UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10
 

 
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
 

 
SINO AGRO FOOD, INC.

(Exact name of registrant as specified in its charter)
 


 
Nevada
 
33-1219070
     
State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Nos.)

Room 3711, China Shine Plaza
No. 9 Lin He Xi Road
Tianhe County
Guangzhou City
P.R.C. 510610
(860) 20 22057860

(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants’ Principal Executive Offices)
 


Securities registered pursuant to Section 12(b) of the Act:  None
 
Securities to be registered pursuant to Section 12(g) of the Act:  Common Stock, $.001 par value per share
 
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨
  
Accelerated filer   ¨
Non-accelerated filer      ¨   (Do not check if a smaller reporting company)
  
Smaller reporting company  x
 
  
 

 

SINO AGRO FOOD, INC.

FORM 10

TABLE OF CONTENTS
Item 1.
Business
1
Item 1A.
Risk Factors
31
Item 2.
Financial Information
32
Item 3.
Properties
48
Item 4.
Security Ownership of Certain Beneficial Owners and Management
51
Item 5.
Directors and Executive Officers
53
Item 6.
Executive Compensation
55
Item 7.
Certain Relationships and Related Transactions, and Director Independence
58
Item 8.
Legal Proceedings
59
Item 9.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
59
Item 10.
Recent Sales of Unregistered Securities
60
Item 11.
Description of Registrant’s Securities to be Registered
62
Item 12.
Indemnification of Directors and Officers
62
Item 13.
Financial Statements and Supplementary Data.
63
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
63
Item 15.
Financial Statements and Exhibits
63
 

Explanatory / Cautionary Notes

Sino Agro Food, Inc. is filing this Registration Statement on Form 10 under the Securities Exchange Act of 1934 ("Registration Statement") on a voluntary basis to provide current public information to the investment community and to comply with applicable requirements for the quotation or listing of its securities on a national securities exchange or other public trading market.   In this Registration Statement, unless otherwise indicated, the terms “SIAF,” “Volcanic Gold, Inc.,” “Volcanic Gold,” “Company,” “we,” “us,” and “our” refer to Sino Agro Food, Inc. and its subsidiaries.

Regarding Forward-Looking Statements

Certain of the matters we discuss in this Registration Statement may constitute forward-looking statements.  You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern our strategy, plans or intentions.   All statements we make relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. There may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements and projections attributable to us or persons acting on our behalf apply only as of the date of this Registration Statement and are expressly qualified in their entirety by the cautionary statements included in this Registration Statement.   We undertake no obligation to publicly update or revise any written or oral forward-looking statements, made by us or on our behalf including any of the projections presented herein, to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

ITEM 1. BUSINESS

General

  Sino Agro Food, Inc. (“SIAF”) is an integrated developer, producer and distributor of organic food and agricultural products with its subsidiaries operating in the People’s Republic of China (the “PRC”).   The Company is focused on developing, producing and distributing higher margin agricultural and aquaculture products to meet what it believes is the increasing demand from the growing middle class consumers of the PRC for gourmet and higher quality food items.

Overview

Business History.

  Our Company was initially incorporated as Volcanic Gold, Inc. (“Volcanic Gold”) on October 1, 1974 under the laws of the State of Nevada. Prior to October 14, 2005, the Company operated as a mining and exploration company. Due to the fact that the Company was unable to generate sufficient cash flows from operations, obtain funding to sustain operations or reduce or stabilize expenses to the point where it could have realized a net positive cash flow, management and the board of directors determined that it was in the best interests of the stockholders to seek a strategic alternative so that the Company could continue to operate.

 
1

 

On August 24, 2007, we entered into a series of agreements to effect a “reverse merger transaction” via a share exchange with Capital Award, Inc. (“Capital Award”), a Belize Corporation incorporated on November 26, 2004. These documents included a Stock Purchase Agreement, pursuant to which Volcanic Gold issued 32,000,000 shares to stockholders of Capital Award in exchange for all of the shares of Capital Award. On August 24, 2007 the Company changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc.

On September 5, 2007 we purchased 100% equity interest in Hang Yu Tai Investment Limited (“Hang Yu Tai”) that was incorporated in Macau on September 21, 2006 from two non-affiliated shareholders of Hang Yu Tai. Hang Yu Tai that has a 78% equity interest in ZhongXingNongMu Co. Ltd. (“ZhongXing”) that was incorporated in China on March 1, 2006. The purchase price was $26,910,000, satisfied by: cash payment of $10,000,000 and the issuance of 7,000,000 shares of our common stock

On September 5, 2007 we purchased 100% equity interest in Macau Eiji Company Limited, (“Macau Eiji”) that was incorporated in Macau on September 5, 2005 from non-affiliated shareholders of Macau Eiji. Macau Eiji has a 75% equity interest in Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd., which was incorporated in China on November 27, 2007. The purchase price was $6.75 million, satisfied by: cash payment of US$2,000,000 and the issuance of 2 million shares of our common stock.

On September 5, 2007 we purchased 100% equity interest in Tri-way Industries Limited (“Triway”) that was incorporated in Hong Kong on October 28, 2005. Triway controlled a 30% equity interest in TianQuan Science and Technology, Ltd. (“TianQuan Science”) that was incorporated in China on April 4, 1999. The purchase price was $3.25 million, satisfied by: cash payment of US$1,000,000 and the issuance of one million shares of our common stock. On October 9, 2007 the Company changed its name from A Power Agro Agriculture Development, Inc. to Sino Agro Food, Inc.

By an agreement dated October 29, 2008, Triway sold its 30% equity interest in TianQuan Science to an unrelated party for consideration of $4,500,000 that was satisfied by the payment of $4,500,000 on December 18, 2008 plus our share of TianQuan Science’s profits in 2008 which amounted to $1.25 million and was paid on November 15, 2008.

By an agreement dated November 12, 2008, Triway brought a patented “Intellectual Property” namely “Zhi Wu Jei Gan Si Liao Chan Ye Hua Chan Pin Ji Qi Zhi Bei Fang Fa” registered under the Patent Number “ZL2005 10063039.9” and Certificate number “329722” of China, (Livestock feed Manufacturing Technology), for the manufacturing of Livestock feed designed and applied for the consumption of beef cattle, cows, sheep and other animals from a non-affiliated owner of the Intellectual Property. As consideration for the transaction, we paid $8,000,000 that was satisfied by $4,500,000 that was paid on December 18, 2008. The remaining balance of $3,500,000 is to be paid by cash or the issuance of our shares in three installments. The first installment was satisfied by the payment of $1,000,000 on December 31, 2009. A second installment is due December 31, 2010 for $1,000,000 and a third and final installment is due December 31, 2012 for $1,500,000. If the payment is made in our shares, the price per share will be valued at a three months weighted average as quoted on the OTC Pink Markets prior to the date of settlement.

On December 28, 2008, the Company through its then subsidiary Pretty Mountain Holdings Limited (“Pretty Mountain”), a company incorporated in Hong Kong, the Special Administrative Region of the PRC, entered into a sino-foreign joint venture agreement with the following parties for the setting up of a sino-foreign joint venture company to be named as Qinghai Sanjiang A Power Agriculture Co. Ltd. (translation in English) (“Sanjiang A Power”) in the PRC, to manufacture bio-organic fertilizer, livestock feed and to develop other agriculture projects in the County of Huangyuan, in the vicinity of the City of Xining,  Qinghai Province :

 
·
Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a PRC government owned company with major business activities in the agriculture industry; and

 
·
Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a private limited company incorporated in the PRC, specializing in sales and marketing.

 
2

 

In September, 2009, SIAF carried out an internal re-organization of its corporate structure and businesses, and on September 28, 2009, SIAF’s subsidiary A Power Agro Agriculture Development (Macau) Limited (“APWAM”) acquired the Pretty Mountains’ 45% equity interest in Sanjiang A Power by way of an assignment (“Assignment”).    Application was subsequently made by the Company to the Companies Registry of Hong Kong for deregistration of Pretty Mountains under Section 291AA of the Companies Ordinance. By virtue of the Assignment, APWAM assumed all obligations and liabilities of Pretty Mountains under the SFJVA.  APWAM is a 100% owned subsidiary incorporated in the Special Administrative Region of Macau, the PRC. 10% of the equity interest in APWAM has been registered in the name of one Mr. HUNG Moon Cheung in compliance with the requirements of the laws of Macau on ownership of a company incorporated in Macau by non citizens of Macau, and the same is being held by the said Mr. HUNG in trust for and, for the benefit of, Sino Agro Food Inc. pursuant to a Deed of Trust duly executed by the said Mr. HUNG on December 20, 2007 in favor of Sino Agro Food, Inc.

Our Current Business and Corporate Structure

Our executive office in the PRC is located at Room 3711, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, the People’s Republic of China 510610.  Tel: (86) 20 22057860, 22057870.   Fax:  (86) 20 22057863, 22057873. We maintain a website at www.sinoagrofood.com.  Nothing on this website is part of this Registration Statement.


 
3

 
 
Revenues and Incomes Generating Businesses

We conduct our operations through four primary subsidiaries, namely:

Capital Award Inc ., a private limited company incorporated in Belize, engaged in modern fishery project management and consultancy services;

Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd ., through Macau Eiji Company Limited, a 100% owned Macau subsidiary, we own 75% of Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd., a sino-foreign joint venture company incorporated in the PRC, engaged in farming of Hylocereus Undatus, commonly known as Bean Capers or Pitaya, at Juntang Town, in the vicinity of the City of Enping, Guangdong Province of the PRC ;

ZhongXingNongMu Co. Ltd ., through Hang Yu Tai Investment Limited, a 100% owned Macau subsidiary, we own 78% of ZhongXingNongMu Co. Ltd., a private limited company incorporated in the PRC, engaged in modern dairy cows and cattle farming in the Fengning County, Province of Hebei of the PRC; and

Qinghai Sanjiang A Power Agriculture Co. Ltd ., through A Power Agro Agriculture Development (Macau) Limited, a 100% owned Macau subsidiary, we own 45% of Qinghai Sanjiang A Power Agriculture Co. Limited, a sino-foreign joint venture company incorporated in the PRC, engaged in manufacturing of bio-organic fertilizer, livestock feed, cash crops farming and beef cattle rearing and fattening in the County of Huangyuan, in the vicinity of the City of Xining, Qinghai Province of the PRC.

Company
 
Shareholding
by the group
Immediate subsidiary
 
Equity
Ownership
 
Revenues generating activities
               
Sino Agro Food, Inc.
 
The Ultimate Holding Company
       
Service fees will be charged to its operational subsidiaries in China starting in its fiscal year ending June 30, 2011.
               
Capital Award Inc.
 
 
100%
       
Fishery development including consulting service fees, technology fees, supply of plants and equipment and other related services and management fees, since 2004
               
Macau Eiji Company Limited
 
 
100%
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.
 
75%
 
Growing and processing of HU Plants including sales of fresh and dried HU flowers and value added processed HU Flowers.
Revenues generated since 2008.
               
Hang Yu Tai Investment Limited
 
 
100%
ZhongXingNongMu Co. Ltd.
 
78%
 
Dairy Farm operation, including sales of fresh liquid milk, dairy products, fertilizer, livestock feed and cattle since 2006.  Revenues generated since 2006.
               
A Power Agro Agriculture Development (Macau) Limited
 
 
100%
Qinghai Sanjiang A Power Agriculture Co. Ltd (China).
(Operational company)
 
45%
 
Manufacturing and beef cattle farming, including the sales of bio-organic fertilizer, livestock feed and beef cattle. It is anticipated that revenue and sales will be generated starting from this fiscal year ending June 30, 2011.
               
Tri-way Industries Limited
 
100%
 
A newly formed Sino-Foreign Joint Venture Company at Enping County, Guangdong
 
 
 From 20%
(as provided in the joint venture agreement)
 
Fish Farm operation including the sales of farmed fish and it is anticipated that revenues will be generated from July 2011.
 
 
4

 
 
Capital Award Inc.

Capital Award Inc. (“Capital Award”) is currently engaged in modern fishery project management and consultancy services. We provide consulting and management services to fish farms that are adopting the “A Power Technology”.

The A-Power Technology

A-Power Technology (“APT”) is an engineered, self-contained water treatment and re-circulating aquaculture system (“RAS”) for the growing of aquatic animals on a commercial scale.  It mainly consists of the A-Power Grow Out Basin and the A-Power Treatment Stack equipment and operating techniques and procedures which Capital Award has established as essential or desirable for the establishment development and operation of the A-Power aquaculture system.   In an APT designed fish growing system, fish produced are free from diseases commonly associated with other outdoor aquaculture methods.  The system is fully integrated, automated and climate-controlled.  With strict water quality management, APT fish growing system creates a stress-free environment for the fish.  These ideal growing conditions enable improved productivity, mortality rates of less than 8% and feed-to-fish conversion ratio of 1:1 for pallet feed and 2:1 for non pallet feed.  The system is housed on land in an enclosed environment under fully controlled conditions, and by avoiding contact with any outdoor contamination and using treated water, APT RAS produces healthy farmed fish guaranteed free of antibiotics and other pollutants.

It is an environmentally friendly system that recycles all water used in the farm.  It enables the production and supply of fish in the vicinity of urban area all year round consistently.  The RAS has been commercially applied in Europe and Australia for the past 30 years and APT has been commercially developed and used in Australia since 1998.  However the RAS and APT are relatively new to the Asian countries including China.

APT is not a patented technology as it was developed upon the platform and principles of the RAS, but many component parts of the APT fish farms or the improved version thereof were designed and/or developed by Capital Award, such as:

 
·
solid waste filter and separator;
 
·
micro-bio filter for the treatment of insoluble wastes;
 
·
oxygen injector;
 
·
steam generated heating compartment (optional, depending on the species of fish to be grown);
 
·
ultra violet light disinfection chamber;
 
·
air blower configuration;
 
·
designs of the grow-out tanks;
 
·
designs of the quarantine station;
 
·
designs of the nursery station;
 
5

 
·
designs of the farm’s fish storage tanks; and
 
·
designs of stock feed processing lay-out plans.

APT is a unique system as it is coupled with the farm operation and management systems and supporting services developed by Capital Award, which include:

 
·
systems for rotational stocking of fish and rotational harvesting of fish, designed to stock the growing fish tanks with certain variety of fish of certain sizes and age group at pre-determined intervals, to provide constant production of multiple varieties all year round or as and when the markets require;
 
·
quality control systems to keep the quality of the water and production in check;
 
·
diseases control and prevention system to enhance better production cycles of the farms;
 
·
maintenance programs to ensure the smooth running of the farms’ equipment; and
 
·
training programs for the workers on standard operating procedures.

A standard A-Power Module has a surface area of 70 square meters and contains approximately 145 cubic meters of water.

The APT system is designed to attain economic efficiencies in the areas of reduced energy requirement, water usage, labor cost, low fish mortality rates and good feed-to-fish conversion rate, as compared to the conventional methods of fish farming.   Most of the inland fish farms in China are in open dams measuring at an average of 660m² by 2m in depth.   These farms are supported by old aeration pumps that are often not functioning well.   About 10% of these dams are located in some districts with good underground or other water source to constantly feed the dams with clean water, whereas the balanced 90% of the dams in the country too often hold stale water that may be changed every 12 to 18 months supplied through the irrigation channels.  Most of the river or big water dam fish farms are in cages measuring at an average of 120m² by 1.5m in depth per cage in huge river or dams.   Fish farming at sea is also done by using cages similar to river cages.   The issues of pollution being faced by the aquaculture industry is becoming apparent largely due to the adverse environmental problems resulted from rapid industrialization in the PRC in recent years.    Rising costs of land, labor, logistic, utilities, feed, etc. have added further to the ills of what is now a sunset industry in urgent need of revitalization by means of modern technologies.   The governments of the PRC are providing various incentive schemes for such purpose.

Items of comparison
 
APT farms
 
Conventional farms
         
Surface area measured for productivity
 
25 tons per year per 72 m²
 
0.5 tons per year per 660m²
         
Water capacity measured for productivity
 
25 tons per year per 100 m³
 
0.5 tons per year per 1320m³
         
Labor content
 
One worker per 50 tons per year
 
One worker per 6 tons per year
         
Water usage
 
Minimal
 
100% Changed every year
         
Energy requirement
 
2.5% cost of production
 
No specified records
         
Quality standard
 
Can be organic or non-organic.
 
Guaranteed free from chemical and pollution of export standard
 
No consistency
 
Not of export quality
         
Harvesting
 
All year round
 
Once or twice annually
         
Subjecting to seasonal variation
 
No
 
Yes
         
Subjecting to external predators and diseases
 
No
 
Yes
         
Usage of antibiotics and chemicals
 
No
 
Yes
         
Environmentally friendly
 
Yes
 
No
         
Live span of major plants & equipment
 
25 years or more
 
Two years
         
Average Gross profit
 
minimum 60% of sales value, depending on the species of fish grown
 
No accurate calculation
         
Averaged mortality rate for the Grow-out
 
8% or less
 
Above 25%
         
Average of feed to fish conversion rate
 
2 to 1
 
4.5 to 1
 
 
6

 
 
Fish Farm Development

On January 15, 2010, we executed a service and consulting contract with a group of Chinese businessmen to build a Fish Farm in the City of Enping, Guangdong Province, the PRC using the APT RAS.    There is an option in the aforesaid Agreement for the Company to take up to 20% equity interest in a newly formed sino-foreign joint venture company for the purposes of development, operation and ownership of the fish farm, with a further option for the Company to take up more equity interest in the new entity at a later time.

The farm in Enping is being designed to have a production capacity of 500 metric tons of fish per year.    We shall provide services amounting to about $3.5 million,  includes the APT sub-license fees of $400,000, supply part of the plant and equipment up to $2,500,000, supervision and consultancy in the building of the farm structure, the grow out tanks and related installation, training of workers and other associated professional services amounting to 600,000.   The Chinese businessmen are funding this capital development amount.

The species of fish intended to be grown in the Farm will be the “Sleepy Cod”, which is a Chinese species in demand in the local market.  It commands average wholesale price of US$27.00 (live fish) per kilogram (recorded on June 21, 2010).

We are working on and targeting the following development schedule:

 
·
Commencement of construction of the farm building on or before July 15, 2010;
 
·
Commencement of construction of the grow out tanks on or before August 1, 2010;
 
·
Completion of construction of farm building and tanks on or before September 30, 2010; and
 
·
First Income from sales of fish on or before July 1, 2011.

Supplies of Fingerling Stocks and Feed Stocks to the proposed fish farm

Presently fingerling stocks of Sleepy Cod are readily available in the PRC, but they are not Specific Pathogens Free (“SPF”) fingerlings. However, a nursery, quarantine station and laboratory will be developed in the fish farm in Enping.  Capital Award will provide the training of and education for, the staff of the farm on the development of SPF fingerlings so that the Sleepy Cods fingerlings will be SPF certified before being released into the grow-out tanks for their grow-out.  A farm of an annual capacity of 500 tons when fully developed will require over one million pieces of fingerlings per year within 2 years of operation.  For this first year, 300,000 pieces of fingerlings have been ordered for delivery commencing sometime in September 2010.

“Blue bait,” which is an ocean captured small bait fish available in the PRC, will be used as the core raw materials as feed for Sleepy Cod.  The workers at the farm will be trained by Capital Award’s personnel on the preparation and formulation of the fish feed.

 
7

 
 
Sales of Fish

Sleepy Cods, especially being supplied live, have good niche markets in the local Chinese markets as well in the Asian markets.  As such, Capital Award aims at selling mainly live fish and it anticipates that local wholesalers and distributors will pick up their purchase orders directly at the farm gate without the farm having to be concerned itself with the issues of delivery and logistic.   All fish produced from the farm will have uniform quality standard, i.e. they will be free of any chemical and other pollutants and will be marketed and promoted accordingly.

The demands for premium quality fish are increasing rapidly over the recent years due to improved living standards in the PRC, especially in its urban and city regions.   Sleepy Cod, of a cod fish family which has less bone with whitish meaty fresh and excellent tasty texture, is much preferred by the Chinese, and therefore the demand has always been exceeding supplies. It is a species that grows in tropical temperature and farming of same requires special care and attention. That is why there are not many in land fish farms growing this species commercially in the PRC.

It was recorded in the Government’s Agriculture Journal that there are about 200 hectares of open dams area are growing this species in the southern regions of PRC, producing at an average annual rate of about 6 tons of fish per hectare per year totaling to an annual production of about 1,200 tons.   It is far short of the demands required by many cities in the PRC.

Capital Award’s APT RAS will provide a superior growing environment and management method to grow this species consistently and economically, such that its farms will have the competitive edge.

Future Sale of Fishery Plant and Equipment and Consulting Services

In 2008, management of Capital Award studied the feasibility and viability of engaging a number of the Chinese manufacturers and factories to manufacture the main parts and components of the APT Module in the PRC and then assemble the parts and component by Capital Award’s own team of workmen.   The finished plants and equipment were found to be comparable to most the imports in quality standard but to cost up to 55% less.   Based upon this experience, Capital Award will have up to 60% of the plants and equipment required for the farms manufactured in the PRC and assembled by its own team of workmen at the fishery project sites as required by the purchasers of the fish farms.

Order Backlog

There is no backlog of orders at present in respect of any of Capital Award’s sales and services.

Competition

Many of our existing and potential competitors have substantially greater financial, marketing and distribution resources than we do.   Many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can.  If we are unable to compete successfully, our business may suffer and our sales cycles could lengthen, resulting in a loss of market share or revenues

We believe that competition within the industry is based principally on a combination of quality, price, design, responsiveness and delivery, reputation, production capacity and after sales customer services. We distinguish ourselves from our competitors by being focused on RAS technology.

There are really no competitors in the PRC as far as RAS farm is concerned.  We provide and support the APT fishery development with complete services from the designs of a farm’s lay-out and farm building’s structure to all filtration systems; from the supplies of core plants and equipment to their maintenance services; from training of workers to full management of operation services; and from the development of SPF fingerlings to the sales and marketing of the farmed fish and fish products.   There is no other RAS supplier in the PRC providing what we have provided for our clients in the PRC. Our teams of management have significant experience in the industry that covers all aspects of the industry, including RAS technologies know-how, management of farm operation, training of operators and extensive knowledge of the markets and sales.

 
8

 

In respect of the sales of fish, we are competing against growers/suppliers of fish and fish products of sub-standard quality, estimated to be supplied to the local markets in tens of millions metric tons per year. There is in fact no commercial farm in the PRC producing chemical and pollution free fish.  Our quality fish and fish products will be competing against high quality imports, consisting of mostly frozen items, which are being sold at premium prices.   We are confident that our live or fresh chilled fish and fish products will have better competitive edge as much logistic cost will be saved, and hence better pricings.

We also believe that by building the APT farms in the PRC will significantly reduce the investment capital required, as it would be much costly if they were to be built in any other countries. By reducing the development capital, the cost of production and sales of the fish will be reduced, whereas the competitive edge of our fish and fish products will be very much increased.

Patents, Trademarks & Licenses

We do not have ownership of any patented or trademarked intellectual property.  The APT was designed and developed by Infinity Environmental Group, a Belize corporation.  Capital Award was granted a Master License for APT for the territory of the PRC in March 2005 for a term of 60 years.   Capital Award subsequently has made many improvements to the plants and equipment to suit the conditions in the PRC, and has developed operating techniques and procedures which Capital Award has established as essential or desirable for the establishment development and operation of the APT farms.

Environmental Matters

All new developments in the PRC are required to furnish an Environmental Impact Assessment (“EIA”) Report to the local authorities.   We expect to obtain the EIA approval of the local authority for the fish farm in Enping in the near future as APT farm, being a RAS farm, is an environmentally friendly project with no adverse impact to the environment.

Research and Development

We have no research and development expenses.

Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.

Macau Eiji Company Limited (“Macau Eiji”) is a 100% owned subsidiary incorporated in the Special Administrative Region of Macau, the PRC.   10% of the equity interest in Macau Eiji has been registered in the name of one Mr. HUNG Moon Cheung in compliance with the requirements of the laws of Macau on ownership of a company incorporated in Macau by non citizens of Macau, and the same is being held by Mr. HUNG Moon Cheung in trust for and, for the benefit of, Sino Agro Food, Inc. pursuant to a Deed of Trust duly executed by the said Mr. HUNG on December 20, 2007 in favor of Sino Agro Food, Inc.

Macau Eiji entered into a sino-foreign joint venture agreement with Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. on September 5, 2007, for the setting up of a sino-foreign joint venture company known as Jiang Men Shi Heng Sheng Tai Nong Ye You Xian Gong Si (English translation: Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.) in China.

Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“HST”), in which we have a 75% equity interest pursuant to the aforesaid sino-foreign joint venture agreement, was incorporated in China on November 27, 2007.

HST is engaged in farming of Hylocereus Undatus, commonly known as Bean Capers or Pitaya or dragon fruits plant (“HU Plants”), at Juntang Town, in the City of Enping, Guangdong Province of the PRC.

 
9

 

We currently generate revenue by:

 
·
harvesting the green flowers from the HU Plants before they mature into fruits and sell them as vegetables;
 
·
drying the green flowers harvested and selling them as dried vegetables for human consumption; and
 
·
processing and packaging the dried and fresh flowers into salted, pickled and in brine vegetables.

All dried, processed and packaged green flowers are to be sold throughout the year, even after the HU Plants’ flowering season, which runs from July through October, is over.

Harvesting and Sales of HU Plant Green Flowers

HST has over 1,095.58 mu (Chinese acre), equivalent to approximately 181.79 acres, of land available for growing and processing HU Plants under Land Usage Rights granted for a term of 60 years commencing May 2007.  The land is located in the City of Enping in the southwest of Guangdong Province situated in the Zhujiang Delta Region.  It is 150km from the Guangzhou City and 250km from Hong Kong or Macau, and it has good freeway access from the aforesaid cities.

Enping is ideally suited for growing HU Plants because it has a tropical monsoon climate with short winter and long summer.  It is warm in the winter and cool in the summer with abundant rainfall.   It is one of the few areas, which have not been taken over by the progress of industrialization, ideal for growing of HU Plants in the PRC.   Before 1989, there were over 100,000 mu of HU plantation, situated among the fast growing districts in Guangdong Province, supplying HU flowers and products to the local and South East Asian markets.   By now there are less than 3,000 mu of HU Plantation left in the said old growing districts due to the industrialization progress of recent years.

A HU Plant normally takes three years to reach maturity which means that:

 
·
Year 1 plants yield only about 10% of green flowers, as compared to the matured plants.
 
·
Year 2 plants yield about 50% of green flowers, as compared to the matured plants.
 
·
Year 3 fully matured plants yield an average of 120,000 green flowers per year per mu over the next 25 years, the average production life span of a HU plant.

The harvesting period of HU Plants in Enping region is between middle of June to end of October each year, divided into approximately 14 harvesting intervals during the period.   During the harvesting period, HU plants naturally start to blossom with green flowers the following day after a rain, and the green flowers must be harvested right away before they bloom into colorful flowers, which are not marketable as vegetables.

Out of HST’s land holding, 187 acres were planted with HU Plants from late 2007 to current day consisting of 47 acres of 3 years old and 88 acres of 2 years old plants with the balance in new and year 1 old plants.

In 2008, the Year 2007 planting showed a yield of average of 7,500 flowers per mu in a year, resulting in a total yield of over 2.15 million pieces of flowers harvested and sold as fresh flowers.  In 2009, Year 2007 planting yielded over 14 million pieces of fresh flowers, whereas the Year 2008 planting showed a total yield of 2.5 million pieces of fresh flowers.  We anticipate Year 2010 to be a good year, and HST expects a total harvest of no less than 50 million pieces of green flowers.

Sales of Dried Flowers Products after the Installation of the Drying and Processing Facilities

HST began in 2009 to develop the facilities for the drying and processing of the green flowers into value added products such as portion packed as “Steamed and dried flowers,” “Naturally dried flowers,” and “Favorite dried flowers.”   In mid June 2009, the construction and fitting out of drying houses, for drying up to five metric tons of fresh green flowers per day, was completed on a 6,600 m² plot.    The cool room facility and the associated packaging facility were completed in March 2010.  Therefore the drying and processing facilities will be fully operational for the current season’s harvest.

 
10

 

All of our drying and processing facilities were developed using the traditional drying and processing systems and methods that have been used in the industry in the PRC for decades.  The traditional drying and processing methods are rather simple and straightforward processes as follows:

 
·
All harvested green flowers will be stored and kept cool in the cool room while waiting to be processed.
 
·
They will then be steamed in batches at boiling temperature for less than 15 minutes.  The naturally dried flowers will require washing and grading.  Flavored dried flowers will be aromatically cured after steaming.
 
·
Thereafter, they will be transferred to the drier to be dried at 140Celsius for about 3 hours and at gradually decreasing temperature for another 5 hours.
 
·
Packaging procedures will then follow.
 
·
They will then be stored and sold through the winter period until next harvest season.

Although these traditional facilities are less expensive to build than facilities using more modern dryers and processors, they are more labor intensive.  We chose the more traditional methods because of :

 
·
easy access to affordable pool of labor in the Enping region, and at the same time creating job opportunities for the local people .
 
·
our experience in the industry dictates that these traditional systems and methods produce the end products of such quality much preferred by the local markets.
 
·
These facilities located in the agriculture districts are regarded as temporary agriculture facilities, and as such prior approval of the regional council is not required, as long as the village committee of the County has been duly informed accordingly. In this respect, we have the consent of the village committee for the erection of the facilities.

At present, all dried flowers are being sold locally to the regional wholesalers and distributors.  They have been purchasing and collecting the dried flowers from our drying factory practically as soon as our products are ready for collection.  Therefore, we hardly have any stock of dried flowers by the end of December of the year.

Marketing and Sales

Fresh and dried flowers of HU Plants have been marketed in the PRC as well as in other Asian countries as a form of traditional health food for the Chinese population for many centuries.

However, the shelf life of fresh flowers is very short; maximum shelf life of about 3 days in non-refrigerated condition, and of about 7 days when stored at temperature of 15Celsius.   In most wet markets in the PRC, the distributors do not normally have refrigerating facilities, and as such during the harvesting seasons, the distributors do not have the capacity to sell all fresh flowers being produced across the country.

It is therefore essential for the bigger growers like us to equip the farm with drying, cooling and packaging facilities to space out sales of HU flowers all year round.

We have enough drying, cooling and processing facilities to handle the processing of the fresh flowers produced in our own farm for 2010.   However, as we shall plant more acres of HU Plants, we will need to increase the capacities of our drying and process facilities accordingly.

Fresh green flowers of HU Plants are normally sold as fresh vegetables to more than 25 wholesale markets around the City of Guangzhou.   There are many wholesalers buying dried and processed flowers directly from the processing factories without any need to sell them through any wholesale markets.

The wholesale prices for the dried HU flowers have risen from an average price of U.S. $4.68 per kilogram in 2007 to U.S. $5.85 per kilogram in 2008.  In 2009, our average selling price was at U.S. $7.06 per kilogram.    We forecast the average wholesale price will reach above U.S$7.50 per kilogram in 2010.

 
11

 

All marketing and sales activities are conducted by our own employees. The following tables set forth our revenues by the type of products we sold for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.

Product
 
Revenue
ended Dec  31,
2009
   
Percentage of
Revenue of  this
Subsidiary
   
Revenue
6 months
ended June  30,
2009
   
Percentage of
Revenue of  this
Subsidiary
   
Revenue
6 months
ended June 30,
2010
   
Percentage of
Revenue of  this
Subsidiary
 
Fresh flowers
    464,531       16 %     0       0 %     0       0 %
Dried flowers
    2,450,560       84 %     151,537       100 %     0       0 %
Total
    2,915,091       100 %     151,537       100 %     0       0 %
 
Future Sales and Marketing of Value Added Products

Between March and June of 2010, we processed our dried flowers into salted and pickled vegetable and in brine.  These value added flowers were packaged by packaging factories in the region into bottles, cans and vacuum packs.  We carried out sampling trial sale of such value added products in the PRC, Singapore and Malaysia in late May and early June of 2010 and found that the market receptions were promising.

We are negotiating an agreement with a Singaporean trading company to export these ranges of value added products to Singapore and Malaysia in the third quarter of 2010.  However we do not have a binding agreement with them at this time.

Order Backlog

There is no backlog of orders at present.

Competition

The market in the PRC for HU Plant products is extremely competitive.   According to the Chinese government statistics, at peak time there are more than 100 companies engaged in HU Plant product production in China and most of these operators source their flowers from their neighboring growers and their own farms.

Our major competitors are Zhao Qing Branch of Guangdong Zhong Dian Import & Export Inc. and He Yuan Livestock Import & Export Co. Ltd.  There are other smaller operators namely Qing Xiang Agricultural Product Co. Ltd., Sheng Yi Food Co. Ltd., Shi Feng Food Development Co. Ltd. and Hua Yao Business Farm.  At this juncture, we rank in the bottom levels of these competitors.  The larger corporations in general have greater financial and personnel resources and have achieved greater market penetration than we have.  We compete by producing quality products in a market in which we believe the rising demand for HU Plants products will supersede the supply in the foreseeable future.

Patents, Trademarks & Licenses

We do not own any patented or trademarked technology or design.

Environmental Matters

There are no material effects that compliance with national, regional or and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have upon our capital expenditures, earnings and competitive position.

We do not anticipate any capital expenditures for environmental control facilities for the remainder of our fiscal year or any future periods.

 
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Research and Development

We have no research and development expenditures.

Government Regulation Specific to our Business

One of the incentives granted by the PRC Government to the agriculture industry, which is applicable to HST, is that the transportation of our fresh flowers to the markets are exempted from paying the toll fees charged on the highways.

ZhongXingNongMu Co. Ltd.

Hang Yu Tai Investment Limited (“HYT”) is a 100% owned subsidiary incorporated in the Special Administrative Region of Macau, the PRC.   10% of the equity interest in HYT has been registered in the name of one Mr. Hung Moon Cheung in compliance with the requirements of the laws of Macau on ownership of a company incorporated in Macau by non citizens of Macau, and the same is being held by Mr. HUNG Moon Cheung in trust for and, for the benefit of, Sino Agro Food Inc. pursuant to a Deed of Trust duly executed by the said Mr. HUNG on December 20, 2007 in favor of Sino Agro Food Inc

HYT has a 78% equity interest in ZhongXingNongMu Co. Ltd. (translation in English) (“ZhongXing”), and the same is being held in trust for and, for the benefit of, HYT by Mr. SUN Ximin, the owner of ZhongXing, pursuant to a Deed of Trust duly executed by the said Mr. SUN on November 12, 2007 in favor of HYT.

ZhongXing is currently operating in the following income generating activities:

 
·
Production and sales of fresh liquid milk;
 
·
Rearing and sales of beef cattle;
 
·
Planting of crops for the purpose of further processing into livestock feed;
 
·
Processing and sales of livestock feed; and
 
·
Processing and sales of fertilizer.

These activities are being supported by following integrated activities that are not income generating:

 
·
Breeding of cows and cattle; and
 
·
Veterinary services

The following tables set forth ZhongXing’s results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.

Sale
 
Revenue
ended Dec 31,
2009
   
Percentage of
Revenue of  this
Subsidiary
   
Revenue
6 months
ended June 30,
2009
   
Percentage of
Revenue of  this
Subsidiary
   
Revenue
6 months
ended June 30,
2010
   
Percentage
 of Revenue  of
this  Subsidiary
 
Fresh liquid milk
   
16,113,349
      69.5 %    
7,616,758
      83 %    
4,655,372
      41.8 %
Beef cattle
   
255,031
      1.1 %    
697,438
      7.6 %    
801,882
      7.2 %
Value added dairy products
    0       0 %     0       0 %    
3,675,293
      33 %
Livestock feed
   
5,842,538
      25.2      
679,085
      7.4 %    
1,826,509
      16.4 %
Fertilizer
   
937,756
      4.2 %    
183,536
      2 %    
178,196
      1.6 %
Total
   
23,148,674
      100 %    
9,176,817
      100 %    
11,137,252
      100 %
 
 
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For the six months ended June 30, 2010, our dairy’s revenue was of U.S.$8,687,057, as compared to revenue of $7,157,918 for the six months ended June 30, 2009, representing an increase of $1,489,139 or 21.36%.   This increase was due to following reasons:

 
·
maturity of our cows reaching better yield cycles, i.e. from average of 7.6 kg per cow per day in 2009 to 8.3 kg per cow per day in 2010.
 
·
more milking days, i.e. from average of 288 days per year to 306 days per year.
 
·
increase in number of milking cows,  i.e. from 3,800 heads in 2009 to 5,000 heads in 2010.
 
·
Revenue from 39 days of sale of fresh milk in 2009 was carried forward to this current half corrected for reason of doubtful receivables recorded earlier.
 
·
Sales of value added products in current half year are inclusive of the sales from November 1, 2009 to June 30, 2010.  At the same time sale price for the value added products (at an average of $1,841 per metric ton) was much higher than the sale price for fresh milk (at an average of $663 per ton).
 
·
We sold more livestock feed in the early months of 2010 due to high demand generated by the extreme winter condition during that period.

Dairy Farm

ZhongXing’s main dairy farm operation is located in the County of Fengning, Province of Hebei in the PRC on lands approximately 1,985 acres in area, under various Land Use Rights granted by the County government.   It is about 90km away from Beijing, and a prime area for cattle and dairy cows farming as it has long daylight to sustain crops plantation up to seven months in a year.  The construction of a freeway between Beijing and Fengning is scheduled to be completed mid-year 2011.  When completed, it will take less than 1.5 hours drive to reach the Farm from Beijing, hence a much faster and easier access to the Beijing City.

The dairy farm is currently milking from 3,500 herds of cows and is equipped with:

 
·
the most up-to-date feed mixing machines and milking equipment;
 
·
efficient housing and supporting facilities that can accommodate up to 3,500 cows;
 
·
in house veterinary facilities and services;
 
·
a modern and well equipped quarantine station that has the capacity to handle up to 2,000 cows;
 
·
significant feed and forages storages areas to stock up to 25,000 tons of livestock feed;
 
·
a crop plantation on more than 1,000 acres of land; and
 
·
processing factories for the manufacturing of livestock feed and fertilizer.

ZhongXing’s business objective is to produce premium quality organic milk and milk products.  Organic fertilizer manufactured in house is applied in its crops plantation.   It manufactures high quality livestock feed for its herds of animals by using raw materials organically grown in the crops plantation.  In November 2008, ZhongXing’s liquid milk was certified by the China Agriculture Authority as ‘Organic Milk’, and accordingly ZhongXing has since become a commercial organic milk producer in China.   ZhongXing sells its fresh unprocessed organic milk currently at an average of RMB4,500 (equivalent to $662) per ton, which is approximately 9.2% more than common dairy farmers are getting for their fresh liquid milk, which is sold at an average price of RMB4,078 (equivalent to $600) per ton.  Daily minimum wholesale prices of non organic liquid milk in different provinces of the PRC are published in the newspapers and the government information website.  No such data is available for organic milk as the supply of organic milk nationwide is too little for public information.

At present, ZhongXing sells its fresh liquid milk mainly in bulk directly to the value added manufacturers, who process the same to make products such as yoghurt, milk candies, cream cheese and 300 other types of products.

In late November 2009, a group of associates of ZhongXing completed the development of a value added processing factory with 6 production lines situated within close proximity of ZhongXing’s headquarter in the town center of Fengning.  ZhongXing supplies fresh unprocessed liquid milk to the processing plant to for manufacturing of dairy products such as milk candy bars, yoghurt, cream cheese products, etc. in a brand name created by ZhongXing.

 
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ZhongXing’s debt to equity ratio was determined to be 54.9% as at 31st December 2009, and ZhongXing targets to acquire the processing factory once ZhongXing’s debt to equity ratio is reduced to below 25%.

ZhongXing inaugurated its production of three different varieties of cream cheese products in December 2009 and sales of such products were launched at some of the Beijing City’s retailers’ premises in late December 2009 under the label of YuanTianRan, which means green and natural, and YuanTianRan products are being sold in Wal-Mart and Huahyuan supermarket stores in Beijing since March 2010.

Livestock Feed

ZhongXing also sells part of the livestock feed produced by ZhongXing in Fengning to the farmers in the region.   Raw materials such as corn, sunflowers and various other types of cereal seeds and pasture grass are shredded and mixed to the exact nutrients contents desired for the dairy cows or cattle by using our specially designed mixing machines.   Excess livestock feed is stored in our storage facilities up to 25,000 tons at a time for use during winter period that normally lasts approximately 5 months of the year.

There are many cash crops growers in Fengning that grow corn, sunflowers and various other types of cereal seeds and pasture grass crops.  We do source such raw materials from these growers for our livestock feed manufacturing operation by way of barter trade by supplying to these growers organic fertilizer manufactured by us, to ensure that these raw materials are organically grown at source.

Organic Fertilizer

Manure of our herds of animal is collected and processed into fertilizer, part of which is sold to the regional farmers in the region.

Currently we are producing more fertilizer than we could use for our purpose, and therefore we sell our fertilizer by way of barter trade by supplying the regional farmers with our organic fertilizer in return for their harvested produces as the raw materials for our livestock feed manufacturing operation.

Customers

The four sizeable value added manufacturers to whom ZhongXing supplies bulk liquid milk are:

 
·
Zhang Zheng Xi (agent of TianJin Mu Dairy Co. Ltd.), (ZZX).
 
·
Siao Shu Dong (agent of Chengde Huang Yuan Dairy Co. Ltd.) ,(SSD).
 
·
Wang Cheng Xiang (agent of Mengniu Dairy Group), (WCX).
 
·
Jun Heng (agent of Yili Dairy Group), (JH).

The table below sets forth ZhongXing’s sales of bulk liquid milk to the manufacturers mentioned above for the periods presented.
Sale
 
Sales
ended Dec 31,
2009
   
Percentage of
total sales
   
Sales
6 months
ended June 30,
2009
   
Percentage of
 total sales
   
Sales
6 months
ended June 30,
2010
   
Percentage
 of total  sales
 
ZZX
    8,213,156       35.48 %     3,100,846       33.79 %     4,092,940       36.75 %
SSD
    5,206,137       22.49 %     2,124,433       23.15 %     2,543,748       22.84 %
WCX
    4,069,537       17.58 %     1,709,641       18.63 %     2,002,478       17.98 %
JH
    2,122,733       9.17 %     851,609       9.28 %     1,255,168       11.27 %

We did not enter into any written contracts with these customers.  Our liquid milk is sold to them on the best offer basis.

We supply our livestock feed to many smaller farms in the region.   Such farmers normally do not have the storage capacity to hold enough feed for their livestock through the winter.  We enter into barter trade arrangement with the farmers, whereby the farmers may pay for the feed by cash payment or with their livestock.  We added more than 1,800 young cows to our stock of herds through this arrangement in 2008, and we anticipate it to continue for many years to come.

 
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ZhongXing currently produces more fertilizer than it can utilize for its crops plantation, and therefore it sells the excess fertilizer so produced to the farmers in the region in return for the crops these farmers grow as raw materials for our stock feed manufacturing.

Order Backlog

At present, ZhongXing does not have an order backlog.

Competition

The dairy business in China is highly competitive.  Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do.   Many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can.   If we are unable to compete successfully, our business may suffer and our sales cycles could lengthen, resulting in a loss of market share or revenues.

There are a number of big value added dairy companies such as Mengniu Dairy Group and Yili Dairy Group that have significant financial resources and modern value added productions lines churning out all ranges of dairy products.   However, most of these corporations are collecting fresh milk from regional small dairy farmers and own only a small number of dairy farms to cater for their own needs.   Thus the milk sourced is not of uniform or standardized quality and it often requires supplement of undesired substance to increase its nutrient level.

Although ZhongXing is not able to compete on a national scale with the bigger corporations as far as value added products are concerned, it will maintain a comfortable position in the niche market in the PRC for high quality organic milk, in view of the rising demand from the growing middle class consumers of the PRC.  With the integrated way of producing organic milk, we believe we could compete against other local sellers of milk in terms of quality and purity of the milk produced.  We do not face significant competition from the imports because most of the milk imported is in powder form.

What is known as the Contaminated Milk Scare in China during the first quarter of 2009 has considerably increased the awareness of the consumers in the PRC on the issue of adulterated milk and dairy products.  The consumers are now more prepared to pay a bit more for quality products.

In addition, ZhongXing is in a good position to capture a small share of the retail markets with its organic milk and other dairy products.  As far as we know, and after checking with the Agriculture Department, there is no other certified commercial producer in the PRC producing organic.

Producing our own organic livestock feed enhances further ZhongXing’s competitive edge as there is insufficient high quality livestock feed all year round to sustain the production of high quality milk especially in the northern, north western and north eastern part of the country where most of the dairy farms are located.   Small dairy farmers in such areas are not getting adequate returns to be able to nourish their cows with quality feed to house their cows in suitable facilities.

Patents, Trademarks & Licenses

ZhongXing does not own any patent, but it has been awarded the ‘Organic Milk’ certification by the China Agriculture Authority in November 2008.

 
16

 

Environmental Matters

Being one of the main suppliers of water to Beijing, the County of Fengning is designated as a region free of any other industries except agriculture.  ZhongXing, being an agriculture company, has complied with all local environmental impact regulations and procedures, and has conformed to all rules regarding zero discharge of any industrial waste, zero emission of any toxic material, transportation of manures in properly equipped vehicles, etc.  So far ZhongXing has not encountered any environmental issues causing concerns of the relevant authorities.  We do not anticipate any capital expenditures for environmental control facilities for the remainder of current fiscal year or any future periods.

Research and Development

ZhongXing has not had any research and development expenses in the past year.

Regulatory Environment

In addition to general regulatory matters affecting all businesses operating in the PRC as discussed below, there are following regulations that govern ZhongXing’s business:

ZhongXing was established in March 2006 as a “Joint Stock company” (“JSC” defined in China as a company that is permitted to issue shares under the Company Act of China) in the PRC.  With the inclusion of SIAF as a shareholder thereof, ZhongXing is required to be converted as a sino-foreign joint venture company (“SFJVC”), and such conversion requires prior approvals of both the local government as well as the central government of the PRC.   In this respect, the local government granted its approval in November 2007.    The shareholders of ZhongXing, namely SIAF and Mr. SUN Ximin, have been advised by their Chinese lawyers that upon conversion to a SFJVC, SIAF as its foreign partner and Mr. Sun as its local owner must inject further sums of approximately U.S.$6.70 million and $1.9 million respectively within a period set by the approving authority.   As a result, the shareholders of ZhongXing have decided to defer submission of the aforesaid application to the central government until the completion of SIAF’s current exercise of registering its securities.  Meanwhile the PRC’s Foreign Exchange Control Act will restrict SIAF’s repatriation of its investment in and, investment return gained on, ZhongXing, and accordingly SIAF will not enjoy the legal protection as accorded under the Chinese laws governing foreign investment.

Qinghai Sanjiang A Power Agriculture Co. Ltd.

On December 28, 2008, the Company through its then subsidiary Pretty Mountain Holdings Limited (“Pretty Mountain”), a company incorporated in Hong Kong, the Special Administrative Region of the PRC, entered into a sino-foreign joint venture agreement with the following parties for the setting up of a sino-foreign joint venture company to be named as Qinghai Sanjiang A Power Agriculture Co. Ltd.(translation in English) (“Sanjiang A Power”) in the PRC, to manufacture bio-organic fertilizer, livestock feed and to develop other agriculture projects in the County of Huangyuan, in the vicinity of the City of Xining, Qinghai Province :

 
·
Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a PRC government owned company with major business activities in the agriculture industry; and

 
·
(Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a private limited company incorporated in the PRC, specializing in sales and marketing.

Sino-Foreign Joint Venture Agreement

The principal terms of the Sino-Foreign Joint Venture Agreement dated December 28, 2008 (“SFJVA”) are as follows:

The objectives of the joint venture are to employ modern technologies to undertake projects relating to organic fertilizer, organic livestock feed, aquaculture and agriculture waste treatment, which include :-

 
·
using environmental friendly technology to recycle agriculture waste for production of organic fertilizer;
 
·
using environmental friendly technology and bacteria to produce organic feed; and
 
·
using environmental friendly technology to increase dairy milk production and quality.

 
17

 

The total investment for the joint venture shall be US$2,00,000.00 as follows:

 
·
Organic fertilizer project :          US$450,000.00
 
·
Organic livestock feed:               US$950,000.00
 
·
Organic farm grass:                     US$600,000.00

The Registered capital for Sanjiang A Power shall be US$1,400,000.00, out of which US$630,000.00 shall be contributed by Qinghai Sanjiang (45%), US$140,000.00 by Garwor (10%) and US$630,000.00 by Pretty Mountains (45%). The tenure for the joint venture shall be 30 years. The respective responsibilities of the parties are as follows;

Qinghai Sanjiang is to provide:

 
·
US$630,000.00 capital contribution;
 
·
appropriate plots of lands with the related “Land Usage Rights” or convertible old factory  suitable for the projects, that is:
 
·
land and buildings measuring up to 1,800 mu (about 297 acres) and 9,000 m² of built-up areas for the development of the demonstration farms for the rearing of cattle and sheep; and
 
·
land and buildings measuring up to 480 mu (about 79.2 acres) and 155,040 m²  of built-up area for the development of the manufacturing plants for bio-organic fertilizer;
 
·
vehicles for use by Sanjiang A Power during pre-development and the implementation stage;
 
·
company office and accommodation for personnel from out of town;
 
·
the necessary facilities for the projects;
 
·
liaison in procuring governmental financial assistance or other incentives for agriculture projects to meet the needs of the projects;
 
·
first batch of premium herd of cows and goats for the demonstration farms; and
 
·
related plants and equipment and facilities for the production factories and laboratories of Sanjiang A Power.

Garwor is to provide:

 
·
US$140,000.00 capital contribution;
 
·
modern agriculture management system;
 
·
liaison in procuring financial assistance to raise development capital;
 
·
expertise in the sales and marketing needs of Sanjiang A Power;
 
·
international business network;
 
·
assistance to resolve any misunderstanding between the Chinese and foreign parties resulting from the difference in laws and regulation between the two concerned countries.

Pretty Mountains is to provide:

 
·
US$630,000.00 capital contribution;
 
·
the rights to use the relevant patented technologies and the related trademarks and brands;
 
·
the rights to use the patented Bacterial and Bio-organic Fertilizer Manufacturing Technology, the Stock Feed Manufacturing Technology;
 
·
the right to use related conversion techniques associated with the Bio-organic Fertilizer and Livestock Feed Manufacturing;
 
·
business and sales network and the right to operate and generate financial benefit using the above mentioned technologies, techniques, systems, trademarks and labels; and
 
·
knowledge and connections for securing financings for its developments.

If any of the technologies, techniques, systems, designs, brands and trademarks mentioned above are the properties of Pretty Mountain, Sanjiang A Power shall have no ownership right to any of them except in the circumstances if they would be developed and/or invented by Sanjiang A Power during the course of its developments and operation.  In these events if anyone of the joint venture parties should use any of the new inventions, such party shall pay Sanjiang A Power compensation, the values of which will be determined in accordance with the international market values at the time of usages.

 
18

 

Pretty Mountain shall conduct feasibility studies on the projects, in coordination with Qinghai Sanjiang, and such feasibility studies reports shall be the properties of Sanjiang A Power.  In the events if any one of the Joint Venture partners should use any of the referred studies, such party shall pay Sanjiang A Power compensation, values of which will be determined in accordance with the international market values at the time of usages.

Sanjiang A Power will appoint Sino Agro Food, Inc. as its consultant for the purpose of applying the necessary treatment to make its group and organization structures, business strategies and operation on par with the international corporate standards, to facilitate realization of its planned listing exercise on overseas bourses.

If any of the assets, plant and equipment required to be purchased by Pretty Mountain for and on behalf of Sanjiang A Power, it shall be verified and approved by the relevant authority.  Within three months after verification and approval of the relevant authority, the personnel of Sanjiang A Power shall inspect and verify the purchased items and execute the necessary letters of credit. Pretty Mountain shall ship all of the purchased goods to a sea port directed by Sanjiang A Power within 6 months calculated from the date of issuance of the letter of credit.

The Board of directors of Sanjiang A Power shall consist of 7 members; 3 appointees from Qinghai Sanjiang, 1 from Garwor, and 3 from Pretty Mountains, and the Board shall meet once a month.   The term of the Chairmanship of the Board will be for 3 years, and the chairman will be selected by the board of directors.  It is agreed that a director appointed by Qinghai Sanjiang shall be made the first term Chairman, whereas a director appointed by Pretty Mountains shall be made the first term Finance Director cum Chief Financial Officer.

Should the shareholders decide to continue with the joint venture 6 months before the expiration of this joint venture, the shareholders may apply to the relevant authorities to extend the validity period of this joint venture.

Sanjiang A Power may be dissolved during the currency of this joint venture if:

 
·
Sanjiang A Power suffers severe financial losses and is not able to continue operation as a result;
 
·
a party hereto fails to fulfill its obligations herein, and Sanjiang A Power is not able to continue operation as a result;
 
·
force majeure; and
 
·
Sanjiang A Power fails to achieve its business objectives, and has no prospect of development.

Formation of Sanjiang A Power

Qinghai Sanjiang submitted the application for the incorporation of Sanjiang A Power to the relevant authorities on March 11, 2009.   The relevant Authorities in this instance are consisting of various governmental departments covering the business registration, project evaluation, technology assessment, custom, imports and exports, environment, foreign trade, foreign exchange control, agriculture, industrial, commerce and local departments of town planning and public health.

On May 8, 2009, the Business Registration Department of Xining City Government approved the terms and conditions of the SFJVA and the constitution for the formation of Sanjiang A Power upon the following terms:

 
·
The Name of the company shall be Sanjiang A Power Agriculture Co. Ltd. (translation in English)
 
·
Total Investment Capital : U.S.$2 million
 
·
Registered Capital: U.S. $1.4 million, out of which US$630,000.00 to be contributed by Qinghai Sanjiang (45%), US$140,000.00 by Garwor (10%) and US$630,000.00 by Pretty Mountains (45%).
 
·
7 members in the Board of Directors consisting of 3 appointees from Qinghai Sanjiang, 1 from Garwor, and 3 from Pretty Mountains.

 
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On May 25, 2009, Sanjiang A Power was formally established. In September, 2009, SIAF carried out an internal re-organization of its corporate structure and businesses, and on September 28, 2009, SIAF’s subsidiary A Power Agro Agriculture Development (Macau) Limited (“APWAM”) acquired the Pretty Mountains’ 45% equity interest in Sanjiang A Power by way of an assignment (“Assignment”).    Application was subsequently made by the Company to the Companies Registry of Hong Kong for deregistration of Pretty Mountain under Section 291AA of the Companies Ordinance. By virtue of the Assignment, APWAM assumed all obligations and liabilities of Pretty Mountains under the SFJVA.

APWAM is a 100% owned subsidiary incorporated in the Special Administrative Region of Macau, the PRC. 10% of the equity interest in APWAM has been registered in the name of one Mr. HUNG Moon Cheung in compliance with the requirements of the laws of Macau on ownership of a company incorporated in Macau by non citizens of Macau, and the same is being held by the said Mr. HUNG in trust for and, for the benefit of, Sino Agro Food, Inc. pursuant to a Deed of Trust duly executed by the said Mr. HUNG on December 20, 2007 in favor of Sino Agro Food, Inc.

In December 2009, Sanjiang A Power applied to local government of the County of Huangyuan to:

 
·
change its place of business from the City of Xining to the County of Huangyuan;
 
·
effect the registration of APWAM as a shareholder of Sanjiang A Power, replacing Pretty Mountains; and

The Progress of Sanjiang A Power and the Development Projects

While pending the official approvals for the incorporation of Sanjiang A Power, the joint venture partners of Sanjiang A Power had commenced works on the planned projects since early March 2009.

In April 2009, a team of Sanjiang A Power’s personnel, who were mainly staffed by the technical people from SIAF, set up a temporary bio-organic fertilizer manufacturing factory at a rented building (“Temporary Site”) located near Qinghai Sanjiang’s operation in the vicinity of Xining, to deal with the problem of disposal of accumulating potato wastes generated by Qinghai Sanjiang’s starch manufacturing factory in an environmentally friendly manner.    On June 16, 2009, Sanjiang A Power produced its first batch of bio-organic fertilizer of 200 metric tons, the samples of which were applied in one of the Sanjiang Agriculture’s farm for evaluation of its quality standard.   Laboratory test, which was simultaneously carried out by Professor Yu of Xining University, showed that the fertilizer was of the country’s quality standard set for bio-organic fertilizer, that is the content of composed fiber >25%, nutrient elements (consisting of N, P & K) > 6% at ratio of 3:1:3, moisture content < 15%, PH value of 5.8 to 8.5, micro-organism count > 20 million units per gram, the ratio of bacterial infection < 20% and odorless.

From April through December 2009, pre-mobilization and pre-development works have been carried out by Sanjiang A Power as follows:

 
·
Investigation and feasibility study of the potential project sites;
 
·
Investigation and feasibility study of the supplies and production of raw materials;
 
·
Investigation and feasibility study of the sales and marketing of the products to be produced by Sanjiang A Power;
 
·
Investigation and feasibility study of the related facilities within the locations;
 
·
Investigation and feasibility study of applicability of SIAF’s technologies for bio-organic fertilizer and livestock feed under the local conditions; and
 
·
Investigation and analysis of potential cooperative activities with the regional government and the farmers;
 
·
Establishing trial facilities to test the production of bio-organic fertilizer and livestock feed, using locally sourced raw materials;
 
·
Laboratory testing of sample products of fertilizer and livestock feed on their respective standard of qualities; and
 
·
Financial feasibility studies of all aspects of the business operations.

 
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On December 9, 2009, a co-operation agreement was entered into (“Development Agreement”) by the Department of Trade and Commerce of the County Government of Huangyuan (“Huangyuan Government”) and Sanjiang A Power for development of agricultural projects in the County of Huangyuan.   The principal terms and conditions of the Development Agreement are as follows:

 
·
The Huangyuan Government agreed to allocate the site of the old army goods and materials transfer terminal, consisting over 150 mu of land and over 20,000 m² of built up area (39 buildings, each of approximately 538 m²) (“Project Site”) to Sanjiang A Power for the purpose of the projects.
 
·
Sanjiang A Power shall register its place of business in the County of Huangyuan within 6 months of the Development Agreement.
 
·
Sanjiang A Power’s total investment and development capital for the projects shall be RMB96.2 million (equivalent to about U.S.$14.15 million), of which the fixed assets should amount to RMB50.20 million (equivalent to U.S.$7.382 million, based on the exchange rate of U.S.$1 = RMB6.80).

The time frame for the development shall be 3 years, covering the following projects:

 
·
Livestock Feed manufacturing
 
·
Cattle rearing and fattening stations
 
·
Manufacturing of bio-organic fertilizer
 
·
Plantation of pastures and crops as the raw materials for livestock feed.

As and when the fixed assets of Sanjiang A Power shall amount to RMB20 million (equivalent to U.S.$2,941 million) (to be jointly appraised by the valuation department of the Huangyuan Government and an independent firm of professional appraisers), Sanjiang A Power will apply to the Huangyuan Government for a grant of the “Land Usage Right” over the Project Site for a tenure of 50 years at a minimal consideration in accordance with the provisions of the Municipal Regulation No. 2009 (89) (estimated to be RMB3 million maximum, equivalent to U.S.$441,176).

Sanjiang A Power shall carry out the projects on the Project Site in accordance with the terms of the Development Agreement and the proposal submitted, and shall not alter the nature and purpose of the projects without the prior consent of the Huangyuan Government.   Sanjiang A Power shall not vary the usage of the Project Site, nor shall the company transfer or sublease the same during the currency of the development.

Sanjiang A Power shall not without good reason delay the development, and shall accept the supervision and inspection of Huangyuan Government and adhere to the rules and regulations of the relevant local policies.

In the event of occurrence of Force Majeure, natural disaster or change in the Central Government’s policies and regulations, resulting in any of the parties not being able to implement or partially implement the terms of the Development Agreement, then both parties may mutually agree to terminate this Agreement in accordance with the relevant policies or regulations.

In the event that if Sanjiang A Power shall fail to comply with the requirement as stated in the agreement, within 6 months after the signing of the Development Agreement, to register its place of registration or in other form setting up branch office, subsidiary or other company in the County of Huangyuan to replace Sanjiang A Power in carrying out the terms of the Development Agreement, then it will be deemed a breach by Sanjiang A Power of the Development Agreement, and Huangyuan Government shall have the right to terminate this Agreement if the value of Sanjiang A Power’s fixed assets does not reach RMB20 million and above within 2 years from the date of the Development Agreement, the Huangyuan Government will have the right to take back the Project Site, and in which case all un-movable properties on the Project Site will become the properties of the Huangyuan Government.

Any dispute will be referred to arbitration or the local court of law for adjudication, if the parties shall fail to reach an amicable settlement of the dispute.

Any supplementary agreements subsequently executed by the parties shall have equal legal force of laws.

From November 2009 to June 30, 2010, Sanjiang A Power has carried out the following works on the Project Site:

 
21

 
 
 
·
Renovation and building work on staff quarters, capable to house up to 70 workers at a time;
 
·
Renovation and installation of facilities for six beef cattle fattening demonstration yards and buildings, with the capacity to house up to 120 heads of cattle per house;
 
·
Construction of a factory with the capacity to produce up to 20,000 tons of bio-organic fertilizer per year was completed last week of June 2010, and is now in operation producing up to 600 tons per day to fill its first order of 2,500 tons sold regionally;
 
·
Construction of a new headquarter office building consisting of 2,500m² was commenced on June 12, 2010 and expected to be completed on or before December 31, 2010;
 
·
Invention of a new enzyme (“the Enzyme”) that is capable of allowing fermentation and germination processes in our manufacturing of livestock feed to take place at 4Celsius within 7 days, which is suitable in the colder northern China climates since it will save much additional heating costs to initiate the fermentation and germination process of the livestock feed, as compared to the old enzyme performing at 15Celsius within 21 days;

At a promotional campaign organized by the Huangyuan Government at the Project Site in early January 2010, all trial samples of 1,000 tons of livestock feed and 700 tons of bio-organic fertilizer manufactured by Sanjiang A Power were sold to the regional farmers.  The Huangyuan Government made available two specialists and Sanjiang A Power provided 15 technicians to take daily records of the growth of the crops planted in the regional farms that were applying Sanjiang A Power’s trial fertilizer products.   Performance data collection and analysis of the trial livestock feed, which was distributed to the 15 regional farmers having 800 heads of cattle and cows collectively, was undertaken for over a period of 3 months under the supervision of the Huangyuan Government’s Agriculture Department commencing January 2010.  By end of March 2010, the results were recorded as follows:

 
·
Additional weight gained average per beef cattle was recorded at one extra kilogram per day over their normal weight gains.
 
·
Additional fresh milk produced per cow was recorded at one and half kilograms of milk per day over and above their normal daily production.
 
·
All feeds were much easier to digest resulting in much cleaner environment in the cattle yards and houses.
 
·
No sickness during the period was recorded through the cause of consumption of our feeds, but there was one cow had an early abortion.
 
·
All cattle preferred to eat our feeds and reluctant to revert back to the consumption of their old feed after they had consumed our feed during the period.

In mid January 2010, the Huangyuan Government obtained a central grant of RMB500,000.00 (equivalent to U.S.$73,357 at the rate of U.S.$1 to RMB6.816) to assist Sanjiang A Power to meet its pre-development expenditure.

In early February 2010, Sanjiang A Power started planting of cash crops on various pieces of lands totaling approximately 10,000 mu, verbally granted by the Huangyuan Government to Sanjiang A Power for its use to grow raw material for its livestock feed and bio-organic fertilizer operations.

On April 22, 2010, Sanjiang A Power’s application to the Huangyuan Government to change its place of business from the City of Xining to the County of Huangyuan, and to effect the registration of APWAM as a shareholder of Sanjiang A Power, replacing Pretty Mountains, was approved by the Huangyuan Government, and a business license was issued to Sanjiang A Power accordingly.

On May 7, 2010, Qinghai Sanjiang sold and transferred its shareholding in Sanjiang A Power to Garwor. The aforesaid sale and transfer was approved by the “State Administration for Industry And Commerce of PRC” of Xining City Government and an amended Certificate of Approval for the incorporation of Sanjiang A Power as a sino-foreign joint venture company was subsequently issued on July 20, 2010.

 
The Business Plans of Sanjiang A Power  (July 1, 2010 to June 30, 2011)

Sanjiang A Power aims to generate revenues from the following activities in the fiscal year commencing July 1, 2010 and ending June 30, 2011:

 
·
Manufacturing of livestock feed to achieve 20,000 tons, to be sold to the regional farmers and 10,000 tons to be consumed by our own cattle on the Project Site;
 
·
Manufacturing of bio-organic fertilizer to reach 10,000 tons; and
 
·
Rearing and fattening of beef cattle to reach a minimum of 1,000 heads.

Manufacturing of Livestock Feed

We use raw material consisting of crop wastes as well as locally grown and available wild wheat plus wild wheat sterns, wild peas with sterns and leaves, and selective pastures grown in the wild.

These raw materials will be finely cut and put through a number of aging and fermentation processes by adopting a technology and method called “Stock Feed Manufacturing Technology”, duly licensed by Tri-Way Industries Limited, a 100% owned subsidiary of SIAF, and catalyzed by the Enzyme developed by Sanjiang A Power as described above.  Thereafter, the end materials will be packed and sealed in air-tight and weather proof packaging ready for storage.

At our trials carried out in November 2009, we packed the feed into bags of various weight to suit the farms (i.e. if a farm has only 5 heads of cattle or 10 heads of cattle, then the weight of the feed in the bag was at 240 kg or 480 kg respectively), such that the respective farm would only need to store 2 bags of feed each time in their cattle houses to have enough feed for 7 days, and by such time the next two bags would be fermented and ready to be used for the next 7 days, etc.   As most cattle houses even in a very cold winter would have a room temperature above 4° Celsius, the farmers would not need to provide additional heat to ferment the feed.

We believe that the price of our livestock feed is and will be comparable to traditional livestock feed, which is being sold in Huangyuan currently at the Huangyuan Government’s recommended introductory price of U.S.$76.50 per ton to the regional farmers, while the Huangyuan Government has agreed to grant incentives to us by subsiding it at U.S.$29.40 per ton making total revenue generated per ton of livestock feed at U.S.$105.90 per ton.

We also intend to manufacture a specifically formulated livestock feed as developed under the above mentioned “Stock Feed Manufacturing Technology” to cater for milking cows with added on nutrients to suit each stage of the milking cow’s growing cycles (i.e. from conceiving, carrying to weaning and to commercial milking period).

The first six demonstration farms are under construction at the Project Site and will be ready for operation on or before July 31 2010.

Manufacturing of Bio-Organic Fertilizer Using the Enzyme

Sanjiang A Power has completed the development of manufacturing plants and facilities for bio-organic fertilizer with a production capacity of 20,000 tons per year (“Fertilizer Factory) in accordance with design parameters of energy usage cost saving (by up to 300%) and reduced production days (by more than 300%) in mind.  By using the Enzyme as invented by Sanjiang A Power, the fermentation process of the fertilizer from raw materials to ready-to-mix materials is being achieved in 7 days at 4° Celsius, instead of the previous requirement of 15° Celsius within 15 days.  This Fertilizer Factory is now in operation having had to meet its purchase order of 2500 tons on or before July 31, 2010.  It is currently has a production volume of 600 tons per day.

The bio-organic fertilizer produced is designed to revitalize and improve the soil environmental by:

 
·
eliminating toxic fat in the soil;
 
·
eliminating the adversity caused through frequent application of chemicals and antibiotics;
 
·
increase growth of micro organism in the soil to purify water toxicity;
 
·
improve the disease resistant ability of the root systems of plants;
 
·
neutralize the bad affect caused by the toxic mineral;

 
23

 
 
 
·
increase soil resistant to salinity ;
 
·
increase nutrient to the soil;
 
·
procure nutrient absorbing ability of the soil;
 
·
increase diseases resistant ability of the growing plants;
 
·
reduce plant diseases and the developments of insects;
 
·
multiply the growth of micro-organism and natural bacterial; and
 
·
reduce the usage of chemical fertilizer and improves the economic benefit of the chemical fertilizer. (In this respect, it is because of the use of bio-organic fertilizer will improve the soil’s overall ability to the absorb nutrients more consistently and easily, such that within a period of six months after the application of the bio-organic fertilizer, the soil in general will start to show the benefit and in the position to use less chemical fertilizer, the exact reduced usage quantity of chemical fertilizer is usually subject to how poorly the soil have been demanded by the pro-long usage of chemical fertilizer in the past, however it is evidenced frequently that the saving could be measured anyway from 30% up to 60% within a year cycle after the application of bio-organic fertilizer.)

