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 June 30, 2015

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 Friedman Ference LLP

61 Broadway, 32^nd Floor

New York, NY10006

Attn: Marc Ross, Esq.

 

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

 

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

 

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

 

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

 

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

 

As of August 11, 2015, there were 18,951,737 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	51
Item 4.	Controls and Procedures	51
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES		53

 

  

SINO AGRO FOOD, INC. AND SUBSIDIARIES

QUATERLY FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUATERLY FINANCIAL STATEMENTS

 

	PAGES
INDEPENDENT ACCOUNTANT’S REPORT	F - 1
CONSOLIDATED BALANCE SHEETS	F - 2
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME	F - 3
CONSOLIDATED STATEMENTS OF CASH FLOWS	F - 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F - 5 - F - 44

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

 

INDEPENDENT ACCOUNTANT’S REPORT 

 

To the Board of Directors and Stockholders of

Sino Agro Food, Inc.

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

 

We have reviewed the consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries as of June 30, 2015 and December 31, 2014, the related consolidated statements of income and other comprehensive income for the three-month and the six-month periods ended June 30, 2015 and 2014, and cash flows for the six-month periods ended June 30, 2015 and 2014. This interim financial information is the responsibility of the company's management.

 

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

 

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

 

s/Anthony Kam & Associates Limited, CPA.

Anthony Kam & Associates Limited, CPA.

 

Hong Kong

August 14, 2015

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

				June 30,				December 31,
				2015				2014
		Note		(Unaudited)				Audited
ASSETS
Current assets
Cash and cash equivalents		6		$	9,153,234			$	3,031,447
Inventories		7			50,174,717				45,967,993
Costs and estimated earnings in excess of billings on uncompleted contracts		19			1,306,885				-
Deposits and prepayments		8			84,834,061				75,951,591
Accounts receivable, net of allowance for doubtful accounts		9			106,452,443				104,503,071
Other receivables		10			68,036,101				52,305,260
Total current assets					319,957,441				281,759,362
Plant and equipment
Plant and equipment, net of accumulated depreciation		11			68,318,398				64,352,975
Construction in progress		12			100,856,648				69,120,277
Land use rights, net of accumulated amortization		13			62,576,946				63,322,202
Total plant and equipment					231,751,992				196,795,454
Other assets
Goodwill		14			724,940				724,940
Proprietary technologies, net of accumulated amortization		15			11,190,705				11,480,298
Long term investment		16			817,795				817,127
Temporary deposits paid to entities for investments in Sino joint venture companies		17			41,109,708				41,109,708
Total other assets					53,843,148				54,132,073
Total assets				$	605,552,581			$	532,686,889
LIABILITIES  AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses				$	19,631,992			$	22,138,835
Billings in excess of costs and estimated earnings on uncompleted contracts		19			4,632,895				8,060,580
Due to a director					246,184				1,172,059
Series F Non-convertible preferred stock redemption payable		20			-				3,146,063
Other payables		21			14,575,385				11,695,982
Borrowings - Short term bank debts		22			4,414,334				4,410,727
Bonds payable		23			1,725,000				1,725,000
					45,225,790				52,349,246
Non-current liabilities
Other payables		21			4,797.332				-
Borrowings - Long term debts		22			2,307,943				2,306,057
Convertible notes payables		24			34,870,297				15,803,928
				$	41,975,572			$	18,109,985
Commitments and contingencies					-				-
Stockholders' equity
Preferred stock: $0.001 par value (10,000,000 shares authorized, 100 and 7,000,100 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively)
Series A preferred stock:  $0.001 par value (100 shares designated, 100 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively)		25			-				-
Series B convertible preferred stock:  $0.001 par value) (10,000,000 shares designated, 0 and 7,000,000 shares issued  and outstanding as of June 30, 2015 and December 31, 2014, respectively)		25		$	-			$	7,000
Series F Non-convertible preferred stock:  $0.001 par value) (1,000,000 shares designated, 0 shares issued  and outstanding as of June 30, 2015 and December 31, 2014, respectively)		25			-				-
Common stock:  $0.001 par value (22,727,272 shares authorized 18,899,271 and 17,162,716 shares issued as of  June 30, 2015 and December 31, 2014, respectively)		25			18,899				17,162
Additional paid - in capital					130,757,937				121,158,996
Retained earnings					306,326,151				273,261,108
Accumulated other comprehensive income					7,380,528				6,452,815
Treasury stock					(1,250,000	)			(1,250,000	)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity					443,233,515				399,647,081
Non - controlling interest					75,117,704				62,580,576
Total stockholders' equity					518,351,219				462,227,657
Total liabilities and stockholders' equity				$	605,552,581			$	532,686,889

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (UNAUDITED)

 

				Three months ended				Three months ended				Six months ended				Six months ended
		Note		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Revenue
- Sale of goods				$	82,020,302			$	82,357,060			$	167,592,845			$	160,629,369
- Consulting and service income from development contracts					8,343,423				14,346,298				37,713,262				26,589,500
- Commission and management fee					490,003				329,146				1,024,071				741,424
		3			90,853,728				97,032,504				206,330,178				187,960,293
Cost of goods sold		3			(62,208,398	)			(58,049,860	)			(125,498,386	)			(113,914,389	)
Cost of services		3			(6,708,419	)			(6,685,461	)			(23,316,430	)			(13,188,873	)
Gross profit					21,936,911				32,297,183				57,515,362				60,857,031
General and administrative expenses					(5,392,206	)			(3,281,860	)			(9,958,113	)			(5,950,254	)
Net income from operations					16,544,705				29,015,323				47,557,249				54,906,777
Other income (expenses)
Government grant					58,661				124,440				141,841				237,672
Other income					89,821				1,265				152,467				4,523
Gain of extinguishment of debts		4			-				198,373				-				241,393
Interest expense					(1,326,472	)			(110,386	)			(2,110,078	)			(219,493	)
Net income (expenses)					(1,177,990	)			213,692				(1,815,770	)			264,095
Net income (expenses) before income taxes					15,366,715				29,229,015				45,741,479				55,170,872
Provision for income taxes		5			-				-				-				-
Net income					15,366,715				29,229,015				45,741,479				55,170,872
Less: Net (income) loss attributable to the non - controlling interest					(6,056,513	)			(6,141,977	)			(12,676,436	)			(11,295,915	)
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries					9,310,202				23,087,038				33,065,043				43,874,957
Other comprehensive income (loss)
Foreign currency translation gain (loss)					817,766				(108,578	)			788,405				(816,214	)
Comprehensive income					10,127,968				22,978,460				33,853,448				43,058,743
Less: other comprehensive (income) loss attributable to the non - controlling interest					(152,564	)			43,000				(139,308	)			156,521
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries				$	9,975,404			$	23,021,460			$	33,714,140			$	43,215,264
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
Basic		30		$	0.51			$	1.47			$	1.87			$	2.91
Diluted		30		$	0.51			$	1.41			$	1.87			$	2.78
Weighted average number of shares outstanding:
Basic					18,140,209				15,695,971				17,714,995				15,056,498
Diluted					18,140,209				16,403,041				17,714,995				15,763,568

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (UNAUDITED)

 

		Six months ended				Six months ended
		June 30, 2015				June 30, 2014
						(Restated)
Cash flows from operating activities
Net income for the period		$	45,741,479			$	55,170,872
Adjustments to reconcile net income from operations to net cash from operations:
Depreciation			1,606,873				1,131,273
Amortization			1,095,000				1,056,859
Common stock issued for services			1,760,066				66,872
Gain on extinguishment of debts			-				(241,393	)
Other amortized cost			1,605,232				100,000
Changes in operating assets and liabilities:
(Increase) in inventories			(4,206,724	)			(17,789,615	)
(Increase) in costs and estimated earnings in excess of billings on uncompleted contacts			(1,306,885	)			(94,007	)
(Increase) decrease in deposits and prepayments			(2,870,991	)			35,642,872
Increase in due to a director			18,348,071				1,968,340
(Decrease) increase in  accounts payable and accrued expenses			(2,506,843	)			8,727,830
Increase in  other payables			7,676,735				10,466,922
(Increase) in accounts  receivable			(1,949,372	)			(35,126,269	)
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts			(3,427,685	)			374,465
(Increase) in other receivables			(15,730,841	)			(7,243,282	)
Net cash provided by operating activities			45,834,115				19,132,816
Cash flows from investing activities
Purchases of plant and equipment			(3,913,897	)			(3,372,840	)
Payment for investment in Sino Joint Venture Companies			-				(35,078,923	)
Payment for construction in progress			(33,275,507	)			(15,655,682	)
Net cash used in investing activities			(37,189,404	)			(19,028,522	)
Cash flows from financing activities
Proceeds from long term debts			-				2,436,193
Net cash (used in) provided by financing activities			(3,146,063	)			2,436,193
Effects on exchange rate changes on cash			623,572				(236,195	)
Increase in cash and cash equivalents			6,122,220				2,304,292
Cash and cash equivalents, beginning of period			3,031,447				1,327,274
Cash and cash equivalents, end of period		$	9,153,234			$	3,631,566
Supplementary disclosures of cash flow information:
Cash paid for interest		$	504,846			$	219,493
Cash paid for income taxes		$	-			$	-
Non - cash transactions
Common stock issued for settlement of debts		$	-			$	9,575,000
Series B convertible preferred stock converted into common stock		$	7,000			$	-
Common stock issued for services and employee compensation		$	726,362			$	-
Common stock issued to decimal stockholders for rounding up shares holding		$	2,772,281			$	-
Common stock issued to secure debts loan		$	5,996,665			$	-
Transfer to plant and equipment from construction in progress		$	1,594,864				1,865,678
Transfer to land use rights from deposits and prepayments		$	-				4,404,179
Transfer to plant and equipment from deposits and prepayments		$	9,323			$	513,272
Proceeds from convertible bond payables applied to investing and financing activities		$	17,823,400			$	-

  

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

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 a 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;

 

(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%. This remains the case as of the date of this report (the “ Report ”).

 

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.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

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 presently owns a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors.

 

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 in on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in ECF and the amount was settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“ JHMC ”) and acquired additional 50% equity interest for the total cash consideration of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition was at our option according to the terms of the original development agreement. The Company presently owns 75% equity interest in JHMC, representing majority of voting right and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations of JHMC. Up to June 30, 2015, MEIJI further invested $400,000 in JHMC.

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“ HSA ”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. As of June 30, 2015, MEIJI and SJAP total investment in HSA were $857,808 and 629,344, respectively.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“ SAFS ”). As of June 30, 2015, the Company invested $77,664 in SAFS.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. As of June 30, 2015, the SJAP’s total investment in QZH was $487,805.

 

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.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1

FISCAL YEAR

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.2

REPORTING ENTITIES

 

Name of subsidiaries		Place of incorporation		Percentage of interest		Principal activities
Capital Award Inc. (“CA”)		Belize		100% (12.31.2014: 100%) directly		Fishery development and holder of A-Power Technology master license.
Capital Stage Inc. (“CS”)		Belize		100% (12.31.2014: 100%) indirectly		Dormant
Capital Hero Inc. (“CH”)		Belize		100% (12.31.2014: 100%) indirectly		Dormant
Sino Agro Food Sweden AB (“SAFS”)		Sweden		100% (12.31.2014: 100%) directly		Dormant
Tri-way Industries Limited (“TRW”)		Hong Kong, P.R.C.		100% (12.31.2014: 100%) directly		Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
Macau Eiji Company Limited (“MEIJI”)		Macau, P.R.C.		100% (12.31.2014: 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% (12.31.2014: 100%) directly		Investment holding
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)		P.R.C.		75% (12.31.2014: 75%) indirectly		Hylocereus Undatus Plantation (“HU Plantation”).
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)		P.R.C.		75% (12.31.2014: 75%) indirectly		Fish cultivation
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)		P.R.C.		75% (12.31.2014: 75%) indirectly		Beef cattle cultivation
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)		P.R.C.		76% (12.31.2014: 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.		45% (12.31.2014: 45%) indirectly		Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)		P.R.C.		100% (12.31.2014:100%) indirectly		Cattle slaughter

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.3

BASIS OF PRESENTATION

 

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

 

Reverse stock split and new conversion rate of Series B preferred stock to share of common stock

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

 

2.4

BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, 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.

 

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

 

2.5

BUSINESS COMBINATION

 

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

 

2.6

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

2.7

USE OF ESTIMATES

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.8

REVENUE RECOGNITION

 

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

 

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

 

Multiple-Element Arrangements

 

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

 

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

 

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

 

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

 

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

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.9

COST OF GOODS SOLD AND COST OF SERVICES

 

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

 

2.10

SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $1,260, $4,316, $9,952 and $10,582 for the three months and the six months ended June 30, 2015 and 2014, respectively. 

 

2.11

ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $712,614, $952,924, $1,421,458 and $953,054 for the three months ended and the six months ended June 30, 2015 and 2014, respectively.

 

2.12

RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $549,020, $0, $549,020 and $0 for the three months ended and the six months ended June 30, 2015 and 2014, 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 $7,380,528 as of June 30, 2015 and $6,452,815 as of December 31, 2014. The balance sheet amounts with the exception of equity as of June 30, 2015 and December 31, 2014 were translated using an exchange rate of RMB 6.11 to $1.00 and RMB 6.15 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the six months ended June 30, 2015 and 2014 were RMB 6.13 to $1.00 and RMB 6.13 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 June 30, 2015 and December 31, 2014 are $0.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.16

INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value.

Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

(a)

raw materials - purchase cost on a weighted average basis;

(b)

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

(c)

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

 

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

 

2.17

PLANT AND EQUIPMENT

 

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

 

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

 

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

 

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

 

2.18

GOODWILL

 

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

 

2.19

LONG TERM INVESTMENT

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.20

PROPRIETARY TECHNOLOGIES

 

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

 

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

 

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

 

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

 

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

 

2.21

CONSTRUCTION IN PROGRESS

 

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

 

2.22

LAND USE RIGHTS

 

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

 

2.23

CORPORATE JOINT VENTURE

 

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

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

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.

 

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.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 June 30, 2015 and December 31, 2014 amounted to $8,976,836 and $10,762,208 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 periods indicated:

 

Ranking

 

		Three months				Three months				Six months				Six months
		ended				ended				ended				ended
		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Customer A			15.20	%			31.08	%			18.25	%			30.33	%
Customer B			9.18	%			9.90	%			14.42	%			10.10	%
Customer C			-				18.77	%			12.13	%			17.23	%
Customer D			14.65	%			-				11.00	%			-
Customer E			11.45	%			-				10.49	%			10.10	%
Customer F			14.52	%			8.77	%			-				-
Customer G			-				5.17	%			-				5.06	%
Customer H			-				-				-				6.54	%
			65.00	%			73.09	%			66.29	%			69.26	%

  

5 major customers for the six months period ended June 30, 2015.

 

Ranking				Percentage of revenue				Amount
Customer A		Fishery Development and Corporate and Others Divisions			18.25	%		$	37,660,931
Customer B		Fishery Development Division			14.42	%		$	29,748,005
Customer C		Organic Fertilizer  and Bread Grass Division			12.13	%		$	25,019,665
Customer D		Organic Fertilizer and Bread Grass Division			11.00	%		$	22,695,695
Customer E		Fishery Development Division			11.49	%		$	21,648,538

  

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:

 

		June 30, 2015				December 31, 2014
Customer A			10.27	%			21.21	%
Customer B			7.96	%			13.51	%
Customer C			9.94	%			9.68	%
Customer D			6.99	%			7.12	%
Customer E			8.92	%			10.23	%
			44.08	%			61.75	%

 

As of June 30, 2015, amounts due from customers A, B and C are $10,935,061, $10,580,087 and $9,499,274, 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.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.29

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, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of June 30, 2015 and December 31, 2014, the Company determined no impairment losses were necessary.

 

2.30

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 June 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $0.51 and $1.47 respectively. For the three months ended June 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.51 and $1.41, respectively,

 

For the six months ended June 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.87 and $2.91 respectively. For the six months ended June 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $1.87 and $2.78, respectively,

 

2.31

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.

 

2.32

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.

 

2.33

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.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.34

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 June 30, 2015 or December 31, 2014, 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 six months ended June 30, 2015 or 2014.

 

2.35

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 April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which provides a narrower definition of discontinued operations than under existing U.S. GAAP. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results should be reported in the consolidated financial statements as discontinued operations. ASU 2014-08 also provides guidance on the consolidated financial statement presentations and disclosures of discontinued operations. The new guidance is effective prospectively for the Company to all new disposals of components and new classification as held for sale beginning April 1, 2015. The Company is evaluating the effects, if any, of the adoption of this guidance will have on the consolidated financial position, results of operations or cash flows.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.35

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of July 31, 2014.

 

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on our consolidated financial statements.

 

In November 2014, FASB issued ASU No. 2014-17, (Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force.) The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The adoption of ASU 2014-17 did not have a material impact on the Company’s consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact of the adoption of this guidance on the consolidated financial statements.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which simplifies presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has elected to adopt this ASU early and the adoption of this guidance did not have a material effect on its consolidated financial statements.

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

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 June 30, 2015
										Organic
		Fishery								Fertilizer and				Cattle Farm
		Development				HU Plantation				Bread Grass				Development				Corporate and
		Division (1)				Division (2)				Division (3)				Division (4)				Others Division (5)				Total
Revenue		$	27,976,873			$	4,193,013			$	41,427,182			$	9,497,684			$	7,758,976			$	90,853,728
Net income (loss)		$	5,735,532			$	1,537,297			$	4,732,684			$	620,338			$	(3,315,649	)		$	9,310,202
Total assets		$	131,773,709			$	55,812,249			$	299,867,901			$	33,714,325			$	84,384,397			$	605,552,581

 

		For the three months ended June 30, 2014
										Organic
		Fishery								Fertilizer and				Cattle Farm
		Development				HU Plantation				Bread Grass				Development				Corporate and
		Division (1)				Division (2)				Division (3)				Division (4)				Others Division (5)				Total
Revenue		$	39,950,675			$	2,511,888			$	32,784,632			$	7,123,915			$	14,661,394			$	97,032,504
Net income (loss)		$	7,937,761			$	1,210,425			$	8,901,795			$	1,058,369			$	3,978,688			$	23,087,038
Total assets		$	116,064,028			$	49,025,362			$	201,091,298			$	45,873,510			$	34,530,562			$	446,584,760

 

		For the six months ended June 30, 2015
										Organic
		Fishery								Fertilizer and				Cattle Farm
		Development				HU Plantation				Bread Grass				Development				Corporate and
		Division (1)				Division (2)				Division (3)				Division (4)				Others Division (5)				Total
Revenue		$	81,313,647			$	4,193,013			$	81,803,771			$	17,787,670			$	21,232,077			$	206,330,178
Net income (loss)		$	23,099,982			$	949,281			$	10,391,789			$	974,518			$	(2,350,527	)		$	33,065,043
Total assets		$	131,773,709			$	55,812,249			$	299,867,901			$	33,714,325			$	84,384,397			$	605,552,581

 

		For the six months ended June 30, 2014
										Organic
		Fishery								Fertilizer and				Cattle Farm
		Development				HU Plantation				Bread Grass				Development				Corporate and
		Division (1)				Division (2)				Division (3)				Division (4)				Others Division (5)				Total
Revenue		$	83,714,940			$	3,271,940			$	61,759,715			$	14,668,506			$	24,545,192			$	187,960,293
Net income (loss)		$	18,248,399			$	1,185,157			$	18,919,825			$	1,324,563			$	4,197,013			$	43,874,957
Total assets		$	116,064,028			$	49,025,362			$	201,091,298			$	45,873,510			$	34,530,562			$	446,584,760

 

(1)

Operated by Capital Award, Inc. (“CA”) and Jiang Men City A Power Fishery Development Co., Limited (“JFD”).

