on payments of dividends and redemption price to the extent of lawfully available funds. Further, the Series G Preferred Stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights referred to below under “Description of the Series G Preferred Stock—Voting Rights.”

 

The terms of the Series G Preferred Stock provide that we may not, without the prior written consent of the holders of a majority of the then outstanding shares of Series G Preferred Stock, amend our Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series G Preferred Stock. As a result, absent an amendment to our Articles of Incorporation, as amended, which, under the Nevada Revised Statutes, would require the consent of the holders of a majority of the common stock voting separately as a class and the holders of a majority of the Series G Preferred Stock voting together as a class with any other series of preferred stock entitled to vote thereon, we are not permitted to issue preferred stock or any other class or series of our capital stock ranking senior to the Series G Preferred Stock with respect to the payment of dividends or distributions of assets upon liquidation, dissolution or winding up of SIAF. If such an amendment is approved, we may issue preferred stock ranking senior to the Series G Preferred Stock with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up of SIAF. The Series G Preferred Stock would be junior to such senior preferred stock. The terms of any future preferred stock expressly senior to the Series G Preferred Stock may restrict dividend payments on the Series G Preferred Stock. In this case, unless full dividends for all outstanding preferred stock senior to the Series G Preferred Stock had been declared and paid or set aside for payment, no dividends could be declared or paid and no distribution could be made on any shares of the Series G Preferred Stock, and no shares of the Series G Preferred Stock would be permitted to be purchased, redeemed or otherwise acquired by SIAF, directly or indirectly, for consideration. This could result in dividends on the Series G Preferred Stock not being paid to you.

 

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Investors should not expect SIAF to redeem the Series G Preferred Stock on the date it becomes redeemable or on any particular date after it becomes redeemable.

The Series G Preferred Stock is a perpetual equity security. This means that the Series G Preferred Stock has no maturity or mandatory redemption date and is not redeemable at the option of investors. The Series G Preferred Stock may be redeemed by us, at our option, either in whole or in part, on any dividend payment date on or after _________ __, 2024.

 

Holders of the Series G Preferred Stock may have limited voting rights compared to the voting power of the Common Stock.

Holders of the Series G Preferred Stock shall be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration, except as provided by law. In any such vote, each share of the Series G Preferred Stock shall carry the voting power equal to thirty shares of Common Stock, subject to the provisions of the NRS. There can be no assurance that the number of shares of Common Stock required to be surrendered for one share of Series G Preferred Stock will be fewer than, or equal to, thirty. If the number of shares of Common Stock surrendered in exchange for one share of Series G Preferred Stock is greater than thirty, you will as a result of the exchange suffer diluted voting power.

 

General market conditions and unpredictable factors could adversely affect market prices for the Series G Preferred Stock.

There can be no assurance about the market prices for the Series G Preferred Stock. Several factors, many of which are beyond our control, will influence the market prices of the Series G Preferred Stock. Factors that might influence the market prices of the Series G Preferred Stock include:

 

whether we declare or fail to declare dividends on the Series G Preferred Stock from time to time;

 

our creditworthiness;

 

operating results that vary from the expectations of securities analysts and investors;

 

the financial performance of the major industries which we serve;

 

the operating and securities price performance of companies that investors consider to be comparable to us;

 

announcements of strategic developments, acquisitions and other material events by us or our competitors;

 

a downgrade, suspension or withdrawal of any rating assigned to us by a rating agency;

 

interest rates;

 

developments in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing and developments with respect to financial institutions generally;

 

the market for similar securities; and

 

economic, financial, geopolitical, regulatory or judicial events that affect us or the financial markets generally.

 

We cannot assure you that a liquid trading market for the Series G Preferred Stock or Warrants will develop or that a liquid trading market for the Common Stock will exist once the Series G Preferred Stock are Warrants are issued.

The shares of the Series G Preferred Stock are a new issue of securities with no established trading market. As in the case of the Common Stock, we do not intend to list the shares of the Series G Preferred Stock on any stock exchange. While we do intend to have made available for trading on the OTC Marketplace, there can be no assurance that such shares will ever be eligible for quotation on the OTC Marketplace. Therefore, we cannot assure you that a liquid trading market for the Series G Preferred Stock will develop, that you will be able to sell the Series G Preferred Stock at a particular time or that the price you receive when you sell will be favorable. Because the Series G Preferred Stock does not have a stated maturity date, investors seeking liquidity in the Series G Preferred Stock will be limited to selling their shares in the secondary market. If you do not participate in our concurrent exchange offer, the trading market for your Common Stock will become more limited to the extent other holders of Common Stock participate in the exchange offer and receive shares of Series G Preferred Stock.

 

There is no established public trading market for the Series 1 Warrants, the Series 2 Warrants or the Series 3 Warrants offered by this prospectus and we do not expect a market to develop. In addition, we do not intend to apply to list the Series 1 Warrants, the Series 2 Warrants or the Series 3 Warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the Series 1 Warrants, the Series 2 Warrants and the Series 3 Warrants will be limited.

 

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As a holder of the Warrants, you have no voting rights.

You will have no voting rights as a holder of the Series 1 Warrants, Series 2 Warrants or the Series 3 Warrants. Until you acquire shares of our common stock upon the exercise of your Warrants, you will have no rights with respect to shares of our common stock issuable upon exercise of your Warrants. Upon exercise of your Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

 

Risks Related to Our Company

 

Subsequent to the Tri-way carve-out, the number of direct major customers associated with SIAF subsidiaries has been reduced.

Subsequent to the Tri-way carve-out, the number of direct major customers associated with SIAF subsidiaries has been reduced, with the concentration of major customers now handled through the SJAP and SIAF/CA’s import/export trading division (the “ Corporate Division ”) via its main distribution agent, Shanghai Virgo Trading Co. Ltd. (“ Virgo ”) such that a loss of business with Virgo will have an adverse effect on SIAF’s Corporate Division operational performance. The Corporate Division accounted for 8.2% of consolidated revenues during the fiscal year ended December 31, 2018.

 

We may be unable to maintain an effective system of internal control over financial reporting, and as a result we may be unable to accurately report our financial results.

Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems. If we fail to maintain an effective system of internal control over financial reporting, we could experience delays or inaccuracies in reporting our financial information, or non-compliance with SEC reporting and other regulatory requirements. This could subject us to regulatory scrutiny and result in a loss of public confidence in our management, which could, among other things, cause our stock price to drop.

 

Because we will require additional financing to expand our vertically integrated operations according to our business plan and growth strategy, our failure to obtain necessary financing will impair our growth strategy; in addition, the risks of vertical integration are significant.

As of December 31, 2018, we had net working capital of $175,208,848, including cash and cash equivalents of $4,950,799. Our capital requirements to accomplish our planned vertically integrated development and growth plan of our business are significant.

 

In most developed countries, risks of agriculture operations are shared to a certain degree by different sectors in the industry. For example:

 

· Research and development are often initiated and supported by government departments;

· Primary producers are mainly concerned with the growing risks of the produce;

· Marketing companies assume the risks of marketing the produce;

· Trading houses sell the produce and assume the credit risks of the sales; and

· Logistics companies assume the risks of transporting the produce.

 

However, as a vertically integrated operator, we must assume all the above-mentioned risks. China is a developing country; compared to other developed nations, its agriculture industry is not modern. Thus, management believes that it is essential for us to develop our business operation in a vertically integrated manner so that we can achieve reasonable profit margins for our products. We believe that the multiple layers of profits generated through vertical integration may compensate to some degree for the variety of risks that we face through the multiple operations; however, the overall risks are much greater. At the same time, our five year plan for vertically integrated developments is not fully completed, and the remaining developments may require significant capital expenditures and management resources. Failure to implement these vertically integrated developments could hurt our ability to manage our growth and our financial position.

 

To accomplish the objectives discussed above and to execute our business strategy, we need access to capital on appropriate terms. We currently have no commitments with any third party to obtain such additional financing and we cannot assure you that we will be able to obtain the requisite additional financing on any terms and, if we are able to raise additional funds, it may be necessary for us to sell our securities at a price which is at a significant discount from the market price and on other terms which may be disadvantageous to us. In connection with any such financing, we may be required to provide registration rights to the investors and pay damages to the investors in the event that the registration statement is not filed or declared effective by specified dates. The price and terms of any financing which would be available to us could result in both the issuance of a significant number of shares and significant downward pressure on our stock price. We cannot assure you that our business objectives, particularly over the longer term, will be met on a timely basis, if at all. Consequently, we may be unable to meet fixed obligations and expenses that will be generated in the operation of our business, whether as presently in existence or as proposed. Any failure to obtain requisite financing on acceptable terms could have material and adverse effect on our business, financial condition and future prospects.

 

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No assurance of successful expansion of operations.

Our significant increase in the scope and the scale of our operations, including the hiring of additional personnel, has resulted in significantly higher operating expenses. We anticipate that our operating expenses will continue to increase. Expansion of our operations may also make significant demands on our management, finances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on our business, financial condition and results of operations. We cannot assure that attempts to expand our marketing, sales, manufacturing and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the expansion of our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels, we expect to continue to experience significant fluctuations in its results of operations.

 

We may be unable to successfully expand our production capacity, which could result in material delays, quality issues, increased costs and loss of business opportunities, which may negatively impact our product margins and profitability .

Part of our future growth strategy is to increase our production capacity to meet increasing demand for our goods. Assuming we obtain sufficient funding to increase our production capacity, any projects to increase such capacity may not be constructed on the anticipated timetable or within budget. We may also experience quality control issues as we implement any production upgrades. Any material delay in completing these projects, or any substantial cost increases or quality issues in connection with these projects could materially delay our ability to bring our products to market and adversely affect our business, reduce our revenue, income and available cash, all of which could harm our financial condition.

 

Our business and operations are growing rapidly. If we fail to effectively manage our growth, our business and operating results could be harmed .

We have experienced, and may continue to experience, rapid growth in our operations. This has placed, and may continue to place, significant demands on our management, operational and financial infrastructure. If we do not manage our growth effectively, the quality of our products and services could suffer, which could negatively affect our operating results. To effectively manage our growth, we must continue to improve our operational, financial and management controls and reporting systems and procedures. These systems improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to manage our growth and our financial position.

 

If the Chinese government were to change its presently favorable policy toward the agriculture industry, we would no longer enjoy our present tax-related privileges, which would materially and adversely impact our sales performance, margins, and net profit and our costs structure.

As producers active in the agriculture industry, our subsidiaries are presently exempt from income tax and enjoy various incentive grants and subsidies given by the Chinese government. If the Chinese government were to change its presently favorable policy toward the agriculture industry, we would no longer enjoy our present tax-related privileges, which would materially and adversely impact our sales performance, margins, and net profit and our costs structure. We have experienced, and may continue to experience, quick changes of policies by the Chinese government. If we do not effectively and efficiently manage our growth on time due to lack of capital, we could suffer adversely from the consequences of any such policy changes.

 

Our intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability or scope of them could undermine our competitive position and reduce the value of our products, services and brand, and litigation to protect our intellectual property rights may be costly.

We attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in China and other countries in which our products are sold. Also, although we have registered our trademark in China, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete and hurt our results of operation. Also, protecting our intellectual property rights is costly and time consuming. Policing unauthorized use of our proprietary technology can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights. But due to the relative unpredictability of the Chinese legal system and potential difficulties to enforce a court’s judgment in China, there is no guarantee that litigation would result in a favorable outcome. Furthermore, any such litigation may be costly and may divert our management’s attention from our core business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against the litigation costs so we would be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial condition, and results of operations. Any unauthorized use of our intellectual property could make it more expensive for us to do business and harm our operating results. 

 

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We may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our business and subject us to significant liability to third parties.

Our success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components used in our products or by companies we work with in cooperative research and development activities. Our current or potential competitors may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management. These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business, financial condition and results of operations.

 

We rely on highly skilled personnel and the continuing efforts of our executive officers and, if we are unable to retain, motivate or hire qualified personnel, our business may be severely disrupted.