The Physical Development Plan on Sanjiang A Power’s Property

At present, Sanjiang A Power’s property consists of over 170 mu (or the equivalent of 122,200 m²) of land, on which there is over 21,000 m² of built up areas provided for in 39 buildings with an average size of about 538 m2 each (“Property”). This Property was used as an army railway station previously, and therefore they were built to last for decades and all basic infrastructures (i.e. underground water connections, electrical connections, communication connections, fencings, internal roads, drainages etc) were provided in the land to service the property.

The Business Development Plan of Sanjiang A Power

Sanjiang A Power will have the final capacity to fatten up to 5,000 heads of beef cattle per year based on the growth period of 6 months per head within Sanjiang A Power’s existing property, meaning the maximum housing facility will be at 2,500 heads at a six months interval.

We anticipate that in Year 3 Operation, Sanjiang A Power will need to have enough external breeders to help rear the extra 5,000 heads of beef cattle projected for Year 3 Operation. Sanjiang A Power’s strategy plan for the fattening of beef cattle operation is that, within Year 2 Operation, fattening operation within its own property will be leased out to the regional farmers on following terms and conditions :

 
·
Our cattle houses (22 of them) will be leased out to the regional farmers who will have the option to lease up to 4 houses at a time, such that they will supply their own young cattle for fattening and they will manage their respective operations.
 
·
We will provide all associated in-house facilities and services (i.e. veterinary service, utilities, laboratory analysis, ration and nutrient formulated mixing machines, etc.), supply the livestock feed, and marketing of their grown up beef cattle (“the Farmers’ cost”).
 
·
The breeders will grant us the first option to buy all grown up cattle stocks from them and in the event that they decide to sell to other buyers, such sales will be conducted through our account so that the Farmers’ cost will be deducted from the proceeds of sales.

By Year 3 Operation, it is anticipated that a similar concept will be adopted with the external breeders.  However, the selected external breeders must build their cattle houses in accordance with our designs and guidelines and manage the grow-out operation under our designed management system to be qualified.  We plan to grant financial assistance to the qualified breeders, if necessary. Currently our cattle houses are built in accordance with the designs as advised by some of country’s cattle growing professionals from the Agricultural Department and the Research and Development Department of the PRC Government.   Such designs are believed by us to be the best designs for cattle houses suitable for the Qinghai Province. Our module of operation is designed to enhance economic benefits to the regional farmers and growers and the local communities as a whole, as evidenced by our trials recorded from November 2009 to March 2010, for instance:

 
24

 
 
 
·
The regional farmers planting wild wheat, wild peas and wild pastures can now increase their yearly yield from 1.25 tons per mu to 4.5 tons per mu by using our organic fertilizer.

The regional cattle fattening farmers and growers who were used to grow one head of cattle from weaning to about 500 kg body weight within a period of 4.5 years and a head of sheep to 45 kg body weight within 2.5 years can now do it within 9 months by using our live stock feed.

 
·
The regional dairy farmers who were used to get an average of about 1.5 tons (or 1500 kg) of fresh milk from one head of cow per year based on maximum milking day of 180 days per year (due to long winter spell in Qinghai Province) can now get an extra 450 kg of milk per year using our livestock feed to feed right through the winter to maximize the milking days to 300 days per year.

Potentially, once our modules are fully implemented in the Huangyuan County, we believe that it will have significant impact on the communities of the Qinghai Province (a North Western region of China) as a whole if one were to consider that Huangyuan County, being  just a very small County of Qinghai, it is growing an average of 55,000 heads of cattle and milking cows collectively per year while the whole of Qinghai County is estimated to have more than 2.5 million heads of cattle and milking cows growing on an annual basis in all of its districts. Recently the Huangyuan Government has just completed a road bypassing the main city center of Huangyuan, thereby leading the regional traffic to the surrounding borders of the property. Therefore, the Sanjiang A Power’s property is accessible by good freeway connection.
 
Other Subsidiary

Tri-way Industries Limited

Tri-way Industries Limited (“Tri-Way”), a company incorporated in Hong Kong the Special Administrative Region of the PRC and a 100% owned subsidiary of the Company, by an agreement dated November 12, 2008, purchased the license to use and exploit the intellectual property of a technology and method for the manufacturing of livestock feed for the consumption of beef cattle, cows, sheep and other animals, known as “Zhi Wu Jie Gan Si Liao Chan Ye Hua Chan Pin Ji Qi Zhi Bei Fang Fa” (Stock Feed Manufacturing Technology) (“SFMT”) registered under the Patent Number “ZL2005 1 0063039.9” under the Invention Patent Certificate No: 3297232 issued by National Registry of Intellectual Property of China, from Mr. Shan Dezhang, the inventor of SFMT.    The consideration for the purchase amounting to U.S.$8,000,000.00 was satisfied by cash payment of $4,500,000, which was paid on December 18, 2008, and the balance of U.S.$3,500,000 were to be paid either by cash payment or by issuance of our shares at our discretion in three tranches as follows:

 
·
1st tranche of U.S.$1,000,000 on or before December 31, 2009, which was paid on December 28, 2009;
 
·
2nd tranche of U.S.$1,000,000 on or before December 31, 2010; and
 
·
3rd tranche of U.S.$1,500,000 on or before November 11, 2012.

If any of the payments is settled by way of issuance of shares, the shares issued will be valued at a three months weighted average of the OTCB Pinksheets price index counting backward from the date of settlement.

Tri-way intends to generate operation revenues by engaging in following operations:

Sales of the following types of consulting services relating to SFMT to the SFJVC:

 
·
Engineering designs of the livestock feed manufacturing factories;
 
·
Engineering designs of the factories’ plants and equipment;
 
·
Designs of various lay-out plans for the said factories and equipment;
 
·
Management of the related operation; and
 
·
Training of personnel of the related operation.

 
25

 
 
Participation in a fish farm project to be developed in the City of Enping, Guangdong Province, under the supervision and consultancy of Capital Award using the APT RAS, by taking up to 20% equity interest in a newly formed SFJVC for the purposes of development, operation and ownership of the fish farm.

SFMT, the Technology

Traditionally in China, livestock feed for cattle, sheep and cows is processed and stored in the following manner:

 
·
Field-cropped grass, corns, or other similar materials are cut and sun cured in the fields;
 
·
Raw materials are then transported to processing locations for further processing
 
·
Raw materials are finely cut and mixed together then stored in open concrete yards; or
 
·
Raw materials are compacted into various sharps and forms such as pellets, cubes, or square blocks, and then stored.

The large concrete yards to store the livestock feed have little economic efficiency due to its high cost of construction, constant costs in their maintenance and upkeep and exposure to seasonal weather variation that causes deterioration to the quality of the livestock feed.  Feed stored in this traditional manner is subject to the following problems:

 
·
Unsafe for consumption due to high count of bad bacteria;
 
·
Poor to taste due to high content of bad bacterial and rough to feel;
 
·
Non-uniform quality and generally low in nutrient, low in protein and vitamins with high fiber;
 
·
Poor digestibility usually evidenced by animal dropping.

This can result in adverse economic impacts through waste of natural resources and losses of animals through sickness and diseases enhancing higher cost of production.

Using our technology, we intend to produce two types of livestock feed through SFJVCs’ operations, and currently with Sanjiang A Power, for the China markets:

 
·
Type One is a more general application type of livestock feed suitable for beef cattle and sheep; and

 
·
Type Two is special ration designed for dairy cows that consists of various grades adaptable to various stages in the life of dairy cows from the time of  pregnancy, carrying period with calves to three months old, weaning of the calves to they are six months old, and continued milking period of the calves until they reproduce.

Manufacturing of Type One Livestock Feed

Unlike the raw materials used in the traditional process, the raw materials we use will consist mainly of crop wastes such as corn stems without the corn, wheat sterns without the wheat, sunflower stems without the sunflowers, peanut leaves without the peanuts and sugar beets leaves without the sugar beets.

These raw materials will be finely cut and put through a number of aging and fermentation processes.  Thereafter, the end materials will be packed and sealed in air-tight and weather proof packaging ready for storage.

The Type One feed is designed to help to:

 
·
reduce sickness in animal;
 
·
increase milking life span of cows;
 
·
reduce mortality rate of animals;
 
·
increase birth rate of cattle and sheep;
 
·
increase milk productivity of the cows;
 
·
increase weight gain in cattle and sheep; and
 
·
improve quality of the milk produced by cows.

 
26

 
 
Manufacturing of Type Two Livestock Feed

Initially, we intend to test Type Two livestock feed on small demonstration farms that may be owned by the SFJVCs or contracted with local farmers to demonstrate the economic viability of using Type Two livestock feed in the dairies. The first batch of demonstration farms are being constructed in Sanjiang A Power’s Huangyuan project.

Government Approvals

We do not require any authorizations from any Government authorities to sell our sublicenses of our stock feed manufacturing technology and associated services.

Tri-way’s future business

Tri-way will participate as a joint venture partner in the SFJVC to be set up for the development, operation and ownership of the fish farm being developed in Enping City, under the supervision and consultancy of Capital Award and using the APT RAS.

The Fish Farm will have a capacity to produce 500 metric tons of “Sleepy Cods” per year.

The current progress report on the fish farm development as at August 31, 2010 is as follows:

 
·
All land clearing, leveling and fencing at the development site have been completed.
 
·
All soil testing, water quality testing and water in flow rate testing have been done.
 
·
Majority of the plants and equipment have been delivered.
 
·
Construction of the farm buildings has been in progress and within schedule.
 
·
Construction of the fish tanks has been in progress and six tanks has been constructed.
 
·
Contracts on the provision of related services and consultancies needed for the construction, operation of the farm have been organized.
 
·
300,000 fingerlings have been ordered for delivery from September 2010 through November 2010 and our last inspection at the supplier’s farm on August 18, we saw that the fingerling were at an average of 60 mm per fingerling and growing healthily.
 
·
Documents related to the application for setting up of the SFJVC is now being finalized by the Chinese party’s lawyer, and it will be submitted to the relevant authorities within the month of September, 2010.

Projected Progress of Development and Fish Sales of the Farm

The farm will be constructed in two stages to attain production capacity up to 500 tons of fish per year.
Stage One:  to have annual capacity to produce up to 250 tons, the construction of which is expected to be completed within month of September, 2010.

Stage Two: to have an additional production capacity up to a further 250 tons, making total capacity of 500 tons per year, the construction of which is scheduled to be completed by end 2011. We anticipate this Fish Farm to start generating revenues from July 2011 onward.

The Farm can grow many different species of fish depending on the needs of the market, i.e. from tropical species to colder water species, and for Year 1 Operation, the farm will grow “Sleepy Cods” which is a highly priced species with high demands in China as well as in most Asian markets.

Intellectual Property

We own a patented “Intellectual Property” namely “Zhi Wu Jei Gan Si Liao Chan Ye Hua Chan Pin Ji Qi Zhi Bei Fang Fa” registered under the Patent Number “ZL2005 10063039.9” and Certificate number “329722” of China.

 
27

 
 
Business Synergies:  The interrelationship of the activities of our various subsidiaries

Our three technologies, including the Enzyme technology developed by Sanjiang A Power in 2009 and designed for the manufacturing of bio-organic fertilizer and livestock feed coupled with the A-Power Technology and the Stock Feed Manufacturing Technology give us the potential to develop a number of synergistic opportunities for our existing and potential future business activities.

A-Power Technology for fish farming – Capital Award

Capital Award holds a Master License for A-Power Technology, or “APT,” which is a fish growing system and technology including the designs of A-Power Integrated Water Treatment System covering all related parts and components and the A-Power farm operation’s management systems and procedures.  Infinity Environmental Group, or Infinite, an Australian company, is the inventor and developer of the APT Technology.  We were granted our Mater License by Infinite for the territory of China on August 1, 2005 for term of 55 years originally that was amended to 60 years in an supplementary agreement on December 19, 2005.

This technology can be applied in the business operation of future SFJVCs in which we will have an interest.

At the same time, all insoluble wastes from the fish farms will be collected and processed into one of the raw materials needed for the manufacturing of fertilizer that will be applied in our HU plantations and other cash crops that the HU plantations or Sanjiang A Power  will crop in future.

In addition, we intend to establish and develop distribution centers in countries where we shall sell the fish raised in our farms, and they will also act as distribution centers for the HU plant product of Hang Sing Tai Agriculture Development Co. Ltd. and the beef and beef products of Sanjiang A Power.

The Enzyme Technology for Livestock Feed & Bio-Organic Fertilizer – Sanjiang A Power

Sanjiang A Power, as the owner of this invention, will apply this technology in the business operation of future SFJVCs in which we will have an interest.

In addition, the bio-organic fertilizer can be used in HU plant products of HST and for the growth of the raw materials for livestock feed of ZhongXing.

SFMT, the Stock Feed Manufacturing Technology – Tri-way

Tri-way owns a patented SFMT, the Stock Feed Manufacturing Technology, registered under the Patent Number “ZL2005 10063039.9” and Certificate number “329722” of China, for the manufacturing of livestock feed designed and applied for the consumption of beef cattle, cows, sheep and other animals.

This technology is being applied in the business operation of Sanjiang A and will be applied in the business operation of future SFJVCs in which we will have an interest.

In addition, the livestock feed can be used for our dairy feed for livestock of ZhongXing and future SFJVCs in similar businesses in which we will have an interest.

Capital Award has over the years improved and refined the application of the A-Power Technology, in particular the design and functionality of the component parts and equipment, to the extent that the present form of A-Power Technology is very much different from its original form, although it is still named as A-Power Technology.  Capital Award has control over the manufacturing rights to its re-designed plants and equipment, including some of the parts and components. Therefore, it is no longer valid whether the original tenure of the Master License obtained was for 60 years or more, as Capital Award in fact is the inventor and designer of the present form of A-Power Technology and the essential plants and equipment.

 
28

 
 
It is the same scenario for the Stock Feed Manufacturing Technology, as evidenced by the fact that in as short span of time in its application, Sanjiang A Power already managed to develop the new Enzyme Technology, the introduction of which has brought changes to the livestock feed manufacturing method.

The Result of the Synergistic Operation

The Company’s ultimate aims and directions are as follows:

 
·
To produce uniform and high standard of quality “Organic Food” in efficient and economically manner, supported by sustainable markets to meet the middle income population of China as well as other Asian countries.
 
·
To bring the farmed produce and products directly from farms to the end consumer’s markets, thus providing more efficient services and cost saving benefits to the end consumers as a whole.
 
·
To bring better economic benefits to the farmers and growers, thus improving their living standard and bringing economic benefits to the communities as a whole.

Our bio-organic fertilizer will start the food chain in the right direction by re-conditioning the soil to organic soil to produce organic produce, which will be fed to the animals to produce organic end produces or products.

All these chains of operation will be under the roof of our Company such that we shall be able to have quality and quantity of production controlled to ensure uniform and high quality standard of the end produce and products, made possible by the application of our technologies.

Regulatory Environment in China

China is transitioning from a planned economy to a market economy. While the Chinese government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the Chinese economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the Chinese government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the Chinese government are unprecedented or experimental, and are expected to be refined and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating revenues may be reduced by changes in China's economic and social conditions as well as by changes in the policies of the Chinese government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

China’s legal system is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. In 1979, China began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in China and to regulate foreign investment. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects. In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.

We are subject to many general regulations governing business entities and their behavior in China and in any other jurisdiction in which we have operations. In particular, we are subject to laws and regulations covering food, dietary supplements and pharmaceutical products. Such regulations typically deal with licensing, approvals and permits. Any change in product licensing may make our products more or less available on the market. Such changes may have a positive or negative impact on the sale of our products and may directly impact the associated costs in compliance and our operational and financial viability. Such regulatory environment also covers any existing or potential trade barriers in the form of import tariff and taxes that may make it difficult for us to export our products to certain countries and regions, such as Japan, South Korea and Hong Kong, which would limit our international expansion.

 
29

 
  
We are subject to the law on foreign investment enterprises in China, and the foreign company provisions of the Company Law of China, which governs the conduct of our wholly owned subsidiary and its officers and directors. Additionally, we are also subject to varying degrees of regulations and permit system by the Chinese government.

Regulation of Sino-Foreign Joint Venture Companies in China

We are conducting and intend in the future to conduct some of our business operations in China through ownership interests in Sino-Foreign Joint Venture Companies.

A Sino-Foreign Joint Venture Company (SFJVC) is a joint venture between a Chinese and a foreign company within the territory of China. The Chinese company usually provides the labor, land use rights and factory buildings, while the foreign company brings in the necessary technology and key equipment, as well as the capital. This joint venture is based on a cooperative joint venture contract in which matters like the terms of cooperation, the division of earnings, the ownership of property upon the termination of the contract term of the SFJVC, the sharing of risks and losses, and other matters governing the operations of the SFJVC are set forth.

A SFJVC is entitled to all tax benefits and incentives granted by the China Government to domestic entities in the agricultural industry.  Thus, operating as an SFJVC allows us to take advantage of China Government agriculture industry exemptions including:

 
·
No income tax
 
·
No value added tax, subsidizes in transportation within the country
 
·
No import tax on imported plants and equipment
 
·
Rebate of development capital calculated up to 33% of development assets
 
·
Advantageous loans with no interest or fixed terms of repayment
 
·
“Land Usage Rights” being accepted as collateral that can be pledged against bank borrowings

The foreign partners of the SFJVCs are allowed by the Foreign Investment Department of China to repatriate their investment capitals and returns.

The application of the formation of any SFJVC must be submitted to and approved by 15 authorities of the local County and Provincial government that require different kind of information must be compiled in accordance with all local laws and regulation, as follows:

Provincial Government departments covering

 
·
Environmental
 
·
Business Registration
 
·
Foreign Investment and Trade
 
·
Foreign Exchange Control
 
·
Finance
 
·
Commerce and Business
 
·
Statistic and Records
 
·
Customs
 
·
Land
 
·
Taxation

County Government bodies covering

 
·
Town Planning
 
·
Business and Commerce

 
30

 
 
 
·
Land Development
 
·
Health

Regulations Concerning Land Ownership and Usage in China

Under the 1982 Constitution, urban land in China is owned by the State and collectives own the rural land. Since the local and central governments administer the rural collectives, it can be construed that all land ownership is under control of the State. However, the Constitution's Amendment Act of 1988 to Article 10 adopted on April 12, 1988, states that a land use right may be transferred in accordance to law. Based on this statement, a land use right becomes divisible from land ownership, thus making land use right likely to be privatized. Individuals, including foreigners can hold long-term leases for land use. They can also own buildings, apartments, and other structures on land, as well as own personal property.

Real estate transfers in China take place in the form of transfer of right to use land. To obtain land-use rights, the land user must sign a land-grant contract with the local land authority and pay a land-grant fee up front. The grantee will enjoy a fixed land-grant term and must use the land for the purpose specified in the land-grant contract. Depending on the type and purposes of land use, the maximum term of a land grant ranges from 40 years for commercial usage, 50 years for industrial purpose, to 70 years for residential use.
The application of “Land Usage Right” on any leased land must be submitted to and approved by many authorities of the local and central government supported by a minimum of 80% of the signatories of its original land leasers who had leased the land from the government before they transfer the land to the new leasers.

Employees

The Table below shows our current employees for every sector of the businesses:

   
SIAF China
office and
Capital
Award 
 
Intermediate
holding
companies
 
HST
 
ZhongXing
 
SanJiang A
Power
 
Total
 
Full Time
                         
Administration
                         
Management
 
8
 
2
 
3
 
8
 
8
 
29
 
Clerical
 
3
 
2
 
2
 
12
 
7
 
26
 
Sales
 
5
 
0
 
2
 
3
 
5
 
15
 
Non-Skilled
 
2
 
0
 
3
 
6
 
10
 
21
 
Operation
 
0
 
0
 
0
 
0
 
0
 
0
 
Management
 
3
 
0
 
2
 
6
 
5
 
16
 
Clerical
 
3
 
0
 
3
 
3
 
3
 
12
 
Skilled
 
6
 
0
 
3
 
80
 
35
 
124
 
Non-skilled
 
3
 
0
 
5
 
20
 
25
 
53
 
Part Time
 
0
 
0
 
0
 
0
 
0
 
0
 
Operation
 
0
 
0
 
0
 
0
 
0
 
0
 
Skilled harvesting
 
0
 
0
 
100
 
80
 
40
 
220
 
Non-skilled
 
0
 
0
 
12
 
12
 
8
 
32
 
Total
 
33
 
4
 
137
 
230
 
146
 
548
 
 
ITEM 1A. RISK FACTORS
 
Smaller reporting companies are not required to provide the information required by this item.
  
 
31

 
 
ITEM 2.  FINANCIAL INFORMATION.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10.

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  The Private Securities Litigation Reform Act of 1995 is not available to us as a non-reporting issuer.  Further, Section 27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of the Securities Exchange Act expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering.

Forward-looking statements are, by their very nature, uncertain and risky.  These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulating statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.  You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

We are an integrated developer, producer and distributor of organic produce and agricultural / aquacultural products of high quality standard, with our subsidiaries operating in China.

Currently we are generating revenues from four divisional businesses, namely:

 
·
The Dairy business, through a combination of Hang Yu Tai Investment Limited and ZhongXingNongMu Co. Ltd.

 
·
The Plantation business, through a combination of Macau Eiji Company Limited and Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.

 
·
The Fishery business, through a combination of Capital Award Inc. and SIAF.

 
·
The Beef business , through a combination of Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. and Qinghai Sanjiang A Power Agriculture Co. Ltd.

The Dairy Business

From our Dairy operation, we produce and sell fresh liquid milk, livestock feed, fertilizer and beef cattle in ratio of 85%, 10%, 4% and 1% of our total dairy’s revenue $18,084,045 respectively as at end of our fiscal year 2009.

Whereas 99% of fresh liquid milk produced in 2009 were sold to the bigger value added dairy products manufacturers of the Country, but we contracted with a value added manufacturer situated within the Fengning District to manufacture a few lines of dairy products in the last quarter of 2009 under the label of “Green and Natural” that are being sold in two super market chain stores in the Beijing City and their sales are achieving steady flow of demands.

 
32

 
 
Our marketing plan with the dairy set for 2010 is to maintain the sales up to 90% of our fresh liquid milk production to the value added manufacturers and to keep the balance of 10% for the manufacturing of “Green and Natural” labeled dairy products to be sold domestically as well as to the oversea markets (i.e. Singapore, Malaysia and middle east countries), with the aim to increase the production and sales of dairy products to utilize up to 25% of our total fresh liquid milk production by year ended 31st December 2013. As the sales of Dairy Products have better profit when compares to the sales of fresh liquid milk, (i.e. almost twice the earnings as in sales of fresh liquid milk), such that, our management is confident that the gradual increase of dairy product sales will increase our overall net earnings eventually. The reason of why we do not intend to increase our dairy product production and sales much quicker is that we are only a small producer with limited marketing resources when compare to some of the bigger dairy product manufacturers of the Country whom we sold our fresh liquid milk to, as such, we don’t want to be seen as their direct competitor in the area of dairy product sales but merely as a diversified marketing plan of the company to generate slightly better profit margin.

Livestock feed manufacturing is an important link in our business operation, the more land that we can develop to plant more raw materials will reduce our manufacturing cost on our Livestock feed and in term lower our fresh liquid milk’s production cost, and, will also govern our rate of growth. It is because our company’s policy is to produce high quality standard organic milk such that we only use raw materials produced from our contracted growers using mostly our developed land and our organic fertilizer to fertilize their crops to ensure of their organic originality. Therefore the availability of the supply of livestock feed in term will determine how many cows that we should have in our dairy which is rather different to the general situation within the dairy industry that are having cows before sourcing for livestock feed. (i.e. In general, a mature cow takes up to 6 tons of livestock feed per year, so, if we are to maintain the milking of 4,500 cows for 2010, we shall have a minimum of 27,000 tons of livestock feed, and in this respect, our livestock feed holding capacity currently has been increased and established to store up to 40,000 Tons per year.)

 
The Table below shows the summarized performance and records of 2009:

Description
 
Year 2009 (Actual records)
     
Land that are producing crops for making of livestock feed (Productive land)
 
1,000 acres
     
Number of milking cows being milked (productive cows)
 
3,500 heads
     
Number of standing by milking cows to replace the non-productive cows
 
1,250 heads
     
Average of productivity / productive cow
 
6.8 MT /head/ year
     
Average of fresh milk sales prices
 
US$643 / MT
     
Average of dairy products’ sale prices
 
US$1,843 / MT
     
Average of sales prices of Livestock feed
   
For internal usage (at cost)
 
US$37 / MT
For external sales
 
US$56 / MT
     
Average of revenue generated per productive cows
 
US$4,393 / Cow / year
     
Average of revenue generated per productive acre
 
US$1,809 / acre / year
     
Average raw materials cropped for making of
livestock feed;
   
Internally used by own cows
 
24,750 MT
Externally sales to regional farmers
 
15,840 MT
Total crops
 
40,590 MT
Total production of fresh milk
 
23,905 MT
     
Sales components in % and amounts of sales for
   
Fresh Milk
 
US$15,374,776 (85%)
Dairy Products
 
US$723,519 (4%)
Livestock Feed
 
US$1,808,797 (10%)
Others (combination of fertilizer and cattle)
 
US$176,955 (1%)
Total Revenue of sales
 
US$18,084,046.
     
Gross Profit Margins based on sales of
   
Fresh Milk
 
51%
Dairy Products
 
57%
Livestock Feed
 
17%
Others (combination of fertilizer and cattle)
 
15%
 
 
33

 
 
The Plantation Business

As explained earlier that, a HU Plant normally takes three years to reach maturity which means that:

 
·
Year 1 plants yield only about 10% of green flowers, as compared to the matured plants.
 
·
Year 2 plants yield about 50% of green flowers, as compared to the matured plants.
 
·
Year 3 fully matured plants yield an average of 100,000 to 120,000 green flowers per year per mu (or 600,000 to 720,000 pieces per acre per year) over the next 25 years, the average production life span of a HU plant.

However it is because the shelve-life of the fresh green flowers is short such that they must be sold and used within three days from day of harvest, such that, the fresh green flowers are dried quickly and stored to be sold right through the winter until July of next year (when the new season begins).

Their corresponding conversion rate from fresh to dried flowers is normally at an average of 8 Kg  (Fresh) to 1 Kg (dried) with the moisture content of the ended product at an average of 15 to 20%. The fresh green flowers, on an average, are weighing out between 250 to 300 grams per flower subjecting to seasonal variations. We did not have enough drying facilities in 2009 to dry all of our harvested flowers such that majority of the drying in 2008 and 2009 were contracted to regional processors with a small portion that was done by our newly installed drying facilities. However this 2010 season we are confident that we shall be able to dry up to 90% of the projected 50 million pieces of fresh green flowers harvested in 2010.

The demands on the dried flowers are extremely high such that we have regular wholesalers waiting to collect our dried flowers soon after we have them dried without us having to deliver them. Therefore, up to now we do not need to build big holding facilities to store our dried flowers however we intend to do so later on in 2010 to ensure that we shall capture part of the higher wholesale prices available during the winter months.

In 2009, we have a total of 179 acres of HU plants Planted and by July 30, 2010 the total planted acres was increased to 187 acres. The table below shows their performances / records for 2009.

Description
 
Year 2009 (Actual records)
New Planting
 
88 acres
Year 1 plants
 
42 acres
Year 2 plants
 
47 acres
Year 3 and above plants
 
0 acre
Total land planted with HU Flowers
 
179 acres
Total Harvests of fresh flowers
 
16,740,000 pieces
Average of weight per piece of flower
 
250 gram
Conversion rate of fresh flowers to
 
8.16 Kg. (of flowers) to 1 Kg. of
Dried flowers
 
(dried flowers).
Averaged sales price of fresh flowers
 
US$0.103 / piece
Averaged sales price of dried flowers
 
US$5,605 / MT
Average sales price of value added flowers
 
No sales
Revenue and % of sales from sales of :
   
Fresh Flowers
 
$172,832. (10%)
Dried Flowers
 
$2,586,796 (90%)
Value added flowers
 
0%
Gross Profit % of sales of
 
72%
 
 
34

 
 
The Fishery Business

From the Fishery operation; in 2010, we shall have built our first fish farm on or before the end of September 2010, (Subsequently, the farm’s construction was completed as at October 30, 2010 and implementation of all related testing (inclusive mechanical and biological testing) on the farm are being carried out from November 06, 2010) and through its service contract of $3.5 million to develop a APM fish farm of 500 Tons of annual production capacity, we are projecting to gross anywhere up to $2 million in gross profit resulting from the sales of plants and equipment, consulting services, designs and engineering services, training of personnel, and related supervising and installation services etc. In this respect, we shall perform a lot better than in 2009, and also expecting that once when other regional fish farmers have a chance to visit the said fish farm, it is very likely that, further contracts will be generated before the end of year 2010.

We are also anticipating that, fish sales of the said farm will commence by July 2011 whereby in the interim, we intend to take up equity interest in the Sino Joint Venture Company that will be the owner and operator of the said farm such that we shall gain further income from the sales of fish of the said farm.

Our planned business strategy is the combination mentioned below;

 
·
Firstly, incomes will be generated from the referred services contracted to APM fish farm developers.
 
·
Secondly, incomes will be generated through sales of fish and fish products of the APM Fish Farms.
 
·
Thirdly, incomes will be generated via a marketing net work that will be developed by us to market all of the APM fish farms’ fish and fish products under our designed labels and brands.

Subsequently, on January 15th, 2010, we executed a service and consulting contract with a group of Chinese businessmen to build a Fish Farm in the City of Enping, Guangdong Province, the PRC using the APT RAS. There is an option in the aforesaid Agreement for the Company to take up to 20% equity interest in year 2011 and up to 75% equity interest by 2012 in a newly formed Sino-foreign joint venture company for the purposes of development, operation and ownership of the fish farm, with a further option for the Company to take up more equity interest in the new entity at a later time.

The farm in Enping is being designed to have a production capacity of 500 metric tons of fish per year.    We shall provide services amounting to about $3.5 million,  includes the APT sub-license fees of $400,000, supply part of the plant and equipment up to $2,500,000, supervision and consultancy in the building of the farm structure, the grow out tanks and related installation, training of workers and other associated professional services amounting to $600,000.   The Chinese businessmen are funding this capital development amount.

The species of fish intended to be grown in the Farm will be the “Sleepy Cod”, which is a Chinese species in demand in the local market.  It commands average wholesale price of $27.00 (live fish) per kilogram (recorded on June 21, 2010).

The latest development schedules are as follows:

 
·
Construction of the farm building was commenced since July 15, 2010;
 
·
Construction of the grow out tanks was commenced from August 1, 2010;
 
·
Targeted completion of construction of farm building and tanks on or before October 31, 2010; and
 
·
First Income from sales of fish is aiming at on or before August 1, 2011.

 
35

 
 
The Beef Business

From the Beef operation; Although up to June 30, 2010 Qinghai Sanjiang A Power, (our beef operation company), was still in  developing stage, but subsequently as at July 31, 2010 it has sold 2,500 tons of organic fertilizer and 2,000 tons of Livestock feed which was on target within Qinghai Sanjiang A Power’s business plan. The Huangyuan district where Qinghai Sanjiang A Power’s operation is situated, has experienced the worst rainy season of the past 1,000 years whereby 2,000 Mu out of our total 7,000 Mu raw material crops planted for this season has been rain affected, such that we are expecting that there will be a reduction of livestock feed being manufactured from our targeted 30,000 tons to 20,000 tons in 2010.

However, the interesting part of our agriculture business is that, no sooner than we started to worry about our targeted performance of 2010 due to the said rainy affect, the sky opened with another opportunity that our organic fertilizer found an alternative market in the Hunan Province that will potentially increase our fertilizer’s gross profit by 2 times (from RMB500/ton to RMB1,000/ ton). In this respect, there is market niche for a specific combined fertilizer, (our organic fertilizer added with higher content of potash), in Hunan Province. Within close proximity of Huangyuan District, there is a potash mine producing potash at the lowest cost in the Country, where we shall source potash from to produce the said combined fertilizer at a very comparable price to give us the referred extra profit.

As at July 31, 2010 we completed the construction of our first 6 beef cattle houses that will house up to 120 heads of cattle per house for fattening purposes to serve as our demonstration units. These houses were built in accordance with the latest modern designs provided by the Agriculture Department’s research and development department specially to suit cattle growing conditions at regional districts of the Qinghai Province and they are environmental friendly.

We intend to build a total of 29 cattle houses in our property within 2010 aiming at a total out-put of 5,000 heads of cattle per year at our property based on the growth period of 6 months per head (meaning that the maximum housing facility will be at 2,500 heads at a six months interval). As such by 2012, we will need to have enough external breeders to help rear the extra 5,000 heads of beef cattle projected for 2010’s Operation.

Our strategy plan for the fattening of beef cattle operation is that, within year 2011, fattening operation within its own property will be leased out to the regional farmers on following terms and conditions:

 
·
Our cattle houses (23 of them) will be leased out to the regional farmers who will have the option to lease up to 4 houses at a time, such that they will supply their own young cattle for fattening and they will manage their respective operations.
 
·
We will provide all associated in-house facilities and services (i.e. veterinary service, utilities, laboratory analysis, ration and nutrient formulated mixing machines, etc.) and supply the livestock feed (“the Farmers’ cost”) and marketing of their grown up beef cattle.
 
·
The breeders will grant us the first option to buy all grown up cattle stocks from them and in the event that they decide to sell to other buyers, such sales will be conducted through our account so that the Farmers’ cost will be deducted from the proceeds of sales.
·
By Year 2012 Operation, similar concept will be adopted with the external breeders.  However, the selected external breeders must build their cattle houses in accordance with our designs and guidelines and manage the grow-out operation under our designed management system to be qualified.  We plan to grant financial assistance to the qualified breeders, if necessary. Therefore our Beef operation’s revenues will be generated from the following activities:

 
·
Manufacturing and sales of organic and combined fertilizer.
 
·
Manufacturing and sales of Livestock feed.
 
·
Farm services provided to the breeders.
 
·
Marketing and sales of beef cattle.

 
36

 
 
Consolidated Results of Operations Fiscal Year 2009 Compared to Fiscal Year 2008
 
Revenues
 
Revenues increased by $5,536,372 or 34.19% to $21,725,839 for the year ended December 31, 2009 from $16,189,467 for the year ended December 31, 2008.  The increase was primarily due to higher fresh liquid milk prices and higher productivity of cows as they became more mature in the dairy’s operation. And in the Plantation operation, there were higher yield from the HU Plants when majority of them are reaching two years old (as explained in Overview above)
 
The following chart illustrates the changes by category from the year-ended December 31, 2009 to December 31, 2008.
 
Category
 
2009
   
2008
   
Difference
 
                   
Fishery
  $ 726,702     $ 562,497     $ 164,205  
                         
Dairy
    18,084,046       14,388,014       3,696,032  
                         
Plantation
    2,915,091       1,238,956       1,676,135  
                         
Beef
    0       0       0  
                         
Totals
  $ 21,725,839     $ 16,189,467     $ 5,536,372  
 
Cost of Goods Sold
 
Cost of goods sold increased by $1,437,783 or 18.09% to $9,385,442 for the year ended December 31, 2009 from $7,947,659 for the year ended December 31, 2008.  The increase primarily due to increase of sale’s revenue and reduction on direct production cost as our operations are gradually moving into the efficient economical scale of operation.
 
The following chart illustrates the changes by category from the year-ended December 31, 2009 to December 31, 2008.
 
Category
 
2009
   
2008
   
Difference
 
                   
Fishery
  $ 0     $ 0     $ 0  
                         
Dairy
    8,578,652       7,553,003       1,025,649  
                         
Plantation
    806,790       394,656       412,134  
                         
Beef
    0       0       0  
                         
Totals
  $ 9,385,442     $ 7,947,659     $ 1,437,783  
 
 
37

 
 
The gross profit by category is as follows:
 
   
Years-ended December 31,
 
             
Category
 
2009
   
2008
 
             
Fishery
    726,702       562,497  
                 
      (100 )%     (100 )%
                 
Dairy
    9,505,394       6,835,011  
                 
      (52.56 )%     (47.50 )%
                 
Plantation
    2,108,301       844,300  
                 
      (72.32 )%     (68.15 )%
                 
Beef
    0       0  
 
Depreciation and Amortization
 
Depreciation and amortization increased by $373,212 or 28.44% to $1,685,705 for the year ended December 31, 2009 from $1,312,493 for the year ended December 31, 2008.  The increase was primarily due to full year amortized sum of $364,319 being charged on the “Live stock feed manufacturing” technology instead of 3 months of amortized sum of $91,080 being charged on the said technology in year ended December 31, 2008.
 
General and Administrative Expenses
 
General and administrative expenses (excluding depreciation and amortization) decreased by $332,480 or 22.18% to $1,166,379 for the year ended December 31, 2009 from $1,498,859 for the year ended December 31, 2008.  The decrease was primarily due to increase on the overall expenses of the corporate sector amounting to $648,362 during year ended December 31, 2009 and $808,472 in year ended December 31, 2008.
 
Category
 
2009
   
2008
   
Difference
 
                   
Office and corporate expenses
  $ 405,123     $ 540,472     $ (135,349 )
                         
Wages and Salaries
  $ 568,757     $ 758,487     $ (189,730 )
                         
Office Rentals
  $ 69,936     $ 63,320     $ 6,616  
                         
Traveling and related lodging
  $ 62,827     $ 69,122     $ (6,295 )
                         
Motor vehicles expenses and local transportation
  $ 20,646     $ 20,160     $ 486  
                         
Entertainments and meals
  $ 39,090     $ 47,298     $ (8,208 )
                         
Sub-total
  $ 1,166,379     $ 1,498,859     $ (332,480 )
                         
Depreciation and amortization
  $ 1,685,705     $ 1,312,493     $ 373,212  
                         
Total
  $ 2,852,084     $ 2,811,352     $ 40,732  
 
 
38

 
 
Other Income and Net Income from Discounted Operations
 
Other income and net income from discounted operations decreased by $3,474,565 or 100% to $26 for the year ended December 31, 2009 from $3,474,591 for the year ended December 31, 2008.  The decrease was primarily due to an extra-ordinary gain from sales of unconsolidated equity investee of $3,412,449 for year ended December 31, 2008, whereas there was no extra-ordinary gain for the year ended December 31, 2009.
 
Impairment Loss (on pre-payments)
 
Impairment Loss (on pre-payments) decreased by $293,404 or 100% to $0 for the year ended December 31, 2009 from $293,404 for the year ended December 31, 2008.  The decrease was primarily due to the increase of earnings to $1,460,910 of the Plantation in year ended December 2009 from earnings of $288,827 in year ended December 31, 2008, that effectively ceased further good will impairment losses on the Plantation in year ended December 31, 2009.
 
Income Taxes

There was no income tax payable in year ended December 31, 2008 and 2009.

Cash provided by operating activities totaled $2,899,178 for the year ended December 31, 2009.  This compares with cash provided by operating activities of $7,029,922 for the year ended December 31, 2008.  The decrease in cash flows from operations primarily resulted from following activities:

There was profit derived from the disposal of unconsolidated equity investee of $(3,412,449) in 2008 whereas there was no such event in 2009, and, changes in operating liabilities to $(7,804,847) in 2009 from operating assets of $643,961 in 2008.

Cash used in investing activities totaled $2,515,200 for the year ended December 31, 2009.  This compares with cash used in investing activities of $6,342,792 for the year ended December 31, 2008.  The decrease in cash used in investing activities primarily resulted from there was net payment of $3,595,000 from acquisition of proprietary technologies of $8,000,000 and disposal receipts from disposal of unconsolidated equity investee of $4,405,000 in 2008 whereas there was no such event in 2009.

Cash provided by financing activities totaled $214,375 for the year ended December 31, 2009.  This compares with cash provided by financing activities of $447,498 for the year ended December 31, 2008.  The decrease in cash flows from financing activities primarily resulted from there was no repayments of short term debt in 2009 compares to the repayments of short term debt of ($2,275,812) in 2008.

Off Balance Sheet Arrangements

At December 31, 2009, there is a long term loan debt guaranteed by a third party as shown in the notes to the financial bank loan in the audited financial statement.

OTHER SIGNICICANT TRANSACTIONS THAT AFFECT CASH/LIQUIDITY:

Seasonal Factors Affecting our Operations

 
39

 
 
In China, winter season is from mid-November to mid-March. The Chinese lunar year holiday falls during this period in February each year. During the Chinese lunar holiday, Chinese workers take a 30-day holiday (although the Government’s official holiday period is for 10 days). The months of March and April are the times for ground preparation and seedling for the new season.

These seasonal factors have certain influences on our overall operations explained as follows:

The Dairy - We are able to produce a stable quantity of fresh liquid milk year round (i.e. non-stop milking on a daily basis during the year ) as our cows are on a rotational system where we maintain a number of “stand-by” cows to ensure consistent fresh liquid milk production. The raw materials for our livestock feed manufacturing sector are harvested and stored during September each year and sales occur primarily from October through December, which creates a large increase in sales revenue during the last quarter of the year. (i.e. livestock feed revenue was US$7,204,995 for the three months ended December 31, 2009 compared to livestock feed revenue of US$3,685,058 for the three months ended September 30, 2009).

The Plantation - The HU flowers’ harvesting season is from July to the end of October. During this time, the bulk of our freshly harvested flowers are dried and stored. Although the dried flowers are sold year round, the bulk of sales are from November to June each year. In general, we sell the dried flowers at their highest prices from April through June. During 2009, we did not have enough dried flowers to store and sell throughout the entire year and our harvest was sold by the end of December. However, we expect our 2010 harvest to be more than three times the volume of our 2009 harvest (i.e. we expect 50 million pieces of fresh flowers in 2010 compared to approximately 16.5 million in 2009) and our target is to store enough dried flowers during 2010 to smooth our annual sales through the year, rather than experiencing the bulk of our sales during the fourth quarter, as in 2009.

The Fishery – As discussed previously, during 2010 we expect to complete the construction of our first APM Fish Farm in China. We were unable to complete the construction sooner due to the following reasons:

(1) 
Building costs and imported costs of plants and equipment were at their highest in China during 2008 and the early months of 2009.

(2) 
It was not until after the first six months of 2009 that we finalized our investigations and tests to enable the manufacture of parts and components for our fishery plants and equipment. By waiting, we were able to experience substantial cost savings while obtaining durable quality standard components as compared to the imports.

(3) 
It was not until recently that we were able to develop a management system that will provide enough security in our farm operation to protect our technology from being pirated.
At December 31, 2009, we had no other significant transactions that may affect our cash / Liquidity other than the seasonal variation effects mentioned earlier and the effects stated herein:  “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 (“PRC”) 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.”

Half yearly comparison for fiscal year ended December 31st, 2009 and June 30th 2010 presented with Quarterly results, information and analysis

The following revenue table illustrates the changes by category of the quarters for fiscal year ended June 30, 2009 to fiscal year ended June 30, 2010.

 
40

 
 
     
Q1
   
Q2
   
1 st  Half
total
 
2009 
                   
 
Fishery
  $ 413,650     $ 313,052     $ 726,702  
 
Dairy
  $ 3,622,403     $ 3,535,515     $ 7,157,918  
 
Plantation
          $ 151,538     $ 151,537  
 
Beef
                       
 
Total
  $ 4,036,053     $ 4,000,105     $ 8,036,158  
                           
2010
                         
 
Fishery
  $ 300,000     $ 395,531     $ 695,531  
 
Dairy
  $ 4,161,322     $ 4,575,735     $ 8,687,057  
 
Plantation
                       
 
Beef
                       
 
Total
  $ 4,411,322     $ 4,971,266     $ 9,382,588  

Seasonal factors and our operation

Winter to end of Spring (which in the agriculture sector in China is regarded as the Winter season as a whole) that in normal situation starts from Mid-November to Mid-March and the Chinese lunar year holidays fall usually in February of each year when the Chinese workers take on their 30 days annual holidays although the Government’s official holiday period is for 10 days. During March to April months, are the times for ground preparation and seedling of the new season.

Therefore these seasonal factors have certain influences on our overall operations explained as follows:

For the Dairy operation: Production of fresh liquid milk is stable under our cows’ rotational system that always maintains a certain number of stand-by cows during the Winter season to ensure an  all year round production evenly. However, our raw materials for the livestock feed manufacturing sector are being harvested and stored during month of September each year and sales of which are mainly done from October to end December resulting in the big jump of sales revenue in the last quarter of the year. (i.e. Revenue of $7,204,995 in Q4, 2009 compares to Revenue of $3,721,133 in Q3, 2009).

For the Plantation operation: The HU flowers’ harvesting season commences from July to End of October, during which time, bulk of the freshly harvested flowers are being dried and stored, and sold mainly from November to June of each year. In general, the dried flowers are being sold at their highest prices during months of April to June. In 2009, we did not have enough dried flowers to be stored and sold through the year and they were all contractually sold by the end of December. However in the 2010 season we are expecting to harvest more than three times the amount harvested in 2009 (i.e. 50 million pieces of fresh flowers in 2010 compares to about 16.5 million in 2009), such that we are targeting to store enough dried flowers to even out our yearly sales instead of selling all dried flowers only in Q4 of 2009. (i.e. There was no sales in Q1 and yet Q3 and Q4 2009 sales revenues were for $935,858 and $1,827,695 respectively).

Our Fishery operation: 2010 is the year that we are building our first APM Fish Farm in China, and the reasons of why we could not do that sooner were because:

Building costs and imported costs of plants and equipment were at their highest during 2008 and early months of 2009 in China.

It was not until mid-way through 2009 that we finalized our investigations and tests to enable the manufacturing of parts and components for our fishery plants and equipment in China with substantial cost of savings and equivalent durable quality standard compares to the imports.

We finally develop a management system to provide enough security in our farm operation such that our technology will not be pirated.

 
41

 
 
Our Fishery’s operation only derived incomes from limited professional services during 2008 and 2009 assisting our China Developer Licensees to make certain improvements to their existing aquaculture farms and projects. Whereas, the said incomes might have been covering our fishery’s developing expenses during the interim but it certainly did not provide the group with any worthy earnings. However, evidently our fishery operation is starting to generate positive incomes in Q2 2010 and will eventually generate high earnings for our group.

Revenues increased by $1,346,430 or 16.75% to $9,382,588 for the 1st half year ended June 30, 2010 from $8,036,158 for the 1st half year ended June 30, 2009.  The increase was primarily due to the quarter’s increase of the sales in the dairy products.

The following costs of goods table illustrate the changes by category of the quarters for the 1st half year ended June 30, 2009 to the 1st half year ended June 30, 2010.

     
Q1
   
Q2
   
1 st  Half –
total
 
2009 
                   
 
Fishery
                 
 
Dairy
  $ 1,744,944     $ 1,876,256     $ 3,621,200  
 
Plantation
          $ 70,718     $ 70,718  
 
Beef
                       
 
Total
  $ 1,744,944     $ 1,946,974     $ 3,691,918  
                           
2010
                         
 
Fishery
                       
 
Dairy
  $ 1,824,742     $ 2,052,269     $ 3,877,011  
 
Plantation
                       
 
Beef
                       
 
Total
  $ 1,824,742     $ 2,052,269     $ 3,877,011  
 
Cost of goods sold increased by $185,093 or 5% to $3,877,011 for the 1st half year ended June 30, 2010 from $3,691,918 for the 1st half year ended June 30, 2009.  The increase primarily due to the increase on the Dairy’s increase of production.
 
The following gross profit table illustrates the changes by category of the quarters for the 1st half year ended June 30, 2009 to the 1st half year ended June 30, 2010.
 
     
Q1
   
Q2
   
1 st  Half –
total
 
2009 
                   
 
Fishery
  $ 413,650     $ 313,052     $ 726,702  
 
Dairy
  $ 1,877,459     $ 1,659,259     $ 3,536,718  
 
Plantation
          $ 80,820     $ 80,820  
 
Beef
                       
 
Total
  $ 2,291,109     $ 2,053,131     $ 4,344,240  
                           
2010
                         
 
Fishery
  $ 300,000     $ 395,531     $ 695,531  
 
Dairy
  $ 2,286,580     $ 2,523,466     $ 4,810,046  
 
Plantation
                       
 
Beef
                       
 
Total
  $ 2,586,580     $ 2,918,997     $ 5,505,577  
 
 
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  Gross Profit increased by $1,161,339 or 26.73% to $5,505,575 for the 1st half year ended June 30, 2010 from $4,344,240 for the 1st half year ended June 30, 2009.  The increase primarily due to the increase on the increase of sales margin of the Dairy’s dairy products and an audited adjustment carried over from 2009 .

Depreciation and Amortization

Depreciation and amortization decreased by $58,098 or 4.23% to $1,196,035 for the 1st half year ended June 30, 2010 from $1,254,133 for the 1st half year ended June 30, 2009. The decrease was primarily due to the translation of exchange gain.

Selling, General and Administrative Expenses

The following general and administrative expense table illustrate the changes by category of the quarters for fiscal year ended June 30, 2009 to fiscal year ended June 30, 2010.

     
Q1
   
Q2
   
1 st  Half –
total
 
2009 
                   
 
Office and corporate operation expenses
  $ 434,915     $ 202,385     $ 637,300  
 
Wages and salaries
  $ 237,569     $ 235,371     $ 472,940  
 
Office rentals
  $ 21,984     $ 21,984     $ 43,968  
 
Travel and lodging
  $ 17,579     $ 20,254     $ 37,833  
 
Motor vehicle and transports
  $ 1,770     $ 3,084     $ 4,854  
 
Meals and entertainment
  $ 43,903     $ 39,282     $ 83,185  
      $ 757,720     $ 522,360     $ 1,280,080  

2010 
                   
 
Office and corporate operation expenses
  $ 619,406     $ 520,964     $ 1,140,370  
 
Wages and salaries
  $ 218,343     $ 715,725     $ 934,068  
 
Office rentals
  $ 25,502     $ 35,193     $ 60,695  
 
Travel and lodging
  $ 8,931     $ 23,886     $ 32,817  
 
Motor vehicle and transports
  $ 4,241     $ 2,393     $ 6,634  
 
Meals and entertainment
  $ 11,866     $ 12,975     $ 24,841  
      $ 888,289     $ 1,311,136     $ 2,199,425  
 
 
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General and administrative expenses increased by $919,345 or 71.82% to $2,199,425 for the 1st half yearly ended June 30, 2010 from $1,280,080 for the 1st half yearly ended June 30, 2009.  The increase was primarily due to the increase in corporate expenses involving additional professionals carrying work in auditing reports, quarterly reporting to Pinksheets, preparation of Form 10 for the submission to SEC and other related works etc.

Other Income

There was no other income for the periods mentioned herein.

Impairment Loss (Good Will)

There was Impairment Loss (Prepayment) made in the 1 st half ended June 30 of 2009 and 2010.

Ta xes

There was no income tax payable in both of 1st half ended June 30, 2009 and 2010.
 
Under new tax legislation of China beginning January 2008, the agriculture, dairy and fishery sectors are exempted from enterprise income taxes.
 
Liquidity and Capital Resources

At June 30, 2010, we had unrestricted cash and cash equivalents of $1,192,345, our working capital as of June 30, 2010 was at $34,220,235.

As of June 30, 2010, our total contractual cash obligations were as follows:

Contractual
Obligations
 
Less than
1 year
   
1-3
years
   
3-5
years
   
More than
5 years
   
Total
 
                               
Long Term Bank Debts
  $ -     $ -     $ -     $ 3,681,885     $ 3,681,885  

Cash provided by operating activities totaled $8,181,095 for the six months ended June 30 2010.  This compares with cash provided by operating activities of $5,050,121 for the six months ended June 30, 2009. 

Cash used in investing activities totaled $6,727,544 for the six months ended June 30, 2010.  This compares with cash used in investing activities of $4,154,926 for the six months ended June 30, 2009.

Cash used in financing activities totaled $3,154,338 for the six months ended June 30, 2010.  This compares with cash provided by financing activities of $200,993 for the six months ended June 30, 2009.
 
Off Balance Sheet Arrangements

At June 30, 2010, there is a long term loan debt guaranteed by a third party as shown in the notes to the financial bank loan in the audited financial statement.

 
44

 
 
OTHER SIGNICICANT TRANSACTIONS THAT AFFECT CASH/LIQUIDITY:

At June 30, 2010, we had no other significant transactions that may affect our cash / Liquidity other than the seasonal variation effects mentioned earlier and the effects stated herein: “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 (“PRC”) 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.”

Use of Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. We review our estimates and judgments on an ongoing basis and revise them when necessary. Actual results may differ from the original or revised estimates.

A summary of our significant accounting policies is contained in Note 1 of Notes to Consolidated Financial Statements. Our critical accounting policies are where we have made the most difficult, subjective or complex judgments in making estimates, and/or where these estimates can significantly impact our financial results under different assumptions and conditions. Our management has discussed the critical accounting policies described below with our audit committee.

Goodwill, Other Intangible Assets and Impairment of Long-Lived Assets

Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with ASC Topic 350, we perform an annual impairment test of goodwill. We evaluate goodwill as of October 1 each year and more frequently if events or changes in circumstances indicate that goodwill might be impaired.  As required by ASC Topic 350, the impairment test is accomplished using a two-step approach.  The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment.

Our annual goodwill impairment test was performed as of October 1, 2009.  Our fair value as of the annual testing date exceeded our book value and consequently, no impairment was indicated.

Our fair value was determined by weighting the results of two valuation methods: 1) market capitalization based on the average price of our common stock, including a control premium, for a reasonable period of time prior to the evaluation date (generally 15 days) and 2) a discounted cash flow model.  The fair value calculated using our average common stock price (including a control premium) was weighted 40% while the value calculated by the discounted cash flow model was weighted 60% in our determination of our overall fair value.  While the use of our average common stock price, plus a control premium, may be considered the best evidence of fair value in ASC Topic 350, we believe the declines in our stock price over the past two years, and in the market overall, are not consistently aligned with our financial results or outlook.  The discounted cash flow approach allows us to calculate our fair value based on operating performance and meaningful financial metrics.

A key assumption used in the calculation of our fair value using our average common stock price was the consideration of a control premium.  We reviewed industry premium data and determined an appropriate control premium for the analysis based on the low end of any premium received in transactions over the past several years.

Significant estimates used in the discounted cash flow model included projections of revenue growth, net income margins, discount rate, and terminal business value. The forecasts of revenue growth and net income margins are based upon our long-term view of the business and are used by senior management and the Board of Directors to evaluate operating performance. The discount rate utilized was estimated using the weighted average cost of capital for our industry. The terminal business value was determined by applying a growth factor to the latest year for which a forecast exists.

 
45

 

Other intangible assets include Land Usage Right of our land obtained under Land Use Certificates are being amortized over the assets’ contractual tenures using the straight-line method. We periodically review the contractual tenures of our identifiable intangible assets, taking into consideration any events or circumstances that might result due to any major Government Laws and Regulation changes that may affect their contractual tenures.

During the fourth quarter of 2009, our stock price continued trading above its book value.  Based on the continued upward trend of our stock price and positive business and market outlook for the information technology services industry, we did not experience a significant adverse change in our business climate and therefore do not believe a triggering event occurred that would require a detailed test of goodwill for impairment as of December 31, 2009.   We will continue to monitor the trend of our stock price and other market indicators to determine whether there is a triggering event that may require us to perform an interim impairment test in the future and record impairment charges to earnings, which could adversely affect our financial results.

Revenue Recognition

We generate services revenue from professional services fees. All services revenue is recorded as the services are provided based on the fair value of each element. Fair value is determined based on the sales price of each element when sold separately. Most AS services revenue consists of fixed monthly fees based upon the specific business process for which the service is being provided, and the related costs are incurred ratably over the contract period. When recovering from an interruption, customers generally are contractually obligated to pay additional fees, which typically cover our incremental costs of supporting customers during recoveries.

License fees result from contracts that permit the customers’ right to use our Technologies and Management Systems for the development and operation of their projects. Generally, these contracts are simple arrangements since they provide for the right to develop projects using our technologies and management system calculated in accordance with the number of standard models that will be employed in the projects based on a fixed price per model. Their respective rights are normally set at 55 years. In these instances, license fees are recognized upon the signing of the contract and certain payments are paid in advance, further periodical payment’s collections are probable. Revenue is earned and recorded when billed without any attached contingent condition. Revenues and receivables from sales of goods including but not limited to the sales of farm produces, products, manufacturing products and plants and equipment and parts and component, are recognized upon the signing of contract and / or delivery of goods sold.

We believe that our revenue recognition practices comply with the complex and evolving rules governing revenue recognition. Future interpretations of existing accounting standards, new standards or changes in our business practices could result in changes in our revenue recognition accounting policies that could have a material effect on our financial results.
Accounting for Income Taxes:
In accordance with the Income tax law of China, all primary producers of the agriculture industry are exempted from income tax started from year 2008, as such, there was no income tax paid.

Accounting for treatment of receivables from Government grants and other incentive Compensation

Receivables from Government grants and other incentives compensation derived either from the compensation given by the local regional Government to us for reasons of trades generated between the regional customers and us or for other operational purposes, or, as direct compensation given by the PRC Central Government through any Government Policies applicable to the Agriculture Industry are recognized and recorded as other incomes upon the receipt of the compensation either in kind of cash payments or in kind of work done that add fair values to the assets of the company. And in this instance the fair values of such assets will be subject to depreciation and / or amortization calculated in accordance with the general accounting principle of GAAP.
 
46

 
Long lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on operating results and financial position. No impairments were identified as of June 30, 2010.
 
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, FASB issued ASU No. 2010-01 Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December.

In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

 
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In February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010.

In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial porting of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of ASU 2010-17 to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update 2010-17, “Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” or ASU 2010-17 .  This Update provides guidance on the recognition of revenue under the milestone method, which allows a vendor to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone (milestone consideration) in the period the milestone is achieved. The pronouncement is effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010. The adoption of ASU 2010-17 does not have any significant impacts on the consolidated financial statements.
  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

Not required.

ITEM 3.     PROPERTIES

Rented Property

 
1.
Address: Guangzhou City, Guangdong Province, P.R. China
Number of Square Feet: 2,300 ft²
Name of Landlord: China Shine Property Development Co. Ltd.
Term of Lease: 5 years
Monthly Rental: RMB29,085 / month (or US$4,288 / month)

 
2.
Address: Huangyuan Town, Qinghai Province, P.R. China
Number of Square Feet: 1,257,795 ft²
Name of Landlord: Huangyuan Government, Commercial and Trade Department.

 
48

 

Term of Lease: 5 years
Monthly Rental: Free
  
 
3.
Address: Enping City, Guangzhou
Number of square feet: 2,178 ft²
Name of Land Lord: Enping City Water Work Authority
Term of Lease: 7 years (expiry 31 March 2014)
Monthly rental: US$430.
   
Adequate for current needs: Yes

Properties that we have “Land Use Right”

 
1.
Address: Ba Langgou Village, Hebei Province
Number of acres: 26.40 acres
Date of Grant: March 18, 2006
Duration of land use rights: 30 years

 
2.
Address: Seventeen Channels Village, Hebei Province
Number of acres: 69.30 acres
Date of Grant: September 12, 2007
Duration of land use rights: 44 years

 
3.
Address: Seventeen Channels Village, Hebei Province
Number of acres: 74.26 acres
Date of Grant: September 12, 2007
Duration of land use rights: 44 years

 
4.
Address: Langwo Channels Village, Hebei Province
Number of acres: 825. acres
Date of Grant: August 01, 2007
Duration of land use rights: 60 years

 
5.
Address: Langwo Channels Village, Hebei Province
Number of acres: 990.10 acres
Date of Grant: August 01, 2007
Duration of land use rights: 70 years

 
6.
Address: ZhangMutou,YanE Village, LiangXi Town, Guangdong Province
Number of acres: 0.298 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

 
7.
Address: DongGongPingTang,YanE Village, LiangXi Town, Guangdong Province
Number of acres: 5.738 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

 
8.
Address: Western to ChuLuo,YanE Village, LiangXi Town, Guangdong Province
Number of acres: 2.348 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

 
9.
Address: North to SaoYiMing, YanE Village, LiangXi Town, Guangdong Province
Number of acres: 13.968 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

10.
Address: South to PaiZi and ChunZi, YanE Village, LiangXi Town, Guangdong Province
Number of acres: 5.478 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

 
49

 

11.
Address: ZhangMutou, Enping City, Guangdong Province
Number of acres: 16.80 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

12.
Address: DongChuLu, Enping City, Guangdong Province
Number of acres: 18.85 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

13.
Address: Western to SaoYi Lang, Enping City, Guangdong Province
Number of acres: 13.97 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

14.
Address: South to XiangZiZhi Zi, Enping City, Guangdong Province
Number of acres: 5.49 acres
Date of Grant: March 04, 2007
Duration of land use rights: 60 years

15.
Address: YanE Village LiangXi Town, Guangdong Province
Number of acres: 54.79 acres
Date of Grant: September 12, 2007
Duration of land use rights: 60 years

16.
Address: Shanxiang School YanE Village, LiangXi Town, Guangdong Province
Number of acres: 8.33 acres
Date of Grant: August 10, 2007
Duration of land use rights: 60 years

17.
Address: NiuyantanDaiwan Village, JunTang Town, Guangdong Province
Number of acres: 28.88 acres
               Date of Grant: September 12, 2007
Duration of land use rights: 60 years

18.
Address: Yi Dui Sheng Feng Kuang, Huang Bi District, Niu Jiang Town, Guangdong Province.
Number of acres: 3.59 acres
Date of Grant: January 01, 2008
Duration of land use right: 60 years

19.
Address: Er Dui Sheng Feng Kuang, Huang Bi District, Niu Jiang Town, Guangdong Province.
Number of acres: 12.89 acres
Date of Grant: January 01, 2008
Duration of land use right: 60 years

20.
Address: San Dui Sheng Feng Kuang, Huang Bi District, Niu Jiang Town, Guangdong Province.
Number of acres: 6.25 acres
Date of Grant: January 01, 2008
Duration of land use right: 60 years

21.
Address: Lian Dui Sheng Feng Kuang, Huang Bi District, Niu Jiang Town, Guangdong Province.
Number of acres: 10.96 acres
Date of Grant: January 01, 2008
Duration of land use right: 60 years

 
50

 

Land Use Rights All lands held under “Land Use Right” are zoned agriculture lands, as such and under current Land Law of China, these lands are not allowed to be used for any other purposes (i.e. industrial or residential or commercial development) except for the purpose of agriculture development.

All improvements to the lands and development of non-cultivated facilities (i.e. storages, plants and machinery buildings, primary workshops, workers quarters, farm offices etc) thereon for the purpose of farm application are permitted and are regarded as “Temporary Built Up”, which are not subject to the current town planning and building laws and regulations of the district governments.  Only the consent of the local village’s committee concerned is required for such purpose.

We do not intend to renovate, improve, or develop properties for any other purposes other than for the purpose of agriculture development.  We are not subject to competitive conditions for real estate property development and currently we have no property to insure.  We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages.  Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activity.

ITEM 4.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth the ownership, as of the date of this prospectus, of our Common Stock by each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, our directors, and our executive officers, and our executive officers and directors as a group.  To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted.  There are not any pending or anticipated arrangements that may cause a change in control.

The information presented below, regarding beneficial ownership of our voting securities, has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose.  Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has, or shares, the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security.  A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option, or other right.  More than one person may be deemed to be a beneficial owner of the same securities.

The percentage of beneficial ownership by any person, as of a particular date, is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days.  Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our Common stock listed below have sole voting and investment power with respect to the shares shown.  The business address for all persons is Room 3711, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe County, Guangzhou City, P.R.C. 510610.

Common Stock

Shareholders
 
Number of Common
Shares
   
Percentage of Common Stock
 
Lee Yip Kun Solomon
    13,500,000       26 %
Tan Poay Teik
    4,500,000       8.66 %
Chen Bor Hann
    900,000       1.73 %
All officers and directors as a group [3 persons]
    18,900,000       36.39 %

 
51

 

This table is based upon information derived from our stock records.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.  Applicable percentages are based upon 51,942,636 shares of Common Stock outstanding as of June 30, 2010.

Series A Preferred Stock

Shareholders
 
# of Preference
Series A Shares
   
Percentage of Series A Preferred Stock
 
Lee Yip Kun Solomon
    70       70 %
Tan Poay Teik
    25       25 %
Chen Bor Hann
    5       5 %
All officers and directors as a group [3 persons]
    100       100 %

This table is based upon information derived from our stock records.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.  Applicable percentages are based upon 100 shares of Common Stock outstanding as of June 30, 2010.

Rights and Preferences of Series A Preferred Stock

VOTING RIGHTS:  The Holders of the Series A Preferred Stock have no voting power whatsoever, except as otherwise provided by law or otherwise in the Certificate of Rights and Preferences, the Holders of the Series A Preferred Stock shall vote together with the shares of Common Stock as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and so long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent 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 the 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.

Series B Convertible Preferred Stock

Shareholders
 
# of Preference
Series B Shares
   
Percentage of Series B Preferred Stock
 
Lee Yip Kun Solomon
    4,900,000       70 %
Tan Poay Teik
    1,750,000       25 %
Chen Bor Hann
    350,000       5 %
All officers and directors as a group [3 persons] Held under a company namely Capital Adventure Inc.
    7,000,000       100 %
 
52

 
This table is based upon information derived from our stock records.  Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.  Applicable percentages are based upon 7,000,000 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2010.

Rights and Preferences of Series B Preferred Stock

CONVERSION AT THE OPTION OF THE HOLDER : Each holder of Series B Stock shall have the at any time or from time to time to convert each share of Series B Stock into One fully-paid and non-assessable share of Common Stock.
 
VOTING RIGHTS:  The Holders of the Series B Convertible Preferred Stock have no voting power whatsoever, except as otherwise provided by the Nevada Business Corporation Act and in the Certificate of Rights and Preferences, which provides in part that to the extent that under the Nevada Business Corporation Act the vote of the Holders of the Series B Convertible Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the Holders of at least a majority of the shares of the Series B Convertible Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series B Convertible Preferred Stock (except as otherwise may be required under the Nevada Business Corporation Act) shall constitute the approval of such action by the class. To the extent that under the Nevada Business Corporation Act Holders of the Series B Convertible Preferred Stock are entitled to vote on a matter with Holders of Common Stock, voting together as one class, each share of Series B Convertible Preferred Stock shall be entitled to one (1) vote.

ITEM 5.   DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors elects our executive officers annually.  A majority vote of the directors who are in office is required to fill vacancies.  Each director shall be elected for the term of one year and until his successor is elected and qualified or until his earlier resignation or removal.  Our directors and executive officers are as follows:

Name
 
Age
 
Position
         
Lee Yip Kun Solomon
 
61
 
C.E.O. and Director
Tan Poay Teik
 
52
 
C.E.O. Marketing
Chen Bor Hann
  
46
  
Company Secretary

 
53

 
 
Mr. Lee Yip Kun Solomon has been a Director and our Chief Executive Officer since August 2007..  From March 2004 to date he has been Group Managing Director of Capital Award Inc.  Since   May, 1993, he has been the CEO of Irama Edaran Sdn. Bhd. (Malaysia), a modern fishery developer.   There was no formal relationship between Sino Agro Food and Irama Edaran.  He received a B.A. Major in Accounting and Economics from Monash University, Australia in July 1972.  As a member of the board, Mr. Solomon contributes his knowledge of the company and a deep understanding of all aspects of our business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.
 
Mr. Tan Paoy Teik has been a Director and our Chief Marketing Officer since August 2007.  Since July, 2005, he has been Group Managing Director of Milux Corporation Bhd. (Malaysia), a manufacturer of home and gas appliances.  He received and MBA from South Pacific University in 2005.  Mr. Tan is currently the Managing Director of Milux Corporation Bhd, as such, he is spending half of his working time between Milux and our company.  As a member of the board, Mr. Tan contributes his knowledge of the company and a deep understanding of all aspects of our business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.
 
Mr. Chen Bor Hann has been Director and Secretary since August 2007.  Since   March, 2004, he has been Director and Business Development Manager of Capital Award Inc. From September 1995 to March 2004, he was Fishery Supervisor of Irama Edaran Sdn. Bhd. (Malaysia).  As a member of the board, Mr. Chen contributes his knowledge of the company and a deep understanding of all aspects of our business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.

Family Relationships

There are no family relationships among our officers or directors.

Legal Proceedings

No officer, director, or persons nominated for such positions, promoter or significant employee has been involved in the last ten years in any of the following:
 
 
·
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time,
 
 
·
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses),
 
 
·
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities,
 
 
·
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
 
 
·
Having any government agency, administrative agency, or administrative court impose an administrative finding, order, decree, or sanction against them as a result of their involvement in any type of business, securities, or banking activity.

 
54

 
 
 
·
Being the subject of a pending administrative proceeding related to their involvement in any type of business, securities, or banking activity.
 
 
·
Having any administrative proceeding been threatened against you related to their involvement in any type of business, securities, or banking activity.

