UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended September 30, 2019

OR

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

 

For the transition period from ___________________________ to ___________________________

 

Commission file number: 000-54191

 

SINO AGRO FOOD, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   33-1219070

(State of Other Jurisdiction of Incorporation or
Organization)

  (I.R.S. Employer Identification Number)
     

Room 3801, Block A, China Shine Plaza
No. 9 Lin He Xi Road
Tianhe District, Guangzhou City, P.R.C.

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

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to:
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 37th Floor
New York, NY 10036
Attn: Marc J. Ross, Esq.

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x

 

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

 

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

 

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

 

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

 

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

 

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

 

As of September 30th 2019 there were 49,976,085 shares of our common stock issued and outstanding.

 

 

 

 

TABLE OF CONTENTS

 

        Page  
PART I – FINANCIAL INFORMATION        
Item 1.   Financial Statements     F-1  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Plan of Operations     1  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     30  
Item 4.   Controls and Procedures     31  
             
PART II – OTHER INFORMATION        
Item 1.   Legal Proceedings     32  
Item 1A.   Risk Factors     32  
Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds     32  
Item 3.   Defaults Upon Senior Securities     32  
Item 4.   Mine Safety Disclosures     33  
Item 5.   Other Information     33  
Item 6.   Exhibits     33  
SIGNATURES         34  

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

 

(Unaudited)

 

 

 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

(Unaudited)

 

  PAGE
CONSOLIDATED BALANCE SHEETS (Unaudited) F-1
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (Unaudited) F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-4 to F-46

 

 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

    Note     September 30,
2019
    December  31,
2018
 
          (Unaudited)     (Audited)  
ASSETS                        
Current assets                        
Cash and cash equivalents     5     $ 671,544     $ 4,950,799  
Inventories     6       51,539,209       54,582,241  
Costs and estimated earnings in excess of billings on uncompleted contracts     18       250,828       250,828  
Deposits and prepayments     7       40,301,277       52,241,190  
Accounts receivable, net of allowance for doubtful accounts     8       109,996,856       101,652,131  
Other receivables     9       23,583,908       28,307,526  
Total current assets             226,343,622       241,984,715  
Non-current assets                        
Plant and equipment, net of accumulated depreciation     10       237,870,893       230,645,659  
Construction in progress     11       10,427,213       12,515,527  
Land use rights, net of accumulated amortization     12       51,202,746       53,814,281  
Total non-current assets             299,500,852       296,975,467  
Other assets                        
Goodwill     13       724,940       724,940  
Proprietary technologies, net of accumulated amortization     14       8,461,545       8,937,071  
Interest in unconsolidated investees     15       221,730,404       207,074,626  
Temporary deposits paid to entities for investments in Sino joint venture companies     16       34,900,349       34,905,960  
Total other assets             265,817,238       251,642,597  
                         
Total assets           $ 791,661,712     $ 790,602,779  
                         
LIABILITIES  AND STOCKHOLDERS’ EQUITY                        
                         
Current liabilities                        
Accounts payable and accrued expenses           $ 9,103,501     $ 8,280,358  
Billings in excess of costs and estimated earnings on uncompleted contracts     18       5,386,711       5,348,293  
Due to a director             861,182       2,046,499  
Other payables     19       46,214,186       42,523,811  
Borrowings - Short term bank loan     20       4,524,246       4,589,828  
Derivative liability     21       -       2,100  
Convertible note payable     21       -       3,894,978  
              66,089,826       66,685,867  
                         
Non-current liabilities                        
Other payables     19       7,765,801       7,792,774  
Borrowings - Long term debts and bank loan     20       5,231,162       5,536,938  
              12,996,963       13,329,712  
                         
Commitments and contingencies             -       -  
                         
Stockholders’ equity                        
Common stock:  $0.001 par value (50,000,000 shares authorized, 49,976,085  and 49,866,174 shares issued  and outstanding as of September  30, 2019 and  December 31, 2018, respectively)     22       49,977       49,866  
Additional paid - in capital             181,533,918       181,501,056  
Retained earnings             474,114,485       458,811,844  
Accumulated other comprehensive income             (23,088,296 )     (10,415,786 )
Treasury stock             (1,250,000 )     (1,250,000 )
Total Sino Agro Food, Inc. and subsidiaries stockholders’ equity             631,360,084       628,696,980  
Non - controlling interest             81,214,839       81,890,220  
Total stockholders’ equity             712,574,923       710,587,200  
Total liabilities and stockholders’ equity           $ 791,661,712     $ 790,602,779  

 

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

 

  F-1  

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

  

          Three months
ended
    Three months
ended
    Nine months
ended
    Nine months
ended
 
    Note     September 30,
2019
    September 30,
2018
    September 30,
2019
    September 30,
2018
 
Revenue                                        
- Sale of goods           $ 37,431,314     $ 32,247,645     $ 103,571,897     $ 96,439,242  
- Consulting and service income from development contracts             -       6,502,372       1,719,247       10,036,762  
      3       37,431,314       38,750,017       105,291,144       106,476,004  
Cost of goods sold     3       (31,138,118 )     (27,086,184 )     (85,532,551 )     (80,620,463 )
Cost of services     3       -       (5,469,059 )     (1,590,017 )     (8,133,799 )
                                         
Gross profit             6,293,196       6,194,774       18,168,576       17,721,742  
General and administrative expenses             (3,445,170 )     (3,991,962 )     (10,397,047 )     (11,787,745 )
Net income from operations             2,848,026       2,202,812       7,771,529       5,933,997  
Other income (expenses)                                        
                                         
Government grant             449,094       43,796       741,516       176,643  
Share of income from unconsolidated equity investee             5,566,236       1,793,661       11,526,026       7,125,632  
Other income             -       57,580       -       117,318  
Loss on restructuring             -       -       (2,404,402 )     -  
Non-operating expenses             (12,403 )     -       (231,045 )     (3,161,333 )
Interest expense             (125,871 )     (407,728 )     (736,904 )     (1,278,685 )
Net income (expenses)             5,877,056       1,487,309       8,895,191       2,979,575  
                                         
Net income  before income taxes             8,725,082       3,690,121       16,660,720       8,913,572  
Provision for income taxes     4       (2,613 )     -       (6,518 )     -  
                                         
Net income             8,722,469       3,690,121       16,660,202       8,913,572  
Less: Net (income) loss attributable to  non - controlling interest             (605,923 )     (224,559 )     (1,357,561 )     522,377  
Net income attributable to Sino Agro Food Inc. and subsidiaries             8,116,546       3,465,562       15,302,641       9,435,949  
Other comprehensive income (loss) - Foreign currency translation gain (loss)             (10,362,693 )     (13,737,567 )     (14,705,450 )     (12,298,881 )
Comprehensive income             (2,246,147 )     (10,272,005 )     597,191       (2,862,932 )
Less: Other comprehensive (income) loss attributable to  non - controlling interest             2,002,068       2,837,539       2,032,940       1,987,133  
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries           $ (244,079 )   $ (7,434,466 )   $ 2,630,131     $ (875,799 )
                                         
Earnings per share attributable to the Sino Agro Food, Inc. and subsidiaries common stockholders:                                        
Basic     27     $ 0.16     $ 0.09     $ 0.31     $ 0.27  
Diluted     27     $ 0.16     $ 0.09     $ 0.31     $ 0.27  
                                         
Weighted average number of shares outstanding:                                        
                                         
Basic     27       49,968,758       36,650,450       49,900,369       35,381,345  
Diluted     27       49,968,758       36,650,450       49,900,369       35,381,345  

  

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

 

  F-2  

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Nine months
ended September
30, 2019
    Nine months
ended September
30, 2018
 
Cash flows from operating activities                
Net income for the period   $ 16,660,202     $ 8,913,572  
Adjustments to reconcile net income for the period to net cash from operations:                
Share of income from unconsolidated equity investee     (11,526,026 )     (7,125,632 )
Depreciation     7,676,784       7,877,928  
Amortization     1,676,902       1,605,125  
Inventory written off     -       3,071,068  
Share based compensation cost     643,457       1,896,986  
Loss on restructuring     2,404,402          
Changes in operating assets and liabilities:                
(Decrease)/Increase in inventories     3,043,032       (6,852,017 )
Decrease in cost and estimated earnings in excess of billings on uncompleted contacts     -       998,359  
Decrease in deposits and prepaid expenses     11,335,040       11,213,396  
(decrease) in due to a director     (1,185,317 )     (107,074 )
Increase in accounts payable and accrued expenses     823,143       5,504,887  
Increase in other payables     (2,638,078 )     5,105,528  
Increase in accounts receivable     (8,344,725 )     (11,912,622 )
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts     38,418       (389,900 )
Increase in other receivables     4,723,618       (5,561,268 )
Decrease in amount due from  unconsolidated  investee     (3,129,752 )     (2,600,812 )
Net cash (used in) provided by operating activities     22,201,100       11,637,524  
Cash flows from investing activities                
Purchases of property and equipment     (9,051,137 )     (3,500 )
Investment in unconsolidated equity investee     -       (52,258 )
Payment for construction in progress     (9,642,084 )     (6,832,839 )
Net cash used in investing activities     (18,693,221 )     (6,888,597 )
Cash flows from financing activities                
Repayment of long term bank loan     (73,741 )     -  
Net cash used in financing activities     (73,741 )     -  
Effects on exchange rate changes on cash     (7,713,393 )     (4,891,597 )
                 
Increase  in cash and cash equivalents     (4,279,255 )     (142,670 )
Cash and cash equivalents, beginning of period     4,950,799       560,043  
Cash and cash equivalents, end of period   $ 671,544     $ 417,373  
                 
Supplementary disclosures of cash flow information:                
Cash paid for interest   $ 260,715     $ 437,200  
Non - cash transactions                
Common stock issued for services and  compensation   $ -     $ 10,301,367  
Common stock issued for debts issue and trade facilities   $ 32,973     $ 739,796  
Transfer to plant and equipment from construction in progress   $ 12,756,424     $ -  

 

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

 

  F-3  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On March 23, 2017, Qinghai Quanwang Investment Management Company Limited (“Quanwang”) acquired 8.3% equity interest in SJAP for total cash consideration of $459,137. As of June 30, 2019, APWAM owned 41.25% of SJAP, Garwor owned 50.45% and Quanwang owned the remaining 8.3%.

 

  F-4  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION (CONTINUED)

 

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

 

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

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors. On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before June 30, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except fish farm. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to 36.60%.

 

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

 

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

 

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

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“QQI”) contributed additional capital of $4,157,682 and $769,941, respectively. As a result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14% equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholders meetings. SJAP disposed its 85% equity interest in QZH for RMB2 (equivalent to $0) for cash and completed on December 30, 2017. As a result, QZH was derecognized as variable interest entity of the company.

 

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

 

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

 

  F-5  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

  2.1 FISCAL YEAR

 

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

  

  2.2 REPORTING ENTITIES

 

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

 

  F-6  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.3 BASIS OF PRESENTATION

 

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

 

  2.4 BASIS OF CONSOLIDATION

 

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

 

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

 

  2.5 BUSINESS COMBINATION

 

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

 

  2.6 NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

  2.7 USE OF ESTIMATES

 

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

 

  F-7  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We determine revenue recognition through the following steps:

 

  l identification of the contract, or contracts, with a customer;
  l identification of the performance obligations in the contract;
  l determination of the transaction price;
  l allocation of the transaction price to the performance obligations in the contract; and
  l recognition of revenue when, or as, we satisfy a performance obligation.

 

  F-8  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION (CONTINUED)

 

Consulting and service income from development contracts

 

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

 

Variable Consideration

 

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

 

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

 

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

 

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

 

  F-9  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.9 COST OF GOODS SOLD AND COST OF SERVICES

 

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

 

  2.10 SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $11,367 and $0, $156,103 and $2,745 for the three months and the nine months ended September 30, 2019 and 2018, respectively.