(2)

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

(3)

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

(4)

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

(5)

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

   

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

		For the three months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	19,143,447			$	-			$	-			$	-			$	-			$	19,143,447
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				4,193,013				-				-				-				4,193,013
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				4,908,734				-				-				4,908,734
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				19,786,896				-				-				19,786,896
Qinghai Zhong He Meat Products Co., Limited (“QZH”)			-				-				16,731,552				-				-				16,731,552
Macau Eiji Company Limited (“MEIJI”)			-				-				-				9,497,684				-				9,497,684
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				7,758,976				7,758,976
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)			8,343,423				-				-				-				-				8,343,423
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				-				-
Commission and management fee
Capital Award, Inc. (“CA”)			490,003				-				-				-				-				490,003
Macau Eiji Company Limited (“MEIJI”)			-				-				-				-				-				-
		$	27,976.873			$	4,193,013			$	41,427,182			$	9,497,684			$	7,758,976			$	90,853,728

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

 

		For the three months ended June 30, 2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	26,904,918			$	-			$	-			$	-			$	-			$	26,904,918
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				2,511,888				-				-				-			$	2.511,888
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				5,134,313				-				-				5,134,313
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				25,851,492				-				-				25,851,492
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)			-				-				1,798,827				-				-				1,798,827
Macau Eiji Company Limited (“MEIJI”)			-				-				-				7,123,915				-				7,123,915
Sino Agro Food, Inc. (“SIAF”)			-				-				-						-		13,031,707				13,031,707
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)			12,716,611				-				-				-				-				12,716,611
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				1,629,687				1,629,687
Commission and management fee
Capital Award, Inc. (“CA”)			329,146				-				-				-				-				329,146
Macau Eiji Company Limited (“MEIJI”)			-				-				-				-				-				-
		$	39,950,675			$	2,511,888			$	32,784,632			$	7,123,915			$	14,661,394			$	97,032,504

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

 

		For the six months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	46,362,288			$	-			$	-			$	-			$	-			$	46,362,288
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				4,193,013				-				-				-			$	4,193,013
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				9,091,174				-				-				9,091,174
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				43,825,169				-				-				43,825,169
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)			-				-				28,887,428				-				-				28,887,428
Macau Eiji Company Limited (“MEIJI”)			-				-				-				17,787,670				-				17,787,670
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				17,446,103				17,446,103
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)			33,927,288				-				-				-				-				33,927,288
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				3,785,974				3,785,974
Commission and management fee
Capital Award, Inc. (“CA”)			490,003				-				-				-				-				490,003
Macau Eiji Company Limited (“MEIJI”)			534,068				-				-				-				-				534,068
		$	81,313,647			$	4.193,013			$	81,803,771			$	17,787,670			$	21,232,077			$	206,330,178

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

 

		For the six months ended June 30, 2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	58,013,703			$	-			$	-			$	-			$	-			$	58,013,703
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				3,271,940				-				-				-			$	3,271,940
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				9,956,493				-				-				9,956,493
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				50,004,395				-				-				50,004,395
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)			-				-				1,798,827				-				-				1,798,827
Macau Eiji Company Limited (“MEIJI”)			-				-				-				14,668,506				-				14,668,506
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				22,915,505				22,915,505
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)			24,959,813				-				-				-				-				24,959,813
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				1,629,687				1,629,687
Commission and management fee
Capital Award, Inc. (“CA”)			741,424				-				-				-				-				741,424
Macau Eiji Company Limited (“MEIJI”)			-				-				-				-				-				-
		$	83,714,940			$	3,271,940			$	61,759,715			$	14,668,506			$	24,545,192			$	187,960,293

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

		For the three months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	14,657,975			$	-			$	-			$	-			$	-			$	14,657,975
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				1,144,755				-				-				-				1,144,755
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				2,841,874				-				-				2,841,874
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				15,284,738				-				-				15,284,738
Qinghai Zhong He Meat Products Co., Limited (“QZH”)			-				-				12,244,884				-				-				12,244,884
Macau Eiji Company Limited (“MEIJI”)			-				-				-				9,137,304				-				9,137,304
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				6,898,868				6,898,868
		$	14,657,975			$	1,144,755			$	30,371,496			$	9,137,304			$	6,896,868			$	62,208,398

 

COST OF SERVICES

 

		For the three months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)		$	6.708,419			$	-			$	-			$	-			$	-			$	6,708,419
Macau Eiji Company Limited (“MEIJI”)			-				-				-				-				-				-
		$	6,708,419			$	-			$	-			$	-			$	-			$	6,708,419

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

 

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

COST OF GOODS SOLD

 

		For the three months ended June 30, 2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	17,380,116			$	-			$	-			$	-			$	-			$	17,380,116
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				473,892				-				-				-				473,892
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				2,945,036				-				-				2,945,036
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				17,752,361				-				-				17,752,361
Qinghai Zhong He Meat Products Co., Limited (“QZH”)			-				-				1,160,279				-				-				1,160,279
Macau Eiji Company Limited (“MEIJI”)			-				-				-				6,754,437				-				6,754,437
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				11,583,739				11,583,739
		$	17,380,116			$	473,892			$	21,857,676			$	6,754,437			$	11,583,739			$	58,049,860

 

COST OF SERVICES

 

		For the three months ended June 30, 2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)		$	5,131,217			$	-			$	-			$	-			$	-			$	5,131,217
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				1,554,244				1,554,244
		$	5,131,217			$	-			$	-			$	-			$	1,554,244			$	6,685,461

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

		For the six months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	34,759,972			$	-			$	-			$	-			$	-			$	34,759,972
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				1,144,755				-				-				-				1,144,755
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				5,232,471				-				-				5,232,471
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				31,848,569				-				-				31,848,569
Qinghai Zhong He Meat Products Co., Limited (“QZH”)			-				-				20,416,253				-				-				20,416,253
Macau Eiji Company Limited (“MEIJI”)			-				-				-				17,125,423				-				17,125,423
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				14.970,943				14.970,943
		$	34,759,972			$	1,144,755			$	57,497,293			$	17,125,423			$	14,970,943			$	125,498,386

 

COST OF SERVICES

 

		For the six months ended June 30, 2015
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)		$	21,911,617			$	-			$	-			$	-			$	-			$	21,911,617
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				1,404,813				1,404,813
		$	21,911,617			$	-			$	-			$	-			$	1,404,813			$	23,316,430

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

3.

SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

		For the six months ended June 30, 2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Sale of goods
Capital Award, Inc. (“CA”)		$	38,925,682			$	-			$	-			$	-			$	-			$	38,928,682
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)			-				719,070				-				-				-				719,070
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)			-				-				5,673,014				-				-				5,673,014
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)			-				-				33,281,567				-				-				33,281,567
Qinghai Zhong He Meat Products Co., Limited (“QZH”)			-				-				1,160,279				-				-				1,160,279
Macau Eiji Company Limited (“MEIJI”)			-				-				-				13,975,273				-				13,975,273
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				20,179,504				20,179,504
		$	38,925,682			$	719,070			$	40,114,860			$	13,975,273			$	20,179,504			$	113,914,389

 

COST OF SERVICES

 

		For the six months ended June 30,2014
		Fishery Development Division (1)				HU Plantation Division (2)				Organic Fertilizer and Bread Grass Division (3)				Cattle Farm Development Division (4)				Corporate and Others Division (5)				Total
Name of entity
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)		$	11,634,629			$	-			$	-			$	-			$	-			$	11,634,629
Sino Agro Food, Inc. (“SIAF”)			-				-				-				-				1,554,244				1,554,244
		$	11,634,629			$	-			$	-			$	-			$	1,554,244			$	13,188,873

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

4.

GAIN ON EXTINGUISHMENT OF DEBTS

 

The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0, $198,373, $0 and $241,393 has been credited to consolidated statements of income as other income for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

		Three months				Three months
		ended				ended
		June 30, 2015				June 30, 2014
Total amounts of debts to be settled		$	-			$	3,754,248
Less:  Aggregate market fair value of (6.30.2014: 831,577) shares of common stock in exchange of the above debts for debts extinguishment			-				(3,555,875	)
Gain on extinguishment of debts		$	-			$	198,373
		Six months				Six months
		ended				ended
		June 30, 2015				June 30, 2014
Total amounts of debts to be settled		$	-			$	9,816,393
Less:  Aggregate market fair value of (6.30.2014: 2,034,607) shares of common stock in exchange of the above debts for debts extinguishment			-				(9,575,000	)
Gain on extinguishment of debts		$	-			$	241,393

 

5.

INCOME TAXES

 

United States of America

 

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

 

Undistributed Earnings of Foreign Subsidiaries

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

 

The Company appointed US tax professionals to assist in filing income tax returns for the years ended December 31, 2014 and 2013 in compliance with US Treasury Internal Revenue Code and we filed our Tax returns with the Internal Revenue Service (“ IRS”) of USA Government.

 

As of June 30, 2015, the Company reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties assessed by the IRS in the United States of America.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

5.

INCOME TAXES (CONTINUED)

 

China

 

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

 

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

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HSA, SJAP and QZH since they are exempt from EIT for the six months ended June 30, 2015 and 2014 as they are within the agriculture, dairy and fishery sectors.

 

Belize

 

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

 

Hong Kong

 

No Hong Kong profits tax has been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising in Hong Kong for the six months ended June 30, 2015 and 2014.

 

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 six months ended June 30, 2015 and 2014.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the six months ended June 30, 2015 and 2014.

 

No deferred tax assets and liabilities are of June 30, 2015 and December 31, 2014 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

Three months

Three months

Six months

Six months

ended

ended

ended

ended

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

SIAF

$

-

$

-

$

-

$

-

SAFS

-

-

-

-

TRW

-

-

-

-

MEIJI and APWAM

-

-

-

-

JHST, JFD.JHMC, QZH and HSA

-

-

-

-

$

-

$

-

$

-

$

-

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the six months ended June 30, 2015 and 2014. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

6.

CASH AND CASH EQUIVALENTS

 

		June 30, 2015				December 31, 2014
Cash and bank balances		$	9,153,234			$	3,031,447

 

7.

INVENTORIES

 

As of June 30, 2015, inventories are as follows:

 

		June 30,				December 31,
		2015				2014
Sleepy cods, prawns, eels and marble goby		$	4,764,667			$	3,051,606
Beef and mutton			2,046,438				2,908,886
Bread grass			640,487				2,336,308
Beef cattle			7,178,443				8,362,763
Organic fertilizer			11,373,123				7,292,389
Forage for cattle and consumable			7,628,249				6,547,333
Raw materials for bread grass and organic fertilizer			15,846,549				14,223,407
Immature seeds			696,761				1,245,301
		$	50,174,717			$	45,967,993

 

8.

DEPOSITS AND PREPAYMENTS

 

		June 30,				December 31,
		2015				2014
Deposits for
-  purchases of equipment		$	4,670,256			$	4,668,784
-  acquisition of land use rights			3,373,110				3,373,110
- inventories purchases			18,454,399				14,221,199
- aquaculture contracts			12,260,163				20,467,603
- building materials			877,598				877,598
- consulting service providers and others			14,121,536				5,188,473
- construction in progress			20,467,357				20,467,357
Prepayments - debts discounts and others			8,840,155				3,827,401
Shares issued for employee compensation and overseas professional and bond interest			1,769,487				2,860,066
		$	84,834,061			$	75,951,591

 

9.

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 June 30, 2015 and December 31, 2014. Bad debts written off for the three months and the six months ended June 30, 2015 and 2014 are $0.

 

Aging analysis of accounts receivable is as follows:

 

		June 30,				December 31,
		2015				2014
0 - 30 days		$	36,497,137			$	21,663,061
31 - 90 days			28,110,036				38,324,554
91 - 120 days			7,921,519				21,138,383
over 120 days and less than 1 year			33,923,751				23,377,073
over 1 year			-				-
		$	106,452,443			$	104,503,071

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

10.

OTHER RECEIVABLES

 

		June 30,				December 31,
		2015				2014
Advanced to employees		$	854,661			$	476,630
Advanced to suppliers			7,701,953				9,910,682
Advanced to customers			28,616,937				13,917,948
Advanced to developers			28,000,000				28,000,000
Advanced to convertible bond holder			2,862,550				-
		$	68,036,101			$	52,305,260

 

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

 

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

 

11.

PLANT AND EQUIPMENT

 

		June 30,				December 31,
		2015				2014
Plant and machinery		$	5,573,254			$	5,507,571
Structure and leasehold improvements			53,561,282				51,650,906
Mature seeds and herbage cultivation			14,383,221				10,794,289
Furniture and equipment			636,360				629,055
Motor vehicles			765,858				765,858
			74,919,975				69,347,679
Less: Accumulated depreciation			(6,601,577	)			(4,994,704	)
Net carrying amount			68,318,398				64,352,975

 

Depreciation expense was $804,535, $596,470, $1,606,873 and $1,131,273 for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

12.

CONSTRUCTION IN PROGRESS

 

		June 30,				December 31,
		2015				2014
Construction in progress
- Office, warehouse and organic  fertilizer plant in  HSA		$	30,788,851			$	20,205,123
- Oven room, road for production of dried flowers			49,068				539,304
- Organic fertilizer and bread grass production plant and office building			14,781,092				12,325,685
-  Rangeland for beef cattle and office building			53,021,968				35,074,556
-  Fish pond			2,215,669				975,609
		$	100,856,648			$	69,120,277

 

13.

LAND USE RIGHTS

 

Private ownership of agricultural land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.23 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571, which consists of 79.48 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.21 acres in the Hunan Province, the P.R.C. and the leases expire in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was $489,904 which consisted of 6.27 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the lease expires in 2044.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

13.

LAND USE RIGHTS (CONTINUED)

 

		June 30,				December 31,
		2015				2014
Cost		$	69,480,438			$	69,428,143
Less: Accumulated amortization			(6,903,492	)			(6,105,941	)
Net carrying amount		$	62,576,946			$	63,322,202

 

		Expiry date		Description		Amount
Balance @1.1.2014						$	65,192,615
Additions
2014		2044		Zhongshan City, Guangdong Province, P.R.C.			4,453,665
Exchange difference							(218,137	)
Balance @12.31.2014							69,428,143
Exchange difference							52,295
Balance @6.30.2015						$	69,480,438

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years. Amortization of land use rights was $461,711 and $362,524, $797,551 and $760,034 for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

14.

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.

 

		June 30,				December 31,
		2015				2014
Goodwill from acquisition		$	724,940			$	724,940
Less: Accumulated impairment losses			-				-
Net carrying amount		$	724,940			$	724,940

 

15.

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 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 $2,270,968 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.

 

		June 30,				December 31,
		2015				2014
Cost		$	13,893,954			$	13,886,098
Less: Accumulated amortization			(2,703,249	)			(2,405,800	)
Net carrying amount		$	11,190,705			$	11,480,298

 

Amortization of proprietary technologies was $119,168, $150,269, $297,449 and $296,825 for the three months and the six months ended June 30, 2015 and 2014, respectively. No impairments of proprietary technologies have been identified for the six months ended June 30, 2015 and 2014.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

16.

LONG TERM INVESTMENTS

 

		June 30,				December 31,
		2015				2014
Investment in Huangyuan County Rural Credit Union		$	817,795			$	817,127
Less: Accumulated impairment losses			-				-
		$	817,795			$	817,127

 

17.

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

 

Intended
unincorporated		Projects				June 30,				December 31,
investee		Engaged				2015				2014
A		Trade center		*		$	4,086,941			$	4,086,941
A		Seafood center		*			1,032,914				1,032,914
B		Fish Farm 2 Gao Qiqiang Aquaculture		*			6,000,000				6,000,000
C		Prawn farm 1		*			14,554,578				14,554,578
D		Prawn farm 2		*			9,877,218				9,877,218
E		Cattle farm 2		*			5,558,057				5,558,057
						$	41,109,708			$	41,109,708

 

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 June 30, 2015, the percentages of equity stakes of SFJVCs A (trade and seafood centers), B ( fish farm 2 GaoQiqiang Aquaculture Farm ), C (prawn farm 1), D (pawn farm 2) and E (cattle farm 2) are minimal, 31%, 23%, 56%, 29% 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.

 

18.

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 June 30, 2015, the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

18.

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, 2015, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the changes are as follows:

 

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

 

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

 

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

 

Continuous assessment of the VIE relationship with QZH

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

 

The Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On June 30, 2015, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.

 

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

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

19.

CONSTRUCTION CONTRACT

 

(i)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

		June 30,				December 31,
		2015				2014
Costs and estimated earnings in excess of billings on uncompleted contracts		$	6,487,032			$	-
Estimated earnings			10,995,534				-
Less:  Billings			(16,175,681	)			-
Costs and estimated earnings in excess of billings on uncompleted contracts		$	1,306,885			$	-

  

(ii)

Billings in excess of costs and estimated earnings on uncompleted contracts

 

		June 30,				December 31,
		2015				2014
Billings		$	119,002,684			$	102,199,674
Less:  Costs			(63,478,386	)			(46,648,989	)
Estimated earnings			(50,891,403	)			(47,490,105	)
Billing in excess of costs and estimated earnings on uncompleted contract		$	4,632,895			$	8,080,580

  

(iii)

Overall

 

		June 30,				December 31,
		2015				2014
Billings		$	135,178,365			$	102,199,674
Less:  Costs			(69,965,418	)			(46,648,989	)
Estimated earnings			(61,886,937	)			(47,490,105	)
Billing in excess of costs and estimated earnings on uncompleted contract		$	3,326,010			$	8,080,580

 

20.