ITEM 6.  EXECUTIVE COMPENSATION

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our Principal Executive Officer, our two most highly compensated executive officers other than our CEO who occupied such position at the end of our latest fiscal year and up to two additional executive officers who would have been included in the table below except for the fact that they were not executive officers at the end of our latest fiscal year, by us, or by any third party where the purpose of a transaction was to furnish compensation, for all services rendered in all capacities to us or our subsidiary for the latest fiscal years ended December 31, 2009 and December 31, 2008.

Name and Principal Position
Fiscal
Year
Ended
 
Salary($)
   
Option Awards
($)
   
Total
($)
 
                     
Mr. Lee Yip Kun Solomon, Chief Executive Officer
2009
    336,000       0       336,000  
 
2008
    336,000       0       336,000  
                           
Mr. Tan Paoy Teik, Chief Marketing Officer
2009
    174,000       0       174,000  
 
2008
    174,000       0       174,000  
                           
Mr. Chen Bor Hann, Secretary
2009
    60,000       0       60,000  
 
2008
    60,000       0       60,000  

Summary Equity Awards Table

The following table sets forth certain information for our executive officers concerning unexercised options, stock that has not vested, and equity incentive plan awards as of our fiscal year ended December 31, 2009.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2009.

Name
 
Number of securities
underlying
unexercised options
(#) Exercisable
   
Number of securities
underlying
unexercised unearned
options(#)
   
Equity incentive plan
awards: Number of
securities underlying
unexercised unearned
options (#)
   
Option
exercise
price ($)
   
Option
expiration
date
   
Number of
shares or
units of stock
that have not
vested (#)
   
Market value of
shares or units of
stock that have
not vested ($)
 
Mr. Lee Solomon Yip Kun
    0       0       0       0       0       0       0  
Mr. Tan Paoy Teik
    0       0       0       0       0       0       0  
Mr. Chen Bor Hann
    0       0       0       0       0       0       0  

 
55

 

Narrative disclosure to summary compensation and option tables

Set forth below the material terms of each named executive officer's employment agreement or arrangement, whether written or unwritten:

We have only oral, nothing in writing compensation agreements for a term of three years from January 01, 2008 to December 31, 2010 with our three highest compensated executive officers as follows:

Annual Cash Compensation:

Name and Principal Position
 
Salary($)
 
       
Mr. Lee Yip Kun Solomon, Chief Executive Officer and Chairman
    336,000  
         
Mr. Tan Paoy Teik, Chief Marketing Officer, Director
    174,000  
         
Mr. Chen Bor Hann, Secretary, Director
    60,000  

Stock Awards

In addition, we agreed to pay incentives in form of additional compensation in shares of our common stock to these three individuals in a number of shares equal to the U.S. dollar value of their compensation, with the shares valued at $1.00 per share for award purposes. As of the date of this filing, we have not awarded any vested stock awards.  All Stock Award that are not vested are not reflected in the tables above and will be reflected accordingly as and when they will be vested.  It is the option of the Company to decide when is the best suitable time for the Company to issue such awards and the vesting schedule for any stock awarded.

General

At no time during the last fiscal year with respect to any person listed in the Table above was there:

 
any outstanding option or other equity-based award repriced or otherwise materially modified (such as by extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination of applicable performance criteria, or the change of the bases upon which returns are determined;

 
any waiver or modification of any specified performance target, goal or condition to payout with respect to any amount included in non-stock incentive plan compensation or payouts;

 
any option or equity grant;

 
any non-equity incentive plan award made to a named executive officer
 
any nonqualified deferred compensation plans including nonqualified defined contribution plans; or

 
any payment for any item to be included under All Other Compensation in the Summary Compensation Table.
 
Board of Directors

Director Compensation in yearly basis as per year ended December 31, 2009
 
56

 
Name
 
Year end
 
Fees or cash paid ($)
   
Stock awards
   
Total
 
Mr. Lee Yip Kun Solomon
 
Dec. 31, 2009
    0       0       0  
Mr. Tan Paoy Teik
 
Dec. 31, 2009
    0       0       0  
Mr. Chen Bor Hann
 
Dec. 31, 2009
    0       0       0  

Narrative to Director Compensation Table

 We have no compensation arrangements (such as fees for retainer, committee service, service as chairman of the board or a committee, and meeting attendance) with directors.

 
57

 

ITEM 7.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The table below shows the Company’s significant related party transactions:

Name of related party
 
Nature of transactions
     
Mr. Rui Xiong He , director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
During the year ended December 31, 2008, Mr. Rui Xiong He sold his land use rights to the Company for $764,128.
 
Included in other payables, due to Mr. Rui Xiong He is $16,985 and $306,620 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Xiang Jun Fang, director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
Included in other receivables, due from Mr. Xiang Jun Fang is $260,101 and $114,630 at December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
 
Included in other payables, due to Mr. Xiang Jun Fang is $150,057 and $108,488 at December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Solomon Lee, Chairman
 
 
Included in due from directors, Mr. Solomon Lee is $73,164 and $798,058 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Michael Bor Hann Chen, director and company secretary
 
 
Included in due from directors, Mr. Michael Bor Hann Chen is $38,228 and $37,495 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Zhao Yu Lim Director of Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”),
    
Subsequently as at June 30, 2010 all receivables due from the directors were repaid as such there was no more loan being advanced to the directors as at June 30, 2010.
 
Included in other payable, SJAP is $2,494 and $nil as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

As at June 30, 2010, there are no other related parties transactions except for the one mentioned above.

 
58

 

DIRECTOR INDEPENDENCE

Our board of directors has determined that we do not have a board member that qualifies as “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.

ITEM 8.  LEGAL PROCEEDINGS

 We have no lawsuits arising in the ordinary course of our business.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

Since July 24, 2007, our Common Stock has been quoted on the Pink OTC Markets under the symbol “SIAF.PK.” Prior to that, our Common Stock was quoted on the Pink OTC Markets under the symbol “VOLG.PK.” The following table lists the high and low bid price for our Common Stock as quoted, in U.S. dollars, by the Pink OTC Markets during each quarter within the last two fiscal years. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.

   
High
   
Low
 
July 1 – September 30, 2008
  $ 0.99     $ 0.35  
October 1 – December 31, 2008
  $ 0.64     $ 0.01  
January 1 – March 31, 2009
  $ 0.16     $ 0.01  
April 1 – June 30, 2009
  $ 0.75     $ 0.10  
July 1 – September 30, 2009
  $ 1.01     $ 0.50  
October 1 – December 31, 2009
  $ 1.27     $ 0.59  
January 1 – March 31, 2010
  $ 1.88     $ 1.07  
April 1 – June 30, 2010
  $ 1.31     $ 0.44  

Record Holders

As June 30, 210 there were 5,250 shareholders of record holding shares of common stock.

The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Dividends

We have declared cash dividends of US$0.01 per each of our common stock on August 27, 2010 (our declaration date) with recorded date on August 31, 2010, and payment date will be on October 15, 2010.  Subsequently the said dividends were fully paid as at October 15, 2010.

Stock Re-Purchases

We did not make any re-purchases of shares of our common stock during the fourth quarter of fiscal 2009 and we do not currently have any publicly-announced repurchase plans in effect.

 
59

 
 
ITEM 10.  RECENT SALES OF UNREGISTERED SECURITIES
 
Fiscal Year ended December 31, 2007
 
Date
 
Events
 
Shares
issued
   
Price /
share
   
Consideration
received
   
# of Non-USA
Investors
   
# of USA
Investors
 
July 24, 2007
 
Issuance of shares for the Merger of CA and VOLG
    32,000,000       0.617       19,739,157       62       0  
July 24, 2007
 
Issuance of shares to VOLG’s existing debenture holders
    10,804,579       0.001       0       4       1  
Sept. 5, 2007
 
Issuance of shares for the acquisition of 100% equity in Macau Eiji Company Limitada
    2,000,000       2.338       4,675,000       3       0  
Sept. 5, 2007
 
Issuance of shares for the acquisition of 100% equity in HangYuTai Investmento Limitada
    7,000,000       2.416       16,910,000       3       0  
Sept. 5, 2007
 
Issuance of shares for the acquisition of 100% equity in
Triway Industries Limited
    1,000,000       2.25       2,250,000       8       0  
Total for 2007
        52,804,579               43,574,157                  
 
Fiscal Year ended December 31, 2008
 
No Shares of Common Stock Issued.
 
Fiscal Year ended December 31, 2009
 
Date
 
Events
 
Shares
issued
   
Price /
share
   
Consideration
received
   
# of Non-USA
Investors
   
# of USA
Investors
 
Oct. 1, 2009
 
Shares sold
    150,000       0.35       52,500       0       1  
Nov. 25. 2009
 
Shares sold
    150,000       0.35       52,500       0       1  
Dec. 11 & 22 2009
 
Shares sold
    315,000       0.35       110,250       0       1  
Dec. 23, 2009
 
Common shares retired, (from Solomon Lee share account)
    -875,000       0.001       -875       0       0  
Total for 2009
        -260,000               214,375                  

 
60

 

Fiscal Year ended June 30, 2010 (1 st Half of the fiscal year 2010)
 
Date
2010
Events
 
Shares
issued
   
Price /
share
   
Consideration
received
   
# of Non-USA
Investors
   
# of USA
Investors
 
(i)    Issuance of shares in settlement of debts accrued under Promissory Notes
                             
Jan.1 to 27
    1,342,000       0.20       268,400       7       0  
Feb. 10
    780,000       0.30       234,000       1       0  
March 12 to 19
    2,625,000       0.25       656,250       3       0  
April 15 to 27
    1,055,000       0.15       158,250       4       0  
May 13
    800,000       0.20       160,000       2       0  
May 14
    350,000       0.40       140,000       2       0  
June 10.
    1,000,000       0.20       200,000       5       0  
Total Issuance of shares in settlement of debts
    7,952,000               1,816,900       24       0  
                                         
(ii)   Issuance of shares for employees’ compensation
                                       
May 4.
    497,059       1.00       497,059       30       0  
                                         
(iii)  Shares being retired or voided [1]
                                       
Jan. 11, 2010 (Voided)
    -150,002       0       0       -2       0  
March 23, 2010 (Retired)
    -2,000,000       0       0       -1       0  
May 17, 2010 (Voided)
    -40,000       0       0       -2       0  
June 26, 2010 (Retired & transferred to Preference Series B shares)
    -7,000,000       1.00       -7,000,000       -2       0  
Total shares being retired or voided
    -9,190,002                                  
June 26, 2010 issuance of Preference Series A & B     7,000,100       1.00       7,000,100       3       0  
Total for 1 st half 2010
    6,259,157               2,314,059                  
 
[1] The definition for the voided transactions is when certificates that have wrongly spelled names being returned and canceled and in turn issued with replacements.
 
We relied upon Section 4(2)  of the Securities Act of 1933, as amended for the above issuances to US citizens or residents.
 
We believed that Section 4(2) of the Securities Act of 1933 was available because:
 
 
None of these issuances involved underwriters, underwriting discounts or commissions.

 
Restrictive legends were and will be placed on all certificates issued as described above.

 
The distribution did not involve general solicitation or advertising.

 
The distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment.
 
We relied upon Regulation S of the Securities Act of 1933, as amended for the above issuances to non US citizens or residents.
 
We believed 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;

 
No direct selling efforts of the Regulation S offering were made in the United States.
 
In connection with the above transactions, although some of the investors may have also been accredited, we provided the following to all investors:
 
 
Access to all our books and records.

 
61

 

 
Access to all material contracts and documents relating to our operations.

 
The opportunity to obtain any additional information, to the extent we possessed such information, necessary to verify the accuracy of the information to which the investors were given access.
 
Prospective investors were invited to review at our offices at any reasonable hour, after reasonable advance notice, any materials available to us concerning our business. Prospective Investors were also invited to visit our offices.
 
ITEM 11.  DESCRIPTION OF REGISTRANTS’ SECURITIES TO BE REGISTERED

The following description is a summary of the material terms of the provisions of our Articles of Incorporation and Bylaws as they relate to our capital structure.  The Articles of Incorporation and Bylaws are available for inspection upon request.
 
Common Stock
 
We have 100,000,000 authorized shares of Common Stock with a $.0.001 par value.  All shares are equal to each other with respect to liquidation and dividend rights.  Holders of voting shares are entitled to one vote for each share they own at any shareholders' meeting.  Holders of our shares of Common Stock do not have cumulative voting rights.
 
Each share of Common Stock entitles the holder to one vote, either in person or by proxy, at meetings of shareholders.  The holders are not permitted to vote their shares cumulatively.  Accordingly, the shareholders of our Common Stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of the such directors.  The vote of the holders of a majority of the issued and outstanding shares of Common Stock entitled to vote thereon is sufficient to authorize, affirm, ratify, or consent to such act or action, except as otherwise provided by law.
 
Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available.  We shall pay dividends based on USD0.01 per shares on October 15, 2010 , which will be the first time we pay dividend since our inception and we intend to pay annual dividend based on up to 8% of our annual earnings (if any) with the balance of  all earnings, if any, will be retained for development of our business.  However, any future disposition of dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.
 
 Holders of our Common Stock have no preemptive rights or other subscription rights, conversion rights, redemption, or sinking fund provisions.  Upon our liquidation, dissolution, or winding up, the holders of our Common Stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all of our debts and other liabilities.  There are not any provisions in our Articles of Incorporation or our Bylaws that would prevent or delay change in our control.  There is no conversion, preemptive or other subscription rights or privileges with respect to any shares.
 
ITEM 12.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Articles and Bylaws, subject to the provisions of Nevada law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he/she reasonably believed was in the best interest of the corporation.  Insofar, indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, and controlling persons.  We have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 
62

 
 
ITEM 13.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
See “Item 15. Financial Statements and Exhibits.”
 
ITEM 14.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.

ITEM 15.  FINANCIAL STATEMENTS AND EXHIBITS
 
(a) Financial Statements.
 
63

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

QUARTERLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED JUNE 30, 2010

 
 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
PAGE
   
CONSOLIDATED BALANCE SHEETS
2
   
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
3
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
4
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5  - 30

See accompanying notes of these consolidated financial statements

 
1

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

   
June 30 ,2010
   
December 31 ,2009
 
   
(Unaudited)
   
(Audited)
 
   
$
   
$
 
                 
ASSETS
               
Current assets
               
Cash and cash equivalents
    1,192,345       2,360,587  
Inventories
    8,283,818       6,099,411  
Deposits and prepaid expenses
    11,867,002       10,189,266  
Accounts receivable, net of allowance for doubtful accounts
    1,679,845       6,869,505  
Other receivables
    1,240,850       1,885,491  
Due from directors
    -       111,392  
Total current assets
    24,263,860       27,515,652  
                 
Property and equipment, net of accumulated depreciation
    11,099,547       7,564,664  
Construction in progress
    6,612,150       5,995,939  
Land use rights, net of accumulated amortization
    14,917,017       13,769,496  
Proprietary technologies, net of accumulated amortization
    7,476,301       7,634,635  
Goodwill
    12,000,000       12,000,000  
Long term accounts receivable
    9,351,753       9,338,477  
      61,456,768       56,303,211  
Other assets
               
Licence rights
    1       1  
Investment in unconsolidated corporate joint venture
    843,202       242,669  
      843,203       242,670  
                 
Total assets
  $ 86,563,831     $ 84,061,533  
                 
LIABILITIES  AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accruals
    199,863       756,209  
Due to a director
    364,490       -  
Other payables
    4,263,246       4,536,128  
Short term debt
    -       2,435,221  
Total current liabilities
    4,827,599       7,727,558  
                 
Other liabilities
               
Long term debt
    3,681,885       4,401,002  
                 
Total liabilities
    8,509,484       12,128,560  
Commitments and contingencies
    -       -  
                 
Stockholders' equity
               
Preferred stock: $0.001 par value
               
(10,000,000 shares authorized, 0 share issued and outstanding) as of June 30, 2010 and December 31, 2009, respectively
               
Series A preferred stock:  $0.001 par value
               
(100 shares authorized, 100 and 0 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively)
    -       -  
Series B convertible preferred stock:  $0.001 par value)
               
(10,000,000 shares authorized, 7,000,000 and 0 shares issued and outstanding as of June 30, 2010 and December 31,  2009, respectively)
    7,000       -  
Common stock:  $0.001 par value
               
(100,000,000 shares authorized,51,942,636 and 52,683,579 shares issued and outstanding as of June 30,2010 and December 31, 2009, respectively)
    51,943       52,684  
Additional paid - in capital
    46,043,648       43,703,848  
Retained earnings
    19,472,604       17,086,949  
Accumulated other comprehensive income
    2,717,912       2,168,203  
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
    68,293,107       63,011,684  
Non - controlling interest
    9,761,240       8,921,289  
Total stockholders' equity
    78,054,347       71,932,973  
Total liabilities and stockholders' equity
    86,563,831       84,061,533  

See accompanying notes of these consolidated financial statements

 
2

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

   
Three months
   
Three months
   
Six months
   
Six months
 
   
ended
   
ended
   
ended
   
ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Revenue
  $ 4,971,266     $ 4,000,104     $ 9,382,588     $ 8,036,158  
                                 
Cost of goods sold
    2,052,269       1,946,974       3,877,011       3,691,918  
                                 
Gross profit
    2,918,997       2,053,130       5,505,577       4,344,240  
                                 
General and administrative expenses
    (1,038,734 )     (522,360 )     (2,199,425 )     (1,280,080 )
                                 
Net income from operations
    1,880,263       1,530,770       3,306,152       3,064,160  
                                 
Interest expense
    (119,779 )     (118,634 )     (240,687 )     (235,998 )
 
                               
Net income  before income taxes
    1,760,484       1,412,136       3,065,465       2,828,162  
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net income
    1,760,484       1,412,136       3,065,465       2,828,162  
                                 
Less: Net income attributable to the non - controlling interest
    (494,407 )     (318,319 )     (679,810 )     (615,336 )
                                 
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    1,266,077       1,093,817       2,385,655       2,212,826  
                                 
Other comprehensive income
                    .          
                                 
Foreign currency translation gain
    364,014       7,789       709,850       15,559  
                                 
Comprehensive income
    1,630,091       1,101,606       3,095,505       2,228,385  
                                 
Less: other comprehensive income attributable to the non - controlling interest
    (80,131 )     (380 )     (160,141 )     (680 )
                                 
Comprehensive income attributable to Sino Agro Food, Inc.  and subsidiaries
    1,549,960       1,101,226       2,935,364       2,227,705  
                                 
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
                               
                                 
  Basic
  $ 0.02     $ 0.02     $ 0.04     $ 0.04  
                                 
  Diluted
  $ 0.02     $ 0.02     $ 0.04     $ 0.04  
                                 
Weighted average number of shares outstanding:
                               
                                 
Basic
    51,942,636       51,942,636       52,943,579       52,943,579  
                                 
Diluted
    54,128,579       54,128,578       52,943,579       52,943,579  

See accompanying notes of these consolidated financial statements

 
3

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Six months
   
Six months
 
   
ended
   
ended
 
   
June 30,
   
June 30,
 
   
2,010
   
2,009
 
   
(Unaudited)
   
(Unaudited)
 
   
$
   
$
 
                 
Cash flows from operating activities
               
Net income for the period
    3,065,465       2,828,162  
Adjustments to reconcile net income to net cash from operations:
               
Depreciation
    760,483       820,193  
Amortization
    435,552       433,940  
Common stock issued for services
    497,059          
Changes in operating assets and liabilities:
               
(Increase) decrease in inventories
    (2,184,407 )     3,150,608  
(Increase) decrease in deposits and prepaid expenses
    (1,677,736 )     4,690,038  
Decrease in due from  directors
    111,392       -  
Increase in due to a director
    2,181,490       -  
(Decrease) increase in  accounts payable and accruals
    (556,346 )     230,515  
(Decrease) increase in  other payables
    (272,882 )     53,334  
Decrease (increase) in accounts  receivable
    5,176,384       (5,974,073 )
Decrease (increase)  in other receivables
    644,641       (1,182,596 )
Net cash provided by operating activities
    8,181,095       5,050,121  
Cash flows from investing activities
               
Purchases of property and equipment
    (4,294,270 )     (3,666,553 )
Investment in unconsolidated corporate joint venture
    (600,533 )     (242,669 )
Payment for construction in progress
    (616,211 )     (245,704 )
Acquisition of land use rights
    (1,216,530 )     -  
Net cash used in investing activities
    (6,727,544 )     (4,154,926 )
Cash flows from financing activities
               
Common stock issued at stated value
    -       215,250  
Common stock redeemed at stated value
    -       (875 )
Debts  proceeds
    -       2,430,454  
Repayment of debts
    (3,154,338 )     (2,443,836 )
Net cash used in financing activities
    (3,154,338 )     200,993  
Effects on exchange rate changes on cash
    532,545       (1,178,154 )
Increase in cash and cash equivalents
    (1,168,242 )     (81,966 )
Cash and cash equivalents, beginning of period
    2,360,587       1,731,118  
Cash and cash equivalents, end of period
    1,192,345       1,649,152  
Supplementary disclosures of cash flow information:
               
Cash paid for interest
    240,687       235,998  
Cash paid for income taxes
    -       -  
Non-cash transactions:
               
7,000,000 shares of Series B convertible preferred stock converted
    7,000,000       -  
7,000,000 shares of common stock retired
    (7,000,000 )     -  
100 shares of Series A preferred stock issued from due to a director
    100       -  
2,190,002 shares of common stock were retired
               
7,952,000 shares of common stock were issued
    -       -  
for settlement of debts due to third parties
    1,816,900       -  

See accompanying notes of these consolidated financial statements

 
4

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

1.
CORPORATE INFORMATION

 
Sino Agro Food, Inc. (“the Company”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) is an International Business Corporation incorporated on October 1, 1974 in the State of Nevada, United States of America. The shares are quoted on the Pink Sheet, OTC under the ticker symbol of “SIAF”.

 
The Company operated mining and exploration business but ceased its mining and exploring business after October 14, 2005.  On August 24, 2007, the Company entered into a Merger and Acquisition Agreement between the Company and Capital Award Inc. (“CA”) and its subsidiaries Capital Stage Inc.  (“CS”) and Capital Hero Inc.  (“CH”).  Effective the same date, CA, a Belize Corporation, completed a reverse merger transaction with SIAF; a public shell into which CA merger pursuant to which SIAF acquired all the outstanding common stock of CA from Capital Adventure, a shareholder of CA for 32,000,000 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 officially changed its name to Sino Agro Food, Inc.

 
On September 5, 2007, the Company made further acquisitions by acquiring three existing businesses in the People’s Republic of China (“PRC”) by acquiring of:

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

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

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

On November 27, 2007, MEIJI and HST established a corporate Sino - Foregin joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”), a PRC incorporated company, of 75% and 25% equity interest, respectively.

On November 30, 2007, SIAF established A Power Agro Agriculture Development (Macau) Limited (“APWAM”), APWAM is a 100% owned subsidiary incorporated in the Special Administrative Region of Macau, the PRC. 10% of the equityinterest in APWAM has been registered in the name of one Mr.  Moon Cheung Hung in compliance with the requirements of the laws of Macau regarding ownershipof a company incorporated in Macau by non citizens of Macau, and the same is being held by the said Mr. Hung in trust for and, for the benefit of, SIAF pursuant to a Deed of Trust duly executed by the said Mr. Hung on December 20, 2007 in favor of SIAF.

 
5

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

1.
CORPORATE INFORMATION (CONTINUED)

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited. (“PMH”), a Hong Kong incorporated company with an  80% equity interest. On March 11, 2009, an application for the incorporation of a Sino - Foreign joint venture company was submitted to the relevant authorities of PRC of which PHM had 45% equity interest.  On December 28, 2008, the Company through its PMH, entered into a sino-foreign joint venture agreement with the following parties for the setting up of a sino - foreign joint venture company to be named as Qinghai Sanjiang A Power Agriculture Co. Ltd (”SJAP”), formed on May 25, 2009 in the PRC, to manufacture bio-organic fertilizer, livestock feed and to develop other agriculture projects in the County of Huangyuan, in the vicinity of the City of Xining, Qinghai Province, PRC:
 
Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a PRC government owned company with major business activities in the agriculture industry; and
 
 
Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a private limited company incorporated in the PRC, specializing in sales and marketing.

In September, 2009,the Company carried out an internal re-organization of its corporate structure and businesses, and on September 28, 2009, the Company’s subsidiary acquired the PMH’s 45 % equity interest in SJAP. APWAM by way of an assignment (“Assignment”).  Application was subsequently made by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong Kong Companies Ordinance. By virtue of the Assignment, APWAM assumed all obligations and liabilities of PMH under the SFJVA.

The Company’s principal executive office is located at Room 3711, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, PRC 510610.

The nature of the operations and principal activities of Sino Agro Food, Inc. 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.

 
6

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.2 
REPORTING ENTITY
The accompanying consolidated financial statements include the following entities:
   
Place of
 
Issued and
 
Percentage of
 
Principal
Name of subsidiaries
 
incorporation
 
paid - in capital
 
interest
 
activity
                 
Capital Award Inc. ("CA")
 
Belize
 
$50,000
 
100% (2009: 100%) directly
 
Fishery development and holder of A-Power Technology master licence
                 
Capital Stage Inc. ("CS")
 
Belize
 
$50,000
 
100% (2009: 100%) indirectly
 
Dormant
                 
Capital Hero Inc. ("CH")
 
Belize
 
$50,000
 
100% (2009: 100%) indirectly
 
Dormant
                 
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
HK$10,000
 
100% (2009: 100%) directly
 
Investment holding, holder of enzyme technology master licence for manufacturing of livestock feed and bio-organic fertilizer  and has not commenced its business of fish farm operation
                 
Pretty Mountain Holdings Limited ("PMH")
 
Hong Kong, PRC
 
HK$10,000
 
80% (2009: 80%) directly
 
Dormant
                 
Macau Eiji Company Limited ("MEIJI")
 
Macau, PRC
 
Pataca 30,000
 
100% (2009: 100%) directly
 
Investment holding
                 
Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd ("HST")
 
PRC
 
RMB100,000
 
75% (2009: 75%) indirectly
 
Hylocereus Undatus  Plantation ("HU Plantation")
                 
Jiang Men City Heng Sheng Tai Agriculture Development  Co. Ltd ("JHST")
 
PRC
 
$600,000
 
100% (2009: 100%) directly
 
The Company has not commenced its business of Hylocereus Undatus  Plantation ("HU Plantation")
                 
                 
Hang Yu Tai Investment
 
Macau, PRC
 
Pataca 25,000
 
100% (2009: 100%) directly
 
Investment holding
Limited ("HYT")
               
                 
ZhongXingNongMu Co. Ltd ("ZX")
 
PRC
 
RMB60,000,000
 
78% (2009: 78%) indirectly
 
Dairy production  and manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pasture
                 
A Power Agro Agriculture Development (Macau) Limited ("APWAM")
 
Macau, PRC
 
Pataca 25,000
 
100% (2009: 100%) directly
 
Investment holding
                 
Name of unconsolidated
 
Place of
 
Issued and
 
Percentage of
 
Principal
corporate joint venture
 
incorporation
 
paid - in capital
 
interest
 
activity
                 
Qinghai Sanjiang A Power  Agriculture Co., Ltd ("SJAP")
 
PRC
 
Issued capital: $1,400,000 Paid - in capital: $843,202
 
45% (2009: 45%) indirectly
 
The Company has not commenced its business of manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures

 
7

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.3 
BASIS OF PRESENTATION

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

 
2.4 
BASIS OF CONSOLIDATION
 
The consolidated financial statements include the financial statements of SIAF, CA, CS, CH, TRW, PMH, MEIJI, JHST, HST, HYT, ZX, and APWAM. In the opinion of management, the accompanying balance sheets, and statements of income, and cash flows and include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material inter-company transactions and balances have been eliminated in consolidation.
 
SIAF, CA, CS, CH, TRW, PMH, MEIJI, JHST, HST, HYT, ZX, and APWAM are hereafter referred to as (“the  Company”).
 
Interim results are not necessarily indicative of 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, 2009.
 
 
2.5 
BUSINESS COMBINATION
 
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.
 
 
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 our consolidated financial statements.
 
 
2.7 
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 realizability of deferred tax assets and inventory reserves.

 
8

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

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. Service revenue is recognized when services have been rendered to a buyer by reference to stage of completion. License fee income is recognized on the accrual basis in accordance with the underlying agreements.
 
 
2.9 
COST OF GOODS SOLD
 
Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies.
 
 
2.10 
SHIPPING AND HANDLING
 
Shipping and handling costs related to cost of goods sold are included in general and administrative expenses totaled $nil and $nil for the three months ended June 30, 2010 and June 30, 2009, respectively. Shipping and handling costs amounted to $nil and $nil for the six months ended June 30, 2010 and June 30, 2009, respectively.
 
 
2.11 
ADVERTISING
 
Advertising costs are included in general and administrative expenses which totaled $nil and $nil for the three months ended June 30, 2010 and June 30, 2009, respectively. Advertising costs amounted to $nil and $nil for the six months ended June 30, 2010 and June 30, 2009, respectively.
 
 
2.12 
FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

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

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

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $2,717,912 as of June 30, 2010 and $2,168,203 as of December 31, 2009. The balance sheet amounts with the exception of equity at June 30, 2010 and December 31, 2009 were translated at RMB6.82 to $1.00. The average translation rates applied to the statements of income and comprehensive income and of cash flows for the three months and the six months ended June 30, 2010 and June 30, 2009 were RMB6.75 to $1.00 and RMB6.82 to $1.00 respectively.

 
9

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.13
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 (“PRC”) 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.

2.14
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 client 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. Provisions for doubtful accounts as of June 30, 2010 and December 31,  2009 are $nil. Bad debts written off for the three months ended June 30, 2010 and June 30, 2009  and for the six months ended June 30, 2010 and June 30, 2009 are $nil.

2.15
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 overheads 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.

2.16
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. 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 life of the assets.

 
10

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

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

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.16
PROPERTY AND EQUIPMENT (CONTINUED)

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

2.17
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 of 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 reporting unit. The Company directly acquired three groups of companies, HYT, TRW and MEIJI. HYT is engaged in the dairy farm, TRW is engaged in proprietary technologies holding and MEIJI is engaged in Hu Plantation. As a result of these acquisitions, the Company recorded goodwill in the amount of $12,000,000. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

2.18
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 cost of acquisition are capitalized as proprietary technologies when technological feasibility has 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. 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.

2.19
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, plant 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.

2.20
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 their respective lease periods. The lease period of agriculture land is in the range from 30 years to 60 years. Land use rights purchase prices were determined in accordance with the 2007 PRC Government’s minimum lease payments of agriculture land and mutually agreed between the company and the vendors. No independent professional appraiser performed valuation of land use rights at the balance sheet date.

 
11

 
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.21
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.

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.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.21
CORPORATE JOINT VENTURE (CONTINUED)

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

2.22
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 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 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.

2.23
POLITICAL AND BUSINESS RISK

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

 
12

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.24 
CONCENTRATION OF CREDIT RISK

Cash includes cash in banks and demand deposits in accounts maintained with financial institutions within the  People’s Republic of China. Total cash in these financial institions on June 30, 2010 and December 31, 2009 amounted to $826,072 and $1,686,349 of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Accounts receivable are derived from revenue earned from customers located primarily in the People’s Republic of China. The Company performs ongoing credit evaluations of customers and have not experienced any material losses to date.

The Company had 4  major customers whose revenue individually represented the following percentages of the Company’s total revenue:

     
Three months
   
Three months
   
Six months
   
Six months
 
     
ended
   
ended
   
ended
   
ended
 
     
June 30,
   
June 30,
   
June 30,
   
June 30,
 
     
2010
   
2009
   
2010
   
2009
 
                           
 
Customer A
    45.06 %     34.46 %     42.43 %     25.94 %
 
Customer B
    34.07 %     33.46 %     32.18 %     30.50 %
 
Customer C
    20.87 %     32.08 %     17.97 %     28.07 %
 
Customer D
    -       -       4.00 %     -  
        100.00 %     100.00 %     96.58 %     84.51 %

The company had 5 major customers whose accounts receivable balance individually represented of the Company’s total accounts receivable as follows:

     
June 30, 2010
   
December 31, 2009
 
               
 
Customer A
    57.82 %     35.48 %
 
Customer B
    26.71 %     22.49 %
 
Customer C
    3.79 %     9.17 %
 
Customer D
    3.59 %     17.58 %
 
Customer E
    2.91 %     -  
 
Customer F
    -       11.04 %
        94.82 %     95.76 %
 
13

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
2.25 
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, 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, 2010 and December 31, 2009, the Company determined no impairment charges were necessary.

2.26 
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, 2010 and and June 30, 2009, basic and diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders  amount to $0.02 and $0.02, respectively. For the six months  ended June 30, 2010 and June 30, 2009, basic and diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders amount to $0.04 and $0.04,  respectively.

2.27
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.

2.28 
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.

2.29 
STOCK-BASED COMPENSATION
 
As of June 30, 2010 and December 31, 2009, the Company had no stock-based compensation plans.
 
14

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
2.30
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 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 at June 30, 2010 or December 30, 2009, 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 three months and the six months ended June 30, 2010 or December 31, 2009.
 
2.31
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 June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009.  The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative. The Codification is effective for interim and annual periods ending after September 15, 2009.
 
15

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 2009, the FASB amended its guidance on accounting for variable interest entities ("VIE"). The new accounting guidance will result in a change in our accounting policy effective January 1, 2010. Among other things, the new guidance requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE; requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE; enhances disclosures about an enterprise's involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. Under the new guidance, a VIE must be consolidated if the enterprise has both (a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company is evaluating the impact that this change in accounting policy will have on our consolidated financial statements. Based on our initial assessment, we anticipate that certain entities that are consolidated under our current accounting policy may not be consolidated subsequent to the effective date of the new guidance.

In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-05 “Fair Value Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair Value” , which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities.  This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1. A valuation technique that uses: a. The quoted price of the identical liability when traded as an asset b. Quoted prices for similar liabilities or similar liabilities when traded as assets. 2. Another valuation technique that is consistent with the principles of topic 820; two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active market for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.

 In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-08 “Earnings Per Share – Amendments to Section 260-10-S99”, which represents technical corrections to topic 260-10-S99, Earnings per share, based on EITF Topic D-53,  Computation of Earnings Per Share for a Period that includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock  and EITF Topic D-42,  The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock .

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-09 “Accounting for Investments -Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees”..  This update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees to the Codification.
 
16

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-12 “Fair Value Measurements and Disclosures Topic 820 – Investment in Certain Entities That Calculate Net Assets Value Per Share (or Its Equivalent)” , which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The amendments in this update permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this update on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of the reporting entity’s measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. The amendments in this update also require disclosures by major category of investment about the attributes of investments within the scope of the amendments in this update, such as the nature of any restrictions on the investor’s ability to redeem its investments a the measurement date, any unfunded commitments (for example, a contractual commitment by the investor to invest a specified amount of additional capital at a future date to fund investments that will be make by the investee), and the investment strategies of the investees. The major category of investment is required to be determined on the basis of the nature and risks of the investment in a manner consistent with the guidance for major security types in U.S. GAAP on investments in debt and equity securities in paragraph 320-10-50-1B.The disclosures are required for all investments within the scope of the amendments in this update regardless of whether the fair value of the investment is measured using the practical expedient.

In October 2009, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years.

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166,   Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140.   The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.
 
17

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In January 2010, FASB issued ASU No. 2010-01 Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December.

In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
 
18

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010.

In April 2010, the FASB issued Accounting Standards Update 2010-13,"Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades," or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial porting of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of ASU 2010-17 to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update 2010-17, "Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition" or ASU 2010-17. This Update provides guidance on the recognition of revenue under the milestone method, which allows a vendor to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone (milestone consideration) in the period the milestone is achieved. The pronouncement is
effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010. The adoption of ASU 2010-17 does not have any significant impacts on the consolidated financial statements.

 
19

 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

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 financial statements. The Company operates in three principal reportable segments: Fishery Development Division, Dairy Production Divison and HU Plantation Division.

   
Three months ended June 30, 2010
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
 
                               
Revenue
    395,531       4,575,735       -       -       4,971,266  
                                         
Net income (loss)
    381,678       2,295,161       (41,868 )     (874,487 )     1,760,484  
                                         
Total assets
    14,675,437       39,508,665       11,522,288       20,857,441       86,563,831  

   
Three months ended June 30, 2009
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
 
                               
Revenue
    313,052       3,535,515       151,537       -       4,000,104  
                                         
Net income (loss)
    310,101       1,401,434       40,015       (339,414 )     1,412,136  
                                         
Total assets
    14,341,457       34,084,258       9,889,959       19,973,177       78,288,851  

 
20

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

3.
SEGMENT INFORMATION (CONTINUED)

   
Six months ended June 30, 2010
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
 
                               
Revenue
    695,531       8,687,057       -       -       9,382,588  
                                         
Net income (loss)
    1,297,767       3,186,299       (84,704 )     (1,333,897 )     3,065,465  
                                         
Total assets
    14,675,437       39,508,665       11,522,288       20,857,441       86,563,831  

   
Six months ended June 30, 2009
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
 
                               
Revenue
    726,702       7,157,918       151,538       -       8,036,158  
                                         
Net income (loss)
    720,801       2,794,599       2,099       (689,337 )     2,828,162  
                                         
Total assets
    14,341,457       34,084,258       9,889,959       19,973,177       78,288,851  

4.
INCOME TAXES

China

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DEs and FIEs. 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 of China beginning January 2008, the agriculture, dairy and fishery sectors are exempted from enterprise income taxes.

No EIT has been provided in the financial statements of CA, ZX, JHST and HST since they are exempted from EIT for the six months ended June 30, 2010 and June 30, 2009 as they are within the agriculture, dairy and fishery sectors.

 
21

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

4.
INCOME TAXES (CONTINUED)

Belize and Malaysia

CA, CS and CH are international business companies incorporated in Belize, and are exempted from corporation tax of Belize.

All sales invoices of CA were issued by its representative office in Malaysia and its trading and service activities are conducted in China. As the Malaysia tax law imposed on a territorial basis and not on a worldwide basis, CA’s income is not subject to Malaysia corporation tax.

No Belize and Malaysia corporation tax have been provided in the financial statements of CA for the six months ended June 30, 2010 and June 30, 2009.

Hong Kong

No Hong Kong profits tax has been provided in the financial statements of PMH and TRW, since they did not earned any assessable profits for the six months  ended June 30, 2010 and June 30, 2009.

Macau

No Macau Corporation  tax has been provided in the financial statements of HYT, APWAM and MEIJI since they did not earned any assessable profits for the six months  ended June 30, 2010 and June 30, 2009.

5.
CASH AND CASH EQUIVALENTS

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Cash and bank balances
    1,192,345       2,360,587  

6.
INVENTORIES

As of June 30, 2010 inventories are as follows:

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Immature seeds
    420,398       411,594  
Harvested HU plantation
    53       53  
Unharvested HU plantation
    281,561       89,666  
Forage for milk cows and consumable
    7,581,806       5,598,098  
      8,283,818       6,099,411  

 
22

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

7.
DEPOSITS AND PREPAID EXPENSES

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Deposits for
           
acquisition of land use rights
    4,453,666       4,453,666  
inventory purchased
    299,764       219,551  
tenancy agreement
    2,129       2,129  
materials used for construction in progress
    75,110       79,607  
Prepayments for purchases of milk cows, dairy farm and containers
    7,036,333       5,434,313  
      11,867,002       10,189,266  

8.
ACCOUNTS RECEIVABLE

Aging analysis of accounts receivable is as follows:

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
0 - 30 days
    954,356       1,530,838  
31 - 90 days
    418,262       -  
91 - 120 days
    -       5,338,667  
over 120 days and less than 1 year
    307,227       -  
over 1 year
    9,351,753       9,338,477  
      11,031,598       16,207,982  
Less: amounts reclassified as long term accounts receivable
    (9,351,753 )     (9,338,477 )
      1,679,845       6,869,505  

9 .
OTHER RECEIVABLES

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Advance to service providers
    -       12,983  
Due from related parties
    -       260,101  
Due from employees
    471,840       430,552  
Due from third parties
    769,010       1,181,855  
      1,240,850       1,885,491  

Due from related parties and third parties are unsecured, interest free and without fixed term of repayment.    Due from employees are the amounts advanced for handling business transactions on behalf of the Company.

 
23

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

10.
PROPERTY AND EQUIPMENT

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Milk cows
    8,461,403       4,953,669  
Plant and machinery
    3,341,767       2,948,148  
Structure and leasehold improvements
    1,172,373       783,491  
Mature seeds
    486,335       484,436  
Furniture and equipment
    85,737       85,506  
Motor vehicles
    85,398       83,493  
      13,633,013       9,338,743  
                 
Less: Accumulated depreciation
    (2,533,466 )     (1,774,079 )
Net carrying amount
    11,099,547       7,564,664  

Depreciation expense was $380,241 and $410,096 for the three months ended June 30, 2010 and June 30, 2009 respectively. Depreciation expense was $760,483 and $820,193  for the six months ended June 30, 2010 and June 30, 2009 respectively.

11.
CONSTRUCTION IN PROGRESS

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Construction in progress
           
- Rangeland for milk cows
    5,974,436       5,741,168  
- Oven room for production of dried flowers
    637,714       254,771  
      6,612,150       5,995,939  

 
24

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

12.
LAND USE RIGHTS

Private ownership of land is not permitted in the PRC.  Instead, the Company has leased three lots of land. The cost of the first lot of land use rights acquired in 2007 was $6,194,505 of 1,985.06 acres at Hebei Province, PRC and the leases expired in 2036, 2051, 2067 and 2077. The costs of the second lots of land use rights acquired in 2007 at Guangdong Province, PRC was $6,408,289 of 174.94 acres and the lease expired in 2067. The costs of the third lot of land use rights acquired in 2008 at Guangdong Province, PRC was $764,128 of 33.68 acres and the lease expired in 2068.

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.

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Cost
    16,324,409       15,107,879  
Less: Accumulated impairment losses
    (1,407,392 )     (1,338,383 )
Net carrying amount
    14,917,017       13,769,496  

Amortization expense was $137,673 and $136,867 for the three months ended June 30, 2010 and June 30, 2009, respectively. Amortization expense was $275,346 and $273,734 for the six months ended June 30, 2010 and June 30, 2009, respectively.

13.
PROPRIETARY TECHNOLOGIES

By an agreement dated November 12, 2008, TRW acquired enzyme technology master licence, registered under China patent, for the manufacturing of livestock feed and bio-organic fertilizer and its related labels for $8,000,000.

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Proprietary technologies
    8,010,323       8,000,000  
Less: Accumulated amortisation
    (534,022 )     (365,365 )
Net carrying amount
    7,476,301       7,634,635  

Amortization of proprietary technologies was $80,207 and $80,207 for the three months ended June 30, 2010 and June 30, 2009, respectively. Amortization expense was $160,206 and $160,206 for the six months ended June 30, 2010 and June 30, 2009, respectively.

 
25

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

14.
GOODWILL

Goodwill is indefinite live of intangible assets. The goodwill represents the fair value of the assets acquired in 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.

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Goodwill from acquisition
    38,444,099       38,444,099  
Less: Accumulated impairment losses
    (26,444,099 )     (26,444,099 )
Net carrying amount
    12,000,000       12,000,000  

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 asset, To date, no such impairment losses have been recorded.

15.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE

On May 25,  2009, APWAM formed corporate joint venture, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), incorporated in the People’s Republic of China, of registered capital of $1,400,000. APWAM had 45% equity interest in SJAP.  Therefore, in turn the company indirectly held 45% equity in SJAP. As of June 30, 2010, the Company has invested  $843,202. SJAP has not   commenced its business of manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Investment in unconsolidated joint venture
    843,202       242,669  

Continuous assessment of its non-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 variable interest entity (“VIE”). The Company evaluates entities deemed to be VIEs using a risk and rewards 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 few voting rights.

The Company also quantitatively and qualitatively examined if  SJAP is considered as 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 management judgment because of the inherent limitations that relate to the use of historical data for the projection of future events.
 
The Company evaluated  the above VIE testing results and concluded that the Company is not the primary beneficiary of SJAP ’s expected losses or residual returns and SJAP does not qualifies as a VIE of the Company.

 
26

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

16.
LICENCE RIGHTS

Pursuant to an agreement dated August 1, 2006 between Infinity Environmental Group Limited (“Infinity”) and the Company, the Company was granted an A Power Technology Licence with a condition that the Company required to pay the licence fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008.  This licence allows the Company to develop service, manage and supply A Power Technology Farms in the PRC using the A Power Technology, but subject to a condition that the Company is required to pay licence fee to Infinity once the Company sold the licence to his customer.  Under the said licence, the Company has the right to authorize developers and/or joint venture partners to develop A Power Technology Farms in the PRC. Infinity is a company incorporated in Australia.

17.
OTHER PAYABLES

   
June 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Proprietary technologies payable
    3,577,264       3,577,264  
Due to third parties
    685,982       601,326  
Due to related parties
    -       169,536  
Stamp duty payable
    -       4,678  
Others
    -       183,324  
      4,263,246       4,536,128  

Due to third parties and related parties are unsecured, interest free and without fixed term of repayment. Proprietary technologies are acquired from third party and proprietary technologies payable represents the amount of unsettled balance.

18.
SHAREHOLDERS’EQUITY

The share capital as of June 30, 2010 and December 31, 2009 shown on the consolidated balance sheets represents the aggregate nominal value of the share capital of the Company as of that date.

On various dates through January 1, 2010 to June 30, 2010,(i) additional 7,952,000 shares of common stock  were issued for $1,816,900 at stated value in settlement of debts due to third parties; (ii)2,190,002 shares of common stock  were redeemed at $0.001 per share for $nil.

On  March 22, 2010, the Company authorized 10,000,000 shares of Series B convertible preferred stock at $0.001 at par value. Series B convertible  preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but are entitled to 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 retired and converted into 7,000,000 shares of Series B convertible preferred stock of $1 per share at stated value. The company has authorized 10,000,000 shares of Series B preferred stock with 7,000,000  and  0 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively.

On  March 23, 2010, the Company authorized 100 shares of Series A preferred stock at $0.001 par value.  As of the same date, 100 shares of Series A preferred stock were issued at  $1  per share  for $100 at stated value. Series A preferred stock stockholders are not entitled to receive any dividend and 80% voting rights of all votes but are entitled to rank senior over common stockholders , other class or Series B convertible preferred stockholders on liquidation. The company has authorized 100 shares of Series A preferred stock with 100  and  0 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively.

On May  4, 2010 , the Company issued employees a total of 497,059 shares of common stock of $0.001 per share for $497,059 at stated value  as stock based compensation. The Company recognized $497,059 of stock based compensation as this was the dollar amount of the service rendered to the Company.

 
27

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

19.
BANK BORROWINGS

There are no provisions in the Company’s bank borrowings 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.
 
Short term debt

Name of bank
 
Interest rate
 
Term
 
Security
 
Amount
 
               
June 30, 2010
   
December 31, 2009
 
               
$
   
$
 
Agricultural Development Bank of China
    6.84 %
1/23/2007- 7/31/2010
 
Corporate guarantee by third party
    -       1,408,321  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-7/22/2010
 
Corporate guarantee by third party
    -       711,495  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-8/8/2010
 
Corporate guarantee by third party
    -       315,405  
                    -       2,435,221  

Long term debt

Name of bank
 
Interest rate
 
Term
 
Security
 
Amount
 
               
June 30, 2010
   
December 31, 2009
 
               
$
   
$
 
                         
Agricultural Development Bank of China
    6.75 %
4/29/2007-4/28/2012
 
Corporate guarantee by third party
    3,681,885       4,401,002  
                    3,681,885       4,401,002  

 
28

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

20.
OBLIGATION UNDER OPERATING LEASES

The Company leases (i) 2,178  square feet of agriculture land space used for offices, currently with a monthly rent of $430 in Enping City, Guangdong Province, PRC,  and the  lease expires on March 31, 2014 and  (ii)2,300  square feet of office premise in Guangzhou City, Guangdong Province, PRC, currently with a monthly rent of $4,267 and the  lease expires on October  15, 2010, of which was renewed for a further period of two years to Oct. 15 2012 bearing the same rental of $4,267 per month.

The future minimum lease payments at June 30, 2010, are as follows:

   
$
 
       
Year ended December 31,2010
    28,182  
Year ended December 31,2011
    56,364  
Year ended December 31,2012
    56,364  
Year ended December 31,2013
    5,160  
Year ended December 31,2014
    5,160  
Thereafter
    -  
      151,230  

Lease expense was $14,091 and $14,091 for the three months ended June 30, 2010 and June 30, 2009 respectively. Lease  expense was $28,182 and $28,182 for the six months ended June 30, 2010 and June 30, 2009 respectively.

21.
CONTINGENCIES

As of June 30, 2010, 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 operations and other comprehensive income or cash flows.

 
29

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited )

22.
RELATED PARTY TRANSACTIONS

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the year, the Company had the following significant related party transactions:-

Name of related party
 
Nature of transactions
     
Mr. Rui Xiong He , director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
Included in other payables, due to Mr. Rui Xiong He is $16,985 as of December, 31, 2009. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Xiang Jun Fang, director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
Included in other receivables, due from Mr. Xiang Jun Fang is $260,101 as of December, 31, 2009. The amounts are unsecured, interest free and have no fixed term of repayment.
     
   
Included in other payables, due to Mr. Xiang Jun Fang is $150,057 as of December, 31, 2009. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”), investee
 
Included in other payable, SJAP is $2,494 as of December, 31, 2009. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Solomon Yip Kun Lee, Chairman
 
Included in due from directors, Mr. SolomonYip Kun Lee is $73,164 as of ,  December, 31, 2009. The amount is unsecured, interest free and have no fixed term of repayment.
     
   
Included in due to a director, Mr. SolomonYip Kun Lee is $364,490 as of  June 30, 2010. The amount is unsecured, interest free and have no fixed term of repayment
     
Mr. Michael Bor Hann Chen, director and company secretary
 
Included in due from directors, Mr. Michael Bor Hann Chen is $38,228 as of December, 31, 2009. The amount is unsecured, interest free and have no fixed term of repayment.

23.
SUBSEQUENT EVENTS

On August 23, 2010,  the Company declared a cash dividend of $0.01 share, which shall be paid on October 15, 2010, to the stockholders as of the close of business on August 27, 2010.

On September 9, 2010, application was made by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong Kong Companies Ordinance.

As required by ASC Topic 855 “ Subsequent Events,” the Company has evaluated subsequent events that have occurred through November 15, 2010, the date the consolidated financial statements were issued.
 
 
30


SINO AGRO FOOD, INC. AND SUBSIDIARIES
(Incorporated in the State of Nevada, United States of America)

CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

 
 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

   
PAGE
     
CONSOLIDATED BALANCE SHEETS
 
2
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
5  - 30

 
2

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2008(UNAUDITED)

   
2009
   
2008
 
   
$
   
$
 
             
ASSETS
           
Current assets
           
Cash and cash equivalents
    2,360,587       1,731,118  
Inventories
    6,099,411       5,199,241  
Deposits and prepaid expenses
    10,189,266       10,189,266  
Accounts receivable, net of allowance for doubtful accounts
    6,869,505       2,073,567  
Other receivables
    1,885,491       1,197,617  
Due from directors
    111,392       835,553  
Total current assets
    27,515,652       21,226,362  
Property and equipment, net of accumulated depreciation
    7,564,664       6,970,522  
Construction in progress
    5,995,939       4,224,253  
Land use rights, net of accumulated amortization
    13,769,496       13,464,781  
Proprietary technologies, net of accumulated amortization
    7,634,635       7,946,667  
Goodwill
    12,000,000       12,000,000  
Long term accounts receivable
    9,338,477       9,325,174  
      56,303,211       53,931,397  
Other assets
               
Licence rights
    1       1  
Investment in unconsolidated corporate joint venture
    242,669       -  
      242,670       1  
Total assets
  $ 84,061,533     $ 75,157,760  
                 
LIABILITIES  AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
Accounts payable and accruals
    756,209       1,030,695  
Other payables
    4,536,128       4,621,679  
Short term debt
    2,435,221       -  
Total current liabilities
    7,727,558       5,652,374  
Other liabilities
               
Long term debt
    4,401,002       6,836,223  
Total liabilities
    12,128,560       12,488,597  
Commitments and contingencies
    -       -  
Stockholders' equity
               
Preferred stock: $0.001 par value (10,000,000 shares authorized, 0 shares issued and outstanding)
               
Common stock:  $0.001 par value (100,000,000 shares authorized,52,683,579 and 52,943,579 shares issued and outstanding at December 31,2009 and 2008 respectively)
    52,684       52,944  
Additional paid- in capital
    43,703,848       43,489,213  
Retained earnings
    17,086,949       10,279,010  
Accumulated other comprehensive income
    2,168,203       2,138,447  
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
    63,011,684       55,959,614  
Non - controlling interest
    8,921,289       6,709,549  
Total stockholders' equity
    71,932,973       62,669,163  
Total liabilities and stockholders' equity
  $ 84,061,533     $ 75,157,760  

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

 
3

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

   
2009
   
2008
 
   
$
   
$
 
Revenue
    21,725,839       16,189,467  
Cost of goods sold
    9,385,442       7,947,659  
Gross profit
    12,340,397       8,241,808  
General and administrative expenses
    (2,852,084 )     (2,811,352 )
Impairment loss
    -       (293,404 )
Net income from operations
    9,488,313       5,137,052  
Other income (loss)
               
Other income
    26       62,142  
Interest expenses
    (470,019 )     (419,130 )
Total other income (expenses)
    (469,993 )     (356,988 )
Income from unconsolidated corporate joint venture and equity investee
    -       191,992  
Net income  from continuing operations before income taxes
    9,018,320       4,972,056  
Provision for income taxes
    -       -  
Net income from continuing operations
    9,018,320       4,972,056  
Net income from discontinued operations net of amount attributable to non - controlling interest (net of income taxes of $0)
    -       3,412,449  
Net income
    9,018,320       8,384,505  
Less: Net income attributable to the non - controlling interest
    (2,210,381 )     (1,279,584 )
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    6,807,939       7,104,921  
Other comprehensive income
    .          
Foreign currency translation gain
    31,118       1,762,560  
Comprehensive income
    6,839,057       8,867,481  
Less: other comprehensive income attributable to the non - controlling interest
    (1,359 )     (22,633 )
Comprehensive income attributable to Sino Agro Food, Inc.  and subsidiaries
    6,837,698       8,844,848  
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
               
Basic - From continuing operations
    0.13       0.07  
Basic - From discontinued operations
    -       0.06  
      0.13       0.13  
Diluted - From continuing operations
    0.13       0.07  
Diluted - From discontinued operations
    -       0.06  
      0.13       0.13  
Weighted average number of shares outstanding:
               
Basic
    52,889,473       52,943,579  
Diluted
    52,889,473       52,943,579  

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

 
4

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

   
Common stock
               
Accumulated
             
   
Par value $0.001
   
Additional
         
other
             
         
Nominal
   
paid - in
   
Retained
   
comprehensive
   
Non - controlling
       
   
Number of shares
   
amount
   
capital
   
earnings
   
income
   
interest
   
Total
 
         
$
   
$
   
$
   
$
   
$
   
$
 
                                           
Balance at January 1,  2008
    52,943,579       52,944       43,489,213       3,174,089       398,520       5,407,332       52,522,098  
                                                         
Net income for the year
    -       -       -       7,104,921       -       1,279,584       8,384,505  
                                                         
Foreign currency translation gain
    -       -       -       -       1,739,927       22,633       1,762,560  
                                                         
Balance at December 31, 2008
    52,943,579       52,944       43,489,213       10,279,010       2,138,447       6,709,549       62,669,163  
                                                         
Issue of common stock at stated value
    615,000       615       214,635       -       -       -       215,250  
                                                         
Common stock redeemed at par value
    (875,000 )     (875 )     -       -       -       -       (875 )
                                                         
Net income for the year
    -       -       -       6,807,939       -       2,210,381       9,018,320  
                                                         
Foreign currency translation gain
    -       -       -       -       29,756       1,359       31,115  
                                                         
Balance at December 31, 2009
    52,683,579       52,684       43,703,848       17,086,949       2,168,203       8,921,289       71,932,973  

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

 
5

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

   
2009
   
2008
 
   
$
   
$
 
             
Cash flows from operating activities
           
Net income for the year
    9,018,320       8,384,505  
Adjustments to reconcile net income to net cash from operations:
               
Impairment loss
    -       293,404  
Depreciation
    820,193       706,912  
Profit from disposal of unconsolidated equity investee
    -       (3,412,449 )
Income from unconsolidated equity investee
    -       (191,992 )
Amortization
    865,512       605,581  
Changes in operating assets and liabilities:
               
Increase in inventories
    (900,170 )     (4,572,440 )
Increase in construction in progress
    (1,771,686 )     (391,869 )
Increase in deposits and prepaid expenses
    -       (2,407,014 )
Decrease (increase) in due from directors
    724,161       (826,867 )
Decrease in accounts payable and accruals
    (274,486 )     (2,310,953 )
(Decrease) increase in other payables
    (85,551 )     4,033,565  
(Increase) decrease in accounts receivable
    (4,809,241 )     7,844,989  
Increase in other receivables
    (687,874 )     (725,450 )
Net cash provided by operating activities
    2,899,178       7,029,922  
Cash flows from investing activities
               
Purchases of property and equipment
    (1,414,336 )     (1,983,664 )
Investment in unconsolidated corporate joint venture
    (242,669 )     -  
Acquisition of proprietary technologies
    -       (8,000,000 )
Proceeds from disposal of unconsolidated equity investee
    -       4,405,000  
Acquisition of land use rights
    (858,195 )     (764,128 )
Net cash used in investing activities
    (2,515,200 )     (6,342,792 )
Cash flows from financing activities
               
Common stock redeemded at par value
    (875 )     -  
Common stock issued at stated value
    215,250       -  
Repayment of debts
    (2,435,221 )     (2,275,812 )
Proceeds from issuance of debts
    2,435,221       2,723,310  
Net cash provided by financing activities
    214,375       447,498  
Effects on exchange rate changes on cash
    31,116       237,976  
Increase in cash and cash equivalents
    629,469       1,372,604  
Cash and cash equivalents, beginning of year
    1,731,118       358,514  
Cash and cash equivalents, end of year
    2,360,587       1,731,118  
Supplementary disclosures of cash flow information:
               
Cash paid for interest
    470,019       419,130  
Cash paid for income taxes
    -       -  

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

 
6

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

1.
CORPORATE INFORMATION

Sino Agro Food, Inc. (“the Company”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) is an International Business Corporation incorporated on October 1, 1974 in the State of Nevada, United States of America. The shares are quoted on the Pink Sheet, OTC under the ticker symbol of “SIAF”.

The Company operated mining and exploration business before, and ceased its mining and exploring business  after October 14, 2005.  On August 24, 2007, the Company entered into  a Merger and Acquisition Agreement between the Company and Capital Award Inc. (“CA”) and its subsidiaries Capital Stage Inc.  (“CS”) and Capital Hero Inc.  (“CH”).  Effective the same date, CA, a Belize Corporation, completed a reverse merger transaction with SIAF; a public shell into which CA merger pursuant to which SIAF acquired all the outstanding common stock of CA from Capital Adventure, a shareholder of CA for 32,000,000 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 officially changed its name to Sino Agro Food, Inc.

On September 5, 2007, the Company made further acquisitions by acquiring three existing businesses in the People’s Republic of China (“PRC”) by acquiring of:

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

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

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

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited. (“PMH”), a Hong Kong incorporated company of 80% equity interest. On March 11, 2009, an application for the incorporation of a Sino - Foreign joint venture company was submitted to the relevant authorities of PRC of which PHM had 45% equity interest. On May 25,  2009, PMH formed corporate Sino-Foregin joint venture, Qinghai Sanjiang A Power  Agriculture Co. Ltd (“SJAP”), incorporated in the People’s Republic of China. On September 28, 2009, SIAF carried out an internal reorganization of its group structure and businesses, APWAM replaced PMH which in turn PMH became a dormant company. By virtue of this replacement, APWAM assumed all obligations and liabilities of PHM under the Sino - Foreign Joint Venture Agreement (“SFJVA”) .

On November 27, 2007, MEIJI and HST established a corporate Sino - Foregin joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”), a PRC incorporated company, of 75% and 25% equity interest, respectively.

The Company is headquartered in the USA with an operating office established in Room 3711, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, PRC 510610 on December 13, 2007.

The nature of the operations and principal activities of Sino Agro Food, Inc. 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.

 
7

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2      REPORTING ENTITY
The accompanying consolidated financial statements include the following entities:

   
Place of 
 
Issued and 
 
Percentage of 
 
Principal 
Name of subsidiaries
 
incorporation
 
paid - in capital
 
interest
 
activity
                 
Capital Award Inc. ("CA")
 
Belize
 
$50,000
 
 100% (2008: 100%) directly
 
Fishery development and holder of A-Power Technology master licence
                 
Capital Stage Inc. ("CS")
 
Belize
 
$50,000
 
100% (2008: 100%) indirectly
 
Dormant
                 
Capital Hero Inc. ("CH")
 
Belize
 
$50,000
 
100% (2008: 100%) indirectly
 
Dormant
                 
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
HK$10,000
 
100% (2008: 100%) directly
 
Investment holding, holder of enzyme technology master licence for manufacturing of livestock feed and bio-organic fertilizer  and has yet commenced its business of fish farm operation
                 
Pretty Mountain Holdings Limited ("PMH")
 
Hong Kong, PRC
 
HK$10,000
 
80% (2008: 80%) directly
 
Dormant
                 
Macau Eiji Company Limited ("MEIJI")
 
Macau, PRC
 
Pataca 30,000
 
 100% (2008: 100%) directly
 
Investment holding
                 
Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd ("HST")
 
PRC
 
RMB100,000
 
75% (2008: 75%) indirectly
  Hylocereus Undatus  Plantation ("HU Plantation")
                 
Jiang Men City Heng Sheng
Tai Agriculture Development
Co. Ltd ("JHST")
 
PRC
 
Issued capital:
$600,000
Paid - in capital:
$180,117
 
 100% (2008: 100%) directly
 
The Company has yet commenced its business of Hylocereus Undatus  Plantation ("HU Plantation")
                 
Hang Yu Tai Investment Limited ("HYT")
 
Macau, PRC
 
Pataca 25,000
 
 100% (2008: 100%) directly
 
Investment holding
                 
ZhongXingNongMu Co. Ltd ("ZX")
 
PRC
 
RMB60,000,000
 
78% (2008: 78%) indirectly
 
Dairy production  and manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pasture
                 
A Power Agro Agriculture Development (Macau) Limited ("APWAM")
 
Macau, PRC
 
Pataca 25,000
 
100% (2008: 100%) directly
 
Investment holding
                 
Name of unconsolidated
 
Place of
 
Issued and
 
Percentage of
 
Principal
 corporate joint venture
 
incorporation
 
paid - in capital
 
interest
 
activity
                 
Qinghai Sanjiang A Power
Agriculture Co., Ltd
("SJAP")
 
PRC
 
Issued capital:
$1,400,000
Paid - in capital:
$242,669
 
45% (2008: Nil%) indirectly
 
The Company has yet commenced its business of manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures

 
8

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.3     BASIS OF PRESENTATION

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

2.4     BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of SIAF, CA, CS, CH, TRW, PMH, MEIJI, JHST, HST, HYT, ZX, and APWAM. In the opinion of management, the accompanying balance sheets, and statements of income, and cash flows and include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material inter-company transactions and balances have been eliminated in consolidation.

SIAF, CA, CS, CH, TRW, PMH, MEIJI, JHST, HST, HYT, ZX, and APWAM are hereafter referred to as (“the  Company”).

2.5     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.

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 our consolidated financial statements.

 
9

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.7     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 realizability of deferred tax assets and inventory reserves.

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. Service revenue is recognized when services have been rendered to a buyer by reference to stage of completion. License fee income is recognized on the accrual basis in accordance with the underlying agreements.

2.9     COST OF GOODS SOLD

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies.

2.10   SHIPPING AND HANDLING
 
Shipping and handling costs related to cost of goods sold are included in selling and marketing expenses which totaled $nil and $nil for the years ended December 31, 2009 and December 31, 2008, respectively.

2.11   ADVERTISING
 
Advertising costs are expensed as incurred and totaled $nil for the years ended December 31, 2009 and   December 31, 2008, respectively.

2.12   FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME
 
The reporting currency of the Company is the U.S. dollars. The functional currency of the Company is the Chinese Renminbi (RMB).
 
For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred.
 
Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $2,168,203 as of December 31, 2009 and $2,138,447 as of December 31, 2008. The balance sheet amounts with the exception of equity at December 31, 2009 and December 31, 2008 were translated at RMB6.82 to $1.00. The average translation rates applied to the statements of income and comprehensive income and of cash flows for the years ended December 31, 2009 and December 31, 2008 were RMB6.82 to $1.00 and RMB6.94 to $1.00 respectively.

 
10

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.13   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 (“PRC”) 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.

2.14   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 client 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. There was no allowance for doubtful account as of December 31, 2009 and December 31, 2008.

2.15   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 overheads 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.

2.16   PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. 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 life of the assets.

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

 
11

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.16   PROPERTY AND EQUIPMENT (CONTINUED)

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

2.17   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 stated at cost less accumulated losses. Goodwill is tested for impairment on an annual basis of 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 reporting unit. The Company directly acquired three groups of companies, HYT, TRW and MEIJI. HYT is engaged in the dairy farm, TRW is engaged in proprietary technologies holding and MEIJI is engaged in Hu Plantation. As a result of these acquisitions, the Company recorded goodwill in the amount of $12,000,000. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

2.18   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 cost of acquisition are capitalized as proprietary technologies when technological feasibility has 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. 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.

2.19   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, plant 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.

2.20   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 their respective lease periods. The lease period of agriculture land is in the range from 30 years to 60 years. Land use rights purchase prices were determined in accordance with the 2007 PRC Government’s minimum lease payments of agriculture land and mutually agreed between the company and the vendors. No independent professional appraiser performed valuation of land use rights at the balance sheet date.

2.21   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.

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.

 
12

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.21   CORPORATE JOINT VENTURE (CONTINUED)

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

2.22   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 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 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.

2.23   POLITICAL AND BUSINESS RISK

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

2.24   CONCENTRATION OF CREDIT RISK

Cash includes cash at bank and demand deposits in accounts maintained with financial institutions within the People’s Republic of China. Total cash in these financial institions on December 31, 2009 and December 31, 2008 amounted to $1,686,349 and $1,270,785 of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Accounts receivable are derived from revenue earned from customers located primarily in the People’s Republic of China. The Company perform ongoing credit evaluations of customers and have not experienced any material losses to date.

 
13

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.24   CONCENTRATION OF CREDIT RISK   (CONTINUED)

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

   
2009
   
2008
 
             
Customer A
    22.54 %     21.86 %
Customer B
    21.20 %     18.11 %
Customer C
    12.26 %     17.02 %
Customer D
    9.62 %     4.20 %
Customer E
    9.35 %     8.07 %
      74.97 %     69.26 %

The company had 5 major customers whose accounts receivable balance individually represented of the Company’s total accounts receivable as follows:

   
2009
   
2008
 
             
Customer A
    35.48 %     50.45 %
Customer B
    22.49 %     31.36 %
Customer C
    17.58 %     14.68 %
Customer D
    11.04 %     1.01 %
Customer E
    9.17 %     -  
Customer F
    -       2.39 %
      95.76 %     99.89 %

The Company has four customers as of December 31, 2009 that comprised approximately 65.62% of total revenue. The customers had accounts receivable of $5,338,744   as of December 31, 2009. The Company has four customers as of December 31, 2008 that comprised approximately 65.06% of total revenue. The customers had accounts receivable of  $2,060,343  as of December 31, 2008.

2.25   IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, 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 December 31, 2009 and December 31, 2008, the Company determined no impairment charges were necessary.

 
14

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.26   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 years ended December 31, 2009 and December 31, 2008, basic and diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from continuing operations amount to $0.13 and $0.07, respectively. For the years ended December 31, 2009 and December 31, 2008, basic and diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from discontinued operations amount to $nil and $0.06,  respectively.

2.27   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.

2.28   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.

2.29   STOCK-BASED COMPENSATION

As of December 31, 2009 and December 31, 2008, the Company had no stock-based compensation plans.
 
2.30   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.

 
15

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
2.30 
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

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 at December 31, 2009 or December 31, 2008, 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 fiscal year ended December 31, 2009 or December 31, 2008.

 
2.31
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 June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009.  The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered non-authoritative. The Codification is effective for interim and annual periods ending after September 15, 2009.