 

  2.11 ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $364,964 and $375,221, $956,056 and $1,175,724 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively. 

 

  2.12 RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $0 and $0, $426,115 and $0 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

  2.13 FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

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

 

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

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to ($23,088,296) as of September 30, 2019 and ($10,415,786) as of December 31, 2018. The balance sheet amounts with the exception of equity as of September 30, 2019 and December 31, 2018 were translated using an exchange rate of RMB 7.07 to $1.00 and RMB 6.86 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2019, and 2018 were RMB 6.85 to $1.00 and RMB 6.51 to $1.00, respectively.

 

  2.14 CASH AND CASH EQUIVALENTS

 

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

 

  2.15 ACCOUNTS RECEIVABLE

 

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

 

The standard credit period for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2019 and December 31, 2018 are $0.

 

  F-10  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.16 INVENTORIES

 

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

 

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

 

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

 

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

 

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

 

  2.17 PLANT AND EQUIPMENT

 

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

 

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

 

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

 

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

 

  2.18 GOODWILL

 

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

 

  F-11  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.19 PROPRIETARY TECHNOLOGIES

 

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

 

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

 

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

 

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

 

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

 

  2.20 CONSTRUCTION IN PROGRESS

 

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

 

  2.21 LAND USE RIGHTS

 

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

 

  2.22 EQUITY METHOD INVESTMENTS

 

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

 

  2.23 CORPORATE JOINT VENTURE

 

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

 

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

 

  F-12  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.24 VARIABLE INTEREST ENTITY

 

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

 

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

 

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

 

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

 

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

 

  2.25 TREASURY STOCK

 

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

 

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

 

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

 

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

 

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

 

  F-13  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.26 INCOME TAXES

 

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

 

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

 

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

 

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

 

  2.27 POLITICAL AND BUSINESS RISK

 

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

 

  2.28 CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 2019 and December 31, 2018 amounted to $923,875 and $4,720,793, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers whose business individually represented the following percentages of the Company’s total revenue for the period indicated:

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
                         
Customer A     31.05 %     29.44 %     30.64 %     33.40 %
Customer B     16.09 %     15.09 %     15.03 %     17.73 %
Customer C     35.65 %     20.94 %     33.11 %     16.63 %
Customer D     - %     16.74 %     - %     5.22 %
Customer E     4.67 %     4.27 %     4.66 %     7.64 %
Customer F     3.36 %     - %     2.76 %     - %
      90.82 %     86.48 %     86.20 %     80.62 %

 

  F-14  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.29 CONCENTRATION OF CREDIT RISK (CONTINUED)

 

        Percentage
of revenue
    Amount  
Customer A   Corporate and others Division     31.05 %   $ 11,623,334  
Customer B   Cattle Farm Development Division     16.09 %   $ 6,021,726  
Customer C   Corporate and others Division     35.65 %   $ 13,345,198  

 

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

 

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

 

    September 30, 2019     December 31, 2018  
Customer A     13.22 %     12.76 %
Customer B     13.11 %     9.67 %
Customer C     9.72 %     10.05 %
Customer D     - %     1.8 %
Customer E     1.74 %     - %
Customer F     56.87 %     59.81 %
      94.66 %     94.09 %

 

As of September 30, 2019, amounts due from customers A and B are $14,542,938 and $14,419,721, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

 

  2.30 IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2019 and December 31, 2018, the Company determined no impairment losses were necessary.

 

  2.31 EARNINGS PER SHARE

 

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

 

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

 

For the three months ended September 30, 2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted to $0.16 and $0.09, respectively. For the three months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.16 and $0.09, respectively.

 

For the nine months ended September 30, 2019 and 2018, basic earnings per share attributable to Sino Agro Food Inc. and subsidiaries common stockholders amounted to $0.31 and $0.27, respectively. For the nine months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.31 and $0.27, respectively.

 

  F-15  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

  2.32 ACCUMULATED OTHER COMPREHENSIVE INCOME

 

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

 

  2.33 RETIREMENT BENEFIT COSTS

 

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

 

  2.34 STOCK-BASED COMPENSATION

 

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

 

  2.35 FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

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

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2019 or December 31, 2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended September 30, 2019 or 2018.

 

  F-16  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.36 NEW ACCOUNTING PRONOUNCEMENTS

 

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

 

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

 

  F-17  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION

 

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

 

    For the three months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
Revenue   $ -       803,352       5,588,247       13,394,653       17,645,062       37,431,314  
                                                 
Net income (loss)   $ (127,139 )     (609,383 )     400,620       1,839,611       6,612,837       8,116,546  
                                                 
Total assets   $ 90,458,027       40,296,438       308,526,376       47,736,673       304,644,198       791,661,712  

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
Revenue   $ 6,502,373     $ 988,030     $ 5,933,042     $ 8,028,334     $ 17,298,238     $ 38,750,017  
                                                 
Net income (loss)   $ 906,175       (599,743 )     399,756       992,139       1,766,595       3,465,562  
                                                 
Total assets   $ 87,021,604       45,899,308       326,860,510       39,856,112       283,736,237       783,373,768  

 

    For the nine months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
                                     
Revenue   $ 1,719,247       2,813,800       18,743,832       34,105,641       47,908,624       105,291,144  
                                                 
Net income (loss)   $ (252,187 )     (1,622,380 )     470,344       4,644,679       11,275,072       15,302,641  
                                                 
Total assets   $ 90,458,027       40,296,438       308,526,376       47,736,673       304,644,198       791,661,712  

 

    For the nine months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (5)     Total  
                                     
Revenue   $ 10,036,762     $ 3,082,503     $ 22,327,936     $ 19,100,254     $ 51,928,550     $ 106,476,004  
                                                 
Net income (loss)   $ 1,521,546     $ (1,123,369 )   $ 379,533     $ 1,687,951     $ 6,970,288     $ 9,435,949  
                                                 
Total assets   $ 81,997,442     $ 46,569,574     $ 341,912,724     $ 41,143,209     $ 283,736,237     $ 783,373,768  

 

  F-18  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

  

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

 

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

 

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

 

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

 

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

 

  F-19  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the three ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                            
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             803,352                               803,352  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     2,121,458                       2,121,458  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     3,466,789                       3,466,789  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                                                
                                                 
Macau Eiji Company Limited (“MEIJI”)                             13,394,653               13,394,653  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     17,645,062       17,645,062  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     -                                       -  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)                                                
    $          -       803,352       5,588,247       13,394,653       17,645,062       37,431,314  

 

  F-20  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       988,029       -       -       -       988,029  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       2,390,188       -       -       2,390,188  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       3,542,853       -       -       3,542,853  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       8,028,333       -       8,028,333  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       17,298,242       17,298,242  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     6,502,372       -       -       -       -       6,502,372  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -  
    $ 6,502,372     $ 988,029     $ 5,933,041     $ 8,028,333     $ 17,298,242     $ 38,750,017  

 

  F-21  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                            
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             2,813,800                               2,813,800  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     7,171,786                       7,171,786  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     11,572,046                       11,572,046  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                                                
                                                 
Macau Eiji Company Limited (“MEIJI”)                             34,105,641               34,105,641  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     47,908,624       47,908,624  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     1,719,247                                       1,719,247  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)                                                
    $ 1,719,247       2,813,800       18,743,832       34,105,641       47,908,624       105,291,144  

 

  F-22  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       3,082,502       -       -       -       3,082,502  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       7,255,245       -       -       7,255,245  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       15,072,691       -       -       15,072,691  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       19,100,254       -       19,100,254  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       51,928,550       51,928,550  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     10,036,762       -       -       -       -       10,036,762  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -  
    $ 10,036,762     $ 3,082,502     $ 22,327,936     $ 19,100,254     $ 51,928,550     $ 106,476,004  

 

  F-23  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                            
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             623,169                               623,169  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     1,405,780                       1,405,780  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     2,498,199                       2,498,199  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                                                
                                                 
Macau Eiji Company Limited (“MEIJI”)                             10,926,470               10,926,470  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     15,684,500       15,684,500  
    $       -       623,169       3,903,979       10,926,470       15,684,500       31,138,118  

 

COST OF SERVICES

 

    For the three months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU  Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity                                                
                                                 
Consulting and service income for development contracts                                                
                                                         
Capital Award, Inc. (“CA”)                  -                     -                      -                -               -       -  
                                                 
    $ -     $ -     $ -     $ -     $ -     $ -  

 

  F-24  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       815,981       -       -       -       815,981  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       1,530,851       -       -       1,530,851  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       2,355,398       -       -       2,355,398  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       6,674,769       -       6,674,769  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       15,709,185       15,709,185  
    $      -     $ 815,981     $ 3,886,249     $ 6,674,769     $ 15,709,185     $ 27,086,184  

 

COST OF SERVICES

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity                                                
                                                 
Consulting and service income for development contracts                                                
                                                 
Capital Award, Inc. (“CA”)     5,469,059             -                  -             -           -       5,469,059  
    $ 5,469,059     $ -     $ -     $ -     $ -     $ 5,469,059  

 

  F-25  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2019  
    Fishery
Development
Division (1)
    HU Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                         -  
                                                              
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             2,120,374                               2,120,374  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     4,656,829                       4,656,829  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     8,287,736                       8,287,736  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH “)                                             -  
                                                 
Macau Eiji Company Limited (“MEIJI”)                             27,890,578               27,890,578  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     42,577,034       42,577,034  
    $       -       2,120,374       12,944,565       27,890,578       42,577,034       85,532,551  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2019  
    Fishery
Development
Division (1)
    HU Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Consulting and service income for development contracts                                                                                                                    
                                                 
Capital Award, Inc. (“CA”)     1,590,017                                       1,590,017  
                                                 
    $ 1,590,017                                       1,590,017  

 

  F-26  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       2,569,886       -       -       -       2,569,886  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       4,790,131       -       -       4,790,131  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       9,981,074       -       -       9,981,074  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       16,711,195       -       16,711,195  
                                                 
Sino Agro Food, Inc. (“SIAF”)             -       -       -       -       46,568,177       46,568,177  
    $ -     $ 2,569,886     $ 14,771,205     $ 16,711,195     $ 46,568,177     $ 80,620,463  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Consulting and service income for development contracts                                                
                                                 
Capital Award, Inc. (“CA”)     8,133,799           -               -                  -                 -       8,133,799  
                                                 
    $ 8,133,799     $ -     $ -     $ -     $ -     $ 8,133,799  

 

  F-27  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4. INCOME TAXES

 

United States of America

 

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

 

Undistributed Earnings of Foreign Subsidiaries

 

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

 

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

 

  F-28  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4. INCOME TAXES (CONTINUED)

 

China

 

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

 

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

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the nine months ended September 30, 2019 and 2018 as they are within the agriculture, and cattle sectors.

 

However, EIT has provide in the financial statements of SJAP since it has generated income from trading of agricultural products for the nine months ended September 30, 2019.

 

Belize

 

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

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the three months ended September 30, 2019 and 2018.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the three months ended September 30, 2019 and 2018.

 

No deferred tax assets and liabilities are of September 30, 2019 and December 31, 2018 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
    (Unaudited)     (Unaudited)  
SIAF   $ -     $ -  
SAFS     -       -  
MEIJI and APWAM     -       -  
JHST, JHMC, SJAP, HSA     6,518       -  
    $ 6,518     $        -  

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2019 and 2018. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

  F-29  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

5. CASH AND CASH EQUIVALENTS

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Cash and bank balances   $ 671,544     $ 4,950,799  

  

6. INVENTORIES

 

As of September 30, 2019, inventories are as follows:

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Bread grass     397,525       744,378  
Beef cattle     14,985,211       11,561,117  
Organic fertilizer     12,554,853       14,266,923  
Forage for cattle and consumable     5,849,951       7,252,280  
Raw materials for bread grass and organic fertilizer     15,993,746       18,885,258  
Immature seeds     1,757,923       1,872,285  
    $ 51,539,209     $ 54,582,241  

  

7. DEPOSITS AND PREPAYMENTS

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Deposits for                
- purchases of equipment   $ 1,198,969     $ 2,158,867  
- acquisition of land use rights     169,659       174,851  
- inventories purchases     6,676,335       16,921,188  
- construction in progress     3,862,859       4,789,035  
- issue of shares as collateral     25,761,658       24,928,324  
Shares issued for employee compensation and overseas professional and bond interest     -       643,457  
Others     2,631,797       2,625,468  
    $ 40,301,277     $ 52,241,190  

 

8. ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2019 and December 31, 2018.