Our performance largely depends on the talents, knowledge, skills, know-how and efforts of highly skilled individuals and in particular, the expertise held by our chief executive officer, Solomon Lee. His absence, were it to occur, could impact development and implementation of our projects and businesses. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to attract new technology developers and to retain and motivate our existing contractors. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some customers.

 

Our financial and operating performance may be adversely affected by adverse weather conditions, natural disasters and other catastrophes.

Our financial and operating performance may be affected adversely by epidemics, bad weather conditions, natural disasters and other catastrophes. Our HU plantation and Mega Farm is situated in Enping district and Zhongshan district which are subject to flooding, especially during the typhoon season (from July through September); for examples we lost many live fish and prawns grown in our open dam area of 450 Mu at the Zhongshan Mage Farm due to flooding in 2017 and again the same farm lost most of its fish breed stocks due to power stoppage caused by the typhoon; meanwhile, at Enping’s HU Plantation we lost all the winter cash crops planted during August 2018 and 50 Mu of nursery herbal tea plants and 200 Mu of passion fruit tree planted during Q2 2018.

 

We do not expect to encounter any epidemics in our aquaculture fishery farms in districts of the Guangdong Province or cattle farms in Huangyuan District of the Qinghai Province. However in the event of epidemics, we expect that our marine animals and our cattle will be quarantined until such time as a sanitary certificate for clean bill of health is obtained, before any of our products will be sold. In an extreme situation where our products would fail to obtain the sanitary certificate, they will be destroyed subject to the direction of the Inspection Authorities of the Agriculture Department of China. There is compensation granted by the Chinese government for the destruction of our products but only for a fraction of our cost of production; as such the Company will bear virtually all losses under such circumstances.

 

If we make any acquisitions, they may disrupt or have a negative impact on our business.

Although we have no present plans for any specific acquisitions, in the event that we make acquisitions, we could have difficulty integrating the acquired companies’ personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:

 

· difficulty of integrating acquired products, services or operations;
· potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
· difficulty of incorporating acquired rights or products into our existing business;
· difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;
· difficulties in maintaining uniform standards, controls, procedures and policies;

· potential impairment of relationships with employees and customers as a result of any integration of new management personnel;
· potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers;

 

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· effect of any government regulations which relate to the business acquired;
· potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition.

 

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with these acquisitions, many of which cannot be presently identified, these risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

 

We face significant competition, including changes in pricing.

The markets for our products are both competitive and price sensitive. Many competitors have significant financial, operations, sales and marketing resources, plus experience in research and development, and compete with us by offering lower prices. Competitors could develop new technologies that compete with our products to achieve a lower unit price. If a competitor develops lower cost superior technology or cost-effective alternatives to our products and services, our business could be seriously harmed.

 

The markets for some of our products are also subject to specific competitive risks because these markets are highly price competitive. Our competitors have competed in the past by lowering prices on certain products. If they do so again, we may be forced to respond by lowering our prices. This would reduce sales revenues and increase losses. Failure to anticipate and respond to price competition may also impact sales and aggravate losses.

 

Many of our competitors are larger and have greater financial and other resources than we do.

Our products compete and will compete with similar if not identical products produced by our competitors. These competitive products could be marketed by well-established, successful companies that possess greater financial, marketing, distribution personnel, and other resources than we do. Using said resources, these companies can implement extensive advertising and promotional campaigns, both generally and in response to specific marketing efforts by competitors. They can introduce new products to new markets more rapidly. In certain instances, competitors with greater financial resources may be able to enter a market in direct competition with us, offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features that consumers may find attractive.

 

Risks Related to our Industry

 

Our agricultural assets are situated in three provinces in China and crop disease, severe weather, natural disasters and other conditions affecting the environment, including the effects of climate change, could result in substantial losses and weaken our financial condition.

Our agricultural operations are situated in Qinghai Province, Hunan and Guangdong Province. Qinghai Province in particular is subject to occasional periods of drought. Crops require water in different quantities at different times during the growth cycle. The limited water resource at any given point can adversely impact production. In Qinghai our cropping and pasture land presently comprises over 5,000 acres, an area too big and too costly to afford drip irrigation systems for our crops. In Hunan, the district of Linli where we have over 300 acres of crop and pasture land may from time to time be subject to flooding that could affect our agriculture production. In Enping, Guangdong, our HU Plants are very susceptible to dry and wet seasonal variation that could also affect our agriculture production.

 

Crop disease, severe weather conditions, such as floods, droughts, windstorms and hurricanes, and natural disasters, may adversely affect our supply of one or more products, reduce our sales volumes, increase our unit production costs or prevent or impair our ability to ship products as planned. Since a significant portion of our costs are fixed and contracted in advance of each operating year, volume declines due to production interruptions or other factors could result in increases in unit production costs, which could result in substantial losses and weaken our financial condition. We may experience crop disease, insect infestation, severe weather and other adverse environmental conditions from time to time.

 

Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change.

 

An occurrence of such an event might result in material disruptions to our operations, to the operations of our customers or suppliers, resulting in a decline in the agriculture industry. There can be no assurance that our facilities or products will not be affected by any such occurrence in the future, which occurrence may lead to adverse conditions to our operations and financial results.

 

Prices of agricultural products are subject to supply and demand, a market condition which is not predictable.

Because our agricultural products are commodities, we are not able to predict with certainty what price we will receive for our products. Additionally, the growth cycle of such products in many instances dictates when such products must be marketed to achieve the maximum profitability. Excessive supplies tend to cause severe price competition and lower prices throughout the industry affected. Conversely, shortages may drive the prices higher. Shortages often result from adverse growing conditions which can reduce the availability of the agricultural products affected. Since multiple variables can affect supply and demand, we cannot accurately predict or control from year to year what prices, either favorable or unfavorable, it will receive from the market.

 

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In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. However, even if market prices are unfavorable, some of our agricultural products which are ready to be, or have been, harvested must be brought to market promptly. A decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.

 

We could realize losses and suffer liquidity problems due to declines in sales prices for our agriculture products.

Sales prices for agricultural products are difficult to predict. It is possible that sales prices for our products will decline in the future, and sales prices for other agricultural products may also decline. In recent years, there has been increasing consolidation among food retailers, wholesalers and distributors. A significant portion of our costs is fixed, so that fluctuations in the sales prices have an immediate impact on our profitability. Our profitability is also affected by our production costs, which may increase due to factors beyond our control.

 

We are subject to the risk of product contamination and product liability claims.

The sales of our products may involve the risk of injury to consumers. Such injuries may result from tampering by unauthorized personnel, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, or residues introduced during the growing, packing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, including internal product safety policies, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our brand image. We do not maintain product liability insurance.

 

We may not be successful in the implementation of our new technologies and new products, and our new products may not be widely accepted.

Our new technologies such as our drip irrigation system for precision agriculture or the introduction, testing and promotion of new agricultural varieties, must be able to adapt to local conditions. The term “drip irrigation” refers to a system whereby the exact amount of water is supplied to the plants’ roots at the correct moment. On the one hand, there exists the failure risk due to not being suitable for the local environment and market conditions; on the other hand, there are risks of loss of competitive advantages due to the rising of producing similar products enterprises and other enterprises that follow to produce the similar products.

 

We are a holding company whose subsidiaries are given certain degree of independence and our failure to integrate our subsidiaries may adversely affect our financial condition .

According to the specific characteristics of agricultural production in China, we have given our subsidiary companies and their farms a certain degree of independency in decision-making. On one hand, this independency increases the sense of ownership at all levels, on the other hand it has also increased the difficulty of the integration of operation and management, which has resulted in increased difficulty of management integration. In the event we are not able to successfully manage our subsidiaries this will result in operating difficulties and have a negative impact on our business.

 

One or more distributors could engage in activities that harm our brand and our business.

Our products are sold primarily through distributors, who are responsible for ensuring that our products have the appropriate licenses to be sold to farmers in their provinces, and are stored at the correct temperature to ensure freshness and meet shelf life terms. If distributors do not obtain the appropriate licenses, their sales of our products in those provinces may be illegal, and we may be subject to government sanctions, including confiscation of illegal revenues and a fine of between two and three times the amount of such illegal revenues. Unlicensed sales in a province may also cause a delay for our other distributors in receiving a license from the authorities for their provinces, which could further adversely impact our sales. In addition, distributors may sell our products under another brand licensed in a particular province if our product is not licensed there. If our products are sold under another brand, the purchasers will not be aware of our brand name, and we will be unable to cross-market other seed varieties or other products as effectively to these purchasers. Moreover, our ability to provide appropriate customer service to these purchasers will be negatively affected, and we may be unable to develop our local knowledge of the needs of these purchasers and their environment. Furthermore, if any of our distributors sell inferior seeds produced by other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our branded seeds more difficult. As of the date of this prospectus, we are not aware of the occurrence of any of the potential violations by our distributors described above.

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The PRC agricultural market is highly competitive and our growth and results of operations may be adversely affected if we are unable to compete effectively.

The agricultural market in China is highly fragmented, largely regional and highly competitive, and we expect competition to increase and intensify within the sector. We face significant competition in our lines of business. Many of our competitors have greater financial, research and development and other resources than we have. Competition may also develop from consolidation within our industry in China or the privatization of producers that are currently operated by local governments in China. Our competitors may be better positioned to take advantage of industry consolidation and acquisition opportunities than we are. The reform and restructuring of state-owned equity in enterprises involved primarily in producing sectors will likely lead to the reallocation of market share in the agriculture industry, and our competitors may increase their market share by participating in the restructuring of state-owned agriculture companies. Such privatization would likely result in increased numbers of market participants with more efficient and commercially viable business models. As competition intensifies, our margins may be compressed by more competitive pricing and we may lose our market share and experience a reduction in our revenues and profit.

 

We may not possess all of the licenses required to operate our business, or we may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could materially adversely affect our results of operations .

We are required to hold a variety of permits and licenses to conduct business in China. We may not possess all of the permits and licenses required for each of our business segments. In addition, the approvals, permits or licenses required by governmental agencies may change without substantial advance notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. If we fail to obtain or to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we could offer. As a result, our business, results of operations and financial condition could be materially and adversely affected.

 

Risks Related to Doing Business in China

 

Under PRC law, we are required to obtain and retain permits and business licenses, and our failure to do so would adversely impact our ability to conduct business in China.

We hold various permits, business licenses, and approvals authorizing our operations and activities, which are subject to periodic review and reassessment by the Chinese authorities. Standards of compliance necessary to pass such reviews change from time to time and differ from jurisdiction to jurisdiction, leading to a degree of uncertainty. If renewals, or new permits, business licenses or approvals required in connection with existing or new facilities or activities, are not granted or are delayed, or if existing permits, business licenses or approvals are revoked or substantially modified, we may not be able to continue to operate our facilities which would have a material adverse effect on our operations. If new standards are applied to renewals or new applications, it could prove costly for us to meet these new standards.

 

The PRC economic cycle may negatively impact our operating results.

We believe that the rapid growth of the PRC economy before 2008 generally led to higher levels of inflation. We believe that the PRC economy has more recently experienced a decrease in its growth rate. We believe that a number of factors have contributed to this deceleration, including appreciation of the RMB, the currency of China, which has adversely affected China’s exports. In addition, we believe the deceleration has been exacerbated by the recent global crisis in the financial services and credit markets, which has resulted in significant volatility and dislocation in the global capital markets. It is uncertain how long the global crisis in the financial services and credit markets will continue and the significance of the adverse impact it may have on the global economy in general or the Chinese economy in particular. Slowing economic growth in China could result in weakening growth and demand for our products, which could reduce our revenues and income. In the event of a recovery in the PRC, renewed high growth levels may again lead to inflation. The government’s attempts to control inflation may adversely affect the business climate and growth of private enterprise. In addition, our profitability may be adversely affected if prices for our products rise at a rate that is insufficient to compensate for the rise in inflation.