In June 2009, the FASB amended its guidance on accounting for variable interest entities ("VIE"). The new accounting guidance will result in a change in our accounting policy effective January 1, 2010. Among other things, the new guidance requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE; requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE; enhances disclosures about an enterprise's involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. Under the new guidance, a VIE must be consolidated if the enterprise has both (a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company is evaluating the impact that this change in accounting policy will have on our consolidated financial statements. Based on our initial assessment, we anticipate that certain entities that are consolidated under our current accounting policy may not be consolidated subsequent to the effective date of the new guidance.

In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-05 “Fair Value Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair Value” , which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities.  This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1. A valuation technique that uses: a. The quoted price of the identical liability when traded as an asset b. Quoted prices for similar liabilities or similar liabilities when traded as assets. 2. Another valuation technique that is consistent with the principles of topic 820; two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active market for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.

 In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-08 “Earnings Per Share – Amendments to Section 260-10-S99”, which represents technical corrections to topic 260-10-S99, Earnings per share, based on EITF Topic D-53,  Computation of Earnings Per Share for a Period that includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock  and EITF Topic D-42,  The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock .
 
 
16

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.31 
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-09 “Accounting for Investments -Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees”..  This update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees to the Codification.

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-12 “Fair Value Measurements and Disclosures Topic 820 – Investment in Certain Entities That Calculate Net Assets Value Per Share (or Its Equivalent)” , which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The amendments in this update permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this update on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of the reporting entity’s measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. The amendments in this update also require disclosures by major category of investment about the attributes of investments within the scope of the amendments in this update, such as the nature of any restrictions on the investor’s ability to redeem its investments a the measurement date, any unfunded commitments (for example, a contractual commitment by the investor to invest a specified amount of additional capital at a future date to fund investments that will be make by the investee), and the investment strategies of the investees. The major category of investment is required to be determined on the basis of the nature and risks of the investment in a manner consistent with the guidance for major security types in U.S. GAAP on investments in debt and equity securities in paragraph 320-10-50-1B.The disclosures are required for all investments within the scope of the amendments in this update regardless of whether the fair value of the investment is measured using the practical expedient.

In October 2009, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years.

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166,   Accounting fo r Transfers of Financial Assets an amendment of FASB Statement No. 140.   The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.

 
17

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In January 2010, FASB issued ASU No. 2010-01 Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December.

In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

 
18

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008
 

2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010.

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 financial statements. The Company operates in three principal reportable segments: Fishery Development Division, Dairy Production Divison and HU Plantation Division.
 
   
2009
 
                               
   
Fishery
Development
Division
   
Dairy
Production 
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
     
$
     
$
     
$
     
$
     
$
 
                                         
Revenue
    726,702       18,084,046       2,915,091       -       21,725,839  
                                         
Net income (loss)
    672,583       6,108,967       1,460,553       (1,434,164 )     6,807,939  
                                         
Total assets
    13,817,585       38,660,534       10,981,384       20,602,030       84,061,533  
                                         
Capital expenditures
    36,615       18,623,474       8,641,647       7,662,998       34,964,734  

   
2008
 
                               
   
Fishery
Development
Division
   
Dairy
Production 
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
     
$
     
$
     
$
     
$
     
$
 
                                         
Revenue
    562,497       14,388,014       1,238,956       -       16,189,467  
                                         
Net income
    495,718       4,221,500       284,420       2,103,283       7,104,921  
                                         
Total assets
    14,832,962       30,823,721       9,390,175       20,110,902       75,157,760  
                                         
Capital expenditures
    48,734       16,118,887       8,444,959       7,993,643       32,606,223  

 
19

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

4. 
INCOME TAXES

China

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DEs and FIEs. 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 of China beginning January 2008, the agriculture, dairy and fishery sectors are exempted from enterprise income taxes.

No EIT has been provided in the financial statements of CA, ZX, JHST and HST since they are exempted from EIT for the years ended December 31, 2009 and December 31, 2008 as they are within the agriculture, dairy and fishery sectors.

Belize and Malaysia

CA, CS and CH are international business companies incorporated in Belize, and are exempted from corporation tax of Belize.

All sales invoices of CA were issued by its representative office in Malaysia and its trading and service activities are conducted in China. As the Malaysia tax law imposed on a territorial basis and not on a worldwide basis, CA’s income is not subject to Malaysia corporation tax.

No Belize and Malaysia corporation tax have been provided in the financial statements of CA for the years ended December 31, 2009 and December 31, 2008.

Hong Kong

No Hong Kong profits tax has been provided in the financial statements of PMH and TRW, since they did not earned any assessable profits for the years ended December 31, 2009 and December 31, 2008.

Macau

No Macau Corporation  tax has been provided in the financial statements of HYT, APWAM and MEIJI since they did not earned any assessable profits for the years ended December 31, 2009 and December 31, 2008.

5. 
CASH AND CASH EQUIVALENTS

   
2009
   
2008
 
     
$
     
$
 
                 
Cash and bank balances
    2,360,587       1,731,118  

 
20

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

6.
INVENTORIES

As at December 31, 2009 inventories are as follows:

   
2009
   
2008
 
     
$
     
$
 
                 
Immature seeds
    411,594       397,275  
Harvested HU plantation
    53       16  
Unharvested HU plantation
    89,666       106,478  
Forage for milk cows and consumable
    5,598,098       4,695,472  
      6,099,411       5,199,241  

7. 
DEPOSITS AND PREPAID EXPENSES

   
2009
   
2008
 
     
$
     
$
 
                 
Deposits for  acquisition of land use rights
    4,453,666       4,453,666  
inventory purchased
    219,551       219,551  
tenancy agreement
    2,129       2,129  
materials used for construction in progress
    79,607       79,607  
Prepayments for purchases of milk cows, dairy farm  and  containers
    5,434,313       5,434,313  
      10,189,266       10,189,266  

8. 
ACCOUNTS RECEIVABLE

Aging analysis of accounts receivable is as follows:

   
2009
   
2008
 
     
$
     
$
 
                 
0 - 30 days
    1,530,838       387,576  
31 - 90 days
    -       -  
91 - 120 days
    5,338,667       1,672,767  
over 120 days and less than 1 year
    -       13,224  
over 1 year
    9,338,477       9,325,174  
      16,207,982       11,398,741  
Less: amounts reclassified as long term accounts receivable
    (9,338,477 )     (9,325,174 )
      6,869,505       2,073,567  
 
 
21

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

9. 
OTHER RECEIVABLES

   
2009
   
2008
 
     
$
     
$
 
                 
Advance to builders for  construction of rangeland
    -       307,302  
Advance to service providers
    12,983       12,983  
Due from construction material suppliers
    -       88,020  
Due from related parties
    260,101       114,630  
Due from employees
    430,552       653,168  
Due from third parties
    1,181,855       21,514  
      1,885,491       1,197,617  

Due from related parties and third parties are unsecured, interest free and without fixed term of repayment.  Advance to builders for construction of rangeland are trade deposit for construction of rangeland for cows.  Due from employees are the amounts advanced for handling business transactions on behalf of the Company.


10.
PROPERTY AND EQUIPMENT

   
2009
   
2008
 
     
$
     
$
 
                 
Milk cows
    4,953,669       3,666,376  
Plant and machinery
    2,948,148       2,948,148  
Structure and leasehold improvements
    783,491       656,448  
Mature seeds
    484,436       484,436  
Furniture and equipment
    85,506       85,506  
Motor vehicles
    83,493       83,493  
      9,338,743       7,924,407  
                 
Less: Accumulated depreciation
    (1,774,079 )     (953,885 )
Net carrying amount
    7,564,664       6,970,522  

Depreciation expense was $820,193 and $706,912 for the years ended December 31, 2009 and December 31, 2008, respectively and included in general and administrative expenses.

 
22

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

11.
CONSTRUCTION IN PROGRESS

   
2009
   
2008
 
     
$
     
$
 
                 
Construction in progress
               
- Rangeland for milk cows
    5,741,168       4,224,253  
- Oven room for production of dried flowers
    254,771       -  
      5,995,939       4,224,253  

12.
LAND USE RIGHTS

Private ownership of land is not permitted in the PRC.  Instead, the Company has leased three lots of land. The cost of the first lot of land use rights acquired in 2007 was $6,194,505 of 1,985.06 acres at Hebei Province, PRC and the leases expired in 2036, 2051, 2067 and 2077. The costs of the second lots of land use rights acquired in 2007 at Guangdong Province, PRC was $6,408,289 of 174.94 acres and the lease expired in 2067. The costs of the third lot of land use rights acquired in 2008 at Guangdong Province, PRC was $764,128 of 33.68 acres and the lease expired in 2068.

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.

   
2009
   
2008
 
     
$
     
$
 
                 
                 
Cost
    15,107,879       14,249,684  
                 
Less: Accumulated amortisation
    (1,338,383 )     (784,903 )
                 
Net carrying amount
    13,769,496       13,464,781  

Amortization of land use rights was $553,480 and $552,248 for the years ended December 31, 2009 and December 31, 2008 respectively.

 
23

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

13.
PROPRIETARY TECHNOLOGIES

By an agreement dated November 12, 2008, TRW acquired enzyme technology master licence, registered under China patent, for the manufacturing of livestock feed and bio-organic fertilizer and its related labels for $8,000,000.
 
   
2009
   
2008
 
     
$
     
$
 
                 
Proprietary technologies
    8,000,000       8,000,000  
Less: Accumulated amortisation
    (365,365 )     (53,333 )
Net carrying amount
    7,634,635       7,946,667  

Amortization of proprietary technologies was $312,032 and $53,333 for the year ended December 31, 2009 and       December 31, 2008, respectively. No impairments of proprietary technologies have been identified during the years ended December 31, 2009 and 2008.

14.
GOODWILL

Goodwill is indefinite live of intangible assets. The goodwill represents the fair value of the assets acquired in 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.

   
2009
   
2008
 
     
$
     
$
 
                 
Goodwill from acquisition
    38,444,099       38,444,099  
Less: Accumulated impairment losses
    (26,444,099 )     (26,444,099 )
      12,000,000       12,000,000  

Impairment loss on goodwill was $nil for the years ended December 31, 2009 and December 31, 2008, respectively.

15.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE

On May 25,  2009, APWAM formed corporate joint venture, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), incorporated in the People’s Republic of China, of registered capital of $1,400,000. APWAM had 45% equity interest in SJAP.  Therefore, in turn the company indirectly held 45% equity in SJAP. As of December 31, 2009, the Company invested of $242,669. SJAP had yet   commenced its business of manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

   
2009
   
2008
 
     
$
     
$
 
                 
Capital contribution
    242,669       -  
 
 
24

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

15.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE (CONTINUED)

Continuous assessment of its non-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 variable interest entity (“VIE”). The Company evaluates entities deemed to be VIEs using a risk and rewards model to determine whether we must consolidate them.  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 few voting rights.

The Company also quantitatively and qualitatively examined if  SJAP is considered as 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 VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant management judgment because of the inherent limitations that relate to the use of historical data for the projection of future events.
 
The Company evaluates the above VIE testing results and concludes that the Company is not the primary beneficiary of SJAP ’s expected losses or residual returns and SJAP does not qualifies as VIE of the Company.

16.
LICENCE RIGHTS

Pursuant to an agreement dated August 1, 2006 between Infinity Environmental Group Limited (“Infinity”) and the Company, the Company was granted an A Power Technology Licence with a condition that the Company required to pay the licence fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008.  This licence allows the Company to develop service, manage and supply A Power Technology Farms in the PRC using the A Power Technology, but subject to a condition that the Company is required to pay licence fee to Infinity once the Company sold the licence to his customer.  Under the said licence, the Company has the right to authorize developers and/or joint venture partners to develop A Power Technology Farms in the PRC. Infinity is a company incorporated in Australia.

17. 
OTHER PAYABLES

   
2009
   
2008
 
     
$
     
$
 
                 
Proprietary technologies payable
    3,577,264       3,577,264  
Due to third parties
    601,326       601,326  
Due to related parties
    169,536       415,108  
Stamp duty payable
    4,678       4,678  
Others
    183,324       23,303  
      4,536,128       4,621,679  

Due to third parties and related parties are unsecured, interest free and without fixed term of repayment. Proprietary technologies are acquired from third party and proprietary technologies payable represents the amount of unsettled balance.

 
25

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

18. 
SHARE CAPITAL

The Group’s share capital as at December 31, 2009 and December 31, 2008 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as at that date.

On various dates from October 1, 2009 to  December 22, 2009,  615,000 shares of common stock were issued for $215,250 at stated value. On December 23, 2009, 825,000 shares of common stock were redeemed for $875 at par value.

The Company has authorized capital of (i) preferred stock $10,000 divided into 10,000,000 shares of par value $0.001 each with 0 shares issued and outstanding, and (ii) common stock  $100,000 divided into 100,000,000 shares of par value $0.001 each with  52,683,579 and 52,943,579 shares issued and outstanding at December 31, 2009 and December 31, 2008,  respectively.

 
26

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

19. 
BANK BORROWINGS

There are no provisions in the group’s bank borrowings that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the group’s business.

Short term debt
                       
                         
Name of bank
 
Interest rate
 
Term
 
Security
 
Amount
 
               
2009
   
2008
 
                 
$
     
$
 
Agricultural Development Bank of China
    6.84 %  
1/23/2007- 7/31/2010
 
Corporate guarantee by third party
    1,408,321       -  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-7/22/2010
 
Corporate guarantee by third party
    711,495       -  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-8/8/2010
 
Corporate guarantee by third party
    315,405       -  
                    2,435,221       -  
                               
Long term debt
                             
                               
Name of bank
 
Interest rate
 
Term
 
Security
 
Amount
 
                 
2009
   
2008
 
                   
$
     
$
 
Agricultural Development Bank of China
    6.84 %
1/23/2007- 7/31/2010
 
Corporate guarantee by third party
    -       1,408,321  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-7/22/2010
 
Corporate guarantee by third party
    -       711,495  
                               
Agricultural Development Bank of China
    6.12 %
1/23/2008-8/8/2010
 
Corporate guarantee by third party
    -       315,405  
                               
Agricultural Development Bank of China
    6.75 %
4/29/2007-4/28/2012
 
Corporate guarantee by third party
    4,401,002       4,401,002  
                    4,401,002       6,836,223  
 
 
27

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

20. 
OBLIGATION UNDER OPERATING LEASES
 
The Company leases (i) 2,178  square feet of agriculture land space used for offices, currently with a monthly rent of $430 in Enping City, Guangdong Province, PRC,  and the  lease expires on March 31, 2014 and  (ii)2,300  square feet of office premise in Guangzhou City, Guangdong Province, PRC, currently with a monthly rent of $4,267 and the  lease expires on October  15, 2010.

The future minimum lease payments at December 31, 2009, are as follows:

   
2009
 
     
$
 
         
Year ended December 31,2010
    45,692  
Year ended December 31,2011
    5,158  
Year ended December 31,2012
    5,158  
Year ended December 31,2013
    5,158  
Year ended December 31,2014
    1,289  
Thereafter
    -  
      62,455  

Lease expense was $56,668 and $52,560 for the years ended December 31, 2009 and 2008, respectively.

21.
CONTINGENCIES

As of December 31, 2009 and 2008, 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 operations and other comprehensive income or cash flows.

 
28

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

22. 
RELATED PARTY TRANSACTIONS

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the year, the Company had the following significant related party transactions:-
 
Name of related party
 
Nature of transactions
     
Mr. Rui Xiong He , director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
During the year ended December 31, 2008, Mr. Rui Xiong He sold his land use rights to the Company for $764,128.
   
Included in other payables, due to Mr. Rui Xiong He is $16,985 and $306,620 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Xiang Jun Fang, director of Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd, subsidiary of the Company
 
 
Included in other receivables, due from Mr. Xiang Jun Fang is $260,101 and $114,630 at December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
   
Included in other payables, due to Mr. Xiang Jun Fang is $150,057 and $108,488 at December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Solomon Lee, Chairman
 
 
Included in due from directors, Mr. Solomon Lee is $73,164 and $798,058 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Mr. Michael Bor Hann Chen, director and company secretary
 
 
Included in due from directors, Mr. Michael Bor Hann Chen is $38,228 and $37,495 as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.
     
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”), investee
 
Included in other payable, SJAP is $2,494 and $nil as of December, 31, 2009 and December 31, 2008 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

23.
SUBSEQUENT EVENTS

On various dates through January 1, 2010 to September 15, 2010,(i) additional 7,952,000 shares of Common Stock  were issued for $1,816,900 at stated value in settlement of debts under under promissory notes; (ii)2,190,002 shares of Common Stock  were redeemed at $0.001 per share for $2,190 at par value.

On January 29, 2010, the China auditors of JHST, 100% equity interest of corporate joint venture, issued final capital verification report that JHST’s registered capital of $600,000 had been fully paid up.

On April 19, 2010, the China auditors of SJAP  issued final capital verification report that SJAP’s registered capital of $1,400,000 had been fully paid up.

On  March 22, 2010, Series B Convertible Preferred Stock is authorised to issue 7,000,000 shares  of $0.001 per share at par value. Series B Convertible  Preferred Stock is reedemable, the stockholders are not entitled to receive any dividend and voting rights but are entitled to rank senior over common stockholders on liquidation, and can convert to common stock one for one  at any time and their rights are protected against any alternation of their rights and priviledges. On June 26, 2010, 7,000,000 shares of Common Stocks are retired and converted into 7,000,000 shares Series B Convertible Preferred Stock of $1 per share at stated value.
 
 
29

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008

23.
SUBSEQUENT EVENTS (CONTINUED)

On  March 23, 2010, Series A Preferred Stock is authorised to issue 100 shares  of $0.001 per share at par value.  As of the same date, 100 shares of Series A Preferred Stock were issued of $1  per share  for $100 at stated value. Series A Preferred Stock stockholders are not entitled to receive any dividend and 80% voting rights of all votes but are entitled to rank senior over common stockholders and any other class or series of stock on liquidation, and has negative convenant clause in issue term to protect the rights of the stockholders against impairment.

On May  4, 2010 , the Company granted employees a total of 497,059 shares of Common Stock oof $0.001 per share for $497,097 at stated value  as stock based compensation. The fair value of these shares of approximately $248,530, based on the quoted market value,  was accrued as of December 31, 2010 as the compensation was for services provided in 2010.

On August 23, 2010,  the Company declared a cash dividend of $0.01 share, which shall be paid on October 15, 2010, to the stockholders as of the close of business on August 27, 2010.

On September 9, 2010, PHM filed its  application of  company deregistration to the relevant authority.

As required by ASC Topic 855 “ Subsequent Events,” the Company has evaluated subsequent events that have occurred through September 21, 2010, the date the consolidated financial statements were issued.
 
30

 
(b) Exhibits.
 
The exhibits that are incorporated by reference in this registration statement on Form 10, or are filed with this registration statement, are listed in the LIST OF EXHIBITS following the signature page of this registration statement.

 
64

 

SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, each of the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

SINO AGRO FOOD, INC.

By:
/s/ Lee   Yip Kun Solomon
 
Lee   Yip Kun Solomon
 
Chairman and Chief Executive Officer

Date: November 17, 2010

 
65

 

LIST OF EXHIBITS

Exhibit No.
  
Exhibit Description
     
  2.1
  
Stock Purchase Agreement and Share Exchange – Volcanic Gold and Capital Award
     
  2.2
 
Acquisition Agreement - Hang Yu Tai Investment Limited
     
  2.3
 
Acquisition Agreement - Macau Eiji Company Limited
     
  2.4
 
Acquisition Agreement - Tri-way Industries Limited
     
  2.5
 
Disposition Agreement - Triway selling equity interest in TianQuan Science
     
  2.6
 
Acquisition Agreement - A Power Agro Agriculture Development (Macau) Limited acquired the Pretty Mountains’ 45% equity interest in Sanjiang A Power
     
  3.1
 
Articles of Incorporation of Volcanic Gold, Inc.
     
  3.2
 
Amendment to Articles of Incorporation – Name Change:  Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc.
     
  3.3
 
Certificate of Correction
     
  3.4
 
Amendment to Articles of Incorporation – Name Change:  A Power Agro Agriculture Development, Inc. to Sino Agro Food, Inc.
     
  3.5
 
Bylaws of Volcanic Gold, Inc.
     
  3.6
 
Organizational Documents:  Capital Award, Inc.
     
  3.7
 
Organizational Documents:  Hang Yu Tai Investment Limited
     
  3.8
 
Organizational Documents:  ZhongXingNongMu Co. Ltd.
     
  3.9
 
Organizational Documents:  Macau Eiji Company Limited
     
  3.10
 
Organizational Documents:  Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.
     
  3.11
 
Organizational Documents:  Tri-way Industries Limited
     
  3.12
 
Organizational Documents:  A Power Agro Agriculture Development (Macau) Limited
     
  4.1
 
Form of common stock Certificate of Sino Agro Foods, Inc. (1)
     
  4.2
 
Certificate of Rights and Preferences – Series A Preferred

 
66

 
 
  4.3
 
Certificate of Rights and Preferences – Series B Preferred
     
  10.1
 
Patented “Intellectual Property” namely “Zhi Wu Jei Gan Si Liao Chan Ye Hua Chan Pin Ji Qi Zhi Bei  Fang Fa” registered under the Patent Number “ZL2005 10063039.9” and Certificate number “329722” of China
     
  10.2
 
Sino Foreign Joint Venture Agreement:  Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.
     
  10.3
 
Sino Foreign Joint Venture Agreement:  Qinghai Sanjiang A Power Agriculture Co. Ltd.
     
  10.4
 
Deed of Trust - A Power Agro Agriculture Development (Macau) Limited
     
  10.5
 
Deed of Trust - Macau Eiji Company Limited
     
  10.6
 
Deed of Trust - Hang Yu Tai Investment Limited
     
  10.7
 
Master License from Infinity Environmental Group, a Belize corporation.
 
All other Exhibits called for by Rule 601 of Regulation SK are not applicable to this filing.
 

(1) Information pertaining to our common stock is contained in our Articles of Incorporation and Bylaws.

 
67

 
 
STOCK PURCHASE AGREEMENT AND SHARE EXCHANGE
 
by and among
 
VOLCANIC GOLD, INC.
 
a Nevada Corporation
 
BELMONT PARTNERS LLC
 
CAPITAL AWARD, INC.
 
a Belize Corporation
 
and
 
CAPITAL ADVENTURE INC.
( THE SOLE SHAREHOLDER OF CAPITAL AWARD, INC.)
 
Effective as of July 24, 2007

 
1

 
 
STOCK PURCHASE AGREEMENT AND SHARE EXCHANGE
 
THIS STOCK PURCHASE AGREEMENT AND SHARE EXCHANGE, made and entered into this 24th day of July, by and among Volcanic Gold, a Nevada corporation with its principal place of business located at 360 Main St., Washington, VA 22747 (“Volcanic Gold”) ; Belmont Partners, LLC, a __________ limited liability company with its principal place of business located at 360 Main St., Washington, VA 22747 (“Belmont Partners”) ; Capital Award Inc, a Belize Corporation with its principal place of business at No. 19A, Jalan Wawasan Ampang 2/8 Bandar Baru Ampang 68000 Selangor, Malaysia (“Capital Award”) and Capital Adventure Inc., the sole shareholder of Capital Award, Inc. (the “Shareholder”).
 
Premises
 
A.          Capital Award has 50,000 common stock (the “CA Stock”) issued and outstanding, all of which are held by the Shareholder. The Shareholder is the record and beneficial owner of 100% of CA Stock. The Shareholder has agreed to transfer all of its shares of CA Stock in exchange for an aggregate of 32,000,000 newly issued shares of the common stock, par value $.02 per share, of Volcanic Gold (the “Parent Stock”).
 
B.           As additional consideration, Capital Award shall pay a total of $175,000 to Belmont Partners for consulting fees rendered as part of the transaction.
 
C.           The boards of directors of Capital Award and Volcanic Gold, have determined, subject to the terms and conditions set forth in this Agreement, that the transactions contemplated hereby (the “Transactions”) are desirable and in the best interests of their shareholders, respectively. This Agreement is being entered into for the purpose of setting forth the terms and conditions of the proposed acquisition.
 
D.           The exchange of CA Stock for Parent Stock is intended to constitute a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986 (the “Code”), as amended or such other tax free reorganization exemptions that may be available under the Code.
 
Agreement
 
NOW, THEREFORE, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth and the mutual benefits to the parties to be derived here from, it is hereby agreed as follows:
 
ARTICLE I
REPRESENTATIONS, COVENANTS AND WARRANTIES OF
VOLCANIC GOLD, INC. AND BELMONT PARTNERS

 
As an inducement to and to obtain the reliance of Capital Award and the Shareholder, Volcanic Gold and Belmont Partners hereby jointly and severally represent and warrant to Capital Award and the Shareholder as follows, except as set forth in the Parent Disclosure Schedules (as defined below, and regardless of whether or not the Parent Disclosure Schedules are referenced below with respect to any particular representation or warranty), which will be delivered by Volcanic Gold to Capital Award and the Shareholder concurrently herewith (the “Parent Disclosure Schedules”), each of which representations and warranties shall continue to be true as of the Closing:
 
 
 

 
 
Section 1.1     Organization. Volcanic Gold is a corporation duly organized, validly existing, and in good standing under the laws of Nevada and has the corporate power and is duly authorized, qualified, franchised and licensed under all applicable laws, regulations, ordinances and orders of public authorities to own, lease and operate all of its properties and assets and to carry on its business in all material respects as it is now being conducted, including qualification to do business as a foreign corporation in the jurisdiction in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. Included in the Parent Disclosure Schedules attached hereto (hereinafter defined) are complete and correct copies of the articles of incorporation, bylaws and amendments thereto as in effect on the date hereof. The execution and delivery of this Agreement does not and the consummation of the Transactions in accordance with the terms hereof will not violate any provision of Holding’s articles of incorporation or bylaws. Volcanic Gold has full power, authority and legal right and has taken all action required by law, its articles of incorporation, its bylaws or otherwise to authorize the execution and delivery of this Agreement.
 
Section 1.2     Capitalization.
 
 
(a)
The authorized capital stock of Volcanic Gold consists of 50,000,000 shares of common stock, $0.02 par value per share, of which 9,900,000 common stock issued and outstanding, and no shares of Preferred Stock. As set forth below, prior to Closing, the Volcanic Gold will effectuate a 1-50 reverse split to decrease the amount of issue and outstanding shares to 198,000 shares.
 
 
(b)
All issued and outstanding shares are, and shall be at Closing, validly issued, fully paid and nonassessable and are not issued in violation of the preemptive or other rights of any person. Except for the convertible debentures set forth on Section 1.2 to the Parent Disclosure Schedules, as of the date hereof and at the Closing there are and there will be no existing options, convertible or exchangeable securities, calls, claims, warrants, preemptive rights, registration rights or commitments of any character relating to the issued or unissued capital stock or other securities of Volcanic Gold. There are no voting trusts, proxies or other agreements, commitments or understandings of any character to which Volcanic Gold is a party or by which Volcanic Gold is bound with respect to the voting of any capital stock of Volcanic Gold. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any capital stock of Volcanic Gold. There are no outstanding obligations to repurchase, redeem or otherwise acquire any shares of capital stock of Volcanic Gold. The convertible debentures are convertible into an aggregate of 7,000,200 post reverse split shares.

 
 

 
 
 
(c)
At the Closing, the shares of Parent Stock to be issued and delivered to the Shareholder hereunder and in connection herewith will, when so issued and delivered, constitute duly authorized, validly and legally issued, fully-paid, nonassessable shares of Volcanic Gold capital stock, will not be issued in violation of any preemptive or similar rights and will be issued free and clear of all liens and encumbrances.
 
Section 1.3     Subsidiaries. Volcanic Gold has no subsidiaries or affiliates and has no direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business
 
Section 1.4     Tax Matters: Books and Records.
 
 
(a)
The books and records, financial and others, of Volcanic Gold are in all material respects complete and correct and have been maintained in accordance with good business accounting practices; and
 
 
(b)
Volcanic Gold has no liabilities or liens with respect to the payment of any country, federal, state, county, or local taxes (including any deficiencies, interest or penalties). Volcanic Gold has filed all federal, state, county and local income, excise, property and other tax, governmental and/or other returns, forms, filings, or reports, which are due or required to be filed by it prior to the date hereof and have paid or made adequate provision in the Parent Financial Statements for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns, filings or reports or pursuant to any assessments received. Volcanic Gold is not delinquent or obligated for any tax, penalty, interest, delinquency or charge and there are no tax liens or encumbrances applicable to either corporation. Volcanic Gold is not bound by any agreement with respect to Taxes.
 
 
(c)
Volcanic Gold shall remain responsible for all debts incurred by Volcanic Gold prior to the date of closing.
 
Section 1.5     Litigation and Proceedings. There are no actions, suits, proceedings or investigations pending or threatened by or against or affecting Volcanic Gold or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign or before any arbitrator of any kind that would have a material adverse affect on the business, operations, financial condition or income of Volcanic Gold (a “Material Adverse Effect”). Volcanic Gold is not in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default.
 
 
 

 
 
Section 1.6     Material Contract Defaults. Volcanic Gold is not in default in any material respect, nor is there any pending, existing or threatened claim that Volcanic Gold is in default, under the terms of any outstanding contract, agreement, lease or other commitment which is material to the business, operations, properties, assets or condition of Volcanic Gold, and there is no event of default in any material respect under any such contract, agreement, lease or other commitment in respect of which Volcanic Gold has not taken adequate steps to prevent such a default from occurring. The execution and performance of this Agreement will not violate any provisions of applicable law or any agreement to which Volcanic Gold is subject.
 
Section 1.7     Information. The information concerning Volcanic Gold as set forth in this Agreement and in the attached Schedules is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made in light of the circumstances under which they were made, not misleading. There is no current or prior event or condition of any kind or character pertaining to Volcanic Gold that may reasonably be expected to have a Material Adverse Effect.
 
Section 1.8     Title and Related Matters. Volcanic Gold has good and marketable title to and is the sole and exclusive owner of all of its properties, inventory, interest in properties and assets, real and personal free and clear of all liens, pledges, charges or encumbrances. Volcanic Gold owns free and clear of any liens, claims, encumbrances, royalty interests or other restrictions or limitations of any nature whatsoever and all procedures, techniques, marketing plans, business plans, methods of management or other information utilized in connection with Volcanic Gold’s business.
 
Section 1.9     Contracts. On the Closing Date:
 
 
(a)
There are no material contracts, agreements franchises, license agreements, or other commitments to which Volcanic Gold is a party or by which it or any of its properties are bound, other than this Agreement:
 
 
(b)
Volcanic Gold is not a party to any contract, agreement, commitment or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree or award materially and adversely affects, or in the future may (as far as Volcanic Gold can now foresee) materially and adversely affect , the business, operations, properties, assets or conditions of Volcanic Gold; and
 
 
(c)
Volcanic Gold is not a party to any material oral or written: (i) contract for the employment of any officer or employee; (ii) profit sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan (ERISA), agreement or arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended; (iii) agreement, contract or indenture relating to the borrowing of money; (iv) guaranty of any obligation for the borrowing of money or otherwise, excluding endorsements made for collection and other guaranties, of obligations, which, in the aggregate exceeds $1,000; (v) consulting or other contract with an unexpired term of more than one year or providing for payments in excess of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii) contract, agreement or other commitment involving payments by it for more than $10,000 in the aggregate.

 
 

 
 
Section 1.10   Compliance With Laws and Regulations. Up to the Closing, Volcanic Gold has complied with, and Volcanic Gold has conducted any business previously owned or operated by it in compliance with, all applicable laws, statutes, orders and regulations of any federal, state or other governmental entity or agency thereof, including applicable securities laws and regulations and environmental laws and regulations, except to the extent that noncompliance would not have a Material Adverse Effect or would not result in Volcanic Gold incurring material liability. Up to the Closing, Volcanic Gold has not received notice of any noncompliance with the foregoing, nor to its knowledge are there any claims or threatened claims in connection therewith. There are no outstanding, pending or threatened stop orders or other actions or investigations relating to Volcanic Gold or its capital stock involving federal and state securities laws. All issued and outstanding shares of its capital stock were offered and sold in compliance with federal and state securities laws and were not offered, sold or issued in violation of any preemptive right, right of first refusal or right of first offer and are not subject to any right of rescission.
 
Section 1.11  Insurance. All of the insurable properties of Volcanic Gold are insured for Volcanic Gold’s benefit under valid and enforceable policy or policies containing substantially equivalent coverage and will be outstanding and in full force at the Closing Date.
 
Section 1.12   Approval of Agreement. Each of Volcanic Gold and Belmont Partners has full corporate power and corporate authority to execute and deliver this Agreement and to consummate the Transactions. The Board of Directors of Volcanic Gold has [by written consent] (i) determined that this Agreement and the Transactions are in the best interests of Volcanic Gold and its shareholders and declared this Agreement and the Transactions to be advisable and (ii) approved the execution and delivery of this Agreement and the consummation of the Transactions. Approval of this Agreement and the Transactions by the shareholders of Volcanic Gold is not required by applicable law, the charter documents of Volcanic Gold or any material agreement to which Volcanic Gold is a party. No other corporate proceedings on the part of Volcanic Gold or Belmont Partners are necessary to approve this Agreement or to consummate the Transactions. This Agreement has been duly and validly executed and delivered by Volcanic Gold and Belmont Partners and (assuming due authorization, execution and delivery by Capital Award) constitutes a valid and binding obligation of each of Volcanic Gold and Belmont Partners, enforceable against Volcanic Gold and Belmont Partners in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally.
 
Section 1.13   Material Transactions or Affiliations. There are no material contracts or agreements of arrangement between Volcanic Gold and any person, who was at the time of such contract, agreement or arrangement an officer, director or person owning of record, or known to beneficially own ten percent (10%) or more of the issued and outstanding common stock of Volcanic Gold and which is to be performed in whole or in part after the date hereof. Volcanic Gold has no commitment, whether written or oral, to lend any funds to, borrow any money from or enter into material transactions with any such affiliated person.

 
 

 
 
Section 1.14   No Conflict With Other Instruments. Neither the execution of this Agreement by Volcanic Gold nor the consummation of the Transactions will (i) conflict with or result in any breach of any provision of its Articles of incorporation (or other similar documents) or Bylaws (or other similar documents); (ii) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or lien or other charge or encumbrance) under any of the terms, conditions or provisions of any indenture, note, license, lease, agreement or other instrument or obligation to which Volcanic Gold or any of its assets may be bound, except for such violations, breaches and defaults (or rights of termination, cancellation or acceleration or lien or other charge or encumbrance) as to which requisite waivers or consents have been obtained or which, in the aggregate, would not have a Material Adverse Effect or adversely affect the ability of Volcanic Gold to consummate the Transactions; or (iii) cause the suspension or revocation of any authorizations, consents, approvals or licenses currently in effect which would have a Material Adverse Effect.
 
Section 1.15   Governmental Authorizations. Volcanic Gold has all licenses, franchises, permits or other governmental authorizations legally required to enable it to conduct its business in all material respects as conducted on the date hereof. Except for compliance with federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent or order of, or registration, declaration or filing with, any court or other governmental body is required in connection with the execution and delivery by Volcanic Gold of this Agreement and the consummation of the Transactions and the consummation of the Transactions will not violate any order, writ, injunction, decree, judgment, ruling, law, rule or regulation of any federal, state, county, municipal, or foreign court or governmental entity or authority applicable to Volcanic Gold or its assets.
 
Section 1.16   Financial Statements. Prior to the Closing Volcanic Gold will deliver to Capital Award its audited financial statements for the fiscal years ended December 31, 2006 and 2005 (collectively, the “Parent Financial Statements”). Upon delivery, the Parent Financial Statements will have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. The Parent Financial Statements will fairly present in all material respects the financial condition and operating results of Volcanic Gold, as of the dates, and for the periods, indicated therein. At the Closing, Volcanic Gold will not have any material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2006, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Parent Financial Statements, which, in both cases, individually and in the aggregate would not be reasonably expected to result in a Material Adverse Effect.
 
Section 1.17   Absence of Certain Changes or Events. From December 31, 2006 to the date of this Agreement, Volcanic Gold has conducted its business only in the ordinary course, and during such period there has not been:

 
 

 
 
(a)
any change in the assets, liabilities, financial condition or operating results of Volcanic Gold from that reflected in the Parent Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect;
 
(b)
any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect;
 
(c)
any waiver or compromise by Volcanic Gold of a valuable right or of a material debt owed to it;
 
(d)
any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by Volcanic Gold, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;
 
(e)
any material change to a material contract by which Volcanic Gold or any of its assets is bound or subject;
 
(f)
any material change in any compensation arrangement or agreement with any employee, officer, director or shareholder;
 
(g)
any resignation or termination of employment of any officer of Volcanic Gold;
 
(h)
any mortgage, pledge, transfer of a security interest in, or lien, created by Volcanic Gold, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair Volcanic Gold’s ownership or use of such property or assets;
 
(i)
any loans or guarantees made by Volcanic Gold to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;
 
(j)
any declaration, setting aside or payment or other distribution in respect of any of Volcanic Gold’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by Volcanic Gold;
 
(k)
any alteration of Volcanic Gold’s method of accounting or the identity of its auditors;
 
(l)
any issuance of equity securities to any officer, director or affiliate; or
 
(m)
any arrangement or commitment by the Parent to do any of the things described in this Section.

 
 

 
 
Section 1.18  Intellectual Property. Volcanic Gold has no Intellectual Property. The term “Intellectual Property” includes all patents and patent applications, trademarks, service marks, and trademark or service mark registrations and applications, trade names, logos, designs, domain names, web sites, slogans and general intangibles of like nature, together with all goodwill relating to the foregoing, copyrights, copyright registrations, renewals and applications, software, databases, technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models and methodologies, drawings, specifications, plans, proposals, financing and marketing plans, advertiser, customer and supplier lists and all other information relating to advertisers, customers and suppliers (whether or not reduced to writing), licenses, agreements and all other proprietary rights, which relate to Volcanic Gold’s current or former business. No third party has any right to, and Volcanic Gold has not received any notice of infringement of or conflict with asserted rights of other with respect to any product, technology, data, trade secrets, know-how, proprietary techniques, trademarks, service marks, trade names or copyrights which, singly on in the aggregate, if the subject of an unfavorable decision ruling or finding, would have a Materially Adverse Effect.
 
Section 1.19   Employees. Volcanic Gold currently has no employees, consultants or independent contractors. No amounts are due or owed to any previous or current Volcanic Gold employee, consultant or independent contractor. There are no oral employment agreements, consulting agreements or other compensation agreements currently in effect between Volcanic Gold and any person.
 
Section 1.21   Environmental Matters. Volcanic Gold, including any corporation to which Volcanic Gold is a successor, is in material compliance with all Environmental Laws. Neither Volcanic Gold nor, to the knowledge of Volcanic Gold, any other Person for whose conduct Volcanic Gold is or may be held responsible, has any Environmental Liabilities, or, to the knowledge of Volcanic Gold, with respect to any properties and assets (whether real, personal or mixed) in which Volcanic Gold (or any predecessor) has or had an interest, or at any property geologically or hydrologically adjoining any such property or assets. “Environmental Law” means any and all applicable Legal Requirements, and without limiting the foregoing, any regulations, orders, decrees, judgments or injunctions promulgated or entered into by any Governmental Entity, relating to the preservation or reclamation of natural resources, or to the management, Release (as hereinafter defined) or threatened release of Hazardous Material, including but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq. (“CERCLA”), the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2701 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Emergency Planning and Community Right to Know Act of 1986, 42 U.S.C. § 11001 et. seq., the Safe Drinking Water Act, 42 U.S.C. § 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801 et seq., and any similar or implementing state or local law, and all amendments or regulations promulgated thereunder. “Environmental Liabilities” means all claims, demands, causes of action, liabilities, investigations, judgments, damages, costs and expenses (including, without limitation, costs of suit, reasonable attorneys’ fees, costs of negotiation, consulting fees and expert fees, remedial action costs, penalties, fines and punitive damages, whether in respect of death, personal injury, property damage, cleanup and removal expense, cost recovery contribution or compensation), under Environmental Laws in effect prior to or as of the Closing, which arise from (i) the release of Hazardous Materials prior to the Closing at, on, in or under any facilities of Volcanic Gold, (ii) any violation by Volcanic Gold of any Environmental Law in effect at the time of the Closing Date, due to conditions existing or events occurring prior to the Closing, or (iii) the off site treatment, storage or disposal of Hazardous Materials from any of the facilities of Volcanic Gold at any time prior to the Closing. (10) “Hazardous Material” means all explosive or regulated radioactive materials or substances; petroleum and petroleum products (including crude oil or any fraction thereof); asbestos or asbestos containing materials; and any hazardous or toxic materials, wastes or chemicals designated, defined, listed or regulated as such pursuant to any Environmental Law.
 
 
 

 
 
Section 1.22  Benefit Plans. Volcanic Gold does not have or maintain any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of Volcanic Gold. As of the date of this Agreement there are not any severance or termination agreements or arrangements between Volcanic Gold and any current or former employee, officer or director of Volcanic Gold, nor does Volcanic Gold have any general severance plan or policy. Volcanic Gold does not, and since its inception never has, maintained, or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA) or “employee welfare benefit plans” (as defined in Section 3(1) of ERISA).
 
Section 1.23   Investment Company. Volcanic Gold is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
 
Section 1.24   Certain Registration Matters. Volcanic Gold has not granted or agreed to grant to any person any rights (including “piggy back” registration rights) to have any securities of Volcanic Gold registered with the U.S. Securities and Exchange Commission or any other governmental authority that have not been satisfied.
 
Section 1.25   Foreign Corrupt Practices. Neither Volcanic Gold, nor, to Volcanic Gold’s knowledge, any director, officer, agent, employee or other person acting on behalf of Volcanic Gold has, in the course of its actions for, or on behalf of, Volcanic Gold (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 
 

 
 
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF CAPITAL AWARD
 
As an inducement to, and to obtain the reliance of Volcanic Gold, Capital Award represents and warrants as follows, except as set forth in the CA Disclosure Schedules (as defined below, and regardless of whether or not the CA Disclosure Schedules are referenced below with respect to any particular representation or warranty), which will be delivered by Capital Award to Volcanic Gold concurrently herewith (the “CA Disclosure Schedules”), each of which representations and warranties shall continue to be true as of the Closing:
 
Section 2.1     Organization. Capital Award is a corporation duly organized, validly existing and in good standing under the laws of the Belize and has the corporate power and is duly authorized, qualified, franchised and licensed under all applicable laws, regulations, ordinances and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, including qualification to do business as a foreign entity in the country or states in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. Included in the Attached Schedules (as hereinafter defined) are complete and correct copies of the articles of incorporation, bylaws and amendments thereto as in effect on the date hereof. The execution and delivery of this Agreement does not and the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof will not, violate any provision of Capital Award’s certificate of incorporation or bylaws. Capital Award has full power, authority and legal right and has taken all action required by law, its articles of incorporation, bylaws or otherwise to authorize the execution and delivery of this Agreement.
 
Section 2.2     Capitalization. The authorized capitalization of Capital Award consists of 50,000 shares of common stock, U.S. $1.00 par value and no preferred shares. As of the date hereof, there are 50,000 shares of common stock issued and outstanding. All issued and outstanding common stock have been validly issued, fully paid, are nonassessable and not issued in violation of the preemptive rights of any other person. Capital Award has no other securities, warrants or options authorized or issued.
 
Section 2.3     Subsidiaries. Capital Award owns 100% of the issued and outstanding capital stock of Capital Stage Inc. and Capital Hero Inc., both of which are incorporated under the International Business act of Belize having fully paid up capital of US$50,000, par value U.S $1.00.
 
Section 2.4      Tax Matters; Books & Records
 
 
(a)
The books and records, financial and others, of Capital Award are in all material respects complete and correct and have been maintained in accordance with good business accounting practices; and

 
 

 
 
 
(b)
Capital Award has no liabilities with respect to the payment of any country, federal, state, county, local or other taxes (including any deficiencies, interest or penalties).
 
Section 2.5     Information. The information concerning Capital Award as set forth in this Agreement and in the attached Schedules is complete and accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to make the statements made, in light of the circumstances under which they were made, not misleading.
 
Section 2.6     Title and Related Matters. Capital Award has good and marketable title to and is the sole and exclusive owner of all of its properties, inventory, interests in properties and assets, real and personal free and clear of all liens, pledges, charges or encumbrances. Except as set forth in the CA Disclosure Schedules attached hereto, Capital Award owns free and clear of any liens, claims, encumbrances, royalty interests or other restrictions or limitations of any nature whatsoever and all procedures, techniques, marketing plans, business plans, methods of management or other information utilized in connection with Capital Award’s business. Except as set forth in the attached CA Disclosure Schedules, no third party has any right to, and Capital Award has not received any notice of infringement of or conflict with asserted rights of others with respect to any product, technology, data, trade secrets, know-how, proprietary techniques, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a materially adverse affect on the business, operations, financial conditions or income of Capital Award or any material portion of its properties, assets or rights.
 
Section 2.7     Litigation and Proceedings. There are no actions, suits or proceedings pending or threatened by or against or affecting Capital Award, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign or before any arbitrator of any kind that would have a material adverse effect on the business, operations, financial condition, income or business prospects of Capital Award. Capital Award does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency or instrumentality.
 
Section 2.8     Contracts. On the Closing Date:
 
 
(a)
There are no material contracts, agreements, franchises, license agreements, or other commitments to which Capital Award is a party or by which it or any of its properties are bound;
 
 
(b)
Capital Award is not a party to any contract, agreement, commitment or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree or award which materially and adversely affects, or in the future may (as far as Capital Award can now foresee) materially and adversely affect, the business, operations, properties, assets or conditions of Capital Award; and

 
 

 
 
 
(c)
Capital Award is not a party to any material oral or written: (i) contract for the employment of any officer or employee; (ii) profit sharing, bonus, deferred compensation, stock option, severance pay, pension, benefit or retirement plan, agreement or arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended; (iii) agreement, contract or indenture relating to the borrowing of money; (iv) guaranty of any obligation for the borrowing of money or otherwise, excluding endorsements made for collection and other guaranties of obligations, which, in the aggregate exceeds $100,000; (v) consulting or other contract with an unexpired term of more than one year or providing for payments in excess of $100,000 in the aggregate; (vi) collective bargaining agreement; (vii) contract, agreement, or other commitment involving payments by it for more than $250,000 in the aggregate.
 
Section 2.9     No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust or other material contract, agreement or instrument to which Capital Award is a party or to which any of its properties or operations are subject.
 
Section 2.10   Material Contract Defaults. To the best of Capital Award’s knowledge, it is not in default in any material respect under the terms of any outstanding contract, agreement, lease or other commitment which is material to the business, operations, properties, assets or condition of Capital Award, and there is no event of default in any material respect under any such contract, agreement, lease or other commitment in respect of which Capital Award has not taken reasonable steps to prevent such a default from occurring.
 
Section 2.11  Governmental Authorizations. To the best of Capital Award’ knowledge, Capital Award has all licenses, franchises, permits and other governmental authorizations that are legally required to enable it to conduct its business operations in all material respects as conducted on the date hereof. Except for compliance with federal and state securities or corporation laws, no authorization, approval, consent or order of, or registration, declaration or filing with, any court or other governmental body is required in connection with the execution and delivery by Capital Award of the transactions contemplated hereby.
 
Section 2.12   Compliance With Laws and Regulations. To the best of Capital Award’ knowledge, Capital Award has complied with all applicable statutes and regulations of any federal, state or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets or condition of Capital Award or would not result in Capital Award incurring any material liability.
 
Section 2.13  Insurance. All of the insurable properties of Capital Award are insured for Capital Award’s benefit under valid and enforceable policy or policies containing substantially equivalent coverage and will be outstanding and in full force at the Closing Date.

 
 

 
 
Section 2.14   Approval of Agreement. The directors of Capital Award have authorized the execution and delivery of the Agreement and have approved the transactions contemplated hereby.
 
Section 2.15  Material Transactions or Affiliations. As of the Closing Date, there will exist no material contract, agreement or arrangement between Capital Award and any person who was at the time of such contract, agreement or arrangement an officer, director or person owning of record, or known by Capital Award to own beneficially, ten percent (10%) or more of the issued and outstanding common stock of Capital Award and which is to be performed in whole or in part after the date hereof except with regard to an agreement with the Capital Award shareholders providing for the distribution of cash to provide for payment of federal and state taxes on Subchapter S income. Capital Award has no commitment, whether written or oral, to lend any funds to, borrow any money from or enter into any other material transactions with, any such affiliated person.
 
ARTICLE III
EXCHANGE PROCEDURE AND OTHER CONSIDERATION
 
Section 3.1     Share Exchange/Delivery of Capital Award Securities. At or prior to the Closing, the Shareholder shall deliver to Volcanic Gold certificates or other documents evidencing all of the issued and outstanding Capital Award common stock, duly endorsed in blank or with executed power attached thereto in transferable form. On the Closing Date, all previously issued and outstanding common stock of Capital Award shall be transferred to Volcanic Gold, so that Capital Award shall become a wholly owned subsidiary of Volcanic Gold. At or prior to the Closing, Volcanic Gold shall deliver:
 
 
(a)
to Capital Award, letters of resignation from all current officers and directors of Volcanic Gold effective upon the Closing together with evidence of the election of the officers and directors set forth in Sections 3.6 and 3.7 below effective upon the Closing; and
 
 
(b)
to Capital Award, the results of UCC, judgment lien and tax lien searches with respect to Volcanic Gold, the results of which indicate no liens on the assets of Volcanic Gold; and
 
 
(c)
to the Shareholder, a certificate representing the new shares of Parent Stock issued as set forth in Section 3.2 below.
 
Section 3.2      Issuance of Volcanic Gold Common Stock. In exchange for all of the Capital Award common stock tendered pursuant to Section 3.1, Volcanic Gold shall issue to the Shareholder a total of 32,000,000 shares of Volcanic Gold common stock (post reverse split). Such shares are restricted in accordance with Rule 144 of the 1933 Securities Act. Based upon same, post reverse split, merger and issuance of the shares pursuant to the conversion of the outstanding note as set forth in Section 1.2(b), the following will be the cap table of Volcanic gold:

 
 

 
 
1.
Current shareholders:
199,800 shares;
 
2.
Shareholder
32,000,000 shares;
 
3.
Note holders:
7,000,200 shares;
 and
4.
Belmont Partners
800,00 shares.
 
 
Section 3.3     Events Prior to Closing. Upon execution hereof or as soon thereafter as practical, management of Volcanic Gold and Capital Award shall execute, acknowledge and deliver (or shall cause to be executed, acknowledged and delivered) any and all certificates, opinions, financial statements, schedules, agreements, resolutions rulings or other instruments required by this Agreement to be so delivered, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby, subject only to the conditions to Closing referenced herein below. Prior to closing, Volcanic Gold shall file a certificate of amendment of its Articles of incorporation in the state of Nevada to (a) effectuate a 1-50 reverse split of its issued and outstanding common stock, (b) change its name to A Power Agro Agriculture Development, Inc., (c) create a class of “blank check”: preferred stock and (d) waive preemptive rights created pursuant to Section 78.265 of the Nevada Revised Statutes. In addition, prior to effectuating the reverse split and name, the $175,000 shall be released to Belmont Partners.
 
Section 3.4     Closing. The closing (“Closing”) of the Transactions contemplated by this Agreement shall take place at the offices of Thelen Reid Brown Raysman & Steiner LLP in Washington, DC] commencing at 9:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the Transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself), or such other date and time as the parties may mutually determine (the “Closing Date”).
 
Section 3.5      Termination.
 
(a)
This Agreement may be terminated by the Shareholder, or the boards of directors of either Volcanic Gold or Capital Award, respectively, at any time prior to the Closing Date if:
 
 
(i)
there shall be any action or proceeding before any court or any governmental body which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement and which, in the judgment of such board of directors, made in good faith and based on the advice of its legal counsel, makes it inadvisable to proceed with the exchange contemplated by this Agreement; or

(ii)
any of the transactions contemplated hereby are disapproved by any regulatory authority whose approval is required to consummate such transactions.
 
In the event of termination pursuant to this paragraph (a) of this Section 3.5, no obligation, right, or liability shall arise hereunder and each party shall bear all of the expenses incurred by it in connection with the negotiation, drafting and execution of this Agreement and the transactions herein contemplated.

 
 

 
 
 
(a)
This Agreement may be terminated at any time prior to the Closing Date by action of the board of directors of Volcanic Gold if either of Capital Award or the Shareholder shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Capital Award or the Shareholder contained herein shall be inaccurate in any material respect, which noncompliance or inaccuracy is not cured after 20 days written notice thereof is given to Capital Award or the Shareholder, as the case may be. If this Agreement is terminated pursuant to this paragraph (b) of this Section 3.5, this Agreement shall be of no further force or effect and no obligation, right or liability shall arise hereunder, except for any liability of any party then in breach.
 
 
(b)
This Agreement may be terminated at any time prior to the Closing Date by action of either the board of directors of Capital Award or by the Shareholder if either of Volcanic Gold or Belmont Partners shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Volcanic Gold or Belmont Partners contained herein shall be inaccurate in any material respect, which noncompliance or inaccuracy is not cured after 20 days written notice thereof is given to Volcanic Gold or Belmont Partners, as the case may be. If this Agreement is terminated pursuant to this paragraph (c) of this Section 3.5, this Agreement shall be of no further force or effect and no obligation, right or liability shall arise hereunder, except for any liability of any party then in breach.
 
In the event of termination pursuant to paragraph (b) and (c) of this Section 3.5, the breaching party shall bear all of the expenses incurred by the other party in connection with the negotiation, drafting and execution of this Agreement and the transactions herein contemplated.
 
Section 3.6     Directors of Volcanic Gold After Acquisition. Effective on the Closing Date, (i) Joseph J. Meuse, the sole director of Volcanic Gold, shall appoint (i) Lee Solomon Yip Kun, (ii) Tan Poay Teik Peter, (iii) Chen Bor Hann Michael, (iv) Zeng Shao Quan and (v) Sun Xin Min to the Board of Directors of Volcanic Gold and shall immediately thereafter resign form the Board. Each such newly appointed director of Volcanic Gold shall hold office until his successor shall have been duly elected and shall have qualified or until his earlier death, resignation or removal. If necessary, Volcanic Gold shall take any and all actions necessary to amend its bylaws to increase the Board of Directors to at least 5 members.
 
Section 3.7     Officers of Volcanic Gold Joseph J. Meuse, the sole officer of Volcanic Gold shall have tendered his resignation, effective at the Closing Date, and the Board of Directors of Volcanic Gold shall have appointed the following persons as the officers of Volcanic Gold:

 
 

 

NAME
 
OFFICE
     
Lee Solomon Yip Kun
 
President and Chief Executive Officer
Tan Poay Teik Peter
 
Chief Financial Officer
Chen Bor Hann Michael
  
Secretary

ARTICLE IV
SPECIAL COVENANTS

Section 4.1     Access to Properties and Records. Prior to closing, Volcanic Gold and Capital Award will each afford to the officers and authorized representatives of the other full access to the properties, books and records of each other, in order that each may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other and each will furnish the other with such additional financial and operating data and other information as to the business and properties of each other, as the other shall from time to time reasonably request.

Section 4.2     Availability of Rule 144. Volcanic Gold and Capital Award shareholders holding “restricted securities,” as that term is defined in Rule 144 promulgated pursuant to the Securities Act will remain as “restricted securities”. Volcanic Gold is under no obligation to register such shares under the Securities Act, or otherwise. The shareholders of Volcanic Gold and Capital Award holding restricted securities of Volcanic Gold and Capital Award as of the date of this Agreement and their respective heirs, administrators, personal representatives, successors and assigns, are intended third party beneficiaries of the provisions set forth herein. The covenants set forth in this Section 4.2 shall survive the Closing and the consummation of the transactions herein contemplated.

Section 4.3     Special Covenants and Representations Regarding the Volcanic Gold Common Stock to be Issued in the Exchange. The consummation of this Agreement, including the issuance of the Parent Shares to the Shareholder as contemplated hereby, constitutes the offer and sale of securities under the Securities Act, and applicable state statutes. Such transaction shall be consummated in reliance on exemptions from the registration and prospectus delivery requirements of such statutes which depend, inter alia, upon the circumstances under which the Shareholder acquires such securities.

Section 4.4      Third Party Consents. Volcanic Gold and Capital Award agree to cooperate with each other in order to obtain any required third party consents to this Agreement and the transactions herein contemplated.

Section 4.5      Actions Prior and Subsequent to Closing.

 
(a)
From and after the date of this Agreement until the Closing Date, except as permitted or contemplated by this Agreement, Volcanic Gold and Capital Award will each use its best efforts to:

 
 

 

 
(i)
maintain and keep its properties in states of good repair and condition as at present, except for depreciation due to ordinary wear and tear and damage due to casualty;

 
(ii)
maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it;

 
(iii)
perform in all material respects all of its obligations under material contracts, leases and instruments relating to or affecting its assets, properties and business;

 
(b)
From and after the date of this Agreement until the Closing Date, Volcanic Gold will not, without the prior consent of Capital Award:

 
(i)
except as otherwise specifically set forth herein, make any change in its articles of incorporation or bylaws;

 
(ii)
declare or pay any dividend on its outstanding common stock, except as may otherwise be required by law, or effect any stock split or otherwise change its capitalization, except as provided herein;

 
(iii)
enter into or amend any employment, severance or agreements or arrangements with any directors or officers;

 
(iv)
grant, confer or award any options, warrants, conversion rights or other rights not existing on the date hereof to acquire any common stock; or

 
(v)
purchase or redeem any common stock.

Section 4.6    Indemnification.

(a)
Each of Volcanic Gold and Belmont Partners hereby agrees to jointly and severally indemnify Capital Award, each of the officers, agents and directors and current shareholders of Capital Award, and the Shareholder as of the Closing Date against any loss, liability, claim, damage or expense (including, but not limited to, all reasonable legal fees, court costs and other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claim whatsoever and notwithstanding the absence of a final determination as to the indemnifying parties’ obligation to reimburse the indemnified parties for such losses and the possibility that such payments might later be held to have been improper), to which it or they may become subject to arising out of or based on any inaccuracy appearing in or misrepresentation made in this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement.  Notwithstanding the above, the amount of such indemnification shall be limited to $175,000 regardless of the actual damages incurred.

 
 

 

 
(b)
Each of Capital Award and the Shareholder hereby agrees to jointly and severally indemnify Volcanic Gold and Belmon Partners, each of the officers, agents and directors and current shareholders thereof as of the Closing Date against any loss, liability, claim, damage or expense (including, but not limited to, all reasonable legal fees, court costs and other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claim whatsoever and notwithstanding the absence of a final determination as to the indemnifying parties’ obligation to reimburse the indemnified parties for such losses and the possibility that such payments might later be held to have been improper), to which it or they may become subject to arising out of or based on any inaccuracy appearing in or misrepresentation made in this Agreement. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby and termination of this Agreement. Notwithstanding the above, the amount of such indemnification shall be limited to $175,000 regardless of the actual damages incurred.

Section 4.7         OTCBB Actions . As soon as practicable following the Closing, and in any event within 60 days, Belmont Partners shall take any and all actions reasonably necessary to act as Volcanic Gold’s market maker in connection with the filing of a Form 211 (Rule 15c-211) with the National Association of Securities Dealers on behalf of Volcanic Gold. Belmont Partners shall cause any legal opinion required in connection therewith to be provided from a law firm satisfactory to Capital Award, it being agreed that Anslow & Jaclin LLP shall be a satisfactory law firm and shall be responsible for all fees and costs related thereto.

ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF VOLCANIC GOLD

The obligations of Volcanic Gold under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions:

Section 5.1      Accuracy of Representations. The representations and warranties made by Capital Award in this Agreement were true when made and shall be true at the Closing Date with the same force and effect as if such representations and warranties were made at the Closing Date (except for changes therein permitted by this Agreement), and Capital Award shall have performed or compiled with all covenants and conditions required by this Agreement to be performed or complied with by Capital Award prior to or at the Closing.

 
 

 

Section 5.2      Capital Award Financial Statements. The audited financial statements of Capital Award at Closing shall be as set forth on Schedule 5.2 (the “CA Financial Statements”) and the total assets of Capital Award set forth therein (subject to changes in the ordinary course of business since the date thereof) must be included in this Transaction. As soon as practicable after the Closing Date, but no later than the sixtieth (60th) day after the Closing Date, Volcanic Gold will deliver to Belmont Partners an unaudited consolidated balance sheet dated as of the Closing Date (the “Closing Balance Sheet”). The Closing Balance Sheet shall be prepared in accordance with GAAP consistently applied. If the total assets of Capital Award are less than 90% of the total assets of Capital Award set forth in CA Financial Statements (less any changes in the ordinary course of business since the date thereof), then Volcanic Gold shall pay a penalty to Belmont Partners in the amount of $100,000. If Belmont Partners objects to the calculation of the Closing Balance Sheet, Belmont Partners shall, within fifteen (15) days after receipt thereof, notify Volcanic Gold of the same in writing and deliver its proposed modification of such calculation to Volcanic Gold. If Belmont Partners does not object to such calculation within such fifteen (15) day period, the Closing Balance Sheet shall be final, conclusive and binding on the parties. If Belmont Partners disagrees with all or any portion of the calculation of total assets in the Closing Balance Sheet, the parties shall negotiate in good faith to reach an agreement during the fifteen (15) day period following delivery of such proposed modification. If unable to reach an agreement, the parties shall promptly thereafter cause an independent accounting firm (the “Independent Accountant”) reasonably satisfactory to Belmont Partners and Volcanic Gold to review this Agreement and the disputed items or amounts for the purpose of calculating the total assets at the Closing. In making such calculation, the Independent Accountant shall consider only those items or amounts in the Closing Balance Sheet as to which Belmont Partners and Volcanic Gold have disagreed. The Independent Accountant shall deliver to Belmont Partners and Volcanic Gold, as promptly as practicable, a report setting forth its calculations. Such report shall be final and binding upon Belmont Partners and Volcanic Gold. The cost of such review and report shall be paid one-half by the Belmont Partners and one-half by Volcanic Gold. The parties hereto agree that they will cooperate and assist in the preparation of the Closing Balance Sheet, including, without limitation, the making available, to the extent necessary, of books, records, work papers and personnel.

Section 5.3      Officer’s Certificate. Volcanic Gold shall have been furnished with a certificate dated the Closing Date and signed by a duly authorized officer of Capital Award to the effect that: (a) the representations and warranties of Capital Award set forth in the Agreement and in all Exhibits, Schedules and other documents furnished in connection herewith are in all material respects true and correct as if made on the Closing Date; (b) Capital Award has performed all covenants, satisfied all conditions, and complied with all other terms and provisions of this Agreement to be performed, satisfied or complied with by it as of the Closing Date; (c) since such date and other than as previously disclosed to Volcanic Gold, Capital Award has not entered into any material transaction other than transactions which are usual and in the ordinary course if its business; and (d) no litigation, proceeding, investigation or inquiry is pending or, to the best knowledge of Capital Award, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement or, to the extent not disclosed in the CA Disclosure Schedules, by or against Capital Award which might result in any material adverse change in any of the assets, properties, business or operations of Capital Award.

Section 5.3      No Material Adverse Change. Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business or operations of nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business or operations of Capital Award.

 
 

 

Section 5.4      Deliveries. The deliveries specified in Section 3.1 shall have been made by the Shareholder.

Section 5.5      Investment Banking Agreement. Following the Closing, the parties shall negotiate the terms of an investment banking agreement between Volcanic Gold and Capital Award, on one hand, and Belmont Partners, LLC and its affiliated broker dealer, Rosewood Securities, Inc., on the other hand. If the parties are unable to reasonably agree upon the terms of such investment banking agreement within 30 days after the Closing Date, Volcanic Gold shall pay to Belmont Partners a penalty of $100,000. The parties shall negotiate the terms of such agreement in good faith and agree that the terms shall be commercially reasonable for transactions of this type.

Section 5.6      Other Items. Volcanic Gold shall have received such further documents, certificates or instruments relating to the transactions contemplated hereby as Volcanic Gold may reasonably request.

ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF CAPITAL AWARD

The obligations of Capital Award under this Agreement are subject to the satisfaction, at or before the Closing date (unless otherwise indicated herein), of the following conditions:

Section 6.1      Accuracy of Representations. The representations and warranties made by Volcanic Gold and Belmont Partners in this Agreement were true when made and shall be true as of the Closing Date (except for changes therein permitted by this Agreement) with the same force and effect as if such representations and warranties were made at and as of the Closing Date, and Volcanic Gold and Belmont Partners shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with by Volcanic Gold and Belmont Partners prior to or at the Closing.

Section 6.2      Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of Capital Award or the Shareholder, a Materially Adverse Effect.

Section 6.3      Officer’s Certificate. Capital Award shall be furnished with a certificate dated the Closing date and signed by a duly authorized officer of Volcanic Gold to the effect that: (a) the representations and warranties of Volcanic Gold and Belmont Partners set forth in the Agreement and in all Exhibits, Schedules and other documents furnished in connection herewith are in all material respects true and correct as if made on the Closing Date; and (b) Volcanic Gold and Belmont Partners have performed all covenants, satisfied all conditions, and complied with all other terms and provisions of the Agreement to be performed, satisfied or complied with by it as of the Closing Date.

 
 

 

Section 6.4      No Material Adverse Change. Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business or operations of nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business or operations of Volcanic Gold.

Section 6.5      Deliveries. The deliveries specified in Section 3.1 shall have been made by Volcanic Gold.

Section 6.6      Delivery of US Legal Opinion. Capital Award shall have received an opinion from Anslow & Jaclin LLP, counsel for Volcanic Gold dated as of the Closing to the effect that:

 
(a)
Volcanic Gold is a corporation duly organized, validly existing and in good standing under the laws of the Nevada;

 
(b)
Volcanic Gold has the corporate power to execute, deliver and perform under this Agreement, all corporate action necessary for performance under this Agreement has been taken and this Agreement has been duly authorized, executed and delivered by Volcanic Gold and is a valid and binding obligation of Volcanic Gold enforceable in accordance with its terms; and

 
(c)
The documents executed and delivered to Capital Award and the Shareholder hereunder are valid and binding in accordance with their terms and vest in the Shareholder all right, title and interest in and to the shares of Parent common stock to be issued pursuant hereto, and the shares of Parent Stock when issued will be duly and validly issued, fully paid and nonassessable and were not issued in violation of any preemptive rights of any person; and

 
(d)
All of the issued and outstanding common stock of Volcanic Gold have been duly and validly issued, are fully paid and nonassessable, and were not issued in violation of any preemptive rights of any person.

Section 6.5      Other Items. Capital Award shall have received such further documents, certificates or instruments relating to the transactions contemplated hereby as Capital Award may reasonably request.

ARTICLE VII
MISCELLANEOUS

Section 7.1     Brokers and Finders. Each party hereto hereby represents and warrants that it is under no obligation, express or implied, to pay certain finders in connection with the bringing of the parties together in the negotiation, execution, or consummation of this Agreement. The parties each agree to indemnify the other against any claim by any third person for any commission, brokerage or finder’s fee or other payment with respect to this Agreement or the transactions contemplated hereby based on any alleged agreement or understanding between the indemnifying party and such third person, whether express or implied from the actions of the indemnifying party.

 
 

 

Section 7.2      Law, Forum and Jurisdiction. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York, United States of America.

Section 7.3     Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if personally delivered to it or sent by registered mail or certified mail, postage prepaid, or by prepaid telegram addressed as follows:

If to Volcanic Gold:

 
If to Capital Award:
GuangZhou Office
Room 110
Heng Kang Ge, No 121 Lin He Xi Road
Tian He District, Guangzhou, P.R. China
Attention:

or such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice or communication shall be deemed to have been given as of the date so delivered, mailed or telegraphed.

Section 7.4     Attorneys’ Fees. In the event that any party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non-breaching party or parties for all costs, including reasonable attorneys’ fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

Section 7.5     Confidentiality. Each party hereto agrees with the other party that, unless and until the transactions contemplated by this Agreement have been consummated, they and their representatives will hold in strict confidence all data and information obtained with respect to another party or any subsidiary thereof from any representative, officer, director or employee, or from any books or records or from personal inspection, of such other party, and shall not use such data or information or disclose the same to others, except: (i) to the extent such data is a matter of public knowledge or is required by law to be published; and (ii) to the extent that such data or information must be used or disclosed in order to consummate the transactions contemplated by this Agreement.

Section 7.6      Schedules; Knowledge. Each party is presumed to have full knowledge of all information set forth in the other party’s schedules delivered pursuant to this Agreement.

Section 7.7     Third Party Beneficiaries. This contract is solely between Volcanic Gold and Capital Award and except as specifically provided, no director, officer, shareholder, employee, agent, independent contractor or any other person or entity shall be deemed to be a third party beneficiary of this Agreement.