SERIES F SHARES MANDATORY REDEMPTION PAYABLE

 

On August 13, 2014, the Company filed a Certificate of the Designations, Powers, Preferences and Rights of the Series F Non-Convertible Preferred Stock (the “Certificate”) to its Articles of Incorporation, with the Secretary of State of the State of Nevada, setting forth the terms of its Preferred Stock. On June 10, 2014, the Company amended and restated the Certificate to (i) postpone the payment date of the dividend there under to May 30, 2015, (ii) to delete a reference to the redemption or declaration of any cash dividend or distribution on any Junior Securities, and (iii) make certain minor corrections to the Certificate. No share of Series F Non-Convertible Preferred Stock was ever issued. The Company believes it to be in the best interests of its shareholders to delay the cash payment until such time as its financial position would enable it to make the payment without harming its ability to develop its business in accordance with management’s plans. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

 

21.

OTHER PAYABLES

 

		June 30,				December 31,
		2015				2014
Due to third parties		$	9,053,893			$	8,176,469
Due to debts loan			4,797,332
Promissory notes issued to third parties			3,100,000				1,100,000
Due to local government			2,421,492				2,419,513
		$	19,372,717			$	11,695,982
Less: The current portion classified as non-current liabilities
Due to debts loan			(4,797,332	)			-
Amount classified as current liabilities		$	14,575,385			$	11,695,982

 

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

 

The Company issued 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332 from third party. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

22.

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 debts								June 30,				December 31,
Name of lender		Interest rate				Term		2015				2014
Agricultural Development Bank of China			6.4	%		January 3, 2014 - December 17, 2018		$	325,358	^*		$	325,092	^*
Huangyuan County Branch, Xining City, Qinghai Province, the P.R.C.
Agricultural Development Bank of China			6.18	%		October 21, 2014 - October 20, 2015			4,088,976	^*			4,085,635
Huangyuan County Branch,									-
Xining City, Qinghai Province, the P.R.C.
								$	4,414,334			$	4,410,727

 

Long term debts								June 30,				December 31,
Name of lender		Interest rate				Term		2015				2014
GanGuo Village Committee			12.22	%		June 2012 - June 2017		$	179,915			$	179,768
Bo Huang Town
Huangyuan County,
Xining City, Qinghai Province, the P.R.C.
Agricultural Development Bank of China			6.4	%		January 3, 2014 - December 17, 2018			2,453,386	^*#			2,451,381	^*#
Huangyuan County Branch,
Xining City, Qinghai Province, the P.R.C.
Less: The current portion reclassified as short term debts									(325,358	)			(325,092	)
								$	2,307,943			$	2,306,057

 

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

 

	^	personal and corporate guaranteed by third parties.
	*	secured by land use rights with net carrying amount of $493,474 (2014: $499,856).
	#	repayable $325,358, $650,184, $650,184 and $827,660 in 2015, 2016, 2017 and 2018, respectively.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

23.

BONDS PAYABLE

 

On July 1, 2013 , the Company offered a maximum of $21,000,000 of units (“ Units ”) for an aggregate of 840 Units; each Unit consisting of a $25,000 principal amount promissory note made by the Subscription Agreement and Confidential Private Placement Memorandum with maturity date two years from the Initial Closing Date of the Offering September 30, 2013. The interest rate of 5% is paid annually. Commission, issue cost and discounts are amortized over 2 years from October 1, 2013.

 

Terms of the bonds are as follows:

Issue size:		$16,800,000
Number of units offered:		840 units
Number of units issued:		69 units
Principal value per unit:		$25,000 per unit
Net payable value /bond:		$20,000 per unit
Discounted value/bond:		$5,000 paid to bond holder
Maturity date:		2 years (September 30, 2015)
Participating interest:		5% per annum
Effective yield:		11.80% per annum

 

		June 30,				December 31,
		2015				2014
Bonds payable		$	1,725,000			$	1,725,000

 

The Company calculated professional service compensation of $400,000 in respect of bond issue, and recognized $200,000 for the year ended December 31, 2014. As of December 31, 2014, the deferred compensation balance was $100,000 and the deferred compensation balance of $100,000 was to be amortized over 6 months beginning on January 1, 2015.

 

The Company calculated professional service compensation of $400,000 in respect of bond issue, and recognized $50,000, $50,000, $100,000 and $100,000 for the three months and the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, the deferred compensation balance was $0.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

24.

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”) 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, 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.

 

		June 30,				December 31,
		2015				2014
10.50% convertible note of maturity date February 20, 2020		$	34,870,297			$	15,803,928

 

The Company calculated the fair value of the convertible note and the beneficial conversion feature utilizing the Discounted Cash Flows model at the date of the issuance of convertible note. The relative fair values were allocated to the liability and equity components of the debt. Accordingly, a discount was created on the debt and this discount will be amortized to interest expense over the life of the debt. Debt premium of $3,891, $0, $276,013 and $0 was amortized for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

As of December 31, 2014, there was $15,509,933 principal outstanding and accrued interest in the amount of $293,995 that was owed under the terms of the convertible note. As of June 30, 2015, there was $33,333,333 principal outstanding and accrued interest in the amount of $1,536,964 that was owed under the terms of the convertible note.

 

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

 

The Company calculated professional service compensation of $1,500,000 in respect of convertible note issue, and recognized $375,000, $0, $750,000 and $0 for the three months ended and for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, the deferred compensation balance of $750,000 was to be amortized over 6 months beginning on July 1, 2015.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

25.

SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of June 30, 2015 and December 31, 2014 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

 

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

 

The Series A preferred stock:

	(i)	does not pay a dividend;
	(ii)	votes together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and
	(ii)	ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

 

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

 

25.

SHAREHOLDERS’ EQUITY (CONTINUED)

 

The Series B convertible preferred stock:

 

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

 

There were 0 and 7,000,000 shares of Series B convertible preferred stock issued and outstanding as of June 30, 2015 and December 31, 2014, respectively.

 

The Series F Non-Convertible Preferred Stock:

 

	(i)	is not redeemable subject to (iv);
	(ii)	except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to ( a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.
	(iii)	shall not entitled to receive any further dividend; and
	(iv)	on May 30, 2014, the holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

 

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

 

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of June 30, 2015 and December 31, 2014 are 0 shares and grand total issued and outstanding preferred stock as of June 30, 2015 and December 31, 2014 are 100 and 7,000,100 shares, respectively.

 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

25.

SHAREHOLDERS’ EQUITY (CONTINUED)

 

Common Stock:

 

On November 10, 2014, the Company approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) affecting both the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in the State of Nevada on December 16, 2014. Subsequent to the balance sheet date, 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.

 

During the year ended December 31. 2014, the Company issued (i) 2,734,625 shares of common stock for $13,006,373 at values ranging from $3.96 to $10.40 per share to settle debts due to third parties. The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $270,586 and $1,318,947 has been credited to consolidated statements of income as other income for the year ended December 31, 2014 and 2013, respectively; (ii) 130,568 shares of common stock valued to employees at fair value of $4.26 per share for $555,827 for employee compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $4.26 per share; (iii) 400,008 shares of common stock valued to professionals at fair value ranging from $3.96 to $7.43 per share for $2,763,618 for service compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance ranging from $3.96 to $9.90 per share; and (iv) 1,681 piecemeal shares of common stock valued at fair value of $9.49 per share for $15,951 for cancellation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of cancellation of $9.49 per share.

 

During the three months ended June 30, 2015, the Company issued (i) 47,787 shares of common stock valued to employees and directors at fair value of $15.20 per share for $726,315 for employee compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $4.26 per share; (ii) 7,000,000 shares of Series B preferred stock were converted into 707,070 shares under terms of issue; and (iii) 75,002 shares at $14.20 per share to decimal stockholder to round up its shares holding. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0 and $198,373 has been credited to consolidated statements of income as other income for the three months ended June 30, 2015 and 2014, respectively.

 

During the six months ended June 30, 2015, the Company executed several agreements with third parties to raise debts loan by issuance of the Company’s common stock. The Company issued (i) 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332 from third party, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued; (ii) 153,392 shares at $11.13 per share and 75,002 shares at $14.20 per share to decimal stockholder to round up its shares holding; (iii) 47,787 shares of common stock valued to employees and directors at fair value of $15.20 per share for $726,315 for employee compensation; and 7,000,000 shares of Series B preferred stock were converted into 707,070 shares under terms of issue. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0 and $241,393 has been credited to consolidated statements of income as other income for the six months ended June 30, 2015 and 2014, respectively.

 

The Company has 18,899,271 and 17,162,716 shares of common stock issued and outstanding as of June 30, 2015 and December 31, 2014, respectively.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

26.

OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2017; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733, its lease expiring on July 8, 2016; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, P.R.C. for a monthly rent of $163, its lease expiring on May 1, 2016.

 

Lease expense was $40,771, $40,591, $81,182 and $78,118 for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

The future minimum lease payments as of June 30, 2015, are as follows:

 

Year ending December 31, 2015		$	81,182
Thereafter			86,561
		$	167,743

 

27.

STOCK BASED COMPENSATION

 

On April 25, 2014, the Company issued employees a total of 130,567 shares of common stock valued at fair value of $4.26 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $4.26 per share.

 

On June 16, 2014, the Company issued professionals a total of 117,248 shares of common stock valued at fair value of $3.96 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $3.96 per share.

 

On September 16, 2014, the Company issued professionals a total of 202,020 shares of common stock valued at fair value of $7.43 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $7.43 per share.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

27.

STOCK BASED COMPENSATION (CONTINUED)

 

On December 15, 2014, the Company issued professionals a total of 80,739 shares of common stock valued at agreed price of $9.90 per share for services rendered to the Company. The agreed prices of the common stock issued were determined by both parties and greater than the trading price of the Company’s common stock on the date of issuance of $9.90 per share.

 

On May 6, 2015, the Company issued directors and employees a total of 47,787 shares of common stock valued at fair value of $15.20 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $15.20 per share.

 

The Company calculated stock based compensation of $4,246,495, $133,744 as of June 30, 2015 and December 31, 2014, respectively.

 

The Company recognized $880,033, $33,436, $1,760,066 and $66,872 for the three months and the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, the deferred compensation balance for staff was $1,880,033 and the deferred compensation balances of (i) $500,000; (ii) $1,125,000, (iii) $726,362 were to be amortized over 3, 6 and 12 months respectively beginning on July 1, 2015.

 

28.

CONTINGENCIES

 

As of June 30, 2015 and December 31, 2014, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements of cash flows.

 

29.

RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the six months ended June 30, 2015 and 2014, the Company had the following significant related party transactions:-

 

Name of related party		Nature of transactions
Mr. Solomon Yip Kun Lee, Chairman		Included in due to a director, due to Mr. Solomon Yip Kun Lee is $246,184 and $1,172,059 as of June 30, 2015 and December 31, 2014, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

30.

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 June 30, 2015				Three months ended June 30, 2014
BASIC
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income used in computing basic earnings per share		$	9,310,202			$	23,087,038
Basic earnings per share		$	0.51			$	1.47
Basic weighted average shares outstanding			18,140,209				15,695,971

 

		Three  months ended  June 30, 2015				Three  months ended  June 30, 2014
DILUTED
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income used in computing basic earnings per share		$	9,310,202			$	23,087,038
Add back interest on convertible notes			-				-
Net income used in computing diluted earnings per share		$	9,310,202			$	23,087,038
Diluted earnings per share		$	0.51			$	1.41
Basic weighted average shares outstanding			18,140,209				15,695,971
Add: weight average of common stock converted from Series B Convertible preferred shares outstanding			-				707,070
Diluted weighted average shares outstanding			18,140,209				16,403,041

   

		Six  months ended  June 30, 2015				Six months ended  June 30, 2014
BASIC
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income used in computing basic earnings per share		$	33,065,043			$	43,874,957
Basic earnings per share		$	1.87			$	2.91
Basic weighted average shares outstanding			17,714,995				15,056,498

 

		Six months ended June 30, 2015				Six  months ended June 30, 2014
DILUTED
Numerator for basic earnings per share attributable to the Company’s common stockholders:
Net income used in computing basic earnings per share		$	33,065,043			$	43,874,957
Add back interest on convertible notes			-				-
Net income used in computing diluted earnings per share		$	33,065,043			$	43,874,957
Diluted earnings per share		$	1.87			$	2.78
Basic weighted average shares outstanding			17,714,995				15,056,498
Add: weight average of common stock converted from Series B Convertible preferred shares outstanding			-				707,070
Diluted weighted average shares outstanding			17,714,995				15,763,568

  

For the three months ended June 30, 2015 and 2014, full dilution effect of convertible note of $16,286,754 (6.30.2014: $0), was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted to exercise shares before October 1, 2015 under terms of convertible note agreement.

 

For the six months ended June 30, 2015 and 2014, full dilution effect of convertible note of $34,870,297 (6.30.2014: $0), was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted to exercise shares before October 1, 2015 under terms of convertible note agreement. 

 

 

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 2015 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, interpretation and clarification of business category on the consolidated results of the operations

 

The company strategy is to manage and operate its businesses under six (6) business divisions or units on a standalone basis, namely:

 

1)    Fishery Division;

2)    Plantation Division;

3)    Beef Division;

4)    Cattle Farm Division;

5)    Organic Fertilizer Division; and

6)    Corporate & Others Division

 

A summary of each business division is described below:

 

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 revenue as being the sole marketing, sales and distribution agent of the fishery farms (covering both of the fish, prawns and eel farms) developed by Capital Award in China 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

 

Capital Award generates revenue as the sole marketing, sales and distribution agent for the fish and prawn farms developed by Capital Award in China as follows:

 

(1) Sales to Sino Foreign Joint Venture Companies (“SFJVC”) and sales derived from the SFJVC (currently, only the JFD subsidiary is an SFJVC) are being consolidated into Tri-way Industries Ltd. (Hong Kong) (“TRW”) as one entity.

 

(2) Sales to and sales derived from un-incorporated companies (covering EBAPCD and ZSAPP) are accounted for independently as follows:

 

CA and EBAPCD: (a). CA purchases prawn fingerling and feed stocks from third party suppliers and resells to EBAPCD at variable small profit margins and (b). CA purchases matured prawns from EBAPCD and sells them to third parties (in wholesale markets) at a gross profit margin approximating 15%.

 

 

CA and ZSAPP: (a). CA earns commission from the sale of prawn fingerlings that are sold by ZSAPP to third parties, and in this respect ZSAPP produces its own prawn fingerlings as compared to CA purchasing them for EBAPCD, as described above, and (b). CA purchases matured prawns from ZSAPP and sells to third parties (in wholesale markets) at a gross profit margin approximating15%.

 

(Note: CA does not retain an equity interest in either EBAPCD or ZSAPP, with both entities being independently managed and operated, nor does CA retain any controlling interest in their respective board governance except that CA has been contracted by these entities to manage farm operations and to market respective products produced from farms developed by CA and using CA’s APRAS Technology (i.e., APRAS farms). Also, each entity has granted CA an option to acquire an equity position up to 75% in the respective SFJVCs that will be formed (if and when CA decides to have a long term business relationship with said owners) and in this respect said SFJVC will acquire said APRAS farms, related and associated assets and business operation etc. Presently, and as such, CA does not consolidate either EPAPCD or ZSAPP company financials, but rather treats its accounting relationship with each under “Goods and Services Sold and Delivered”).

 

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 at markup. JHST’s financial statements are consolidated into the financial statements of Macau EIJI Company Ltd. (“MEIJI”) as one entity.

 

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 are selling them mainly in Guangzhou and Beijing livestock wholesale markets. JHMC’s financial statements 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.

 

Organic Fertilizer Division refers to (i) the operation of Qinghai Sanjiang A Power Agriculture Co., Ltd. (“SJAP”) in manufacturing and sales of organic fertilizer, bulk livestock feed and, concentrated livestock feed, the sales of live cattle inclusive (a): Cattle that are not being slaughtered in the slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) sold to third party live-stock wholesalers and (b): Cattle that are sold to QZH and being slaughtered and deboned and packed by QZH along with the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and SJAP owned retail butcher stores, and (ii) the operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer. Also QZH is a wholly owned subsidiary of SJAP, and as such financial statements of these three companies (SJAP, QZH and HSA) are being consolidated into A Power Agro Agriculture Development (Macau) Limited (“APWAM”) as one entity.

 

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.

 

 

MD & A OF CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended June 30, 2015 compared to the three months ended June 30, 2014.

 

In $		Three months ended				Three months ended
		June 30. 2015				June 30. 2014				Difference				Note
Revenue			90,853,728				97,032,504				(6,178,776	)		1
Consulting, services, commission and management fee			8,833,426				14,675,444				(5,842,018	)
Sale of goods			82,020,302				82,357,060				(336,758	)
Cost of goods sold and services			68,916,817				64,735,321				4,181,496			2
Consulting, services, commission and management fee			6,708,419				6,685,461				22,958
Sale of goods			62,208,398				58,049,860				4,158,538
Gross  Profit			21,936,911				32,297,183				(10,360,272	)		3
Consulting, services, commission and management fee			2,125,007				7,989,983				(5,864,976	)
Sale of goods			19,811,904				24,307,200				(4,495,296	)
Other income (expenses)			(1,177,990	)			213,692				(1,391,682	)
General and administrative expenses			(5,392,206	)			(3,281,860	)			(2,110,346	)		4
Net income			15,366,715				29,229,015				(13,862,300	)
EBITDA			18,078,601				30,506,193				(12,427,592	)
Depreciation and amortization (D&A)			(1,385,414	)			(1,166,792	)			(218,622	)		5
EBIT			16,693,187				29,339,401				(12,646,214	)
Net  Interest			(1,326,472	)			(110,386	)			(1,216,086	)
Tax			-				-				-
Net  Income			15,366,715				29,229,015				(13,862,300	)
Non - controlling interest			(6,056,513	)			(6,141,977	)			85,464			7
Net income to SIAF Inc. and subsidiaries			9,310,202				23,087,038				(13,776,836	)
Weighted average number of shares outstanding
-  Basic			18,140,209				15,695,971				2,444,238
-  Diluted			18,140,209				16,403,041				1,737,168
Earnings Per Share (EPS)														8
-  Basic			0.51				1.47				(0.96	)
-  Diluted			0.51				1.41				(0.90	)

 

Part A discusses and analyzes certain items with accompanying notes assisting shareholders in obtaining a better understanding of the Company’s financial condition:

 

 

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

 

Company’s revenues were generated from (A) Sale of Goods and (B) Consulting and Services provided from or within project and business developments through engineering, construction, supervision, training, management and/or technology services.