 

Aging analysis of accounts receivable is as follows:

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
0 - 30 days   $ 1,856,007     $ 7,447,269  
31 - 90 days     33,952,877       22,684,605  
91 - 120 days     10,686,718       16,456,895  
over 120 days and less than 1 year     4,659,565       11,773,454  
over 1 year     58,841,689       43,289,908  
    $ 109,996,856     $ 101,652,131  

 

  F-30  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

9. OTHER RECEIVABLES

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Advanced to employees   $ 583,556     $ 561,330  
Advanced to suppliers     4,312,819       3,831,926  
Advanced to customers     14,136,055       14,114,249  
Advanced to developers     439,700       453,155  
Others     4,111,778       9,346,866  
    $ 23,583,908     $ 28,307,526  

 

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

 

10. PLANT AND EQUIPMENT

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Plant and machinery   $ 17,559,162     $ 5,299,631  
Structure and leasehold improvements     195,526,199       200,734,812  
Mature seeds and herbage cultivation     61,408,570       54,643,255  
Furniture and equipment     692,452       695,461  
Motor vehicles     576,042       590,416  
      275,762,425       261,963,575  
                 
Less: Accumulated depreciation     (37,891,532 )     (31,317,916 )
Net carrying amount   $ 237,870,893     $ 230,645,659  

 

Depreciation expense was $2,614,634 and $2,552,397, $7,676,784 and $7,877,928 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

11. CONSTRUCTION IN PROGRESS

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Construction in progress                
- Office, warehouse and organic  fertilizer plant in HSA             7,285  
- Organic fertilizer and bread grass production plant and office building             6,484,045  
- Rangeland for beef cattle and office building     10,427,213       6,024,197  
    $ 10,427,213     $ 12,515,527  

 

  F-31  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12. LAND USE RIGHTS

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Cost   $ 64,096,634     $ 65,779,178  
Less: Accumulated amortization     (12,893,888 )     (11,964,897 )
Net carrying amount   $ 51,202,746     $ 53,814,281  

 

    Amount  
Balance @1.1.2018   $ 65,573,223  
Exchange difference     205,955  
Balance @12.31.2018   $ 65,779,178  
Exchange difference     (1,682,544 )
Balance @6.30.2019   $ 64,096,634  

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 10 to 60 years. Amortization of land use rights was $541,401, $325,169, $1,242,039 and $1,166,622 for the three months and the nine months ended September 30, 2019 and 2018 respectively.

 

13. GOODWILL

 

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

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Goodwill from acquisition   $ 724,940     $ 724,940  
Less: Accumulated impairment losses     -       -  
Net carrying amount   $ 724,940     $ 724,940  

 

14. PROPRIETARY TECHNOLOGIES

 

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

 

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

 

  F-32  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

14. PROPRIETARY TECHNOLOGIES (CONTINUED)

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
Cost   $ 11,055,857     $ 11,113,267  
Less: Accumulated amortization     (2,594,312 )     (2,176,196 )
Net carrying amount   $ 8,461,545     $ 8,937,071  

  

Amortization of proprietary technologies was $144,497 and $145,062, $434,863 and $438,503 for the three months and the nine months ended September 30, 2019 and 2018, respectively.  No impairments of proprietary technologies have been identified for the three months and the nine months ended September 30, 2019 and 2018.

 

15. INTERESTS IN UNCONSOLIDATED EQUITY INVESTEES

 

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

 

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

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Investments at cost                
-   TRW   $ 162,444,883     $ 149,720,418  
Amount due from a consolidated equity investee - TRW     59,285,521       57,354,208  
    $ 221,730,404     $ 207,074,626  

 

  F-33  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

Intended                    
unincorporated   Projects                
Investee   Engaged       September 30, 2019     December 31, 2018  
            (Unaudited)     (Audited)  
A   Trade center   *   $ 12,000,000     $ 12,000,000  
B   Fish Farm 2 GaoQiqiang Aquaculture   *     17,403,959       17,403,959  
C   Cattle farm 2   *     5,496,389       5,502,001  
            $ 34,900,349     $ 34,905,960  

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of September 30, 2019, the percentages of equity stakes of A (trade and seafood centers), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm 2) are 31%, 23% and 35% respectively.

 

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

 

17. VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), which was incorporated in the P.R.C. As of September 30, 2019, the Company has invested $4,054,421 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

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

 

  F-34  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

17. VARIABLE INTEREST ENTITY (CONTINUED)

 

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On June 30, 2018, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the changes are as follows:

 

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

 

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

 

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

 

  F-35  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

18.. CONSTRUCTION CONTRACT

 

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

 

    September 30,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
Costs   $ 6,186,261     $ 6,186,261  
Estimated earnings     4,777,300       4,777,300  
Less:  Billings     (10,712,733 )     (10,712,733 )
Costs and estimated earnings in excess of billings on uncompleted contracts   $ 250,828     $ 250,828  

  

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

 

    September 30,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
Billings   $ 49,175,412     $ 47,929,092  
Less:  Costs     (30,098,638 )     (29,094,568 )
Estimated earnings     (13,690,063 )     (13,486,231 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 5,386,711     $ 5,348,293  

  

  (iii) Overall

 

    September 30,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
Billings   $ 59,888,145     $ 58,641,825  
Less:  Costs     (36,284,899 )     (35,280,829 )
Estimated earnings     (18,467,363 )     (18,263,531 )
Billing in excess of costs and estimated earnings on uncompleted contracts   $ 5,135,883     $ 5,097,465  

  

19. OTHER PAYABLES

 

    September 30,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
Due to third parties   $ 16,846,187     $ 13,068,387  
Straight note payable (note 23(i))     29,367,999       29,367,999  
Promissory notes issued to third parties     7,765,801       7,792,774  
Due to local government     -       87,425  
    $ 53,979,987     $ 50,316,585  
                 
Less: Amount classified as non-current liabilities                
Promissory notes issued to third parties     (7,765,801 )     (7,792,774 )
Amount classified as current liabilities   $ 46,214,186     $ 42,523,811  

 

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

 

  F-36  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

20. BORROWINGS

 

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

 

Short term bank loan

 

Name of lender   Interest rate     Term   September 30,
2019
    December 31,
2018
 
              (Unaudited)     (Audited)  
China Development Bank
Qinghai Province, the P.R.C
    4.7306 %   December 27, 2018 -
December 27, 2019
  $ 4,241,482     $ 4,371,265  
                             
                             
Add: current portion of long term bank loan               $ 282,764     $ 218,563  
                  4,524,246       4,589,828  

 

Long term bank loan

 

Name of lender   Interest rate     Term   September 30,
2019
    December 31,
2018
 
              (Unaudited)     (Audited)  
China Development Bank           December 16, 2016 -                
Beijing City, the P.R,C.     5.39 %   December 15, 2026   $ 5,513,926     $ 5,755,501  
Less: current portion of long term bank loan               $ (282,764 )   $ (218,563 )
                  5,231,162       5,536,938  

  

On December 16, 2016, the Company obtained a 10-year long term loan of RMB40million (approximately $5.66million) from China Development Bank for the period from December 16, 2016 to December 15, 2026, bearing an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement and will be adjusted in line with any adjustment of the benchmark rate which is 5.39% (12.31.2018: 5.39%). The loan was guaranteed by Mr. Zhao Yilin and Ms. Song Haixian, Mr. Zhao Yilin’s wife. The loan was also secured by land use right with net carrying amount of $376,669 as of September 30, 2019 (12.31.2018: 397,269) and a batch of plant, machinery and equipment with net carrying amount of $5,071,190 (12.31.2018: 5,326,385). On May 20, 2019, RMB500,000 (approximately $73K) was repaid. According to the loan agreement, 2 partial payments of RMB1,000,000 each, totaling of RMB2,000,000 (approximately $282,764) were scheduled to be repaid by November 20, 2019 and May 20, 2020 respectively.

 

On December 27, 2018, the Company obtained a 1-year short term loan of RMB30 million (approximately $4.24million) from China Development Bank for the period from the December 27, 2018 to December 27, 2019, bearing fixed interest at 4.7306% per annum. This loan was guaranteed by Xining City SME Guarantee Corporation.

 

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

 

  F-37  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

21. CONVERTIBLE NOTE PAYABLES

 

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

 

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

 

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

 

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

 

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

 

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

 

Under the agreement, the Company shall pay the note holder 120,000 common shares of SIAF or 32,000 common shres of TRW as an origination fee. The note bears a flat interest payment which shall be settled by 200,000 common shares of SIAF or 55,000 common shares of TRW. As of September 30, 2019, no settlement for both origination fee and interest payment.

 

The Company and the note holder entered into a restructuring agreement regarding the settlement of the Note 2. Both parties have agreed to restructure the indebtedness represented by Note 2 where SIAF executes a new promissory note in the principal amount of $6,301,480 to the note holder to be paid in 3 installments by August 31, 2019, October 30, 2019 and December 31, 2019, respectively. As of September 30, 2018, no payment was made.

 

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

  

    September 30,
2019
    December 31,
2018
 
    (Unaudited)     (Audited)  
             
Convertible note due December 31, 2018   $ -     $ 3,894,978  
Less: classified as current liabilities     -       (3,894,978 )
Non-current liabilities   $ -     $ -  

 

  F-38  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company estimated the fair value of the derivative liabilities using the Binomial Option Pricing Model and the following key assumptions for the year ended December 31, 2018

 

    December 31,
2018
 
Expected dividends     -  
Expected term (years)     0.34  
Volatility     52.09% - 54.32%  
Risk-free rate     1.65% - 1.9%  

 

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

 

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

 

  F-39  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

22. SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of September 30, 2019 and December 31, 2018 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

  

Common Stock:

 

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

 

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

 

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

 

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

 

During the nine months ended September 30, 2019, the Company (i) issued 109,911 shares of common stock valued at fair value of $0.3 per share for $32,973 for settling of debts; the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

The Company has 49,976,085 and 49,866,174 shares of common stock issued and outstanding as of September 30, 2019 and December 31, 2018 respectively.

 

  F-40  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

23. OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $851 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2019. The lease was renewed on March 28, 2019 for a monthly rent of $844 expired on March 31, 2022, and (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,197, its lease expiring on July 8, 2018. The lease was renewed on July 9, 2018 for a 2,695 square feet of office space for a monthly rent of $6,537 expired on July 8, 2020.

 

Lease expenses were $21,592 and $21,304, $65,879 and $102,851 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

The future minimum lease payments as of September 30, 2019, are as follows:

 

Within 1 year   $ 68,710  
2 to 5 years     19,295  
Over 5 years     -  
    $ 88,005  

 

 

  F-41  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24. STOCK BASED COMPENSATION

 

The Company calculated stock-based compensation of $643,457 and $2,952,327 and recognized $115,787, $546,496, $643,457 and $1,896,986 for the three months and the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, the deferred compensation balance for staff was nil. As of June 30, 2018, the deferred compensation balance for staff was $1,055,341 and were to be amortized over 6 months beginning on October 1, 2018.