 
 

 

Section 7.8      Entire Agreement. This Agreement represents the entire agreement between the parties relating to the subject matter hereof. This Agreement alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. There are no other courses of dealing, understanding, agreements, representations or warranties, written or oral, except as set forth herein. This Agreement may not be amended or modified, except by a written agreement signed by all parties hereto. Without limiting the foregoing, the parties hereto acknowledge and agree that this Agreement supersedes the Letter of Intent/Escrow Agreement by and between Win Ever Global and Belmont Partners.

Section 7.9      Survival; Termination. The representations, warranties and covenants of the respective parties shall survive the Closing Date and the consummation of the transactions herein contemplated for 18 months.

Section 7.10   Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument.

Section 7.11   Amendment or Waiver. Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by a written consent by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance hereof may be extended by a written consent by the party or parties for whose benefit the provision is intended.

Section 7.12   Expenses. Each party herein shall bear all of their respective cost s and expenses incurred in connection with the negotiation of this Agreement and in the consummation of the transactions provided for herein and the preparation thereof.

Section 7.13   Headings; Context. The headings of the sections and paragraphs contained in this Agreement are for convenience of reference only and do not form a part hereof and in no way modify, interpret or construe the meaning of this Agreement.

Section 7.14   Benefit. This Agreement shall be binding upon and shall inure only to the benefit of the parties hereto, and their permitted assigns hereunder. This Agreement shall not be assigned by any party without the prior written consent of the other party.

Section 7.15   Public Announcements. Except as may be required by law, neither party shall make any public announcement or filing with respect to the transactions provided for herein without the prior consent of the other party hereto.

 
 

 

Section 7.16   Severability. In the event that any particular provision or provisions of this Agreement or the other agreements contained herein shall for any reason hereafter be determined to be unenforceable, or in violation of any law, governmental order or regulation, such unenforceability or violation shall not affect the remaining provisions of such agreements, which shall continue in full force and effect and be binding upon the respective parties hereto.

Section 7.17   Failure of Conditions; Termination. In the event of any of the conditions specified in this Agreement shall not be fulfilled on or before the Closing Date, either of the parties have the right either to proceed or, upon prompt written notice to the other, to terminate and rescind this Agreement. In such event, the party that has failed to fulfill the conditions specified in this Agreement will liable for the other parties legal fees. The election to proceed shall not affect the right of such electing party reasonably to require the other party to continue to use its efforts to fulfill the unmet conditions.

Section 7.18   No Strict Construction. The language of this Agreement shall be construed as a whole, according to its fair meaning and intendment, and not strictly for or against either party hereto, regardless of who drafted or was principally responsible for drafting the Agreement or terms or conditions hereof.

Section 7.19   Execution Knowing and Voluntary. In executing this Agreement, the parties severally acknowledge and represent that each: (a) has fully and carefully read and considered this Agreement; (b) has been or has had the opportunity to be fully apprized by its attorneys of the legal effect and meaning of this document and all terms and conditions hereof; (c) is executing this Agreement voluntarily, free from any influence, coercion or duress of any kind.

Section 7.20   Amendment. At any time after the Closing Date, this Agreement may be amended by a writing signed by both parties, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance hereof may be extended by a writing signed by the party or parties for whose benefit the provision is intended.

 
 

 

IN WITNESS WHEREOF , the corporate parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, and entered into as of the date first above written.

ATTEST:
 
VOLCANIC GOLD, INC.
     
   
By:
/s/ Joseph Meuse
     
Name:
     
Title:
     
ATTEST:
 
BELMONT PARTNERS LLC
     
   
By:
/s/ Joseph Meuse
     
Name:
     
Title:
     
ATTEST:
 
CAPITAL AWARD, INC.
     
 
By:
/s/ Lee Solomon Yip Kun
     
Name: Mr. Lee Solomon Yip Kun
     
Title: Director
     
   
CAPITAL ADVENTURE, INC.
     
/s/ Lee Solomon Yip Kun
 
By:
/s/ Tan Poay Teik Petr
     
Name: Mr. Tan Poay Teik Petr
     
Title: Director
 
 
25

 

CAPITAL AWARD INC.
(company No. 33562)

OFFICER CERTIFICATE

The undersigned, Solomon Lee Yip Kun, does hereby certify that he is a duly elected, acting and qualified Chief Executive Officer of Capital Award, Inc., a company organized under the laws of Belize (“Company”).

This Officer’s Certificate is provided to Volcanic Gold, Inc., a Nevada corporation (“VOLG”), pursuant to Section 5.2 of that certain Stock Purchase Agreement and Share Exchange dated as of July 24, 2007 (the “Agreement”), by and between the Company, Capital Adventure, Inc., a company orgnaized under the laws of Belize and the sole shareholder of the Company, VOLG and Belmont Partners, LLP. Capitalized terms used herein and not otherwise defined have the meanings therefor set forth in the Agreement, as applicable.

In my capacity as Chief Executive Officer of the Company, I hereby certify as of the date hereof as follows:

 
(a)
The representations and warranties of the Company set forth in the Agreement and in all Exhibits, Schedules and other documents furnished in connection therewith are in all material respects true and correct as if made on the Closing Date stipulated in the Agreement;

 
(b)
The Company has performed all covenants, satisfied all conditions, and complied with all other terms and provisions of the Agreement to be performed, satisfied or complied with by it as of the Closing Date;

 
(c)
Since such date and other than as previously disclosed to Volcanic Gold Inc., the Company has not entered into any material transaction other than transactions which are usual and in the ordinary course if its business; and

 
(d)
The is no litigation, proceeding, investigation or inquiry pending or, to the best knowledge of the Company, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by the Agreement or, to the extent not disclosed in the Company Disclosure Schedules contained within the Agreement, by or against the Company which might result in any material adverse change in any of the assets, properties, business or operations of the Company.

In Witness Whereof, I have hereunto set my hand as of the 24th day of July, 2007.

/s/ Solomon Lee Yip Kun
Mr. Solomon Lee Yip Kun
Director and Chief Executive Officer
 
Date:  24-07-2007
 
No.19A, Jalan Wawasan Ampang 2/8, Bandar Baru Ampang, 68000 Selangor, Malaysia
Telephone 603-42703939 Fax. 603-42701761
 
 
 

 

CAPITAL AWARD INC.
 
LETTER OF AKNOWLEDGEMENT OF RECEIPT
 
Date: 24 th . July 2007
 
To. BELMONT PARTNERS LLP.

The two share certificates numbered (1 and 2) of the Company bearing 1 and 49,999 ordinary shares of the Company owned by Capital Adventure Inc. and in relation to the “Merger and share sales agreement” between the Company, Capital Adventure Inc, Volcanic Gold Inc, and Belmont Partner LLP, have been delivered to and received by Belmont Partner LLP at the GuangZhou Office of the Company on 24 th . July 2007.

Acknowledged Receipt by

/s/ Joseph Meuse
Director of Belmont Partner LLP
Mr. JOSEPH MEUSE
 
 
 

 

Schedule 5.2

Capital Award, Inc. Financial Statements

 
 

 

CAPITAL AWARD INC.
( company No . 33562)

OFFICER CERTIFICATE

The undersigned, Solomon Lee Yip Kun, does hereby certify that he is a duly elected, acting and qualified Chief Executive Officer of Capital Award, Inc., a company organized under the laws of Belize (“Company”).

This Officer’s Certificate is provided to Volcanic Gold, Inc., a Nevada corporation (“VOLG”), pursuant to Section 5.2 of that certain Stock Purchase Agreement and Share Exchange dated as of July 24, 2007 (the “Agreement”), by and between the Company, Capital Adventure, Inc., a company orgnaized under the laws of Belize and the sole shareholder of the Company, VOLG and Belmont Partners, LLP. Capitalized terms used herein and not otherwise defined have the meanings therefor set forth in the Agreement, as applicable.

In my capacity as Chief Executive Officer of the Company, I hereby certify as of the date hereof as follows:

 
(a)
The representations and warranties of the Company set forth in the Agreement and in all Exhibits, Schedules and other documents furnished in connection therewith arc in all material respects true and correct as if made on the Closing Date stipulated in the Agreement:

 
(b)
The Company has performed all covenants, satisfied all conditions, and complied with all other terms and provisions of the Agreement to be performed, satisfied or complied with by it as of the Closing Date;

 
(c)
Since such date and other than as previously disclosed to Volcanic Gold Inc., the Company has not entered into any material transaction other than transactions which are usual and in the ordinary course if its business; and

 
(d)
The is no litigation, proceeding, investigation or inquiry pending or, to the best knowledge of the Company, threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by the Agreement or, to the extent not disclosed in the Company Disclosure Schedules contained within the Agreement, by or against the Company which might result in any material adverse change in any of the assets, properties, business or operations of the Company.

In Witness Whereof, I have hereunto set my hand as of the 24th day of July, 2007.

/s/ Solomon Lee Yip Kun
Mr. Solomon Lee Yip Kun
Director and Chief Executive Officer
 
Date:  24-07-2007
 
 
No.19A, Jalan Wawasan Ampang 2/8, Bandar Baru Ampang, 68000 Selangor, Malaysia
Telephone 603-42703939 Fax. 603-42701761

 
 

 

UNANIMOUS CONSENT IN LIEU OF A SPECIAL
MEETING OF DIRECTORS OF
A POWER AGRO AGRICULTURE DEVELOPMENT, INC.

The undersigned, being all of the directors of A POWER AGRO AGRICULTURE DEVELOPMENT, INC., a corporation of the State of Nevada, (“CORPORATION”), does hereby authorize and approve the actions set forth in the following resolutions without the formality of convening a meeting, and does hereby consent to the following action of this Corporation, which actions are hereby deemed effective as of the date hereof:

RESOLVED: That the Corporation is hereby to issue the following shares of the Corporation’s common stock in accordance with outstanding convertible notes held by these shareholders.

Win Ever Global-
1,700,000 shares
Global Palace Development Limited-
1,700,000 shares
Magic Dynamic Limited-
1,700,000 shares
Goodwill Sight Limited-
1,700,000 shares
Belmont Partners. LLC-
   400,000 shares

FURTHER RESOLVED, that each of the officers of the CORPORATION be, and they hereby are authorized and empowered to execute and deliver such documents, instruments and papers and to take any and all other action as they or any of them may deem necessary or appropriate for the purpose of carrying out the intent of the foregoing resolutions; and that the authority of such officers to execute and deliver any such documents, instruments and papers and to take any such other action shall be conclusively evidenced by their execution and delivery thereof or their taking thereof.

The undersigned, by affixing their signatures hereto, do hereby consent to, authorize and approve the foregoing actions in his capacity as the directors of A POWER AGRO AGRICULTURE DEVELOPMENT, INC.

Dated:  August 31, 2007

/s/ Lee Solomon Yip Kun   /s/ Zeng Shao Quan   /s/ Chen Bor Hann Michael
Mr. Lee Solomon Yip Kun
  
Mr. Zeng Shao Quan
  
Mr. Chen Bor Hann Michael
 
 
 

 
(Translation)

AGREEMENT

AN  AGREEMENT  made this 5th day of  September, 2007

BETWEEN

Miss. Tong Mo Ping (Hong Kong IC No.G283366(1) of ( Flat 4, 34 Floor, Chung Wa House, Tin Chung Court, Tin Shui Wai, Yuen Long, Hong Kong), and Miss Tong Mo Ching (Hong Kong IC No.E434044(6) of  (Room 3118, 31/F, Hong Ming House, Wah Ming Estate, Fan Ling, Hong Kong) .
(hereinafter collectively called "the Vendors") of the one part

AND

A Power Agro Agriculture Development Inc. (formerly known as Volcanic Gold Inc.), a company incorporated in Nevada, USA, Corporation No. ( C3048-1974 ) and having its address at 360 Main Street, PO Box 393 Washington, VA22747, USA (hereinafter called "the Purchaser") on the other part.

WHEREAS:-

1.
The Vendors are the legal and beneficial owners of Hang Yu Tai Investimento Limitada (Company No. 25487 SO)  (hereinafter referred to as “the said Company”), a company incorporated in Macau SAR, People’s Republic of China with limited liability and having its principal place of business at Macao East-north Big Road, Hai Ming Ju, Building 3, 5th floor L room.  Miss Tong Mo Ping and Miss Tong Mo Ching each has 17,500 and 7,500 ordinary shares respectively of Macau Dollar One (M$1) only each fully paid up representing 25,000 shares collectively, (hereinafter collectively referred to as “the Sale Shares”) aggregating to One Hundred Percentum (100%) of the issued and paid-up capital of the said Company.

2.
The said Company is the legal and beneficial owners of 78% equity interest in a company in China known as ZHONGXINGNONGMU CO. (in Chinese Business Register No. 1308001000413) (hereinafter called “ZHONGXING”). ZHONGXING is duly established and incorporated in Hebei China with limited liability and a registered capital of RMB60 million, having its registered address at HEBEISHENG  CHENGDESHI FENGNING MANZUZIZHIXIAN DAGELU XIQULU 78 HAO. Mr. SUN XIMIN is the legal representative of ZHONGXING that is carrying on the business of rearing of cattle and operating of diary farm. (Hereinafter referred to as “Principal Activities”).

3.
ZHONGXING is applying to become a sino-foreign joint venture enterprise, (herein after referred to as SFJVE), such that corresponding Joint Venture Agreement (JVA) between the said Company and ZHONGXING and the Memorandum of Article and Association of the SFJVE (hereinafter called the M&A) have been executed and agreed upon in preparation together with the aforesaid submission. (A copy of each of the said JVA and M&A are annexed hereto and marked appendix (X) and Appendix (Y) respectively)

4.
The said Company has no other business activity except the aforesaid holding of 78% equity interest in ZHONGXING.

5.
The Purchaser is a company quoted on the OTCBPS of NASDAQ, the United States of America with Ticker Symbol reference of “APWA”.
 
 
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6.
As at 5 th September 2007, the financial position of the said Company, as shown in its management account, is owning 78% equity stake in ZHONGXING which is representing its only asset, whereas ZhongXing’s Financial Audited Report 2006 and Management Account 2007 is evidencing Net Assets of NO LESS THAN United States Dollars (Ten million two hundred and sixty nine thousand) (US$10,269,000.00) as at 31 st . December 2006 and of United State Dollars ( Nineteen  Million Five Hundred and Sixty Five Thousand) (US$19,565,000.00) as at 31 st July 2007 respectively excluding the values of the new blocks of land measuring up to 5,000 Mu (hereinafter referred to as New Land) and based on the exchange rate of US$1 to RMB7.75 (hereinafter referred to as “the ZHONGXING Accounts”).   Copies of the ZhongXing’s Audited Report 2006 and Management Account 2007 and reference of the New Land are annexed hereto and marked as Appendix (C1), Appendix (C2) and Appendix (C3) respectively.)

7.
The Vendors have agreed to sell and the Purchaser has agreed to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:-

1.
Definitions and Interpretations

In this Agreement, unless the context otherwise requires, the following words or expression shall have the following meaning:-

(a) 
“Purchaser”   includes its respective nominees and successors in title ;

(b) 
“Vendors”   include their respective successors in title ;

 
(c)
“The Completion Date” shall refer to the date of full payment of all monies and shares payable by the Purchaser herein provided ;

 
(d)
“US$” means United States Dollars, the currency of the United States of America ;

 
(e)
All undertakings, agreements, terms, warranties and representations expressed to be made by two or more parties hereto shall be deemed to be made by them and be binding on them jointly and severally ;

 
(f)
Reference to natural persons shall be deemed to include body corporate and the plural number shall include the singular number and vice versa ;

 
(g)
Words importing the masculine gender shall be deemed to include the feminine and neuter gender ;

 
(h)
The headings are inserted for convenience of reference only and shall not affect the interpretation of this Agreement hereof ;

 
(i)
Where an act required to be done within a specified number of days after or from a specified date, the period is inclusive of and begins to run from the date so specified ;

 
(j)
A period of a month from the happening of an event or the doing of an act or thing shall be deemed to be inclusive of the day on which the event happens or the act or thing is or was required to be done ;

 
(k)
The Appendices hereto shall be taken, read and construed as an essential part of this Agreement ;
 
 
2

 
 
2. 
Agreement For Sale and Purchase

2.1
Purchase Consideration and Part Payment

In consideration of the sum of RMB Seventy Seven Million Five Hundred Thousand), (RMB77,500,000.00 equivalent to US$10,000,000.00)   only  (hereinafter call “the Part Payment") now paid by the Purchaser to the Vendors by way of deposit and part payment towards the purchase price of the Sale Shares (the receipt of which the Vendors hereby duly acknowledge, and that, its corresponding paid order, signed receipt and corresponding banking record of the said payment are annexed hereto marked Appendix E ), (hereinafter referred to as Part Payment ) the Vendors hereby agree to sell and the Purchasers hereby agree to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement at the total purchase price of United States Dollars Twenty Six Million Nine Hundred and Ten Thousand (US$26,910,000.00)   only (hereinafter called "the Purchase Price")  and subject to further terms and conditions hereinafter contained.

2.2 
Payment of Balance Purchase Price

 
The balance of the Purchase Price amounting to United States Dollars Sixteen Million and Nine Hundred and Ten Hundred Thousand (US$16,910,000.00) only (hereinafter called "the Balance Purchase Price”) shall be settled within Ninety (90) days  from the date hereof (hereinafter called “the Completion Date”) by the issuance of shares by the Purchaser to the Vendors or the Vendor’s nominee(s) amounting to 7,000,000 units of its shares (hereinafter called “the Purchaser’s Consideration Shares”) at par of US$0.001 per share. The Purchaser’s Consideration Shares shall rank pari passu in all respects with the existing Purchaser’s shares save and except for dividends to be declared for the financial year ending 31st August 2007.

2.3 
Purchaser’s Right after payment of the Part Payment

After the Purchaser has paid the Part Payment referred to in Clause 2.1 hereof, the Purchaser shall become the sole owner of and have the absolute control and authority over the said Company (hereinafter referred to as Ownership) and the Purchaser’s remaining obligation of settling the issuance of shares in accordance with condition and term stated in Clause 3 hereto, shall be regarded as a moral obligation without affecting the Ownership.

3. 
Due Diligence

3.1 
Purchaser's Rights to Due Diligence

Not with standing the fact that the Purchase has done its Due Diligence in respect of ZHONGXING’S business affairs satisfactorily during the period prior to the execution of this agreement. The Vendor agreed that during the period commencing the date of this Agreement and ending on the Completion Date, the Purchaser as the new foreign owner of ZhongXing shall be entitled to:

 
(i)
make such reasonable enquiries and to attend at the offices of  the said Company and ZHONGXING;

 
(ii)
a due diligence investigation of on the profit records of the said Company and ZHONGXING.

 
(iii)
a due diligence investigation of the profit forecast and projection of the said Company’s and ZHONGXING’s operations by the Purchaser and its auditors ;

 
(iv)
obtain current valuation of ZHONGXING’s properties to confirm that the Net Asset Value of the ZHONGXING is in accordance with records stated in ZHONGXING’s Management Account as at 31 st July 2007.
 
 
3

 
 
 
(v)
follow up and carry on with the application of the Sino joint venture of ZHONGXING (SJVZHONGXING) where the Purchaser shall proceed with matters related to the SJVZHONGXING as a foreign Joint Venture Partner to obtain the right to repatriate its share of profits and investment and investment interest earned and or invested in the SJVZHONGXING in the People's Republic of China.

3.2
Vendors' Obligations

The Vendors shall take all steps and do all things necessary to enable the Purchaser and/or its representatives to carry out the enquiries and the due diligence investigation as provided in Clause 3.1.

3.3 
Purchaser's Entitlement to claim

In the event that :

 
(i)
the Purchaser is unable to make reasonable enquiries or attend at the office of The said Company and ZHONGXING or carry out the due diligence investigations due to no fault of the Purchaser; or

 
(i)
it is found, as a result of the due diligence investigations or otherwise, that any of the Representations and Warranties contained in Clause 11 are untrue, misleading or incorrect or have not been fully carried out in any material respect, or

(iii)
in any event of any matter or thing arising or becoming known or being notified to the Purchaser which is materially inconsistent with any of the Representations and Warranties contained in Clause 11 ;

then the Purchaser may by notice in writing to the Vendors, to be given not later than the Completion Date, specify and verify the amount of claims, (hereinafter referred to as the Claims) and in which event (without prejudice to any claim in damages), the Vendors shall refund forthwith to the Purchaser the claims together with interest accruing thereon (if any).

4. 
Delivery of Documents

4.1
Simultaneously with the execution of this Agreement, the Vendors shall deliver or cause to be delivered the following documents to the Purchaser:

 
(a)
The transfer forms in respect of the Sale Shares duly executed by the Vendors in favour of the Purchaser and/or the Purchaser's nominee(s) (hereinafter called “the said Transfers”) together with all the share certificates in respect of the Sale Shares and all other relevant documents necessary for effecting the transfer of the Sale Shares to the Purchaser and or the Purchaser's nominee(s).

 
(b)
The letters of resignations of all the existing directors from their respective offices in the said Company each acknowledging that they have no claims against the said Company for compensation or otherwise; and

 
(c)
Resolutions of the Board of Directors of the said Company in accordance with the Memorandum and Articles of Association of the said Company approving :-

 
(i)
the sale and transfer of the Sale Shares from the Vendors to the Purchaser or its nominee or nominees and the registration of such transfer ; and

 
(ii)
the appointment of such persons as the Purchaser may nominate as the new Directors of the said Company ;
 
 
4

 
 
 
(d)
the common seal and certificate of incorporation of the said Company.

(The documents referred to in Clauses 4.1 (a) to 4.1 (d) are hereinafter collectively referred to as "the said Documents").

5. 
Completion

 
The Completion of this Agreement shall take place on the Completion Date, whereupon:

the Purchaser shall issue the Purchaser’s Consideration Shares in the name of the Vendors and/or their nominee(s) as the Vendors shall direct and shall deliver the share certificates to the Vendors.

6. 
Non-Registration of the Transfer of the Sale Shares

 
In the event that the transfer of the Sale Shares cannot be registered in favour of the Purchaser or its nominee(s) free from encumbrances for any reason whatsoever, all monies received by or paid on behalf of the Vendors or for or on behalf of The said Company and ZHONGXING shall be refunded by the Vendors to the Purchaser or its nominee(s) free of interest thereon and upon such refund this Agreement shall be deemed terminated and of no further effect and neither of the parties shall have any claim against the other PROVIDED THAT all documents received by the Purchaser shall have by then returned by the Purchaser to the Vendors.

7.
Outgoings

 
All rent, assessment charges, rates, taxes and other outgoings if any payable by The said Company and ZHONGXING on or before the Completion Date shall be borne and paid for by the Vendors PROVIDED ALWAYS that the Vendors shall indemnify the Purchaser or its assigns in respect of any penalties and damages which may be arise as a result of any late payments or default in payment in respect of such rent, assessment charges, rates, taxes or other outgoings.

8.
Vendors’ Indemnity

8.1
If there shall be any breach by the Vendors of any warranty, guarantee, undertaking and agreement herein contained, then the Purchaser shall be entitled to be indemnified by the Vendors in respect of any loss resulting from such breach.

8.2
Without prejudice to the generality of the foregoing, if the effect of any such breach is that The said Company and ZHONGXING has incurred or incurs any liability or contingent liability which would not have been incurred had there been no such breach, then the Vendors shall make good to The said Company and ZHONGXING the amount of the loss occasioned by such liability by payment in cash to The said Company and ZHONGXING.

9.
Representations and Warranties

9.1
The Vendors hereby jointly and severally represent, warrant and undertake to and   with the Purchaser as follows :-

 
(a)
None of the Sale Shares which are registered in the names of the Vendors are subject to any option, charge, lien or encumbrances and the Vendors are the beneficial owners thereof ;

 
(b)
The accounts of the said Company and ZHONGXING as at the 31 st July 2007 gave a true and fair view of the financial position of The said Company and ZHONGXING.
 
 
5

 
 
 
(c)
The said Company and ZHONGXING are not involved in any dispute with any revenue authorities concerning any matter likely to affect in any way the liability ( whether accrued, contingent or future) of The said Company and ZHONGXING to taxation or other sum imposed, charged, levied or payable under the provision of any taxation statute.

 
(d)
The said Company and ZHONGXING have not prior to the date hereof issued or agreed to issue any shares or given or agreed to give any option in respect of any shares nor issued or agreed to issue or give any option in respect of any debentures or other securities.

 
(e)
There are no existing service agreements or contracts between The said Company and ZHONGXING and any directors thereof.

 
(f)
The said Company and ZHONGXING are not engaged in any litigation or arbitration proceedings and no such proceedings and no prosecution are pending or threatened against the said Company and the Vendors know of no facts or matters likely to give rise thereto and that the said Company is not in default in respect of any obligations whether contractual statutory or municipal;

 
(g)
The said Company and ZHONGXING have no subsidiaries other than the subsidiaries disclosed hereof. (Hereinafter called the subsidiaries attached hereof marked appendix (D))

 
(h)
The said Company and ZHONGXING have no mortgages liens other encumbrances secured over any of their properties and assets other than the one disclosed in the disclosure annexed hereto as Appendix (G).

 
(i)
The said Company and ZHONGXING have in relation to each of their employee (and in so far as relevant to each of its former employees) complied in all material respects with all obligations imposed on it by all statutes, regulations and codes of conduct and practice relevant to the relations between them and their employees.

10.
Default by Purchaser

In the event that the Purchaser shall fail to complete the sale and purchase of the Sale Shares in accordance with Clause 2.2 hereof, the Vendors shall be entitled to claim liquidated damages amounting up to the Balance Purchase Price of United State Dollars Sixteen Million Nine Hundred and Ten Thousand (US$16,910,000.00).

11.
Force Majeure

Notwithstanding any provision herein to the contrary, no party hereto shall be liable to any other party hereto for loss, injury, delay or damages suffered or incurred by any such other party due to a substantial effect, acts of God, government actions or any other cause which is beyond the reasonable control of the party the performance of whose obligations hereunder are affected by such cause.

12.
Time of Essence

Time wherever mentioned shall be deemed to be of the essence of this Agreement.

13.
Notice

 
Every notice, request, consent, demand or other communication under this Agreement shall be given or made in writing shall be sufficiently served on the party to whom it is addressed if it is left at or sent by registered post or telegram to the address given above or to the place of business for the time or to such address as one party hereto may from time to time notify in writing to the other party hereto. A notice sent by registered post or facsimile shall be deemed to have served at the time when it ought in due course of post or transmission to have been received.
 
 
6

 
 
14.
Governing Law

 
This Agreement shall be governed by and construed in accordance with the Laws of Macau SAR.

15.
Modifications

All parties hereto agree that the provisions herein contained may if mutually agreed upon be varied, amended, modified or substituted and any such variations, amendment, modification or substitution thereof shall be in writing and signed by all parties hereto.  In the event of any inconsistency as to any of the provisions thereof, the one subsequent in time shall prevail.

16. 
Severability

If any of the provisions of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

17. 
This Agreement the Sole Agreement

This Agreement constitutes the sole and only agreement between the Vendors and the Purchaser respecting the sale and purchase of the Sale Shares and correctly sets forth the agreement reached between them in respect of the subject matter of this Agreement and supersedes and cancels all previous and other agreements, negotiations, representations, undertakings or undertakings whatsoever whether written or oral in respect thereof.

18.
Costs

The Parties hereto shall bear and pay their respective Solicitors’ fees and costs and the Purchaser shall bear all charges fees and expenses incurred or levied in respect of the Transfer of the Sale Shares including the stamp duties and the registration fees thereof and the stamp duty for this Agreement.

19. 
Successors Bound

This Agreement shall be binding on the respective successors-in-title, heirs and permitted assigns of the parties hereto.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seal the day and year first above written.

Signed by THE VENDORS
)
 
in the presence of :-
)
 
 
)
 
 
)
(signed)
 
)
(Tong Mo Ping)
 
)
_______________________
 
)
 
 
)
 
 
 
7

 
 
)
 
 
)
(signed)
 
)
(Tong Mo Ching)
 
)
_______________________
 
)
 

   
THE PURCHASER
)
 
 
)
(Common Seal of
 
)
A Power Agro Agriculture Development Inc.
(Company No.     C3048-1974
)
affixed)
was hereunto affixed in the
)
 
presence of :-
)
 
 
)
(signed)
   
(Solomon YK Lee)
   
_____________________
   
DIRECTOR

APPENDIX (X)
SINO JOINT VENTURE AGREEMENT

APPENDIX (Y)
MEMORANDUM OF ARTICLE AND ASSOCIATION

APPENDIX (C1)
ZHONGXING’S AUDITED REPORT 2006

APPENDIX (C2)
ZHONGXING’S MANAGEMENT ACCOUNT AS AT 310707

APPENDIX (C3)
REFERENCE TO THE NEW LAND

APPENDIX (E)
CORRESPONDING PAID ORDER, SIGNED RECEIPT AND CORRESPONDING BANKING RECORD OF “ THE PART PAYMENT

APPENDIX (G)
MORTGAGES LIENS OTHER ENCUMBRANCES SECURED OVER THE PROPERTIES AND ASSETS
 
 
8

 
 

(Translation)

AGREEMENT

AN  AGREEMENT  made this 5 th day of  September, 2007

BETWEEN

Mr. Iong Kun Lok (Macau IC No. 7302866(4)) of Building A, F/6-AC, Huoli Plaza, Xin Kou’an Sheng De Lun Street, Macau, and
Mr. Lau Wai Yip (Hong Kong IC No. G165723(1))  of  Unit L, F/6, Building 3 Hai Ming Ju, Dong Bei Da Ma Road, Macau.
(hereinafter collectively called "the Vendors") of the one part

AND

A Power Agro Agriculture Development Inc. (formerly known as Volcanic Gold Inc.), a company incorporated in Nevada, USA, Corporation No. C3048-1974, and having its address at 360 Main Street, PO Box 393 Washington, VA22747, USA (hereinafter called "the Purchaser") on the other part.

WHEREAS:-

1.
The Vendors are the legal and beneficial owners of Macau Eiji Limitada (Company No. 22347 SO) (hereinafter referred to as “the said Company”), a company incorporated in Macau SAR, People’s Republic of China with limited liability and having its principal place of business at Building A, First floor, No.51-53 B Pi La Street, Macau.   Mr. Iong Kun Lok and Mr. Lau Wai Yip each has (16,500) and (13,500) ordinary shares respectively of Macau Dollar One (M$1) only each fully paid up representing (30,000) shares collectively, (hereinafter collectively referred to as “the Sale Shares”) aggregating to One Hundred Percentum (100%) of the issued and paid-up capital of the said Company.

2.
The said Company is the legal and beneficial owners of 75% equity interest in a Hylocereus Undatus flowers (HU flowers) plantation company in China known as Hang Sing Tai Agriculture Development Co. Limited (Chinese Business Register No. 4407852000202) (hereinafter called “HST”), HST is duly established and incorporated in Enping, Guangdong, China with limited liability and a registered capital of RMB 100 thousand, having its registered address at No. 1-3 First Floor, Jiang Zhou Shui Zha Office Building, No. 19 Jiang Zhou Yu Jiang Jun Road, Juntang Town, Enping City, Guangdong Province, China. Mr. Fang Xiang Jun is the legal representative of HST and carrying on the business of HU flowers plantation. (hereinafter referred to as “Principal Activities”).

3.
HST is applying to become a sino-foreign joint venture enterprise, (herein after referred to as SFJVE), such that corresponding Joint Venture Agreement (JVA) between the said Company and HST and the Memorandum of Article and Association of the SFJVE (hereinafter called the M&A) have been executed and agreed upon in preparation together with the aforesaid submission. (A copy of each of the said JVA and M&A are annexed hereto and marked appendix (X) and Appendix (Y) respectively)

4.
The said Company has no other business activity except the aforesaid holding of 75% equity interest in HST.

5.
The Purchaser is a company quoted on the OTCBPS of NASDAQ, the United States of America with Ticker Symbol reference of “APWA”.
 
 
1

 

6.
As at 5 th September 2007, the financial position of the said Company, as shown in its management account, is owning 75% equity stake in HST which is representing its only asset, whereas HST’s Financial Management Account 2007 is evidencing Net Assets of NO LESS THAN United States Dollars (Six Million Three hundred and Ninety Thousand) (US$6,390,000.00) as at 31 st July2007 excluding the values of the new blocks of land measuring up to 500 Mu (hereinafter referred to as New Land) and based on the exchange rate of US$1 to RMB7.75 (hereinafter referred to as “the HST Accounts”).   Copies of the HST’s Management Account 2007 and reference of the New Land are annexed hereto and marked as Appendix (C1), Appendix (C2) respectively.)

7.
The Vendors have agreed to sell and the Purchaser has agreed to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:-

1.
Definitions and Interpretations

In this Agreement, unless the context otherwise requires, the following words or expression shall have the following meaning:-

 
(a)
“Purchaser”   includes its respective nominees and successors in title ;

 
(b)
“Vendors”   include their respective successors in title ;

 
(c)
“The Completion Date” shall refer to the date of full payment of all monies and shares payable by the Purchaser herein provided ;

 
(d)
“US$” means United States Dollars, the currency of the United States of America ;

 
(e)
All undertakings, agreements, terms, warranties and representations expressed to be made by two or more parties hereto shall be deemed to be made by them and be binding on them jointly and severally ;

 
(f)
Reference to natural persons shall be deemed to include body corporate and the plural number shall include the singular number and vice versa ;

 
(g)
Words importing the masculine gender shall be deemed to include the feminine and neuter gender ;

 
(h)
The headings are inserted for convenience of reference only and shall not affect the interpretation of this Agreement hereof ;

 
(i)
Where an act required to be done within a specified number of days after or from a specified date, the period is inclusive of and begins to run from the date so specified ;

 
(j)
A period of a month from the happening of an event or the doing of an act or thing shall be deemed to be inclusive of the day on which the event happens or the act or thing is or was required to be done ;

 
(k)
The Appendices hereto shall be taken, read and construed as an essential part of this Agreement ;

 
2

 
 
2.
Agreement For Sale and Purchase

2.1
Purchase Consideration and Part Payment

In consideration of the sum of RMB Fifteen Million Five Hundred Thousand (RMB15,500,000.00 equivalent to US$2,000,000.00)   only  (hereinafter call “the Part Payment") now paid by the Purchaser to the Vendors by way of deposit and part payment towards the purchase price of the Sale Shares (the receipt of which the Vendors hereby duly acknowledge, and that, its corresponding paid order, signed receipt and corresponding banking record of the said payment are annexed hereto marked Appendix E ), (hereinafter referred to as Part Payment ) the Vendors hereby agree to sell and the Purchasers hereby agree to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement at the total purchase price of United States Dollars Six Million Six Hundred and Seventy Five Thousand (US$6,675,000.00)   only (hereinafter called "the Purchase Price")  and subject to further terms and conditions hereinafter contained.

2.2
Payment of Balance Purchase Price

The balance of the Purchase Price amounting to United States Dollars Four Million Six Hundred and Seventy Five Thousand (US$4,675,000.00) only (hereinafter called "the Balance Purchase Price”) shall be settled within Ninety (90) days from the date hereof (hereinafter called “the Completion Date”) by the issuance of shares by the Purchaser to the Vendors or the Vendor’s nominee(s) amounting to 2,000,000 units of its shares (hereinafter called “the Purchaser’s Consideration Shares”) at par of US$0.001 per share. The Purchaser’s Consideration Shares shall rank pari passu in all respects with the existing Purchaser’s shares save and except for dividends to be declared for the financial year ending 31st August 2007.

2.3
Purchaser’s Right after payment of the Part Payment

After the Purchaser has paid the Part Payment referred to in Clause 2.1 hereof, the Purchaser shall become the sole owner of and have the absolute control and authority over the said Company (hereinafter referred to as Ownership) and the Purchaser’s remaining obligation of settling the issuance of shares in accordance with condition and term stated in Clause 3 hereto, shall be regarded as a moral obligation without affecting the Ownership.

3.
Due Diligence

3.1
Purchaser's Rights to Due Diligence

Not with standing the fact that the Purchase has done its Due Diligence in respect of HST’S business affairs satisfactorily during the period prior to the execution of this agreement. The Vendor agreed that during the period commencing the date of this Agreement and ending on the Completion Date, the Purchaser as the new foreign owner of HST shall be entitled to:

 
(i)
make such reasonable enquiries and to attend at the offices of  the said Company and HST;

 
(ii)
a due diligence investigation of on the profit records of the said Company and HST.

 
(iii)
a due diligence investigation of the profit forecast and projection of the said Company’s and HST’s operations by the Purchaser and its auditors ;

 
(iv)
obtain current valuation of HST’s properties to confirm that the Net Asset Value of the HST is in accordance with records stated in HST’s Management Account as at 31 st July 2007.

 
(v)
follow up and carry on the with the application of the Sino joint venture  of HST (SJVHST) and the Purchaser shall proceed with matters related to the SJVHST as a foreign Joint Venture Partner to obtain the right to repatriate its share of profits and investment and investment interest earned and or invested in the SJVHST in the People's Republic of China.

 
3

 
 
3.2
Vendors' Obligations

The Vendors shall take all steps and do all things necessary to enable the Purchaser and/or its representatives to carry out the enquiries and the due diligence investigation as provided in Clause 3.1.

3.3
Purchaser's Entitlement to claim

In the event that :

 
(i)
the Purchaser is unable to make reasonable enquiries or attend at the office of The said Company and HST or carry out the due diligence investigations due to no fault of the Purchaser; or

 
(i)
it is found, as a result of the due diligence investigations or otherwise, that any of the Representations and Warranties contained in Clause 11 are untrue, misleading or incorrect or have not been fully carried out in any material respect, or

 
(iii)
in any event of any matter or thing arising or becoming known or being notified to the Purchaser which is materially inconsistent with any of the Representations and Warranties contained in Clause 11 ;

then the Purchaser may by notice in writing to the Vendors, to be given not later than the Completion Date, specify and verify the amount of claims, (hereinafter referred to as the Claims) and in which event (without prejudice to any claim in damages), the Vendors shall refund forthwith to the Purchaser the claims together with interest accruing thereon (if any).

4.
Delivery of Documents

4.1
Simultaneously with the execution of this Agreement, the Vendors shall deliver or cause to be delivered the following documents to the Purchaser:

 
(a)
The transfer forms in respect of the Sale Shares duly executed by the Vendors in favour of the Purchaser and/or the Purchaser's nominee(s) (hereinafter called “the said Transfers”) together with all the share certificates in respect of the Sale Shares and all other relevant documents necessary for effecting the transfer of the Sale Shares to the Purchaser and or the Purchaser's nominee(s).

 
(b)
The letters of resignations of all the existing directors from their respective offices in the said Company each acknowledging that they have no claims against the said Company for compensation or otherwise; and

 
(c)
Resolutions of the Board of Directors of the said Company in accordance with the Memorandum and Articles of Association of the said Company approving :-

 
(i)
the sale and transfer of the Sale Shares from the Vendors to the Purchaser or its nominee or nominees and the registration of such transfer ; and

 
(ii)
the appointment of such persons as the Purchaser may nominate as the new Directors of the said Company ;

 
(d)
the common seal and certificate of incorporation of the said Company.

(The documents referred to in Clauses 4.1 (a) to 4.1 (d) are hereinafter collectively referred to as "the said Documents").

 
4

 
 
5.
Completion

The Completion of this Agreement shall take place on the Completion Date, whereupon:

the Purchaser shall issue the Purchaser’s Consideration Shares in the name of the Vendors and/or their nominee(s) as the Vendors shall direct and shall deliver the share certificates to the Vendors.

6.
Non-Registration of the Transfer of the Sale Shares

In the event that the transfer of the Sale Shares cannot be registered in favour of the Purchaser or its nominee(s) free from encumbrances for any reason whatsoever, all monies received by or paid on behalf of the Vendors or for or on behalf of The said Company and HST shall be refunded by the Vendors to the Purchaser or its nominee(s) free of interest thereon and upon such refund this Agreement shall be deemed terminated and of no further effect and neither of the parties shall have any claim against the other PROVIDED THAT all documents received by the Purchaser shall have by then returned by the Purchaser to the Vendors.

7.
Outgoings

All rent, assessment charges, rates, taxes and other outgoings if any payable by The said Company and HST on or before the Completion Date shall be borne and paid for by the Vendors PROVIDED ALWAYS that the Vendors shall indemnify the Purchaser or its assigns in respect of any penalties and damages which may be arise as a result of any late payments or default in payment in respect of such rent, assessment charges, rates, taxes or other outgoings.

8.
Vendors’ Indemnity

8.1
If there shall be any breach by the Vendors of any warranty, guarantee, undertaking and agreement herein contained, then the Purchaser shall be entitled to be indemnified by the Vendors in respect of any loss resulting from such breach.

8.2
Without prejudice to the generality of the foregoing, if the effect of any such breach is that The said Company and HST has incurred or incurs any liability or contingent liability which would not have been incurred had there been no such breach, then the Vendors shall make good to The said Company and HST the amount of the loss occasioned by such liability by payment in cash to The said Company and HST.

9.
Representations and Warranties

9.1
The Vendors hereby jointly and severally represent, warrant and undertake to and   with the Purchaser as follows :-

 
(a)
None of the Sale Shares which are registered in the names of the Vendors are subject to any option, charge, lien or encumbrances and the Vendors are the beneficial owners thereof ;

 
(b)
The accounts of The said Company and HST as at the 31 st July 2007 gave a true and fair view of the financial position of The said Company and HST.

 
(c)
The said Company and HST are not involved in any dispute with any revenue authorities concerning any matter likely to affect in any way the liability ( whether accrued, contingent or future) of The said Company and HST to taxation or other sum imposed, charged, levied or payable under the provision of any taxation statute.

 
(d)
The said Company and HST have not prior to the date hereof issued or agreed to issue any shares or given or agreed to give any option in respect of any shares nor issued or agreed to issue or give any option in respect of any debentures or other securities.

 
5

 
 
 
(e)
There are no existing service agreements or contracts between The said Company and HST and any directors thereof.

 
(f)
The said Company and HST are not engaged in any litigation or arbitration proceedings and no such proceedings and no prosecution are pending or threatened against the said Company and the Vendors know of no facts or matters likely to give rise thereto and that the said Company is not in default in respect of any obligations whether contractual statutory or municipal;

 
(g)
The said Company and HST have no subsidiaries other than the subsidiaries disclosed hereof. (Hereinafter called the subsidiaries attached hereof marked appendix (D))

 
(h)
The said Company and HST have no mortgages liens other encumbrances secured over any of their properties and assets other than the one disclosed in the disclosure annexed hereto as Appendix (G).

 
(i)
The said Company and HST have in relation to each of their employee (and in so far as relevant to each of its former employees) complied in all material respects with all obligations imposed on it by all statutes, regulations and codes of conduct and practice relevant to the relations between them and their employees.

10.
Default by Purchaser

In the event that the Purchaser shall fail to complete the sale and purchase of the Sale Shares in accordance with Clause 2.2 hereof, the Vendors shall be entitled to claim liquidated damages amounting up to the Balance Purchase Price of United State Dollars Five Million Six Hundred and Seventy Five Thousand (US$4,675,000.00).

11.
Force Majeure

Notwithstanding any provision herein to the contrary, no party hereto shall be liable to any other party hereto for loss, injury, delay or damages suffered or incurred by any such other party due to a substantial effect, acts of God, government actions or any other cause which is beyond the reasonable control of the party the performance of whose obligations hereunder are affected by such cause.

12.
Time of Essence

Time wherever mentioned shall be deemed to be of the essence of this Agreement.

13.
Notice

Every notice, request, consent, demand or other communication under this Agreement shall be given or made in writing shall be sufficiently served on the party to whom it is addressed if it is left at or sent by registered post or telegram to the address given above or to the place of business for the time or to such address as one party hereto may from time to time notify in writing to the other party hereto. A notice sent by registered post or facsimile shall be deemed to have served at the time when it ought in due course of post or transmission to have been received.

14.
Governing Law

This Agreement shall be governed by and construed in accordance with the Laws of  Macau SAR.

 
6

 
 
15.
Modifications

All parties hereto agree that the provisions herein contained may if mutually agreed upon be varied, amended, modified or substituted and any such variations, amendment, modification or substitution thereof shall be in writing and signed by all parties hereto.  In the event of any inconsistency as to any of the provisions thereof, the one subsequent in time shall prevail.

16.
Severability

If any of the provisions of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

17.
This Agreement the Sole Agreement

This Agreement constitutes the sole and only agreement between the Vendors and the Purchaser respecting the sale and purchase of the Sale Shares and correctly sets forth the agreement reached between them in respect of the subject matter of this Agreement and supersedes and cancels all previous and other agreements, negotiations, representations, undertakings or undertakings whatsoever whether written or oral in respect thereof.

18.
Costs

The Parties hereto shall bear and pay their respective Solicitors’ fees and costs and the Purchaser shall bear all charges fees and expenses incurred or levied in respect of the Transfer of the Sale Shares including the stamp duties and the registration fees thereof and the stamp duty for this Agreement.

19.
Successors Bound

This Agreement shall be binding on the respective successors-in-title, heirs and  permitted assigns of the parties hereto.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seal the day and year first above written.

Signed by THE VENDORS
)
     
in the presence of :-
)
     
 
)
     
 
)
 
(signed)
 
 
)
 
(Iong Kun Lok)
 
 
)
     
 
)
     
 
)
     
 
)
     
 
)
 
(signed)
 
 
)
 
(Lau Wai Yip)
 
 
)
     
 
)
     
 
 
7

 
 
The Common Seal of
)
     
THE PURCHASER
)
     
 
)
 
(Common Seal of
 
 
)
 
A Power Agro Agriculture Development Inc.
(Company No. C3048-1974
)
 
affixed)
 
was hereunto affixed in the
)
     
presence of :-
)
     
 
)
 
(signed)
 
     
(Solomon YK Lee)
 
         
           
       
DIRECTOR
 

APPENDIX (X)
SINO JOINT VENTURE AGREEMENT

APPENDIX (Y)
MEMORANDUM OF ARTICLE AND ASSOCIATION

APPENDIX (C1)
HST’S AUDITED REPORT 2006

APPENDIX (C2)
HST’S MANAGEMENT ACCOUNT AS AT 310707

APPENDIX (C3)
REFERENCE TO THE NEW LAND

APPENDIX (E)
CORRESPONDING PAID ORDER, SIGNED RECEIPT AND CORRESPONDING BANKING RECORD OF “ THE PART PAYMENT

APPENDIX (G)
MORTGAGES LIENS OTHER ENCUMBRANCES SECURED OVER THE PROPERTIES AND ASSETS
 
 
8

 
 

(Translation)

AGREEMENT

AN  AGREEMENT  made this 5 th day of  September, 2007

BETWEEN

Mr. HUNG PANG CHEUNG BENNY (Hong Kong IC No. G478016(6)  )  of Flat G, 24/F, Block 3, Grandview Garden, 185 Hammer Hill Road, Kowloon, Hong Kong,
and
Miss. CHAN YUEN YI NORA (Hong Kong IC No. G604072(0))  of  Flat G, 30/F, Block 4, Sun Tuen Mun Center, Tuen Mun, N.T., Hong Kong.
(hereinafter collectively called "the Vendors") of the one part

AND

A Power Agro Agriculture Development Inc. (formerly known as Volcanic Gold Inc.), a company incorporated in Nevada, USA, Corporation No. ( C3048-1974 ) and having its address at 360 Main Street, PO Box 393 Washington, VA22747, USA (hereinafter called "the Purchaser") on the other part.

WHEREAS:-

1.
The Vendors are the legal and beneficial owners of Tri-Way Industries Limited (Company No.1004146)  (hereinafter referred to as “the said Company”), a company incorporated in Hong Kong SAR, People’s Republic of China with limited liability and having its principal place of business at Rm 1613, 16/F, Tai Yau Building, 181 Johnston Road, Waichai Hong Kong. Mr. HUNG PANG CHEUNG BENNY and Miss. CHAN YUEN YI NORA each has (5,000) and (5,000)ordinary shares respectively of Hong Kong Dollar One (HK$1) only each fully paid up representing 10,000 shares collectively, (hereinafter collectively referred to as “the Sale Shares”) aggregating to One Hundred Percent (100%) of the issued and paid-up capital of the said Company.

2.
The said Company is the legal and beneficial owners of 30% equity interest in a Turf plantation and “provision of related engineering service” company in China known as Hu Nan Tian Qian Ke Ji Kai Fa You Xian Gong Si (hereinafter called“ TQST ”) (Business Register No. 4301002017685), TQST is duly established and incorporated in Hunan China with limited liability and a registered capital of RMB10 million, having its registered address at Hu Nan Sheng Chang Sha Shi Fu Rong Qu Gao Xin Ji Shu Chan Ye Kai Fa Qu Long Ping Gao Ke Ji Yuan Guan Wei Hui Ban Gong Lou Fu Lou 2 Lou , and  Mr. Han Bing Xin is the legal representative of TQST that is carrying on the business of Turf plantation and the provision of related engineering service. (hereinafter referred to as “Principal Activities”).

3.
TQST is applying to become a sino-foreign joint venture enterprise, (herein after referred to as SFJVE), such that corresponding Joint Venture Agreement (JVA) between the said Company and TQST and the Memorandum of Article and Association of the SFJVE (hereinafter called the M&A) have been executed and agreed upon in preparation together with the aforesaid submission. (A copy of each of the said JVA and M&A are annexed hereto and marked appendix (X) and Appendix (Y) respectively)

4.
The said Company has no other business activity except the aforesaid holding of 30% equity interest in TQST.

5.
The Purchaser is a company quoted on the OTCBPS of NASDAQ, the United States of America with Ticker Symbol reference of “APWA”.
 
 
1

 

6.
As at 5 th September 2007, the financial position of the said Company, as shown in its management account, is owning 30% equity stake in TQST which is representing its only asset, whereas TQST’s Financial Audited Report 2006 and Management Account 2007 is evidencing Net Assets of NO LESS THAN United States Dollars (Two Million Six hundred Thousand) (US$2,600,000.00) as at 31 st . December 2006 and of United State Dollars ( Three million ) (US$3,000,000.00) as at 31 st July 2007 respectively excluding the values of the new blocks of land measuring up to 1,000 Mu (hereinafter referred to as New Land) and based on the exchange rate of US$1 to RMB7.75 (hereinafter referred to as “the TQST Accounts”).   Copies of the TQST’s Audited Report 2006 and Management Account 2007 and reference of the New Land are annexed hereto and marked as Appendix (C1), Appendix (C2) and Appendix (C3) respectively.)

7.
The Vendors have agreed to sell and the Purchaser has agreed to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:-

1.
Definitions and Interpretations

In this Agreement, unless the context otherwise requires, the following words or expression shall have the following meaning:-

 
(a)
“Purchaser”   includes its respective nominees and successors in title ;

 
(b)
“Vendors”   include their respective successors in title ;

 
(c)
“The Completion Date” shall refer to the date of full payment of all monies and shares payable by the Purchaser herein provided ;

 
(d)
“US$” means United States Dollars, the currency of the United States of America ;

 
(e)
All undertakings, agreements, terms, warranties and representations expressed to be made by two or more parties hereto shall be deemed to be made by them and be binding on them jointly and severally ;

 
(f)
Reference to natural persons shall be deemed to include body corporate and the plural number shall include the singular number and vice versa ;

 
(g)
Words importing the masculine gender shall be deemed to include the feminine and neuter gender ;

 
(h)
The headings are inserted for convenience of reference only and shall not affect the interpretation of this Agreement hereof ;

 
(i)
Where an act required to be done within a specified number of days after or from a specified date, the period is inclusive of and begins to run from the date so specified ;

 
(j)
A period of a month from the happening of an event or the doing of an act or thing shall be deemed to be inclusive of the day on which the event happens or the act or thing is or was required to be done ;

 
(k)
The Appendices hereto shall be taken, read and construed as an essential part of this Agreement ;

 
2

 
 
2.
Agreement For Sale and Purchase

2.1
Purchase Consideration and Part Payment

In consideration of the sum of RMB Seven Million Seventy Five Thousand), (RMB7,750,000.00 equivalent to US$1,000,000.00)   only  (hereinafter call “the Part Payment") now paid by the Purchaser to the Vendors by way of deposit and part payment towards the purchase price of the Sale Shares (the receipt of which the Vendors hereby duly acknowledge, and that, its corresponding paid order, signed receipt and corresponding banking record of the said payment are annexed hereto marked Appendix E ), (hereinafter referred to as Part Payment ) the Vendors hereby agree to sell and the Purchasers hereby agree to purchase the Sale Shares free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement at the total purchase price of United States Dollars Three Million Two Hundred and Fifty Thousand (US$3,250,000.00)   only (hereinafter called "the Purchase Price")  and subject to further terms and conditions hereinafter contained.

2.2
Payment of Balance Purchase Price

The balance of the Purchase Price amounting to United States Dollars Two Million Two Hundred and Fifty Thousand (US$2,250,000.00) only (hereinafter called "the Balance Purchase Price”) shall be settled within Ninty (90) days  from the date hereof (hereinafter called “the Completion Date”) by the issuance of shares by the Purchaser to the Vendors or the Vendor’s nominee(s) amounting to 1,000,000 units of its shares (hereinafter called “the Purchaser’s Consideration Shares”) at par of US$0.001 per share. The Purchaser’s Consideration Shares shall rank pari passu in all respects with the existing Purchaser’s shares save and except for dividends to be declared for the financial year ending 31st August 2007.

2.3
Purchaser’s Right after payment of the Part Payment

After the Purchaser has paid the Part Payment referred to in Clause 2.1 hereof, the Purchaser shall become the sole owner of and have the absolute control and authority over the said Company (hereinafter referred to as Ownership) and the Purchaser’s remaining obligation of settling the issuance of shares in accordance with condition and term stated in Clause 3 hereto, shall be regarded as a moral obligation without affecting the Ownership.

3.
Due Diligence

3.1
Purchaser's Rights to Due Diligence

Not with standing the fact that the Purchase has done its Due Diligence in respect of TQST’S business affairs satisfactorily during the period prior to the execution of this agreement. The Vendor agreed that during the period commencing the date of this Agreement and ending on the Completion Date, the Purchaser as the new foreign owner of TQST shall be entitled to:

 
(i)
make such reasonable enquiries and to attend at the offices of  the said Company and TQST;

 
(ii)
a due diligence investigation of on the profit records of the said Company and TQST.

 
(iii)
a due diligence investigation of the profit forecast and projection of the said Company’s and TQST’s operations by the Purchaser and its auditors ;

 
(iv)
obtain current valuation of TQST’s properties to confirm that the Net Asset Value of the TQST is in accordance with records stated in TQST’s Management Account as at 31 st July 2007.

 
(v)
follow up and carry on the with the application of the Sino joint venture  of TQST (SJVTQST), and the Purchaser shall proceed with matters related to the SJVTQST as a foreign Joint Venture Partner to obtain the right to repatriate its share of profits and investment and investment interest earned and or invested in the SJVTQST in the People's Republic of China.

 
3

 
 
3.2
Vendors' Obligations

The Vendors shall take all steps and do all things necessary to enable the Purchaser and/or its representatives to carry out the enquiries and the due diligence investigation as provided in Clause 3.1.

3.3
Purchaser's Entitlement to claim

In the event that :

 
(i)
the Purchaser is unable to make reasonable enquiries or attend at the office of The said Company and TQST or carry out the due diligence investigations due to no fault of the Purchaser; or

 
(i)
it is found, as a result of the due diligence investigations or otherwise, that any of the Representations and Warranties contained in Clause 11 are untrue, misleading or incorrect or have not been fully carried out in any material respect, or

 
(iii)
in any event of any matter or thing arising or becoming known or being notified to the Purchaser which is materially inconsistent with any of the Representations and Warranties contained in Clause 11 ;

then the Purchaser may by notice in writing to the Vendors, to be given not later than the Completion Date, specify and verify the amount of claims, (hereinafter referred to as the Claims) and in which event (without prejudice to any claim in damages), the Vendors shall refund forthwith to the Purchaser the claims together with interest accruing thereon (if any).

4.
Delivery of Documents

Simultaneously with the execution of this Agreement, the Vendors shall deliver or cause to be delivered the following documents to the Purchaser:

 
(a)
The transfer forms in respect of the Sale Shares duly executed by the Vendors in favour of the Purchaser and/or the Purchaser's nominee(s) (hereinafter called “the said Transfers”) together with all the share certificates in respect of the Sale Shares and all other relevant documents necessary for effecting the transfer of the Sale Shares to the Purchaser and or the Purchaser's nominee(s).

 
(b)
The letters of resignations of all the existing directors from their respective offices in the said Company each acknowledging that they have no claims against the said Company for compensation or otherwise; and

 
(c)
Resolutions of the Board of Directors of the said Company in accordance with the Memorandum and Articles of Association of the said Company approving :-

 
(i)
the sale and transfer of the Sale Shares from the Vendors to the Purchaser or its nominee or nominees and the registration of such transfer ; and

 
(ii)
the appointment of such persons as the Purchaser may nominate as the new Directors of the said Company ;

 
(d)
the common seal and certificate of incorporation of the said Company.

(The documents referred to in Clauses 5.1 (a) to 5.1 (d) are hereinafter collectively referred to as "the said Documents").

 
4

 
 
5.
Completion

The Completion of this Agreement shall take place on the Completion Date, whereupon the Purchaser shall issue the Purchaser’s Consideration Shares in the name of the Vendors and/or their nominee(s) as the Vendors shall direct and shall deliver the share certificates to the Vendors.

6.
Non-Registration of the Transfer of the Sale Shares

In the event that the transfer of the Sale Shares cannot be registered in favour of the Purchaser or its nominee(s) free from encumbrances for any reason whatsoever, all monies received by or paid on behalf of the Vendors or for or on behalf of The said Company and TQST shall be refunded by the Vendors to the Purchaser or its nominee(s) free of interest thereon and upon such refund this Agreement shall be deemed terminated and of no further effect and neither of the parties shall have any claim against the other PROVIDED THAT all documents received by the Purchaser shall have by then returned by the Purchaser to the Vendors.

7.
Outgoings

All rent, assessment charges, rates, taxes and other outgoings if any payable by The said Company and TQST on or before the Completion Date shall be borne and paid for by the Vendors PROVIDED ALWAYS that the Vendors shall indemnify the Purchaser or its assigns in respect of any penalties and damages which may be arise as a result of any late payments or default in payment in respect of such rent, assessment charges, rates, taxes or other outgoings.

8.
Vendors’ Indemnity

8.1
If there shall be any breach by the Vendors of any warranty, guarantee, undertaking and agreement herein contained, then the Purchaser shall be entitled to be indemnified by the Vendors in respect of any loss resulting from such breach.

8.2
Without prejudice to the generality of the foregoing, if the effect of any such breach is that The said Company and TQST has incurred or incurs any liability or contingent liability which would not have been incurred had there been no such breach, then the Vendors shall make good to The said Company and TQST the amount of the loss occasioned by such liability by payment in cash to The said Company and TQST.

9.
Representations and Warranties

9.1
The Vendors hereby jointly and severally represent, warrant and undertake to and   with the Purchaser as follows :-

 
(a)
None of the Sale Shares which are registered in the names of the Vendors are subject to any option, charge, lien or encumbrances and the Vendors are the beneficial owners thereof ;

 
(b)
The accounts of The said Company and TQST as at the 31 st July 2007 gave a true and fair view of the financial position of The said Company and TQST.

 
(c)
The said Company and TQST are not involved in any dispute with any revenue authorities concerning any matter likely to affect in any way the liability ( whether accrued, contingent or future) of The said Company and TQST to taxation or other sum imposed, charged, levied or payable under the provision of any taxation statute.

 
(d)
The said Company and TQST have not prior to the date hereof issued or agreed to issue any shares or given or agreed to give any option in respect of any shares nor issued or agreed to issue or give any option in respect of any debentures or other securities.

 
5

 
 
 
(e)
There are no existing service agreements or contracts between The said Company and TQST and any directors thereof.

 
(f)
The said Company and TQST are not engaged in any litigation or arbitration proceedings and no such proceedings and no prosecution are pending or threatened against the said Company and the Vendors know of no facts or matters likely to give rise thereto and that the said Company is not in default in respect of any obligations whether contractual statutory or municipal;

 
(g)
The said Company and TQST have no subsidiaries other than the subsidiaries disclosed hereof. (Hereinafter called the subsidiaries attached hereof marked appendix (D))

 
(h)
The said Company and TQST have no mortgages liens other encumbrances secured over any of their properties and assets other than the one disclosed in the disclosure annexed hereto as Appendix (G).

 
(i)
The said Company and TQST have in relation to each of their employee (and in so far as relevant to each of its former employees) complied in all material respects with all obligations imposed on it by all statutes, regulations and codes of conduct and practice relevant to the relations between them and their employees.

10.
Default by Purchaser

In the event that the Purchaser shall fail to complete the sale and purchase of the Sale Shares in accordance with Clause 2.2 hereof, the Vendors shall be entitled to claim liquidated damages amounting up to the Balance Purchase Price of United State Dollars Two Million Two Hundred and Fifty Thousand (US$2,250,000.00).

11.
Force Majeure

Notwithstanding any provision herein to the contrary, no party hereto shall be liable to any other party hereto for loss, injury, delay or damages suffered or incurred by any such other party due to a substantial effect, acts of God, government actions or any other cause which is beyond the reasonable control of the party the performance of whose obligations hereunder are affected by such cause.

12.
Time of Essence

Time wherever mentioned shall be deemed to be of the essence of this Agreement.

13.
Notice

Every notice, request, consent, demand or other communication under this Agreement shall be given or made in writing shall be sufficiently served on the party to whom it is addressed if it is left at or sent by registered post or telegram to the address given above or to the place of business for the time or to such address as one party hereto may from time to time notify in writing to the other party hereto. A notice sent by registered post or facsimile shall be deemed to have served at the time when it ought in due course of post or transmission to have been received.

14.
Governing Law

This Agreement shall be governed by and construed in accordance with the Laws of  Macau SAR.

 
6

 
 
15.
Modifications

All parties hereto agree that the provisions herein contained may if mutually agreed upon be varied, amended, modified or substituted and any such variations, amendment, modification or substitution thereof shall be in writing and signed by all parties hereto.  In the event of any inconsistency as to any of the provisions thereof, the one subsequent in time shall prevail.

16.
Severability

If any of the provisions of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

17.
This Agreement the Sole Agreement

This Agreement constitutes the sole and only agreement between the Vendors and the Purchaser respecting the sale and purchase of the Sale Shares and correctly sets forth the agreement reached between them in respect of the subject matter of this Agreement and supersedes and cancels all previous and other agreements, negotiations, representations, undertakings or undertakings whatsoever whether written or oral in respect thereof.

18.
Costs

The Parties hereto shall bear and pay their respective Solicitors’ fees and costs and the Purchaser shall bear all charges fees and expenses incurred or levied in respect of the Transfer of the Sale Shares including the stamp duties and the registration fees thereof and the stamp duty for this Agreement.

19.
Successors Bound

This Agreement shall be binding on the respective successors-in-title, heirs and  permitted assigns of the parties hereto.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seal the day and year first above written.

Signed by THE VENDORS
)
     
in the presence of :-
)
     
 
)
     
 
)
 
(signed)
 
 
)
 
(HUNG PANG CHEUNG BENNY)
 
 
)
     
 
)
     
 
)
     
 
)
     
 
)
 
(signed)
 
 
)
 
(CHAN YUEN YI NORA)
 
 
)
     
 
)
     
 
 
7

 
 
The Common Seal of
)
     
THE PURCHASER
)
     
 
)
 
(Common Seal of
 
 
)
 
A Power Agro Agriculture Development Inc.
 
(Company No. C3048-1974
)
 
affixed)
 
was hereunto affixed in the
)
     
presence of :-
)
     
 
)
 
(signed)
 
     
(Solomon YK Lee)
 
         
           
       
DIRECTOR
 

APPENDIX (X)
SINO JOINT VENTURE AGREEMENT

APPENDIX (Y)
MEMORANDUM OF ARTICLE AND ASSOCIATION

APPENDIX (C1)
TQST’S AUDITED REPORT 2006

APPENDIX (C2)
TQST’S MANAGEMENT ACCOUNT AS AT 310707

APPENDIX (C3)
REFERENCE TO THE NEW LAND

APPENDIX (E)
CORRESPONDING PAID ORDER, SIGNED RECEIPT AND CORRESPONDING BANKING RECORD OF “ THE PART PAYMENT

APPENDIX (G)
MORTGAGES LIENS OTHER ENCUMBRANCES SECURED OVER THE PROPERTIES AND ASSETS
 
 
8

 
 

(Translation)

SALES AND PURCHASE OF EQUITY AGREEMENT

AN  AGREEMENT  made this 29 th day of  October, 2008

BETWEEN

Tri-Way Industries Limited (Company No.1004146)  a company incorporated in Hong Kong SAR, People’s Republic of China with limited liability and having its principal place of business at Rm 1613, 16/F, Tai Yau Building, 181 Johnston Road, Waichai Hong Kong. (hereinafter called "the Vendor") on the other part.

AND

Mr. Shan De Zhang (Chinese IC No.370802196710312437)  of  Tian Da Cai He Animal Health Products Co. Ltd. and of address at  No. 37, Tai Bai Lou Xi Road, Shizhong District, Jining City, Shandong Province, P. R. China.
(hereinafter collectively called "the Purchaser") of the one part.

WHEREAS:-

1.
The Vendor is the legal and beneficial owners of 30% equity stake of Hu Nan Tian Qian Ke Ji Kai Fa You Xian Gong Si (Chinese Business Register No. 4301002017685), (hereinafter referred to as “the said Company”), a company incorporated in People’s Republic of China with limited liability and having its principal place of business at (Hu Nan Sheng Chang Sha Shi Fu Rong Qu Gao Xin Ji Shu Chan Ye Kai Fa Qu Long Ping Gao Ke Ji Yuan Guan Wei Hui Ban Gong Lou Fu Lou 2 Lou) and with a fully paid up registered capital of RMB10 million having main business activities in Turf Plantations and related engineering services. (herein after referred to as “Principal Activities”). The Vendor’s ownership in the said company is aggregating to Thirty Percent (30%) of the fully paid-up Registered capital of the said Company (hereinafter referred to as “the Sale 30% Equity”) .

2.
The Purchaser is a businessman having multiple business interests in P.R. China.

3.
The financial position of the said Company, as shown in its Management account supported by an Audited Report prepared by a firm of Public Chartered Accountants is evidencing Net Assets of no less than United States Dollars Three Million and Twenty Six Thousand (US$3,680,000.00) as at 30th. September 2008 and Retained Earning of United State Dollars One Million and five hundred thousand (US$ 1,500,000.00) based on the exchange rate of US$1 to RMB6.80 (hereinafter referred to as “the TQST Accounts”).   Copies of the TQST’s Audited Report at 30 th September 2008 is annexed hereto and marked as Appendix (C1).

4.
The Vendors have agreed to sell and the Purchaser has agreed to purchase the Sale of the 30% Equity free from all encumbrances with all rights to dividends and other distribution declared made and paid after the date of this Agreement upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:-

1.
Definitions and Interpretations

In this Agreement, unless the context otherwise requires, the following words or expression shall have the following meaning:-

 
(a) 
“Purchaser”   includes its respective nominees and successors in title ;

 
1

 
 
 
(b) 
“Vendors”   include their respective successors in title ;

 
(c)
“The Completion Date” shall refer to the date of full payment of all monies and shares payable by the Purchaser herein provided ;

 
(d)
“US$” means United States Dollars, the currency of the United States of America ;

 
(e)
All undertakings, agreements, terms, warranties and representations expressed to be made by two or more parties hereto shall be deemed to be made by them and be binding on them jointly and severally ;

 
(f)
Reference to natural persons shall be deemed to include body corporate and the plural number shall include the singular number and vice versa ;

 
(g)
Words importing the masculine gender shall be deemed to include the feminine and neuter gender ;

 
(h)
The headings are inserted for convenience of reference only and shall not affect the interpretation of this Agreement hereof ;

 
(i)
Where an act required to be done within a specified number of days after or from a specified date, the period is inclusive of and begins to run from the date so specified ;

 
(j)
A period of a month from the happening of an event or the doing of an act or thing shall be deemed to be inclusive of the day on which the event happens or the act or thing is or was required to be done ;

 
(k)
The Appendices hereto shall be taken, read and construed as an essential part of this Agreement ;

2. 
Agreement For The Sale and Purchase

2.1
Purchase Consideration and Part Payment

In consideration of the sum of RMB Five Hundred Thousand), (RMB500,000.00 equivalent to US$73,530.00)   only  (hereinafter call “the Part Payment") now paid by the Purchaser to the Vendors by way of deposit and part payment towards the purchase price of the Sale Shares (the receipt of which the Vendors hereby duly acknowledge, and that, its corresponding paid order, signed receipt and corresponding banking record of the said payment are annexed hereto marked Appendix E ), (hereinafter referred to as Part Payment ), the Vendors hereby agree to sell and the Purchasers hereby agree to purchase the Sale of 30% Equity free from all encumbrances with all rights to dividends and other distribution declared made and paid for the year of 2008 and after the date of this Agreement at the total purchase price of United States Dollars Four Million Five Hundred Thousand (US$4,500,000.00)   only (hereinafter called "the Purchase Price")  and subject to further terms and conditions hereinafter contained.