 

Table (A.2) below shows segmental break-down figures of sales of goods, related cost of sales and GPs for the three months ended June 30, 2015 (Q2 2015) and the three months ended June 30, 2014 (Q2 2014).

  

In US$				Sales of goods								Cost of Goods sold								Gross profit
				2015Q2				2014Q2				2015Q2				2014Q2				2015Q2				2014Q2
SJAP		Sales of  live  cattle			15,271,116				18,874,020				12,738,272				14,017,814				2,532,844				4,856,206
		Sales of   feedstock
		Bulk Livestock feed			1,425,186				1,419,500				667,795				726,430				757,391				693,070
		Concentrate livestock feed			2,509,650				3,539,632				1,502,015				1,976,521				1,007,635				1,563,111
		Sales of   fertilizer			580,944				2,018,340				376,656				1,031,596				204,288				986,744
		SJAP Total			19,786,896				25,851,492				15,284,738				17,752,361				4,502,158				8,099,131
		* QZH's (Slaughter & Deboning operation)			309,777								127,066								182,711
		QZH's (Deboning operation)
		on cattle & Lamb locally supplied			3,161,031				739,629				2,602,976				769,013				558,055				-29,384
		on imported beef and mutton			13,260,745								9,514,843				-				3,745,902				-
		QZH's Sales of live cattle							1,059,198								391,266								667,932
		QZH Total			16,731,553				1,798,827				12,244,885				1,160,279				4,486,668				638,548
HSA		Sales of  Organic fertilizer			881,367				1,027,187				677,914				799,917				203,454				227,270
		Sales of Organic Mixed Fertilizer			4,027,366				4,107,126				2,163,959				2,145,119				1,863,406				1,962,007
		HSA Total			4,908,733				5,134,313				2,841,873				2,945,036				2,066,860				2,189,277
		SJAP's & HSA/Organic fertilizer total			41,427,182				32,784,632				30,371,496				21,857,676				11,055,686				10,926,956
JHST		Sales of Fresh HU Flowers			452,206								106,658								345,548				-
		Sales of Dried HU Flowers			2,217,401				2,185,504				522,949				624,732				1,694,452				1,560,772
		Sales of Dried Immortal vegetables			1,523,406				326,384				515,148				93,039				1,008,258				233,345
		Sales of Other Value added products			-								-								-				-
		JHST/Plantation Total			4,193,013				2,511,888				1,144,755				717,771				3,048,258				1,794,117
CA		Sales of
		Fish (Sleepy cods)			2,531,210				4,099,410				2,000,962				3,183,840				530,248				915,570
		Eels			6,050,679				17,574,960				3,962,228				10,874,310				2,088,451				6,700,650
		Prawns			9,556,473				5,230,548				7,909,260				3,078,087				1,647,213				2,152,461
		Mixed seafood			1,005,085								785,525				-				219,560				-
		CA/ Fishery total			19,143,447				26,904,918				14,657,975				17,136,237				4,485,472				9,768,681
MEIJI
		Sale   of  Live cattle (Aromatic)			9,497,684				7,123,915				9,137,304				6,754,437				360,380				369,478
		MEIJI / Cattle farm Total			9,497,684				7,123,915				9,137,304				6,754,437				360,380				369,478
SIAF
		Sales of goods through trading/import/export activities
		on seafood			3,418,903				13,031,707				3,039,025				11,583,739				379,878				1,447,968
		on imported beef and mutton			4,340,073				-				3,857,843				-				482,230				-
		SIAF/ Others & Corporate  total			7,758,976				13,031,707				6,896,868				11,583,739				862,108				1,447,968
Group Total					82,020,302				82,357,060				62,208,398				58,049,860				19,811,904				24,307,200

 

 

Table (A.3) below shows the percentage for gross profit the three months ended June 30, 2015 and June 30, 2014.

 

Gross Profit in % of sale of goods						2015Q2				2014Q2				Difference
Fishery
		CA
				Fish (Sleepy cods)			21	%			22	%			-1	%
				Eels			35	%			38	%			-3	%
				Prawns			17	%			41	%			-24	%
				Mixed seafood			22	%			-				22	%
				CA and Fishery Gross Profit			23	%			36	%			-13	%
Planation
		JHST
				Fresh HU Flowers			76	%			-				76	%
				Dried HU Flowers			76	%			71	%			5	%
				Dried Immortal vegetables			66	%			71	%			-5	%
				Other Value added products			-
				JHST and Plantation Gross Profit			73	%			71	%			2	%
Beef
		SJAP
				Live  cattle			17	%			26	%			-9	%
		QZH
				QZH's (Deboning operation)
				on locally supplied cattle & lamb			18	%			-4	%			22	%
				on imported beef and mutton			28	%			-				28	%
				QZH's Sales of live cattle			0	%			63	%			63	%
				Beef Gross Profit			21	%			31	%			-10	%
Organic fertilizer
		SJAP
				Feedstock
				Bulk livestock feed			53	%			49	%			4	%
				Concentrated livestock feed			40	%			44	%			-4	%
				Fertilizer			35	%			49	%			-14	%
		HSA
				Fertilizer			23	%			22	%			1	%
				Organic mixed fertilizer			46	%			48	%			-2	%
				Organic fertilizer Gross Profit			26	%			33	%			-7	%
Cattle farm
		MEIJI
				Sale of  live cattle (Aromatic)			4	%			5	%			-1	%
				MEIJI and Cattle farm Gross Profit			4	%			5	%			-1	%
Corporate
		SIAF
				Sales of goods through trading/import/export activities
				on seafood			11	%			11	%			0	%
				on imported beef and mutton			11	%			11	%			0	%
				Corporate and SIAF Gross Profit			11	%			11	%			0	%
Group Total Gross Profit on sale of goods (excluding CSC &C)							24	%			30	%			-6	%

 

 

Notes to Table A.1’s:

 

Note (1, 1.2, 2, 2.2, 3, and 3.2);

 

Revenues (sale of goods)

 

Company revenue generated from sale of goods decreased by $336,758 (or 0.4%) from $82,357,060 for Q2 2014 to $82,020,302 for Q2 2015. The decrease primarily was due to the decrease of live cattle prices on beef cattle (i.e. Angus, Simmental etc.) falling from the average of RMB31/Kg (live weight) in Q1 2015 to Q2’s RMB26/Kg, reducing the overall sale revenue of live cattle of SJAP from US$18,874,020 (Q12014) to US$15,271,116 (Q2 2015) by US$3,602,904 in the quarter (additional details are cited throughout this Form 10-Q).

 

Fishery: Total Sales Revenue from CA/F fishery decreased by $7,761,471 (or 29%) from $26,904,918 for Q2 2014 to $19,143,447 for Q2 2015. The decrease in fishery revenue primarily was due to a lower quantity of eel fingerlings for grow-out due to less supply being available from Madagascar and the Southern China areas. Since eel fingerlings cannot be generated through aquaculture, and due to their biennial production cycle wherein every other season results in either a low or high volume of production, the Company anticipates a high-supply year in 2016 as long as the natural cycle is not disrupted by outside factors.

 

Revenue from sales of eels fell from US$17,574, 960 (Q1 2014) to $6,050,679 (Q2 2015) a decrease of $11,524,281.

 

Revenue from sales of prawn increased by $4,325,925 from $5,230,548 (Q2 2014) to $9,556,473 (Q2 2015). The increase in prawn production reflected the duality/flexibility of the APRAS technology, helping to capture some of the decrease from eel production, although not the entire shortfall due to the average sales price difference between eels (RMB135/kg) compared to prawn (RMB80/kg).

 

 

Plantation: Revenue from our plantation increased by $1,681,125 (or 67%) from $2,511,888 for Q2 2014 to $4,193,013 for Q2 2015. The increase was primarily due to the results of the past year’s dedication, persistent efforts and improvements made to the farm to limit the risk of extreme seasonal effects and overcoming problems of plant diseases resulting in a good harvest of HU flowers during the heavy rainy Q2 this year, which had not been experienced during last year’s wet season.

 

Organic fertilizer: Revenue from organic fertilizer increased by $8,642,550 (or 26%) from $32,784,632 for Q2 2014 to $41,427,182 for Q2 2015. The increase primarily was due to SJAP’s sales of packaged meats processed and de-boned from the imported quarter cut beef from Australia with sale revenue of $13,260,745 generated in Q2 2015 compared to $0 in Q2 2014.

 

Cattle farm: Revenue from cattle farm increased by $2,373,769 (or 33%) from $7,123,915 for Q2 2014 to $9,497,684 for Q2 2015; evidence of stabilization within CF(1)’s business activity.

 

Corporate: Revenue from the corporate decreased by $5,272,731 (or 40%) from $13,031,707 for Q2 2014 to $7,758,976 for Q2 2015. The decrease was primarily due to the decrease in seafood sales imported from Madagascar falling from Q2 2014’s $13,031,707 to Q2 2015’s $3,418,903 decreasing by $9,612,804. The main reasons for the decrease were due to: (1) Madagascar has implemented policies to limit its export quota of live seafood and to manage its wild capture of sea food more efficiently, thus reducing supply, and (2) There are an increasing number of Chinese buyers competing for live sea food supplies. In this respect, the Company has executed plans to source more seafood from other countries that will help to improve the situation starting from Q3 2015.

 

Cost of Goods gold

 

Cost of goods sold increased by $4,181,496 (or 7%) from $58,049,860 for Q2 2014 to $62,208,398 for Q2 2015. The increase was primarily due to increase of cost of goods sold from SJAP’s increase of imported quarter cut beef of $9,514,843 in Q2 2015 as compared with $0 in Q2 2014

 

Fishery: Cost of goods sold from fishery decreased by $2,478,262 (or 14%) from $17,136,237 for Q2 2014 to $14,657,975 for Q2 2015. The decrease in cost of goods from fishery was primarily due to the decrease in sales of eels explained earlier.

 

Plantation: Cost of goods sold from plantation increased by $426,984 (or 59%) from $717,771 for Q2 2014 to $1,144,755 for Q2 2015. The increase was primarily due to the increase of sales in HU flowers both in fresh or dried flowers.

 

Organic fertilizer: Cost of goods sold from organic fertilizer increased by $8,513,820(or 39%) from $21,857,676 for Q2 2014 to $30,371,496 for Q2 2015. The corresponding increase was primarily due to the increase of cost of goods sold from SJAP’s increase of imported Quarter Cut beef of $9,514,843 in Q2 2015 as compared with $0 in Q2 2014 as explained earlier.

 

Cattle farm: Cost of goods sold from cattle farm increased by $2,382,867 (or 35%) from $6,754,437 for Q2 2014 to $9,137,304 for Q2 2015. The increase was primarily due to more trading of cattle activity than the fattening activity of the farm.

 

Corporate: Cost of goods sold from corporate decreased by $4,686,871 (or 40%) from $11,583,739 for Q2 2014 to $6,896,868 for Q2 2015. The decrease was primarily due to the decrease in seafood sales imported from Madagascar as explained earlier.

 

Note (3): Gross Profit (sale of goods)

 

Gross profit generated from goods sold decreased by $4,678,008 (or 19%) from $24,307,200 for the three months ended June 30, 2014 to $19,629,192 for the three months ended June 30, 2015. The decrease was primarily due to decrease of gross profit from fishery by $5,283,209. Gross profit from fishery of (Q2 2015: $4,485,472) attributed to 23% of total gross profit of $19,629,192. Gross profit from fishery of (Q2 2014: $9,768,681) attributed to 40% of total gross profit of $24,307,200.

 

Fishery: Gross profit from fishery decreased by $5,283,209 (or 54%) from $9,768,681 for the three months ended June 30, 2014 to $4,485,472 for the three months ended June 30, 2015. Gross profit derived from sales of sleepy cods, eels and prawns were $530,248, $2,088,451 and $1,647,213 respectively in Q2 2015 compares to $915,570, $6,700,650 and $2,152,461 respectively in Q2 2014.

 

Plantation: Gross profit from our plantation increase by $1,254,140 (or 70%) from $1,794,117 for the three months ended June 30, 2014 to $3,048,257 for the three months ended June 30 2015.

 

Organic fertilizer: Gross profit from organic fertilizer increased by $53,982 (or 0.5%) from $10,926,956 for the three months ended June 30, 2014 to $10,872,974 for the three months ended June 30, 2015.

 

Cattle farm: Gross profit from cattle decrease by $9,098 (or 2%) from $369,478 for the three months ended June 30, 2014 to $360,380 for the three months ended June 30, 2015.

 

Corporate: Gross profit from the corporate decreased by $585,860 (or 40%) from $1,447,968 for the three months ended June 30, 2014 to $862,108 for the three months ended June 30, 2015.

 

 

Table A.4. : itemized sales of goods and related cost of sales in quantity and unit price for the three months ended June 30, 2015 (Q2 2015 ) and the three months ended June 30, 2014 (Q2 2014).

 

		Description of items
		Cattle Operation				2015Q2				2014Q2				Difference
		Production and Sales of live cattle		Heads			5,038				5,157				-119			A.4.1
		Average Unit sales price		US$/head			3,031				4,009				-978
		Unit cost prices		US$/head			2,528				2,943				-415
		Production and sales of feedstock													-
		Bulk Livestock feed		MT			8,095				8,500				-405			A.4.2
		Average Unit sales price		US$/MT			176				167				9
		Unit cost prices		US$/MT			82				85				-3
		Concentrated livestock feed		MT			5,728				4,288				1,440			A.4.3
		Average Unit sales price		US$/MT			438				406				32
		Unit cost prices		US$/MT			262				190				72
		Production and sales of fertilizer		MT			3,192				11,213				-8,021			A.4.4
		Average Unit sales price		US$/MT			182				180				2
		Unit cost prices		US$/MT			118				92				26
QZH		(Slaughter & De-boning operation)
		Slaughter operation
		Slaughter of cattle		Heads			692											A.4.5
		Service fee		US$/Head			82
		Sales of associated products		Pieces			692
		Average Unit sales price		US$/Piece			366
		Unit cost prices		US$/Piece			184
		De-boning & Packaging activities																A. 4.6.
		From Cattle supplied locally
		De-boned Meats		MT			307				88				219
		Average Unit sales price		US$/MT			10,297				11,987				-1,690
		Unit cost prices		US$/MT			8,479				4,428				4,051
		From imported beef		MT			1,515
		Average Unit sales price		US$/MT			8,753
		Unit cost prices		US$/MT			6,280
		From imported lamb		MT
		Average of sales price		US$/MT
		Average of cost prices		US$/MT
		Re-Sales of live cattle		Heads							192
		Average Unit sales price		US$/head							3,853
		Unit cost prices		US$/head							4,009
HSA		Fertilizer and Cattle operation																A. 4.7.
		Organic Fertilizer		MT			3,266				4,029				-763
		Average Unit sales price		US$/MT			270				255				15
		Unit cost prices		US$/MT			208				199				9
		Organic Mixed Fertilizer		MT			8,366				9,165				-799			A. 4.8.
		Average Unit sales price		US$/MT			481				448				33
		Unit cost prices		US$/MT			259				234				25
		Retailing packed fertilizer (For super market sales)		MT											-			A. 4.8.a
		Average Unit sales price		US$/MT											-
		Unit cost prices		US$/MT											-
JHST		Plantation of HU Flowers and Immortal vegetables
		Fresh HU Flowers		Pieces			2,500,000								2,500,000			A.4.9
		Average Unit sales price		US$/Pieces			0.18								0.18
		Unit cost prices		US$/Pieces			0.04								-
		Dried HU Flowers		MT			152				158				-6			A.4.10
		Average Unit sales price		US$/MT			14,588				13,836				752
		Unit cost prices		US$/MT			3,440				3,954				-514
		Dried Immortal vegetables		MT			17				4.46				13			A.4.11
		Average Unit sales price		US$/MT			89,612				73,171				16,441
		Unit cost prices		US$/MT			30,303				20,858				9,445
		Other Value added products		Pieces														A.4.12
		Average Unit sales price		US$/Pieces

 

 

		Description of items
						2015Q2				2014Q2				Difference
CA		Production  and  sale (Inclusive contracted farms)  of live
		Fish (Sleepy cods)		MT			176				270				-94			A.4.13
		Average Unit sales price		US$/MT			14,398				15,183				-785
		Unit cost prices		US$/MT			11,382				11,792				-410
		Eels		MT			291				786				-495			A.4.14
		Average Unit sales price		US$/MT			20,793				22,360				-1,567
		Unit cost prices		US$/MT			13,616				13,835				-219
		Prawns		MT			735				355				380			A.4.15
		Average Unit sales price		US$/MT			13,002				14,734				-1,732
		Unit cost prices		US$/MT			10,761				8,671				2,090
		Mixed seafood		MT			339
		Average Unit sales price		US$/MT			2,965
		Unit cost prices		US$/MT			2,317
MEIJI		Production  and  sale   of  Live cattle (Aromatic)		Heads			3,243				2,324				919			A.4.16
		Average Unit sales price		US$/head			2,929				3,065				-136
		Unit cost prices		US$/head			2,818				2,906				-88
SIAF		Seafood  trading from imports
		Mixed seafood		MT			186				81				105			A.4.17
		Average of sales price		US$/MT			18,381				160,885				-142,504
		Average of cost prices		US$/MT			16,339				143,009				-126,670
		Beef & Lambs trading from imports		MT			304				-
		Average of sales price		US$/MT			14,277
		Average of cost prices		US$/MT			12,690

 

 

Notes to Table A.4.

 

A.4.1:  here were 5,038 heads of live cattle at an average weight of 717Kg/headsoldinQ22015at an average of RMB26 / Kg of (live weight) to5, 157 head at an average weight of 700/head at an average of RMB34.5 / Kg sold in Q22014 reflecting falling cattle prices from the high of 2014 at an average of RMB34 / Kg to Q1 2014’s RMB31 / Kg to its current RMB26 / Kg.