  

25. CONTINGENCIES

 

On March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of New York against the Company, as well as four of its current directors, styled Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc. , as the nominal defendant (Case No.: 1:19-cv-02680) (the “ Complaint ”). The Company filed its Motion to Dismiss the Complaint on June 24, 2019. After the Company filed its Motion to Dismiss, the Court, sue sponte, issued an Order requiring plaintiffs to either file an Amended Complaint by July 16, 2019 or serve their Opposition to the Motion to Dismiss by that date. The Court stated that if plaintiffs do not amend their Complaint, they then will not be given any further opportunity to amend the Complaint to address the issues raised in the Motion to Dismiss. Subsequently, Plaintiffs filed an Amended Complaint. The Amended Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company.

 

On September 20, 2019, the Company filed a Motion to Dismiss the Amended Complaint. After the Company filed its Motion to Dismiss, the parties have had settlement discussions. As a result, the Court granted a request to adjourn the present motion briefing schedule. Plaintiffs’ Opposition is now due on or before January 3 2020, and the Company’s Reply Brief is due on January 24, 2020. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations. The Company believes that these claims are without merit and intend to vigorously defend the action.

 

26. RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the three months ended September 30, 2019 and 2018, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     

Mr. Solomon Yip
Kun Lee,
Chairman

 

Tri-way Industries

Limited, (“TRW’)

Unconsolidated

equity investee

 

Included in due to a director, due to Mr. Solomon Yip Kun Lee is $861,182 and $2,046,499 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is $59,285,521 and $57,354,208 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

Included in accounts receivable, due from Tri-way Industries Limited is $62,557,029 and $60,799,365 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment. 

 

The Company has consulting and service income from development contracts of $0 and $6,502,372, $1,719,247 and $10,036,762 from Tri-way Industries Limited for the three months and the nine months ended September 30, 2019 and 2018, respectively.

 

  F-42  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  27. EARNINGS PER SHARE

 

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

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
 
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share -continuing and discontinued operations   $ 8,116,546     $ 3,465,562  
Net income used in computing basic earnings per share -continuing operations   $ 8,116,546     $ 3,465,562  
Basic earnings per share - continuing and discontinued operations   $ 0.16     $ 0.09  
Basic earnings per share - continuing operations   $ 0.16     $ 0.09  
Basic weighted average shares outstanding     49,968,758       36,650,450  

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
 
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 8,116,546     $ 3,465,562  
Convertible note interest     -       -  
Net income used in computing diluted earnings per share   $ 8,116,546     $ 3,465,562  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.16     $ 0.09  

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
 
             
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 8,116,546     $ 3,465,562  
Convertible mote interest     -       -  
Net income used in computing diluted earnings per share   $ 8,116,546     $ 3,465,562  
                 
Diluted earnings per share -  continuing operations   $ 0.16     $ 0.09  
                 
Basic weighted average shares outstanding     49,968,758       36,650,450  
                 
Add:                
weight average of common stock convertible from convertible note payables     -       -  
                 
Diluted weighted average shares outstanding     49,968,758       36,650,450  

 

  F-43  

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27. EARNINGS PER SHARE (CONTINUED)

 

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

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share -continuing and discontinued operations   $ 15,302,641     $ 9,435,949  
Net income used in computing basic earnings per share -continuing operations   $ 15,302,641     $ 9,435,949  
Basic earnings per share - continuing and discontinued operations   $ 0.31     $ 0.27  
Basic earnings per share - continuing operations   $ 0.31     $ 0.27  
Basic weighted average shares outstanding     49,900,369       35,381,345  

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 15,302,641     $ 9,435,949  
Convertible note interest     -       -  
Net income used in computing diluted earnings per share   $ 15,302,641     $ 9,435,949  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.31     $ 0.27  

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 15,302,641     $ 9,435,949  
Convertible mote interest     -       -  
Net income used in computing diluted earnings per share   $ 15,302,641     $ 9,435,949  
                 
Diluted earnings per share -  continuing operations   $ 0.31     $ 0.27  
                 
Basic weighted average shares outstanding     49,900,369       35,381,345  
                 
Add:                
weight average of common stock convertible from convertible note payables     -       -  
                 
Diluted weighted average shares outstanding     49,900,369       35,381,345  

 

  F-44  

 

 

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

 

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance, or achievements in 2018 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions, and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

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

 

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

 

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

 

Beef & Organic Fertilizer Division   (SJAP and HSA)
Plantation Division   (JHST)
Cattle Farm Division   (MEIJI and JHMC)
Corporate & Others Division   (SIAF)
Fishery Division   (CA)

 

A summary of each business division is described below:

 

l Beef and Organic Fertilizer Division refers to:

 

(i) The operation of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle. As such, the financial statements of these three companies (SJAP and HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), as one entity. SJAP is a variable interest entity over which we exercise significant control.

 

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

 

l 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) and immortal vegetables 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.

 

l Cattle Farm Division refers to the operations of Cattle Farm 1 at 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.

 

l Corporate & Others Division refers to the business operations of Capital Award Inc. and 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.

 

  1  

 

 

l 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: this operation has been discontinued.

 

  2  

 

 

CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended September 30, 2019 compared to the three months ended September 30, 2018.

 

A (1) Income Statements (Unaudited)

 

    Three months
ended
    Three months
ended
             
In $   September 30, 2019     September 30, 2018     Difference     Note  
Continuing operations                                
Revenue     37,431,314       38,750,017       (1,318,703 )     1  
Sale of goods     37,431,314       32,247,645       5,183,669          
Consulting, services, commission and management fee     -       6,502,372       (6,502,372 )        
Cost of goods sold and services     31,138,118       32,555,243       (1,417,125 )     2  
Cost of goods sold     31,138,118       27,086,184       4,051,934          
Cost of services             5,469,059       (5,469,059 )        
Gross Profit     6,293,196       6,194,774       98,422       3  
Other income (expenses)     5,877,056       1,487,309       4,389,747          
General and administrative expenses     (3,445,170 )     (3,991,962 )     546,792       4  
Net income before income taxes     8,725,082       3,690,121       5,034,961          
EBITDA     12,148,872       7,120,467       5,028,405          
Depreciation and amortization (D&A)     3,300,532       3,022,618       277,914       5  
EBIT     8,848,340       4,097,849       4,750,491          
Net Interest     125,871       407,728       (281,857 )        
Tax     -       -       -          
Net Income     8,722,469       3,690,121       5,032,348          
Less:Net( income) loss attributable to Non - controlling interest     (605,923 )     (224,559 )     (381,364 )     7  
Net income attributable to SIAF Inc. and subsidiaries     8,116,546       3,465,562       4,650,984          
Weighted average number of shares outstanding                                
- Basic     49,968,758       36,650,450       13,318,308          
- Diluted     49,968,758       36,650,450       13,318,308          
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                             8  
Basic     0.16       0.09       0.07          
Diluted     0.16       0.09       0.07          

 

  3  

 

 

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

 

l 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, management and technology etc.

 

The table below shows the segmented sales, gross profit, and corresponding cost of sales for the three months ended September 30, 2019(Q3 2019) compared to the three months ended September 30, 2018 (Q3 2018).

 

        Sales of goods     Cost of Goods sold     Sales of Goods’ Gross profit  
    In US$     2019Q3     2018Q3       2019Q3     2018Q3     2019Q3       2018Q3
SJAP   Sales of live cattle     1,040,590       1,510,411       1,043,537       1,219,239       -2,947       291,172  
    Sales of feedstock     -       -       -       -       -       -  
    Bulk Livestock feed     239,201       207,979       106,852       95,742       132,349       112,237  
    Concentrate livestock feed     1,747,193       1,570,407       977,599       871,424       769,594       698,983  
    Sales of fertilizer     439,805       254,056       370,211       168,994       69,594       85,062  
    SJAP Total     3,466,789       3,542,853       2,498,199       2,355,398       968,590       1,187,455  
HSA   Sales of Organic fertilizer     863,811       798,630       687,309       766,897       176,502       31,733  
    Sales of Organic Mixed Fertilizer     1,257,647       1,591,558       718,471       763,954       539,176       827,604  
    HSA Total     2,121,458       2,390,188       1,405,780       1,530,851       715,678       859,337  
    SJAP’s & HS.A./Organic fertilizer total     5,588,247       5,933,041       3,903,979       3,886,249       1,684,268       2,046,792  
JHST   Sales of Fresh HU Flowers     -       -       -       -       -       -  
    Sales of Dried HU Flowers     -       106,698.06       -       93,795       -       12,903  
    Sales of Dried Immortal vegetables     -       -       -       -       -       -  
    Sales of Vegetable products     803,352       881,331       623,169       722,187       180,183       159,144  
    JHST/Plantation Total     803,352       988,029       623,169       815,982       180,183       172,047  
MEIJI         -       -       -       -       -       -  
    Sale of Live cattle (Aromatic)     13,394,653       8,028,333       10,926,470       6,674,769       2,468,183       1,353,564  
    MEIJI / Cattle farm Total     13,394,653       8,028,333       10,926,470       6,674,769       2,468,183       1,353,564  
SIAF                                                    
    Sales of goods through trading/import/export activities                                                
    on seafood     8,367,712       9,286,201       7,437,967       8,188,572       929,745       1,097,629  
    on imported beef and mutton     9,277,350       8,012,041       8,246,533       7,520,612       1,030,817       491,429  
    SIAF/ Others & Corporate total     17,645,062       17,298,242       15,684,500       15,709,184       1,960,562       1,589,058  
                                                     
Group Total     37,431,314       32,247,645       31,138,118       27,086,184       6,293,196       5,161,461  

 

  4  

 

 

Overall comparison of Q3 2019 to Q3 2018

 

The Company’s revenues generated from the sale of goods was $32,247,645 for the quarterly period ended September 30, 2018, compared to $37,431,314 for the same period ended September 30, 2019, reflecting an increase of 16%, or $5,183,669.

 

The Company’s cost of goods sold was $31,138,118 for the quarterly period ended September 30, 2019, compared to $27,086,184 for the same period ended September 30, 2018, reflecting an increase of 15%, or $4,051,934.

 

Gross profits of the Company generated from goods sold was $6,293,196 for the quarterly period ended September 30, 2019, compared to $5,161,464 for the same period ended September 30, 2018, reflecting an increase of 22%, or $1,131,735.

 

The overall higher performance for the corresponding period of 2019 to 2018 is primarily due to (i) the increase in SJAP’s sales of concentrated livestock feed (up by $0.49 million), and (ii) the increase of MEIJI’s cattle sales (up by $5.36 million), resulting in an overall increase in gross profits of $1.32 million for the corresponding period of 2019 to 2018, as shown in table above.

 

Details of each segment are being described below:

 

l 1. (i) Beef and Organic Fertilizer Division refers to operation of SJAP

 

In US$                      
        Sales of goods     Cost of Goods sold     Gross profit  
        2019Q3     2018Q3     2019Q3     2018Q3     2019Q3     2018Q3  
SJAP   Sales of live  cattle     1,040,590       1,510,411       1,043,537       1,219,239       -2,947       291,172  
    Sales of feedstock             0                       -          
    Bulk Livestock feed     239,201       207,979       106,852       95,742       132,349       112,237  
    Concentrate livestock feed     1,747,193       1,570,407       977,599       871,424       769,594       698,983  
    Sales of   fertilizer     439,805       254,056       370,211       168,994       69,594       85,062  
    SJAP Total     3,466,789       3,542,853       2,498,199       2,355,398       968,590       1,187,455  
    % of increase (+) or decrease (-)     -2 %             6 %             -18 %        

 

As illustrated in the table above, when comparing Q3 2019 against the same period in 2018, the losses in revenue (negative variance of $0.08million, or -2%) and gross profit (negative variance of 0.22 million, or -18%), can be viewed as normal under the current depressed market conditions. During the quarter, SJAP’s concentrated livestock feed performed well with a steady increase in sales of $0.49 million, as the quality of the products is slowly attracting demand from new livestock.