2.2
Payment of Balance Purchase Price

 
The balance of the Purchase Price amounting to United States Dollars Four Million Four Hundred Twenty Six Thousand and Four Hundred and Seventy (US$4,426,470.00) only (hereinafter called "the Balance Purchase Price”) shall be settled within Sixty (60) days  from the date hereof (hereinafter called “the Completion Date”).

2.3 
Purchaser’s Right after payment of the Part Payment

 
After the Purchaser has paid the Balance Payment referred to in Clause 2.2 hereof, the Purchaser shall become the owner of the 30% equity of the said Company (hereinafter referred to as Ownership) and the Vendor shall have no further claim or entitlement to the said company thereafter.

 
2

 

3. 
Due Diligence

3.1
Purchaser's Rights to Due Diligence

Not with standing the fact that the Purchase has done its Due Diligence in respect of said company’s business affairs satisfactorily during the period prior to the execution of this agreement. The Vendor agreed that during the period commencing the date of this Agreement and ending on the Completion Date, the Purchaser shall be entitled to:

 
(i)
make such reasonable enquiries and to attend at the offices of  the said Company.

 
(ii)
a due diligence investigation of on the profit records of the said Company.

 
(iii)
a due diligence investigation of the profit forecast and projection of the said Company’s operations by the Purchaser and its auditors ;

 
(iv)
obtain current valuation of Said Company’s properties to confirm that the Net Asset Value of the Said Company is in accordance with records stated in the Said Company’s Audited Report as at 30th September 2008.

3.2
Vendors' Obligations

The Vendors shall take all steps and do all things necessary to enable the Purchaser and/or its representatives to carry out the enquiries and the due diligence investigation as provided in Clause 3.1 and to enable the Said Company to be re-instated as a China Company instead of the Foreign Joint Venture Company that is presently registered.

3.3 
Purchaser's Entitlement to claim

In the event that :

 
(i)
the Purchaser is unable to make reasonable enquiries or attend at the office of The said Company and TQST or carry out the due diligence investigations due to no fault of the Purchaser; or
 
 
(i)
it is found, as a result of the due diligence investigations or otherwise, that any of the Representations and Warranties contained in Clause 11 are untrue, misleading or incorrect or have not been fully carried out in any material respect, or
 
 
(iii)
in any event of any matter or thing arising or becoming known or being notified to the Purchaser which is materially inconsistent with any of the Representations and Warranties contained in Clause 9 hereof ;

then the Purchaser may by notice in writing to the Vendors, to be given not later than the Completion Date, specify and verify the amount of claims, (hereinafter referred to as the Claims) and in which event (without prejudice to any claim in damages), the Vendors shall refund forthwith to the Purchaser the claims together with interest accruing thereon (if any).

4. 
Delivery of Documents

Simultaneously with the execution of this Agreement, the Vendors shall deliver or cause to be delivered the following documents to the Purchaser:

 
3

 

 
(a)
The transfer forms in respect of the Sale 30% Equity duly executed by the Vendors in favour of the Purchaser and/or the Purchaser's nominee(s) (hereinafter called “the said Transfers”) together with all other relevant documents necessary for effecting the transfer of the Sale 30% Equity to the Purchaser and or the Purchaser's nominee(s).

 
(b)
The letters of resignations of all the existing directors from their respective offices in the said Company each acknowledging that they have no claims against the said Company for compensation or otherwise;

(The documents referred to in Clauses 4 (a) and 4 (b) are hereinafter collectively referred to as "the said Documents").

5. 
Completion

 
The Completion of this Agreement shall take place on the Completion Date, whereupon the Purchaser shall issue the Purchaser’s Consideration Shares in the name of the Vendors and/or their nominee(s) as the Vendors shall direct and shall deliver the share certificates to the Vendors.

6. 
Non-Registration of the Transfer of the Sale Shares

 
In the event that the transfer of the Sale Shares cannot be registered in favour of the Purchaser or its nominee(s) free from encumbrances for any reason whatsoever, all monies received by or paid on behalf of the Vendors or for or on behalf of The said Company and TQST shall be refunded by the Vendors to the Purchaser or its nominee(s) free of interest thereon and upon such refund this Agreement shall be deemed terminated and of no further effect and neither of the parties shall have any claim against the other PROVIDED THAT all documents received by the Purchaser shall have by then returned by the Purchaser to the Vendors.

7. 
Outgoings

 
The Vendor has on February 2008 deposited and advanced a sum of US$95,000. to the Said Company, the Vendor hereby agrees to write off this amount without any further claim to the Said Company such that all rent, assessment charges, rates, taxes and other outgoings if any payable by The said Company on or before the Completion Date shall be borne and paid for by the Purchaser PROVIDED ALWAYS that the Purchaser shall indemnify the Vendor or its assigns in respect of any penalties and damages which may be arise as a result of any late payments or default in payment in respect of such rent, assessment charges, rates, taxes or other outgoings.

8. 
Vendors’ Indemnity

8.1
If there shall be any breach by the Vendors of any warranty, guarantee, undertaking and agreement herein contained, then the Purchaser shall be entitled to be indemnified by the Vendors in respect of any loss resulting from such breach.

8.2
Without prejudice to the generality of the foregoing, if the effect of any such breach is that The said Company has incurred or incurs any liability or contingent liability which would not have been incurred had there been no such breach, then the Vendors shall make good to The said Company the amount of the loss occasioned by such liability by payment in cash to The said Company.

9.
Representations and Warranties

9.1
The Vendors hereby jointly and severally represent, warrant and undertake to and   with the Purchaser as follows :-

 
4

 

 
(a)
None of the Sale 30% Equity which are registered in the names of the Vendors are subject to any option, charge, lien or encumbrances and the Vendors are the beneficial owners thereof ;

 
(b)
The accounts of The said Company as at the 30th September 2008 gave a true and fair view of the financial position of The said Company bearing normal operational financial changes and minimal consequences that will cause material adverse effect to the Said Company financially calculating to the Completion Date..

 
(c)
The said Company is not involved in any dispute with any revenue authorities concerning any matter likely to affect in any way the liability ( whether accrued, contingent or future) of The said Company to taxation or other sum imposed, charged, levied or payable under the provision of any taxation statute.

 
(d)
The said Company have not prior to the date hereof issued or agreed to issue any shares or equity stake or given or agreed to give any option in respect of any shares or equity stake nor issued or agreed to issue or give any option in respect of any debentures or other securities.

 
(e)
There are no existing service agreements or contracts between The said Company and any of the Vendor’s nominees action as the directors of the Said Company thereof.

 
(f)
The said Company is not engaged in any litigation or arbitration proceedings and no such proceedings and no prosecution are pending or threatened against the said Company and the Vendors know of no facts or matters likely to give rise thereto and that the said Company is not in default in respect of any obligations whether contractual statutory or municipal;

 
(g)
The said Company have no subsidiaries other than the subsidiaries disclosed hereof.

 
(h)
The said Company have no mortgages liens other encumbrances secured over any of their properties and assets other than the one disclosed in the Financial Statements of the Said Company.

 
(i)
The said Company has in relation to each of their employee (and in so far as relevant to each of its former employees) complied in all material respects with all obligations imposed on it by all statutes, regulations and codes of conduct and practice relevant to the relations between them and their employees.

10.
Default by Purchaser

In the event that the Purchaser shall fail to complete the sale and purchase of the Sale Shares in accordance with Clause 2.2 hereof, the Vendors shall be entitled to claim liquidated damages amounting up to the Balance Purchase Price of United State Dollars Four Million Four Hundred Twenty Six Thousand and Four Hundred and Seventy .(US$4,426,470.00).

11.
Force Majeure

Notwithstanding any provision herein to the contrary, no party hereto shall be liable to any other party hereto for loss, injury, delay or damages suffered or incurred by any such other party due to a substantial effect, acts of God, government actions or any other cause which is beyond the reasonable control of the party the performance of whose obligations hereunder are affected by such cause.
 
 
5

 

12. 
Time of Essence

Time wherever mentioned shall be deemed to be of the essence of this Agreement.

13. 
Notice

 
Every notice, request, consent, demand or other communication under this Agreement shall be given or made in writing shall be sufficiently served on the party to whom it is addressed if it is left at or sent by registered post or telegram to the address given above or to the place of business for the time or to such address as one party hereto may from time to time notify in writing to the other party hereto. A notice sent by registered post or facsimile shall be deemed to have served at the time when it ought in due course of post or transmission to have been received.

14. 
Governing Law

 
This Agreement shall be governed by and construed in accordance with the Laws of Republic of People of China.

15. 
Modifications

All parties hereto agree that the provisions herein contained may if mutually agreed upon be varied, amended, modified or substituted and any such variations, amendment, modification or substitution thereof shall be in writing and signed by all parties hereto.  In the event of any inconsistency as to any of the provisions thereof, the one subsequent in time shall prevail.

16. 
Severability

If any of the provisions of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

17. 
This Agreement the Sole Agreement

This Agreement constitutes the sole and only agreement between the Vendors and the Purchaser respecting the sale and purchase of the Sale Shares and correctly sets forth the agreement reached between them in respect of the subject matter of this Agreement and supersedes and cancels all previous and other agreements, negotiations, representations, undertakings or undertakings whatsoever whether written or oral in respect thereof.

18. 
Costs

The Parties hereto shall bear and pay their respective Solicitors’ fees and costs and the Purchaser shall bear all charges fees and expenses incurred or levied in respect of the Transfer of the Sale Shares including the stamp duties and the registration fees thereof and the stamp duty for this Agreement.

19. 
Successors Bound

This Agreement shall be binding on the respective successors-in-title, heirs and  permitted assigns of the parties hereto.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seal the day and year first above written.

 
6

 

The Common Seal of THE Vendor
   
was hereunto affixed in the
   
presence of :-
)
(Common Seal of
 
)
Tri-Way Industries Limited affixed)
 
)
 
 
)
 
 
(signed)
 
(signed)
 
 
   
DIRECTOR
 
DIRECTOR
   
Signed by THE Purchaser )
 
   
(signed)
 
   
 
Shan De Zhang:-
 

APPENDIX (Y)
MEMORANDUM OF ARTICLE AND ASSOCIATION OF TQST

APPENDIX (C1)
TQST’S AUDITED REPORT 2008

APPENDIX (C2)
TQST’S MANAGEMENT ACCOUNT AS AT 300908

APPENDIX (E)
CORRESPONDING PAID ORDER, SIGNED RECEIPT AND CORRESPONDING BANKING RECORD OF “ THE PART PAYMENT
 
 
7

 

(Translation)

Deed of Assignment of Equity

Assignor / Party A : Pretty Mountains Holdings Limited

Assignee / Party B : A Power Agro Agriculture Development (Macau) Limited

Qinghai Sanjiang A Power Agriculture Company Limited (hereinafter referred to as “the Joint Venture Company”) was established by Qinghai Province Sanjiang Group Company Limited, Guangzhou City Garwor Company Limited and Pretty Mountain Holdings Limited, on May 25, 2009, with a registered capital of US$1.40 million, of which Party A holds 45% of the equity thereof.  Party A and Party B hereby mutually agree on the following in respect of the transfer and assignment of the equity in accordance with the laws the People’s Republic of China on Sino-Foreign Cooperative Enterprises, the Rules for the Implementation of Sino-Foreign Cooperative Enterprises and the Provisions Concerning the Capital Contributions by the Parties to Sino-Foreign Joint Ventures:

1.       Party A, who holds 45% of the equity of the Joint Venture Company, should pay US$630,000.00 towards the capital in cash in accordance with the provisions of the joint venture agreement, and in view of the failure of Party A to pay the same, Party A hereby transfer and assign the 45% equity interest in the Joint Venture Company unto Party B without for free.

2.       Party B unconditionally accepts the assignment of all the related rights and obligations in the Joint Venture Company from Party A.

3.       The parties hereto shall register the changes with Department of Industry and Commerce after this Deed of Assignment has come into effect.

4.       This Deed is made in printed and signed in 4 copies, with each party holding two copies respectively.

Assignor :       (Seal of Pretty Mountains Holdings Limited)

(Signed)

Assignee :       (Seal of A Power Agro Agriculture Development (Macau) Limited)

(Signed)
September 28, 2009

 
 

 
.

 
 

 
 

 
 

 
 
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
 
OCT 1 - 1974
WM. SWACKHAMER-SECRETARY OF STATE
 
No. 3048 - 74
 
ARTICLES OF INCORPORATION
 
OF
 
VOLCANIC GOLD, INC.
 
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, have this day voluntarily associated ourselves together for the purpose of forming a corporation under the General Corporation Laws of the State of Nevada.
 
I.
 
That the name of this corporation is: VOLCANIC GOLD, INC.
 
II.
 
The location of the principal office of this corporation within the State of Nevada is at 3290 Plumas Street #116, City of Reno, County of Washoe, Nevada. By resolution, or other action of the Board of Directors, other offices and locations for the general business of the corporation and business, financial and transfer offices may be established and business conducted elsewhere in the State of Nevada and in such other places in the United States and its territories and in foreign countries as may be convenient, necessary or proper for the transaction of the company's business affairs.
 
III.
 
The nature of the business and the objects and purposes for which this corporation is formed are to engage in any and all lawful activity.
 
IV.
 
The total authorized capital stock of this corporation is TWO HUNDRED THOUSAND DOLLARS ($200,000.00) divided into Ten Million shares of common stock (10,000,000) of the par value of Two Cents ($.02) each and that said shares of common stock shall be non-assessable and each share of stock being in right equal to the other.
 
V.
 
That the members of the governing board shall be styled "Directors" and the number of the first Board of Directors shall be three (3); provided, however, that the Board of Directors may, at any meeting by resolution, increase the number of such Board of Directors to not more than seven (7) or decrease the number of such Directors to not less than three (3).
 
The names and post office address of the first Board of Directors are as follows:

 
 

 
 
Directors
 
Address
     
D. Allen Penick, Jr.
 
3290 Plumas Street #116
   
Reno, Nevada 89502
     
Robin E. Hendrickson
 
1450 East Second Street
   
Reno, Nevada 89502
     
Norman A. Lamb
 
P.O. Box 148
 
  
Vallejo, California 94590
 
VI.
 
The capital stock and the holders thereof, after the amount of subscription price or par value has been paid in, shall not be subject to any assessment to pay the debts of the corporation or for any other purpose.
 
VII.
 
The name and post office address of each incorporator signing the Articles of Incorporation is as follows:

D. Allen Penick, Jr.
 
3290 Plumas Street #116
   
Reno, Nevada 89502
     
Robin E. Hendrickson
 
1450 East Second Street
   
Reno, Nevada 89502
     
Norman A. Lamb
 
P.O. Box 148
   
Vallejo, California 94590
 
VIII.
 
 This corporation is to have perpetual existence.
 
IX.
 
The Board of Directors shall have power to make such By-Laws for the management of the affairs of the corporation as in their judgement shall be proper and which will comply with the laws of the State of Nevada.
 
IN WITNESS WHEREOF, we have hereunto set our hands this _____ day of September, 1974.

/s/ D. ALLEN PENICK, JR.
D. ALLEN PENICK, JR.
 
/s/ ROBIN E. HENDRICKSON
ROBIN E. HENDRICKSON
 
/s/ NORMAN A. LAMB
NORMAN A. LAMB
 
 
-2-

 
 
STATE OF NEVADA
 
 
  ) ss.
COUNTY 0F WASHOE
  )  

On this 27 th day of September, 1974, personally appreared before me, a Notary Public in and for said County and State, D. ALLEN PENICK, JR. and ROBIN E. HENDRICKSON, known to me to be the persons described in and who executed the foregoing instrucment, who acknowledge to me that they executed the same freely and voluntarily and for the uses and purposes therein mentioned.
 
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my offical seal the day and year in this certificate first above written.

/s/ RUTH B. AXTELL
Notary Public in and for said
County and State
 
 
  
STATE OF CALIFORNIA
 
)
   
) ss.
COUNTY OF SOLANO
 
)
 
On this 23 rd day of September, 1974, personally appeared before me, a Notary Public in and for said County and State, NORMAN A. LAMB, known to me to be the person described in and who executed the foregoing instrument, who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned.
 
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my offical seal the day and year in this certificate first above written.

/s/ ILLEGIBLE
Notary Public in and for said
County and State
 
 
 
 
-3-

 
ROSS MILLER
     
Secretary of State
 
Filed in the office of
Document Number
204 North Carson Street, Ste 1
 
20070548706-99
Carson City, Nevada 89701-4299
(775) 684 5708
 
Ross Miller
Secretary of State
Filing Date and Time
08/09/2007 3:43 PM
Website: secretaryofstate.biz
 
State of Nevada
Entity Number
 
 
 
C3048-1974
 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 
 
USE BLACK INK ONLY - DO NOT HIGHLIGHT
ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

1. Name of corporation:

Volcanic Gold, Inc.

2. The articles have been amended as follows (provide article numbers, if available):

Please see attached.

  I.
The name of the corporation is being changed to A Power Agro Agriculture Development, Inc.
IV.
The total authorized number of shares of stock which the corporation shall have the authority to issue is One Hundred Ten Million (110,000,000), which shall be divided into two classes as follows; One Hundred Million (100,000,000) shares of common stock, $0.001 par value per share, and Ten Million (10,000,000) shares of blank check preferred stock, $0.001 par value per share.

3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is:           $1.92

4. Effective date of filing (optional):            [ILLEGIBLE]

5. Officer Signature (Required):               X [ILLEGIBLE]                                                 

“If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote. In addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees.
[ILLEGIBLE]
 

 
Article 1: The name of the Corporation is: A Power Agro Agriculture Development, Inc.

Articles IV: The total authorized number of shares of stock of which the Corporation shall have authority to issue is One Hundred Ten Million (110,000,000), which shall be divided into two classes as follows: One Hundred Million (100,000,000) shares of common stock, $0.001 par value per share, and Ten Million (10,000,000) shares of blank check preferred stock, $0.001 par value per share.

The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. All preemptive rights created pursuant to Section 78,265 of the Nevada Revised Statutes are hereby deemed waived.

Upon this Certificate of Amendment to the Certificate of Incorporation becoming effective pursuant to the General Corporation Law of the State of Nevada (the “ Effective Time” ), each share of the Corporation’s common stock, $0.001 par value per share (the “ Old Common Stock ), issued and outstanding immediately prior to the Effective Time, will be automatically reclassified as and converted into 0.02 of a share of common stock, $0.001 par value per share, of the Corporation (the “New Common Stock”). Any stock certificate that, immediately prior to the Effective Time, represented shares of the Old Common Stock will, from and after the Effective Time, automatically and without necessity of presenting the same for exchange, represent the number of shares of the New Common Stock as equals the product obtained by multiplying the number of shares of Old Common Stock presented by such certificate immediately prior to the Effective Time by 0.02.”
 

ROSS MILLER
     
Secretary of State
 
Filed in the office of
Document Number
204 North Carson Street, Ste 1
 
20070555937-33
Carson City, Nevada 89701-4299
(775) 634 5708
 
Ross Miller
Secretary of State
Filing Date and Time
08/14/2007 11:34 AM
Website: secretaryofstate.biz
 
State of Nevada
Entity Number
 
 
 
C3048-1974
 
Certificate of Correction
 
(PURSUANT TO NRS 78, 78A, 80, 81,
82, 84, 86, 87, 88A, 89 AND 92A)
 
 
USE BLACK INK ONLY - DO NOT HIGHLIGHT
ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Correction
(Pursuant to NRS 78, 78A, 80, 81, 82, 84, 86, 87, 88, 88A, 89 and 92A)

1. The name of the entity for which correction is being made:
 
A Power Agro Agriculture Development, Inc. (formerly “Volcanic Gold, Inc.”)

2. Description of the original document for which correction is being made:
 
Attachment to the Certificate of Amendment to the Articles of Incorporation For Nevada Profit Corporations

3. Filing date of the original document for which correction is being made: August 9, 2007

4. Description of the inaccuracy or defect.
 
The attachment incorrectly states the conversion ratio for each share of common stock. In this regard, the fourth paragraph of the attachment states “Upon this Certificate of Amendment to the Certificate of Incorporation becoming effective pursuant to the General Corporation Law of the State of Nevada (the “Effective Time”), each share of the Corporation’s common stock, $0.001 per value per share (the “Old Common Stock”) issued and outstanding immediately prior to the Effective Time will be automatically reclassified as and converted into 0.02 of a share of common stock, $0.001 per value per share, of the Corporation (the “New Common Stock”),” Any additional references to 0.02 are also incorrect.

5. Correction of the inaccuracy or defect.

The correct conversion ratio for each share of common stock should be 1-71. As such, the fourth paragraph of the attachment should read in its entirety, “Upon this Certificate of Amendment to the Certificate of Incorporation becoming effective pursuant to the General Corporation Law of the State of Nevada (the “Effective Time”), every 71 shares of the Corporation’s common stock, $0.001 per value per share (the “Old Common Stock”) issued and outstanding immediately prior to the Effective Time will be automatically reclassified as and converted into 1 share of common stock, $0.001 per value per share, of the Corporation (the “New Common Stock”).”

6. Signature:

   
Chief Executive Officer
 
/s/ Joseph Meuse
 
Joseph Meuse
August 14, 2007
Authorized Signature
 
Title
Date

“If entity is a Corporation, it must be signed by an Officer if stock has been issued, OR an Incorporator or Director if stock has not been issued; a Limited -Liability Company, by a manager or managing members; a Limited Partnership or Limited-Liability Limited Partnership, by a General Partner; a Limited-Liability Partnership, by a Managing Partner; a Business Trust, by a Trustee.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees.
[ILLEGIBLE]


ROSS MILLER
Secretary of State
204 North Carson Street, Ste 1
Carson City, Nevada 89701-4299
(776) 684 5708
Website: secretaryofstate.biz
 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 
Filed in the office of
Ross Miller
Secretary of State
State of Nevada
 Document Number
 20070x690021-27
 Filing Date and Time
 10/09/2007 4:08 PM

 Entity Number
 C3048-1974
 
USE BLACK INK ONLY - DO NOT HIGHLIGHT
ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

1. Name of corporation:
 
A POWER AGRO AGRICULTURE DEVELOPMENT, INC.

2. The articles have been amended as follows (provide article numbers, if available):

Article 1 is hereby amended to read as follows:

“Article 1. The name of this corporation is Sino Agro Food, Inc.”

3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: 56%

4. Effective date of filing (optional):
 
 
(must not be later then 90 days after the certificate is filed)

5. Officer Signature (Required):
/s/ Lee Solomon Yip Kun
* If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees.
Nevada Secretary of State AM 78.385 Amend 2007
Revised on: 01/01/07
 

 
BY-LAWS OF
 
VOLCANIC GOLD, INC.
 
ARTICLE I
OFFICES
 
Section 1. PRINCIPAL OFFICE.
 
The principal office for the transaction of business of the Corporation is hereby fixed and located at Reno, County of Washoe, State of Nevada.
The Board of Directors is hereby granted full power and authority to change the place of said principal office.
 
Section 2. OTHER OFFICES.
 
Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business.
 
ARTICLE II
SHAREHOLDERS’ MEETING
 
Section 1. PLACE OF MEETINGS.
 
All meetings of the shareholders shall be held at the office of the corporation in the State of Nevada   as may be designated for that purpose from time to time by the Board of Directors.
 
Section 2. ANNUAL MEETINGS.
 
The annual meeting of the shareholders shall be held on the third   Saturday of April   in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 1:00   o’clock P. M . , at which time the shareholders shall elect by plurality vote a Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting.
 
Section 3. SPECIAL MEETINGS.
 
Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the President, or by the Board of Directors, or by any two or more members thereof, or by one or more shareholders holding not less than one-fifth (1/5) of the voting power of the Corporation.
 
Section 4. NOTICE OF MEETINGS.
 
Notices of meetings, annual or special, shall be given in writing to shareholders entitled to vote by the Secretary or the Assistant Secretary, or if there be no such officer, or in case of his neglect or refusal, by any director or shareholder.
 
Such notices shall be sent to the shareholder’s address appearing on the books of the Corporation, or supplied by him to the Corporation for the purpose of notice, not less than seven days before such meeting.
 
1

 
Notice of any meeting of shareholders shall specify the place, the day and the hour of meeting, and in case of special meeting, in the manner provided by law, shall state the general nature of the business to be transacted. Notice of the business to be transacted shall also be given for any meeting at which the following matters are to be considered: lease or transfer of all or substantially all of the corporation’s assets, merger with another corporation, reduction of stated capital, amendments of the articles, dissolution of the corporation, or plans for distribution of securities or any other assets in connection with dissolution.
 
When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of the adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken.
 
Section 5. CONSENT TO SHAREHOLDERS’ MEETINGS.
 
The transactions of any meeting of shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
 
Any action which may be taken at a meeting of the shareholders, except the approval of agreements to merge or consolidate with other corporations, may be taken without a meeting if authorized by a writing signed by all of the holders of shares who would be entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation.
 
Section 6. QUORUM.
 
The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall be requisit and shall constitute a quorum at all meetings of the share-holders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified.
 
Section 7 . voting rights ;
 
Only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the day of any meeting of shareholders, unless some other day be fixed by the Board of Directors for the determination of shareholders of record, then on such other day, shall be entitled to vote at such meeting.
 
2

 
Every shareholder entitled to vote shall be entitled to one vote for each of said shares.
 
Upon the demand of any shareholder made before the voting begins, the election of directors shall be by ballot.
 
Section 8. PROXIES.
 
Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by written proxy executed by such person or his duly authorized agent and filed with the secretary of the Corporation. The manner of execution, revocation, and use of proxies shall be governed by the general provisions of law.
 
ARTICLE III
DIRECTORS; MANAGEMENT
 
Section 1. POWERS.
 
Subject to the limitation of the Articles of Incorporation, of the By-Laws and of the Laws of the State of Nevada as to action to be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of this Corporation shall be controlled by, a Board of Directors.
 
Section 2. NUMBER AND QUALIFICATION.
 
The authorized number of directors of the Corporation shall be three (3); provided, however, that the Board of Directors may, at any meeting by resolution, increase the" number of such Board of Director s to not more than seven (7) or decrease the number of such Directors to not less than three (3).
 
Section 3. ELECTION AND TENURE OF OFFICE.
 
The directors shall be elected by ballot at the annual meeting of the shareholders, to serve for one year and until their successors are elected and have qualified. Their term of office shall begin immediately after election.
 
Section 4. VACANCIES.
 
Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual meeting of shareholders or at a special meeting called for that purpose.
 
The shareholders may at any time elect a director to fill -any vacancy not filled by the directors, and may elect the additional directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of directors.
 
3

 
A vacancy or vacancies shall be deemed to exist in case of the death, resignation or removal of any director, or if the shareholders shall increase the authorized number of directors but shall fail at the meeting at which such increase is authorized, or at an adjournment thereof, to elect the additional director so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors.
 
If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board, or the shareholders, shall have power to elect a successor to take office when the resignation shall become effective.
 
No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office.
 
Section 5. REMOVAL OF DIRECTORS.
 
The entire Board of Directors or any individual director may be removed from office in the manner provided by law.
 
Section 6. PLACE OF MEETINGS.
 
Meetings of the Board of Directors shall be held at the office of the Corporation in the State of Nevada   as designated for that purpose, from time to time, by resolution of the Board of Directors or written consent of all of the Members of the Board. Any meeting shall be valid, wherever held, if held by the written consent of all Members of the Board of Directors, given either before or after the meeting and filed with the Secretary of the Corporation.
 
Section 7. ORGANIZATION MEETINGS.
 
The organization meetings of the Board of Directors shall be held immediately following the adjournment of the annual meetings of the shareholders.
 
Section 8. OTHER REGULAR MEETINGS.
 
Regular meetings of the Board of Directors shall be held on the third Saturday of each month at the hour of 2:00 o’clock P.M. at the principal office of the Corporation If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings.
 
Section 9. SPECIAL MEETINGS—NOTICES.
 
Special meetings of the Board of Directors for any purpose or purposes shall be called at any time by the President or if he is absent or unable or refuses to act, by any Vice-President or by any two directors.
 
Written notice of the time and place of special meetings shall be delivered personally to the directors or sent to each director by letter or by telegram, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the place in which the principal office of the Corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered as above provided; it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director.
 
4

 
Section 10. WAIVER OF NOTICE.
 
When all the directors are present at any directors’ meeting, however called or noticed, and sign a written consent thereto on the records of such meeting, or, if a majority of the directors are present and if, those not present sign in writing a waiver of notice of such meeting, whether prior to or after the holding of such meeting, which said waiver shall be filed with the Secretary of the Corporation, the transactions thereof are as valid as if had at a meeting regularly called and noticed.
 
Section 11. NOTICE OF ADJOURNMENT.
 
Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.
 
Section 12. QUORUM.
 
A majority of the number of directors as fixed by the Articles or By-La ws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a majority of the directors present, in the absence of a quorum, may adjourn from time to time, but may not transact any business.
 
ARTICLE IV
OFFICERS
 
Section 1. OFFICERS.
 
The officers of the Corporation shall be a president, a vice-president, a secretary and a treasurer. The Corporation may also have, in the discretion of the Board of Directors , a chairman of the Board, one or more additional vice-presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two (2) or more offices, except those of president and secretary.
 
Section 2. ELECTION.
 
The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor
shall be elected and qualified.
 
5

 
Section 3. SUBORDINATE OFFICERS, ETC.
 
The Board of Directors may appoint such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine.
 
Section 4. REMOVAL AND RESIGNATION.
 
Any officer may be removed, either with or without cause, by a majority of the directors at the time in office , at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
 
Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
 
Section 5. VACANCIES.
 
A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office.
 
Section 6. CHAIRMAN OF THE BOARD.
 
The chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws.
 
Section 7. PRESIDENT.
 
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the Board, if there be such an officer, the president shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the shareholders and in the absence of the chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws.
 
6

 
Section 8. VICE-PRESIDENT.
 
In the absence or disability of the president, the vice-presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the vice-presidents designated by the Board of Directors, shall perform all the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions upon the president. The vice-presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws.
 
Section 9. SECRETARY.
 
The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at shareholders’ meetings and the proceedings thereof.
 
The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation’s transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
 
The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given; he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board Of Directors or the By-Laws.
 
Section 10. TREASURER.
 
The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in-surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director.
 
The treasurer shall deposit moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors; shall render to the president and directors, whenever they request it, an account of all his transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws.
 
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ARTICLE V
EXECUTIVE AND OTHER COMMITTEES
 
The Board of Directors may appoint an executive committee and such other committees as may be necessary from time to time, consisting of at least two of its members and with such powers as it may designate, consistent with the Articles of Incorporation and By-Laws and the General Corporation Laws of the State of Nevada. Such committees shall hold office at the pleasure of the Board.
 
ARTICLE VI
CORPORATE RECORDS AND REPORTS—INSPECTION
 
Section 1. RECORDS.
 
The Corporation shall maintain adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal place of business in the State of Nevada   as fixed by the Board of Directors from time to time.
 
Section 2. INSPECTION OF BOOKS AND RECORDS.
 
All books and records provided for by statute shall be open to inspection of the directors and shareholders from time to time and to the extent expressly provided by statute, and not otherwise.
 
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS.
 
The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be open to inspection by the shareholders of the company in the manner provided by law.
 
Section 4. CHECKS, DRAFTS, ETC.
 
All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors.
 
Section 5. CONTRACTS, ETC.—HOW EXECUTED.
 
The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable for any purpose or to any amount.
 
8

 
Section 6. ANNUAL REPORT.
 
The board of directors of the corporation shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal or the calendar year
 
ARTICLE VII
CERTIFICATE AND TRANSFER OF SHARES
 
Section 1. CERTIFICATES FOR SHARES.
 
Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; the par value, if any, or a statement that such shares are without par value; a statement of the rights, privileges, preferences and restrictions if any; a statement, as to redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts.
 
Every certificate for shares must be signed by the President or a Vice-President and the Secretary or an Assistant Secretary or must be authenticated by facsimiles of the signatures of the President and Secretary or by a facsimile of the signature of its President and the written signature of its Secretary or an Assistant Secretary. Before it becomes effective, every certificate for shares authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk and must be registered by an incorporated registrar of transfers.
 
Section 2. TRANSFER ON THE BOOKS.
 
Upon surrender to the Secretary or transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
 
Section 3. LOST OR DESTROYED CERTIFICATES.
 
Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall, if the directors so require, give the Corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the Stock represented by said certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed.
 
9

 
Section 4. TRANSFER AGENTS AND REGISTRARS.
 
The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, either domestic or foreign, who shall be appointed at such times and. places as the requirements of the Corporation may necessitate and the Board of Directors may designate.
 
Section 5. CLOSING STOCK TRANSFER BOOKS.
 
The Board of Directors may close the transfer books in their discretion for a period not exceeding thirty (30) days preceding any meeting, annual or special of the shareholders, or the day appointed for the payment of a dividend.
     
ARTICLE VIII
CORPORATE SEAL
 
The corporate seal shall be circular in form, and shall have inscribed thereon the name of the Corporation, the date of its incorporation and the word “NEVADA”.
 
ARTICLE IX
AMENDMENTS TO BY-LAWS
 
Section 1. BY SHAREHOLDERS.
 
New By-Laws may be adopted or these By-Laws may be repealed or amended at their annual meeting, or at any other meeting of the shareholders called for that purpose, by a vote of shareholders entitled to exercise a majority of the voting power of the Corporation, or by the written assent of such shareholders.
 
Section 2. POWERS OF DIRECTORS.
 
Subject to the right of the shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article IX, the Board of Directors may adopt, amend or repeal any of these By-Laws .
 
Whenever an amendment or new By-Law is adopted, it shall be copied in the Book of By-Laws with the original By-Laws, in the appropriate place. If any By-Laws or By-Law is repealed, the fact of repeal with the date of the meeting at’ which the repeal was -enacted or written assent was filed shall be stated in said book.
 
10

 
KNOW ALL MEN BY THESE PRESENTS :
 
That we, the undersigned, being all of the persons appointed in the Articles of Incorporation to act as the first Board of Directors of Volcanic Gold, Inc. hereby assent to the foregoing By-Laws, and adopt the same as the By-Laws of said Corporation.
 
IN WITNESS WHEREOF, we have hereunto set our hands this 10th day of October 1974.

/s/ ILLEGIBLE      
/s/ ILLEGIBLE       Directors.  
/s/ ILLEGIBLE      
 
THIS IS TO CERTIFY:
 
That I am the duly elected, qualified and acting Secretary of   Volcanic Cold, Inc.   and that the above and foregoing By-Laws were adopted as the By-Laws of said Corporation on the 10th   day of October , 19 74 , by the persons appointed in the Articles of Incorporation to act as the first directors of said Corporation.
 
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of October, 1974.

  /s/ ILLEGIBLE 
 
Secretary.
 
THIS IS TO CERTIFY:
   
That i am the duly elected, qualified and acting Secretary of and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the day of                      , 19   , and was ratified by the vote of the shareholders entitled to exercise the majority of the voting power of said Corporation.
 
IN WITNESS WHEREOF, I have hereunto set my hand this day of                          , 19   .
 
   
 
Secretary.
 
11

 

BELIZE
 
THE INTERNATIONAL BUSINESS COMPANIES ACT 1990
 
MEMORANDUM OF ASSOCIATION
AND
ARTICLES OF ASSOCIATION
OF
 
Capital Award Inc.
IBC NO. 33,562
INCORPORATED THE
1st     DAY OF    March       , 2004

 
REGISTERED AGENT:
   
 
   
 
60 Market Square
 
PO Box 364
 
Belize City
 
Belize
 
Central America
   
 
Telephone: 501-227-7132/3/4/5
 
Fax: 501-227-7018
 
Telex: 158 BZE BANK BZ
 
 
 

 
 
BELIZE
 
THE INTERNATIONAL BUSINESS COMPANIES ACT 1990
 
MEMORANDUM OF ASSOCIATION
 
AND
 
ARTICLES OF ASSOCIATION
 
OF
 
Capital Award Inc.
IBC NO. 33,562
INCORPORATED THE
1st     DAY OF    March       , 2004

 
REGISTERED AGENT:
   
 
The Belize Bank Limited
 
60 Market Square
 
PO Box 364
 
Belize City
 
Belize
 
Central America
   
 
Telephone: 501 22 77132/3/4/5
 
Fax: 501 22 77018
 
Telex: 158 BZE BANK BZ


 
THE INTERNATIONAL BUSINESS
COMPANIES ACT 1990
 
INDEX
 
MEMORANDUM OF ASSOCIATION
 
CLAUSE
   
     
1
NAME
1
2
REGISTERED OFFICE
1
3
REGISTERED AGENT
1
4
GENERAL OBJECTS AND POWERS
1
5
EXCLUSIONS
5
6
SHARE CAPITAL
5
7
AMENDMENTS
7

ARTICLES OF ASSOCIATION

ARTICLE
   
     
1
PRELIMINARY
8
2
OFFICES
9
3
REGISTERED SHARES
9
4
BEARER SHARES
9
5
SHARE - ISSUE, TRANSFER AND TRANSMISSION
12
6
MEETINGS OF MEMBERS
13
7
VOTING AND PROXIES
16
8
DIRECTORS
17
9
POWERS OF DIRECTORS
18
10
PROCEEDINGS OF DIRECTORS
18
11
OFFICERS
20
12
SEAL
20
13
DIVIDENDS
21
14
AUDIT
22
15
NOTICES
22
16
AMENDMENTS
24
 
 
 

 
 
BELIZE
 
THE INTERNATIONAL BUSINESS COMPANIES ACT 1990
 
MEMORANDUM OF ASSOCIATION
 
OF
 
Capital Award Inc.
 
1.
NAME
 
The name of the Company is Capital Award Inc.
 
2.
REGISTERED OFFICE
 
The Registered Office of the Company is 60 Market Square, PO Box 364, Belize City or such other place within Belize as the Company may from time to time by a resolution of the members determine.
 
3.
REGISTERED AGENT
 
The Registered Agent of the Company is The Belize Bank Limited of 60 Market Square, PO Box 364, Belize City or such other person qualified under the International Business Companies Act 1990 (including any Statutory modification or re-enactment thereof for the time being in force) (the "Act") as the Company may from time to time by a resolution of the members determine.
 
4.
GENERAL OBJECTS AND POWERS
 
The objects of the Company are to engage in any act or activity that is not prohibited under any law for the time being in force in Belize including, but not limited to, the following:
 
 
4.1
to carry on the business of an investment company and for that purpose to acquire and hold either in the name of the Company or in that of any nominee shares, stocks, debentures, debenture stock, scrip, bonds, notes, obligations, investments and securities and warrants or options in respect of any shares, stocks, debentures, debenture stock, scrip, bonds, notes, obligations, investments or securities;
 
 
4.2
to acquire such shares, stocks, debentures, debenture stocks, scrip, bonds, notes, obligations, investments or securities or warrants or options therein by original subscription, contract, tender, purchase, exchange, underwriting, participation in syndicates or otherwise, and whether or not fully paid up, and to subscribe for the same subject to such terms and conditions (if any) as may be thought fit;

 
 

 
 
 
4.3
to exercise and enforce all rights and powers conferred by or incident to the ownership of any such shares, stock, obligations or other securities including without prejudice to the generality of the foregoing all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof and to provide managerial and other executive supervisory and consultancy services for or in relation to any company in which the Company is interested upon such terms as may be thought fit;
 
 
4.4
to acquire and hold either in the name of the Company or in that of any nominee and whether as principal or broker or agent any currency in any form in any part of the world and any commodity and to enter into any contract of purchase, sale or option to purchase or sell in respect of any such currency or commodity;
 
 
4.5
to offer for public subscription any shares or stocks in the capital of or debentures or debenture stock or other securities of or otherwise to establish or promote or concur in establishing or promoting, any company, societe anonyme, association, undertaking or public or private body;
 
 
4.6
to carry on business as capitalists, financiers, concessionaires and merchants and to undertake and carry on and execute any other business which may seem to be capable of being conveniently carried on in connection with any of these objects or calculated directly or indirectly to enhance the value of or facilitate the realisation of, or render profitable, any of the Company’s property or rights;
 
 
4.7
to carry on the business of a property investment and holding company and for that purpose to purchase, take on lease, or in exchange, or otherwise acquire, hold, undertake or direct the management of work, develop the resources of, and turn to account any estates, lands, buildings, tenements, and other real property and property of every description, whether of freehold, leasehold, or other tenure, and wheresoever situate, and any interests therein, rights and powers conferred by, or incident to, the ownership of any such property;
 
 
4.8
to sell, lease, let, mortgage, or otherwise dispose of, grant rights over or otherwise provide any such property of the Company without seeking rental or consideration for such disposal or provision, or otherwise upon such terms as the Company shall determine;
 
 
4.9
to acquire and assume for any estate or interest and to take options over, construct, develop or exploit any property, real or personal or movable or immovable and rights of any kind and the whole or any part of the undertaking assets and liabilities of any person and to act and carry on business as a holding company;

 
2

 
 
 
4.10
to acquire, trade and deal with, or hold stocks, shares, bonds, debentures, scrip, investments and securities of all kinds issued in any country in any part of the world;
 
 
4.11
to raise and borrow money by the issue of shares, stock, debentures, bonds, obligations, deposit notes and otherwise howsoever and to underwrite any such issue and without limiting the generality of the foregoing to secure or discharge any debt or obligation of or binding on the Company in any manner and in particular by the issue of debentures (perpetual or otherwise) and to secure the repayment of any money borrowed raised or owing by mortgage, charge, or lien upon the whole or any part of the Company’s property or assets (whether present or future);
 
 
4.12
to deposit the monies of the Company with any company or person and to advance and lend money upon such terms as may be arranged and with or without security and to guarantee the performance of any contract or obligation and the payment of money of or by any person or company, and generally to give guarantees and indemnities including guarantees and indemnities in respect of the liabilities of persons whether or not associated with the Company and whether or not the Company receives any consideration therefor and to secure any such guarantee or indemnity by the grant of charges, mortgages or liens on the whole or any part of the Company’s property or assets present or future;
 
 
4.13
to apply for, purchase or by other means acquire and protect, prolong and renew any patents, patent rights, brevets d’invention, licences, trade marks, protections and concessions or other rights which may appear likely to be advantageous or useful to the Company;
 
 
4.14
to acquire and undertake, on any terms and subject to any conditions, the whole or any part of the business, property and liabilities of any person or company carrying on any business which the Company is authorised to carry on, or possessed of property suitable for the purposes of the Company;
 
 
4.15
to amalgamate with or enter into partnership or any joint purpose or profit-sharing arrangement with or to co-operate in any way with, or assist or subsidise any company, firm or person carrying on, or proposing to carry on, any business within the objects of the Company;
 
 
4.16
to purchase with a view to closing or reselling in whole or in part any business or properties which may seem or be deemed likely to injure by competition or otherwise any business or branch of business which the Company is authorised to carry on, and to close, abandon and give up any works or businesses at any time acquired by the Company;
 
 
4.17
to act as directors or managers or to appoint directors or managers of any subsidiary company or of any other company in which this Company is or may be interested;

 
3

 
 
 
4.18
to make, draw, accept, endorse, discount, negotiate, execute and issue and to buy, sell and deal in promissory notes, bills of exchange, cheques, bills of lading, shipping documents, dock and warehouse warrants and other instruments negotiable or transferable or otherwise;
 
 
4.19
to lend money with or without security and to subsidise, assist and guarantee the payment of money by or the performance of any contract, engagement or obligation by any persons or companies;
 
 
4.20
to constitute any trusts with a view to the issue of preferred or deferred or any other special stocks or securities based on or representing any shares, stocks, or other assets specifically appropriated for the purposes of any such trusts, and to settle and regulate and, if thought fit, to undertake and execute any such trusts and to issue, dispose of or hold any such preferred, deferred or other special stocks or securities;
 
 
4.21
to pay all preliminary expenses of the Company and any company promoted by the Company or any company in which this Company is or may contemplate being interested including in such preliminary expenses all or any part of the costs and expenses of owners of any business or property acquired by the Company;
 
 
4.22
to enter into any arrangements with any Government or authority, imperial, supreme, municipal, local or otherwise, or company that seems conducive to the Company’s objects or any of them and to obtain from any such Government, authority, or company any charters, contracts, decrees, rights, grants, loans, privileges or concessions which the Company may think it desirable to obtain and to carry out, exercise and comply with others;
 
 
4.23
to vest any real or personal property, rights or interest, acquired by or belonging to the Company in any person or company on behalf or for the benefit of the Company, with or without any declared trust in favour of the Company;
 
 
4.24
to undertake and perform sub-contracts and to act through or by means of agents, brokers, sub-contractors or others;
 
 
4.25
to remunerate any person or company rendering services to the Company, whether by cash payment or by the allotment to him or them of shares, stocks, debentures, bonds or other securities of the Company credited as paid up in full or in part or otherwise;
 
 
4.26
to procure the Company to be registered or recognised in any part of the world outside Belize;
 
 
4.27
to distribute among the members of the Company in kind any property of the Company (whether by way of dividend or otherwise) and in particular any shares, stocks, debentures, bonds or other securities belonging to or at the disposal of the Company;

 
4

 
 
 
4.28
to do all or any of the above things in any part of the world, and either as principals, agents, trustees, contractors or otherwise and either alone or in conjunction with others, and either by or through agents, sub-contractors, trustees or otherwise;
 
 
4.29
to accept payment for any property or rights sold or otherwise disposed of or dealt with by the Company either in cash, by instalments or otherwise, or in fully or partly paid up shares of any company or corporation, with or without deferred or preferred rights in respect of dividend or repayment of capital or otherwise or in debentures or mortgage debentures or debenture stock, mortgages or other securities of any company or corporation, or partly in one mode and partly in another and to hold, dispose of or otherwise deal with any shares, stock or securities so acquired;
 
 
4.30
to have the power exercisable solely by resolution of the directors to vest the corpus or the income of any trust in itself and to do all such things as may be conducive to the attainment of such objects; and
 
 
4.31
to make such gifts of the Company’s property as all members of the Company in general meeting shall decide including, without limiting the generality thereof, the power to vest all or any part of the Company’s property, revocable or irrevocable, in the name of trustees for the benefit of such person or persons including the Company on such terms as all the members of the Company in general meeting shall decide.
 
The Company shall have all such powers as are permitted by law for the time being in force in Belize which are necessary or conducive to the conduct, promotion or attainment of the objects of the Company.
 
5.
EXCLUSIONS
 
The Company shall not carry on any business or engage in any activity contrary to Section 5 of the Act.
 
6.
SHARE CAPITAL
 
 
6.1
Shares in the Company shall be issued in the currency of The United States of America.
 
 
6.2
The authorised capital of the Company is fifty thousand dollars ($50,000) divided into fifty thousand (50,000) shares of one dollar ($1.00) par value.
 
 
6.3
The authorised share capital of the Company is made up of one class of share divided into fifty thousand (50,000) shares of one dollar ($1.00) par value with one (1) vote for each share.
 
 
6.4
The designations, powers, preferences, rights, qualifications, limitations and restrictions of each class and series of shares that the Company is authorised to issue, including, but not limited to, the allocation of different rights as to voting, dividends, redemption or distribution on liquidation, shall be fixed by resolution of the directors of the Company unless such designations, powers, preferences, rights, qualifications, limitations and restrictions are fixed by this Memorandum of Association or the Articles of Association of the Company.
 
5

 
 
6.5
Registered or Bearer Shares:
 
 
6.5.1
the Company may issue all or part of its authorised shares either as registered shares or as shares issued to bearer and the directors of the Company shall be empowered to determine by resolution of the directors which of such authorised shares shall be issued as registered shares and which as shares issued to bearer unless such determination is fixed by this Memorandum of Association or the Articles of Association of the Company;
 
 
6.5.2
shares issued as registered shares may be exchanged for shares issued to bearer; shares issued to bearer may be exchanged for registered shares;
 
 
6.5.3
notice to the holders of shares issued to bearer shall be sent by prepaid registered post addressed to the addressee to which the original bearer share certificates were despatched and/or in the manner set out in the Articles of Association of the Company and compliance with the foregoing shall constitute proper service of any notice upon the bearer of such shares.
 
6.6
Registered shares in the Company may be transferred, subject to compliance with the requirements of the Act and of this Memorandum of Association and the Articles of Association of the Company.
 
 
6

 
 
7.
AMENDMENTS
 
The Company may amend this Memorandum of Association by a resolution of its members.
 
For the purpose of incorporating an International Business Company under the laws of Belize the person whose name and address appears below as the Subscriber hereby subscribes its name to this Memorandum of Association in the presence of the undersigned witness:
 
SIGNATURE OF WITNESS
 
SIGNATURE OF SUBSCRIBER
         
  /s/ Phillis Mendez     /s/ [ILLEGIBLE]
Name:
Phillis Mendez
 
Name:
Belize Registration Services Limited
Address: 
60 Market Square
 
Address: 
60 Market Square
 
P.O. Box 364
   
P.O. Box 1764
 
Belize City, Belize
   
Belize City, Belize
         
Date:
March 1, 2004
 
Date:
March 1, 2004
 
 
7

 
 
BELIZE
 
THE INTERNATIONAL BUSINESS
COMPANIES ACT 1990
 
ARTICLES OF ASSOCIATION
OF
 
Capital Award Inc.
 
1.     PRELIMINARY
 
In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof:
 
Words
 
Meanings
     
the Memorandum
 
the Memorandum of Association of the Company as originally framed or as from time to time amended;
     
the Act
 
the International Business Companies Act,   1990 including any statutory modification or re-enactment thereof for the time being in force;
     
the Seal
 
the Common Seal of the Company, any Overseas Seal or any Securities Seal authorised in accordance with Article 12;
     
Articles
 
these Articles of Association as originally framed or as from time to time amended.
 
"Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of representing or reproducing words in a visible form, including telex, telegram, cable or other form of writing produced by electronic communication.
 
Save as aforesaid, words or expressions contained in these Articles shall bear the same meanings as in the Act but excluding any statutory modification thereof not in force when these Articles become binding on the Company.
 
Words importing the singular number shall include the plural number and vice versa; words importing the masculine gender shall include the feminine and neuter genders respectively; words importing persons shall include bodies corporate and unincorporated associations of persons.

 
8

 
 
A reference to money in these Articles is a reference to the currency of the United States of America unless otherwise stated.
 
2. OFFICES
 
The Company shall at all times have a registered office in Belize. The Company may have an office or offices at such other place or places within or outside Belize as the directors may from time to time by resolution of the directors appoint or the business of the Company may require.
 
3. REGISTERED SHARES
 
SECTION 1
 
The Company shall issue to every member holding registered shares in the Company a certificate signed by a director or officer of the Company and under the Seal specifying the share or shares held by him.
 
SECTION 2
 
Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of the wrongful or fraudulent use made by any person by virtue of the possession thereof. If a share certificate for registered shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of the directors.
 
SECTION 3
 
If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any dividend payable in respect of such shares.
 
4. BEARER SHARES
 
SECTION 1
 
Subject to a request for the issue of bearer shares and to the payment of the appropriate consideration for the shares to be issued, the Company may, to the extent authorised by the Memorandum, issue bearer shares to, and at the expense of, such person as shall be specified in the request. The Company may also, upon receiving a request in writing accompanied by the share certificate for the shares in question, exchange registered shares for bearer shares or may exchange bearer shares for registered shares. Such request served on the Company by the holder of bearer shares shall specify the name and address of the person to be registered and unless the request is delivered in person by the bearer shall be authenticated as hereinafter provided. Such request served on the Company by the holder of bearer shares shall also be accompanied by any coupons or talons which at the date of such delivery have not become due for ’payment of dividends or any other distribution by the Company to the holders of such shares. Following such exchange the share certificate relating to the exchanged shares shall be delivered as directed by the member requesting the exchange.

 
9

 
 
SECTION 2
 
Bearer share certificates shall be under the Seal and shall state that the bearer is entitled to the shares therein specified, and may provide by coupons, talons, or otherwise for the payment of dividends or other monies on the shares included therein.
 
SECTION 3
 
Subject to the provisions of the Act, the Memorandum and of these Articles the bearer of a bearer share certificate shall be deemed to be a member of the Company and shall be entitled to the same rights and privileges as he would have had if his name had been included in the share register of the Company as the holder of the shares.
 
SECTION 4
 
Subject to any specific provisions in these Articles, in order to exercise his rights as a member of the Company, the bearer of a bearer share certificate shall produce the bearer share certificate as evidence of his membership of the Company. Without prejudice to the generality of the foregoing, the following rights may be exercised in the following manner:
 
(a)
for the purpose of exercising his voting rights at a meeting, the bearer of a bearer share certificate shall produce such certificate to the chairman of the meeting;
 
(b)
for the purpose of exercising his vote on a resolution in writing, the bearer of a bearer share certificate shall cause his signature to any such resolution to be authenticated as hereinafter provided;
 
(c)
for me purpose of requisitioning a meeting of members, the bearer of a bearer share certificate shall address his requisition to the directors and his signature thereon shall be duly authenticated as hereinafter provided; and
 
(d)
for the purpose of receiving dividends, the bearer of a bearer share certificate shall present at such places as may be designated by the directors any coupons or talons issued for such purpose, or shall present the bearer share certificate to any paying agent authorised to pay dividends.
 
SECTION 5
 
The signature of a bearer of a bearer share certificate shall be deemed to be duly authenticated if the bearer of the bearer share certificate shall produce such certificate to a notary public or a bank manager or a director or officer of the Company (herein referred to as an "authorised person") and if the authorised person shall endorse the document bearing such signature with a statement:
 
10

 
(a)
identifying the bearer share certificate produced to him by number and date and specifying the number of shares and the class of shares (if appropriate) comprised therein;
 
(b)
confirming that the signature of the bearer of the bearer share certificate was subscribed in his presence and that if the bearer is representing a body corporate he has so acknowledged and has produced satisfactory evidence thereof; and
 
(c)
specifying the capacity in which he is qualified as an authorised person and, if a notary public, affixing his seal thereto or, if a bank manager, attaching an identifying stamp of the bank of which he is a manager.
 
SECTION 6
 
Notwithstanding any other provisions of these Articles, at any time, the bearer of a bearer share certificate may deliver the certificate for such shares into the custody of the Company at its registered office, whereupon the Company shall issue a receipt therefor under the Seal signed by a director or officer identifying by name and address the person delivering such certificate and specifying the date and number of the bearer share certificate so deposited and the number of shares comprised therein. Any such receipt may be used by the person named therein for the purpose of exercising the rights vested in the shares represented by the bearer share certificate so deposited including the right to appoint a proxy. Any bearer share certificate so deposited shall be returned to the person named in the receipt or his personal representative (if such person be dead) and thereupon the receipt issued therefor shall be of no further effect whatsoever and shall be returned to the Company for cancellation or, if it has been lost or mislaid, such indemnity as may be required by resolution of the directors shall be given to the Company.
 
SECTION 7
 
The bearer of a bearer share certificate shall for all purposes be deemed to be the owner of the shares comprised in such certificate and in no circumstances shall the Company or the chairman of any meeting of members or the Company’s registrars or any director or officer of the Company or any authorised person be obliged to enquire into the circumstances whereby a bearer share certificate came into the hands of the bearer thereof, or to question the validity or authenticity of any action taken by the bearer of a bearer share certificate whose signature has been authenticated as provided in Section 5 above.
 
SECTION 8
 
If the bearer of a bearer share certificate shall be a company, then all the rights exercisable by virtue of such shareholding may be exercised by an individual duly authorised to represent the company but unless such individual shall acknowledge that he is representing a company and shall produce upon request satisfactory evidence that he is duly authorised to represent the company, the individual shall for all purposes hereof be regarded as the holder of the shares in any bearer share certificate held by him.

 
11

 
 
SECTION 9
 
The directors may provide for payment of dividends to the holders of bearer shares by coupons or talons and in such event the coupons or talons shall be in such form and payable at such time and in such place or places as the directors shall resolve. The Company shall be entitled to recognise the absolute right of the bearer of any coupon or talon issued as aforesaid to payment of the dividend to which it relates and delivery of the coupon or talon to the Company or its agents shall constitute in all respects a good and final discharge of the Company in respect of such dividend.
 
SECTION 10
 
If any bearer share certificate, coupon or talon be worn out or defaced, the directors may, upon the surrender thereof for cancellation, issue a new one in its stead, and if any bearer share certificate, coupon or talon be lost or destroyed, the directors may upon the loss or destruction being established to their satisfaction, and upon such indemnity being given to the Company as it shall by resolution of the directors determine, issue a new bearer share certificate in its stead, and in either case on payment of such sum as the Company may from time to time by resolution of the directors require. In case of loss or destruction the person to whom such new bearer share certificate, coupon or talon is issued shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such loss or destruction and to such indemnity.
 
5.   SHARES - ISSUE, TRANSFER AND TRANSMISSION
 
SECTION 1
 
Subject to the provisions of the Act, the Memorandum, these Articles and any resolution of the members of the Company any unissued shares of the Company shall be at the disposal of the directors who may, without prejudice to any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of the shares to such persons, at such times and upon such terms and conditions as the directors may determine.
 
SECTION 2
 
The Company shall issue certificates in respect of its shares, whether registered shares or bearer shares. No notice of a trust, whether expressed, implied or constructive, shall be entered in the share register of the Company.
 
SECTION 3
 
The directors may refuse to register any transfer of shares in favour of more than four persons jointly.

 
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SECTION 4
 
The registration of transfers of shares may be suspended and the share register closed at such times and for such periods as the Company may from time to time by resolution of the directors determine provided always that such registration shall not be suspended and the share register closed for more than 60 days in any period of 12 months.
 
SECTION 5
 
The executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognised by the Company as having any title to his shares but they shall not be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the Act and in Section 6 below.
 
SECTION 6
 
Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such.
 
SECTION 7
 
The directors may make such rules and regulations as are in accordance with the Act, the Memorandum and these Articles and as they may deem expedient concerning the issuance and transfer of certificates representing shares of the Company and may appoint transfer agents or registrars, or both, and may require all share certificates to bear the signature of either or both of the foregoing. Nothing herein shall be construed to prohibit the Company from acting as its own transfer agent at any of its offices.
 
6. MEETINGS OF MEMBERS
 
SECTION 1
 
The Company may hold once in every calendar year an annual meeting at such time and place as may be designated in the notice of meeting.
 
SECTION 2
 
All meetings of members other than annual meetings shall be called special meetings. The directors may call special meetings and, on the requisition of members pursuant to the provisions of the Act, shall forthwith proceed to call a special meeting for a date not later than eight weeks after receipt of the requisition.

 
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SECTION 3
 
Meetings of the members shall be held at such place either within or without Belize as may be fixed from time to time by the directors or if no such place has been fixed, such place as shall be stated in the notice of any such meeting.
 
SECTION 4
 
Written notice of the time, place and, as far as practicable, purposes of each meeting of the members shall be given by any director or by the Secretary and shall be served in the manner required by Article 15 Section 1 to each member entitled to vote at such meeting.
 
SECTION 5
 
Each meeting of the members shall be presided over by the Chairman of the board of directors (if any) or, in his absence, by such person as may be designated from time to time by the board of directors or, in the absence of such person or if there shall be no such designation, by a chairman to be chosen at the meeting. The Secretary shall act as secretary of each meeting of the members or, if he shall not be present, such person as may be designated by the board of directors shall act as such secretary or, in the absence of such person or if there shall be no such designation, a secretary shall be chosen at the meeting.
 
SECTION 6
 
Without prejudice to Section 17 below, at all meetings of the members two persons entitled to vote upon the business to be transacted, each being a member or a proxy for a member or a duly authorised representative of a corporation, shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by the Act, by the Memorandum or by these Articles.
 
SECTION 7
 
No business shall be transacted at any meeting of the members unless a quorum is present. If such quorum is not present within half an hour from the time appointed for the meeting, or if during a meeting such a quorum ceases to be present, the meeting shall stand adjourned from time to time until a quorum shall attend or to such time and place as the directors may determine.
 
SECTION 8
 
The chairman may, with the consent of a meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at an adjourned meeting other than business which might properly have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen days or more notice shall be given of the adjourned meeting in accordance with Section 4 above. Otherwise it shall not be necessary to give such notice.

 
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SECTION 9
 
A director shall, notwithstanding that he is not a member, be entitled to attend and speak at any meeting of the members and at any separate meeting of the holders of any class of shares in the Company.
 
SECTION 10
 
A resolution put to the vote of the meeting of the members shall be decided on a show of hands unless before, or on the declaration of the result of, the show of hands a poll is duly demanded. Subject to the provisions of the Act or the Memorandum, a poll may be demanded -
 
 
(1)
by the chairman of the meeting; or
 
 
(2)
by at least two members having the right to vote at the meeting; or
 
 
(3)
by a member or members representing not less than 10 per cent, of the total voting rights of all the members having the right to vote at the meeting;
 
and a demand by a person as proxy for a member shall be the same as a demand by the member.
 
SECTION 11
 
Unless a poll is duly demanded a declaration by the chairman that a resolution has been carried or carried unanimously, or by a particular majority, or lost, or not carried by a particular majority and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.
 
SECTION 12
 
The demand for a poll may, before the poll is taken, be withdrawn but only with the consent of the chairman and a demand so withdrawn shall not be taken to have invalidated the result of a show of hands declared before the demand was made.
 
SECTION 13
 
A poll shall be taken as the chairman directs and he may appoint scrutineers (who need not be members) and fix a time and place for declaring the result of the poll. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
 
SECTION 14
 
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman shall be entitled to a casting vote in addition to any other vote he may have.

 
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SECTION 15
 
A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken either forthwith or at such time and place as the chairman directs not being more than thirty days after the poll is demanded. The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll was demanded. If a poll is demanded before the declaration of the result of a show of hands and the demand is duly withdrawn, the meeting shall continue as if the demand had not been made.
 
SECTION 16
 
No notice need be given of a poll not taken forthwith if the time and place at which it is to be taken are announced at the meeting at which it is demanded. In any other case at least seven days’ notice shall be given specifying the time and place at which the poll is to be taken.
 
SECTION 17
 
If the Company shall have only one member then, provided that such member represents, in person or by proxy, a majority of the shares of the Company issued and outstanding, that member shall have full power to represent and act on behalf of the members of the Company and the provisions herein contained for meetings of the members shall not apply. A member as aforesaid shall record in writing by signing a note or memorandum all matters requiring a resolution of members of the Company and such act shall be deemed a resolution that has been carried unanimously by the members of the Company having the right to vote upon the matter in question. Such a note or memorandum shall be in lieu of minutes of a meeting and shall constitute sufficient evidence of such resolution for all purposes.
 
7. VOTING AND PROXIES
 
SECTION 1
 
At each meeting of the members, if there shall be a quorum, a majority of the votes cast at such meeting by the holders of shares entitled to vote thereon, and present in person or by proxy, shall decide all matters brought before such meeting, except as otherwise provided by the Act, by the Memorandum or by these Articles.
 
SECTION 2
 
Subject to any rights or restrictions attached to any class of shares and to any provisions of the Act regarding joint ownership of shares, at any meeting of the Company each member present in person shall be entitled to one vote on any question to be decided on a show of hands and each member present in person or by proxy shall be entitled on a poll to one vote for each share held by him. A member shall be deemed to be present if he participates by telephone or other electronic means in the manner required by the Act in which event he shall be deemed to have raised or failed to raise his hand on a show of hands and to have voted either for, against or abstained on a poll as communicated by the participant by telephone or other electronic means, as appropriate, at the time of the vote in question. Any failure so to communicate by the participant shall be deemed to be a failure to raise his hand on a show of hands and an abstention on a poll on the vote in question.

 
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SECTION 3
 
No objection shall be raised to the qualification of any vote except at the meeting at which the vote objected to is tendered. Any objection made in due time shall be referred to the chairman of the meeting whose decision shall be final and conclusive.
 
SECTION 4
 
The instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney, or, if such appointer is a company, either under the hand of any duly appointed director or officer of such company or under its common seal. The instrument appointing a proxy shall be in any usual or common form or any other form which the directors shall from time to time approve or accept. No person shall be appointed a proxy who is not a member.
 
SECTION 5
 
The provisions of Section 4 above are in addition to and not in derogation of any other statutory or other provision enabling a company (wherever incorporated) which is a member of this Company to authorise a person to act as its representative at a meeting of the members of the Company.
 
SECTION 6
 
An instrument either appointing a proxy or evidencing an authorisation made in the manner referred to in Section 4 above shall be left with the Secretary not less than 24 hours, or such shorter time as may be stated in the form of proxy circulated with the notice of the meeting, before the holding of the meeting or adjourned meeting, as the case may be, at which the person named in such instrument proposes to vote.
 
8. DIRECTORS
 
SECTION I
 
The first directors of the Company shall be elected by the subscribers to the Memorandum; and thereafter, new directors shall be elected by the members or by the existing directors for such term as the members or the directors, respectively, shall determine.
 
SECTION 2
 
The minimum number of directors shall be one and the maximum number shall be ten.
 
SECTION 3
 
Each director shall hold office for the term, if any, fixed by the resolution of the members or directors, as appropriate, or until his earlier death, resignation or removal.

 
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SECTION 4
 
Any director may be removed from office, with or without cause, by a resolution of the members or a resolution of the directors.
 
9.   POWERS OF DIRECTORS
 
SECTION 1
 
The business and affairs of the Company shall be managed by a board of directors which shall consist of one or more persons who may be individuals or companies. The directors may pay all expenses incurred preliminary to and in connection with the formation, incorporation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or by these Articles required to be exercised by the members or any other person, subject to any delegation of such powers as may be authorised by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with the Act, the Memorandum or these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made.
 
SECTION 2
 
Any director which is a body corporate may appoint any person its duly authorised representative for the purpose of representing it at meetings of the board of directors or with respect to written consents of the directors.
 
SECTION 3
 
The continuing directors may act notwithstanding any vacancy in their body.
 
SECTION 4
 
All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments, and all receipts for monies paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of the directors.
 
10. PROCEEDINGS OF DIRECTORS
 
SECTION 1
 
The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside Belize as the directors may determine to be necessary or desirable.

 
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SECTION 2
 
A director shall be given not less than 1 day’s notice of meetings of directors, but a meeting of directors held without 1 day’s notice having been given to all directors shall be valid if a majority of the directors entitled to vote at the meeting waive notice of the meeting; and for this purpose, the presence of a director at the meeting shall be deemed to constitute a waiver on his part.
 
SECTION 3
 
Without prejudice to Section 4 below, a meeting of directors is properly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one half of the total number of directors, unless there are only two directors in which case the quorum shall be two.
 
SECTION 4
 
If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a resolution of directors. Such a note or memorandum shall constitute a resolution of the directors and shall constitute sufficient evidence of such resolution for all purposes.
 
SECTION 5
 
At every meeting of the board of directors the Chairman of the board of directors shall preside as chairman of the meeting. If there is no Chairman of the board of directors or if the Chairman of the board of directors is not present at the meeting the vice-chairman of the board of directors shall preside. If there is no vice-chairman of the board of directors or if the vice-chairman of the board of directors is not present at the meeting the directors present shall choose someone of their number to be chairman of the meeting.
 
SECTION 6
 
The meetings and proceedings of any committee of directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee.

 
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11. OFFICERS
 
SECTION 1
 
The Company may by resolution of the directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chairman of the board of directors, a vice-chairman of the board of directors, President and one or more vice-presidents, Secretary and Treasurer and such other officers as may from time to time be deemed desirable. Any number of offices may be held by the same person.
 
SECTION 2
 
The emoluments of all the officers shall be fixed by resolution of the directors. Subject to the Act, the Memorandum and these Articles, the officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of the directors or resolution of the members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the board of directors to preside at meetings of directors and members, the vice-chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the vice-presidents to act in order of seniority but otherwise to perform such duties as may be delegated to them by the President, the Secretary to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company.
 
SECTION 3
 
The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of the directors. Any vacancy occurring in any office of the Company may be filled by resolution of the directors.
 
12. SEAL
 
SECTION 1
 
The directors shall provide for the safe custody of the Seal. The Seal when affixed to any written instrument shall be witnessed by a director or any other person so authorised from time to time by resolution of the directors. The directors may provide for a facsimile of the Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been signed as hereinbefore described.