 

Cattle prices in China have been falling in 2015 due to heavy volumes of imports of beef meats encouraged by the new treaty agreed by China with exporting countries allowing for more imports at lower duty and higher import quota. This also has affected our locally produced meat prices having dropped from Q1 2015’s RMB68 / Kg and RMB71 / Kg to its recent price of RMB61 / Kg and RMB 64 for meats deboned from A grade and S grade cattle, respectively. At the same time, our 120 additional days Grain Fed high graded 2 year old Angus meats are selling at average over RMB85 / kg in Shanghai. In addition, while the imported cattle and fresh meat prices are dropping in China, prices on the same cuts are rising sharply in Australia, illustrating the complexity in determining and gauging overall cattle and meat prices when it comes to forecasting sales and volumes accurately. However, there is a clear indication that demand for higher quality cuts and a nascent consumer market are becoming evident, primarily enabled through an increasing middle class in China

 

 

A.4.2: The decrease in sales of the Bulk livestock feed by 405 MT between Q2 2014’s 8,500 MT and Q2 2015’s 8,095 MT mainly was due to seasonal sales variations.

 

A.4.3: The increase in sales of the concentrated livestock feed by 1,440 MT between Q2 2014’s 4,288 MT and Q2 2015’s 5,728 MT was primarily due to the increase of sales to external growers. This quarter we saw a growth in sales prices of $ 32/MT, and a cost savings on production of $72 /MT compared to Q2 2014.

 

A.4.4: There were minor differences in SJAP’s fertilizer sales and production between Q2 2015 and Q2 2014since sales prices increased by US$ 182/MT while cost of production also went up by $118 /MT.

 

A.4.5/6: Qinghai Zhong He Meat Products Co., Limited (“QZH”) is the fully owned subsidiary of SJAP formed earlier in the year to operate the Slaughter House and Deboning operational division of SJAP .During the quarter, it has deboned and packed and sold 1,822 MT of meats representing 307 MT and 1505 MT from locally slaughtered and imported quarters, respectively compared to the 88 head it processed in Q2 2014, a marked improvement representing 20 MT of meat being processed per

 

A.4.7/8: HSA decreased its total sales of fertilizer by 763 MT to 3,266 MT in Q2 2015 compared to the 4,029 MT in Q2 2014.That is a drop of 19 % mainly due to a variation in seasonal demand.

 

A.4.9, 10, 11, 12: This year harvests of HU Flowers at the Company farm is expected to exceed all previous years, yet due to a persistent wet season, similar harvests from regional growers are not expected to perform as well, therefore impacting targeted sales of dry flowers when compared to 2013 sales, the last year before plant disease adversely impacted output. Yet, the Company still anticipates a better performance this year when compared to 2014 when the Company farm had been stricken with the disease and had not met targeted performance.

 

A.4.13, 14, 15: This quarter, we saw the drop in sales of eels but an increase in prawn sales with an overall drop in gross profit mainly due to sale price differences of the two species explained earlier. The lower gross profit margin in prawn sales for the quarter reflects results from improved prawn grading for sales of prawns at four (4) distinct stages throughout the grow-out period (14 weeks) aimed at reducing mortality risk while quickening the rate of sale turnover. Respectively, stage one (1) prawns (5 to 6 weeks), which approximate the size of river grown prawns (at 100/120 piece count), are marketed and readily accepted due to their excellent flavor and meat quality. Coincidentally, the same sized prawn are a common favorite in Sweden, and provides an opportunity for the Company to one day seek an opening in this market once sufficient production is underway to meet both domestic and outside demand.

 

A.4.16: MEIJI’s sales revenue is derived from a combination of trading cattle raised by subcontracted growers along with the consolidated revenue from CF1, subject to the availability of subcontracted stock, which inversely affects the average gross profit margin (i.e. more stock supply available to be sold results in lower GP% realized).

 

A.4.17: It was reflected earlier about the limits imposed on imports derived from Madagascar, and the Company’s related plan of action to overcome the shortfall, but in addition to this offset, the sale of imported beef is rapidly increasing having sold 304MT during Q2 compared to 0MT for the same period in 2014, and therefore plans have been made to achieve beef sales above 10,000MT over the next 6-month period projected to generate sales revenue of over US$145 million. Another milestone reached by the Company that had not been contemplated, and not until recently seen a sales force formed and dedicated to advancing its sales throughout the remainder of 2015, onward.

 

 

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

 

Table (A.5) revenue, cost of services and gross profit generated from consulting, services, commission and management fees for the three months ended June 30, 2015(Q2 2015) and the three months ended June 30,2014 (Q2 2014).

 

		2015Q2				2014Q2				Difference				Description of work		Notes
Sales Revenues (Consulting and Services)
CA			8,833,426				13,045,757				-4,212,331			Primarily on the Zhongshan new prawn project
SIAF			-				1,629,687				-1,629,687			Restaurant (4,5 & 6) and renovation of Restaurant (1 & 2)
Group Total Revenues			8,833,426				14,675,444				-5,842,018
Cost of sales
CA			6,708,419				5,131,217				1,577,202
SIAF			-				1,554,244				-1,554,244
Group Total Cost of sales			6,708,419				6,685,461				22,958
Gross Profit
CA			2,125,007				7,914,540				-5,789,533
SIAF			-				75,443				-75,443
Group Total Gross Profit			2,125,007				7,989,983				-5,864,976

 

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

 

Revenues decreased by $5,842,018 (or 40%) from $14,675,444 for Q2 2014 to $8,833,426 for Q2 2015. The decrease was primarily due to the rainy Q2 season delaying much for the construction work in progress of the Zhongshan New Prawn Project (“ZSNPP”) carried out by CA, and a lack of development work carried out by SIAF during the same quarter:

 

CA (Fishery): Revenue from fishery decreased by $4,212,331 (or 32 %) from $13,045,757 for Q2 2014 to $8,833,426 for Q2 2015.

 

SIAF (Corporate): Revenue from corporate decreased by $1,629,687 from $1,629,687 for Q2 2014 to $0 for Q2 2015.

 

Cost of services (consulting, service, commission and management fee)

 

Cost of services for consulting, service, commission and management fees increased by $22,958 (or 0.34%) from $6,685,461 for Q2 2014 to $6,708,419 for Q2 2015.

 

CA (Fishery): Cost of services from fishery increased by $1,577,202 (or 31 %) from $5,131,217 for Q2 2014 to $ 6,708,419 for Q2 2015, primarily due to the development costs of many modules and the parts and components needed for the manufacturing and supply of plants and equipment for the ZSNPP.

 

 

SIAF (Corporate): Cost of services from corporate decreased by $1,554,244 from $1,554,244 for Q2 2014 to $0 for Q2 2015. The reason for the decrease is because there was no work carried out for the development of restaurant related work during the quarter.

 

Gross profit (consulting, service, commission and management fee)

 

Gross profit of consulting, service, commission and management fee decreased by $5,864,976 (or 73%) from $7,989,983 for Q2 2014 to $2,125,007 for Q2 2015.

 

CA (Fishery): Gross profit from fishery decreased by $5,789,533 (or 73 %) from $7,914,540 for Q2 2014 to $2,125,007 for Q2 2015.

 

SIAF (Corporate): Gross profit from corporate decreased by $75,443 from $75,443 for Q2 2014 to $0 for Q2 2015.

 

Tables (A.6) ongoing Consulting and Services provided by Capital Award, MEIJI and SIAF respectively up to end of Q2 2015:

  

 

Name of the developments

Location of development

Designed capacity per year

Land area or Built up area

Current Phase & Stage

Commencement date of development

(Estimated) development's completion date on or before

Contractual amount

% of completion as of 30.06.2015

Notes

Fish Farm (1)

Enping City

1,200 MT

9,900 m2

fully operational

July 2010

June 2011

$5.3 million

Fully operational

Prawn Farm (1)

Enping City

2013=400MT 2014=800MT 2015=1200 MT

23,100 m2

2 phases and road work

2 phases and road work and Phase 3 extension of grow-out farm & Phase 4 demonstrated hydroponic farm

Phase 1 on June 2011 Phase (2.1) Phase (2.2) Road work Started Aug. 2012

Phase (1) on December 2012 Phase (2) completed Q1 2013

Phase (1) $11.6 million Phase (2) 6.39 million Road work $2.94 million, Phase 3 US$5.2 million & Phase 4 US$1.6 million

Phase 1 & 2 completed and Phase 3 in progress

Fish Farm (2) "The Fish & Eel Farm

Xin Hui District, Jiang Men.

2014=800 MT 2015= 1600 MT 2016=2000MT

165,000 m2

3 Phases

Phase 1 January 15, 2012 Bridge & Road Oct. 2012 Phase (3) 2013 & (4)2014

Phase 1 June 2014 Bridge & Road Dec. 2013 Phase (3) & (4) 2015

Phase (1) $8.73 million Bridge & Road $2.48 Phase (3) $4.38 M Phase (4) $10.63 Million

Phase (1) & Bridge and Road completed Jan. 2013 Phase (3) completed and Phase (4) not started.

Phase 4 work in progress

Prawn Farm (2) The Hatchery & Nursery & Grow-out prawn farm

San Jiao Town, Zhong San City,

2013=1.6 Billion Fingerling and 400MT of prawns increasing yearly and by 2015 = 3.2 billion fingerling and 1200 MT of Prawns

120,000 m2

2 phases

Phase (1) and Phase (2) May 2012 Phase (3) 2014

Phase (1) Dec. 2012 and Phase (2) December 2013.Phase (3) Dec. 2014

Phase (1) $9.26 m         and Phase (2) 8.42 Million  Phase (3) 11.5 Million

Phase (1) fully operational and Phase (2) in operation and Phase (3) not started

Phase 3 work in progress

Cattle Farm (1)

LiangXi Town, Enping City

165,013 m2

1,500 Heads

2 phases

April 2011

December  2011

$3.0 million +$1.17 Million

Fully Operational

Cattle Farm (2)

LiangXi Town, Enping City

230,300 m2

2,500 heads

2 Phases

February  2012

March. 2014

$10.6 million

completed

Starting to stock

Cattle Farm (1) external road work

LiangXi Town, Enping City

4.5 Km road

One Phase

September  2012

March. 2013

$4.32 million

Completed

Cattle Farm (2) External Road work.

LiangXi Town, Enping City

5.5 Km Road

One Phase

September  2012

March. 2013

$5.28 Million

Completed

WHX Restaurants etc.

Guangzhou City

5,500 seatings in total

Phase (1) Stage (1)

June  2012

December  2015

$17.5 million

Work in progress

Restaurant 5 & 6 work in progress

NaWei wholesale Center

Guangzhou City

5,000 m2

One Phase

July  2012

March. 2014

$ 9 million

Completed

Extension work in progress

New Zhongshan Prawn Project

Zhongshan City

Phase (1)S(1)= 10,000 MT S(2)= 30,000 MT Phase (2) S(1)=100,000 MT Phase (3) 200,000 MT

3600 MU land & BU area 3.57 million square meter

Phase (1) Stage (1)

Nov. 2013

10 years for 100,000 MT capacity & 20 years for whole integrated project

10 years for US$2.6 million

minimal

Phase (1) Stage (1) work in progress

 

 

Note (4) to Table A 1 Other Income

Table (Note 4.1): Gain/Loss on extinguishment of debts (or Debt Settlement) representing recent sales of unregistered securities and the issuance of shares for Q2 2015

 

Date		Shares issued/Bought back				Market Price when issuance				Par value				Additional paid in capital				Consideration value				Income from issuance of shares				Note
As of April 1, 2015			18,069,412
5/6/2015			47,787				15.20				48				726,315				726,363				-			Directors & workers entitlements
5/29/2015			75,002				14.20				75				1,064,953				1,065,028				-			Part of adjustments to the reversed split conversion
6/15/2015			707,070				12.63				707				62,923				7,000							Conversion of B series shares
As of June 30, 2015			18,899,271								830				1,797,561				1,798,391				-

 

The Company entered into several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. For the three months ended June 30, 2015, the Company has not issued any shares for debt settlement during the quarter.

 

During the last three years, we have issued unregistered securities to Chinese persons none of them residents of the United States. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The sales of these securities were, except as set forth below, deemed to be exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) thereof, and/or Rule 506 of Regulation D promulgated there under, as transactions by an issuer not involving a public offering. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates issued in such transactions. All purchasers of our securities were accredited or sophisticated persons and had adequate access, through employment, business or other relationships, to information about us.

 

We relied upon Regulation S of the Securities Act of 1933, as amended, for the above issuances, none of which was made to US citizens or residents. We believe that Regulation S was available because:

 

•      None of these issuances involved underwriters, underwriting discounts or commissions;

 

•      We placed Regulation S required restrictive legends on all certificates issued;

 

•      No offers or sales of stock under the Regulation S offering were made to persons in the United States; and

 

•      No direct selling efforts of the Regulation S offering were made in the United States.

 

The other income for the three months ended June 30, 2015 amounted to $(1,177,990) and derived from the combination of (i) Gain on extinguishment of debt $0 (Note 4), (ii) Government Grant $58,661 and (iii) other income $89,821 less interest expenses of $1,326,472. Whereas the other income for the three months ended June 30, 2014 amounted to $213,692, and derived from the combination of (i) Gain on extinguishment of debt $198,373 (Note 4), (ii) Government Grants $124,440 and (iii) other income $1,265 less interest expenses of $110,386.

 

Gain (loss) of extinguishment of debts

 

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debt of $0 and $198,373 has been credited (charged) to operations for the three months ended June 30, 2015 and 2014, respectively.

 

 

Note (5) to Table A 1 General and Administrative Expenses and Interest Expenses

 

General and administrative and interest expenses (including depreciation and amortization) increased by $3,326,432 or 98% from $3,392,246 for Q2 2014 to $6,718,678 for Q2 2015. The increase was primarily due to increase in Office and corporate expenses of $2,843,444 from $2,196,051 for Q2 2014 to $ for Q2 2015, and the increase in others and miscellaneous of $871,944 from $121,327 for Q2 2014 to $993,271 for Q2 2015.

 

Category		2015 Q2				2014 Q2				Difference
						$				$
Office and corporate expenses			2,843,444				2,196,051				647,393
Wages and salaries			537,257				381,255				156,002
Traveling and related lodging			15,196				15,752				-556
Motor vehicles expenses and local transportation			54,162				56,556				(2,394	)
Entertainments and meals			66,264				44,391				21,873
Others and miscellaneous			993,271				121,327				871,944
Depreciation and amortization			882,612				466,529				416,083
Sub-total			5,392,206				3,281,860				2,110,346
Interest expenses			1,326,472				110,386				1,216,086
Total			6,718,678				3,392,246				3,326,432

 

Depreciation and amortization increased by $416,083 or 89 % to $882,612 for Q2 2015 from $466,529 for Q2 2014. The increase was primarily due to the increase of depreciation by $36,100 to $580,879 for Q2 2015 from depreciation of $544,779 for Q2 2014 whereas the increase of amortization by $182,342 to $804,535 for Q2 2015 from amortization of $622,193 for Q2 2014.

 

In this respect, total depreciation and amortization amounted to $1,385,414 for Q2 2015, out of which amount, $882,612 was reported under general and administration expenses and $502,802 was reported under cost of goods sold; whereas total depreciation and amortization was at $1,166,972 for Q2 2014 and out of which amount $466,529 was reported under General and Administration expenses and $700,443 was reported under cost of goods sold.

  

 

Note (7) to Table A 1 Non-controlling interests

 

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

 

Names of intermediate holding co. subsidiaries		Capital Award Inc. (Belize)		Macau EIJI Company Ltd. (Macau)												A Power Agro Agriculture Development (Macau) Ltd.								Tri-way Industries Ltd.(HK)				Total
Abbreviated names		CA		(MEIJI)												(APWAM)								(TRW)
% of equity holding on below subsidiaries (in China)		n.a.			75	%			75	%			26	%			45	%							75	%
Name of China subsidiaries		None			Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd.(China)				Jiangmen City Hang Mei Cattle Farm Development Co. Ltd.(China)								Qinghai Sanjiang A Power Agriculture Co. Ltd. (China)				Qinghai Zhong He Meat Products  Co. Ltd (China)				Jiangmen City A Power Fishery Development Co. Ltd. (China)
Abbreviated names					(JHST)				(JHMC)				(HSA)				(SJAP)				(QZH)				(JFD)
													Hunan Shanghua A Power Agriculture Co. Ltd (China				50	%
Net income of the P.R.C. subsidiaries for the period ended 30. June 2015 in $				$	2,049,729			$	452,738			$	1,195,734			$	4,109,104			$	4,441,654			$	1,764,014
Equity % of non-controlling  interest					25	%			25	%			24.0	%			55	%			55	%			25	%
Non-controlling interest's shares of Net incomes in $				$	512,432			$	113,185			$	286,976			$	2,260,007			$	2,442,910			$	441,003			$	6,056,513

 

The Net Income attributed to non-controlling interest is $6,056,513 shared by (JHST, JHMC, HSA, SJAP and JFD collectively) for Q2 2015 as shown in Table (F) above.

 

Note (8) to Table A 1 Earnings per shares (EPS)

 

Earnings per share decreased by $0.96 (basic) and $0.90 (diluted) per share from EPS of $1.47 (basic) and $1.41 (diluted) for Q2 2014 to EPS of $0.51 (basic) and $0.51 (diluted) for Q2 2015. The reason for the decrease is primarily due to the following:

* A decrease of net income to the group by $7,720,323.

* Increases of $4,158,538 and $2,110,346 in Cost of sales and General & administration expenses, respectively, and

* The increase of 1,737,168 shares in fully diluted share count primarily due to the shares issued as collateral to secure the two loans taken out in Q1 2015 that will be retired upon their return to the Company after loan repayment and/or are forfeited in default of loan repayment at maturity, and in the interim are calculated as fully issued and outstanding shares of the Company.