 

  5  

 

 

The table below shows the itemized sales of goods and related cost of sales in quantity and unit price for the quarterly period ended September 30, 2019 compared to the same period ended September 30, 2018 of the beef and organic fertilizer divisions.

 

              2019Q3     2018Q3     Difference  
SJAP   Production and Sales of  live  cattle   Heads     546       610       (64 )
    Average Unit sales price   US$/head     1,906       2,476       (570 )
    Unit cost prices   US$/head     1,911       1,999       (88 )
    Production and sales of feedstock         -       -       0  
    Bulk Livestock feed   MT     1,408       1,228       180  
    Average Unit sales price   US$/MT     170       169       1  
    Unit cost prices   US$/MT     76       78       (2 )
    Concentrated livestock feed   MT     4,053       4,626       (573 )
    Average Unit sales price   US$/MT     431       339       92  
    Unit cost prices   US$/MT     237       188       49  
    Production and sales of fertilizer   MT     3,282       2,019       1,263  
    Average Unit sales price   US$/MT     134       126       8  
    Unit cost prices   US$/MT     113       84       29  

 

Live cattle prices have not changed much during the quarter. Thus, the lower unit price / head was primarily due to smaller sized cattle being sold and the overall situation of the local live cattle industry remaining depressed.

 

The increase in sales of bulk livestock feed was 180 MT in bulk feed, from 1,228 MT in Q3 2018 to 1,408 MT in Q3 2019, and the decrease of 573 MT in concentrated livestock feed, from 4,626MT in Q3 2018 to 4,053 MT in Q3 2019, which was compensated by the increase of unit sale price of $92 / MT, primarily due to the higher unit sale prices for types of livestock other than cattle feed. All other sectors have been steady.

 

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  
        2019Q3     2018Q3     2019Q3     2018Q3     2019Q3     2018Q3  
HSA   Sales of  Organic fertilizer     863,811       798,630       687,309       766,897       176,502       31,733  
    Sales of Organic Mixed Fertilizer     1,257,647       1,591,558       718,471       763,954       539,176       827,604  
    HSA Total     2,121,458       2,390,188       1,405,780       1,530,851       715,678       859,337  
    % of increase (+) or decrease (-)     -11 %             0 %             -17 %        

 

 

  6  

 

 

Revenue from our HSA business segment decreased by $268,730, or -11%, from $2,390,188 for Q3 2018 to $2,121,458 for Q3 2019. Gross profit from HSA decreased by $143,659, or-17% from $859,337 for Q3 2018 to $715,678 for Q3 2019, primarily due to seasonal variation having more sales in organic fertilizer but at lower unit sale prices (of $206 / MT) and lesser sales in organic mixed fertilizer at higher unit sale prices of ($392 / MT) as shown in table below.

 

              2019Q3     2018Q3     Difference  
HSA   Fertilizer operation                            
    Organic Fertilizer   MT     4,195       3,457       738  
    Average Unit sales price   $/MT     206       231       (25 )
    Unit cost price   $/MT     164       222       (58 )
    Organic Mixed Fertilizer   MT     3,207       3,985       (778 )
    Average Unit sales price   $/MT     392       399       (7 )
    Unit cost price   $/MT     224       192       32  
    Retailing packed fertilizer (for super market sales)   MT     -       -       -  
    Average Unit sales price   $/MT     -       -       -  
    Unit cost price   $/MT                        

 

During Q3 2019, we were hoping that HSA’s general manager Mr. Jack Chan would have recovered from his illness and would be back at work to take care of HSA’s business affairs. However, Mr. Chan is still under medical care and is predicted to be so for the rest of the year.

 

Therefore HSA’s business is currently being managed by its assistant manager, until such time when Mr. Chan recovers.

 

l Plantation Division refers to the operations of Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd. (“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     Gross profit  
        2019Q3     2018Q3     2019Q3     2018Q3     2019Q3     2018Q3  
JHST   Sales of Fresh HU Flowers                                             -  
    Sales of Dried HU Flowers             106,698               93,795       -       12,903  
    % of increases (+) or decreases (-)                                                
    Sales of Dried Immortal vegetables     -       -       -       -       -       -  
    % of increases (+) or decreases (-)                                                
    Sales of Vegetable products     803,352       881,331       623,169       722,187       180,183       159,144  
    % of increases (+) or decreases (-)     -9 %             -14 %             13 %        
    JHST/Plantation Total     803,352       988,029       623,169       815,982       180,183       172,047  
    % of increases (+) or decreases (-)     -19 %             -24 %             5 %        

 

              2019Q3     2018Q3     Difference  
JHST   Fresh HU Flowers    Pieces     -       -       -  
    Average Unit sales price   US$/Pieces     -       -       -  
    Unit cost prices   US$/Pieces     -       -       -  
    Dried HU Flowers   MT     -       23       (23 )
    Average Unit sales price   US$/MT     -       4,639       (4,639 )
    Unit cost prices   US$/MT     -       4,078       (4,078 )
    Dried Immortal vegetables   MT     -       -       -  
    Average Unit sales price   US$/MT     -       -       -  
    Unit cost prices   US$/MT     -       -       -  
    Vegetable products   MT     785       870       (85 )
    Average Unit sales price   US$/MT     1,023       1,013       10  
    Unit cost prices   US$/MT     794       830       (36 )

 

  7  

 

 

Revenue from our plantation division decreased by $184,677 (or -19%) from $988,029 for Q32018 to $803,352 for Q3 2019. The decrease was primarily due to lower harvest in fresh vegetables from 870 MT in Q3 2018 to 785 MT of Q3 2019.

 

Because of the need for heavy capital funding to redevelop the plantation into a more commercially viable proposition -- and because of its high maintenance cost in general, -- JHST’s management decided to lease out the whole plantation to a third party until such time when the company will have enough capital to redevelop the plantation.

 

A lease agreement was executed on September 15th 2019 bearing the following terms and conditions:

 

Tenure 3 years from Sept. 15th 2019 to August 15th 2022
Lease fees RMB3000 / Mu / year for a total of 1,200 Mu = RMB3,600,000 / year payable monthly evenly.
Pre-payment or deposit 2 months in advance = RMB600,000 payable upon execution of lease agreement.
Other terms & conditions The land will be used for purpose of cultivation of agriculture and producing fresh produces only.
  JHST has the option to terminate the lease after 3 years however if JHST will decide to continue to lease out the plantation, the lessee is given the first option to lease the plantation.
  Leasing fee is subjected to annual increase of 5%
  Rentals are paid one month in advance, and failure to pay on time, the leaser retains the right to terminate the lease.
  Upon termination or expiry of the lease, the lessee must return the property on good condition for cultivation.
  If the leaser will decide to take back the plantation before its expiry, the parties agree to settle the compensation amicably and in friendly manner.  

 

l 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 mainly sell them 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$   Sales of goods     Cost of Goods sold     Gross profit  
        2019Q3     2018Q3     2019Q3     2018Q3     2019Q3     2018Q3  
MEIJI   Sale of Live cattle (Aromatic) from own farm & from trading     13,394,653       8,028,333       10,926,470       6,674,769       2,468,183       1,353,564  
                                                     
     MEIJI / Cattle farm Total     13,394,653       8,028,333       10,926,470       6,674,769       2,468,183       1,353,564  
    % of increases (+) & decreases (-)     67 %             64 %             82 %        

 

              2019Q3     2018Q3     Difference  
MEIJI   Production and trading on sale of Live cattle   Head     3,569       2,082       1,487  
    Average Unit sales price   $/head     3,753       3,856       (103 )
    Unit cost prices   $/head     3,061       3,206       (144 )

 

  8  

 

 

Cattle Farm 1’s revenue increased sales by $5,366,320 (or 67%) from Q3 2018’s $8,028,333 to Q3 2019’s $13,394,653, while gross profits increased by $1,114,619 (or 82%) from $1,353,565 in Q3 2018 to Q3 2019’s $2,468,183, reflecting a rising local demand for “Yellow Cattle”. Stable market prices are encouraging and the increased number of heads being sold in this quarter included 357 head of cattle kept in quarantine during Q2 2019.

 

l 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  
        2019Q3     2018Q3     2019Q3     2018Q3     2019Q3     2018Q3  
SIAF   Sales of goods through trading/import/export activities                                                
    on seafood (via imports)     8,367,712       9,286,201       7,437,967       8,188,572       929,745       1,097,629  
    % of increases (+) and decreases (-)     -10 %             -9 %             -15 %        
    on imported beef mainly     9,277,350       8,012,041       8,246,533       7,520,612       1,030,817       491,429  
    % of increases (+) and decreases (-)     16 %             10 %             110 %        
     SIAF/ Others & Corporate total     17,645,062       17,298,242       15,684,500       15,709,184       1,960,562       1,589,058  
    % of increases (+) and decreases (-)     2 %             0 %             23 %        

 

Description of items         2019Q3     2018Q3     Difference  
SIAF   Seafood trading from imports                            
    Mixed seafood   MT     440       524       (84 )
    Average of sales price   $/MT     19,018       17,722       1,296  
    Average of cost prices   $/MT     16,904       15,627       1,277  
    Beef & Lamb trading from imports   MT     542       460       82  
    Average of sales price   $/MT     17,117       17,417       (301 )
    Average of cost price   $/MT     15,215       16,349       (1,134 )

 

Revenue from the corporate division increased by $346,820 or (2%) from Q3 2018’s $17,298,242 to Q3 2019’s $17,645,062.

Gross profits from the corporate sector increased by $371,504 or (23%) from $1,589,058 for Q3 2018 to $1,960,562 for Q3 2019, representing consistent performance of the trading business within the Corporate sector. In this aspect, the Company is working on increasing the volume of imported frozen food products to increase targeting progressive revenue and profit improvement starting in Q4 2019.

 

  9  

 

 

 

l 5.A. Engineering technology consulting and services:

 

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

 

Table A.5 below shows the revenues, cost of services, and gross profits generated from consulting, services, commission, and management fees for three months ended September 30, 2018 (Q3 2019).

 

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

 

      2019Q3     2018Q3     Difference     Description of work
Service  revenues (Consulting and Services)                            
CA     -       6,502,372       (6,502,372 )   Working in progress of PF(2), NPF
Group Total Revenues     -       6,502,372       (6,502,372 )    
Cost of service                            
CA     -       5,469,059       (5,469,059 )    
Group Total Cost of Consulting and Services     -       5,469,059       (5,469,059 )    
Gross Profit                            
CA     -       1,033,313       (1,033,313 )    
Group Total Gross Profit     -       1,033,313       (1,033,313 )    

 

Revenues decreased by $6,502,372 from $6,502,372 for Q3 2018 to $0 for Q3 2019. Cost of services for consulting, service, commission, and management fees decreased by $5,469,059 from $5,469,059 for Q3 2018 to $0 for Q3 2019. Gross profits decreased by $1,033,313 from $1,033,313 for Q3 2018 to $0 for Q3 2019. There was no capital expenditure by Tri-way on its farm development work during the quarter. However, CA has been working on cooperative plans for an Indian fishery development project with a number of third party potential joint venture partners. The development would initially aim at the “value added processing” of frozen raw Mexican White shrimps to be supplied from India to China. The project negotiation was progressing well until our director (Mr. Ravidrans) caught dengue fever in October 2019. Presently he is recovering, and we are hoping to continue the development project progress as soon as possible when Mr. Ravidrans recovers.

 

  10  

 

 

Note (4) to Table A 1 General and Administrative Expenses and Interest Expenses

 

General and administrative and interest expenses (including depreciation and amortization) decreased by $828,650 or 19% from $4,399,691 for Q3 2018 to $3,571,041 for Q32019. The decrease was primarily due to an increase in office and corporate expenses of $607,217, from $1,579,435 for Q3 2018 to $1,230,150 for Q3 2019.