 

Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi (RMB) into foreign currencies and, if the RMB were to decline in value, reducing our revenue in U.S. dollar terms.

The exchange rate of the RMB is currently managed by the Chinese government. On July 21, 2005, the People’s Bank of China, with the authorization of the State Council of the PRC, announced that the RMB exchange rate would no longer be pegged to the U.S. Dollar and would float based on market supply and demand with reference to a basket of currencies. According to public reports, the governor of the People’s Bank has stated that the basket is composed mainly of the U.S. Dollar, the European Union Euro, the Japanese Yen and the South Korean Won. Also considered, but playing smaller roles, are the currencies of Singapore, the United Kingdom, Malaysia, Russia, Australia, Canada and Thailand. The weight of each currency within the basket has not been announced.

 

The initial adjustment of the RMB exchange rate was an approximate 2% revaluation from an exchange rate of 8.28 RMB per U.S. Dollar to 8.11 RMB per U.S. Dollar. The People’s Bank announced that the daily trading price of the U.S. Dollar against the RMB in the inter-bank foreign exchange market would float within a band of 0.3% around the central parity published by the People’s Bank, while trading prices of non-U.S. Dollar currencies against the RMB would be allowed to move within a certain band announced by the People’s Bank. The People’s Bank has stated that it will make adjustments of the RMB exchange rate band when necessary according to market developments as well as the economic and financial situation. In a later announcement published on May 18, 2007, the band was extended to 0.5%. Since July 2008, the RMB has traded at 6.83 RMB per U.S. Dollar. Recent reports indicate an upward revaluation in the value of the RMB against the U.S. Dollar may be allowed. The People’s Bank announced on June 19, 2010 its intention to allow the RMB to move more freely against the basket of currencies, which increases the possibility of sharp fluctuations in the value of the RMB in the near future and thus the unpredictability associated with the RMB exchange rate.

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However the RMB in 2018 is very sensitive to and influenced by its political situation with USA illustrated by its multiple changes in depreciation and appreciation against the US$ during the past year.

 

Despite this change in its exchange rate regime, the Chinese government continues to manage the valuation of the RMB. The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and the RMB. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

 

The income statements of our operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss, which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss.

 

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

 

Uncertainties with respect to the PRC legal system could adversely affect us and we may have limited legal recourse under PRC law if disputes arise under our contracts with third parties .

Since 1979, we believe PRC legislation and regulations have significantly enhanced protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, sometimes we may not be aware of our violation of these policies and rules until sometime after violation.

 

The Chinese government has enacted laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

 

Under the PRC EIT Law, we may be classified as a “resident enterprise” of the PRC. Such classification could result in tax consequences to the Company or our non-PRC resident shareholders.

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “ EIT Law ,” which took effect on January 1, 2008. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. An enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define “de facto management bodies” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise; however, it remains unclear whether the PRC tax authorities would deem our managing body as being located within China. Due to the short history of the EIT Law and lack of applicable legal precedents, the PRC tax authorities determine the PRC tax resident treatment of a foreign company on a case-by-case basis.

 

If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, we could be subject to the enterprise income tax at a rate of 25 percent on our worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if we are treated as a PRC “qualified resident enterprise,” all dividends paid from our Chinese subsidiaries to us would be exempt from PRC tax.

 

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Finally, the new “resident enterprise” classification could result in a situation in which a 10% PRC tax is imposed on dividends we pay to our non-PRC stockholders that are not PRC tax “resident enterprises” and gains derived by hem from transferring our common stock, if such income is considered PRC-sourced income by the relevant PRC authorities. In such event, we may be required to withhold a 10% PRC tax on any dividends paid to non-PRC resident stockholders. Our non-PRC resident stockholders also may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of our common stock in certain circumstances. We would not, however, have an obligation to withhold PRC tax with respect to such gain.

 

Moreover, the SAT released Circular Guoshuihan No. 698 (“ Circular 698 ”) on December 15, 2009 that reinforces the taxation of non-listed equity transfers by non-resident enterprises through overseas holding vehicles. Circular 698 addresses indirect share transfers as well as other issues. Circular 698 is retroactively effective from January 1, 2008. According to Circular 698, where a foreigner (non-PRC resident) who indirectly holds shares in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers equity interests in a PRC resident enterprise by selling the shares of the offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5 percent or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the PRC tax authority in charge of that PRC resident enterprise with certain relevant information within 30 days of the transfer. The tax authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the tax authorities determine that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will be able to re-assess the nature of the equity transfer under the doctrine of substance over form. A reasonable commercial purpose may be established when the overall international (including U.S.) offshore structure is set up to comply with the requirements of supervising authorities of international (including U.S.) capital markets. If the SAT’s challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the seller to PRC tax on the capital gain from such transfer. Since Circular 698 has a relatively short history, there is uncertainty as to its application. We (or a foreign investor) may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we (or such foreign investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations (or such foreign investor’s investment in us).

 

If any such PRC taxes apply, a non-PRC resident stockholder may be entitled to a reduced rate of PRC taxes under an applicable income tax treaty and/or a foreign tax credit against such stockholder’s domestic income tax liability (subject to applicable conditions and limitations). Prospective investors are encouraged to consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.

 

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.

In October 2005, the SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents inside China, generally referred to as Circular 75. The policy announced in this notice required PRC residents to register with the relevant SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Failure to comply with the requirements of Circular 75 and any of its internal implementing guidelines as applied by SAFE in accordance with Notice 106 may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

 

We requested our shareholders who are PRC residents to make the necessary applications, filings and amendments as required under Circular 75 and other related rules. We attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply, with the relevant requirements. However, we cannot provide any assurances that our shareholders who are PRC residents will comply with our request to make any applicable registrations, and nor can we provide any assurances that our shareholders who are PRC residents will be able to obtain such applicable registration or comply with other requirements required by Circular 75 or other related rules or that, if challenged by government agencies, the structure of our organization fully complies with all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. Failure by such PRC resident shareholders or future PRC resident shareholders to comply with Circular 75 or other related rules, if SAFE requires it, could subject these PRC resident shareholders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends, or affect our ownership structure, which could adversely affect our business and prospects.

 

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Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

Our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

 

· the amount of government involvement;
· the level of development;
· the growth rate;
· the control of foreign exchange; and
· the allocation of resources.

 

While the Chinese economy has grown significantly in the past 20 years, we believe the growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. We believe some measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

 

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the Chinese government. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

 

Contract drafting, interpretation and enforcement in China involve significant uncertainty.

We have entered into numerous contracts governed by PRC law, many of which are material to our business. As compared with contracts in the United States, contracts governed by PRC law tend to contain less detail and to not be as comprehensive in defining contracting parties’ rights and obligations. As a result, contracts in China are more vulnerable to disputes and legal challenges. In addition, contract interpretation and enforcement in China is not as developed as in the United States, and the result of any contract dispute is subject to significant uncertainties. Therefore, we cannot assure you that we will not be subject to disputes under our material contracts, and if such disputes arise, we cannot assure you that we will prevail.

 

The application of PRC regulations relating to the overseas listing of PRC domestic companies is uncertain, and we may be subject to penalties for failing to request approval of the PRC authorities prior to listing our shares in the U.S.

As mentioned above, on August 8, 2006, six PRC government agencies, i.e., MOFCOM, the SAIC, the CSRC, SAFE, the State-Owned Assets Supervision and Administration Commission (“ SASAC ”) and SAT, jointly issued the New M&A Rules, which became effective on September 8, 2006. The New M&A Rules purport, among other things, to require offshore “special purpose vehicles” that are (1) formed for the purpose of overseas listing of the equity interests of PRC companies via acquisition and (2) are controlled directly or indirectly by PRC companies and/or PRC individuals, to obtain the approval of the CSRC prior to the listing and trading of their securities on overseas stock exchanges. On September 21, 2006, pursuant to the New M&A Rules and other PRC Laws, the CSRC published on its official website relevant guidance with respect to the listing and trading of PRC domestic enterprises’ securities on overseas stock exchanges (the “ Related Clarifications ”), including a list of application materials regarding the listing on overseas stock exchanges by special purpose vehicles. We were and are not required to obtain the approval of CSRC under the new M&A Rules in connection with this transaction because we were and are not a special purpose vehicle formed or controlled by PRC individuals.

 

However, there are substantial uncertainties regarding the interpretation, application and enforcement of these rules, and CSRC has yet to promulgate any written provisions or formally to declare or state whether the overseas listing of a PRC-related company structured similar to ours is subject to the approval of CSRC. Any violation of these rules could result in fines and other penalties on our operations in China, restrictions or limitations on remitting dividends outside of China, and other forms of sanctions that may cause a material and adverse effect to our business, operations and financial conditions.

 

The New M&A Rules also established additional procedures and requirements that are expected to make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise that owns well-known trademarks or China’s traditional brands. We may grow our business in part by acquiring other businesses. Complying with the requirements of the New M&A Rules in completing this type of transaction could be time-consuming, and any required approval processes, including CSRC approval, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. 

 

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We may face regulatory uncertainties that could restrict our ability to issue equity compensation to our directors and employees and other parties who are PRC citizens or residents under PRC law. The grant of stock options under any incentive plan that we adopt in the future would require registration with SAFE.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company,” also known as “Circular 78”. It is not clear whether Circular 78 covers all forms of equity compensation plans or only those that provide for the grant of stock options. For any equity compensation plan which is so covered and is adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with, and obtain the approval of, SAFE prior to their participation in any such plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings if they participate in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. As of the date of this filing, we have not adopted any incentive plans, but may do so in the future. Any such plan may grant equity compensation, including, but not limited to, stock options, to our PRC employees and/or directors. The grant of any equity compensation under such a plan to a PRC citizen, however, may under Circular 78 require the PRC citizen to register with and obtain approval of SAFE. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming. If it is determined that our such a plan, or any equity compensation grant under such a plan, is subject to Circular 78, failure to comply with such provisions of Circular 78 may subject us and any recipients thereof to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees and/or directors. In that case, our ability to compensate our employees and directors through equity compensation would be hindered and/or prevented.

 

Capital outflow policies in the PRC may hamper our ability to remit income to the United States.

The PRC has adopted currency and capital transfer regulations. These regulations may require that we comply with complex regulations for the movement of capital and as a result we may not be able to remit all income earned and proceeds received in connection with our operations or from the sale of our operating subsidiary to the U.S. or to our stockholders.

 

Our operations and assets in the PRC are subject to significant political and economic uncertainties.

Government policies are subject to rapid change and the government of the PRC may adopt policies that have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the government of China will not significantly alter its policies from time to time without notice in a manner with reduces or eliminates any benefits from its present policies of economic reform. In addition, a substantial portion of productive assets in China remains government-owned. For instance, all lands are state or rural collective economic organizations owned and leased to business entities or individuals through governmental grants of the land use rights. The grant process is typically based on government policies at the time of the grant, which could be lengthy and complex. This process may adversely affect our business. The government of China also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise as a result of changing governmental policies and measures. In addition, changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, as well as adverse changes in the political, economic or social conditions in China, could have a material adverse effect on our business, results of operations and financial condition.

 

Our use of the allocated land may be subject to challenges in the future.

All land use rights that we own are land use rights relating to allocated land. The local governmental authorities have granted such land use rights to us for free use or at a discounted levy rate given our contribution to the development of the local economy. However, pursuant to the Catalogue on Allocated Land issued by the Ministry of Land Resources of the PRC (the “ Catalogue ”), the land use rights for allocated land may only be granted to those specific projects which are in compliance with the Catalogue, subject to the approval of the competent governmental authorities. We, as a privately owned agricultural producer, may not be qualified to be granted such land use rights for allocated land according to the Catalogue. Consequently, our use of such land may be subject to challenge in the future, and the legal consequences could include the confiscation of such land by the governmental authorities or a demand that we pay a market price for purchasing the land use rights for such land and converting the allocated land use right to a granted land use right.