 
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SECTION 2
 
The Company may have for use in any territory, district or place elsewhere than in Belize an official seal (the "Overseas Seal"), which seal shall be a facsimile of its common seal. A deed or other document to which the Overseas Seal is duly affixed shall bind the Company as if it had been sealed with the common seal of the Company.
 
SECTION 3
 
The Company may have for use for sealing securities issued by the Company and for sealing documents creating or evidencing securities so issued an official seal (the "Securities Seal") which is a facsimile of the common seal of the Company with the addition on its face of the word "Securities". Each certificate to which the Securities Seal shall be affixed need not bear any signature.
 
13. DIVIDENDS
 
SECTION 1
 
The Company may by a resolution of the directors declare and pay dividends in money, shares, or other property but dividends shall only be declared and paid out of surplus. In the event that dividends are paid in specie the directors shall have responsibility for establishing and recording in the resolution of directors authorising the dividends, a fair and proper value for the assets to be so distributed.
 
SECTION 2
 
The directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the Company.
 
SECTION 3
 
The directors may, before declaring any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set apart as a reserve fund upon such securities as they may select.
 
SECTION 4
 
Notice of any dividend that may have been declared shall be given to each member in the manner mentioned in Article 15 Section 1 and all dividends unclaimed for three years after having been declared may be forfeited by resolution of the directors for the benefit of the Company.
 
SECTION 5
 
No dividend shall bear interest as against the Company.
 
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14. AUDIT
 
SECTION 1
 
The Company may by resolution of the members call for any accounts of the Company to be examined by auditors.
 
SECTION 2
 
The first auditors shall be appointed by resolution of the directors; subsequent auditors shall be appointed by a resolution of the members.
 
SECTION 3
 
The auditors may be members of the Company but no director or other officer shall be eligible to be an auditor of the Company during his continuance in office.
 
SECTION 4
 
The remuneration of the auditors of the Company:
 
(a)
in the case of auditors appointed by the directors, may be fixed by resolution of the directors;
 
(b)
subject to the foregoing, shall be fixed by resolution of the members or in such manner as the Company may by resolution of the members determine.
 
SECTION 5
 
Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.
 
SECTION 6
 
The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of members of the Company at which the Company’s profit and loss accounts and balance sheet are to be presented.
 
15.   NOTICES
 
SECTION 1
 
Any notice, information or written statement to be given by the Company to members must be served, in the case of members holding registered shares, personally or sent by mail or by telegraph, cable, telex, facsimile transmission or similar communications equipment. If served other than in person, such notice shall be directed to each member at his address as it appears on the share register of the Company unless he shall have filed with the Secretary prior to such service a written request that notices intended for him be served at some other address, in which case it shall be directed to the address designated in such request. In the case of members holding shares issued to bearer, any such notice, information or written statement must be served in the manner required by the Memorandum and/or by publication in a newspaper in Belize, in such other newspapers (if any) as the directors consider to be appropriate and in a newspaper in the place where the Company has its principal office, if different.

 
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SECTION 2
 
Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.
 
SECTION 3
 
Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was mailed in such time as to admit to its being delivered in the normal course of delivery within the period prescribed for service and was correcdy addressed and the postage prepaid.

 
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16. AMENDMENTS
 
These Articles may only be altered, repealed or replaced by resolution of the members of the Company.
 
For the purpose of incorporating an International Business Company under the laws of Belize the person whose name and address is set out below as the Subscriber hereby subscribes its name to these Articles of Association in the presence of the undersigned witness:
 
SIGNATURE OF WITNESS
 
SIGNATURE OF SUBSCRIBER
         
  /s/  Phillis Mendez     /s/ [ILLEGIBLE]
Name:
Phillis Mendez
 
Name:
Belize Registration Services Limited
Address: 
60 Market Square
 
Address: 
60 Market Square
 
P.O. Box 364
   
P.O. Box 1764
 
Belize City, Belize
   
Belize City, Belize
         
Date:
March 1, 2004
 
Date:
March 1, 2004
 
 
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(Translation)

ARTICLES OF ASSOCIATION

ZhongXingNongMu Co. Ltd.

September 7, 2007
INDEX
Chapter 1
General Provision
1
Chapter 2
The name, address and tenure of operation of the company
2
Chapter 3
The scope of business of the company
3
Chapter 4
The registered capital of the company
3
Chapter 5
Names of shareholders
3
Chapter 6
Method, amount and date of capital contributions made by shareholders
3
Chapter 7
The organization of the company and its formation, their functions and meetings’ procedures
4
Section 1
Shareholders' meeting
4
Section 2
The board of directors
5
Section 3
Chief Executive Officer
8
Section 4
Audit Committee
9
Chapter 8
The legal representative
10
Chapter 9
The rights and obligations of shareholders
10
Chapter 10
Investment
11
Chapter 11
Transfer of equity
11
Chapter 12
Accounting policies, profit distribution and audit;
11
Chapter 13
Merger, setting up branches and the increase or decrease of the its registered capital
11
Chapter 14
Labour and employment policy, the conference of the representatives of the staff and workers and the Labour Union
11
Chapter 15
The dissolution and liquidation of the company
12
Chapter 16
The amendment of the articles of association of the company
12
Chapter 17
Supplementary Articles
13

Chapter 1 General Provision
Article 1
Definitions

The following expressions shall have the following meanings:

i. The Company Law and Law of Joint Ventures refer to the Company Law of the People's Republic of China as revised on October 27, 2005 at the Standing Committee of National People's Congress and the China’s Law of Sino-Foreign Joint Ventures as approved by the decree No 40 of the President of the People’s Republic of China and adopted by on October 31, 2000 by the eighteenth session of the Standing Committee of the tenth National People's Congress.

The company or company refers to ZhongXingNongMu Co. Ltd
 
ii. Operation guidelines refer to the overall strategic planning and vision of the company, including the general management direction and the management mode of the company with regard to the factors of the industry, region, market, duration, risk, profit, law and environment etc..

iii. Development plan refers to the operation method, steps and procedures for the company to make use the capital to carry out the operation guidelines.

iv. Operation plan refers to the yearly detailed planning of the company in respect of the operation and management.

v. Development solution refers to the procedure and measures regarding the use of capital, capital allocation, capital amount, risk prevention on yearly basis to carry out the operation plan.

vi. Senior managers generally refer to the senior management such as the CEO, departmental managers, secretary of the board of directors.
 
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vii. The equity shareholder refers to a joint venture party, or a shareholder whose capital contribution either by cash or technology is less than 10% but who enjoys a voting right according to its capital contribution that is substantial enough to have an influence upon the resolution of the shareholders' meeting.

viii. The Controlling Party refers to anyone although is not a shareholder but is able to have effective control over the acts of the company by means of investment relations, agreements or any other arrangements.

ix. The related connection refers to the relationship between the equity shareholder, the controlling party, director, supervisor, or senior manager of a company and the enterprise that may be directly or indirectly resulting in the transfer of any interests of the company.

x. Shareholding refers to the rights and benefits enjoyed by the shareholders according to the mutually agreed ratio, including distribution of after- tax profits, the right to vote at the shareholders meeting, the sharing of risks and so on.

xi. The remuneration system refers to an employee-orientated rewards system adopted from the western developed countries. It means the company recognizes the contribution of the workforce (in particular the senior staffs), and is prepared to take out a certain portion of its net profit to be distributed to the staffs.  Besides the salary, the staffs share the profit according to their achievements.

Article2
The purpose of this article of association is to maintain the company's healthy, stable and sustainable development through regulating organization structure and activities of the company, and then further protect the lawful rights and interests of the company, the shareholders and the creditors, in order to realize the goal of gaining profit for the investors.

Article3
Should any term and condition of this article of association be in contradiction with the mandatory provisions of any existing law and regulations, the law or regulations shall prevail.  Should any term and condition of this article of association be in contradiction with the non mandatory provisions of the existing law and regulations, the term and condition of this article of association shall prevail.

Article4
Should any term and condition of this article of association be in contradiction with any agreement of the shareholders, the term and condition of this article of association shall prevail unless it is expressly provided otherwise in the shareholder agreement

Article5
The formulation and amendment of the article of association shall require the approval of 90% of the shareholders with voting right. The amendment of any term and condition shall be approved by 100% of the shareholders with voting right, and mark beside: amendment of the term shall be approved by 100% of the shareholders with voting right.

Chapter 2   The name and address of the company

Article6
The name and address of the company

Chinese name:
English name: ZhongXingNongMu Co. Ltd.

Business address: No.78 Xiqu Road, Dage Town, Fengning Man Autonomous County, Chengde City, Hebei Province.

The company is a limited liability company and it will not change during the duration of the company. (any amendment of this term shall be approved by 100% of the shareholders with voting right).

Article7
The tenure of operation of the company shall be in perpetuity. (amendment of this term shall be approved by 100% of the shareholders with voting right).
 
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Chapter 3   The business scope of the company

Article8
The business scope of the company
 
The business of the company is primarily in agriculture, and investing in other enterprises. The company shall not be engaged in any business that is prohibited by law.  For any business that requires official approval by law, the company shall apply for such approval before commencement of such business. Carry out businesses which are not restricted by law or do not require official approval. The company shall not be engaged in business of providing guarantee.

Chapter 4 The registered capital of the company

Article 9  The company shall have a registered capital of RMB 60,000,000.00 (amendment of this term shall be approved by 100% of the shareholders with voting right);

Chapter 5 Names and number of shareholders

Article10
Name and number of shareholders of the company:

Name and address
 
Identification No.
Party A :
ZhongXing Agriculture and Husbandry Holdings Co. Ltd.
   
 
No.78 Xiqu Road, Dage Town, Fengning Man Autonomous County,
   
 
Chengde City, Hebei Province, China
 
1308001000413h
Party B :
Hang Yu Tai Investment Limited
   
 
RM.L, 5 th Floor, Block3, Dong Bei Da Ma Road, Hai Ming Ju, Macau
 
25487SO
 
Article11
The company operates in the form of shareholder system, that is the shareholders are maintained as agreed by the joint venture partners (Article 13, Chapter 6) unless the following circumstances arise:
i.
Withdrawal or dissolution of the shareholder. The share equity is then transferred to other person under in accordance with Chapter 11.
ii.
Death of shareholder. One or more successors inherit the share equity and become the shareholders instead. (Amendment of this term shall be approved by 100% of the shareholders with voting right).
iii.
The shareholder dies without a successor but has made a probate of a will and named a beneficiary, therefore the beneficiary becomes a shareholder.

Article12
The company shall prepare a list of the shareholders in accordance with article 33 of the Company Law, and distribute one copy to each shareholder, and keep at least two copies at the premises of the company, in order for the shareholder to exercise the shareholder's right.

Chapter 6 Method, amount and date of capital contributions made by shareholders

Article 3
The method, amount and date of capital contributions made by shareholders are agreed by shareholders as follows:

Party A:
provides the existing asset and resources including the registered capital, factory, factory buildings, patent right, exclusive right and land use right (details enclosed), management right and interest.

Party B:
provides a sum of US$100,000.00 as the initial registered capital of the company, and imports from overseas premium quality livestock, seedlings and advanced production technology and A Power Agro Agriculture Development, Inc’s proprietary technology.  Please refer to: ( http://www.pinksheets.com/pink/index.jsp// ) OTCBPS: APWA; contributes USD$100,000 as registered capital.

Whereby Party A shall hold 22% and Party B shall hold 78% of the share equity.

Article14
The shareholders shall distribute the net profit according to their respective shareholding.

Article15
Shareholders shall bear the risk of the company according to their respective shareholding, while the company shall bear full responsibility over its debts.

Article16
the company shall issue investment certificates to its shareholders in according with Article 32, Company Law.  

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Chapter 7 The organization of the company and its formation, their functions and meetings’ procedures

Section 1   Shareholders' meeting

Article17
The company shall establish the shareholders' meeting which shall comprise all the shareholders. The shareholders' meeting is the highest authority of the company, and shall exercise its authorities according to law and relevant terms in these articles of association.

Article18
The shareholders' meeting shall carry out the following functions:

i.
Determining the company's operation guidelines and investment plans;
ii.
Electing and changing the chairperson, the deputy chairperson and directors; determining the number of directors, and the percentage of shareholder directors and non-shareholder directors; determining the remuneration for the members of board of directors and the payment term.
iii.
Electing and changing the audit members appointed from non-employees (the number of audit members to be appointed from employees shall be determined according to law), and determining the number of audit members, and their remuneration and payment term.
iv.
Deliberating and approving the reports of the board of directors;
v.
Deliberating and approving the reports of the audit committee;
vi.
Deliberating and determining projects to be carried out in the People's Republic of China with the amount of investment totaling USD$30,000,000.00;
vii.
Deliberating and approving annual financial budget plans and final account plans of the company;
viii.
Deliberating and approving net profit distribution plans, and provident funds withdrawal plans, and loss and recovery plans of the company;
ix.
Deliberating and approving the important sales of assets;
x.
Deciding on the change of tenure of operation of the company, dissolution and liquidation of the company;
xi.
Deliberating and approving the matters concerning transfer of equity of the company;
xii.
Amending the articles of association of the company;
xiii.
Approving the establishment of the subsidiaries, branches (a branch is not a separate legal entity, therefore it has no right of independent operation);
xiv.
Adopting resolutions on employment and dismissal of the accounting firm;
xv.
Supervising and examining the works of the board of directors and its members, the audit committee and its members, all staffs and professionals employed by the company;
xvi.
Exercising other authorities outside the authorities of the board of directors.

Article19
The shareholders' meeting shall not interfere the authorities of the board of directors authorized by these articles of association.

Article20
The first shareholders' meeting shall be convened and presided over by the shareholder who has the largest shareholding and shall exercise it authorities according to Company Law and Law of Sino-foreign Joint Ventures.

Article21
Where any of the matters within the scope of authority of the shareholders’ meeting, it may be approved by all the shareholders in writing, without the need of convening a shareholders' meeting.   A decision in writing may be made with the signatures or seals of all the shareholders thereon, and be kept by the company.

Article22
A shareholders' meeting may be a scheduled meeting and an emergency meeting:

i.
The scheduled meeting shall be held 4 times in a year in first half of March, June, September and December, whereby the scheduled meeting of December shall be convened on December 13, and the date is recognized as the anniversary of the company.
ii.
The emergency meeting shall be convened on the following occasions:
a)
Any of the shareholders proposes for such a meeting;
b)
It is called by the board of directors;
c)
1/3 of the directors propose for such a meeting to be held;
d)
The audit committee proposes for such a meeting to be held.
 
Article23
The shareholders' meeting shall be prepared by the board of directors, and the notice shall be given to all the shareholders by the secretary of the board of directors.
 
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Article24
The scheduled shareholders' meeting shall be presided over by each of the shareholders by rotation according to their percentage of shareholding.  The duty shareholder is unable to chair the meeting for any reason, that shareholder chair the next meeting.  Proxy of any absentee shareholder is not allowed to chair any meeting. (the persons mentioned in articles viii, ix, x of chapter 1 are exceptions )

The shareholder who proposes an emergency meeting to be held shall chair that emergency meeting. If there are 2 or more shareholders jointly propose such meeting to be held, such shareholders shall decide among themselves as to who shall chair the meeting.

The chairperson of the board of directors shall chair the meeting if the meeting was called by the board of directors.

The chairperson of the audit committee shall chair the meeting if the meeting was called by the audit committee.

Article25
Where the board of directors is unable to or doesn't perform the duty to convene and prepare for the shareholders' meeting, the shareholders may convene and prepare for it.

Article26
Where the shareholders' meeting is convened, a notice to all the shareholders shall be made 45 days prior to the meeting by the secretary of the board of directors, unless the urgency of the matter dictates otherwise. The emergency means the unexpected events which may have a great impact on the company.

Article27
The shareholders should attend the shareholders' meeting personally. If the shareholders are unable to be present for special reason, they may appoint their spouses, parents, issues or attorney to attend the meeting as their proxies and exercise the voting right in writing, or they may not entrust any person to attend the meeting with their votes in handwriting and signatures.

Article28
The proceedings of the shareholders' meeting shall be minuted which shall be signed by the shareholders attending the meeting and shall be kept record.   Voting shall be made by ballot.  The shareholders who are present shall vote by ballot bearing their signatures to agree, object, or abstain in writing.  Anyone who shall refuse to sign on the ballot paper or failed to attend the meeting and yet failed to express his decision in writing either personally or through his proxy shall be deemed to have abstained.

Article29
Where the shareholders' meeting requires the directors, the audit committee members or the senior management to attend the meeting, then they should be present at the meeting to answer any queries from the floor.

Article30
Shareholders shall cast their votes at the shareholders’' meeting according to their percentage of shareholding.

i.
General matters shall require approval of two-thirds of the votes held by shareholders;
ii.
The adoption of a resolution of reducing the tenure of operation or the dissolution of the company shall  require approval of 90 percent of the votes held by shareholders;
iii.
An amendment to the articles of association shall require affirmative votes by 90 percent of the votes held by shareholders; an amendment to a certain term of the articles of association shall require affirmative votes by 100 percent of the votes held by the shareholders, and note this beside the term. (( Amendment of this term shall require affirmative votes by 100% of the voted held by shareholders)
 
Section 2  Board of directors

Article31
The company shall have a board of directors. The board of directors is accountable to the shareholders' meeting and shall have the following functions:
 
i.
Calling and preparing for a shareholders' meeting, and presenting reports thereto;
ii.
Implementing resolutions passed by the shareholders' meeting;
iii.
Determining the company's operating plans (below RMB500,000.00) and investment programs (below RMB1,000,000.00);
iv.
Drafting annual financial budget plans and final accounting plans of the company and submitting the plans to the shareholders' meeting for deliberation and approval;
 
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v.
Drafting the company's profit distribution plans and plans to cover company losses;
vi.
Drafting plans to issue company bonds and financial bonds, and submitting the plans to the shareholders' meeting for deliberation and approval;
vii.
Making decision on the matters concerning the company's loan from bank or any other financial institution;
viii.
Drafting plans for dissolution or liquidation of the company, and submitting the plans to the shareholders' meeting for deliberation and approval;
ix.
Approving the structure of the company's internal management, including the name, the function, the staff s' organization, and the procedure of work etc.;
x.
Appointing or removing the CEO, the heads of each department and the senior professional personnel and determining their remuneration;
xi.
Approving the the basic management manual of the company, including but not only the plans, the human resources, the salary, the finance, the working, the manufacture, the materials, the marketing, the quality, the import and export and logistics, and the culture of the enterprise etc.;
xii.
Supervising the CEO and the operation of each department; receiving briefings from the CEO and performing inspection;
xiii.
Appointing the chairman of the board, the directors and the manager of the subsidiaries;
 
Article32
The members of the board of directors shall be natural persons appointed by the shareholders' meeting, comprising 5 to 7 persons, and the number of the members shall be odd number. The chairman of the board deputy chairman of board and the directors may be appointed from shareholders or non-shareholders. The age limit for the directors is 60 years' old.

Article33
The tenure of office of the directors shall be 3 years, and may be re-elected, consecutively.  Current directors whose term expire or who have resigned before their terms expire shall continue to perform the duties until re-election of directors taking place, failing which they shall compensate the company for any losses suffered by the company as the result.

Article34
The board of directors shall have one chairman, deputy chairman, and 2 executive directors, the rest are non executive directors.  Executive directors can be candidates as the company legal representative.

Article 35
The company may appoint honorary chairperson, honorary directors, without the term limit, and such persons shall have no voting rights.

Article 36
The chairperson’s duties and functions:
 
i.
Chairing the meetings of the board of directors.
ii.
drafting the plan within the purview of the Board, programs, systems, documents, presented to the Board approval, signing, promulgation and implementation (see the specific scope of the "Board Rules of Procedure");
iii.
chairing the meeting of shareholders convened by the board of directors or any meeting jointly held by the Board and the shareholders ;
iv.
Calling for the board of directors’ meetings;
v.
proposing to the Board of Directors the appointment of CEO, heads of various departments, as well as other key personne; proposing to the Board of Directors appointment of directors and key management personnel to the subsidiary;.
vi.
supervising the CEO and performance of various departments;
vii.
signing and publishing document s of the Company and the Board;
viii.
signing letters of appointment and others;.
ix.
in emergency situation, in order to protect the company’s assets from damage permitting the CEO to specially handle the company’s assets and thereafter submitting a report thereof to the board of directors and the shareholders’ meeting;
x.
Co-signing and approving with the CEO on matters requiring special expenditure;
xi.
supervising the implantation of corporate culture;
xii.
Exercising other functions dictated by the shareholders’ meeting.

Article37
The deputy chairperson shall assist the chairperson in his work, and in the event that the chairman is unable to perform his duties, the deputy chairperson shall perform such duties.
 
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Article38
The meeting of board shall be convened once a month, and in principle to be held on the first Saturday of each month.  A meeting of the board shall be convened if the chairperson so decides, or as one-third of the directors or audit committee or the CEO so proposes.

Article39
Board of directors shall hold scheduled meeting every month by 15-day prior written notice to the directors by the Secretary of the Board; Emergency meeting may be held by a 7-day prior notice to the directors in written. The Board may hold informal meetings to study, discuss and receive briefings without prior notice.

Article40 
The meeting of the Board of Directors shall be convened and presided by the chairperson of the board; where the chairperson of the board cannot or fail to perform his such function, the meeting shall be chaired by the deputy chairperson; and where the deputy chairperson fails to do so, then a director elected by more than half the directors present shall chair such meeting.

Article41 
The board of directors shall execute one-man-one-vote written voting system by open ballot. The decision shall be effective only if approved by over two-thirds of all directors. If any director is unable to attend the meeting due to any special reason, he may appoint other director in writing to express his opinion or decision, followed personally with by written decision thereafter.  In special circumstance where a director is absent due to death, injury, or deliberate attempt to delay or refuse to vote, and which has resulted in a split vote situation, then the chairperson of the meeting shall have a second vote.

Article 42
The directors may vote for, against or abstain from voting on any motion presented at the meeting.

Article 43
The proceedings of the meeting shall be minuted which shall be signed by the shareholders attending the meeting and shall be kept record..

Article 44
The board of directors may formulate the detailed procedures for the proceedings of the meeting.

Article45
A person in any of the following categories may not serve as a director:
 
1.
without civil capacity or with restricted civil capacity;
 
2.
has been penalized for the following crimes, and completion of the sentence being less than 5 years ago: embezzlement, bribery, conversion of property, misappropriation of property, sabotage of social economic order; or having been deprived of political rights as a result of a criminal conviction, and completion of such sentence is less than 5 years ago;
 
3.
having served as a director, the factory chief, or the general manager of a company or enterprise in liquidation as a result of mismanagement, and being personally responsible for such liquidation, and the date of such liquidation is less than 3 years ago;
 
4.
having served as the legal representative of a company or enterprise whose business license was revoked due to its violation of law, and being personally responsible for such revocation, and such revocation occurred less than 3 years ago;
 
5 .
in default of personal debt of a significant amount.
 
6.
violated the one-child policy.

The company has the right to immediately terminate the directorship of such director found to have committed any of the above acts.

Article 46
The directors must fulfill with the following obligation:

 
1)
Comply with laws, rules, regulations and professional ethics, diligently and faithfully perform their duties, be loyal to the company to safeguard the highest interests of the company obligations; when their interests conflict with the interests of the company, must give priority to safeguard the interests of the company;
 
2)
To exercise their power within the scope of their duties and shall not exceed the terms of reference or intentionally fail to perform their duties or delay in performing their duties;
 
3)
Except with the approval of the shareholders’ meeting, shall not trade or enter into contracts with the Company;
 
4)
shall not use internal information for their own gain or gain of others;
 
5)
Unless prior disclosure to and approval of the shareholders’ meeting have been made, the directors shall not engage or help others to engage in any business or enterprise.  Disclosure must be made on the directors’ businesses prior to the appointment of his directorship.  Any losses suffered by the company as a result of non disclosure by the directors shall be borne by the directors concerned, while the company shall have the right to pursue legal remedies against the directors concerned;
 
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6)
shall not abuse their position by accepting money or benefit from others;.
 
7)
shall not misuse properties of the company;
 
8)
shall not misappropriate the company’s funds for personal use or use of others;
 
9)
shall not use their position to canvas for business opportunity for themselves or others;
10)
shall turn over any commission paid by others for any transaction entered into by the company, failing which it shall be deemed as a misappropriation of the company’s asset or fund;
11)
shall not transfer the asset or fund of the company into their own name or into any other individual’s name,
12) 
shall not pledge the company’s assets as security or guarantee for payment of the debts of themselves or others;
13) 
Strictly keep company secrets confidential;
14)
provide fair and equitable treatment to all shareholders;
15) 
diligently read the company's administrative report, business reports, financial reports, etc., and keep abreast of company management situation;
16)
the independent exercise of the powers of the directors, and shall not be manipulated by others; and unless permitted by laws and administrative regulations shall delegate the powers to others;
17)
diligently accept the supervision of the shareholders, other directors, audit committee and the employees of the company and listen to their recommendations;
18)
shall not act on behalf of the company or board of directors without due authorization under the articles of association or by the board of directors;
19)
in the event of resignation, the directors shall continue to perform the duties of the directors until the resignation of the directors are accepted by the board of directors, failing which the directors concerned shall be responsible for any losses suffered by the company as a result thereof;
20) 
the company shall deduct from the directors’ remuneration and pay on behalf taxes payable by the directors according to the laws.

Article 47
Article 46 also applies to audit committee, CEO, executives, professional technical personnel and also the shareholders.
Section 3   Chief Executive Officer (CEO)

Article 48 
The company shall employ a chief executive (the CEO), and shall entrust the CEO with powers in implementing the company’s business projects (business plans, investment programs), i.e. the CEO shall be the person responsible for the implementation of the daily operational matters vis-à-vis with the external parties and the internal management people.

Article 49 
Upon the nomination or recommendation by the chairman, the CEO shall be employed or dismissed by the Board.  Board members can serve as the CEO, the divisional heads or other senior positions.

Article 50 
The tenure of the CEO shall be 5 years, and is renewable.  The age limit for the CEO is 65 years old.

Article51
The duties and functions of the CEO are as follows:

(I)
In charge of all daily operations and management matters of the company, including
 
1.
organizing the departments of the company, implementing annual business plans, investment programs, and carrying out the directives of the board of directors;
 
2.
drafting the company’s annual business plan and investment proposal;
 
3.
personally or authorizing others represent the company in negotiation, public relations, advertising and other activities vis-à-vis the customers, government, intermediaries, etc., drafting of business projects and their pricing, duration, partner, conclusion and other contractual matters, and timely reporting the same to the Board;
 
4.
in charge of the company's production, sales, quality control and services;
 
5.
proposing to the Board mobilization of the assets of the Company;
 
6.
formulating and proposing to the Board on the company’s borrowing and the amount, term, interest rate and method;
(II)
preparing the name list of departmental heads and proposing the same to the Board for formal employment; the departmental heads and other executives shall be directly answerable to the CEO, and indirectly reporting to the chairman of the board;
(III)
personally or authorizing others employ or dismiss the middle level management personnel;
(IV)
proposing holding of an emergency meeting of board and drafting the agenda of the meeting;
(V)
convening the meeting of the departmental heads;
(VI)
together with the Chief Financial Officer jointly approving matters concerning finances;
(VII)
together with the head of financial control jointly approving matters concerning management of funds;
 
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(VIII)
representing the company, and signing documents on behalf of the company, the CEO is also the company's legal representative;
(IX)
approving expenditure for the projects and within the limit authorized by the Board;
(X)
exercise or delegate such powers authorized by the Board;
(XI)
directly responsible for or delegate such responsibilities to the Chief Operations Officer for the daily administrative work; organizational strength, drafting, development of the company's development plans, programs and other important documents; develop basic management system of the company (including companies set up various departments and branches , duties, staffing, wages, etc.), and the corporate office details the specific regulations submitted to the Board for approval; the company's human resources (including incentives, training, recruitment, promotion, transfer, demotion, etc.); the company's external public relations liaison work; together with the Chief Financial Officer jointly approve the wages of workers, benefits programs; together with the chairman, the Chief Financial Officer jointly approve special items expenditure; appointment or dismissal of the middle level management and staff; approving, specific capital expenditures within authorized limits; helping the chairman in building up the company’s corporate culture; communicating with the workers congress, union and safeguarding the democratic workers’ rights and benefits.

Article 52
The CEO shall attend the board meetings, but with no voting rights, and shall submit his reports at the   board meetings and report to the chairman if the board meeting is not in session.

Article 53
Upon the request of the board of directors or the audit committee, the CEO shall accurately report to the board of directors or the audit committee any contract the company has entered into, its performance, use of funds and profit and loss situation.

Article 54
The company shall formulate "The Work Manual of the CEO", and the same shall be implemented after  its approval by the board of directors.

Article 55
The company shall enter into an employment contract with the CEO setting out the terms, remuneration and other terms and conditions for his employment.

Section 4  Audit Committee

Article 56
The company shall establish an Audit Committee to carry out the following functions:

(I)
carrying out auditing and inspecting the company's financial affairs;
(II)
supervising the works and performance of the Chairman, directors, the CEO and the senior management personnel, and enquiring if need to.  When these officers are in violation of the laws, regulations, the constitution of the company or resolutions of the shareholders’ meeting, or damage the interests of the company, the audit committee has the right to request for rectification and to propose to the shareholders’ meeting or the board of directors recommending dismissal;
(III)
proposing convening of emergency meeting of shareholders;
(IV)
convening a shareholders’ meeting, if the Board of Directors fails to convene, organize and call for a meeting;
(V)
proposing motion to the shareholders meeting, and the same shall be included in the agenda for the meeting;
(VI)
Upon written request of a shareholder, pursuing legal action against any board members, the CEO, the heads of various departments, the executive personnel who has cause damage or loss to the company due to his violation of the laws, regulations or the constitution of the company;
(VII)
attending board meetings with the right to speak in order to carry out its supervisory responsibilities;
(VIII)
engaging a law firm or accounting firm to investigate the affairs of the company (or performing the investigation itself), if it finds irregularity in the operation of the company, the costs thereof shall be borne by the company, and shall report the same to the shareholders’ meeting;
(IX)
exercising other powers as granted by the shareholders’ meeting.

Article57
The audit committee shall comprise of shareholders (at least one) and employee representatives, of 5 to 13 members, and the number shall be odd number.  The number of representatives of the employees sitting in the audit committee shall not be less than 1/5, and shall be elected at the workers congress.
Article 58
The term of office of the members shall be 5 years, re-electable and renewable.  The age limit shall be  75 years old.
Article 59
In the event of resignation, the auditors shall continue to perform their duties until re-election of new auditors, failing which the auditors concerned shall be responsible for any losses suffered by the company as a result thereof.
Article 60
the directors, the CEO, departmental heads and other senior management personnel or key managerial personnel may not serve as the auditors.
 
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Article 61
The audit committee shall have a chairman, and may have one or two vice-chairmen, to be elected by the members of the audit committee by majority votes.
Article 62
The chairman shall convene and chair the audit committee meeting, and if the Chairman is unable to perform duties or fails to perform his duties, Vice-Chairman shall take over the chair.  If Vice-Chairman cannot perform his duties or does not discharge his duties, a member elected by 1/2 or more members of the audit committee shall convene the meeting.
Article 63
Generally the audit committee shall hold two regular meetings each year, one every six months.  An emergency meeting can be convened if 1/3 of the members of the audit committee shall requisition for one to be held, and the moderator shall give 15-day written notice to all members.
Article64
The quorum for a meeting of the audit committee shall be more than half of the members attending, and any resolution shall only be passed if approved by majority votes.
Article65
The audit committee shall execute one-man-one-vote written voting system by open ballot. In a tie situation, the chairperson of the meeting shall have a second vote.  If any director is unable to attend the meeting and fails to appoint other member in writing to vote on his behalf, he shall be deemed to have abstained from voting.
Article66
the employees of the company shall provide the relevant information to the audit committee, but shall not impede the functioning of the audit committee.
Article 67
The audit committee meeting shall be minuted and its resolutions permanently kept in files of the company.
Article 68
All cost for the performance of the audit committee’s functions shall be borne by the company.

Chapter8  The legal Pepresentative

Article 69
The company's legal representative shall be elected among the chairman, executive directors and the CEO at the shareholders’ meeting.
Article 70
Any documents signed by the legal representative on behalf of the company shall be binding on the company.

Chapter 9  The rights and obligation of the shareholders

Article 71
Rights of shareholders are as follows:

(I)
To vote in accordance with its equity ratio at the shareholders meeting,
(II)
To be elected to the Board of Directors, audit committee.
(III)
To access financial accounts according to the laws.
(IV)
To appoint proxy to participate in meetings of shareholders;
(V)
To have access to the constitution and audited accounts.
(VI)
To receive profits after tax according to equity ratio.
(VII)
pre emptive right to receive transfer of the equity from other shareholders.
(VIII)
To supervise the actions of the company and to provide suggestions and enquiries.
(IX)
To transfer shareholding in accordance with the constitution and the laws.
(X)
To receive distribution of the company’s assets according to the equity ratio after the dissolution of the company.
(XI)
pursuing legal action in accordance with the provisions of article 153of the Company Law against any board members, audit committee members, the heads of various departments or the people outside the company who has cause damage or loss to the company.

Article 72
Obligations of shareholders are as follows:.

(I)
complying with the laws and the articles of association;
(II)
paying in full subscribed capital;
(III)
shall not misappropriate the assets or fund of the company;
(IV)
bear the corporate liability according to the subscribed capital contributions ratio;
(V)
shall not withdraw their capital contributions;
(VI)
shall keep all information of the company confidential;
(VII)
to participate in the liquidation of the company at the instance of dissolution of the company;
(VIII)
to comply with Article 47 of the Constitution of the company.

Article 73
The Shareholders, especially the equity shareholders or controlling shareholders must comply with Article 20 of the Company Law that they shall not abuse the rights and corporate separate entity, and if violated, they must be held accountable.

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Chapter 10  Investment and corporate bonds.

Article 74
The company may invest in other businesses, but shall establish partnership, an unlimited company or wholly owned enterprises.
Article 75
The company may issue bonds to raise funding in accordance with Chapter 7 of the Company Law
 
Chapter 11   Equity transfer

Article 76
To maintain the company's long-term stability of its shareholders, transfer of shareholding can only be carried out among shareholders.
Article 77
The shareholders shall have a preemptive right to purchase.
Article 78
Should a shareholder intends to sell his shares, he shall notify the other shareholders.  An agreement to purchase must be in writing, failing such agreement it shall be deemed to have rejected the offer to purchase.
Article79
After sale and transfer of the shares concerned, the old “investment certificate" shall be destroyed and a new be issued to the new shareholder.
Article 80
In the following circumstances, shareholders are entitled to request the company to purchase its shares at a reasonable price:
(A)
The company fails to declare profits distribution for 3 years consecutively, although the company has made consecutive profits for 3 years;
(B)
the occurrence of circumstance for dissolution of the company as prescribed in the articles of association, but the company is being kept in existence by amending the articles of association.

Article 81
The purchase price may be determined in consultation with the shareholders by the company, failing such agreement, a valuer may be appointed by the parties to determine the purchase price thereof.

Chapter 12  Financial accounting system, profit distribution and auditing

Article 82
The company shall establish its financial and accounting systems in accordance with the relevant national statues and regulations.
Article 83
The company shall prepare its financial and accounting reports at the end of each fiscal year, which shall be reviewed and verified in accordance with the law.
Article 83
The company shall submit its financial and accounting reports prepared in accordance with the generally accepted accounting principles within one month after the end of each fiscal year to the shareholders.
Article 85
In distribution of its current year after-tax profit, the company shall allocate 10 percent to its statutory reserve fund. Allocation to the company’s statutory reserve fund may be waived once the cumulative amount of funds therein exceeds 200 percent of the company’s registered capital.
Article 86
Where the statutory reserve fund is not sufficient to cover the company’s loss from the previous year, the current year profit shall be used to cover such loss before allocation is made to the statutory reserve fund.
Article 87
After the company has made allocation to the statutory reserve fund, allocation may be made to the discretionary reserve fund. Detailed implementing measures shall be formulated by the board of directors to be approved at the shareholders' meeting.
Article 88
After provisions have been made to cover its previous year’s losses and to the statutory reserve fund, the remainder of the profit shall be distributed to the shareholders in proportion to the equity interest.
Article 89
The company shall engage an accounting firm to audit the financial affairs of the company at the shareholders’ meeting.
Article90
The company shall provide the certified public accountants with truthful and complete accounting vouchers, account books, financial and accounting reports and other accounting documents, and shall not refuse to provide, conceal information or misreport.
Article 91
The company may not establish any separate accounting book besides the accounting book prescribed by law.

Chapter 13   Merger, setting up branches and the increase or decrease of the its registered capital

Article 92
The company shall merge with other enterprises. It may increase its capital, but not decrease its capital.

Chapter 14  Labour and employment policy, the conference of the representatives of the staff and workers and the Labour Union

Article 93
The company shall adopt employment and labour policies as prescribed by the country or local governments within the scope of the relevant provisions.  It may adopt the experience of other developed countries in attracting talents.
Article 94
The company shall allow setting up of workers’ congress, trade unions and other organizations to protect employees’ rights.  The company will pay for operating expenses.
 
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Article 95
The company shall draw up regulations on wages, welfare, labor safety, insurance, dismissal and other matters related to employees,and shall seek the opinion of the trade unions.

Chapter15  Dissolution and Liquidation of company

Article 96
The company may be dissolved in any of the following circumstances:

(1)
The shareholders’ meeting has adopted a resolution for dissolution (amendment of the term shall be approved by 100% of the shareholders with voting right).
(2)
The company’s business license is revoked and its operation is ordered to be closed.
(3)
If the company is to be dissolved pursuant in Article 183 of the Company Laws by the People’ Court.

Article 97
Where the company counters severe difficulties in the management of the company, and the continuation of the same would cause heavy losses, and it cannot be solved by any other means, then the shareholders having more than 10% voting rights may petition the court for dissolution of the company.
Article 98
Once the company is dissolved, the shareholders shall form a liquidation committee within 15 days from the date of dissolution.
Article 99
The liquidation committee shall exercise the following functions in the course of liquidation:
(a)
identifying the company’s assets, and preparing the balance sheet and schedule of assets respectively;
(b)
notifying creditors through notice or public announcement;
(c)
handing the company’s ongoing business which are related to liquidation;
(d)
making full payment of taxes owed or and the process of liquidation,
(e)
identifying the company’s creditor’s rights and debtor’s liabilities;
(f)
disposing off the remaining assets after full payment of company debts;
(g)
participating in civil actions on the behalf of the company;

Article 100
The liquidation committee shall notify creditors within 10 days of its establishment, and shall make a public announcement in a newspaper within 60 days. Creditors shall file their creditor’s rights with the liquidating committee of within 30 days of receiving the notice, and within 45days of publication of the first notice if such creditors did not receive the notice. and provide supporting materials. The liquidation committee shall record such creditor's rights. During the reporting creditor, the liquidation group may not pay off creditors.
Article 101
After identifying the company’s assets and preparing the balance sheet and schedule of assets, the liquidating committee shall prepare a liquidating plan, which shall be submitted to the shareholders’ committee or the relevant authority for ratification.
Article 102
After payment of liquidation expense, wages and expense for labor insurance of the workers ,the statutory reserve fund and company debts, the remaining assets shall be distributed to the shareholder in proportion to their equity interest, otherwise shall not distribute it.
Article 103
In the course of liquidation, the company may continue to operate , but may not conduct the business activities not relevant to its operation.
Article 104
After identification of company assets and preparation of the balance sheets and schedule of assets, the liquidating committee discovers that the company does not have sufficient assets to fully repay company debts, the liquidating committee shall immediately file a bankruptcy application with the Court and shall transfer the liquidating affairs to People’s Court.
Article 105
Upon completion of a company’s liquidation, the liquidating committee shall prepare a liquidating report, which shall be submitted to the shareholders’ committee or the relevant authority for ratification, and upon ratification, the liquidating committee shall submit such report to the company registration authority to apply for company de-registration, and make a public announcement of the company’s termination.
Article 106
A committee member who causes loss to the company or its creditors due to his intentional misconduct or gross negligence shall be liable for damages.

Chapter 16  The amendment of the articles of association of the company

Article 107 
In any of the following circumstances, the shareholders may seek to amend the articles of association:
(1)
if the same is in contradiction with the Company Law or other laws and regulations;
(2)
the company’s operating environment and conditions have substantially changed, and the existing provisions of the articles of association impede the development of the company.
(amendment of the term shall be approved by 100% of the shareholders with voting right.)

12

 
Chapter 17 Supplementary Provisions

Article 108
Any guidelines, regulations or directives formulated by the Board, the CEO or the heads of various departments shall not contradict the provisions of this Constitution.
Article109
References in this Constitution on "above", "more than", "off" and "beyond", "full" are included in this number." Within" and "below", "dissatisfaction" does not include the number.
Article 110
If there exists ambiguity in this Constitution, the provisions of the Company Law shall be followed.
Article 111
These articles of association shall be interpreted accordingly by the shareholders' meeting.
Article 112
These articles of association shall be signed by all the shareholders and shall take effect upon full agreement of the shareholders thereto.

Shareholder’s Signature:.

ZhongXing Agriculture and
   
Husbandry Holdings Co. Ltd.
(signed)
 
     
   
Date: September 7, 2007
     
Hang Yu Tai Investment Limited
   
 
(signed)
 
     
   
Date: September 7, 2007
 
 
13

 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
(Translation)

ARTICLES OF ASSOCIATION
JIANG MEN CITY HENG SHENG TAI AGRICULTURE DEVELOPMENT CO. LIMITED

September 22, 2007
INDEX
Chapter 1
General Provision
1
Chapter 2
The name, address and tenure of operation of the company
2
Chapter 3
The scope of business of the company
2
Chapter 4
The registered capital of the company
3
Chapter 5
Names of shareholders
3
Chapter 6
Method, amount and date of capital contributions made by shareholders
3
Chapter 7
The organization of the company and its formation, their functions and meetings’ procedures
3
Section 1
Shareholders' meeting
3
Section 2
The board of directors
5
Section 3
Chief Executive Officer
8
Section 4
Audit Committee
9
Chapter 8
The legal representative
10
Chapter 9
The rights and obligations of shareholders
10
Chapter 10
Investment
10
Chapter 11
Transfer of equity
11
Chapter 12
Accounting policies, profit distribution and audit;
11
Chapter 13
Merger, setting up branches and the increase or decrease of the its registered capital
11
Chapter 14
Labour and employment policy, the conference of the representatives of the staff and workers and the Labour Union
11
Chapter 15
The dissolution and liquidation of the company
12
Chapter 16
The amendment of the articles of association of the company
12
Chapter 17
Supplementary Articles
12

Chapter 1 General Provision

Article1
Definitions

The following expressions shall have the following meanings:

i. The Company Law and Law of Joint Ventures refer to the Company Law of the People's Republic of China as revised on October 27, 2005 at the Standing Committee of National People's Congress and the China’s Law of Sino-Foreign Joint Ventures as approved by the decree No 40 of the President of the People’s Republic of China and adopted by on October 31, 2000 by the eighteenth session of the Standing Committee of the tenth National People's Congress.

ii. The company or company refers to Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd.

iii. Operation guidelines refer to the overall strategic planning and vision of the company, including the general management direction and the management mode of the company with regard to the factors of the industry, region, market, duration, risk, profit, law and environment etc..

iv. Development plan refers to the operation method, steps and procedures for the company to make use the capital to carry out the operation guidelines.

v. Operation plan refers to the yearly detailed planning of the company in respect of the operation and management.

vi . Development solution refers to the procedure and measures regarding the use of capital, capital allocation, capital amount, risk prevention on yearly basis to carry out the operation plan.

vii. Senior managers generally refer to the senior management such as the CEO, departmental managers, secretary of the board of directors.
 
 
1

 

viii. The equity shareholder refers to a joint venture party, or a shareholder whose capital contribution either by cash or technology is less than 10% but who enjoys a voting right according to its capital contribution that is substantial enough to have an influence upon the resolution of the shareholders' meeting.

ix. The Controlling Party refers to anyone although is not a shareholder but is able to have effective control over the acts of the company by means of investment relations, agreements or any other arrangements.

x. The related connection refers to the relationship between the equity shareholder, the controlling party, director, supervisor, or senior manager of a company and the enterprise that may be directly or indirectly resulting in the transfer of any interests of the company.

xi. Shareholding refers to the rights and benefits enjoyed by the shareholders according to the mutually agreed ratio, including distribution of after- tax profits, the right to vote at the shareholders meeting, the sharing of risks and so on.

xii. The remuneration system refers to an employee-orientated rewards system adopted from the western developed countries. It means the company recognizes the contribution of the workforce (in particular the senior staffs), and is prepared to take out a certain portion of its net profit to be distributed to the staffs.  Besides the salary, the staffs share the profit according to their achievements.

Article2
The purpose of this article of association is to maintain the company's healthy, stable and sustainable development through regulating organization structure and activities of the company, and then further protect the lawful rights and interests of the company, the shareholders and the creditors, in order to realize the goal of gaining profit for the investors.

Article3
Should any term and condition of this article of association be in contradiction with the mandatory provisions of any existing law and regulations, the law or regulations shall prevail.  Should any term and condition of this article of association be in contradiction with the non mandatory provisions of the existing law and regulations, the term and condition of this article of association shall prevail.

Article4
Should any term and condition of this article of association be in contradiction with any agreement of the shareholders, the term and condition of this article of association shall prevail unless it is expressly provided otherwise in the shareholder agreement

Article5
The formulation and amendment of the article of association shall require the approval of 90% of the shareholders with voting right. The amendment of any term and condition shall be approved by 100% of the shareholders with voting right, and mark beside: amendment of the term shall be approved by 100% of the shareholders with voting right.

Chapter 2   The name and address of the company

Article6
The name and address of the company

Chinese name:
English name: Jiang Men City Heng Sheng Tai Agriculture Development Co. Limited

Business address: No. 1-3 First Floor, Jiang Zhou Shui Zha Office Building, No. 19 Jiang Zhou Yu Jiang Jun Road, Juntang Town, Enping City, Guangdong Province, China

The company is a limited liability company and it will not change during the duration of the company. (any amendment of this term shall be approved by 100% of the shareholders with voting right).

Article7
The tenure of operation of the company shall be in perpetuity. (amendment of this term shall be approved by 100% of the shareholders with voting right).

Chapter 3   The business scope of the company

Article8
The business scope of the company
The business of the company is primarily in agriculture, and investing in other enterprises. The company shall not be engaged in any business that is prohibited by law.  For any business that requires official approval by law, the company shall apply for such approval before commencement of such business. Tarry out businesses which are not restricted by law or do not require official approval. The company shall not be engaged in business of providing guarantee.
 
 
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Chapter 4   The registered capital of the company

Article9
The registered capital of the company is USD$600,000.00. (amendment of this term shall require approval of 100% of the shareholders with voting right).

Chapter 5 Names and number of shareholders

Article10
Name and number of shareholders of the company:
 
Name and address
 
Identification No.
Party A :
EnPing City JunTang Town Hang Sing Tai Agriculture Co. Ltd.
   
 
No. 1-3 First Floor, Jiang Zhou Shui Zha Office Building,
   
 
No. 19 Jiang Zhou Yu Jiang Jun Road, Juntang Town, Enping City,
   
 
Guangdong Province, China
   
       
Party B :
Macau EIJI Company Limited
 
22347SO
 
Building A, First floor, No.51-53 B Pi La Street, Macau
   
 
The company operates in the form of shareholder system, that is the shareholders are maintained as agreed by the joint venture partners (Article 13, Chapter 6) unless the following circumstances arise:
i.
Withdrawal or dissolution of the shareholder. The share equity is then transferred to other person under in accordance with Chapter 11.
ii.
Death of shareholder. One or more successors inherit the share equity and become the shareholders instead. (Amendment of this term shall be approved by 100% of the shareholders with voting right).
iii.
The shareholder dies without a successor but has made a probate of a will and named a beneficiary, therefore the beneficiary becomes a shareholder.

Article11
The company shall prepare a list of the shareholders in accordance with article 33 of Company Law, and distribute one copy to each shareholder, and keep at least two copies at the premises of the company, in order for the shareholder to exercise the shareholder's right.

Chapter 6 Method, amount and date of capital contributions made by shareholders

Article 12
The method, amount and date of capital contributions made by shareholders are agreed by shareholders as follows:

Party A:
provides the existing asset and resources including factory, factory buildings, patent right, exclusive right and land use right (details enclosed), management right and interest. (all should be settled within 90 days from the effective date of the agreement).

Party B:
provides the registered capital of US$600,000.00 and imports from overseas advanced processing technology and premium quality livestock, seedlings and advanced production technology and A Power Agro Agriculture Development, Inc.(APWA"s) proprietary technology.
Reference: ( http://www.pinksheets.com/pink/index.jsp// ) OTCBPS: APWA.

Whereby Party A shall hold 25% and Party shall hold 75% of the share equity.

Article13
The shareholders shall distribute the net profit according to their respective shareholding.

Article14
Shareholders shall bear the risk of the company according to their respective shareholding, while the company shall bear full responsibility over its debts.

Article15
the company shall issue investment certificates to its shareholders in according with Article 32, Company Law.

Chapter 7 The organization of the company and its formation, their functions and meetings’ procedures

Section 1   Shareholders' meeting

Article16
The company shall establish the shareholders' meeting which shall comprise all the shareholders. The shareholders' meeting is the highest authority of the company, and shall exercise its authorities according to law and relevant terms in these articles of association.
 
 
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Article17
The shareholders' meeting shall carry out the following functions:

i.
Determining the company's operation guidelines and investment plans;
ii.
Electing and changing the chairperson, the deputy chairperson and directors; determining the number of directors, and the percentage of shareholder directors and non-shareholder directors; determining the remuneration for the members of board of directors and the payment term.
iii.
Electing and changing the audit members appointed from non-employees (the number of audit members to be appointed from employees shall be determined according to law), and determining the number of audit members, and their remuneration and payment term.
iv.
Deliberating and approving the reports of the board of directors;
v.
Deliberating and approving the reports of the audit committee;
vi.
Deliberating and determining the project to be carried out in the People's Republic of China with an investment exceeding USD$6,000,000.00.
vii.
Deliberating and approving annual financial budget plans and final account plans of the company;
viii.
Deliberating and approving net profit distribution plans, and provident funds withdrawal plans, and loss and recovery plans of the company;
ix.
Deliberating and approving the important sales of assets;
x.
Deciding on the change of tenure of operation of the company, dissolution and liquidation of the company;
xi.
Deliberating and approving the matters concerning transfer of equity of the company;
xii.
Amending the articles of association of the company;
xiii.
Approving the establishment of the subsidiaries, branches (a branch is not a separate legal entity, therefore it has no right of independent operation);
xiv.
Adopting resolutions on employment and dismissal of the accounting firm;
xv.
Supervising and examining the works of the board of directors and its members, the audit committee and its members, all staffs and professionals employed by the company;
xvi.
Exercising other authorities outside the authorities of the board of directors.

Article18
The shareholders' meeting shall not interfere the authorities of the board of directors authorized by these articles of association.

Article19
The first shareholders' meeting shall be convened and presided over by the shareholder who has the largest shareholding and shall exercise it authorities according to Company Law and Law of Sino-foreign Joint Ventures.

Article20
Where any of the matters within the scope of authority of the shareholders’ meeting, it may be approved by all the shareholders in writing, without the need of convening a shareholders' meeting.   A decision in writing may be made with the signatures or seals of all the shareholders thereon, and be kept by the company.

Article21
A shareholders' meeting may be a scheduled meeting and an emergency meeting:

i.
The scheduled meeting shall be held 4 times in a year in second half of January, April, July and October, whereby the scheduled meeting of January shall be convened on January 29, and the date is recognized as the anniversary of the company.
ii.
The emergency meeting shall be convened on the following occasions:
a)
Any of the shareholders proposes for such a meeting;
b)
It is called by the board of directors;
c)
1/3 of the directors propose for such a meeting to be held;
d)
The audit committee proposes for such a meeting to be held.

Article22
The shareholders' meeting shall be prepared by the board of directors, and the notice shall be given to all the shareholders by the secretary of the board of directors.

Article23
The scheduled shareholders' meeting shall be presided over by each of the shareholders by rotation according to their percentage of shareholding.  The duty shareholder is unable to chair the meeting for any reason, that shareholder chair the next meeting.  Proxy of any absentee shareholder is not allowed to chair any meeting. (the persons mentioned in articles viii, ix, x of chapter 1 are exceptions )
 
 
4

 

The shareholder who proposes an emergency meeting to be held shall chair that emergency meeting. If there are 2 or more shareholders jointly propose such meeting to be held, such shareholders shall decide among themselves as to who shall chair the meeting.

The chairperson of the board of directors shall chair the meeting if the meeting was called by the board of directors.

The chairperson of the audit committee shall chair the meeting if the meeting was called by the audit committee.

Article24
Where the board of directors is unable to or doesn't perform the duty to convene and prepare for the shareholders' meeting, the shareholders may convene and prepare for it.

Article25
Where the shareholders' meeting is convened, a notice to all the shareholders shall be made 45 days prior to the meeting by the secretary of the board of directors, unless the urgency of the matter dictates otherwise. The emergency means the unexpected events which may have a great impact on the company.

Article26
The shareholders should attend the shareholders' meeting personally. If the shareholders are unable to be present for special reason, they may appoint their spouses, parents, issues or attorney to attend the meeting as their proxies and exercise the voting right in writing, or they may not entrust any person to attend the meeting with their votes in handwriting and signatures.

Article27
The proceedings of the shareholders' meeting shall be minuted which shall be signed by the shareholders attending the meeting and shall be kept record.   Voting shall be made by ballot.  The shareholders who are present shall vote by ballot bearing their signatures to agree, object, or abstain in writing.  Anyone who shall refuse to sign on the ballot paper or failed to attend the meeting and yet failed to express his decision in writing either personally or through his proxy shall be deemed to have abstained.

Article28
Where the shareholders' meeting requires the directors, the audit committee members or the senior management to attend the meeting, then they should be present at the meeting to answer any queries from the floor.

Article29
Shareholders shall cast their votes at the shareholders’' meeting according to their percentage of shareholding.

i.
General matters shall require approval of two-thirds of the votes held by shareholders;
ii.
The adoption of a resolution of reducing the tenure of operation or the dissolution of the company shall  require approval of 90 percent of the votes held by shareholders;
iii.
An amendment to the articles of association shall require affirmative votes by 90 percent of the votes held by shareholders; an amendment to a certain term of the articles of association shall require affirmative votes by 100 percent of the votes held by the shareholders, and note this beside the term. (( Amendment of this term shall require affirmative votes by 100% of the voted held by shareholders)

Section 2  Board of directors

Article30
The company shall have a board of directors. The board of directors is accountable to the shareholders' meeting and shall have the following functions:

i.
Calling and preparing for a shareholders' meeting, and presenting reports thereto;
ii.
Implementing resolutions passed by the shareholders' meeting;
iii.
Determining the company's operating plans ( upto RMB2,000,000.00) and investment programs (unto RMB4,000,000.00);
iv.
Drafting annual financial budget plans and final accounting plans of the company and submitting the plans to the shareholders' meeting for deliberation and approval;
v.
Drafting the company's profit distribution plans and plans to cover company losses;
vi.
Drafting plans to issue company bonds and financial bonds, and submitting the plans to the shareholders' meeting for deliberation and approval;
vii.
Making decision on the matters concerning the company's loan from bank or any other financial institution;

 
5

 

viii.
Drafting plans for dissolution or liquidation of the company, and submitting the plans to the shareholders' meeting for deliberation and approval;
ix.
Approving the structure of the company's internal management, including the name, the function, the staff s' organization, and the procedure of work etc.;
x.
Appointing or removing the CEO, the heads of each department and the senior professional personnel and determining their remuneration;
xi.
Approving the the basic management manual of the company, including but not only the plans, the human resources, the salary, the finance, the working, the manufacture, the materials, the marketing, the quality, the import and export and logistics, and the culture of the enterprise etc.;
xii.
Supervising the CEO and the operation of each department; receiving briefings from the CEO and performing inspection;
xiii.
Appointing the chairman of the board, the directors and the manager of the subsidiaries;

Article31
The members of the board of directors shall be natural persons appointed by the shareholders' meeting, comprising 5 to 7 persons, and the number of the members shall be odd number. The chairman of the board deputy chairman of board and the directors may be appointed from shareholders or non-shareholders. The age limit for the directors is 60 years' old.

Article32
The tenure of office of the directors shall be 3 years, and may be re-elected, consecutively.  Current directors whose term expire or who have resigned before their terms expire shall continue to perform the duties until re-election of directors taking place, failing which they shall compensate the company for any losses suffered by the company as the result.

Article33
The board of directors shall have one chairman, deputy chairman, and 2 executive directors, the rest are non executive directors.  Executive directors can be candidates as the company legal representative.

Article 34
The company may appoint honorary chairperson, honorary directors, without the term limit, and such persons shall have no voting rights.

Article 35
The chairperson’s duties and functions:

i.
Chairing the meetings of the board of directors.
ii.
drafting the plan within the purview of the Board, programs, systems, documents, presented to the Board approval, signing, promulgation and implementation (see the specific scope of the "Board Rules of Procedure");
iii.
chairing the meeting of shareholders convened by the board of directors or any meeting jointly held by the Board and the shareholders ;
iv.
Calling for the board of directors’ meetings;
v.
proposing to the Board of Directors the appointment of CEO, heads of various departments, as well as other key personne; proposing to the Board of Directors appointment of directors and key management personnel to the subsidiary;.
vi.
supervising the CEO and performance of various departments;
vii.
signing and publishing document s of the Company and the Board;
viii.
signing letters of appointment and others;.
ix.
in emergency situation, in order to protect the company’s assets from damage permitting the CEO to specially handle the company’s assets and thereafter submitting a report thereof to the board of directors and the shareholders’ meeting;
x.
Co-signing and approving with the CEO on matters requiring special expenditure;
xi.
supervising the implantation of corporate culture;
xii.
Exercising other functions dictated by the shareholders’ meeting.

Article36
The deputy chairperson shall assist the chairperson in his work, and in the event that the chairman is unable to perform his duties, the deputy chairperson shall perform such duties.

Article37
The meeting of board shall be convened once a month, and in principle to be held on the fourth Saturday of each month.  A meeting of the board shall be convened if the chairperson so decides, or as one-third of the directors or audit committee or the CEO so proposes.
 
 
6

 

Article38
Board of directors shall hold scheduled meeting every month by 15-day prior written notice to the directors by the Secretary of the Board; Emergency meeting may be held by a 7-day prior notice to the directors in written. The Board may hold informal meetings to study, discuss and receive briefings without prior notice.

Article39 
The meeting of the Board of Directors shall be convened and presided by the chairperson of the board; where the chairperson of the board cannot or fail to perform his such function, the meeting shall be chaired by the deputy chairperson; and where the deputy chairperson fails to do so, then a director elected by more than half the directors present shall chair such meeting.

Article40 
The board of directors shall execute one-man-one-vote written voting system by open ballot. The decision shall be effective only if approved by over two-thirds of all directors. If any director is unable to attend the meeting due to any special reason, he may appoint other director in writing to express his opinion or decision, followed personally with by written decision thereafter.  In special circumstance where a director is absent due to death, injury, or deliberate attempt to delay or refuse to vote, and which has resulted in a split vote situation, then the chairperson of the meeting shall have a second vote.

Article 41
The directors may vote for, against or abstain from voting on any motion presented at the meeting.

Article 42
The proceedings of the meeting shall be minuted which shall be signed by the shareholders attending the meeting and shall be kept record..

Article 43
The board of directors may formulate the detailed procedures for the proceedings of the meeting.

Article44
A person in any of the following categories may not serve as a director:
 
1.
without civil capacity or with restricted civil capacity;
 
2.
has been penalized for the following crimes, and completion of the sentence being less than 5 years ago: embezzlement, bribery, conversion of property, misappropriation of property, sabotage of social economic order; or having been deprived of political rights as a result of a criminal conviction, and completion of such sentence is less than 5 years ago;
 
3.
having served as a director, the factory chief, or the general manager of a company or enterprise in liquidation as a result of mismanagement, and being personally responsible for such liquidation, and the date of such liquidation is less than 3 years ago;
 
4.
having served as the legal representative of a company or enterprise whose business license was revoked due to its violation of law, and being personally responsible for such revocation, and such revocation occurred less than 3 years ago;
 
5.
in default of personal debt of a significant amount.
 
6.
violated the one-child policy.

The company has the right to immediately terminate the directorship of such director found to have committed any of the above acts.

Article 45
The directors must fulfill with the following obligation:

 
1)
Comply with laws, rules, regulations and professional ethics, diligently and faithfully perform their duties, be loyal to the company to safeguard the highest interests of the company obligations; when their interests conflict with the interests of the company, must give priority to safeguard the interests of the company;
 
2)
To exercise their power within the scope of their duties and shall not exceed the terms of reference or intentionally fail to perform their duties or delay in performing their duties;
 
3)
Except with the approval of the shareholders’ meeting, shall not trade or enter into contracts with the Company;
 
4)
shall not use internal information for their own gain or gain of others;
 
5)
Unless prior disclosure to and approval of the shareholders’ meeting have been made, the directors shall not engage or help others to engage in any business or enterprise.  Disclosure must be made on the directors’ businesses prior to the appointment of his directorship.  Any losses suffered by the company as a result of non disclosure by the directors shall be borne by the directors concerned, while the company shall have the right to pursue legal remedies against the directors concerned;
 
6)
shall not abuse their position by accepting money or benefit from others;.
 
7)
shall not misuse properties of the company;
 
8)
shall not misappropriate the company’s funds for personal use or use of others;
 
9)
shall not use their position to canvas for business opportunity for themselves or others;

 
7

 

10)
shall turn over any commission paid by others for any transaction entered into by the company, failing which it shall be deemed as a misappropriation of the company’s asset or fund;
11)
shall not transfer the asset or fund of the company into their own name or into any other individual’s name,
12) 
shall not pledge the company’s assets as security or guarantee for payment of the debts of themselves or others;
13) 
Strictly keep company secrets confidential;
14)
provide fair and equitable treatment to all shareholders;
15) 
diligently read the company's administrative report, business reports, financial reports, etc., and keep abreast of company management situation;
16)
the independent exercise of the powers of the directors, and shall not be manipulated by others; and unless permitted by laws and administrative regulations shall delegate the powers to others;
17)
diligently accept the supervision of the shareholders, other directors, audit committee and the employees of the company and listen to their recommendations;
18)
shall not act on behalf of the company or board of directors without due authorization under the articles of association or by the board of directors;
19)
in the event of resignation, the directors shall continue to perform the duties of the directors until the resignation of the directors are accepted by the board of directors, failing which the directors concerned shall be responsible for any losses suffered by the company as a result thereof;
20) 
the company shall deduct from the directors’ remuneration and pay on behalf taxes payable by the directors according to the laws.

Article 46
Article 46 also applies to audit committee, CEO, executives, professional technical personnel and also the shareholders.
Section 3   Chief Executive Officer (CEO)

Article 47
The company shall employ a chief executive (the CEO), and shall entrust the CEO with powers in implementing the company’s business projects (business plans, investment programs), i.e. the CEO shall be the person responsible for the implementation of the daily operational matters vis-à-vis with the external parties and the internal management people.

Article 48
Upon the nomination or recommendation by the chairman, the CEO shall be employed or dismissed by the Board.  Board members can serve as the CEO, the divisional heads or other senior positions.

Article 49
The tenure of the CEO shall be 5 years, and is renewable.  The age limit for the CEO is 60 years old.

Article50
The duties and functions of the CEO are as follows:

(I)
In charge of all daily operations and management matters of the company, including
 
1.
organizing the departments of the company, implementing annual business plans, investment programs, and carrying out the directives of the board of directors;
 
2.
drafting the company’s annual business plan and investment proposal;
 
3.
personally or authorizing others represent the company in negotiation, public relations, advertising and other activities vis-à-vis the customers, government, intermediaries, etc., drafting of business projects and their pricing, duration, partner, conclusion and other contractual matters, and timely reporting the same to the Board;
 
4.
in charge of the company's production, sales, quality control and services;
 
5.
proposing to the Board mobilization of the assets of the Company;
 
6.
formulating and proposing to the Board on the company’s borrowing and the amount, term, interest rate and method;
(II)
preparing the name list of departmental heads and proposing the same to the Board for formal employment; the departmental heads and other executives shall be directly answerable to the CEO, and indirectly reporting to the chairman of the board;
(III)
personally or authorizing others employ or dismiss the middle level management personnel;
(IV)
proposing holding of an emergency meeting of board and drafting the agenda of the meeting;
(V)
convening the meeting of the departmental heads;
(VI)
together with the Chief Financial Officer jointly approving matters concerning finances;
(VII)
together with the head of financial control jointly approving matters concerning management of funds;
(VIII)
representing the company, and signing documents on behalf of the company, the CEO is also the company's legal representative;
(IX)
approving expenditure for the projects and within the limit authorized by the Board;
(X)
exercise or delegate such powers authorized by the Board;

 
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(XI)
directly responsible for or delegate such responsibilities to the Chief Operations Officer for the daily administrative work; organizational strength, drafting, development of the company's development plans, programs and other important documents; develop basic management system of the company (including companies set up various departments and branches , duties, staffing, wages, etc.), and the corporate office details the specific regulations submitted to the Board for approval; the company's human resources (including incentives, training, recruitment, promotion, transfer, demotion, etc.); the company's external public relations liaison work; together with the Chief Financial Officer jointly approve the wages of workers, benefits programs; together with the chairman, the Chief Financial Officer jointly approve special items expenditure; appointment or dismissal of the middle level management and staff; approving, specific capital expenditures within authorized limits; helping the chairman in building up the company’s corporate culture; communicating with the workers congress, union and safeguarding the democratic workers’ rights and benefits.

Article 51
The CEO shall attend the board meetings, but with no voting rights, and shall submit his reports at the   board meetings and report to the chairman if the board meeting is not in session.

Article 52
Upon the request of the board of directors or the audit committee, the CEO shall accurately report to the board of directors or the audit committee any contract the company has entered into, its performance, use of funds and profit and loss situation.

Article 53
The company shall formulate "The Work Manual of the CEO", and the same shall be implemented after  its approval by the board of directors.

Article 54
The company shall enter into an employment contract with the CEO setting out the terms, remuneration and other terms and conditions for his employment.

Section 4  Audit Committee

Article 55
The company shall establish an Audit Committee to carry out the following functions:

(I)
carrying out auditing and inspecting the company's financial affairs;
(II)
supervising the works and performance of the Chairman, directors, the CEO and the senior management personnel, and enquiring if need to.  When these officers are in violation of the laws, regulations, the constitution of the company or resolutions of the shareholders’ meeting, or damage the interests of the company, the audit committee has the right to request for rectification and to propose to the shareholders’ meeting or the board of directors recommending dismissal;
(III)
proposing convening of emergency meeting of shareholders;
(IV)
convening a shareholders’ meeting, if the Board of Directors fails to convene, organize and call for a meeting;
(V)
proposing motion to the shareholders meeting, and the same shall be included in the agenda for the meeting;
(VI)
Upon written request of a shareholder, pursuing legal action against any board members, the CEO, the heads of various departments, the executive personnel who has cause damage or loss to the company due to his violation of the laws, regulations or the constitution of the company;
(VII)
attending board meetings with the right to speak in order to carry out its supervisory responsibilities;
(VIII)
engaging a law firm or accounting firm to investigate the affairs of the company (or performing the investigation itself), if it finds irregularity in the operation of the company, the costs thereof shall be borne by the company, and shall report the same to the shareholders’ meeting;
(IX)
exercising other powers as granted by the shareholders’ meeting.

Article 56
The audit committee shall comprise of shareholders (at least one) and employee representatives, of 5 to 13 members, and the number shall be odd number.  The number of representatives of the employees sitting in the audit committee shall not be less than 1/5, and shall be elected at the workers congress.
Article 57
The term of office of the members shall be 5 years, re-electable and renewable.  The age limit shall be  75 years old.
Article 58
In the event of resignation, the auditors shall continue to perform their duties until re-election of new auditors, failing which the auditors concerned shall be responsible for any losses suffered by the company as a result thereof.
Article 59
the directors, the CEO, departmental heads and other senior management personnel or key managerial personnel may not serve as the auditors.
Article 60
The audit committee shall have a chairman, and may have one or two vice-chairmen, to be elected by the members of the audit committee by majority votes.
Article 61
The chairman shall convene and chair the audit committee meeting, and if the Chairman is unable to perform duties or fails to perform his duties, Vice-Chairman shall take over the chair.  If Vice-Chairman cannot perform his duties or does not discharge his duties, a member elected by 1/2 or more members of the audit committee shall convene the meeting.