 

 

Part B. MD & A on Unaudited Consolidated Balance Sheet as of June 30, 2015 (Quarter 2) December 31, 2014 (fiscal year 2014)

 

Consolidated Balance sheets		June 30, 2015				December 31, 2014				Changes +-				Note
						$				$
ASSETS
Current assets
Cash  and cash equivalents			9,153,234				3,031,447				6,121,787			B
Inventories			50,174,717				45,967,993				4,206,724			9
Costs and estimated earnings in excess of billings on uncompleted contracts			1,306,885				-				1,306,885
Deposits and prepaid expenses			84,834,061				75,951,591				8,882,470			10
Accounts receivable			106,452,443				104,503,071				1,949,372			11
Other receivables			68,036,101				52,305,260				15,730,841			11.a
Total current assets			319,957,441				281,759,362				38,198,079
Plant and equipment											-
Plant and equipment, net of accumulated depreciation			68,318,398				64,352,975				3,965,423			12
Construction in progress			100,856,648				69,120,277				31,736,371			13
Land use rights, net of accumulated amortization			62,576,946				63,322,202				-745,256			14
Total plant and equipment			231,751,992				196,795,454				34,956,538
Other assets											-
Goodwill			724,940				724,940				-
Long term investment			817,795				817,127				668
Proprietary technologies, net of accumulated amortization			11,190,705				11,480,298				-289,593			15
Temporary deposit paid to entities for investments in future Sino Joint Venture companies			41,109,708				41,109,708				-
Total other assets			53,843,148				54,132,073				-288,925
Total assets			605,552,581				532,686,889				72,865,692
Current liabilities											-			16
Accounts payable and accrued expenses			19,631,992				22,138,835				-2,506,843
Billings in excess of  costs and estimated earnings on uncompleted contracts			4,632,895				8,060,580				-3,427,685
Due to a director			246,184				1,172,059				-925,875
Series F shares mandatory redemption payable			-				3,146,063				-3,146,063
Other payables			14,575,385				11,695,982				7,676,735
Borrowings - Short term bank loan			4,414,334				4,410,727				-321,751
Bonds payable			1,725,000				1,725,000				-
Total current liabilities			45,225,790				52,349,246				-2,651,482
Non-current liabilities											-
Other payables			4,797,332				-
Long term debts			2,307,943				2,306,057				327,244
Convertible note payables			34,870,297				15,803,928				19,066,369			16 B
Total non-current liabilities			41,975,572				18,109,985				19,393,613
Stockholders’ equity
Preferred stock
Series A  preferred stock
Series B  convertible preferred  stock			-				7,000				-7,000
Series F Non-convertible preferred  stock											-			17
Common stock			18,899				17,162				1,737
Additional paid-in capital			130,757,937				121,158,996				9,598,941
Retained earnings			306,326,151				273,261,108				33,065,043
Accumulated other comprehensive income			7,380,528				6,452,816				927,712
Treasury stock			-1,250,000				-1,250,000				-
Total SIAF Inc. and subsidiaries' equity			443,233,515				399,647,082				43,586,433
Non-controlling interest			75,117,704				62,580,576				12,537,128
Total stockholders' equity			518,351,219				462,227,658				56,123,561
Total liabilities and stockholders' equity			605,552,581				532,686,889				72,865,692

 

 

This Part B discusses and analyzes certain items with accompanying notes to assist stakeholders in obtaining a better understanding of the Company’s financial condition:

 

Note (B) Cash and Cash Equivalents

 

The change in cash and cash equivalent of $6,121,787 ascribed to cash and cash equivalent of $9,153,234 and $3, 0.31,447 as of June 30, 2015 and December 31, 2014 respectively. This is a typical pattern in cash fluctuation due to seasonally driven cash demands experienced the end of each fiscal year.

 

Note (9) Break down on inventories

 

		June 30, 2015				December 31,2014				Difference
						$				$
Sleepy cods, prawns, eels and marble goby			4,764,667				3,051,606				1,713,061
Bread grass			640,487				2,336,308				(1,695,821	)
Beef cattle			7,178,443				8,362,763				(1,184,320	)
Organic fertilizer			11,373,123				7,292,389				4,080,734
Forage for cattle and consumable			7,628,249				6,547,333				1,080,916
Raw materials for bread grass and organic fertilizer			15,846,549				14,223,407				1,623,142
Beef and mutton			2,046,438				2,908,886				(862,448	)
Immature seeds			696,761				1,245,301				(548,540	)
			50,174,717				45,967,993				4,206,724

 

Note (10) Breakdown of Deposits and Prepayments

 

		June 30, 2015				Dec 31,2014				Difference				Note
						$				$
Deposits for
- purchases of equipment			4,670,256				4,668,784				1,472
- acquisition of land use rights			3,373,110				3,373,110				0			10.1
- inventories purchases			18,454,399				14,221,199				4,233,200
- aquaculture contracts			12,260,163				20,467,603				(8,207,440	)
- building materials			877,598				877,598				0
- consulting service providers and others			14,121,536				5,188,473				8,933,063
- construction in progress			20,467,357				20,467,357				0
Prepayments - debts discounts and others			8,840,155				3,827,401				5,012,754
Shares issued for employee compensation and overseas professional and bond interest			1,769,487				2,860,066				(1,090,579	)		10.2
			84,834,061				75,951,591				8,882,470

 

Note (10.1)

 

Note (10.1) Breakdown of Deposit for- acquisition of Land Use Right:

 

As of June 30, 2015, we have $3,373,110 for deposits paid for the acquisition of a Land Use Right derived from the following transactions:

 

•          $3,182,180 (or RMB20,000,000) was full payment made on June 6, 2012 for Land Use Right by HSA comprising a block of land measuring 150 Mu (or 25 acres of prime agriculture land) located at Linli District of Hunan Province within 10 Km of HSA’s complex. The process of application to register the said “Land Use Right” is in progress, and, as such, this payment is recorded as Deposit and Prepaid Expenses pending final authority estimated to be granted on or before September 30, 2015, as the new local law on agriculture land delayed the processing of our application.

 

 

•

$190,930 (or RMB1,200,000) was paid by SJAP as deposit for the acquisition of “Land Use Right” on a block of land measuring 15 Mu (or 2.475 acres) located at Huangyuan district next to SJAP’s complex on October 15, 2012. The process of rezoning this piece of land to residential (at present, agriculture) continues, and once completed will be transferred from the Local Government (Huangyuan County) to SJAP to build new staff quarters.

 

Note (10.2) Information of “Temporary deposit and pre-payments for investments in future assets and in future Sino Foreign Joint Venture companies”:

 

Under

Estimated

Estimated

Deposit & prepayments

account of Subsidiary

Segment of

Project name

total Asset value

time of Acquisition

Current status of Project

made as of June 30, 2015

Land Bank or Built Up area

$

$

m2

SIAF

Corporate

Trade Center

3.5 million

own development

30% completed

4,086,941

5,000

Seafood Center

1,032,914

CA

Fishery

Fish Farm (1)

26.22 Million

2016

2 out 4 phases completed

6,000,000

23,100

Prawn Farm (1)

20.93 Million

2014

in operation

14,554,578

165,000

Prawn Farm (2)

29.18 Million

2014

Part operational Part work in progress

9,877,218

120,000 developed 96,000 m2 undeveloped

MEIJI

Cattle

Cattle Farm (2)

15.88 Million

2014

95% completed

5,558,057

230,300

41,109,708

 

 

Note (11) Breakdown of Accounts receivable:

 

		June 30,2015
		Accounts receivable				0-30 days				31-90 days				91-120 days				over 120 days and less than 1 year
		$				$				$				$				$
Consulting and Service totaling
CA			15,916,787				8,472,915				-				-				7,443,872
SIAF			3,674,130								2,272,622				-				1,401,508
MEIJI			4,359,031				-				-				-				4,359,031
Sales of Live Fish, eels and prawns (from Farms) (CA)			11,036,097				4,078,112				6,957,985				-				-
Sales of imported seafood (SIAF)			3,622,102				3,622,102				-				-				-
Sales of Cattle and Beef Meats (from Enping Farm) (MEIJI)			5,087,454				342,549				-				-				4,744,905
Sales of HU Flowers (Fresh & Dried) (JHST)			12,342,416				4,197,128				-				-				8,145,288
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)			27,761,207				6,588,883				13,040,643				5,395,463				2,736,217
Sales Fertilizer from (HSA)			10,852,793				1,658,429				3,255,122				1,426,540				4,512,702
Sales of Beef (QZH)			11,800,427				7,537,019				2,583,665				1,099,516				580,228
Total			106,452,443				36,497,137				28,110,036				7,921,519				33,923,751

 

 

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

 

Our accounts receivable ageing 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.

 

Fish Sales: Most farmed fish are sold to wholesalers at prevailing daily market prices and aging is within 90 days trading terms with a small portion at 180 days (for oversized fish, as the sale of oversized fish takes time to sell). We sold $19 million in live fish, eels and prawns (Live seafood) to the wholesalers for the three months ended June 30, 2015 and as of June 30, 2014, accounts receivable of $0 was over 120 days. These debtors represent credit quality receivables as they are well established wholesalers, profitable and viable businesses with a good track record and therefore provision of diminution in value is not required as collection is not in doubt.

  

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 term of arrangements 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 profitable and viable businesses 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.

 

Information on Concentration of credit risk of account receivables:

 

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 55.87% or more of our consolidated revenues for Q2 2015 as shown in the table below:

 

		three months ended June 30, 2015
		% of total Revenue				$				Customer's Total Revenue
Customer A			15.20	%							13,809,655
Customer B			14.65	%							13,311,601
Customer C			14.57	%							13,238,491
Customer D			11.45	%							10,401,812
			55.87	%							50,761,559

 

Customer A is WSC 1, which is owned and operated by Guangzhou City A Power NaWei Trading Co. Ltd (“APNW”). CA was the consulting engineer responsible for the construction of WSC 1 and development of its business operation via a Consulting and Service Contract granted by APNW. APNW is now one of our main wholesalers, and to whom we bill our sales of seafood (including live and frozen seafood). APNW distributes the 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 by 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 effected through WSC 1 contribute 15.20% of our total consolidated revenue (equivalent to $13,809,655 out of our total revenue of $90,853,728 derived collectively from the following segments of activities:

 

Customer A with								three months ended June 30, 2015
Name of company		Segments		Operation Division		Abbreviation name		% of total consolidated				Amount in
								Revenue				$
CA		Fishery		Sales of fish (from Fish Farm 1)		Wholesale Center (1)			4.26	%			3,871,130
				Sales of fish / eels from Contract Growers					2.40	%			2,179,549
SIAF		Corporate		Trading sales of seafood, beef & mutton					8.54	%			7,758,976
									15.20	%			13,809,655

 

 

Customer B is one of the big and reputable super market chains in China that we sell live seafood, frozen seafood and packaged meats from (Xining), SJAP, the Shanghai Distribution center and GZ Distribution center collectively amounting $13,311,601 out of total sales revenue of $90,853,728.

 

Customer C is Cattle Wholesaler who buys our fattened cattle to sell them in the Guangdong and Beijing cattle markets and at the same time supplies to us with young cattle. During Q2 2015, transactions through said cattle wholesaler generated 14.57% of our total consolidated revenue (equivalent to $13,238,491 out of our total revenue of $90,853,728.

 

Customer D is one of our main agents (wholesaler) operating in the Guangzhou seafood wholesale market who sells and distribute most of our live sea food and generated 11.45% of our consolidated revenue (amounting to $10,401,812 out of our total revenue of $90,853,728.

  

The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable during Q2 2015:

 

		June 30, 2015								Total
		% of total Accounts receivables				amount in $				Accounts receivables
Customer A			10.27	%							10,935,061
Customer B			9.94	%							10,580,087
Customer C			8.92	%							9,499,274
Customer D			7.96	%							8,472,915
			37.09	%							39,487,337

 

Note (12) Plant and equipment, net of accumulation depreciation

 

		June 30, 2015
		$
Plant and machinery			5,573,254
Structure and leasehold improvements			53,561,282
Mature seeds and herbage cultivation			14,383,221
Furniture and equipment			636,360
Motor vehicles			765,858
			74,919,975
Less: Accumulated depreciation			(6,601,577	)
Net carrying amount			68,318,398

 

Note (13) Construction in progress

 

		June 30, 2015
		$
Construction in progress
- Oven room, road for production of dried flowers			49,068
- Office, warehouse and organic fertilizer plant in HSA			30,788,851
- Organic fertilizer and bread grass production plant and office building			14,781,092
- Rangeland for beef cattle and office building			53,021,968
- Fish pond			2,215,669
TOTAL			100,856,648

 

 

 

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

 

Item		Owner		Location		Acres				Date Acquired		Tenure				Expiry dates		Cost  $				Monthly amortization  $				2015.06.30 Balance  $
Hunan   lot1		HS.A		Ouchi Village, Fenghuo Town, Linli County			31.92			4/5/2011			43			4/4/2054			242,703				470				218,715
Hunan   lot2		HS.A		Ouchi Village, Fenghuo Town, Linli County			247.05			7/1/2011			60			6/30/2071			36,666,141				50,925				34,221,732
Hunan  lot3		HS.A		Ouchi Village, Fenghuo Town, Linli County			8.24			5/24/2011			40			5/23/2051			378,489				789				339,063
Guangdong  lot 1		JHST		Yane Village, Liangxi Town, Enping City			8.23			8/10/2007			60			8/9/2067			1,064,501				1,478				924,046
Guangdong  lot 2		JHST		Nandu Village of Yane Village, Liangxi Town, Enping City			27.78			3/14/2007			60			3/13/2067			1,037,273				1,441				893,208
Guangdong  lot 3		JHST		Nandu Village of Yane Village, Liangxi Town, Enping City			60.72			3/14/2007			60			3/13/2067			2,267,363				3,149				1,952,452
Guangdong  lot 4		JHST		Nandu Village of Yane Village, Liangxi Town, Enping City			54.68			9/12/2007			60			9/11/2067			2,041,949				2,836				1,775,361
Guangdong  lot 5		JHST		Jishilu Village of Dawan Village, Juntang Town, Enping City			28.82			9/12/2007			60			9/11/2067			960,416				1,334				835,029
Guangdong  lot 6		JHST		Liankai Village of Niujiang Town, Enping City			31.84			1/1/2008			60			12/31/2068			821,445				1,141				718,764
Guangdong  lot 7		JHST		Nandu Village of Yane Village, Liangxi Town, Enping City			41.18			1/1/2011			26			12/31/2037			5,716,764				18,323				4,727,324
Guangdong  lot 8		JHST		Shangchong Village of Yane Village, Liangxi Town, Enping City			11.28			1/1/2011			26			12/31/2037			1,566,393				5,020				1,295,287
Guangdong  lot 9		MEIJI		Xiaoban Village of Yane Village, Liangxi Town, Enping City			41.18			4/1/2011			20			3/31/2031			5,082,136				21,176				4,002,182
Qinghai  lot 1		SJAP		No. 498, Bei Da Road, Chengguan Town of Huangyuan County, Xining City, Qinghai Province			21.09			11/1/2011			40			10/30/2051			527,234				1,098				478,904
Guangdong lot 10		JHST		Niu Jiang Town, Liangxi Town, Enping City			6.27			3/4/2013			10			3/3/2023			489,904				4,083				375,593
Guangdong lot 11		CA		Da San Dui Wei ,You Nan Village, Cong Hua District of Guangzhou City			33.28			10/28/2014			30			10/27/2044			4,453,665				12,371				4,342,324
		JHST		Land improvement cost incurred						12/1/2013									3,914,275				6,155				3,797,339
Exchange																			2,249,787								1,679,624
							654												69,480,438				131,789				62,576,946

 

 

Note (15) Other receivables

 

		June 30, 2015				Note
		$
Advanced to employees			854,661			15.A
Advanced to suppliers			7,701,953			15.B
Advanced to customers			28,616,937
Advanced to developers			28,000,000
Advanced to convertible bond holder			2,862,550
			68,036,101

 

Note 15.A & B: Breakdown of Advances to Suppliers at SJAP’s operations:

 

At SJAP it is a common practice to make cash advances to our cooperative growers (presently standing at 100 members) who are our suppliers, to carry them through respective growing periods (for cropping or pasturing or cattle growing purposes) before final harvests of produce or sale of their cattle. On average, it works out at less than $2,442 per member that in the management’s opinion is a normal season to season process deemed fair and equitable. In this respect, as the said average increases it means that the average cooperative farmer is increasing his productivity (whether in the growing of crops or cattle), and in simple terms, it represents good progress indicating that SJAP’s revenue is also increasing.

 

The sub-contractors and suppliers of the Zhongshan Projects are reputable entities that, in the management’s opinion, possess the wherewithal to provide the Zhongshan Project both timely and quality service, which provides for uninterrupted progress in its development.

 

Note (16) Current Liabilities:

 

		June 30, 2015				Note
Current liabilities
Accounts payable and accruals			19,631,992			16.A
Billings in excess of cost and estimated earnings on uncompleted contracts			4,632,895
Due to a director			246,184
Other payables			14,575,385			16 C
Short term bank loan			4,414,334
Bonds payable			1,725,000
			45,225,790

 

Note 16A: 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), that in turn allows us better bargaining ability to obtain cash discounts resulting in the low trade account payables balance of $19,631,992, about 21.61% of total sales of $91 million, for the reasons stated below:

 

Our main Account Payables during Q2 2015 were generated from the following activities:

 

1.

We supply the following cost elements: our own staff, engineering and technology that enhanced our profit margins and reduced the overall cost of sales. Consulting and services (“C&S”) since inception is the major contributor of income to date and cost of goods sold averaging 68%, and 88% for CA and SIAF, respectively derived from its respective C&S during the fiscal year 2014.

 

2.

Implementation, supervision, training and associated management work and most of the building sub-contractors worked at fixed costs; consequently, profit margins are contained providing ample opportunity for expanded credit terms. For contracts related to the construction of farms we use plants, equipment, parts and components that were specially manufactured and made as per our own design and engineering by local manufacturers and suppliers (who carry a high amount of initial development costs and inventories for us based on the understanding that we would pay for the deliveries of goods sold within shorter trading terms such that they could afford to carry such costs). We pay promptly in this respect and believe that, as time has passed, our track record has earned us excellent credibility with all of our suppliers and sub-contractors.

 

3.

Fish sales started gradually in late 2011, and the cost of sales was averaged at 77% for Q2 2015, respectively (the bulk of the cost came from the supplies of baby fingerlings and the live bait as the main fish feed), and customary trading terms of Chinese suppliers is on a cash on delivery basis, and suppliers who provide short credit terms presently is limited to no more than a select few.

 

 

4.

Cattle sales at SJAP’s own cattle stations and from its cooperative farmers started in 2011 at lower profit margins compared to the sales of fish and the cost of sales was averaged at 84% for Q2 2015; it is also customary in China to pay for the young live cattle by cash on delivery. The Enping cattle farm started to buy young cattle in 2011 and started sales of mature cattle in 2012; cost of sales is averaged at 96% for Q2 2015. Most of the young cattle supplies were from small primary producers (local small farmers) who did not have great financial resources; as such we paid for these supplies of young cattle in cash on delivery or short credit term after delivery.

 

5.

In SJAP, the bulk of our fertilizers were sold to farmers who are growing pastures and crops for us such that their fertilizer sales were kept as book entries that would be offset with the pastures and crops that we would buy back from them. In the case of HSA, which is a developing stage company in fertilizer manufacturing, prolonged credit term facilities have not been established for its purchase of raw materials.