 

Because Chinese law governs almost all of our material agreements, we may not be able to enforce our legal rights within China or elsewhere, which could result in a significant loss of business, business opportunities, or capital.

Chinese law governs almost all of our material agreements. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of China. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. Our inability to enforce or obtain a remedy under any of our current or future agreements could result in a significant loss of business, business opportunities or capital. It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in China.

 

Substantially all of our assets will be located in the PRC and all of our officers and our present directors reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws. Moreover, we have been advised that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the federal securities laws.

 

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We do not have insurance coverage.

We currently do not purchase property insurance for our properties, including raw materials, semi-manufactured goods, manufactured goods, buildings and machinery equipment, livestock, and we currently do not carry any product liability or other similar insurance, nor do we have business liability or business disruption insurance coverage for our operations in the PR. There is no insurance covering risks incurred through seasonal variation consequences. In this respect, we as an engineering based company have qualified personnel and staffs to manage and to limited the happenings of these relevant risk factors; however there is no guarantee that accidents will not happen, and if they happen, the consequences may have a material adverse effect on our business, financial condition and results of operations.

 

Because our cash and cash equivalent are held in banks that do not provide capital guarantee insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of bank failure, we may not have access to, or may lose entirely, our funds on deposit. Depending upon the amount of cash we maintain in a bank that fails, our inability to have access to such cash deposits could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

 

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in the PRC. We cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

 

Labor laws in the PRC may adversely affect our results of operations.

On June 29, 2007, the PRC government promulgated a new labor law, namely, the Labor Contract Law of the PRC, or the New Labor Contract Law, which became effective on January 1, 2008. The New Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires that certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to effect such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

 

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we conduct substantially all of our operations in the PRC and because the majority of our directors and officers reside outside of the United States.

We are a Nevada holding company and substantially all of our assets are located outside of the United States. Substantially all current operations are conducted in the PRC. In addition, all of our directors and officers are nationals and residents of countries other than the United States. Substantial portions of the assets of these persons are located outside the United States. Thus, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, none of whom are residents in the United States and the substantial majority of whose assets are located outside of the United States. It is also uncertain whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our PRC legal counsel has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in the PRC may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. It is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States. 

 

Risks Related to Ownership of our Common Stock

 

Volatility in our common stock price may subject us to securities litigation.

Stock markets, in general, have experienced in recent months, and continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations unrelated to our operating performance or prospects. This increased volatility, coupled with depressed economic conditions, could continue to have a depressing effect on the market price of our common stock. The following factors, many of which are beyond our control, may influence our stock price:

 

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  ·

the status of our growth strategy including the building of our new production line with any proceeds we may be able to raise

in the future;

  · announcements of technological or competitive developments;
  · regulatory developments in the PRC affecting us, our customers or our competitors;
  · announcements regarding patent or other intellectual property litigation or the issuance of patents to us or our competitors or updates with respect to the enforceability of patents or other intellectual property rights generally in the PRC or internationally;
  · actual or anticipated fluctuations in our quarterly operating results;
  · changes in financial estimates by securities research analysts;
  · changes in the economic performance or market valuations of our competitors;
  · additions or departures of our executive officers;
  · release or expiration of lock-up or other transfer restrictions on our outstanding common stock; and
  · sales or perceived sales of additional shares of our common stock.

 

In addition, the securities markets have, from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. Any of these factors could result in large and sudden changes in the volume and trading price of our common stock and could cause our stockholders to incur substantial losses. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action suit or other securities litigation, it would divert the attention of our senior management, require us to incur significant expense and, whether or not adversely determined, have a material adverse effect on our business, financial condition, results of operations and prospects.

 

One of our directors and officers controls a majority of our common stock and his interests may not align with the interests of our other stockholders.

Solomon Lee, our chairman, chief executive officer and president, controls our company and beneficially owns in excess of 50.1% of our issued and outstanding common stock. This significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive a disadvantage in owning shares in a company with one or several controlling stockholders. Furthermore, our directors and officers, as a Company, have the ability to significantly influence or control the outcome of all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. This concentration of ownership may have the effect of delaying or preventing a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common stock. In addition, without the consent of Mr. Lee, we could be prevented from entering into transactions that could be beneficial to us. Mr. Lee may cause us to take actions that are opposed by other stockholders as his interests may differ from those of other stockholders.

 

Future issuances of capital stock may depress the trading price of our common stock.

Any issuance of shares of our common stock (or common stock equivalents) after the date hereof could dilute the interests of our existing stockholders and could substantially decrease the trading price of our common stock. We may issue additional shares of our common stock in the future for a number of reasons, including financing our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions).

 

Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.

We believe that the price of our shares in the OTC QX markets is adversely affected by the current stigma associated with Chinese companies quoted or listed publicly in the United States.

 

Although we managed to maintain our liquidity to a certain degree, our share price has suffered. Many Chinese companies suffer from this stigma, which tends to affect both market prices and liquidity, and our company is no exception. Reasons with varying degrees of legitimacy explain this stigma, including but not limited to: (i) investors’ experience of losses suffered in the course of investing in other Chinese companies, (ii) the difficulty some Chinese companies have had in preparing auditable financial statements, and (iii) the difficulty in enforcing US judgments in foreign courts generally. All of these have contributed to a negative perception by some US investors regarding all Chinese companies publicly traded on US markets. Regardless of the reasons for this perception, if it continues over a sustained period of time our market prices may continue to trade below net tangible asset value per share. This would increase risk that our shareholders could lose the funds they invested in our company. It could also impact our ability to maintain our growth plan on schedule, which would adversely affect our business and financial condition.

 

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The issuance of any of our equity securities pursuant any equity compensation plan we may adopt may dilute the value of existing stockholders and may affect the market price of our stock.

In the future, we may issue to our officers, directors, employees and/or other persons equity based compensation under any equity compensation plan we may adopt to provide motivation and compensation to our officers, employees and key independent consultants. The award of any such incentives could result in an immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our stock. In addition, if the holders of outstanding convertible securities convert such securities into common stock, you will suffer further dilution.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

We are a public company and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act requires that our management report on the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. If we fail to maintain compliance under Section 404, or if in the future management determines that our internal control over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the NASDAQ Stock Market should we in the future be listed on this market, the SEC, or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, particularly if we become fully subject to Section 404 and its auditor attestation requirements, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

 

Our shares of common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained. Our common stock is currently traded on the OTC QX where the shares have historically been thinly traded, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent.

 

This situation may be attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we have become more seasoned and viable. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot assure you that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained or not diminish.

 

We may become involved in securities class action litigation that could divert management’s attention and harm our business.

The stock market in general, and the shares of early stage companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our shares could fall regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. If the market price or volume of our shares suffers extreme fluctuations, then we may become involved in this type of litigation, which would be expensive and divert management’s attention and resources from managing our business.

 

As a public company, we may also from time to time make forward-looking statements about future operating results and provide some financial guidance to the public markets. Our management has limited experience as a management team in a public company and as a result projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC.  

 

Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.

At this time, to our knowledge no securities analysts provide research coverage of our common stock, and securities analysts may not elect not to provide such coverage in the future. It may remain difficult for our company, with its small market capitalization, to attract independent financial analysts that will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the stock’s actual and potential market price. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more analysts elect to cover our company and then downgrade the stock, the stock price would likely decline rapidly. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which, in turn, could cause our stock price to decline. This could have a negative effect on the market price of our common stock.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading “Risk Factors.” Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. Except as required by law, we assume no obligation to update any forward-looking statements after the date of this prospectus.

 

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus and, accordingly, we cannot guarantee their accuracy or completeness. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

- 23 -  

 

 

USE OF PROCEEDS

 

There is no minimum number of shares of Series G Preferred Stock and accompanying Warrants that must be sold in the offering, we will retain the proceeds from the sale of any of the offered securities, and funds will not be returned to investors. It is possible that no proceeds will be received by the Company or that if any proceeds are received, that such proceeds will not be sufficient to cover the costs of the offering. The estimated net proceeds to the Company from the sale of the maximum number of securities offered hereby are estimated to be approximately $37,350,000 after deducting estimated offering expenses, and excluding proceeds from the exercise of the Warrants, if any.  We intend to use the net proceeds of this offering to finance our developments capital expenditures and working capital and the repayment of debts, summarized as follows:

  

    Assuming:  
    25% of the
Maximum Offering
   

50% of the

Maximum Offering

    75% of the
Maximum Offering
    100% of the Maximum
Offering
 
    $     $     $     $  
Gross Proceeds     10,000,000       20,000,000       30,000,000       40,000,000  
Less offering expenses     1,150,000       1,650,000       2,150,000       2,650,000  
Net Proceeds     8,850,000       18,350,000       27,850,000       37,350,000  
                                 
Use of Net Proceeds                                
Operating activities on  working capital in                        
1.        Fishery operation     2,000,000       3,000,000       5,000,000       6,000,000  
2.        Trading activities     4,000,000       6,000,000       8,000,000       10,000,000  
3.        Downstream fishery activities     500,000       750,000       1,000,000       1,500,000  
Developments' Capital Expenditures in                                
1.        Development in fishery activities     1,000,000       2,000,000       3,000,000       3,000,000  
2.        Upstream fishery activities     500,000       750,000       1,000,000       1,000,000  
Financing activities in                                
1.        Debt repayments     850,000       5,850,000       9,850,000       16,000,000  
                                 
Total Use of Net proceeds     8,850,000       18,350,000       27,850,000       37,350,000  

 

The following terms further clarify certain line items or terms used in the Use of Net Proceeds set forth above:

 

All general administration and general expenses required for this offering will be absorbed into our daily operation cost.

 

Sales and brokerage fees is estimated at an average of 3.5% of the net proceeds.

 

Marketing and out of pockets (including traveling expenses) are based on 1.5% of the net proceeds.

 

Advertising, legal and professional expenses are based on a flat rate of US$650,000.

 

Allocation of the proceeds will be mainly used for (i)fishery activities in development capital and working capital, (ii)trading activities, as such collectively we are aiming to generate additional operational revenues and incomes and (iii) Repayments of debts with the aim to get the Company into a debt free position within the shortest possible time.

  

If we fail to meet expectations, we may need to adjust the use of proceeds, which we presently expect would affect principally the Company’s growth plan in fishery activities and the delay in achieving a debt free situation for the Company, which would have a material, adverse effect on our financial condition and business.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This prospectus contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2017 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this prospectus should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented herein.

 

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

 

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

 

Beef & Organic Fertilizer Division (Marked 1.    (i) SJAP & QZH (Derecognized as variable interest entity on December 30, 2017) and (ii) HSA)
Plantation Division (Marked 2.    JHST)
Fishery Division

(Marked 3.    A. CA Engineer & Technology and 3.B. Seafood sales — (Discontinued operation from October 5, 2016)

Cattle Farm Division (Marked 4.    MEIJI and JHMC)
Corporate & Others Division (Marked 5.    SIAF)

 

A summary of each business division is described below:

 

· 1. Beef and Organic Fertilizer Division refers to:

 

  (i)

The operation of our partially owned subsidiary Qinghai Sanjiang A Power Agriculture Co., Ltd. (“ SJAP ”) in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle inclusive of: (a) cattle that are not being slaughtered in our own slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“ QZH ”) are sold live to third party livestock wholesalers, and (b) cattle that are sold to QZH and slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a fully owned subsidiary of SJAP; as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“ APWAM ”), as one entity. SJAP and QZH are both variable interest entities over which we exercise significant control. As of December 30, 2017, QZH was derecognized as variable interest entity and its operating profit and/or loss no longer accretive to the Company’s 41.25% holding in SJAP, a variable interest entity. More details related to QZH’s discontinuance of operations is delineated throughout other sections of this prospectus.