 

Category     2019Q3     2018Q3     Difference  
Office and corporate expenses     1,230,150       1,579,435       (349,285 )
Wages and salaries     496,945       380,383       116,562  
Traveling and related lodging     213,650       5,602       (3,296 )
Motor vehicles expenses and local transportation     9,453       5,731       3,722  
Entertainments and meals     2,306       7,309       206,341  
Others and miscellaneous     156,960       521,708       (364,748 )
Depreciation and amortization     1,335,707       1,491,795       (156,088 )
Sub-total     3,445,170       3,991,963       (546,793 )
Interest expenses     125,871       407,728       (281,857 )
                         
Total     3,571,041       4,399,691       (828,650 )

 

Note (5) to Table A 1 Non-controlling interests

 

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

 

     Jiangmen City
Heng
    Jiangmen City
Hang Mei
Cattle
    Hunan
Shenghua
A Power
    Qinghai        
  Sheng Tai
Agriculture
  Farm
Development
    Agriculture
Co.,
    Sanjiang
A Power
       
Name of China subsidiaries   Development Co.
Ltd.(China)
    Co.
Ltd.(China)
    Limited
(China)
    Agriculture Co
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 $     (2,154,482 )     4,926,503       1,337,061       584,952          
                                         
% of profit sharing of non-controlling  interest     25 %     25 %     24 %     58.75 %        
                                         
Non-controlling interest's shares of Net incomes in $     (538,621 )     1,231,626       320,895       343,661       1,357,561  

 

The net income attributed to non-controlling interest is $1,357,561 shared by (JHST, JHMC, HSA, SJAP collectively) for Q1-3 2019 as shown in Table (F) above.

 

Note (6) to Table A 1 Earnings per share (EPS)

 

Earnings per share increased by $0.07(basic) and $0.07 (diluted) per share from EPS of $0.09 (basic) and$0.09 (diluted) for Q3 2018 to EPS of $0.16 (basic) and $0.16 (diluted) for Q3 2019. The increase is primarily due to the increase of net income attributable to Sino Agro Food, Inc. and subsidiaries by $4,650,984 from $3,465,562 for Q3 2018 to $8,116,546 million for Q3 2019.

 

  11  

 

 

Part B: Unaudited Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018(audited)

 

Consolidated Balance sheets   September 30, 2019     December 31, 2018     Changes     Note  
ASSETS                                
Current assets                                
Cash  and cash equivalents     671,544       4,950,799       (4,279,255 )     8  
Inventories     51,539,209       54,582,241       (3,043,032 )     9  
Costs and estimated earnings in excess of billings on uncompleted contracts     250,828       250,828       -          
Deposits and prepaid expenses     40,281,740       52,241,190       (11,959,450 )     10.1  
Accounts receivable     109,996,856       101,652,131       8,344,725       11  
Other receivables     23,583,908       28,307,526       (4,723,618 )     15  
Total current assets     226,324,085       241,984,715       (15,660,630 )        
Property and equipment                                
Property and equipment, net of accumulated depreciation     237,870,893       230,645,659       7,225,234       12  
Construction in progress     10,427,213       12,515,527       (2,088,314 )     13  
Land use rights, net of accumulated amortization     51,202,746       53,814,281       (2,611,535 )     14  
Total property and equipment     299,500,852       296,975,467       2,525,385          
Other assets                                
Goodwill     724,940       724,940       -          
Proprietary technologies, net of accumulated amortization     8,461,545       8,937,071       (475,526 )        
Investment in unconsolidated equity investee     221,805,006       207,074,626       14,730,380          
Temporary deposit paid to entities for investments in future Sino Joint Venture companies     34,919,884       34,905,960       13,924       10.2  
Total other assets     265,911,375       251,642,597       14,268,778          
Total assets     791,736,312       790,602,779       1,133,533          
Current liabilities                                
Accounts payable and accrued expenses     9,103,498       8,280,358       823,140          
Billings in excess of  costs and estimated earnings on uncompleted contracts     5,386,711       5,348,293       38,418          
Due to a director     861,182       2,046,499       (1,185,317 )        
Other payables     46,214,186       42,523,811       3,690,375       16A
Borrowings-Short term bank loan     4,524,246       4,589,828       (65,582 )        
Derivative liability     -       2,100       (2,100 )        
Convertible note payable     -       3,894,978       (3,894,978 )        
Income tax payable     -       -                  
Total current liabilities     66,089,823       66,685,867       (596,044 )     16  
Non-current liabilities                                
Other payables     7,765,801       7,792,774       (26,973 )        
 Borrowing-Long term debt     5,231,162       5,536,938       (305,776 )        
Total non-current liabilities     12,996,963       13,329,712       (332,749 )        
Stockholders’ equity                                
Common stock     49,977       49,866       111          
Additional paid-in capital     181,533,918       181,501,056       32,862          
Retained earnings     474,189,087       458,811,844       15,377,243          
Accumulated other comprehensive income     (23,088,295 )     (8,443,123 )     (14,645,172 )        
Treasury stock     (1,250,000 )     (1,250,000 )     -          
Total SIAF Inc. and subsidiaries' equity     631,434,687       630,669,643       765,044          
Non-controlling interest     81,214,839       81,890,220       (675,381 )        
Total stockholders' equity     712,649,526       712,559,863       89,663          
Total liabilities and stockholders' equity     791,736,312       793,552,597       (1,816,285 )        

 

  12  

 

 

Note B. Cash and Cash Equivalents

 

The change in cash and cash equivalents of $(4,279,255) was derived from cash and cash equivalents of $671,544 and $4,950,799 as of September 30, 2019 and December 31, 2018, respectively.

 

Note (9) Breakdown of inventory

 

    September 30, 2019  
    $  
Bread grass     397,525  
Beef cattle     14,985,211  
Organic fertilizer     12,554,853  
Forage for cattle and consumables     5,849,951  
Raw materials for bread grass and organic fertilizer     15,993,746  
Immature seeds     1,757,923  
         
      51,539,209  

 

    September 30, 2019     December 31, 2018     Difference  
    $     $     $  
Bread grass     397,525       744,378       (346,853 )
Beef cattle     14,985,211       11,561,117       3,424,094  
Organic fertilizer     12,554,853       14,266,923       (1,712,070 )
Forage for cattle and consumables     5,849,951       7,252,280       (1,402,329 )
Raw materials for bread grass and organic fertilizer     15,993,746       18,885,258       (2,891,512 )
Immature seeds     1,757,923       1,872,285       (114,362 )
                         
      51,539,209       54,582,241       (3,043,032 )

  

Note (10) Breakdown of Deposits and Prepaid Expenses

 

    September 30, 2019  
    $  
Deposits for        
- purchases of equipment     1,198,969  
- acquisition of land use rights     169,659  
- inventories purchases     6,676,335  
- construction in progress     3,862,859  
- issue of shares as collateral     25,761,658  
Shares issued for employee compensation and overseas professional and bond interest     -  
Others     2,631,797  
      40,301,277  

 

  13  

 

 

Note (11): Breakdown of Accounts receivable:

 

    September 30,2019  
    Accounts
receivable
    0-30 days     31-90 days     91-120 days     over 120
days and
less than 1 year
    Over 1 year  
    $                                
Engineering consulting service (CA)     62,557,029       -       -       707,819       3,007,521       58,841,689  
Sales of imported seafood (SIAF)     25,230,007       -       17,645,062       7,584,945       -       -  
Sales of Cattle and Beef Meats (MEIJI)     14,349,030       -       13,324,774       1,024,256       -       -  
Sales of HU Flowers (Fresh & Dried) (JHST)     719,989       225,539       419,985       -       74,465       -  
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)     3,653,510       961,063       1,224,247       576,594       891,607       -  
Sales Fertilizer from (HSA)     3,487,291       669,405       1,338,810       793,104       685,972       -  
                                               
Total     109,996,856       1,856,007       33,952,877       10,686,718       4,659,565       58,841,689  
% of total receivables     100 %     2 %     31 %     10 %     4 %     53 %

 

The bulk of the over 120-days accounts receivable under CA’s consulting and service sector represents outstanding debt owed by Tri-way to the Company.

 

Information on trading terms and provision for diminution in value of accounts receivable:

 

Our accounts receivable aging is less than 12 months old. Receivables from revenue derived from consulting and services billed for work completed are within our normal trading terms of 180 days, and therefore no diminution in value is required, as the credit quality of the receivables is not in doubt. SIAF’s receivables in consulting and services are mainly provided to WHX, WC1, and Shanghai wholesale centers collectively, and the extended credit terms for this quarter for more than 120 days to WHX and WC1 is primarily to allow them more time to accommodate their development of import sales in beef that requires much more working capital; this also applies to the higher credit terms on CA’s sales of fish to WC1 and Shanghai WC.

 

Sales of fertilizer and bulk livestock feed: These comprise sales made to regional farmers contracted by us to grow crops and pastures using and purchasing our fertilizer. We in turn agree to buy their cattle that are fed with our bulk and concentrated cattle feed purchased from us. Under this arrangement, our accounts receivable are normally carried forward until such time they can be offset against our account payables due to these contracted farmers(that is, the amount owed for the amount of crops and pastures is ultimately offset against the amount of cattle that we have purchased from them, respectively). As these debtors are our contract farmers and operate a profitable and viable business with us and have a good track record we consider their credit quality is good and collection from them is not in doubt, thus no diminution in value is required.

 

  14  

 

 

Information on concentration of credit risk of revenue:

 

We have 4 major long-term customers (referring to Customer A, B, C and D mentioned in the Financial Statement of this report under Note), who have accounted for 87.46% of our consolidated revenues for Q32019, as shown in the table below:

 

      2019Q3  
      % of total Revenue       Customer's Total Revenue  
Customer A     35.65 %     13,345,198  
Customer B     31.05 %     11,623,335  
Customer C     16.09 %     6,021,727  
Customer D     4.67 %     1,747,193  
      87.46 %     32,737,453  

 

Customer A is Cattle Wholesale, represented by Mr. Zhen Runchi, who buys our fattened cattle to sell in the Guangdong and Beijing cattle markets while supplying us with young cattle. During Q3 2019, transactions through Mr. Zhen Runchi generated 35.65% of our total consolidated revenue (equivalent to $13,345,198 out of our total revenue of $37,431,314).

 

Customer B is ShangHai Virgo Trading co. Ltd, which is one of our major distributors of imported beef and seafood as well as our farmed seafood. We sold $11,623,335 of goods to Virgo during Q3 2018 representing 31.05% of our total revenue of $37,431,314 during the quarter.

 

Customer C is WSC 1, which is owned and operated by Guangzhou City A Power NaWei Trading Co. Ltd (“APNW”). APNW distributes seafood to other wholesalers in various cities in China. WSC 1 is ideally situated at the center of all interprovincial logistic services. At the same time, APNW has obtained all relevant Import Quotas and Permits as of September 30, 2014. As such, SIAF relies on APNW’s import permits for its import and export trades to be carried out in China. Sales affected through WSC 1 contribute 16.09% of our total consolidated revenue (equivalent to $6,021,727 out of our total revenue of $37,431,314).

 

Customer D is Zhang Zhijie, and during Q3 2019 we sold $1,747,193 of goods, representing 4.67% of total revenue of $37,431,314.