 

6.

Bulk livestock feed are produced by regional cooperative growers under contract to us and they use our supply of fertilizer and seeds that represented the main cost components enhancing cost of sales, which average is at 47% for Q2 2015. Again, sale of fertilizer is held on credit against crops and pasture grass purchased from them, as well as bulk livestock feed sold to them for cattle rearing, and reconciled once cattle are purchased from them.

 

Note (16 B): Series F shares redemption payable

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. During Q1 2013, the transfer agent of the Company recorded 924,180 shares of Series F Non-Convertible preferred stock on the account. However, the Company did not issue physical shares and only issued coupons to notify respective shareholders on that date. These 924,180 Series F shares, were based on numbers of shares of Common Stock as of September 28, 2012 of 91,931,287 shares, calculated at one share of Series F Non-Convertible preferred stock for every 100 shares of Common Stock with decimal number of shares being rounded up to one. Once payment of $3.40 per share is made the F shares will be voided and will be cancelled in full. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

 

Note (16 C): Analysis of Other Payables:

 

As of June 30, 2015, other payables totaling $19,372,717 composed of the following:

 

During the six months ended June 30, 2015, the Company issued Promissory notes amounting to $2,500,000 to unrelated third parties for advances granted by third parties collectively to the Company (and/or to its subsidiaries) that are personally guaranteed by a director, repayable within two (2) years at interest free term. Promissory notes could be repaid either by cash or in shares of the Company or a combination thereof. If shares settled debt amounts, the respective share conversion rates will be determined by both parties at the time of settlement. During Q2 2015 we redeemed $0 of Promissory Notes for advances granted by third parties in fiscal year 2012 as well as in early months of 2013 by the issuance of shares leaving a balance of $3,100,000 of Promissory Notes still due and outstanding as of June 30, 2015.

 

A grant of $2,421,492 was received from the Chinese government to SJAP for the development of a certain project; however if SJAP will not be able to complete the project, it will have to repay the grant to the Government. As of June 30, 2015, as work is in progress on the said project but it is not yet completed, the grant is recorded as other payables.

 

During the six months ended June 30, 2015, other advances provided by other unrelated third parties collectively to our subsidiaries with no fixed term of repayment at interest free terms that do not have any promissory note or agreement but verbal understandings. These debts amount to $13,851,225 and outstanding as of June 30, 2015.

 

During the six months ended June 30, 2015, the Company issued 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332 from third party.

 

 

Part C. Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014 (presented in summarized Charts below);

 

Revenue:

 

Revenues increased by $18,369,885 or 10% to $206,330,178 for the six months ended June 30, 2015 from $187,960,293 for the six months ended June 30, 2014. The increase was primarily due to the increase of revenue generated from our plantation, beef and cattle farm operations and the maturity of on-going divisional businesses improving their revenues.

 

The following chart illustrates the changes by category from the six months ended June 30, 2015 to June 30, 2014.

 

Revenue
		2015				2014
Category		Q1- Q2				Q1- Q2				Difference
		$				$				$
Fishery			81,313,647				83,714,940				(2,401,293	)
Plantation			4,193,013				3,271,940				921,073
Beef			61,473,980				37,057,341				24,416,639
Organic fertilizer			20,329,791				24,702,374				(4,372,583	)
Cattle farm			17,787,670				14,668,506				3,119,164
Corporate and others			21,232,077				24,545,192				(3,313,115	)
Total			206,330,178				187,960,293				18,369,885

 

Cost of Goods Sold and Services:

 

Cost of goods sold and services increased by $43,445,302 or 34% to $148,814,816 for the six months ended June 30, 2015 from $127,103,262 for the six months ended June 30, 2014. The increase was primarily due to increased fishery, plantation, beef, cattle farm and corporate and others operations for the six months ended June 30, 2015 as compared for the six months ended June 30, 2014.

 

The following chart illustrates the changes by category from the six months ended June 30, 2015 to June 30, 2014.

 

Cost of goods sold
		2015				2014
Category		Q1- Q2				Q1- Q2				Difference
		$				$				$
Fishery			56,671,589				50,316,432				6,355,157
Plantation			1,144,755				962,949				181,806
Beef			46,034,126				26,510,399				19,523,727
Organic fertilizer			11,463,167				13,604,461				(2,141,294	)
Cattle farm			17,125,423				13,975,273				3,150,150
Corporate and others			16,375,756				21,733,748				16,375,756
Total			148,814,816				127,103,262				43,445,302

 

 

Gross Profit

Gross profit decreased by $3,341,669 or 5% to $57,515,362 for the six months ended June 30, 2015 from $60,857,031 for the six months ended June 30, 2014. The increase primarily was due to the corresponding increase in operation revenues.

 

The following chart illustrates the changes by category from the six months ended June 30, 2015 to June 30, 2014. The gross profit by category is as follows:

  

Gross profit
		2015				2014
Category		Q1- Q2				Q1- Q2				Difference
		$				$				$
Fishery			24,642,058				33,398,508				-8,756,450
Plantation			3,048,258				2,308,991				739,267
Beef			15,439,854				10,546,942				4,892,912
Organic fertilizer			8,866,624				11,097,913				-2,231,289
Cattle farm			662,247				693,233				-30,986
Corporate and others			4,856,321				2,811,444				2,044,877
Total			57,515,362				60,857,031				-3,341,669

 

General and Administrative Expenses and Interest Expenses

General and administrative expenses and interest expenses (including depreciation and amortization) increased by $5,898,444 or 96% to $12,068,191 for the six months ended June 30, 2015 from $6,619,747 for the six months ended June 30, 2014. The increase was primarily due to (i) increase in wages and salaries payments paid for incentives compensation to our staffs by the issuance of shares amounting to $510,066 for the six months ended June 30, 2015 as compared to$516,248 for the six months ended June 30, 2014 and (ii) increase in Office and corporate expenses paid for overseas professional services of $2,026,586 for the six months ended June 30, 2015 from $464,306 for the six months ended June 30, 2014.

 

Category		2015 Q1-Q2				2014 Q1-Q2				Difference
		$				$				$
Office and corporate expenses			4,856,373				2,954,272				1,902,101
Wages and salaries			1,205,945				973,530				232,415
Traveling and related lodging			98,089				91,344				6,745
Motor vehicles expenses and local transportation			95,062				92,351				2,711
Entertainments and meals			116,577				74,680				41,897
Others and miscellaneous			1,723,101				349,582				1,373,519
Depreciation and amortization			1,862,966				1,414,496				448,470
Sub-total			9,958,113				5,950,254				4,007,859
Interest expenses			2,110,078				219,493				1,890,585
Total			12,068,191				6,169,747				5,898,444

 

 

Depreciation and Amortization

 

Depreciation and amortization increased by $448,470 or 32% to $1,862,966 for the six months ended June 30, 2015 from $1,414,496 for the six months ended June 30, 2014. The increase was primarily due to the increase of depreciation by $475,600 to $1,606,873 for the six months ended June 30, 2015 from depreciation of $1,131,273 for the six months ended June 30, 2014, and the increase of amortization by $38,141 to $1,095,000 for six months ended June 30, 2015 from amortization of $1,056,859 for the six months ended June 30, 2014.

 

In this respect, total depreciation and amortization amounted to $2,701,873 for the six months ended June 30, 2015, out of which amount $1,862,966 was booked under General and administration expenses and $830,907 was booked under cost of goods sold; whereas total depreciation and amortization was at $2,188,132 for the six months ended June 30, 2014 and out of which amount, $1,414,496 was booked under General and Administration expenses and $773,636 was booked under cost of goods sold.

 

 

Income Taxes

 

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 US corporate tax has been provided for in the consolidated financial statements of the Company.

 

Undistributed Earnings of Foreign Subsidiaries

 

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

 

The Company 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 US tax professional 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 professional to assist in filing these income tax returns.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HSA, QZH and SJAP since they are exempt from EIT for the six months ended June 30, 2015 and 2014 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 six months ended June 30, 2015 and 2014.

 

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 six months ended June 30, 2015 and 2014.

 

No Swedish Corporate income tax has been provided in the consolidated financial statements, since SAFS incurred a tax loss for the six months ended June 30, 2015.

 

No deferred tax assets and liabilities are of June 30, 2015 and December 31, 2014 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.

 

Off Balance Sheet Arrangements:

 

None.

 

Liquidity and Capital Resources

 

Contractual Obligations		Less than 1 year				1-3years				3-5 years				More than 5 years				Total
Short Term Bank Loan			4,414,334																4,414,334
Bonds payable			1,725,000																1,725,000
Long Term Debts							2,307,943												2,307,943
Promissory Notes			3,100,000																3,100,000
Debts loan							4,797,332												4,797,332
Convertible note payable							34,870,297												34,870,297

 

As of June 30, 2015, unrestricted cash and cash equivalents amounted to $ 9,153,234 (see notes to the consolidated financial statements), and our working capital as of June 30, 2015 was $274,731,651.

 

Cash provided by operating activities amounted to $45,834,115 for the six months ended June 30, 2015. This compares with cash provided by operating activities totaled $19,132,816 for the six months ended June 30, 2014. The increase in cash flows from operations primarily resulted from the decrease of other receivables of $(4,206,724) for the six months ended June 30, 2015 from $(17,789,615) for the six months ended June 30, 2014.

 

Cash used in investing activities totaled $(37,189,404) for the six months ended June 30, 2015. This compares with cash used in investing activities totaling $(19,028,522) for the six months ended June 30, 2015. The increase in cash flows used in investing activities primarily resulted from payment for construction of $33,275,507 for the six months ended June 30, 2015 from $15,655,682 for the six months ended June 30, 2014.

 

Cash used in financing activities totaled $(3,146,063) for the six months ended June 30, 2015. This compares with cash provided by financing activities totaling $2,436,193 for the six months ended June 30, 2014. The increase cash used in financing activities due to payment for series F Shares mandatory redemption of $3,146,063.

 

 

Acquisition of SFJVC’s and further acquisition plan:

 

An SFJVC agreement typically contains an option clause for further investment. Initially, the China Developer of project companies invite us to invest in their venture. If management feels compelled it carries out an in-depth study of the target company including legal due diligence, business plan, budget and projected financial information. The final decision is made through the resolution of the Company’s Board of Directors. If the decision is made to proceed with an investment, there is first formed an SFJVC, within which in turn the Company acquires further equity interest. The acquisition price of such interest is determined in accordance to the book value of the SFJVC as of the acquisition date. Consideration generally consists in part of cash and in part of contract against trade debts owed by the China Developer due to Consulting & Services fees charged to the China Developer by the Company in accordance with the Consulting & Services agreement. Project companies’ record development cost as construction in progress and treat the amount due to us as partial investment in new SFJVC.

 

The Company’s expenditures as the consulting and service provider providing turnkey services to the China Developer for the development of the project include (i) administrative and operational expenses provided for and incurred in the project (charged and recorded under general and administrative operation expenses), billable to the China Developer, (ii) other development expenditures (inclusive of subcontractors’ and sub-suppliers’ cost plus mark-up) billable to the Developer, as well. Consulting & Services fees are exclusively billed to the 3rdparty China Developer, and not to the future SFJVC companies.

 

We plan to acquire further SFJVC’s at the time they will be formed officially after their approval by relevant Chinese Authorities with details shown in the Table below:

 

Acquisition by which subsidiary

Estimated time of SFJVC being formed

Estimated time of completion of acquisition

Estimated Total consideration

Deposit paid up to date

Deposit paid is equivalent to % of equity

Estimated time of progress payments

Enping Prawn PF1

CA

June 2014

2016 tentatively

$

20.94m

$

14.45 m

56

%

Q1 to Q2 2014

Zhongshan Prawn PF2

CA

Phase 3 Work still in progress, targeting completion Q3 2014

2016 tentatively

$

26.20 m

$

9.88 m

33

%

Q4 2013 & all year round 2014

Fish & eel Farm 2

CA

Phase 3 & 4 work are in progress targeting completion Q4 2015

No definite plan yet

$

26.22 m

$

6.0 m

23

%

Q4 2013 &  2014 & 2016

Cattle Farm 2

MEIJI

Final work is still in progress

Possible to merge with HAS in 2016

$

15.88 m

$

5.58 m

35

%

On or before June 30 2014

WXC businesses

SIAF

Work is in progress until end 2015

No definite plan yet

Not fully determined

$

4.08 m

Minimal

Partially in 2014.

NaWei wholesale centers

SIAF

Work is in progress until end 2015

2016 tentatively

Not fully determined

$

1.03 m

Minimal

Partially in 2014.

 

In accordance with our contract, prior to the official formation of the SFJVC’s the Company will pay an initial deposit and additional deposits as pre-payments to the developer (or owner) of the project as consideration toward future acquisition of the SFJVC upon its official formation.

 

The total consideration for each purchase of SFJVC is based on its book value at that time of official formation having injected all of the related project’s development assets and liabilities into the SFJVC. As such the required acquisition cost is funded partly by cash and partly by the set-off receivable due on the consulting and service fee.

 

 

CRITICAL ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the six months ended June 30, 2015 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the six months ended June 30, 2015 results are for the six months then ended 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, 2014.

 

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, SIAFS and its variable interest entities 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.

 

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 has substantially accomplished what we 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.

 

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 $1,260, $4,316, $9,952 and $10,582 for the three months and for the six months ended June 30, 2015 and 2014, respectively.

 

 

ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $712,614, $952,924, $1,421,458 and $953,054 for the three months and the six months ended June 30, 2015 and 2014, respectively.

 

RESEARCH AND DEVELOPMENT EXPENSES.

 

Research and development expenses are included in general and administrative expenses, which totaled $549,020, $0, $549,020 and $0 the three months and the six months ended June 30, 2015 and 2014, 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 on 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 the Company’s most of 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 six months ended June 30, 2015 or June 30, 2014.

 

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.

 

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

 

 

GOODWILL

 

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 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.

 

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 sleep cod breeding technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleep 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.

 

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.

 

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 P.R.C., and by the general state of the P.R.C.'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 June 30, 2015 and December 31, 2014, 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 June 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.51 and $1.47, respectively. For the six months ended June 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $1.87 and $2.91, respectively.

 

For the three months ended June 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.51 and $1.41, respectively. For the six months ended June 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $1.87 and $2.78, respectively.

 

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.

 

For the six months ended June 30, 2014

 

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 June 30, 2013 and December 31, 2012 were translated at RMB 6.15 to $1.00 and RMB 6.10 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and other comprehensive income and of cash flows for the six months ended June 30, 2013 and June 30, 2012 were RMB 6.13 to $1.00 and RMB 6.24 to $1.00, respectively.

 

For the six months ended June 30, 2015

 

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 June 30, 2015 and December 31, 2014 were translated at RMB 6.11 to $ and RMB 6.15 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and other comprehensive income and of cash flows for the six months ended June 30, 2015 and June 30, 2014 were RMB6.13 to 1.00 $ and RMB 6.13 to 1.00, 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

 

PRC 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.

 

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 June 30, 2015 or December 31, 2014, nor gains or losses are reported in the statements of income and other 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 six months ended June 30, 2015 or 2014.

 

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 April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which provides a narrower definition of discontinued operations than under existing U.S. GAAP. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results should be reported in the consolidated financial statements as discontinued operations. ASU 2014-08 also provides guidance on the consolidated financial statement presentations and disclosures of discontinued operations. The new guidance is effective prospectively for the Company to all new disposals of components and new classification as held for sale beginning April 1, 2015. The Company is evaluating the effects, if any, of the adoption of this guidance will have on the consolidated financial position, results of operations or cash flows.

 

In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of July 31, 2014.

 

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on our consolidated financial statements.

 

In November 2014, FASB issued ASU No. 2014-17, (Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force.) The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The adoption of ASU 2014-17 did not have a material impact on the Company’s consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact of the adoption of this guidance on the consolidated financial statements.

  

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which simplifies presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has elected to adopt this ASU early and the adoption of this guidance did not have a material effect on its consolidated financial statements

 

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

 

 

PROGRESS REPORTS AND SUBSEQUENT EVENTS.

Table (PS 1) below shows the progress reports and subsequent events on operational affairs of each subsidiary as at Q2 2015:

 

SJAP

 

A.

The current situation if continued:

 

The imports of beef under current Government’s relaxed import policies are increasing and are beginning to impact the locally produced cattle and beef meat prices evidenced by the sharp falls in 2^nd quarter of 2015, such that we saw live cattle prices fell from Q1’s average of RMB30/Kg to Q2’s average of RMB26/27 Kg and locally produced beef meat from Q1’s average of RMB68 to current RMB61/ kg. The import prices of quarter cut beef from Australia are averaging RMB45/Kg (landed at Xining inclusive all import and value added tax and associated costs) and after deboning they are selling at average of RMB59/60/Kg. Although cattle from SJAP’s 90 days grain fed cattle are better quality cattle than the imported grass fed cattle, however the imported volumes presently are forcing the overall cattle and meat prices in China. At the same time we believe that this trend will continue such that within the next few months and by year end of 2015, prices of locally grown cattle may go down as low as RMB23 / Kg (live weight) (which is below our averaged purchase prices of RMB25 / kg paid to our cooperative farmers for the 90 days fattened cattle).

 

In this respect, it is no longer viable for SJAP to continue to buy cattle from the cooperative farmers at current price of RMB25 / Kg and at the same time there will not be enough profit (or incentive) for the cooperative farmers to continue to fatten cattle for SJAP if SJAP would not be able to pay them a minimum price of RMB23 / Kg.

 

Table (A) below shows the estimated P/L of SJAP if there were to be no change in plans nor any expansion:

 

		Estimates
		2015				2016				2017
		US$ million				US$ million				US$ million
Sales Revenues			113				59				57
Cost of sales revenues			93				48				48
Gross Profit			20				11				9
General and administration expenses			3				2				2

  

B.

The plan (B) to rectify such situation and to achieve long term viability, sustainability and profitability:

 

The fundamental of this plan is involving the followings:

  

·

To expand its current deboning and packaging facilities to process up to 12,500 MT of meat / year from its current capacity of about 4,000 MT / year to capitalize on the processing of imported quarter-cut beef initially aiming at eventually the processing of its own high quality beef meats starting from 2017.

 

·

To change its current normal quality cattle into much higher quality grade cattle consisting Wagyu cattle, 550 days grain fed Angus and pure organic cattle targeting 11,800 heads collectively by 2019.