 

  (ii)

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

 

·

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

 

- 25 -  

 

 

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

 

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

 

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

 

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

 

·

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

 

·

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

 

CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Audited Income Statements of Consolidated Results of Operations for the fiscal year ended December 31, 2018, compared to the fiscal year ended December 31, 2017.

 

A (1) Income Statements (audited)

- 26 -  

 

 

    2018     2017  
Continuing operations                
Revenue                
- Sale of goods   $ 130,543,170     $ 181,183,609  
- Consulting and service income from development contracts     11,127,393       16,983,330  
- Commission income     -       -  
      141,670,563       198,166,939  
Cost of goods sold     (110,967,348 )     (164,974,247 )
Cost of services     (9,051,408 )     (13,566,203 )
Gross profit     21,651,807       19,626,489  
                 
General and administrative expenses     (15,595,032 )     (19,780,290 )
Net -loss)/income from operations     6,056,775       (153,801 )
                 
Other income -expenses)                
Government grant     649,095       2,539,989  
                 
Other income     56,672       100,218  
                 
Change in fair value of derivative liability             209,219  
                 
Loss on restructuring             (6,225,204 )
                 
Bad debts written off             (14,394,402 )
                 
Impairment on interests in unconsolidated investees             (153,046 )
                 
Non-operating expenses     (4,609,253 )     (10,717,693 )
                 
Net loss from disposal of variable interest entity - QZH             (9,365,643 )
                 
Share of income from unconsolidated equity investee     14,251,264       12,010,051  
                 
Interest expense     (600,519 )     (3,952,631 )
                 
Net expenses     9,747,259       (29,949,142 )
                 
Net -loss)/income  before income taxes     15,804,034       (30,102,943 )
                 
Provision for income taxes     -       (1,684 )
                 
Net -loss)/income from continuing operation     15,804,034       (30,104,627 )
                 
Less: Net loss/-income) attributable to  non - controlling interest     1,519,303       17,000,482  
Net -loss)/income from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries     17,323,337       (13,104,145 )
Other comprehensive  income/-loss) - Foreign currency translation income/-loss)     (14,555,377 )     12,781,924  
Comprehensive -loss)/income     2,767,960       (322,221 )
Less: other comprehensive -income)/loss attributable to non - controlling interest     1,793,417       (5,602,048 )
Comprehensive -loss)/income attributable to Sino Agro Food, Inc. and subsidiaries     4,561,377       (5,924,269 )
                 
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                
Basic   $ 0.46     $ (0.53 )
Diluted   $ 0.46     $ (0.53 )
                 
Weighted average number of shares outstanding:                
Basic     37,335,654       24,711,015  
Diluted     37,335,654       24,711,015  

 

Comparative overview of FY2018 and FY2017 based on results as illustrated in Table A(1), above:

 

Note (1) to (3) to Table A.1:

 

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

 

- 27 -  

 

 

The Company’s revenues were generated from (A) Sale of Goods and (B) Consulting and Services provided in project and business developments covering technology transfers, engineering, construction, supervision, training, management and technology licensing fees etc.

 

Table (A.2). below reflects segmental break-down figures of Sales of Goods Sold, Cost of Goods Sold, and related Gross Profit for the twelve months ended December 31, 2018 and the twelve months ended December 31, 2017.

 

In US$       Sales of goods     Cost of Goods sold     Sales of Goods'  Gross profit  
        2018     2017     2018     2017     2018     2017  
                                         
SJAP   Sales of live  cattle     6,644,964       9,144,054       7,624,190       8,443,166       -979,225       700,888  
    Sales of feedstock                                     -          
    Bulk Livestock feed     1,521,303       4,474,578       697,997       2,030,708       823,306       2,443,870  
    Concentrate livestock feed     8,043,813       12,062,075       4,477,767       6,768,584       3,566,046       5,293,491  
    Sales of   fertilizer     3,028,357       2,230,973       2,137,582       1,719,162       890,775       511,811  
    SJAP Total     19,238,438       27,911,680       14,937,535       18,961,620       4,300,903       8,950,060  
    * QZH's (Slaughter & Deboning operation)             300,212               107,021       -       193,191  
    ** QZH's (Deboning operation)                                     -          
    on cattle & Lamb locally supplied             5,211,624               5,589,151       -       (377,527  
    on imported beef and mutton             43,765,625               51,618,555       -       -7,852,930  
    Sales of  live  cattle             -                       -          
    QZH Total     -       49,277,461       -       57,314,727       -       (8,037,266  
HSA   Sales of  Organic fertilizer     3,583,034       3,445,674       2,932,754       2,876,173       650,280       569,501  
    Sales of Organic Mixed Fertilizer     6,088,296       3,722,171       3,961,581       2,115,238       2,126,715       1,606,933  
    HSA Total     9,671,330       7,167,845       6,894,335       4,991,411       2,776,995       2,176,434  
    SJAP's & HS.A./Organic fertilizer total     28,909,768       84,356,986       21,831,870       81,267,758       7,077,898       3,089,228  
JHST   Sales of Fresh HU Flowers     -       42,956               38,443       -       4,513  
    Sales of Dried HU Flowers     236,850       1,163,115       214,793       1,114,222       22,057       48,893  
    Sales of Dried Immortal vegetables     423,152       -       314,720               108,433       -  
    Sales of Vegetable products     2,957,246       3,432,024       2,568,877       2,101,902       388,369       1,330,122  
    JHST/Plantation Total     3,617,249       4,638,095       3,098,390       3,254,567       518,859       1,383,528  
MEIJI                                         -          
    Sale   of  Live cattle (Aromatic)     29,558,983       20,401,361       24,761,345       16,629,579       4,797,638       3,771,782  
    MEIJI / Cattle farm Total     29,558,983       20,401,361       24,761,345       16,629,579       4,797,638       3,771,782  
SIAF                                         -          
    Sales of goods through trading/import/export activities                                     -          
    on seafood     35,468,172       30,402,652       31,553,391       27,038,775       3,914,781       3,363,877  
    on imported beef and mutton     32,988,998       41,384,515       29,722,352       36,783,568       3,266,646       4,600,947  
    SIAF/ Others & Corporate  total     68,457,170       71,787,167       61,275,743       63,822,343       7,181,427       7,964,824  
                                                     
Group Total         130,543,170       181,183,609       110,967,348       164,974,247       19,575,822       16,209,362  
                                                     
                                                     
%  of increase (+) or decrease (-)     -28 %             -33 %             21 %        

 

The Company’s revenues generated from sale of goods decreased by $50,640,439 or 28% from $181,183,609 for the year ended December 31,2017 to $130,543,170 for the year ended December 31, 2018. The decrease was primarily due to the decrease of revenues from the SJAP's & HSA, the beef and organic fertilizer sector (from $84.3million in 2017 to $28.9 million in 2018) affected mainly by the discontinuing operation of QZH (from $49.2 million in 2017 to $0 in 2018) and the decrease of revenues of SJAP (from $27.9 million in 2017 to $19.2 million in 2018), the JHST/Plantation sector (from $4.6 million in 2017 to $3.6 million in 2018) and the SIAF/Other& Corporate sector (from $71.8 million to $68.5 million), while revenues of HSA increased (from $6.9 million in 2017 to $9.7 million in 2018 and MEIJI’s revenues increased (from $20.4 million in 2017 to $29.6 million in 2018) collectively.

 

 The Company’s cost of goods sold decreased by $54,006,899 or 33% from $164,974,247 for the year ended December 31, 2017 to $110,967,348 for the year ended December 31, 2018. The decrease was primarily due to the decrease in cost of goods sold from the SJAP's & HSA (from $81.3 million in 2017 to $21.8 million in 2018) and JHST/Plantation sector (from $3.2 million in 2017 to $3.1 million in 2018), and the SIAF/Other& Corporate sector (from $63.4 million to $61.3 million), collectively.

 

- 28 -  

 

 

Gross profit of the Company generated from goods sold increased by $3,366,460 or 21% from $16,209,362 for the year ended December 31, 2017 to $19,575,822 for the year ended December 31, 2018. The overall increase was primarily due to the increase of the SJAP's & HS.A. (The beef & Organic fertilizer sector) gross profit of $4 million in gross profit (from 2017’s $3.1 million to 2018’s $7.1 million) mostly resulted from eliminating the losses from the discontinuing operation of QZH (from $8 million in 2017 to $0 in 2018), the MEIJI/Cattle farm sector increase of 1 million in gross profit (from 2017’s $3.8 million to 2018’s $4.8 million) and HSA’s improved performance (from $2.1 million in 2017 to $2.8 million in 2018),collectively.

 

  · 1. (i) Beef and Organic Fertilizer Division (SJAP and (discontinued) QZH):

 

In US$       Sales of goods     Cost of Goods sold     Sales of Goods'  Gross profit  
        2018     2017     2018     2017     2018     2017  
SJAP   Sales of live  cattle     6,644,964       9,144,054       7,624,190       8,443,166       -979,225       700,888  
    Sales of feedstock                                     -          
    Bulk Livestock feed     1,521,303       4,474,578       697,997       2,030,708       823,306       2,443,870  
    Concentrate livestock feed     8,043,813       12,062,075       4,477,767       6,768,584       3,566,046       5,293,491  
    Sales of   fertilizer     3,028,357       2,230,973       2,137,582       1,719,162       890,775       511,811  
    SJAP Total     19,238,438       27,911,680       14,937,535       18,961,620       4,300,903       8,950,060  
    % of increase (+) or decrease (-)     -31 %             -21 %             -52 %        
    * QZH's (Slaughter & Deboning operation)             300,212               107,021       -       193,191  
    ** QZH's (Deboning operation)                                     -          
    on cattle & Lamb locally supplied             5,211,624               5,589,151       -       (377,527  
    on imported beef and mutton             43,765,625               51,618,555       -       -7,852,930  
    Sales of  live  cattle             -                       -          
    QZH Total     -       49,277,461       -       57,314,727       -       (8,037,266  
HSA   Sales of  Organic fertilizer     3,583,034       3,445,674       2,932,754       2,876,173       650,280       569,501  
    Sales of Organic Mixed Fertilizer     6,088,296       3,722,171       3,961,581       2,115,238       2,126,715       1,606,933  
    HSA Total     9,671,330       7,167,845       6,894,335       4,991,411       2,776,995       2,176,434  
    % of increase (+) or decrease (-)     35 %             38 %             28 %        
    SJAP's & HS.A./Organic fertilizer total     28,909,768       84,356,986       21,831,870       81,267,758       7,077,898       3,089,228  
    % of increase (+) or decrease (-)     -66 %             -73 %             129 %        

 

Revenue from the sector of beef and organic fertilizer decreased by $55,447,218 or 66% from $84,356,986 for the year ended December 31, 2017 to $28,909,768 for the year ended December 31, 2018. The decrease was mainly due to the decrease in sales of the discontinued operation of QZH from $49.3 million in 2017 to $0 in 2018.

 

Cost of goods sold from beef and organic fertilizer decreased by $59,435,888 or 73% from $81,267,758 for the year ended December 31, 2017 to $21,831,870 for the year ended December 31, 2018. The decrease was mainly due to the decrease in cost of goods sold in the discontinued operation of QZH from $57.3 million in 2017 to $0 in 2018. Gross profit from the beef and organic fertilizer sector increased by $3,988,670 or 129% from $3,089,228 for the year ended December 31, 2017 to $7,077,898 for the year ended December 31, 2018. The increase was primarily due to the result in eliminating the losses from the discontinuing operation of QZH (from $8 million in 2017 to $0 in 2018) and HSA’s improved performance (from $2.1 million in 2017 to $2.8 million in 2018), collectively.