 

The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivables during Q3 2019:

 

    September 30, 2019  
    Total        
    % of total Accounts receivables     Accounts receivables  
Customer A     56.87 %     62,557,029  
Customer B     13.22 %     14,542,938  
Customer C     13.11 %     14,349,030  
Customer D     9.72 %     10,687,069  
      92.92 %     102,136,066  

 

Note (12)

 

Property and equipment, net of accumulation depreciation

 

    September 30, 2019  
    (Unaudited)  
Plant and machinery   $ 17,559,162  
Structure and leasehold improvements     195,526,199  
Mature seeds and herbage cultivation     61,408,570  
Furniture and equipment     692,452  
Motor vehicles     576,042  
      275,762,425  
         
Less: Accumulated depreciation     (37,891,532 )
Net carrying amount   $ 237,870,893  

 

  15  

 

 

Note (13) Construction in progress

 

    September 30, 2019  
    (Unaudited)  
Construction in progress        
- Office, warehouse and organic  fertilizer plant in HSA        
- Organic fertilizer and bread grass production plant and office building        
-Rangeland for beef cattle and office building     10,427,213  
    $ 10,427,213  

 

Note (14) Land Use Rights, net of accumulated amortization:

 

Item   Owner   Location   Acres     Date Acquired   Tenure     Expiry dates   Cost  $     Monthly amortization  $     2019.09.30 Balance  $     Nature
of
ownership
  Nature
of
project
Hunan lot1   HS.A   Ouchi Village, Fenghuo Town, Linli County     31.92     2011-4-5     43     2054-4-4     242,703       470       194,727     Lease   Fertilizer production
Hunan lot2   HS.A   Ouchi Village, Fenghuo Town, Linli County     247.05     2011-7-1     60     2071-6-30     36,666,141       50,925       31,624,547     Management Right   Pasture growing
Hunan lot3   HS.A   Ouchi Village, Fenghuo Town, Linli County     8.24     2011-5-24     40     2051-5-23     378,489       789       298,849     Land Use Rights   Fertilizer production
Hunan lot4   HS.A   Ouchi Village, Fenghuo Town, Linli County     24.71     2018-6-1     50     2068-5-31     3,021,148       5,035       2,940,584     Lease   Pasture growing
Guangdong lot 1   JHST   Yane Village, Liangxi Town, Enping City     8.23     2007-8-10     60     2067-8-9     1,064,501       1,478       848,644     Management Right   HU Plantation
Guangdong lot 2   JHST   Nandu Village of Yane Village, Liangxi Town, Enping City     27.78     2007-3-14     60     2067-3-13     1,037,273       1,441       819,734     Management Right   HU Plantation
Guangdong lot 3   JHST   Nandu Village of Yane Village, Liangxi Town, Enping City     60.72     2007-3-14     60     2067-3-13     2,267,363       3,149       1,791,847     Management Right   HU Plantation

 

  16  

 

 

Guangdong lot 4   JHST   Nandu Village of Yane Village, Liangxi Town, Enping City     54.68     2007-9-12     60     2067-9-11     2,041,949       2,836       1,630,723     Management Right   HU Plantation
Guangdong lot 5   JHST   Jishilu Village of Dawan Village,Juntang Town, Enping City     28.82     2007-9-12     60     2067-9-11     960,416       1,334       766,999     Management Right   HU Plantation
Guangdong lot 6   JHST   Liankai Village of Niujiang Town, Enping City     31.84     2008-1-1     60     2068-12-31     821,445       1,141       660,578     Management Right   Fish Farm
Guangdong lot 7   JHST   Nandu Village of Yane Village, Liangxi Town, Enping City     41.18     2011-1-1     26     2037-12-31     5,716,764       18,323       3,792,853     Management Right   HU Plantation
Guangdong lot 8   JHST   Shangchong Village of Yane Village, Liangxi Town, Enping City     11.28     2011-1-1     26     2037-12-31     1,566,393       5,020       1,039,242     Management Right   HU Plantation
Guangdong lot 9   MEIJI   Xiaoban Village of Yane Village, Liangxi Town, Enping City     41.18     2011-4-1     20     2031-3-31     5,082,136       21,176       2,922,228     Management Right   Cattle Farm
Qinghai lot 1   SJAP   No. 498, Bei Da Road, Chengguan Town of Huangyuan County,Xining City, Qinghai Province     21.09     2011-11-1     40     2051-10-30     527,234       1,098       422,886     Land Use Right & Building ownership   Cattle farm, fertilizer and livestock feed production
Guangdong lot 10   JHST   Niu Jiang Town, Liangxi Town, Enping City     6.27     2013-3-4     10     2023-3-3     489,904       4,083       167,384     Management Right   Processing factory
Guangdong lot 11   CA   Da San Dui Wei ,You Nan Village, Conghua District of Guangzhou City     33.28     2014-10-28     30     2044-10-27     4,453,665       12,371       3,711,388     Management  Right   Agriculture
    JHST   Land improvement cost incurred           2013-12-1                 3,914,275       6,155       3,483,459     Management Right   HU Plantation
Exchange difference                                     -6,155,167               -5,913,925          
                                                                 
              678                       64,096,634       136,824       51,202,746          

 

 

  17  

 

 

Note (15) Current Liabilities:            
Accounts payable and accrued expenses     9,103,501     15.A
Billings in excess of costs and estimated earnings on uncompleted contracts     5,386,711      
Due to a director     861,182      
Other payables     46,214,186     15B
Borrowings - Short term bank loan     4,524,246      
      66,089,826      

 

Note 15A: Accounts payables and accrued expenses clarification:

 

Our current trading environment is limited to a number of suppliers who offer prolonged credit terms, which means that most purchases are paid for in cash or short credit terms (7 to 10 days). This grants us better bargaining ability to obtain cash discounts resulting in the low trade account payables balance of $9,103,501, which is approximately 8.65% of total revenue of $105,291,144.

 

Note (15B): Analysis of Other Payables: 

 

As of September 30, 2019, other payables totaling $46,214,186 was composed of the following:

 

Straight note payable of $29,867,999 representing a 10.5% Convertible Note in the aggregate principal amount of up to $33,300,000 issued on August 29, 2014. On July 18, 2017, the Company and the note holder entered into a restructuring agreement regarding the settlement of the Note as follows:

 

(i) 50% in cash settlement of $15,589,000 to be paid in monthly installments.

 

(ii) The other 50% balance of $15,589,000 to be settled by the issuance of 5,196,333 common shares of the Company and 400,000 shares of Tri-way Industries Limited.

 

As of the date of this report, the Company has paid $3.59 million with $11,999,000 remaining owed on the $15,589,000 settlements.

 

Over the past years, other advances and deferred payments have been provided by other unrelated third parties, contractors, services providers, and agent fees etc. to our subsidiaries. Some of these payments have been in the form of promissory notes or agreements at no fixed term of repayment and with no interest; some at an interest rate between 3% to 8%, between a term of 1/2 to 5 years; and the remainder covered by conditions settled through verbal arrangements with the Company. These sums amount to $16,346,187, which remains unpaid and outstanding as of September 30, 2019.

 

Note (16) Non-current liabilities

 

Other payables of $7,765,801: During Q3 2019, the Company issued promissory notes amounting to $0 to unrelated third parties for advances granted by third parties collectively to the Company (and/or to its subsidiaries). During Q3 2019, we redeemed $0 of Promissory Notes for advances granted by third parties in past fiscal years to be settled by the issuance of shares and /or cash, leaving a balance of $7,765,801 of promissory notes still due and outstanding as of September 30, 2019.

 

  18  

 

 

Part C. Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018(presented in summarized Charts below):

 

Revenue:

 

Revenues decreased by $1,184,860 or -1% to $105,291,144 for the nine months ended September 30, 2019 from $106,476,004 for the nine months ended September 30, 2018. The decrease was primarily due to the decrease of revenue generated from our fishery, beef, organic fertilizer, cattle farm, corporate, and other operations, for reasons explained in earlier sections.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2019 to September 30, 2018

 

Revenue                  
    2019     2018        
Category   Q1 - Q3     Q1 - Q3     Difference  
    $     $     $  
Fishery     1,719,247       10,036,762       (8,317,515 )
                         
Plantation     2,813,800       3,082,503       (268,703 )
                         
Beef     1,040,589       5,011,148       (3,970,559 )
                         
Organic fertilizer     17,703,243       17,316,788       386,455  
                         
Cattle farm     34,105,641       19,100,254       15,005,387  
                         
Corporate and others     47,908,624       51,928,549       (4,019,925 )
                         
Total     105,291,144       106,476,004       (1,184,860 )

 

Cost

 

Cost decreased by $1,631,694 or -2% to $87,122,568 for the nine months ended September 30, 2019 from $88,754,262 for the nine months ended September 30, 2018. The decrease was primarily due to the reciprocal decrease in sales generated from the Company’s fishery, plantation, beef, organic fertilizer, cattle farm, corporate, and other operations for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.The following chart illustrates the changes by category from the nine months ended September 30, 2019 to September 30, 2018.

 

Cost of goods sold and services                  
    2019     2018        
Category   Q1 - Q3     Q1 - Q3     Difference  
    $     $     $  
Fishery     1,590,017       8,133,799       (6,543,782 )
                         
Plantation     2,120,374       2,569,886       (449,512 )
                         
Beef     1,043,537       4,121,113       (3,077,576 )
                         
Organic fertilizer     11,901,028       10,650,092       1,250,936  
                         
Cattle farm     27,890,578       16,711,195       11,179,383  
                         
Corporate and others     42,577,034       46,568,177       (3,991,143 )
                         
Total     87,122,568       88,754,262       (1,631,694 )

 

  19  

 

 

Gross Profit

 

Gross profit increased by $446,834 or -13% to $18,168,576 for the nine months ended September 30, 2019 from $17,721,742 for the nine months ended September 30, 2018.The increase was primarily due to the corresponding increases in operation revenues.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2019 to September 30, 2018.

 

The gross profit by category is as follows:

 

Gross Profit                  
    2019     2018        
Category   Q1 - Q3     Q1 - Q3     Difference  
    $     $     $  
Fishery     129,230       1,902,963       (1,773,733 )
                         
Plantation     693,426       512,617       180,809  
                         
Beef     -2,948       890,035       (892,983 )
                         
Organic fertilizer     5,802,215       6,666,696       (864,481 )
                         
Cattle farm     6,215,063       2,389,059       3,826,004  
                         
Corporate and others     5,331,590       5,360,372       (28,782 )
                         
Total     18,168,576       17,721,742       446,834  

 

General and Administrative Expenses and Interest Expenses

 

General and administrative expenses and interest expenses (including depreciation and amortization) decreased by $1,932,480 or -15% to $11,133,951 for the nine months ended September 30, 2019 from $13,066,431 for the nine months ended September 30, 2018.  The change was primarily due to a decrease in Office and corporate expenses to $3,280,542 for the nine months ended September 30, 2019 from $4,703,280 for the nine months ended September 30 2018.

 

    2019     2018        
Category   Q1 - Q3     Q1 - Q3     Difference  
    $     $     $  
Office and corporate expenses     3,280,542       4,703,280       (1,422,738 )
                      0  
Wages and salaries     1,327,210       1,481,441       (154,231 )
                         
Traveling and related lodging     14,271       17,183       (2,912 )
                         
Motor vehicles expenses and local transportation     30,215       37,613       (7,398 )
                         
Entertainments and meals     244,767       35,092       209,675  
                         
Others and miscellaneous     1,086,385       1,279,843       (193,458 )
                         
Depreciation and amortization     4,413,659       4,233,294       180,365  
                         
Sub-total     10,397,047       11,787,746       (1,390,699 )
                         
Interest expenses     736,904       1,278,685       (541,781 )
                         
Total     11,133,951       13,066,431       (1,932,480 )

 

  20  

 

 

Income Taxes

 

United States of America

 

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

 

Undistributed Earnings of Foreign Subsidiaries

 

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

 

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

 

China

 

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

 

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

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the nine months ended September 30, 2019 and 2018 as they are within the agriculture, and cattle sectors.

 

However, EIT has provide in the financial statements of SJAP since it has generated income from trading of agricultural products for the nine months ended September 30, 2019.

 

Belize

 

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

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the three months ended September 30, 2019 and 2018.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the three months ended September 30, 2019 and 2018.