 

·

The ultimate aim is develop SJAP into one of the most viable cattle and beef Business Company in China with sustainability and good profitability beneficial to all its shareholders, society, and the China Government.

 

  

 

Table (B) below shows the estimates, information and projected P/L of the plan (B)

 

Profit & Loss Projections		2015				2016				2017				2018				2019
Plan (B)		US$ million				US$ million				US$ million				US$ million				US$ million
Total sales revenues			113				213				289				340				341
Total cost of sales revenues			89				99				142				185				185
Gross Profit			24				114				146				156				156
General and administration expenses			3				5				7				9				9

  

Notes:

 

·

There are other associated, implementation and progressive management plans being considered and analyzed by the management of SJAP currently aiming to better facilitate and improve the ultimate values of Plan B, of which the Company will inform such findings to shareholders at a later date when they will be available.

 

 

HSA

 

HSA’s development of a cattle farm complex is partly completed and soon it will be ready (targeting Q3 2015) to start the stocking and rearing of cattle.

 

HSA’s business strategy with the added facility is targeting and aiming to achieve followings:

  

·

To produce enough enzymes treated cattle waste to be recycled as raw materials for its manufacturing of raw material enhancing cost of saving from its purchases of raw materials. It is estimated that the cost of saving may be in equivalent to the gross profit of the manufacturing of fertilizer (meaning that it will then be possible to double the fertilizer’s gross profit through such savings).

 

·

The cattle will be grown are locally breed cattle called “Southern Yellow Cattle” (SYC) that we have been experimenting, trailing and doing research work on for the last year and found that SYC has similar meat quality to the Japanese Wagyu Cattle and has the ability to start to build up marble in body meat evenly after being grain fed for more than 365 days from the time they have matured body frames and are in demands in China with much higher wholesale prices (i.e. even for non-grain fed SYC, its Q2 2015’s average is at RMB38/40 / Kg (live weight) which is about RMB12 / 14 / Kg or 50% above SJAP’s normal cattle. HSA is planning to develop and to establish SYC into a specialty and brand of cattle that we will be recognized and proud of by the Chinese similarly to the Japanese proud of their Wagyu Cattle.

 

·

Table (C ) below shows the estimates, information and projected P/L of HSA

 

P/L projection		2015				2016				2017				2018				2019
		US$ million				US$ million				US$ million				US$ million				US$ million
Sales revenues			21				25				40				56				70
Cost of sales revenues			12				14				18				22				27
Gross Profit			9				12				22				34				44
General and administration expenses			3				4				8				12				16

  

Tax Filing

 

The Company finally completed to file all tax forms with the assistance of our US tax professional to the Internal Revenue Service - International Business USA on August 11, 2015.

 

 

Other subsequent events:

 

The Company has been constructively working and finalizing its next 5 years operational and corporate business plans and intends to provide guidelines to our shareholders accordingly targeting on or before the end of Q3 2015 and in the meantime we like to inform our shareholders of our principal directions as follows:

 

We are targeting:

 

·

To develop and to establish SJAP into one of the most commercially viable, sustainable and profitable company to be ranked among one of the big ten cattle and beef companies in China with the upmost social corporate responsibility.

 

·

To develop and to establish our fishery operation into an internationally reputable and sustainable operation commercially, environmentally and socially.

 

·

To develop and to establish a Brand of beef cattle that we all shall be proud of and to remember after one month full.

 

·

To develop marketing networks that will provide satisfaction to all customers with SIAF to become a house hold name globally.

 

·

To keep on improving our shareholders values, to share our commercially achieved benefits and achievements with all shareholders and to concentrate efforts in re-building our company’s market valuations etc.

 

·

To build the Company into the capacity to capitalize fully with the opportunities available to us in China now and in the future.

 

 

 

The tables on the following pages are provided in order to provide the reader with a more detailed description of the figures for each of the named entities.

 

SIAF GROUP 1
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			31				88				209				323				168				788
Consulting income			21				51				52				81				39				223
Cost of goods sold			17				51				139				231				125				546
Cost of service			10				18				21				44				23				106
EBITDA			22				66				98				119				51				333
Depreciation & amortization			1				2				3				5				3				12
Net income attributable to SIAF & subsidiaries			16				57				74				92				33				256
Non - controlling interest			5				6				20				22				13				60
Net Incomes of the group							63				94				114				46				317
Total Assets			153				242				368				540				605
Current assets							134				147				282				320
Total liabilities			16				26				36				70				81
Current liabilities							23				31				52				45
Capital employed							219				337				488				560				-
Total stockholders equity			137				216				332				462				500
ROCE							29	%			47	%			55	%			45	%
Total Capex			14				34				71				35				36				176
1. property and equipment			-				18				22				21				4				65
2. construction in progress			2				13				41				10				32				96
3. land use right			12				3				4				4				-				11
4. proprietary technologies			-				-				4				-				-				4
Total net working capital			58				111				116				230				275
1.cash and cash equivalents			1				8				1				3				9
2.inventories			4				17				8				46				50
3.deposits and prepaid expenses			15				47				51				76				85
4. account receivable			28				53				82				105				107
5.other receivables			26				9				5				52				69
6. account payables and accrued expenses			-1				-6				-11				-22				-20
7. short term loan			-				-3				-4				-4				-4
8. other payables			-15				-14				-16				-26				-21
Total increase of wc			18				53				5				114				45				217
Total capex and increase of wc			32				87				76				149				81				393
Free Cash Flow (FCF)			-10				-21				22				-30				-30				-59
Net Debt			-1				-2				-5				-20				-44

 

 

SIAF
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			-				2				22				51				17				92
Consulting income			-				3				9				5				4				21
Cost of goods sold			-				1				19				45				15				80
Cost of service			-				1				3				5				1				10
EBITDA			-				2				6				6				0.22				14
Depreciation & amortization			-				-				-				0				0.10
Net income attributable to SIAF & subsidiaries			-				2				6				6				-1.87				12
Non - controlling interest			-				-				-				-				-
Net Incomes of the group							2				6				6				-1.87				12
Total Assets			3				10				19				50				84
Current assets							9				10				39				65
Total liabilities			1				7				8				13				41
Current liabilities							9				6				10				5
Capital employed							1				13				40				79
Total stockholders equity			2				3				11				29				38
ROCE							286	%			73	%			35	%			13	%
Total Capex			-				-				2				1				-				3
1. property and equipment			-				-				-				-
2. construction in progress			-				-				-				1								1
3. land use right			-				-				-				-
4. proprietary technologies			-				-				2				-								2
Total net working capital			18				-				4				29				60
1.cash and cash equivalents															2				1
2.inventories			-				-				-				-				-
3.deposits and prepaid expenses			2				5				2				2				14
4. account receivable			-				2				8				9				7
5.other receivables			16				2				0				26				43
6. account payables and accrued expenses			-				-				-1				-3				-1
7. short term loan			-				-				-				-				-
8. other payables			-				-9				-5				-7				-5
Total increase of wc			45				-18				4				25				31				42
Total capex and increase of wc			45				-18				6				26				31				45
Free Cash Flow (FCF)			-45				20				0				-20				-31				-30
Net Debt			-				-				-				-13				-37

 

 

CA
		2010				2011				2012				2013				2014				2015Q1-2				Total
		In rounded figures of $ million
Sale of goods			11				10				28				47				54				25				154
Consulting income							17				37				36				76				35				184
Cost of goods sold							8				14				33				31				17				95
Cost of service							8				14				13				39				22				88
EBITDA			4				8				35				37				55				20				148
Depreciation & amortization							-				-				-				-				0.10
Net income attributable to SIAF & subsidiaries			-2				8				35				37				55				20				147
Non - controlling interest							-				-				-				-
Net Incomes of the group											35				37				55				20				147
Total Assets			108				40				60				81				149				109
Current assets											53				54				79				76
Total liabilities			-7				4				4				7				20				10
Current liabilities											3				4				20				14
Capital employed											57				77				129				95
Total stockholders equity			101				36				56				74				129				145
ROCE											61	%			97	%			98	%			118	%
Total Capex			8				-				-				3				4				-				7
1. property and equipment							-				-				-				-				-				-
2. construction in progress							-				-				3				-				-				3
3. land use right							-				-				-				4				-				4
4. proprietary technologies							-				-				-				-				-				-
Total net working capital							31				50				50				59				62
1.cash and cash equivalents							-				-				-				-				-
2.inventories							-				-				-				-				-
3.deposits and prepaid expenses							9				19				16				32				30
4. account receivable							19				31				36				28				27
5.other receivables							9				3				2				19				19
6. account payables and accrued expenses							-				-				-11				-9
7. short term loan							-				-				-				-				-
8. other payables							-6				-3				-4				-9				-5
Total increase of wc			21				12				19				-				9				3				31
Total capex and increase of wc			29				12				19				3				13				3				38
Free Cash Flow (FCF)			-25				-4				16				34				42				18				110
Net Debt			-				-				-				-				-				-

 

 

TRIWAY
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			-				16				25				52				22				115
Cost of goods sold			-				10				19				41				18				88
EBITDA			-				5				6				10				3.92				25
Depreciation & amortization			-				0				0				1				0.40				2
Net income attributable to SIAF & subsidiaries			-				4				5				8				1.74				19
Non - controlling interest							1				1				2				0.88				5
Net Incomes of the group							5				6				10				3.52				23
Total Assets			8				12				19				31				23
Current assets							8				6				-				13
Total liabilities			-				-				-				-				-
Current liabilities							1				-				-				-
Capital employed							11				19				31				23
Total stockholders’ equity			8				12				19				31				32
ROCE							45	%			58	%			67	%			85	%
Total Capex			-				6				2				1				2				11
1. property and equipment			-				6				-				2								8
2. construction in progress			-				-				2				-1				2				3
3. land use right			-				-				-				-								-
4. proprietary technologies
Total net working capital			-				7				6				10				13
1.cash and cash equivalents			-				2				-				-				2
2.inventories							5				2				3				4
3.deposits and prepaid expenses							-				4				4				4
4. account receivable							-				-				-				-
5.other receivables							1				-				3				3
6. account payables and accrued expenses											-				-				-
7. short term loan			-				-				-				-				-
8. other payables							-1				-				-				-
Total increase of wc			-				7				-1				4				3				13
Total capex and increase of wc			-				13				1				5				5				24
Free Cash Flow (FCF)			-				-8				5				5				-1				1
Net Debt			-				-				-				-

 

 

MEIJI
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			-				6				18				33				18				75
Consulting income			4				11				7				-								18
Cost of goods sold			-				4				13				31				17				65
Cost of service			2				3				5				-								8
EBITDA			1				9				5				2				1.42				18
Depreciation & amortization			-				0				0				0				0.29				1
Net income attributable to SIAF & subsidiaries			1				9				5				1				0.97				16
Non - controlling interest			-				-				-				-				0.16				0
Net Incomes of the group							9				5				1				1.13				16
Total Assets			7				20				33				38				33
Current assets							8				11				17				19
Total liabilities			-				-				2				5				2
Current liabilities							-				1				-				2
Capital employed							20				32				38				31
Total stockholders equity			7				20				31				33				33
ROCE							45	%			46	%			39	%			23	%
Total Capex			5				2				-				-				-				2
1. property and equipment			-				-				-				-								-
2. construction in progress			-				-				-				-								-
3. land use right			5				2				-				-								2
4. proprietary technologies
Total net working capital			1				8				10				17				17
1.cash and cash equivalents			-				-				0.49				-				2
2.inventories			-				1				1				1				4
3.deposits and prepaid expenses			-				1				1				3				3
4. account receivable			1				6				9				13				9
5.other receivables							-				-				-				-
6. account payables and accrued expenses											-				-				-2
7. short term loan			-				-				-				-				-
8. other payables							-				-1				-				-0.39
Total increase of wc			-3				7				2				7				-0				13
Total capex and increase of wc			2				9				2				7				-0				20
Free Cash Flow (FCF)			-1				0				3				-5				2				-1
Net Debt

 

 

HST
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			6				12				23				11				4				50
Cost of goods sold			2				5				10				4				1				20
EBITDA			4				6				11				6				2.09				26
Depreciation & amortization			0				-				1				1				0.63				3
Net income attributable to SIAF & subsidiaries			3				5				7				4				1.09				17
Non - controlling interest			1				1				3				1				0.37				5
Net Incomes of the group							6				10				5				1.46	#			22
Total Assets			28				37				49				53				56
Current assets							17				19				24				26
Total liabilities			-				-				-				-				1
Current liabilities							-				-				1				1
Capital employed							37				49				52				55
Total stockholders equity			28				37				49				53				53
ROCE							16	%			33	%			40	%			30	%
Total Capex			-				3				10				1				-0.49				14
1. property and equipment			-				3				6				1								10
2. construction in progress			-				-				-				-				-0.49				-0
3. land use right			-				-				4				-								4
4. proprietary technologies			-				-				-				-								-
Total net working capital			4				17				19				23				25
1.cash and cash equivalents			1				3				-				-				1
2.inventories			1				1				1				1				1
3.deposits and prepaid expenses			1				8				9				11				11
4. account receivable			1				5				9				11				12
5.other receivables			1				-				-				1				1
6. account payables and accrued expenses			-1				-				-				-				-
7. short term loan			-				-				-				-				-
8. other payables			-				-				-				-1				-1
Total increase of wc			-3				13				2				4				2				21
Total capex and increase of wc			-3				16				12				5				2				35
Free Cash Flow (FCF)			7				-10				-1				1				0				-9
Net Debt

 

 

HAS
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			-				3				12				20				9				44
Cost of goods sold			-				2				7				11				5				25
EBITDA			-				0				4				7				2.88				15
Depreciation & amortization			0.40				1				1				1				0.75				4
Net income attributable to SIAF & subsidiaries			-				-1				2				5				1.62				8
Non - controlling interest											1				1				0.51				2
Net Incomes of the group							-1				3				6				2.13				10
Total Assets			50				60				79				85				113
Current assets							15				11				30				32
Total liabilities			9				4				4				4				5
Current liabilities							4				6				5				5
Capital employed							56				73				80				108
Total stockholders equity			41				56				75				81				82
ROCE							-2	%			2	%			10	%			10	%
Total Capex			7				9				16				8				11				51
1. property and equipment			-				-				4				12								16
2. construction in progress			-				9				12				-4				11				28
3. land use right			7				-				-				-								7
4. proprietary technologies			-				-				-				-								-
Total net working capital			-8				11				5				25				27
1.cash and cash equivalents			-				2				-				-				2
2.inventories							-				-				14				12
3.deposits and prepaid expenses							8				6				5				5
4. account receivable							2				4				10				11
5.other receivables							3				1				1				1
6. account payables and accrued expenses							-4				-5				-4				-4
7. short term loan			-				-				-				-				-
8. other payables			-8				-				-1				-1				-1
Total increase of wc			-40				19				-6				20				2				-5
Total capex and increase of wc			-33				28				10				28				12				45
Free Cash Flow (FCF)			33				-28				-6				-21				-9				-31
Net Debt

 

 

 

SJAP
		2011				2012				2013				2014				2015Q1-2				Total
Sale of goods			15				21				62				102				73				258
Cost of goods sold			7				15				38				68				52				173
																							-
EBITDA			8				7				27				33				20.20				88
																							-
Depreciation & amortization			-				-				-				1				0.48				1
																							-
Net income attributable to SIAF & subsidiaries			4				3				12				13				5.00				33
																							-
Non - controlling interest			4				4				15				18				10.76				48
Net Incomes of the group							7				27				31				19.60				81
Total Assets			17				43				88				134				186
Current assets							24				35				83				89
Total liabilities			2				11				15				28				22
Current liabilities							6				14				16				19
Capital employed							37				74				118				168
Total stockholders equity			15				32				73				106				117
ROCE							19	%			47	%			55	%			46	%
Total Capex			2				14				38				20				23				95
1. property and equipment			-				9				12				6				4				31
2. construction in progress			2				4				24				14				19				61
3. land use right			-				1				-				-								1
4. proprietary technologies			-				-				2				-								2
Total net working capital			12				18				21				67				71
1.cash and cash equivalents			-				1				0.38				1				2
2.inventories			3				10				4				27				28
3.deposits and prepaid expenses			3				6				13				19				18
4. account receivable			7				7				16				34				41
5.other receivables							-				2				2				1
6. account payables and accrued expenses							-2				-5				-4				-5
7. short term loan			-				-3				-4				-4				-4
8. other payables			-1				-1				-5				-8				-9
Total increase of wc			7				6				3				46				4				59
																							-
Total capex and increase of wc			9				20				41				66				27				154
																							-
Free Cash Flow (FCF)			-1				-13				-14				-33				-7				-67
Net Debt			-1				-2				-5				-7				-7

 

   

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable

 

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 June 30, 2015 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting

 

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

None

 

ITEM 1A.

RISK FACTORS

Not applicable

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this quarterly report, we issued: (i) an aggregate of 47,787 shares of our common stock to certain Chinese persons and the members of our board of directors as compensation for their service as such, (ii) 75,002 shares of our common stock as a result of rounding up fractional shares in connection with the reverse split effectuated in December of 2014, and (iii) 707,070 shares of our common stock upon conversion of all the previously issued and outstanding shares of our Series B Convertible Preferred Stock. The shares were issued pursuant to the exemption from registration under the Securities Act provided by its Section 4(a)(2) and Regulation S.

  

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

 

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

* submitted herewith

 

  

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.
August 14, 2015	By:	/s/ LEE YIP KUN SOLOMON
		Lee Yip Kun Solomon
		Chief Executive Officer
		(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

August 14, 2015	By:	/s/ LEE YIP KUN SOLOMON
		Lee Yip Kun Solomon
		Chief Executive Officer, Director
		(Principal Executive Officer)

 

August 14, 2015	By:	/s/ Bertil Tiusanen
		Bertil Tiusanen
		Chief Financial Officer
		(Principal Financial Officer)

 

August 14, 2015	By:	/s/ TAN POAY TEIK
		Tan Poay Teik
		Chief Marketing Officer and Director
August 14, 2015	By:	/s/ CHEN BOR HANN
		Chen Bor Hann
		Corporate Secretary and Director

 

August 14, 2015	By:	/s/ YAP KOI MING
		Yap Koi Ming
		Director

 

August 14, 2015	By:	/s/ NILS ERIK SANDBERG
		Nils Erik Sandberg
		Director

 

August 14, 2015	By:	/s/ DANIEL RITCHEY
		Daniel Ritchey
		Director

 

August 14, 2015	By:	/s/ SOH LIM CHANG
		Soh Lim Chang
		Director