   

The table below shows information of the sales of live cattle mostly from SJAP’s own farm in 2018/ 2017

 

- 29 -  

 

 

            2018     2017     Difference  
SJAP   Production and Sales of  live  cattle   Heads     3,886       3,775       111  
    Average Unit sales price   US$/head     1,710       2,417       -707  
    Unit cost prices   US$/head     1,962       2,237       -275  
    Production  and sales of   feedstock                         -  
    Bulk Livestock feed   MT     8,619       25,355       -16,736  
    Average Unit sales price   US$/MT     177       176       1  
    Unit cost prices   US$/MT     81       80       1  
    Concentrated livestock feed   MT     18,064       27,630       -9,566  
    Average Unit sales price   US$/MT     445       437       8  
    Unit cost prices   US$/MT     248       245       3  
    Production and sales of fertilizer   MT     23,204       15,705       7,499  
    Average Unit sales price   US$/MT     131       156       -25  
    Unit cost prices   US$/MT     92       123       -31  
QZH   Distinuing operation                            
    Slaughter operation                            
    Slaughter of cattle   Heads             643          
    Service fee   US$/Head             12          
    Sales of associated products   Pieces             643          
    Average Unit sales price   US$/Piece             374          
    Unit cost prices   US$/Piece             166          
    De-boning & Packaging activities                            
    From Cattle supplied locally                            
    De-boned Meats   MT             1,252          
    Average Unit sales price   US$/MT             4,149          
    Unit cost prices   US$/MT             3,785          
    From imported beef   MT             8,047          
    Average Unit sales price   US$/MT             5,439          
    Unit cost prices   US$/MT             6,415          

 

Since the disposal of QZH in 2017, the cattle sold were mostly from SJAP’s own farm and at lighter weight (averaging at less than 300 Kg/head) to keep the losses of growing cattle as low as possible. The market price of live cattle has not improved during 2018 averaging lower than US$6/kg which is below our growing cost of about US$6.50/Kg. At the same time, SJAP’s bulk stock feed and concentrated stock feed sales reduced to 8,619 MT and 18,064 MT in 2018 compares to 2017’s 25,355 MT and 2763 MT respectively due primarily to SJAP is no longer requiring the corporative growers to do cattle fattening and in term reducing the production sales of the bulk stock feed and concentrated stock feed accordingly. However SJAP managed to market and sell its fertilizer to other local users during 2018 to increase its production sales from 15,705 MT in 2017 to 23,204 MT in 2018. Although the overall profits of SJAP in 2018 are still low at $4.3 million, they have improved compared to 2017.

 

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

 

 

In US$   Sales of goods     Cost of Goods sold     Gross profit  
        2018     2017     2018     2017     2018     2017  
                                         
HSA    Sales of Organic fertilizer     3,583,034       3,445,674       2,932,754       2,876,174       650,280       569,500  
     Sales of Organic Mixed Fertilizer     6,088,296       3,722,171       3,961,581       2,115,238       2,126,715       1,606,933  
     HSA Total     9,671,330       7,167,845       6,894,335       4,991,412       2,776,995       2,176,433  
     % of increase (+) or decrease (-)     34 %             38 %             28 %        

 

- 30 -  

 

 

    Description of items       2018     2017     Difference  
                        2018/2017  
HSA   Fertilizer operation                   -  
    Organic Fertilizer   MT     15,105       15,334       (229 )
    Average Unit sales price   $/MT     237       241       (4 )
    Unit cost price   $/MT     194       192       2  
    Organic Mixed Fertilizer   MT     14,638       9,042       5,596  
    Average Unit sales price   $/MT     416       412       4  
    Unit cost price   $/MT     271       234       37  
    Retailing packed fertilizer (for super market sales)   MT             71          
    Average Unit sales price   $/MT             687          
    Unit cost price   $/MT             353          

 

HSA sold 15,105 MT of organic fertilizer and organic mixed fertilizer in 2018, which is similar to 2017’s production sales of 15,334 MT dropping slightly in unit sale price by $4/MT primarily due to the translated exchange losses of lower RMB against US$ in 2018 as such in real term sales prices of organic fertilizer has not changed between 2017 and 2018. OMF, on the other-hand, a product specifically designed and designated for the growing environment of lake fish, had increased 2018’s production to 14,638 MT from 2017’s 9,042 MT, an increase by 61.8% or 5,596 MT evidencing the recovery of production of HSA is now in progress after the retrofitting work and other construction work that has been carried out during 2016 to early months of 2018 on its property.

 

(Note: Please see further details and information of the business plans and direction for SJAP and HSA in later chapter under “Subsequent events and future directions”.

 

2. Plantation Division refers to the operations of JHST. JHST is engaged in the HU Plantation business where dragon fruit flowers (dried and fresh), cash vegetable crops and immortal vegetables are sold to wholesale and retail markets. JHST’s financial statements are consolidated into the financial statements of MEIJI as one entity.

 

In US$       Sales of goods     Cost of Goods sold     Sales of Goods' Gross profit
        2018     2017     2018     2017     2018     2017  
                                         
JHST   Sales of Fresh HU Flowers     -       42,956               38,443       -       4,513  
    Sales of Dried HU Flowers     236,850       1,163,115       214,793       1,114,222       22,057       48,893  
    % of increases (+) or decreases (-)     -80 %             -81 %             -55 %        
    Sales of Dried Immortal vegetables     423,152       -       314,720               108,433       0  
    % of increases (+) or decreases (-)                                                
    Sales of Vegetable products     2,957,246       3,432,024       2,568,877       2,101,902       388,369       1,330,122  
    % of increases (+) or decreases (-)     -14 %             22 %             -71 %        
    JHST/Plantation Total     3,617,249       4,638,095       3,098,390       3,254,567       518,859       1,383,528  
    % of increases (+) or decreases (-)     -22 %             -5 %             -62 %        

 

 

Revenue from our plantation decreased by $1,020,846 or 22% from $4,638,095 for the year ended December 31, 2017 to $3,617,249 for the year ended December 31, 2018.

 

Cost of goods sold from the plantation decreased by $156,177 or 5% from $3,254,567 for the year ended December 31, 2017 to $3,098,390 for the year ended December 31, 2018. The decrease was primarily due to the cost in cultivating and maintaining large acreage with higher associated labor costs, etc.

 

Gross profit from our plantation decreased by $864,669 (or 62.5%) from $1,383,528 for the year 2017 to $518,859 for the year 2018.

 

The Table below shows the itemized unit sales and cost prices of the produces and products:

 

- 31 -  

 

 

    2018     2017     Difference  
JHST                          
  Fresh HU Flowers    Pieces           480,813        
    Average Unit sales price   US$/Pieces             0.09          
    Unit cost prices   US$/Pieces             0.08          
    Dried HU Flowers   MT     48       224       -176  
    Average Unit sales price   US$/MT     4,934       5,190       -256  
    Unit cost prices   US$/MT     4,475       4,970       -495  
    Dried Immortal vegetables   MT     7       -          
    Average Unit sales price   US$/MT     60,450       -          
    Unit cost prices   US$/MT     44,960       -          
    Vegetable products   MT     2,846       3,223       -377  
    Average Unit sales price   US$/MT     1,039       1,065       -26  
    Unit cost prices   US$/MT     903       650       253  

 

As explained in 2017’s prospectus and 2018’s quarterly reports, our plantation experienced very heavy wet seasons for more than 4-5 years (2013 to 2018, requiring the Company to combat and treat diseases and related problems continuously during the period, but by 2018 had exhausted all various means to recover and to revitalize the HU plantation. With continued wet conditions experienced over the past years, damage to the soil and plant roots has compounded disease-related problems to the HU plantation affecting its overall yield as well as the quality of harvested flowers. Even though new plants were being planted each year increasing the area of planting by over 900 Mu to a total of over 1700 Mu with the intent to increase productivity, proportionately, the outcome has fell well short of intended results.

 

Consequently JHST diversified it’s range of produces growing immortal vegetables and cash crops etc. to try to increase its revenues and profits, and in March 2018, JHST signed two growing contracts that have stable pricing conditions: (1). With a herbal plant oil processor to grow 50 acres of plants called “Pogestemon Patchouli” (“ PP ”) for processing into a type of natural aromatic oil that has experienced a good market in China. 50 acres of trial was implemented in Q2 2018 with the intension to expand to 150 acres in 2019 if proven successful. We estimate that the 50 acres of PP will generate sales revenues over $1 million with 50% gross profit margins based on two harvests for the year 2018; and (2). 200 acres of Passion Fruit trees were planted in Q3 2018 for a juice manufacturer from 2018 to 2020 for 3 years initially estimated to produce around 2,400 MT of fruit/year contracted at RMB 8,000/MT (or $1,280/MT) to generate over $3 million in sales revenue. The combination of both fruits and PP will enhance revenue and gross profit to JHST that again will exceed its performance of either FY2017 or FY2018, if their outcomes prove successful.

 

Unfortunately the typhoon that occurred during Q3 2018 destroyed much of the winter cash crops which reduced JHST’s performances in Q4 2018 and in turn reduced 2018’s annual revenue and income by 22% and 62.5% respectively, compared to 2017. At the same time the typhoon also destroyed the newly planted herbal PP plants and the passion fruit trees, delaying their development progresses. Currently, management of JHST is still evaluating JHST’s overall prospects but has yet to devise conclusive plans for JHST.

 

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

 

In US$ Sales of goods     Cost of Goods sold     Sales of Goods' Gross profit
      2018     2017     2018     2017     2018     2017
MEIJI   Sale of Live cattle (Aromatic) from own farm & from trading    29,558,983       20,401,361        24,761,345       16,629,579        4,797,638       3,771,782
                                                 
     MEIJI / Cattle farm Total    29,558,983       20,401,361        24,761,345       16,629,579        4,797,638       3,771,782
    % of increases (+) & decreases (-)   45%         %     49%         %     27%        

 

The locally bred so-called “Asian Yellow cattle” (“ AYC ”) currently has limited but steady local markets (in Guangdong Province) that can’t handle big production volumes (i.e., thousands of heads per day) with stable wholesale prices averaging over US$12/Kg (live weight) which is doubling SJAP’s cattle prices.

- 32 -  

 

 

Revenue from the cattle farm increased by $9,157,622 or 45% from $20,401,361 for the year ended December 31, 2017 to $29,558,983 for the year ended December 31, 2018. The increase was primarily due to the steady demands of said local markets at stable sale prices generating reasonable returns for the farm.

 

Cost of goods sold from the cattle farm increased by $8,131,766 or 49% from $16,629,579 for the year ended December 31, 2017 to $24,761,345 for the year ended December 31, 2018.

 

Gross profit from cattle increased by $1,025,856 or 27% from $3,771,782 for the year 2017 to $4,797,638 for the year ended December 31, 2018, mainly due to lower stable production costs and higher sale prices.

 

            2018     2017     2018 to 2017  
MEIJI   Production and trading on sale of Live cattle   Head     7,945       9,772       (1,827)  
    Average Unit sales price   $/head     3,720       2,088       1,632  
    Unit cost prices   $/head     3,117       1,702       1,415  

 

Currently there are two operations in this segment, Cattle Farm 1 and Cattle Farm 2.

 

Cattle Farm 1: Cattle Farm 1 was built as a demonstration farm to show that cattle can be raised in a semi-tropical climate using the Company’s semi-grazing and housing method. Using the Company’s semi-free growing management system, the cattle are allowed to graze in the field during the early morning and kept indoors and out of the sun during the hot summer days. This method has proven reliable and adaptable to the “Asian Yellow Cattle”

 

Cattle Farm 2: Cattle Farm 2 is a beef cattle farm situated in Guangdong Province, Guangzhou City. Cattle Farm 2 is operated by a private company formed in China with Chinese citizens acting as its legal representative as required by Chinese law. Cattle Farm 2 i s complementary to Cattle Farm 1, having an additional 76 acres of land suitable for growing the Company’s type of pasture (a cross between elephant grass and yellow grass) that has a very high yield rate of over 35 MT per 1/6 acre per year, and containing an average of over 9 percent protein that is very suitable for consumption by cattle. Between the two farms, under normal seasons, they have a capacity to produce up to 30,000 MT of pasture/year collectively that is capable to feed up to 5,000 head of cattle/year based on the consumption rate on average of 6 MT/head.