 

No deferred tax assets and liabilities are of September 30, 2019 and December 31, 2018 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
    (Unaudited)     (Unaudited)  
SIAF   $ -     $ -  
SAFS     -       -  
MEIJI and APWAM     -       -  
JHST, JHMC, SJAP, HSA     6,518       -  
    $ 6,518     $ -  

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2019 and 2018. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

Undistributed Earnings of Foreign Subsidiaries

 

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

 

The Company failed to file US tax returns for the years ended December 31, 2007 through December 31, 2012 in compliance with US Treasury Internal Revenue Service Code. The Company has reviewed its tax position with the assistance of US tax professionals and believes that there will be no taxes and no penalties assessed by the Internal Revenue Service in the United States of America. The Company has appointed US tax professionals to assist in the filing of these income tax returns. In this respect, we filed our tax returns with the Internal Revenue Service on July, 2014.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HAS, QZH, and SJAP since they are exempt from EIT for the nine months ended September 30, 2018 and 2017, as they are within the agriculture, dairy, and fishery sectors.

 

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

 

No Hong Kong profits tax has been provided in the consolidated financial statements, since TRW did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2019 and 2018.

 

No Macau Corporate income tax has been provided in the consolidated financial statements, since APWAM and MEIJI did not earn any assessable profits for the nine months ended September 30, 2019 and 2018.

 

No Sweden Corporate income tax has been provided in the consolidated financial statements, since SAFS incurred a tax loss for the nine months ended September 30, 2019 and 2018.

 

No deferred tax assets and liabilities exist as of September 30, 2019 and December 31, 2018, since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

  21  

 

 

Off Balance Sheet Arrangements

 

None.

 

Liquidity and Capital Resources

 

As of September 30 2019, unrestricted cash and cash equivalents amounted to $417,373 (see notes to the consolidated financial statements), and our working capital as of September 30, 2019 was $173,130,680.

 

As of September 30, 2019, our total long-term debts are as follows:

 

Contractual Obligations   Less than 1 year     1-3years     3-5 years     More than 5 years     Total  
Short Term Bank Loan     4,506,468                           4,506,468  
Negotiable promissory notes     977,155                           977,155  
Long Term Debts             5,669,429                   5,669,429  
Promissory Notes             10,826,560                   10,826,560  
convertible note payables     3,894,978                           3,894,978  

 

Cash provided by operating activities amounted to $11,637,524 for Q1-3 2019. This compares with cash provided by operating activities totaling $27,498,878 for Q1-3 2018. The decrease in cash flows provided by operating activities resulted primarily from the decrease in account receivable of $(11,912,622) for Q1-3 2019 from $17,756,843 for Q1-3 2018.

 

Cash used in investing activities totaled $(6,832,839) for Q1-3 2019. This compares with cash used in investing activities totaling $(21,625,928) for Q1-3 2018. The increase in cash flows used in investing activities resulted primarily from purchases of property and equipment and non-current assets held for sale of $(3,500) for Q1-3 2019 compared to $(14,552,588) for Q1-3 2018.

 

Cash used in financing activities totaled $0 for Q1-3 2019. This compares with cash used in financing activities totaling $(3,413,653) for Q1-3 2018. The increase in cash used in financing activities was primarily due to convertible notes repaid of $0 during Q1-3 2019 from $1,500,000 paid during Q1-3 2018.

 

CRITICAL ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the nine months ended September 30, 2019 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the nine months ended September 30, 2019 results are for the months and do not necessarily indicate the results for a full year. The information included in this interim report should be read in conjunction with the information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018.

 

BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of SIAF, its subsidiaries Capital Award, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation. The results of companies acquired or disposed of during the year are included in the consolidated Financial Statements from the effective date of acquisition.

 

BUSINESS COMBINATIONS

 

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

 

  22  

 

 

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

USE OF ESTIMATES

 

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

 

REVENUE RECOGNITION

 

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

 

Government grants are recognized upon (i) the Company’s substantial accomplishment of what must be done pursuant to the terms of the policies and terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and/or (iii) the amounts are received.

 

Multiple-Element Arrangements

   

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

 

Revenues from the Company's fishery development services contract are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognized that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts.

 

The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

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

 

  23  

 

 

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

 

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

 

The Company’s fishery development consultancy services revenues are recognized when the relevant services are rendered, and are subject to a Chinese business tax at a rate of 0% of the gross fishery development contract service income approved by the Chinese local government.

 

COST OF GOODS SOLD AND SERVICES

 

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

 

SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $0, $1,716, $2,745 and $17,861 for the three months and nine months ended September 30, 2019 and 2018, respectively.

 

ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $375,221, $382,424, $1,175,724 and $1,386,186 for the three months and nine months ended September 30, 2019 and 2018, respectively.

 

RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $0, 449, 910, $0 and $449,910 for the three months and nine months ended September 30, 2019 and 2018, respectively.

 

CASH AND CASH EQUIVALENTS

 

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

 

ACCOUNTS RECEIVABLE

 

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

 

The standard credit period of most of the Company’s customers is three months. Any amount that has an extended settlement date of over one year is classified as a long term receivable. Management evaluates the collectability of the receivables at least quarterly. There were no bad debts written off for the nine months ended September 30, 2019 or September 30, 2018.

 

  24  

 

 

INVENTORIES

 

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

 

raw materials - purchase cost on a weighted average basis;  
manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and
retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.  

 

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

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of each year.

 

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

 

Milk cows   10 years
Plant and machinery   5 - 10 years
Structure and leasehold improvements   10 - 20 years
Mature seed and herbage cultivation   20 years
Furniture, fixtures and equipment   2.5 - 10 years
Motor vehicles   5 - 10  years

 

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

 

GOODWILL

 

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

 

PROPRIETARY TECHNOLOGIES

 

The Company has determined that technological feasibility is established at the time a working model of products is completed. Master license of stock feed manufacturing technology was acquired and the costs of acquisition were capitalized as proprietary technologies when technological feasibility had been established. Proprietary technologies are intangible assets of finite lives. Proprietary technologies are amortized using the straight line method over their estimated lives of 25 years.

 

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

 

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

 

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

 

Management evaluates the recoverability of proprietary technologies on an annual basis of the end of the company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.

 

  25  

 

 

CONSTRUCTION IN PROGRESS

 

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

 

LAND USE RIGHTS

 

Land use rights represent acquisition of land use right rights of agriculture land from farmers and are amortized on the straight line basis over the respective lease periods. The lease period of agriculture land is in the range from 10 years to 60 years. Land use rights purchase prices were determined in accordance with the P.R.C Government’s minimum lease payments of agriculture land and mutually agreed between the company and the vendors. No independent professional appraiser performed a valuation of land use rights at the balance sheet dates.

 

CORPORATE JOINT VENTURE

 

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

 

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

 

VARIABLE INTEREST ENTITY

 

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

 

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

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests

 

TREASURY STOCK

 

Treasury stock consists of a Company’s own stock which has been issued, but is subsequently reacquired by the Company. Treasury stock does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive cash dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

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

 

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

 

(ii) to eliminate the ownerships interests of a stockholder;

 

(iii) to increase the market price of the stock that returns capital to shareholders; and

 

(iv) to potentially increase earnings per share of the stock by decreasing the shares outstanding on the same earnings.

 

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

 

INCOME TAXES

 

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

 

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

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also adjusted in the equity accounts. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. ASC 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

 

POLITICAL AND BUSINESS RISK

 

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

 

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, at the end of each fiscal year. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2019 and December 31, 2018, the Company determined no impairment losses were necessary.

 

EARNINGS PER SHARE

 

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

 

For the three months ended September 30, 2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amounted to $0.16 and $0.09, respectively. For the three months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.16 and $0.09, respectively.

 

For the nine months ended September 30, 2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted to $0.31 and $0.27, respectively. For the nine months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.31 and $0.27, respectively. 

 

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FOREIGN CURRENCY TRANSLATION

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (RMB). For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholder equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period.

 

Because cash flows are translated based on the weighted average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statements of equity.

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The balance sheet amounts with the exception of equity as of September 30, 2019 and December 31, 2018 were translated at RMB7.07 to $1.00 and RMB6.86 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine months ended September 30, 2019 and September 30, 2018 were RMB6.85 to $1.00 and RMB6.51 to $1.00, respectively. 

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the years ended December 31, 2014 through 2018 were RMB6.14, RMB6.23, RMB6.64, RMB 6.75 and RMB6.61, respectively

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

 

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

 

RETIREMENT BENEFIT COSTS

 

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

 

STOCK-BASED COMPENSATION

 

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

  

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FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

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

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September30, 2019 or December 31, 2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the nine months ended September 30, 2019 or 2018.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-02, Leases (Topic 842) (ASU 2017-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

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

 

In March 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2017-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018, and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

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

 

In November 2017, the FASB issued Accounting Standards Update No. 2017-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2017-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosure

 

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

 

In January 2018, the FASB issued Accounting Standards Update No. 2018-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2018-04), which eliminates step two from the goodwill impairment test. Under ASU 2018-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

 

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

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Market risk is the risk of loss to future earnings, to fair values, or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes.

 

Foreign Currency Risk

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 Chinese government currently manages the exchange rate of the RMB. The value of our common stock is 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 does affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the years ended December 31, 2014 through 2018 were RMB6.14, RMB6.23, RMB6.64 and RMB6.58, respectively.

 

Depository Insurance Risk

Cash and cash equivalents are held for working capital purposes and consist primarily of bank deposits. We do not enter into investments for trading or speculative purposes.

 

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A 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. This exposure could result in our inability to immediately access funds to pay our suppliers, employees and/or other creditors.

 

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ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our Disclosure Controls were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting

 

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Limitations on the Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

  

In the ordinary course of business, we may be involved in legal proceedings from time to time. As of the date hereof, except as set forth herein, there are no known or contemplated proceedings that require disclosure under Item 103 of Regulation S-K.

 

On March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of New York against the Company, as well as four of its current directors, styled  Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc. , as the nominal defendant (Case No.: 1:19-cv-02680) (the “ Complaint ”).  The Company filed its Motion to Dismiss the Complaint on June 24, 2019. After the Company filed its Motion to Dismiss, the Court, sue sponte, issued an Order requiring plaintiffs to either file an Amended Complaint by July 16, 2019 or serve their Opposition to the Motion to Dismiss by that date.  The Court stated that if plaintiffs do not amend their Complaint, they then will not be given any further opportunity to amend the Complaint to address the issues raised in the Motion to Dismiss.  Subsequently, Plaintiffs filed an Amended Complaint.  The Amended Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company.

 

On September 20, 2019, the Company filed a Motion to Dismiss the Amended Complaint.  After the Company filed its Motion to Dismiss, the parties have had settlement discussions.  As a result, the Court granted a request to adjourn the present motion briefing schedule.  Plaintiffs’ Opposition is now due on or before January 3 2020, and the Company’s Reply Brief is due on January 24, 2020.

 

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.  The Company believes that these claims are without merit and intend to vigorously defend the action.  

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

  32  

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit No .   Description of Exhibits
     
31.1   Section 302 Certification of Principal Executive Officer+
31.2   Section 302 Certification of Principal Financial Officer+
32.1   Section 906 Certification of Principal Executive Officer and Principal Financial Officer *
101.INS   XBRL Instance Document +
101.SCH   XBRL Taxonomy Extension Schema Document +
101.CAL   XBRL Taxonomy Calculation Linkbase Document +
101.LAB   XBRL Taxonomy Labels Linkbase Document +
101.PRE   XBRL Taxonomy Presentation Linkbase Document +
101.DEF   XBRL Definition Linkbase Document +

 

+filed herewith

* furnished herewith 

 

  33  

 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    SINO AGRO FOOD, INC.  
     
November 19, 2019 By: /s/ LEE YIP KUN SOLOMON
    Lee Yip Kun Solomon
    Chief Executive Officer and Interim Chief Financial Officer
    (Principal Executive Officer and Principal Financial Officer)

 

  34  
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