 

MEIJI is the marketing and distribution agent for all cattle farms that have been and will be developed by MEIJI using its “Semi-free growing” management systems and aromatic-feed programs and systems to grow beef cattle.

 

Similar to CA in its business model, MEIJI purchases fully-grown cattle from Cattle Farm 1 and sells them to the cattle wholesalers. MEIJI also buys young cattle from other farmers and sells the young stock to Cattle Farm 1. All cattle farms developed by MEIJI will utilize its “semi-free growing” management system and aromatic-feed programs and systems (which is a feeding program with special selected Chinese herbs to improve the health of the cattle to avoid the use of antibiotics) to raise beef cattle, such that cattle raised under this program have a distinct aromatic flavor sought by many restaurants in Guangdong Province.

 

Presently, these farms are growing and fattening mainly AYC and that the Company’s earlier plan (mentioned earlier in our 10K 2017 and subsequent 10Qs 2018 reports) to merge Cattle Farms (1) & (2) with HSA such that CF (1) & CF (2) will become breeding stations supplying yearlings for HSA to grow into full grown cattle (up to 3 years old) that will be sold in the Chinese market, is now pending on further evaluation of other alternatives aiming to achieve faster and better return on capital investment.

 

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

 

In US$   Sales of goods     Cost of Goods sold     Gross profit  
        2018     2017     2018     2017     2018     2017  
SIAF   Sales of goods through trading/import/export activities on seafood (via imports)     35,468,172       30,402,652       31,553,391       27,038,775       3,914,781       3,363,877  
    % of increases (+) and decreases (-)     17 %             17 %             16 %        
    on imported beef mainly     32,988,998       41,384,515       29,722,352       36,783,569       3,266,646       4,600,946  
    % of increases (+) and decreases (-)     -20 %             -19 %             -29 %        
     SIAF/ Others & Corporate total     68,457,170       71,787,167       61,275,743       63,822,343       7,181,427       7,964,824  
    % of increases (+) and decreases (-)     -5 %             -4 %             -10 %        

 

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Revenue from the corporate division decreased by $3,329,997 or 5% from $71,787,167 for the year ended December 31, 2017 to $68,457,170 for the year ended December 31, 2018. The decrease was marginal primarily due to a decrease in the sales of imported beef from $41.4 million in 2017 to $33.0 million in 2018 that was offset by the increase in sales of imported seafood from 2017’s $30.4 million to 2018’s $35.5 million.

 

Cost of goods sold from corporate decreased by $2,546,600 from $63,822,343 for the year ended December 31, 2017 to $61,275,743 for the year ended December 31, 2018 due primarily to the decreased sales of some imported goods.

 

Gross profit from the corporate decreased by $783,397 or 10% from $7,964,824 for the year ended December 31, 2017 to $7,181,427 for the year ended December 31, 2018. The decrease was primarily due to a corresponding decrease in sales.

 

Description of items   2018     2017     Difference  
SIAF   Seafood trading from imports                            
    Mixed seafood   MT     1,927       1,583       344  
    Average of sales price   $/MT     18,409       19,211       (802)  
    Average of cost prices   $/MT     16,377       17,085       (708)  
    Beef & Lamb trading from imports   MT     1,706       2,885       (1,179)  
    Average of sales price   $/MT     19,337       14,343       4,994  
    Average of cost price   $/MT     17,422       12,748       4,674  

 

This trading (of mainly imported foods) division has excellent growth potential due mainly to the demands for food in China, but the growth of sales of this division is mainly subject to the availability of working capital that helps drive sales’ turnover (as referred to in our earlier periodic reports). Over the years this division has developed many reliable suppliers and supplied sources that are supplying quality foods to our trust worthy customers/agencies. Therefore we believe that this division will eventually become an effective and major revenue drive of the group once some of the financing plans will have materialized to allow more working capital being employed in the division.

 

Overall in 2018 this division achieved average gross profit margins of 11% for the trading of seafood and 10% on the trading of beef from selling imported goods to its sales agencies to distribute in China based on an average mark-up of 12.5% on cost of goods sold excluding the cost of import duties, value added taxes and local associated charges etc. that were paid by respective agencies. This kind of gross profit margin should increase when the Company will be in a financial position to afford to buy directly from the fishermen and to sub-contract the value added processors to process the seafood directly.

 

l 5.A. Engineering technology consulting and services:

 

Table (A.5) below shows the revenue, cost of services and gross profit generated from consulting, services, commission and management fees for years 2018 and 2017.

 

    2018     2017     Difference  
Revenue                  
CA     11,127,393       16,983,330       (5,855,937 )
Group Total Revenues     11,127,393       16,983,330       (5,855,937 )
Cost of service                        
CA     9,051,408       13,566,203       (4,514,795 )
Group Total Cost of sales     9,051,408       13,566,203       (4,514,795 )
Gross Profit                        
CA     2,075,985       3,417,127       (1,341,142 )
Group Total Gross Profit     2,075,985       3,417,127       (1,341,142 )

 

Revenues decreased by $5,855,937 or 34% from $16,983,330 for the year ended December 31, 2017 to $11,127,393 for the year ended December 31, 2018. The decrease was primarily due to the following reasons:

 

(i). Prior to the acquisition of farms by JFD/Tri-way, their respective development and construction costs and working capital requirements for all farms were mainly financed by their respective owners and investors and partly financed by CA’s deferred account receivables. Since the acquisition, this has become the sole responsibility of JFD/Tri-way.

 

(ii). Under said situation, most of the operational cash flow is being employed in working capital to generate continuing and constant sales revenues month after month. For example, with respect to a species of fish that takes 18 months to grow to marketable size from tiny fingerling (of 3 mm), if one wanted to sell 3 MT of the grown fish per day at gross profit margin of 35% and to generate annual sales of US$100 million, that would mean that the amount of working capital needed would be over US$65 million plus daily operational expenses for 18 months or more amounting to more than $80 million and for each $ of increased sales per year a similar ratio of working capital would be required.

 

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In other words, under current situation, Tri-way does not have enough free cash-flow to be spent on capital expenditures required by farm developments, thus reducing CA’s C&S income in 2017 and 2018 accordingly.

 

Cost of services for consulting, service, commission and management fee decreased by $4,514,795 or 33% from $13,556,203 for the year ended December 31, 2017 to $9,051,408 for the year ended December 31, 2018. The decrease was primarily due to a decrease in sales.

 

Gross profit of consulting, service, commission and management fees decreased by $1,341,142 or 39%, from $3,417,127 for the year ended December 31, 2017 to $2,075,985 for the year ended December 31, 2018 The decrease was primarily due to a decrease in sales.

Note to Table A 1 ( Net Expense):

 

Other income/(expense) increased by $36,696,401 from $(29,949,142) in 2017 to $9,747,259 in 2018 was mainly due to i) an decrease in government grant of 1,890,894 from $2,539,989 to $649,095; ii) change in fair value of derivative liability of $209,219 from a new convertible bond of $4 million issued during the year 2017; and iii) share of profit from a unconsolidated equity investee from $12,010,051 in 2017 to $14,251,264 in 2018; offset by iv) a decrease in other income of $43,546 from $100,218 in 2017 to $56,672 in 2018; v) a loss on restructuring of 6,225,204 which represents the non-amortized part of the discount upon the issuing of the convertible bond in 2017; vi) a bad debt written off of $14,394,402 contributed by QZH in 2017;

 

Note to Table A 1 General and Administrative and interest Expenses:

 

General and administrative (including depreciation and amortization) and interest expenses (including in Note Other income/(expenses) decreased by $7,537,370 or 32% from $23,732,921 for the year ended December 31, 2017 to $16,195,551 for the year ended December 31, 2018. The decrease was mainly due to (i) a decrease in Wages and salaries of 3,658,259 from $5,520,494 for the year ended December 31, 2017 to $1,862,232 for the year ended December 31, 2018; and (ii) a decrease in Others and miscellaneous (including research and development) $ 934,225 from $ 5,006,321 for the year ended December 31, 2017 to $ 4,072,096 for the year ended December 31, 2018; as shown in the table below:

 

Table (i)

 

Category   2018     2017     Difference  
                   
Office and corporate expenses     3,354,114       3,946,885       (592,771 )
Wages and salaries     1,862,232       5,520,491       (3,658,259 )
Traveling and related lodging     45,430       54,028       (8,598 )
Motor vehicles expenses and local transportation     56,198       67,210       (11,012 )
Entertainments and meals     49,504       143,735       (94,231 )
Others and miscellaneous     4,072,096       5,006,321       (934,225 )
Depreciation and amortization     6,155,458       5,041,620       1,113,838  
Sub-total     15,595,032       19,780,290       (4,185,258 )
Interest expense     600,519       3,952,631       (3,352,112 )
Total     16,195,551       23,732,921       (7,537,370 )

 

Note to Table (i):

 

In this respect, total depreciation and amortization amounted to $15,351,003 for the year ended December 31, 2018, out of which amount $6,155,548 was reported under general and administration expenses and $9,195,455 was reported under cost of goods sold; whereas total depreciation and amortization was $10,548,891 for the year ended December 31, 2017 and out of which amount $5,041,620 was reported under General and Administration expenses and $5,507,271 was reported under cost of goods sold.

 

Note to Table A 1 Non-controlling interest:

 

Table (F) below shows the derivation of non-controlling interest

 

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        Jiangmen City         Qinghai Sanjiang        
    Jiangmen City Heng     Hang Mei Cattle     Hunan Shenghua     A Power        
    Sheng Tai Agriculture     Farm     A Power     Agriculture Co        
    Development Co.     Development Co.     Agriculture Co.,     Ltd (China)        
Name of China subsidiaries   Ltd.(China)     Ltd.(China)     Limited (China)           Total  
Effective shareholding     75 %     75 %     76 %     41.25 %      
Abbreviated names     (JHST)       (JHMC)       (HSA)       (SJAP)          
                                         
Net income (loss) of the P.R.C. subsidiaries for the year in $     (4,049,740 )     3,382,667       1,131,546       (2,764,436 )        
                                         
% of profit sharing of non-controlling  interest     25 %     25 %     24 %     58.75 %        
                                         
Non-controlling interest's shares of Net incomes in $     (1,012,435 )     845,667       271,571       (1,624,106 )     (1,519,303 )

 

The Net Loss attributed to non-controlling interest is $(1,519,303) shared by (JHST, JHMC, HSA and SJAP) for the year ended December 31, 2018 as shown in Table (F) above. QZH was disposed of and derecognized as part of the Company’s investment in SJAP, a variable interest entity, on December 30, 2017.

 

Note (7) to Table A 1 Earnings per share (EPS):

 

Earnings per share increased by $0.99 (basic) and $0.99 (diluted) per share from EPS of $(0.53) (basic) and $(0.53) (diluted) in 2017 to per share of $0.46 (basic) and $0.46 (diluted) in 2018. The reason for the increase is primarily due the steady recoveries from SJAP after the disposal of QZH in 2017, and HSA’s improved production after it had been disrupted by the construction work in progress and the retrofitting of its production plant mentioned above

 

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

 

A (1) Income Statements (Unaudited)

 

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

 

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

 

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

 

- 36 -  

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

- 37 -  

 

 

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

 

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

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

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

 

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

 

- 38 -  

 

 

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

   

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

 

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

 

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

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

- 39 -  

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

   

    In US$    Sales of goods       Cost of Goods sold       Gross profit  
        2019Q1     2018Q1       2019Q1       2018Q1       2019Q1       2018Q1  
SIAF   Sales of goods through trading/import/export activities                                            
    on seafood (via imports)   3,787,038     8,818,702       3,366,257       7,915,342       420,781       903,360  
    % of increases (+) and decreases (-)   -57%             -57 %             -53 %        
    on imported beef mainly   9,010,021     7,621,255       8,008,907       6,774,449       1,001,114       846,806  
    % of increases (+) and decreases (-)   18%             18 %             18 %        
     SIAF/ Others & Corporate total   12,797,059     16,439,957       11,375,164       14,689,791       1,421,895       1,750,166  
    % of increases (+) and decreases (-)   -22%             -23 %             -19 %        

 

Description of items         2019Q1     2018Q1     Difference  
SIAF     Seafood trading from imports                                
      Mixed seafood     MT       131       503       (372 )
      Average of sales price     $/MT       28,909       17,532       11,376  
      Average of cost prices     $/MT       25,697       15,736       9,960  
      Beef & Lamb trading from imports     MT       489       313       176  
      Average of sales price     $/MT       18,425       24,349       (5,924 )
      Average of cost price     $/MT       16,378       21,644       (5,265 )

 

Revenues from the corporate division decreased by $3,642,898 ( or -22%) from $16,439,957 for Q1 2018 to $12,797,059 for Q1 2019. The decrease was caused primarily by the Lunar Chinese New Year starting later than usual in 2018, disrupting logistics and transportation services, causing slowdowns in our seafood sales. . However, our sales of our frozen beef were unaffected, with sales increasing by $1.39 million (or 18.24%) from Q1 2018’s $7.62 million to Q1 2019’s $9 million at lower unit sale price. This increase was primarily due to abundance of regional cold storages to store the frozen beef and the increase of frozen beef sold from Q1 2018’s 313 MT to Q1 2019’s 489 MT, representing an increase of 176 MT (or 56.2%).

 

Correspondingly, the cost of goods sold from corporate decreased by $3.314627 (-23%) from $20,542,738 for Q1 2018 to $11,375,164 for Q1 2019, and gross profit from the corporate division decreased by $328,271 (-19%) from $1,750,166 for the three months ended March 31, 2018 to $1,421,895 for the three months ended March 31, 2019.

 

- 40 -  

 

 

· 5.A. Engineering technology consulting and services:  (The Continuing Operation of CA)

 

Notes to Table A (1) Note (1.1, 2.1 and 3.1)

 

Table (A.5) below shows the revenue, cost of services and gross profit generated from Consulting, services, commission and management fees for the same period ended March 31, 2019 and 2018.

   

    2019Q1     2019Q1     Difference     Description of work  
Service  revenues (Consulting and Services)                                
CA     991,002       2,472,404       (1,481,402 )        
Group Total Revenues     991,002       2,472,404       (1,481,402 )        
Cost of service                                
CA     939,684       1,784,322       (844,638 )        
Group Total Cost of Consulting and Services     939,684       1,784,322       (844,638 )           
Gross Profit                                
CA     51,318       688,082       (636,764 )        
Group Total Gross Profit     51,318       688,082       (636,764 )        

 

Revenue (consulting, service, commission and management fee):

 

Revenue decreased by $1,481,402 (-60%) from $2,472,404 for the quarterly period ended March 31, 2018 to $991,002 for the same period ended March 31, 2019. Since Tri-way is CA’s main client, currently, CA’s income is heavily dependent on Tri-way having sufficient cash-flow, which had not been available during Q1 to spend on farm development, thus reducing CA’s C&S income during the quarter.

 

Correspondingly, the cost of services for consulting, service, commission and management fees decreased by $844,638 (-47%) from $1,784,322 for the quarterly period ended March 31, 2018 to $939,684 for the same period ended March 31, 2019. The decrease was primarily due to lower revenues of the quarter.

 

Gross profit from consulting, service, commission and management fees decreased by $636,764 (-93%), from $688,082 for the quarter period ended March 31, 2018 to $51,318 for the same period ended March 31, 2019.

 

Note (4) Other Income

 

Other income for the three months ended March 31, 2019 amounted to $(417,611) and was derived from the combination of the following:

 

(i). The share of income from unconsolidated equity investee (Tri-way) of $2,390,454 that decreased by $0.67 million (or -22%) from Q1 2018’s $3.06 million) due to primarily the reason mentioned earlier that the Lunar Chinese New Year came later than usual (started from February 5 th  2019 instead of January 19 th  2018) creating interruptions to the logistics and transportation services affecting the deliveries and supplies of goods in turn the market that lasted over 6 weeks instead of 4 weeks that slowed down Tri-way’s live-seafood sales.

 

(ii). Loss on restructuring of $(2,404,402) that was reported in our 2018 10-K report referring to a loan that was granted by a friendly third party on October 12, 2017 for $6 million (based on principal sum of $4.2 million and accrued interest of $1.8 million calculated to February 12 th  2019) that was recorded at later date by a loan agreement executed on February 18, 2019 for $6,301,480 (inclusive of an additional loan of $301,480 granted by the same third party on February 2, 2019). This loan is to be re-paid in 3 tranches inclusive of accrued interest calculated to time of repayments comprising Tranche (1) for $2,300,000, Tranche (2) for $2,350,000 and Tranche (3) for $2,746,702 on August 31, 2019, October 30, 2019 and December 31, 2019, respectively, for total repayment amount of $7,346,702.

 

(iii). Non-operating expenses of $(219,727), a government grant of $293,870, less interest expense of $477,806.

 

The other income for the three months ended March 31, 2018 amounted to $3,307,234 and derived from the combination of share of income from unconsolidated equity investee of $3,782,011, other income of $878, non-operating expenses of $22,004, less interest expense of $453,651.

 

Note (5) General and Administrative Expenses and Interest Expenses)

 

General and administrative and interest expenses (including depreciation and amortization) increased by $118,714 (3%), from $4,116,380 for Q1 2018 to $4,235,094 for Q1 2019. The change was primarily due to increase in depreciation and amortization by $401,164 from $1,182,055 in Q1 2018 to $1,583,219 in Q1 2019 and increase in interest expense by $24,155 from $453,651 in Q1 2018 to $477,806 in Q1 2019.

 

- 41 -  

 

 

The Company is taking extra steps to ensure that these expenses are reduced in conformity with cash flow allowance

 

Category   2019Q1     2018Q1     $ Difference  
                   
Office and corporate expenses   $ 1,045,746     $ 1,304,145     $ (258,399 )
                         
Wages and Salaries   $ 430,623     $ 546,642     $ (116,019 )
                         
Traveling and related lodging   $ 7,789     $ 3,542     $ 4,247  
                         
Motor vehicles expenses and local transportation   $ 12,364     $ 9,906     $ 2,458  
                         
Entertainment and meals   $ 25,713     $ 17,576     $ 8,137  
                         
Others and miscellaneous   $ 651,834     $ 598,863     $ 52,971  
                         
Depreciation and amortization   $ 1,583,219     $ 1,182,055     $ 401,164  
                         
Sub-total   $ 3,757,288     $ 3,662,729     $ 94,559  
                         
Interest expense   $ 477,806     $ 453,651     $ 24,155  
                         
Total   $ 4,235,094     $ 4,116,380     $ 118,714  
% of increase or decrease (-)     3 %                

 

Note (6) Depreciation and Amortization

 

Depreciation and amortization decreased by $120,994 (-4%), to $3,106,925 for Q1 2019 from $3,227,869 for Q1 2018. The decrease was due to the decrease of depreciation by $514,698 to $2,542,874 for Q1 2019 from depreciation of $2,658,508 for Q1 2018 and the decrease of amortization by $50,918 to $564,051 for Q1 2019 from amortization of $569,361 for Q1 2018.

 

In this respect, total depreciation and amortization amounted to $3,106,925 for Q1 2019, of which amount $1,583,219 was reported under general and administration expenses and $1,523,706 was reported under cost of goods sold compared to total depreciation and amortization of $3,227,869 for Q1 2019, of which amount $1,182,055 was reported under general and administration expenses and $2,045,814 was reported under cost of goods sold.

 

Note (7). Non-controlling interests

 

Table (F) below shows the derivation of non-controlling interest:

 

          Jiangmen City                    
    Jiangmen City Heng     Hang Mei Cattle     Hunan Shenghua     Qinghai Sanjiang        
    Sheng Tai Agriculture     Farm     A Power     A Power        
    Development Co.     Development Co.     Agriculture Co.,     Agriculture Co        
Name of China subsidiaries   Ltd.(China)     Ltd.(China)     Limited (China)     Ltd (China)       Total  
Effective shareholding     75 %     75 %     76 %     41.25 %        
Abbreviated names     (JHST)       (JHMC)       (HSA)       (SJAP)          
                                         
Net income (loss) of the P.R.C. subsidiaries for the year in $     (1,094,939 )     982,845       499,365       220,183          
                                         
% of profit sharing of non-controlling  interest     25 %     25 %     24 %     58.75 %        
                                         
Non-controlling interest's shares of Net incomes in $     (273,735 )     245,711       119,848       129,358       221,182  

 

The net income attributed to non-controlling interest is $221,182 shared by (JHST, JHMC, HAS and SJAP, collectively) for Q1 2019 as shown in Table (F), above.

 

- 42 -  

 

 

Note (8) Earnings per share (EPS)

 

Earnings per share from continuing operations decreased by $0.16 (basic) and $0.16 (diluted) per share from EPS of $0.17 (basic) and $0.17 (diluted) Q1 2018 to EPS of $0.01 (basic) and $0.01 (diluted) for Q1 2019.

 

Part B. MD &A on Audited Consolidated Balance Sheet as of the year 2018 compared to year 2017 (fiscal year)

 

Consolidated Balance sheets   2018     2017     Changes     Note
                       
ASSETS                            
Current assets                            
Cash  and cash equivalents     4,950,799       560,043       4,390,756     8
Inventories     54,582,241       52,628,947       1,953,294     9
Costs and estimated earnings in excess of billings on uncompleted contracts     250,828       1,249,187       (998,359 )    
Deposits and prepaid expenses     52,241,190       70,459,650       (18,218,460 )   10.1
Accounts receivable     101,652,131       82,971,418       18,680,713     11
Other receivables     28,307,526       20,680,478       7,627,048     15
Total current assets     241,984,715       228,549,723       13,434,992      
Property and equipment                            
Property and equipment, net of accumulated depreciation     230,645,659       246,857,797       (16,212,138 )   12
Construction in progress     12,515,527       6,178,308       6,337,219     13
Land use rights, net of accumulated amortization     53,814,281       54,838,031       (1,023,750 )   14
Total property and equipment     296,975,467       307,874,136       (10,898,669 )    
Other assets                            
Goodwill     724,940       724,940       -      
Proprietary technologies, net of accumulated amortization     8,937,071       9,588,605       (651,534 )    
Investment in unconsolidated equity investee     207,074,626       192,290,541       14,784,085      
Long term investment                            
Temporary deposit paid to entities for investments in future Sino Joint Venture companies     34,905,960       34,917,222       (11,262 )   10.2
Total other assets     251,642,597       237,521,308       14,121,289      
Total assets     790,602,779       773,945,167       16,657,612      
Current liabilities                            
Accounts payable and accrued expenses     8,280,358       4,243,496       4,036,862      
Billings in excess of  costs and estimated earnings on uncompleted contracts     5,348,293       5,740,065       (391,772 )    
Due to a director     2,046,499       107,074       1,939,425      
Other payables     42,523,811       40,593,482       1,930,329     16A
Borrowings-Short term bank loan     4,589,828       4,667,890       (78,062 )    
Derivative liability     2,100       2,100       -      
Convertible note payable     3,894,978       3,894,978       -      
Income tax payable     -       377       (377 )    
Total current liabilities     66,685,867       59,249,462       7,436,405     16
Non-current liabilities                            
Other payables     7,792,774       11,089,779       (3,297,005 )    
 Borrowing-Long term debt     5,536,938       6,045,302       (508,364 )    
Convertible note payable                            
Total non-current liabilities     13,329,712       17,135,081       (3,805,369 )    
Stockholders’ equity                            
Preferred stock                            
Series A  preferred stock                            
Series B  convertible preferred  stock                            
Common stock     49,866       29,363       20,503      
Additional paid-in capital     181,501,056       169,743,640       11,757,416      
Retained earnings <