 
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Article 62
Generally the audit committee shall hold two regular meetings each year, one every six months.  An emergency meeting can be convened if 1/3 of the members of the audit committee shall requisition for one to be held, and the moderator shall give 15-day written notice to all members.
Article63
The quorum for a meeting of the audit committee shall be more than half of the members attending, and any resolution shall only be passed if approved by majority votes.
Article64
The audit committee shall execute one-man-one-vote written voting system by open ballot. In a tie situation, the chairperson of the meeting shall have a second vote.  If any director is unable to attend the meeting and fails to appoint other member in writing to vote on his behalf, he shall be deemed to have abstained from voting.
Article65
the employees of the company shall provide the relevant information to the audit committee, but shall not impede the functioning of the audit committee.
Article 66
The audit committee meeting shall be minuted and its resolutions permanently kept in files of the company.
Article 67
All cost for the performance of the audit committee’s functions shall be borne by the company.

Chapter8  The legal Pepresentative

Article 68
The company's legal representative shall be elected among the chairman, executive directors and the CEO at the shareholders’ meeting.
Article 69
Any documents signed by the legal representative on behalf of the company shall be binding on the company.

Chapter 9  The rights and obligation of the shareholders

Article 70
Rights of shareholders are as follows:
 
(I)
To vote in accordance with its equity ratio at the shareholders meeting,
(II)
To be elected to the Board of Directors, audit committee.
(III)
To access financial accounts according to the laws.
(IV)
To appoint proxy to participate in meetings of shareholders;
(V)
To have access to the constitution and audited accounts.
(VI)
To receive profits after tax according to equity ratio.
(VII)
pre emptive right to receive transfer of the equity from other shareholders.
(VIII)
To supervise the actions of the company and to provide suggestions and enquiries.
(IX)
To transfer shareholding in accordance with the constitution and the laws.
(X)
To receive distribution of the company’s assets according to the equity ratio after the dissolution of the company.
(XI)
pursuing legal action in accordance with the provisions of article 153of the Company Law against any board members, audit committee members, the heads of various departments or the people outside the company who has cause damage or loss to the company.
 
Article 71
Obligations of shareholders are as follows:.
 
(I)
complying with the laws and the articles of association;
(II)
paying in full subscribed capital;
(III)
shall not misappropriate the assets or fund of the company;
(IV)
bear the corporate liability according to the subscribed capital contributions ratio;
(V)
shall not withdraw their capital contributions;
(VI)
shall keep all information of the company confidential;
(VII)
to participate in the liquidation of the company at the instance of dissolution of the company;
(VIII)
to comply with Article 47 of the Constitution of the company.
 
Article 72
The Shareholders, especially the equity shareholders or controlling shareholders must comply with Article 20 of the Company Law that they shall not abuse the rights and corporate separate entity, and if violated, they must be held accountable.

Chapter 10  Investment and corporate bonds.

Article 73
The company may invest in other businesses, but shall establish partnership, an unlimited company or wholly owned enterprises.
Article 74
The company may issue bonds to raise funding in accordance with Chapter 7 of the Company Law

 
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Chapter 11  Equity transfer

Article 75
To maintain the company's long-term stability of its shareholders, transfer of shareholding can only be carried out among shareholders.
Article 76
The shareholders shall have a preemptive right to purchase.
Article 77
Should a shareholder intends to sell his shares, he shall notify the other shareholders.  An agreement to purchase must be in writing, failing such agreement it shall be deemed to have rejected the offer to purchase.
Article78
After sale and transfer of the shares concerned, the old “investment certificate" shall be destroyed and a new be issued to the new shareholder.
Article 79
In the following circumstances, shareholders are entitled to request the company to purchase its shares at a reasonable price:
(A)
The company fails to declare profits distribution for 3 years consecutively, although the company has made consecutive profits for 3 years;
(B)
the occurrence of circumstance for dissolution of the company as prescribed in the articles of association, but the company is being kept in existence by amending the articles of association.

Article 80
The purchase price may be determined in consultation with the shareholders by the company, failing such agreement, a valuer may be appointed by the parties to determine the purchase price thereof.

Chapter 12   Financial accounting system, profit distribution and auditing

Article 81
The company shall establish its financial and accounting systems in accordance with the relevant national statues and regulations.
Article 82
The company shall prepare its financial and accounting reports at the end of each fiscal year, which shall be reviewed and verified in accordance with the law.
Article 83
The company shall submit its financial and accounting reports prepared in accordance with the generally accepted accounting principles within one month after the end of each fiscal year to the shareholders.
Article 84
In distribution of its current year after-tax profit, the company shall allocate 10 percent to its statutory reserve fund. Allocation to the company’s statutory reserve fund may be waived once the cumulative amount of funds therein exceeds 50 percent of the company’s registered capital.
Article 85
Where the statutory reserve fund is not sufficient to cover the company’s loss from the previous year, the current year profit shall be used to cover such loss before allocation is made to the statutory reserve fund.
Article 86
After the company has made allocation to the statutory reserve fund, allocation may be made to the discretionary reserve fund. Detailed implementing measures shall be formulated by the board of directors to be approved at the shareholders' meeting.
Article 87
After provisions have been made to cover its previous year’s losses and to the statutory reserve fund, the remainder of the profit shall be distributed to the shareholders in proportion to the equity interest.
Article 88
The company shall engage an accounting firm to audit the financial affairs of the company at the shareholders’ meeting.
Article89
The company shall provide the certified public accountants with truthful and complete accounting vouchers, account books, financial and accounting reports and other accounting documents, and shall not refuse to provide, conceal information or misreport.
Article 90
The company may not establish any separate accounting book besides the accounting book prescribed by law.

Chapter 13   Merger, setting up branches and the increase or decrease of the its registered capital

Article 91
The company shall merge with other enterprises. It may increase its capital, but not decrease its capital.

Chapter 14  Labour and employment policy, the conference of the representatives of the staff and workers and the Labour Union

Article 92 
The company shall adopt employment and labour policies as prescribed by the country or local governments within the scope of the relevant provisions.  It may adopt the experience of other developed countries in attracting talents.
Article 93
The company shall allow setting up of workers’ congress, trade unions and other organizations to protect employees’ rights.  The company will pay for operating expenses.
Article 94
The company shall draw up regulations on wages, welfare, labor safety, insurance, dismissal and other matters related to employees,and shall seek the opinion of the trade unions.
 
 
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Chapter15  Dissolution and Liquidation of company

Article 95
The company may be dissolved in any of the following circumstances:

(1)
The shareholders’ meeting has adopted a resolution for dissolution (amendment of the term shall be approved by 100% of the shareholders with voting right).
(2)
The company’s business license is revoked and its operation is ordered to be closed.
(3)
If the company is to be dissolved pursuant in Article 183 of the Company Laws by the People’ Court.

Article 96
Where the company counters severe difficulties in the management of the company, and the continuation of the same would cause heavy losses, and it cannot be solved by any other means, then the shareholders having more than 10% voting rights may petition the court for dissolution of the company.
Article 97
Once the company is dissolved, the shareholders shall form a liquidation committee within 15 days from the date of dissolution.
Article 98
The liquidation committee shall exercise the following functions in the course of liquidation:
(a)
identifying the company’s assets, and preparing the balance sheet and schedule of assets respectively;
(b)
notifying creditors through notice or public announcement;
(c)
handing the company’s ongoing business which are related to liquidation;
(d)
making full payment of taxes owed or and the process of liquidation,
(e)
identifying the company’s creditor’s rights and debtor’s liabilities;
(f)
disposing off the remaining assets after full payment of company debts;
(g)
participating in civil actions on the behalf of the company;

Article 99
The liquidation committee shall notify creditors within 10 days of its establishment, and shall make a public announcement in a newspaper within 60 days. Creditors shall file their creditor’s rights with the liquidating committee of within 30 days of receiving the notice, and within 45days of publication of the first notice if such creditors did not receive the notice. and provide supporting materials. The liquidation committee shall record such creditor's rights. During the reporting creditor, the liquidation group may not pay off creditors.
Article 100
After identifying the company’s assets and preparing the balance sheet and schedule of assets, the liquidating committee shall prepare a liquidating plan, which shall be submitted to the shareholders’ committee or the relevant authority for ratification.
Article 101
After payment of liquidation expense, wages and expense for labor insurance of the workers ,the statutory reserve fund and company debts, the remaining assets shall be distributed to the shareholder in proportion to their equity interest, otherwise shall not distribute it.
Article 102
In the course of liquidation, the company may continue to operate , but may not conduct the business activities not relevant to its operation.
Article 103
After identification of company assets and preparation of the balance sheets and schedule of assets, the liquidating committee discovers that the company does not have sufficient assets to fully repay company debts, the liquidating committee shall immediately file a bankruptcy application with the Court and shall transfer the liquidating affairs to People’s Court.
Article 104
Upon completion of a company’s liquidation, the liquidating committee shall prepare a liquidating report, which shall be submitted to the shareholders’ committee or the relevant authority for ratification, and upon ratification, the liquidating committee shall submit such report to the company registration authority to apply for company de-registration, and make a public announcement of the company’s termination.
Article 105
A committee member who causes loss to the company or its creditors due to his intentional misconduct or gross negligence shall be liable for damages.

Chapter 16   The amendment of the articles of association of the company

Article 106 
In any of the following circumstances, the shareholders may seek to amend the articles of association:
 
(1)
if the same is in contradiction with the Company Law or other laws and regulations;
 
(2)
the company’s operating environment and conditions have substantially changed, and the existing provisions of the articles of association impede the development of the company.
 
(amendment of the term shall be approved by 100% of the shareholders with voting right.)

Chapter 17 Supplementary Provisions

Article 107
Any guidelines, regulations or directives formulated by the Board, the CEO or the heads of various departments shall not contradict the provisions of this Constitution.
Article108
References in this Constitution on "above", "more than", "off" and "beyond", "full" are included in this number." Within" and "below", "dissatisfaction" does not include the number.
Article 109
If there exists ambiguity in this Constitution, the provisions of the Company Law shall be followed.

 
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Article 110
These articles of association shall be interpreted accordingly by the shareholders' meeting.
Article 111
These articles of association shall be signed by all the shareholders and shall take effect upon full agreement of the shareholders thereto.

Shareholder’s Signature:.

Jiang Men City Heng Sheng Tai Agriculture Development Co. Limited
(signed)
   
 
Date: September 22, 2007
   
Macau EIJI Company limited
(signed)
   
 
Date: September 22, 2007
 
 
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MEMORANDUM

AND

ARTICLES OF ASSOCIATION

OF

TRI-WAY INDUSTRIES LIMITED
 
 

 
Incorporated the 28th Day of October, 2005
 

 

 

No. 1004146
(COPY)

COMPANIES ORDINANCE
(CHAPTER 32)

CERTIFICATE OF INCORPORATION
 

 
I hereby certify that

TRI-WAY INDUSTRIES LIMITED
 

 
is this day incorporated in Hong Kong under the Companies Ordinance, and that this company is limited.

Issued by the undersigned on 28 October, 2005

(Sd.) Ms. Teresa K. L. LAI
Ms. Teresa K. L. LAI
   
for Registrar of Companies
Hong Kong

Artwork and Design by Cayman-Hong Kong Corporate Services Limited Tel: 2544-3249

 
 

 

THE COMPANIES ORDINANCE (Chapter 32)
 

 
Private Company Limited by Shares
 

 
MEMORANDUM OF ASSOCIATION

OF

TRI-WAY INDUSTRIES LIMITED

 

 
First:- The name of the Company is " TRI-WAY INDUSTRIES LIMITED ".
  
Second:- The Registered Office of the Company will be situated in Hong Kong.

Third:- The liability of the members is limited.

Fourth:- The Share Capital of the Company is HK$10,000.00 divided into 10,000 shares of HK$1.00 each and the Company shall have power to divide the original or any increased capital into several classes, and to attach thereto any preferential, deferred, qualified, or other special rights, privileges, restrictions or conditions.

 
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We, the undersigned subscriber, whose name, address and description are hereto subscribed, are desirous of being formed into a Company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares in the capital of the Company set opposite to the respective name:-
 

Name, Address and Description of Subscriber                 Number of Shares taken by the Subscriber


For and on behalf of
Cayman HK Nominees Limited

( Sd.) Raymond Leung
 
Raymond Leung  
CAYMAN HK NOMINEES LIMITED
One
25/F Car Po Commercial Building,
 
18 Lyndhurst Terrace, Central
Hong Kong.
 
Corporation
 
 

Total Number of Shares Taken
One

 
Dated the 18th Day of October, 2005
WITNESS to the above signature.

(Sd.) Cheng, Chan Yuet Har
Cheng, Chan Yuet Har
Secretary
25/F Car Po Commercial Building,
18 Lyndhurst Terrace, Central, Hong Kong

 
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THE COMPANIES ORDINANCE (Chapter 32)
 

 
Private Company Limited by Shares
 

 
ARTICLES OF ASSOCIATION
 
OF

TRI-WAY INDUSTRIES LIMITED



 
PRELIMINARY

 
1.        The regulations in Table A in the First Schedule to the Companies Ordinance (Chapter 32) shall apply to the Company save in so far as they are hereby specifically excluded or are inconsistent with the Articles herein contained. In particular, but without in any way limiting the generality of the foregoing, clauses 11, 49, 55, 77, 78, 79, 81, 86, 91 to 101 inclusive, 108, 114 and 132, 134 to 136 inclusive, of Table A shall not apply or are modified as hereinafter appearing.

PRIVATE COMPANY

2.         The Company shall be a private company and accordingly the following provisions shall have effect:-

(a)
The number of Members for the time being of the Company (exclusive of persons who are in the employment of the Company, and of persons, who having been formerly in the employment of the Company were, while in such employment and having continued after the determination of such employment to be, Members of the Company) is not to exceed fifty, but where two or more persons hold one or more shares in the Company jointly, they shall, for the purpose of this paragraph, be treated as a single Member.
 
(b)
Any invitation to the public to subscribe for any shares or debentures or debenture stock of the Company is hereby prohibited.
 
(c)
The right of transfer of shares shall be restricted as hereinafter provided.
 
(d)
The Company shall not have power to issue share warrants to bearer.

SHARES

3.         The Shares shall be under the control of the Directors who may subject to section 57B of the Ordinance allot or otherwise dispose of the same to such person or persons on such terms and conditions and either at a premium or at par and with such rights and privileges annexed thereto and at such times as the Directors may think fit and with full power to give to any person the call of any shares either at par or at a premium during such time and for such consideration as the Directors think fit, and in particular such shares or any of them may be issued by the Directors with a preferential, deferred or qualified right to dividends, and with a special or qualified right of voting or without a right of voting. Any preference share may be issued on the terms that it is, or at the option of the Company is, liable to be redeemed.

4.         The Company shall have the first and paramount lien upon all the shares registered in the name of each Member and upon the proceeds of sale thereof, for his debts, liabilities and engagements, solely or jointly with any other person, to or with the Company, whether the period for the payment, fulfilment or discharge thereof shall have actually arrived or not, and such lien shall extend to all dividends from time to time declared in respect of such shares. The Directors may at any time either generally or in any particular case waive any lien that has arisen, or declare any share to be wholly or partially exempt from the provisions of this Article.

5.         Save as herein otherwise provided, the Company shall be entitled to treat the registered holder of any shares as the absolute owner thereof, and accordingly shall not, except as ordered by a Court of competent jurisdiction or as by Ordinance required, be bound to recognise any equitable or other claim to, or interest in, such shares on the part of any other person.

6.         Subject to the Ordinance and the sanction of the Court, the Company may by special resolution issue shares at a discount.

 
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TRANSFER OF SHARES
       
7.         The Directors may, subject to Section 69 of the Ordinance, in their absolute discretion and without assigning any reason therefor, refuse to register a transfer of any shares. If the Directors refuse to register a transfer they shall within two months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.

REDEMPTION OR PURCHASE OF OWN SHARES

8.         Subject to the Ordinance, the Company may by special resolution redeem or purchase its own shares out of its capital.

GENERAL MEETINGS

9.         A General Meeting shall be held once in every year at such time (not being more than fifteen months after the holding of the last preceding General Meeting) and place as may be prescribed by the Company in General Meeting and if no other time or place is prescribed a General Meeting shall be held at such time and place as the Directors may from time to time determine. General Meetings held under this Article shall be called Annual General Meetings. General Meetings other than the Annual Meetings shall be called Extraordinary General Meetings. Provided that so long as the Company holds its First Annual General Meeting within 18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.

10.
(a)
Subject to Section 116C of the Ordinance, an Annual General Meeting and a meeting called for the passing of a special resolution shall be called by not less than 21 days' notice in writing, and any other general meeting shall be called by not less than 14 days' notice in writing. However, a meeting that is called by shorter notice than herein provided shall nevertheless be deemed to have been duly called if it is so agreed:

(i)
in the case of Annual General Meetings, by all the members entitled to attend and vote; and

(ii)
in the case of any other meeting, by a majority in number of the members having the right to attend and vote at the meeting, being a majority together holding at least 95 per cent in nominal value of the shares giving that right.

(b)
The quorum for the transaction of business at any General Meeting shall be two members present in person or by proxy, except when the Company has only one member, the sole member shall have the power to transact business as if at a General Meeting.

(c)
Meetings may be held in Hong Kong or at such other place or places in the world as the majority of the shareholders in value shall from time to time by resolution determine.

(d)
A resolution in writing signed by 100% of the shareholders and annexed or attached to the General Meetings Minute Book shall be as valid and effective as a resolution passed at a meeting duly convened. The signature of any shareholder may be given by his Attorney or Proxy. Any such resolution may be contained in one document or separate copies prepared and/or circulated for the purpose and signed by one or more shareholders.

DIRECTORS

11.       Unless and until otherwise determined by an ordinary resolution of the Company, the number of Directors shall be not fewer than one, and there shall be no maximum number of Directors.

12.       The first Directors shall be appointed in writing by the subscribers to the Memorandum of Association of the Company or by the Company in general meeting.

13.       A Director need not hold any shares in the Company. A Director who is not a member of the Company shall nevertheless be entitled to attend and speak at general meetings.

DIRECTORS' REMUNERATION

14.
(a)
The Directors shall be paid out of the funds of the Company remuneration for their services such sum (if any) as the Company may by ordinary resolution from time to time determine.

(b)
The Directors shall also be entitled to be paid their reasonable expenses incurred in consequence of their attendance at meetings of Directors, committee meetings or general meetings or otherwise in or about the business of the Company.

 
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15.       The Directors may award extra remuneration out of the funds of the Company (by way of salary, bonus, commission or otherwise as the Directors may determine) to any Director who performs services which in the opinion of the Directors are beyond the scope of the ordinary duties of a Director.

POWERS OF DIRECTORS

16.       The business of the Company shall be managed by the Directors, who shall pay all expenses incurred in the formation and registration of the Company, and who may exercise all such powers of the Company as are not by the Ordinance or by these Articles required to be exercised by the Company in general meeting, subject to any provision in these Articles or the Ordinance and to any resolution, not being inconsistent with any such provision, as may be passed by the Company in general meeting; but no such resolution shall invalidate any prior act of the Directors. The general powers given to the Directors by this Article shall be in addition to, and not limited or restricted by, any special authority or power given to the Directors by any other Article.

17.       The Directors may establish any local boards or agencies for managing any of the affairs of the Company, either in Hong Kong or elsewhere, and may appoint any persons to be members of such local boards, or any managers or agents for the Company, and may fix their remuneration, and may delegate (with or without power to sub-delegate as the Directors shall determine) to any local board, manager or agent any of the powers, authorities and discretions vested in the Directors, and may authorise the members of any local boards, or any of them, to fill any vacancies therein, and to act notwithstanding vacancies, and any such appointment or delegation may be made upon such terms and subject to such conditions as the Directors may think fit, and the Directors may remove any person so appointed, and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

18.       The Directors may from time to time and at any time by power of attorney or other instrument appoint any person or body of persons to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other instrument may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.

19.       Subject to and to the extent permitted by the Ordinance, the Company, or the Directors on behalf of the Company, may cause to be kept in any territory a Branch Register of members resident in such territory, and the Directors may make and vary such regulations as they may think fit respecting the keeping of any such Branch Register.

20.       All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine.

21.
(a)
The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures, debenture stocks, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Debentures, debenture stocks, bonds and other securities of the Company may be made assignable free from any equities between the Company and the person to whom the same may be issued, and may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.

(b)
The Directors shall cause a proper register to be kept, in accordance with the provisions of the Ordinance, of all mortgages and charges affecting the property of the Company and shall duly comply with the requirements of the Ordinance in regard to the registration of mortgages and charges therein specified and otherwise. Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members of otherwise, to obtain priority over such prior charge.

APPOINTMENT AND REMOVAL OF DIRECTORS

22.       The Company may, from time to time, by ordinary resolution appoint new Directors.

 
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23.       The Company may by ordinary resolution remove any Director notwithstanding anything in these Articles or in any agreement between him and the Company and may appoint another person in his stead.

24.       The Directors shall have power, exercisable at any time and from time to time, to appoint any other person as a Director, either to fill a casual vacancy or as an addition to the Board.

25.       The continuing directors may act notwithstanding any vacancy in their body, save that if the number of directors shall have been fixed at two or more persons and by reason of vacancies having occurred in the Board there shall be only one continuing director, he shall be authorised to act alone, but only for the purpose of increasing the number of Directors to that number, or of summoning a General Meeting of the Company, and for no other purpose. If there shall be no Director able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors, except when the Company has only one member, the sole member may by written resolution appoint Directors.

ALTERNATE DIRECTORS

26.       Each Director may by written notification to the Company nominate any other person to act as alternate Director in his place and at his discretion in similar manner remove such alternate Director. The alternate Director shall (except as regards the power to appoint an alternate) be subject in all respects to the terms and conditions existing with reference to the other Directors of the Company; and each alternate Director, whilst acting as such, shall exercise and discharge all the functions, powers and duties of the Director he represents, but shall look to such Director solely for his remuneration as alternate Director. Every person acting as an alternate Director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). The signature of an alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the notice of his appointment provides to the contrary, be as effective as the signature of his appointor. Any Director of the Company who is appointed an alternate director shall be considered as two Directors for the purpose of making a quorum of Directors. Any person appointed as an alternate Director shall vacate his office as such alternate Director if and when the Director by whom he has been appointed removes him or vacates office as Director. A Director shall not be liable for the acts or defaults of any alternate Director appointed by him.

DIRECTORS' INTERESTS

27.       A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest in accordance with the provisions of the Ordinance. A general notice given to the Board of Directors by a Director to the effect that he is a member or a director of a specified company or entity, and is to be regarded as interested in any contract, arrangement or dealing which may, after the date of the notice, be entered into or made with that company or entity, shall, for the purpose of this Article, be deemed to be a sufficient disclosure of interest in relation to any contract, arrangement or dealing so entered into or made. Without prejudice to the generality of the foregoing, a Director shall give notice to the Company of such matters relating to himself as may be necessary for the purposes of Sections 155B, 158,161 and 161B of the Ordinance.

28.       A Director may hold any other office or place of profit under the Company (other than the office of Auditor or where prohibited by Section 154 of the Ordinance), and he or any entity of which he is a member or a director may act in a professional capacity for the Company in conjunction with his office of Director, for such period and on such terms (as to remuneration and otherwise) as the Directors may determine. No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any contract or arrangement entered into by or on behalf of the Company with any Director or any entity or company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit, remuneration or other benefits realised by any such contract or arrangement by reason only of such Director holding that office, or of any fiduciary relationship thereby established.

29.       A Director shall be entitled to vote as a Director in respect of any contract or arrangement in which he is interested or upon any matter arising thereout, and if he shall so vote his vote shall be counted, and he shall be taken into account in determining the quorum for the meeting at which any such contract or arrangement is to be considered.
 
 
6

 

30.       A Director may hold office as a director in or manager of any other company in which the Company is a shareholder or is otherwise interested, and (subject to any agreement with the Company to the contrary) shall not be liable to account to the Company for any remuneration or other benefits receivable by him from such other company. The Board may exercise the voting powers conferred by the shares in any other company held or owned by the Company in such manner in all respects as the Board thinks fit (including the exercise thereof in favour of any resolution appointing the Directors or any of them directors or other officers of such company or voting or providing for the payment of remuneration to the directors of such company) and any Director of the Company may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or be about to be, appointed a director or other officer of such other company and as such is or may become interested in the exercise of such voting rights in manner aforesaid.

DIRECTORS' MEETINGS

31.
(a)
Meetings of the Directors may be held in Hong Kong or in any other part of the world as may be convenient for the majority.

(b)
Notice of a meeting of Directors shall be deemed to be duly given to a Director if it is given to him personally, orally or in writing, or sent to him at his last known address or any other address given by him to the Company for this purpose. A Director may consent to short notice of and may waive notice of any meeting and any such waiver may be retrospective.

(c)
The Directors may elect a Chairman of the Board and determine the period for which he is to hold office; but if no such Chairman be elected, or if at any meeting the Chairman be not present within 5 minutes after the time appointed for holding the meeting, the Directors present may choose one of their members as the chairman of such meeting.

(d)
Unless otherwise determined by the Company by Ordinary Resolution, the quorum for meeting of the Directors shall be two. Matters arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, and in case a chairman of the meeting is chosen or elected, the chairman shall have a second or casting vote.

(e)
A resolution in writing signed by all the Directors (so long as they constitute a quorum as provided in Article 31 (d) hereof) and annexed or attached to the Directors' Minute Book shall be as valid and effective as a resolution passed at a meeting duly convened. The signature of any Director may be given by his Alternate. Any such resolution may be contained in one document or separate copies prepared and/or circulated for the purpose and signed by one or more of the Directors. A cable, telex or fax message sent by a Director or his Alternate shall be deemed to be a document signed by him for the purpose of this Article.

(f)
If the Company shall have only one director, the provisions hereinbefore contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters and in lieu of minutes of a meeting shall record in writing and sign a note of memorandum of all matters requiring a resolution of the directors. Such note or memorandum shall constitute sufficient evidence of such resolution for all purposes.

THE SEAL

32.       The Directors shall procure a common seal to be made for the Company, and shall provide for the safe custody thereof. The Seal shall not be affixed to any instrument except by the authority of the Directors or a committee authorised by the Board in that behalf, and every instrument to which the Seal shall be affixed shall be signed by one Director or some other person nominated by the Directors for the purpose.

33.       The Company may exercise all the powers of having official seals conferred by the Ordinance and such powers shall be vested in the Directors.

SECRETARY

34.       The Directors shall appoint a Secretary of the Company for such period, at such remuneration and upon such conditions as they may think fit, and any Secretary so appointed may be removed by them. In the event that the Secretary appointed is a corporation or other body, it may act and sign by the hand of any one or more of its directors or officers duly authorised. The First Secretary of the Company shall be CAYMAN - HONG KONG CORPORATE SERVICES LIMITED .

NOTICES

35.       Every member shall register with the Company an address to which notices can be sent and if any member shall fail so to do notice may be given to such member by sending the same to his last known place of business or residence or, if there be none, by posting the same for three days at the office of the Company.

 
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WINDING UP

36.       If the Company shall be wound up and the assets available for distribution among the members as such shall be insufficient to repay the whole of the paid up Capital, such assets shall be distributed so that as near as may be the losses shall be borne by the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively and if in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up the excess shall be distributed among the members in proportion to the capital at the commencement of the winding up paid up or which ought to have been paid up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of any shares issued upon special terms and conditions.

37.
(a)
If the Company shall be wound up whether voluntarily or otherwise the liquidators may with the sanction of a special resolution divide among the contributories in specie or kind any part of the assets of the Company and may with the like sanction vest any part of the assets of the Company in trustees upon such trusts for the benefit of the contributories or any of them as the liquidators with the like sanction think fit.

(b)
If thought expedient any such division may be otherwise than in accordance with the legal rights of the contributories and in particular any class may be given preferential or special rights or may be excluded altogether or in part; but in case any division otherwise than in accordance with the legal rights of the contributories shall be determined on any contributory who would be prejudiced thereby shall have a right to dissent and ancillary rights as if such determination were a Special Resolution passed pursuant to Section 237 of the Ordinance.

(c)
In case any of the shares to be divided as aforesaid consist of shares which involve a liability to calls or otherwise, any person entitled under such division to any of the said shares may, within ten days after the passing of the special resolution by notice in writing, direct the Liquidator to sell his proportion and pay him the net proceeds, and the Liquidator shall, if practicable, act accordingly.
 

 
Name, Address and Descriptions of Subscriber
  

 
For and on behalf of  
Cayman HK Nominees Limited

(Sd.) Raymond Leung

Raymond Leung
CAYMAN HK NOMINEES LIMITED
25/F Car Po Commercial Building,
18 Lyndhurst Terrace, Central
Hong Kong.
Corporation
  


Dated the 18th Day of October, 2005
WITNESS to the above signature.

(Sd.) Cheng, Chan Yuet Har
Cheng, Chan Yuet Har
Secretary
25/F Car Po Commercial Building,
18 Lyndhurst Terrace, Central,
Hong Kong.
 
 
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(Translation)

SALES AND PURCHASE OF TECHNOLOGY MASTER LICENSE AGREEMENT
(Reference#121108ShanDZ/SIAF)

AN  AGREEMENT  made this 12 th day of  November, 2008

BETWEEN

Mr. Shan De Zhang (Chinese Identification Card No. 370802196710312437) of Tian Da Cai He Animal Health Products Co. Ltd. and of address at  No. 37, Tai Bai Lou Xi Road, Shizhong District, Jining City, Shandong Province, P. R. China. (hereinafter called "the Vendor") of the one part.

AND

Tri-Way Industries Limited (Company No. 1004146) a company incorporated in Hong Kong SAR, People’s Republic of China with limited liability and having its principal place of business at Rm 1613, 16/F, Tai Yau Building, 181 Johnston Road, Waichai Hong Kong. (hereinafter called "the Purchaser") of the other part.

WHEREAS:-

1.
The Vendor is the inventor, and the legal patent holder of an Intellectual Property for the manufacturing of livestock feed applicable to the consumption of cattle and cows, namely “Zhi Wu Jie Gan Si Liao Chan Ye Hua Chan Pin Ji Qi Zhi Bei Fang Fa” registered under Patent Number “ZL2005 10063039.9 and Certificate # 329722” of People’s Republic of China (hereinafter refer to as “SFM Technology”).

2.
The Purchaser is a company incorporated in Hong Kong Special Administrative Region, People’s Republic of China with limited liability and having its principal place of business at Rm 1613, 16/F, Tai Yau Building, 181 Johnston Road, Wanchai Hong Kong. It is a fully owned subsidiary of Sino Agro Food, Inc. (“SIAF”) which is a Nevada Incorporation quoted on OTCB under Pinksheet companies with a representative office at Rm3711, China Shine Plaza, No.9 Lin He Xi Road, Tianhe District, GuangZhou, People’s Republic of China.

3.
The Present market value of the SFM Technology including its related brand and label is collectively valued at RMB68,000,000.00 (equivalent to US$10,000,000.00 based on exchange rate of US$1=RMB6.80) as indicated in a Valuation Report as prepared by a firm of professional valuers registered in People’s Republic of China.  Copies of the Valuation Report dated 30 th September 2008 is annexed hereto and marked as Appendix (V 1).

4.
The Vendor has agreed to sell and the Purchaser has agreed to purchase an exclusive  master license to use and to license other users to use the secrets, copyrights, processes and other Intellectual Property associated with the SFM Technology (hereinafter referred to as “the Exclusive Master License”) in any territory of the People’s Republic of China free from all encumbrances with all rights to the patented Intellectual Property including related brand and label as governed by the laws of People’s Republic of China after the date of this Agreement upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:-

1.
Definitions and Interpretations

In this Agreement, unless the context otherwise requires, the following words or expression shall have the following meaning:-

 
(a) 
“Purchaser”   includes its respective nominees and successors in title ;

 
1

 

 
(b) 
“Vendor”   include his heir personal representative and successors in title ;

 
(c)
“The Completion Date” shall refer to the date of full payment of all monies and shares payable by the Purchaser herein provided ;

 
(d)
“US$” means United States Dollars, the currency of the United States of America ;

 
(e)
All undertakings, agreements, terms, warranties and representations expressed to be made by two or more parties hereto shall be deemed to be made by them and be binding on them jointly and severally ;

 
(f)
Reference to natural persons shall be deemed to include body corporate and the plural number shall include the singular number and vice versa ;

 
(g)
Words importing the masculine gender shall be deemed to include the feminine and neuter gender ;

 
(h)
The headings are inserted for convenience of reference only and shall not affect the interpretation of this Agreement hereof ;

 
(i)
Where an act required to be done within a specified number of days after or from a specified date, the period is inclusive of and begins to run from the date so specified ;

 
(j)
A period of a month from the happening of an event or the doing of an act or thing shall be deemed to be inclusive of the day on which the event happens or the act or thing is or was required to be done ;

 
(k)
The Appendices hereto shall be taken, read and construed as an essential part of this Agreement ;

2. 
Agreement for the Sale and Purchase

2.1
Purchase Consideration and Part Payment

In consideration of the sum of RMB Five Hundred Thousand (RMB500,000.00, equivalent to US$73,500.00)   only  (hereinafter call “the Part Payment") now paid by the Purchaser to the Vendor by way of deposit and part payment towards the purchase price of the Master License (the receipt of which the Vendor hereby duly acknowledges, and the corresponding paid order, signed receipt and corresponding banking record of the said payment are annexed hereto marked Appendix A), (hereinafter referred to as “Part Payment”), the Vendor hereby agrees to sell and the Purchaser hereby agrees to purchase the Exclusive World Master License to use and to license other users to use the secrets, copyrights, processes and other Intellectual Property associated with the SFM Technology in any territory in the world free from all encumbrances with all rights to the Patented Intellectual Property and related brand and label as governed by the law of People’s Republic of China after the date of this Agreement at the total purchase price of United States Dollars Eight Million (US$8,000,000.00)   only (hereinafter called "the Purchase Price")  and subject to further terms and conditions hereinafter contained.

2.2 
Payment of Balance Purchase Price

 
The balance of the Purchase Price amounting to United States Dollars Seven  Million Nine Hundred and Twenty Six Thousand and Five Hundred (US$7,926,500.00) only (hereinafter called "the Balance Purchase Price”) shall be paid and settled within a period of three years from the date hereof and in manner herein set forth:

 
2

 

Tranche
 
Date of settlements 
on or before
  
Partial payment  amount
in US$
  
Related terms and conditions
1
 
31 st December 2008
 
4,426.00
 
Payable in cash and / or in other forms of assets acceptable to the Vendor.
2
 
31 st December 2009
 
1,000,000.00
 
Payable in cash and / or in SIAF shares calculated at 85% of its three months’ average of its market prices from the date leading up to the date of settlement.
3
 
31 st December 2010
 
1,000,000.00
 
Payable in cash and / or in SIAF shares calculated at 85% of its three months’ average of its market prices from the date leading up to the date of settlement.
4
  
11 th November 2011
  
1,500,000.00
  
Payable in cash and / or in SIAF shares calculated at 85% of its three months’ average of its market prices from the date leading up to the date of settlement.

2.3 
Purchaser’s Right after payment of the Part Payment

Upon payment by the Purchaser of the second payment of US$4,426,500.00 under Tranche 1 referred to in Clause 2.2 hereof, the Purchaser shall have the irrevocable and non reversionary Exclusive Master License to use and to license other users to use the secrets, copyrights, processes and other Intellectual Property associated with the SFM Technology and related brand and label thereof in the People’s Republic of China and the Vendor shall have no claim to the rights to us or license to use Intellectual Property associated with the SFM Technology and related brand and label thereof, but shall retain the right to claim against the Purchaser for the Balance Purchase Price of US$3,500,000.00 remaining unpaid by the Purchaser pursuant to the terms and conditions set forth in Clause 2.2 hereof.

3. 
Due Diligence

3.1 
Purchaser's Rights to Due Diligence

Notwithstanding the fact that the Purchaser has done its Due Diligence in respect of the said patented SFM Technology and related business affairs satisfactorily during the period prior to the execution of this Agreement, the Vendor hereby agrees that during the period commencing from the date of this Agreement and ending on the Completion Date (as defined below), the Purchaser shall be entitled to:

 
(i)
make such reasonable enquiries with relevant Authorities and clients of the Vendor in the matters relating to the SFM Technology and related brand and label.

 
(ii)
make due diligence investigation of the track records of the SFM Technology.

 
(iii)
make due diligence investigation of the economic and financial forecast and projection of the application of the SFM Technology by the Purchaser and its auditors .

3.2 
Vendor's Obligations

The Vendor shall take all steps and do all things necessary to enable the Purchaser and/or its representatives to carry out the enquiries and the due diligence investigation as provided in Clause 3.1 and to notify and make known to the relevant authorities and parties of the sale of the Exclusive Master License within a reasonable time.
 
 
3

 

3.3 
Purchaser's Entitlement to claim

In the event that :

 
(i)
the Purchaser is unable to make reasonable enquiries or to carry out due diligence investigations set forth in Clause 3.1 hereof due to no fault of the Purchaser; or

 
(i)
it is found, as a result of the due diligence investigations or otherwise, that any of the Representations and Warranties contained in Clause 9 are untrue, misleading or incorrect or have not been fully carried out in any material respect, or

 
(iii)
in any event of any matter or thing arising or becoming known or being notified to the Purchaser which is materially inconsistent with any of the Representations and Warranties contained in Clause 9 hereof ;

then the Purchaser may by notice in writing to the Vendor to be given not later than the Completion Date, specify and verify the amount of claims, (hereinafter referred to as the Claims) and in which event (without prejudice to any claim in damages), the Vendor shall refund forthwith to the Purchaser the claims together with interest accruing thereon (if any).

4. 
Delivery of Documents

Simultaneously with the execution of this Agreement, the Vendor shall deliver or cause to be delivered to the Purchaser all relevant documents concerning the SFM Technology and related brand and label, including but not limited to the processes, know-how, designs, operations manuals, specifications of equipment and descriptions of operating principles and technology (hereinafter called “the Patent Documents”).

5. 
Completion

The Completion of this Agreement shall take place upon payment by the Purchaser of the sum of US$4,426,500.00 under the Tranche 1 pursuant to Clause 2.2 hereof on or before 31 st December 2008 (hereinafter referred to as “the Completion Date”).

5A 
Subsequent Settlement

Each date of the settlements referred to in Clause 2.2 is called the “Subsequent Settlement Date”.  On or before each Settlement Date and as a commercial arrangement between the Parties hereto, the Purchaser shall settle the respective tranche of the unpaid Balance Purchase Price either by cash payment or by the combination of cash payment and SIAF shares or by SIAF shares alone.  In this respect of payment by SIAF shares, the Purchaser shall transfer or cause to be transferred SIAF’s shares to the Vendor and/or his nominee(s) as the Vendor shall direct and shall deliver the corresponding share certificates to the Vendor.

6. 
Outgoings

 
The Vendor hereby agrees to pay all annual patent fee, charges, levies, taxes and other payments if any payable by Vendor in relation to the Patent of the SFM Technology and its related brand and label on or before the Completion Date, and as such the Vendor shall indemnify the Purchaser or its assigns in respect of any penalties and damages which may be arise as a result of any late payments or default in payment in respect of such payments.

8.
Vendor’s Indemnity

 
If there shall be any breach by the Vendor of any warranty, guarantee, undertaking and agreement herein contained, then the Purchaser shall be entitled to be indemnified by the Vendor in respect of any loss resulting from such breach.

 
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9.
Representations and Warranties

9.1
The Vendor hereby represents, warrants and undertakes to and with the Purchaser as follows :-

 
(a)
None of the patented SFM Technology and its related brand and label that are registered in the name of the Vendor are subject to any option, charge, lien or encumbrances and the Vendor is the beneficial owner thereof ;

 
(b)
The Valuation Report presented to the Purchaser dated 30th September 2008 gave a true and fair view of the market value of the SFM Technology and its related brand and label calculated up to the Completion Date.

 
(c)
The Vendor is not involved in any dispute with any revenue authorities concerning any matter likely to affect in any way the ownership and application of the SFM Technology and its related brand and label.

 
(d)
The Vendor has not prior to the date hereof agreed to sell or given or agreed to license the Patent SFM Technology and its related brand and label to any other party apart from the Purchaser.

 
(e)
The Vendor is not engaged in any litigation or arbitration proceedings and no such proceedings and no prosecution are pending or threatened against the Vendor in selling of the license of the SFM Technology and its related brand and label, and the Vendor knows of no facts or matters likely to give rise thereto.

 
(f)
The Vendor has no mortgages liens other encumbrances secured over the SFM Technology and its related brand and label.

10.
Default by Purchaser

In the event that the Purchaser shall fail to complete the sale and purchase herein by failing to pay the Tranche 1 payment of US$4,426,470.00 in accordance with Clause 2.2 hereof, the Vendor shall be entitled to claim liquidated damages amounting up to the Balance Purchase Price of United State Dollars Seven Million Nine Hundred Twenty Six Thousand and Four Hundred and Seventy (US$7,926,470.00).

11.
Force Majeure

Notwithstanding any provision herein to the contrary, no party hereto shall be liable to any other party hereto for loss, injury, delay or damages suffered or incurred by any such other party due to a substantial effect, acts of God, government actions or any other cause which is beyond the reasonable control of the party the performance of whose obligations hereunder are affected by such cause.

12. 
Time of Essence

Time wherever mentioned shall be deemed to be of the essence of this Agreement.

13. 
Notice

 
Every notice, request, consent, demand or other communication under this Agreement shall be given or made in writing shall be sufficiently served on the party to whom it is addressed if it is left at or sent by registered post or telegram to the address given above or to the place of business for the time or to such address as one party hereto may from time to time notify in writing to the other party hereto. A notice sent by registered post or facsimile shall be deemed to have served at the time when it ought in due course of post or transmission to have been received.

 
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14. 
Governing Law

 
This Agreement shall be governed by and construed in accordance with the Laws of Republic of People of China.

15. 
Modifications

All parties hereto agree that the provisions herein contained may if mutually agreed upon be varied, amended, modified or substituted and any such variations, amendment, modification or substitution thereof shall be in writing and signed by all parties hereto.  In the event of any inconsistency as to any of the provisions thereof, the one subsequent in time shall prevail.

16. 
Severability

If any of the provisions of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

17. 
This Agreement the Sole Agreement

This Agreement constitutes the sole and only agreement between the Vendor and the Purchaser respecting the Exclusive Master License and correctly sets forth the agreement reached between them in respect of the subject matter of this Agreement and supersedes and cancels all previous and other agreements, negotiations, representations, undertakings or undertakings whatsoever whether written or oral in respect thereof.

18.
Costs

The Parties hereto shall bear and pay their respective Solicitors’ fees and costs.

19. 
Successors Bound

This Agreement shall be binding on the respective successors-in-title, heirs and  permitted assigns of the parties hereto.

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seal the day and year first above written.

Signed by
)
 
THE PURCHASER
)
(Rubber stamp of
 
)
Tri-Way Industries Limited affixed)
 
)
 
 
)
(signed)
 
       

Signed by THE VENDOR
)
   
 
)
   
 
)
(signed)
 
 
)
   
   
Shan De Zhang
 
 
 
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APENDIX (V1)
VALAUTION REPORT

APPENDIX (V2)
COPY OF THE PATENT # ZL2005 10063039.9

APPENDIX (V3)
REGISTRATION CERTIFICATE # 1785267 OF THE BRANDS AND LABELS

APPENDIX (V4)
HIGH TECHNOLOGY CERTIFICATE # 0453

APPENDIX(V5)
PROFESSIONAL VERIFICATION CERTIFICATE

APPENDIX (A)
CORRESPONDING PAID ORDER, SIGNED RECEIPT AND CORRESPONDING BANKING RECORD OF “ THE PART PAYMENT

 
7

 

(Translation)

JOINT VENTURE AGREEMENT

Article 1    Premise

1.
Upon mutual benefit, EnPing City JunTang Town Hang Sing Tai Agriculture Co. Ltd.  (“Party A”) and Macau EIJI Company Limited (“Party B”) hereby agree to enter into this joint venture agreement in accordance with the laws of Sino Foreign Joint Venture Enterprises of the People’s Republic of China and other relevant regulations.
 
Article 2    The Joint Venture Parties

2.
The Joint Venture Parties

Party A     :
EnPing City JunTang Town Hang Sing Tai Agriculture Co. Ltd.                     Country of Registration : China
Address    :
No. 1-3 First Floor, Jiang Zhou Shui Zha Office Building, No. 19 Jiang Zhou Yu Jiang Jun Road, Juntang Town, Enping City, Guangdong Province, China
Legal representative :  Mr. Fang Xiang Jun
 
Party B      :
Macau EIJI Company Limited                                                             Country of Registration : Macau, China
Address     : 
Building A, First floor, No.51-53 B Pi La Street, Macau
Legal Representative :  Mr. Yong Guan Lu
 
Article 3    Establishment of the Joint Venture Company

3.
For mutual benefit, the Parties hereto agree to enter into a joint venture by setting up in Enping City, Guangdong Province, China a joint venture company, to be named as Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“the JVCo”).

4.
The parties hereto as the legal persons jointly incorporate the JVCo in accordance with the laws of Sino Foreign Joint Venture Enterprises of the People’s Republic of China and other relevant regulations.

5.
The activities of the JVCo shall be carried out in compliance with the laws of the People’s Republic of China and other relevant regulations, and be subjected to its jurisdiction.

6.
The parties hereto shall share the risks, indebtedness and losses of the JVCo as well its profit.

Article 4    The Purpose of Joint Venture, the Scope and Scale of Business

7.
The objective of the joint venture is to advance the development of agricultural products to cater for the increasing domestic or overseas demand for the agricultural products, so as to gain economical benefits for both parties.

8.
The scope of business: to produce highly in demand agricultural products for domestic and overseas markets in order to its competitiveness in the international markets.

9.
The scale of business: to produce 12,708,333 kilograms of Hylocereus Undatus dried flowers per year.
 
Article 5     Method of Cooperation

10.
The parties hereto the method of cooperation as follows :-

 
(1)
The parties hereto shall deliberate on the tenure of the joint venture.  Party A shall provide its existing assets, resources (including factories, intellectual property and land usage rights, business operation right and benefits) (“Party A’s Assets and Rights”) as the consideration for this joint venture.

 
 

 

 
(2)
Party B shall provide a sum of US$600,000 as the registered capital required for the establishment of the JVCo and procure foreign modern technology for value adding, premium seedlings, as well as modern production technique and technology of A Power Agro Agriculture Development, Inc. as the consideration for this joint venture.

 
(3)
Party A shall have 25%, whereas Party B 75% of the equity interest in the JVCo, the parties hereto shall share the profit and loss of the JVCo in that ratio.

 
(4)
After the incorporation of the JVCo and upon the payment by Party B of the registered capital, Party A shall forthwith transfer and assign all Party A’s Assets and Rights to the JVCo.

11.
All plant and equipment to be purchased by Party B shall be first verified and approved by the relevant authorities.

12.
After verification and approval of the relevant authority of the sale and purchase agreements entered into by the JVCo and Party B for the purchase of the plant and equipment, the personnel of the JVCo shall within three months thereafter inspect and verify the purchased items and appoint Bank of China to liaise with the banker of Party B on the issuance of the necessary letters of credit.

13.
Party B shall ship all the purchased goods to a designated seaport within 6 months from the date of receipt of the letter of credit.

14.
The parties hereto shall abide by the time frame for allocating the land or capital, failing which the defaulting party shall bear all losses arising therefrom.

Article 6    The Responsibilities of the Parties

15.
Party A shall have the following responsibilities:

 
1.
To submit the necessary application to the relevant authorities for incorporation of the JVCo;

 
2.
To submit the necessary application to the relevant authorities for the use of land by the JVCo;

 
3.
To provide necessary facilities for the JVCo and to purchase locally the requisite plant and equipment;

 
4.
To facilitate purchase of raw materials, and to handle all applications for the supply of water, electricity, telephone and other communication connection;

 
5.
To handle procurement of workers, and to recommend requisite management and technical personnel for consideration for employment by the management of the JVCo;

 
6.
To deal with invitation for the expatriates personnel of the JVCo, and to arrange the necessary accommodation and transportation for such personnel.

 
7.
To assist in matters relating to the transportation of and related customs matter for the export of the products;

 
8.
To be responsible for the transportation of all equipment imported by Party B from the main ports in Guangdong Province to the project sites of the JVCo; and

 
9.
Other matters as agreed by the parties to be the responsibilities of Party A.
 
 
 

 

16.
Party B shall have the following responsibilities:

 
1.
To provide the necessary funding to meet the construction requirement of the JVCo;

 
2.
To fund the procurement of facilities, imported or sourced locally, and other technical know-how and technologies as required by the JVCo;

 
3.
To provide production technical know-how, operation and management manuals;

 
4.
To provide related global technical and market information;

 
5.
To provide technical training;

 
6.
To source from overseas those raw materials, parts and equipment that cannot be procured locally;

 
7.
To deliver all purchased equipment to a designated seaport according to the agreed schedule, and to be responsible for installation, commissioning and running of the equipment;

 
8.
To strive to the competitiveness of the products in international markets, and to increase the export volume so as to ensure JVCo’s attain a balanced foreign exchange and high economic return; and

 
9.
Other matters as agreed by the parties to be the responsibilities of Party B.

17.
If the JVCo suffers losses as a result of failure of any of the parties in carrying out its responsibilities, the defaulting party shall bear all losses arising therefrom.

Article 7    Shareholders’ Meeting & Board of Directors

18.
The shareholders’ meeting is the highest authority of the JVCo.

19.
The Board of directors shall consist of 5 members; 2 appointees from Party A and 3 from Party B. The Board shall have 1 chair person and 2 deputy chair persons, for tenure of 3 years. A director appointed by Party A shall be made the Chair person, whereas 2 directors appointed by Party B shall be made the deputy chair persons.

20.
The legal representative of the JVCo shall be selected at the shareholders’ meeting, and if the chair person for any reason is not able to carry out his duties, deputy chair person or other directors shall be empowered to represent the JVCo.

21.
The Board shall schedule to meet once a month on the 4 th Monday of every month at Enping City of Guangdong Province, or at any other venue when necessary.   The Board of Directors may hold short notice meeting.   The meetings of the Board shall be chaired by the chair person or the deputy chair person or other director as directed by the chair person.

The chair person shall notify the directors of the date, venue and agenda for the meetings 3 weeks prior to the scheduled meetings.

22.
Director who is not able to attend any scheduled meeting may appoint proxy to attend the meeting in writing, and such proxy shall have the right of speech and voting right at the meetings, but such proxy shall not represent more than 1 absent director.

23.
The quorum for any meeting shall be two third of the members of the board.

24.
The meetings of the board of directors shall be conducted in a respectful, fair and just manner.

 
 

 

25.
The following matters shall require unanimous approval of the board of directors before tabling the same at the shareholders’ meeting :

 
1.
Amendment to the Constitution of the JVCo;

 
2.
Resolution of the JVCo;

 
3.
Increasing or transferring the registered capital of the JVCo; and

 
4.
Merger of the JVCo with other business entity.

Article 8    Operation and Management

26.
The management of the JVCo shall be responsible for the day to day administration and operation of the company.  The management shall consist of 1 General Manager, 1 Deputy General Manager and several other senior managers, the employment of same shall be decided by the board of directors, for tenure of 5 years.

27.
The duties and powers of the General Manager are as follows :

 
1.
To carry out the matters as directed in the company’s Constitution and the shareholders’ meetings;

 
2.
To nominate key persons for various departments of the company, and to recruit other personnel and to notify the board of directors of such employment;

 
3.
To formulate the company’s operation and management systems, and to deploy, direct, supervise and inspect the operation;

 
4.
To periodically submit report on work progress, financial and profit & loss report to the board of directors;

 
5.
To decide on maters relating to purchase of raw materials and parts & equipment, marketing of products, contracts for specific cooperation with others and cash flow financing;

 
6.
To monitor and adjust price fixing for the company’s products;

 
7.
To represent the JVCo in negotiation and signing of contracts;

 
8.
To hold management meetings and to execute the decisions made thereat;

 
9.
To resolve matters/problems raised by various departments of the company;

 
10.
To represent or appoint agent to represent the JVCo, as directed by the board of directors, in matters concerning the JVCo;

 
11.
To handle all disciplinary matters; and

 
12.
To handle all other matters within the ambit of duties of the General Manager.

28.
The duties and powers of the Deputy General Manager are as follows :

 
1.
To assist the General Manager in the operation and management of the JVCo;

 
2.
To take over the function of the General Manager, when the General Manager is absent;

 
3.
To represent the JVCo in business negotiation;

 
4.
To deal with conflicts arisen in the course of operation and other related problems; and

 
 

 

 
5.
To handle all other matters within the ambit of duties of the Deputy General Manager.

Article 9    Pre Development

29.
The board of directors shall decide on the grouping of personnel during the pre development stage of the JVCo.  All expenses incurred during the pre development stage shall be gradually billed into the cost of production over the years.

Article 10    Management of workers and Trade Union

30.
the JVCo shall abide by the laws of China and other rules and regulations as formulated by the governmental labour department on matters relating to employment, dismissal, wages, discipline, welfare of workers employed by the JVCo.

31.
The workers of the JVCo shall have to right to form trade union and organize activities thereof.

Article 11    Production and Marketing

32.
The board of directors shall at the end of each calendar year prepare the budget and plan for the following year for the rate of production, as well as the import and export, for execution by the heads of departments.  The budget and plan may be adjusted along the way according to market condition.

33.
For any purchase or procurement of material or equipment, priority must be given for such items to be sourced locally, taking into account the quality, specification and pricing of the items concerned.

34.
After due inspection has been carried out by China’s Export Goods Inspection Department, the agricultural products of the JVCo shall be exported directly according to the yearly plan for export.   The JVCo may also participate in Guangzhou Expo for purpose of exporting the products.

35.
In principle the JVCo shall export all the company’s products of export quality to attain a balance of payment in its imports and exports.

36.
Party A shall be responsible for marketing the products locally, whereas Party B shall be in charge of the export aspect, under the brand name of the JVCo.

37.
The pricing and quantum of exported products shall be fixed by taking into account the company’s balance of payment in foreign exchange and cost, and shall be adjusted according to the international market condition.

38.
The pricing and quantum of the products to be sold locally shall be fixed by the Board of Directors and implemented by the department concerned in accordance with the goods pricing policy set by the China Government.   As for the pricing of exported products, the General Manager shall decide whether it shall be fixed according to the international market condition or the transacted price at Guangzhou Expo.

Article 12    Financial System

39.
The board of directors shall formulate the company’s accounting system in accordance with the regulations set by the Finance Ministry of China, taking into consideration the requirement of the company.

40.
Various reports shall be submitted to the parties before the 10 th of following calendar month, whereas year-end report shall be submitted at the end of the following month after the end of year, and audited by Chinese auditors appointed by the company.  All reports shall be extended to the relevant departments, including the statistics department, of the company for record purpose.

41.
The JVCo shall adopt ‘credit & debit’ method for keeping accounts, to be written in Chinese language and in Renminbi denomination and other currencies shall be converted to Renminbi at the rate published by Bank of China.   Currency used in trading shall be calculated based on trading exchange rate, whereas transmission of fund in and out of the country shall comply with the foreign exchange control regulations of China.

 
 

 

42.
The JVCo shall engage Chinese auditors for auditing of accounts, and such audited accounts shall be submitted to the shareholders’ meetings, the board of directors and the General Manager.

43.
The JVCo shall maintain Renminbi and foreign currency bank accounts with local branch of Bank of China.

Article 13    Taxation, Profit and Loss

44.
The JVCo shall pay taxes in accordance with the laws of taxation of China.

45.
The JVCo shall apply for tax reduction or exemption or rebate according to the laws.

46.
Parties hereto shall pay their respective taxes.

47.
The board of directors may decide to distribute net profit earned by the JVCo to the parties hereto according to the agreed ratio, after allocating provisions for reserves, workers’ welfare fund, incentive fund, company development fund and payment of taxes.

48.
Party B shall follow the exchange control regulations in repatriating its net profit from this joint venture.

49.
If the company incurs losses, such losses may be, as the shareholders’ meeting shall decide, replenished by utilizing the company’s reserves or be borne by the parties according to the agreed ratio.

Article 14    Approval, Commencement, Extension and Termination of this Agreement

50.
This Agreement shall be submitted for approval in accordance with the relevant regulations governing sino-foreign joint venture.   Thereafter the JVCo shall submit the approval letter to the Industrial and Commerce Administration Management Department for registration and issuance of business license, and simultaneously Party B shall register itself with the said Department. The tenure of operation of the JVCo shall commence from the date of issuance of the Business License.

51.
Should the shareholders decide to continue with the joint venture 6 months before the expiration of this joint venture, the shareholders may apply to the relevant authorities to extend the validity period of this joint venture.

52.
The JVCo may be dissolved during the currency of this joint venture if :-

 
1.
the company suffers severe financial losses and is not able to continue its operation as a result;

 
2.
a party hereto fails to fulfill its obligations herein, and the company is not able to continue its operation as a result;

 
3.
occurrence of natural disaster, war etc and the company suffers severe losses as a result; and

 
4.
the company fails to achieve its business objectives, and has no prospect of development.

 
5.
Despite much effort from both parties the situation is irreparable, the board of directors may submit application to the relevant authority for its early dissolution.

 
6.
If the company is dissolved due to the occurrence of the circumstance as stated in 1 and 2 herein, then the defaulting party shall compensate the other party for the losses it incurs as a result.

53.
If the company is to be dissolved during the currency of its term, the assets of the company shall be utilized for the purpose of payment of debts, taxes and other payables, and the balance thereof shall be distributed to the parties hereto in the agreed ratio.
 
 
 

 
 
54.
At the expiration of the tenure of this joint venture, this Agreement shall lapse automatically, and all the assets of the company shall be reverted to Party A without any condition attached thereto.

55.
Upon dissolution of the company, all books and records shall be kept by Party A.

Article 15   Amendment to this Agreement

56.
Any amendment to this Agreement shall require written consent of both parties, and be subject to approval of the relevant authority before taking effect.

Article 16    Insurance

57.
The company shall take out insurance coverage from the insurance companies licensed to operate in China.

Article 17     Brand Name and Trademark

58.
All products of the company shall be sold under the brand name and trademark of “APA” to be registered with Trademark Control Department of China.  If necessary such trademark shall be registered internationally.

Article 18    Applicable Laws

59.
This Agreement shall be governed in accordance with the laws of China.

Article 19    Disputes Resolution

60.
The parties hereto shall strive to resolve all disputes arising from this Agreement; if the disputes cannot be resolved through negotiation, then such disputes shall be referred to Arbitration.

61.
The arbitration shall take place in Shenzhen, and the dispute shall be settled by arbitration in accordance with the Rules of the China International Economic and Trade Arbitration Centre.

62.
The award of the Arbitrator shall be final and binding on the Parties.

63.
All expenses incurred in the arbitration shall be borne by the losing party.

64.
The terms of this Agreement, other than the part which is the subject matter of the arbitration, shall remain operational.
 
Article 20

65.
The General Manager shall forthwith inform Party B of the occurrence of force majeure or other matter of serious consequence, which will affect the performance of this Agreement, and shall deliver to Party B by registered air mail such written documents of such event.

66.
This Agreement and its attachments shall have the same legal force.

67.
This Agreement shall be in the Chinese Language and printed in 6 copies, of which each party shall have 2 copies each, and the relevant approving authorities each shall have 1 copy.  All copies shall have the same legal force.

Party A :  EnPing City JunTang Town Hang Sing Tai
                 Agriculture Co. Ltd.
 
Party B:  Macau EIJI Company Limited
         
Legal Representative :
(signed)
 
Authorized Signatory :
    (signed)
 
(Fang Xiang Jun)
   
(Chan Bor Han)
         
Date :  September 5, 2007
 
Date :  September 5, 2007
 
 
 

 
 
(Translation)

JOINT VENTURE AGREEMENT

Article 1    Premise

1.
Upon mutual benefit and the basis of fair and friendly negotiation, Qinghai Province Sanjiang Group Company Limited (“Party A”), Guangzhou City Garwor Company Limited (“Party A”) and Pretty Mountains Holdings Limited (“Party C”) hereby agree to enter into this joint venture agreement, in accordance with the laws of Sino Foreign Joint Venture Enterprises of the People’s Republic of China and other relevant regulations, for the setting up of a sino-foreign joint venture company in the vicinity of the City of Xiling,  Qinghai Province of the People’s Republic of China.

Article 2    The Joint Venture Parties

2.
The Joint Venture Parties
 
Party A Qinghai Province Sanjiang Group Company Limited                                           Country of Registration : China 
Address
:
No. 50, Sengli Lu, Xiling City, Qinghai Province, China.
Legal Representative :  Mr. Han Suanmin
 
Party B  Garwor Company Limited                                                                                      Country of Registration : China 
Address
:
No. 20, 4 th Floor, Beiau Yi Lu, Panyi District, Guangzhou, China.
Legal Representative :  Mdm. Song Haixian
 
Party C
Pretty Mountains Holdings Limited                                                         Country of Registration : Macau, China
Address
:
Flat/RM1613, 16 th Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong
Legal Representative :  Mr. Zhen Sauqian
 
Article 3    Establishment of the Joint Venture Company

3.
For mutual benefit, the Parties hereto agree to enter into a joint venture by setting up at No. 50, Sengli Lu, Xiling City, Qinghai Province, China a joint venture company, to be named as Sanjiang A Power Agriculture Co. Ltd. (“SJVC”).

4.
The parties hereto as the legal persons jointly incorporate the SJVC in accordance with the laws of Sino Foreign Joint Venture Enterprises of the People’s Republic of China and other relevant regulations.

5.
The activities of the SJVC shall be carried out in compliance with the laws of the People’s Republic of China and other relevant regulations, and be subjected to its jurisdiction.

6.
The SJVC shall be a limited liability corporation, and the parties hereto shall share the risks, indebtedness and losses of the SJVC as well its profit.

Article 4    The Purpose of Joint Venture, the Scope and Scale of Business

7.
The objective of the joint venture is to re-align the development of agricultural products (to facilitate internationalization and commercialization as well as recycling of organic agriculture) to cater for the increasing domestic or overseas demand for the agricultural products, so as to gain economical benefits for all parties.
(including employing modern commercialised technologies to solve the problems of pollution associated with the treatment of agriculture waste)
 


8.
The scope of business: to produce organic fertilizer, organic farm grass, organic livestock feed and livestock rearing, so as to produce highly in demand agricultural products for domestic and overseas markets in order to its competitiveness in the international markets.

It includes :-
1.
using environmental friendly technology to recycle agriculture waste for production of organic fertilizer;
2.
using environmental friendly technology and bacteria to produce organic feed;
3.
using environmental friendly technology to increase dairy milk production and quality; and
4.
using animals energy analytical method and management system to develop agriculture projects.

9.
The scale of business: to devise a 7-year plan to produce 1,190,017 metric tons of organic agricultural products.  The details are as follows :

Attachment 1 (Table 1)

   
Description
 
Unit
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Year 6
 
Year 7
 
7 years
Total
A
 
Planned production
                                    
1
 
Organic fertilizer
 
ton
 
17,500
 
25,000
 
35,000
 
52,500
 
70,000
 
150,000
 
300,000
 
650,000
2
 
Organic livestock feed
                                   
*
 
Type (1)
 
ton
 
30,000
 
60,000
 
90,000
 
90,000
 
90’000
 
90,000
 
90,000
 
540,000
3
 
Demonstration farms (cattle & sheep)
                                   
   
Cattle
 
head
 
50
                           
           
10
                         
10
   
Organic farm grass 1
                                   
   
Sheep
 
head
 
200
                           
       
ton
 
7
                         
7
 
  
Organic farm grass 2
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 

Attachment 1 (Table 2)

   
Description
 
Unit
 
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Year 6
 
Year 7
 
7 years
Total
B
 
Basic information
                                   
1
 
Manufacturing organic fertilizer
                                   
   
Land area required
 
Mu
 
30
 
30
 
30
 
60
 
120
 
240
 
480
 
480
   
Building area required
 
 
9,690
 
14,535
 
19,380
 
29,070
 
38,760
 
77,520
 
155,040
 
155,040
   
Employment opportunity
 
person
 
18
 
32
 
44
 
57
 
103
 
174
 
297
   
2
 
Organic livestock feed
                                   
   
Type (2)
                                   
   
Land area required
 
Mu
 
60
 
60
 
110
 
200
 
400
 
460
 
520
 
520
   
Building area required
 
 
12,255
 
12,255
 
24,510
 
49,020
 
98,040
 
110,295
 
122,550
 
122,550
   
Job vacancy
 
person
 
15
 
175
 
315
 
567
 
1,021
 
1,161
 
1,301
   
*
 
Type(1)
                                   
   
Land area required
 
Mu
     
60
 
60
 
110
 
200
 
400
 
460
 
460
   
Building area required
 
     
12,255
 
12,255
 
24,510
 
49,020
 
98,040
 
110,295
 
110,295
   
Employment opportunity
 
person
     
15
 
175
 
315
 
567
 
1,021
 
1,161
   
3
 
Demonstration farms ( cattle & sheep)
                                   
   
Cattle
                                   
   
Land area required
 
Mu
     
1,000
 
1,000
 
1,000
 
1,000
 
1,000
 
1,000
 
1,000
   
Building area required
 
     
5,000
 
5,000
 
5,000
 
5,000
 
5,000
 
5,000
 
5,000
   
Employment opportunity
 
person
     
10
 
10
 
10
 
10
 
10
 
10
   
   
Sheep
                                   
   
Land area required
 
Mu
     
800
 
800
 
800
 
800
 
800
 
800
 
800
   
Building area required
 
     
4,000
 
4,000
 
4,000
 
4,000
 
4,000
 
4,000
 
4,000
 
  
Employment opportunity
  
person
  
 
  
5
  
5
  
5
  
5
  
5
  
5
  
5
 

 
Attachment 3: The feasibility report on organic fertilizer manufacturing.
Attachment 4: The feasibility analysis on organic livestock feed manufacturing.
Attachment 5: The feasibility analysis on organic farm grass production.

Remarks: the feasibility report on other business activities will be provided whenever it is required.

Article 5     Method of Cooperation

10.
Total Investment :  U.S.$2,000,000.00

:
Bio-organic fertilizer manufacturing
:
U.S$450,000.00
         
Project 2
:
Organic livestock feed manufacturing
:
US$950,000.00
         
:
Farm grass growing
:
US$600,000.00

11. 
Registered capital :  U.S.$1,400,000.00

Equity ratio :   Party A shall contribute U.S.$630,000.00 for 45% equity;  Party B shall contribute U.S.$140,000.00 for 10% equity;  Party C shall contribute U.S.$630,000.00 for 45% equity, the parties shall share the profit and loss of the SJVC in that ratio.

12.
The parties shall pay up the registered capital in accordance with the equity ratio;  all parties shall pay up 30%, 30% and finally 40% of their respective share in accordance with the equity ratio within 45 days, 90 days and 180 days from the date of issuance of the business license for SJVC.

13.
Tenure of the joint venture:   30 years.

14.
The arrangement for cooperation :
 

 
(1)
Party A to provide :

1.
US$630,000.00 as capital;
2.
appropriate plots of lands with the related “Land Usage Rights” or convertible old factory  suitable for the projects;
3.
vehicles for use by the SJVC during the development stage;
4.
project site for development of demonstration farms for the rearing of cattle and goats;
5.
project site for manufacturing of bio-organic fertilizer;
5.
project site for production of livestock feed and farm grass;
6.
company office and accommodation for personnel from out of town during the development stage of the company;
7.
related plants and equipment and facilities for the production factories and laboratories of the SJVC;
8.
first batch of premium herd of cows and goats for the demonstration farms;
9.
proper channels for procuring governmental financial assistance or other incentives for agriculture projects to meet the needs of the projects;
10.
agriculture land by way of transfer or lease for production purposes.

(2)
Party B to provide :

1.
US$140,000.00 as capital;
2.
modern agriculture management system;
3.
international business network;
4.
proper channels for procuring financial assistance locally to meet the development cost;
5.
assistance to resolve any misunderstanding between the Chinese and foreign parties resulting from the difference in opinion on the laws and regulation between the two concerned countries;
6.
expertise in the sales and marketing needs of the SJVC.

(3)
Party C to provide :

1.
US$630,000.00 as capital;
2.
the rights to use the relevant patented technologies and the related trademarks and brands;
3.
the rights to use the patented Bacterial and Bio-organic Fertilizer Manufacturing Technology, the Stock Feed Manufacturing Technology;
4.
the related techniques associated with the Bio-organic Fertilizer and Livestock Feed Manufacturing;
5.
international business and sales network and business operation model that generate financial benefit based on branding;
6.
channels for securing international financings for its developments.

Note :

1.
If any of the technologies, techniques, systems, designs, brands and trademarks mentioned above are the properties of Party C, the SJVC shall acquire no right to operate the same except in the circumstances if they would be developed and/or invented by the SJVC during the course of its developments and operation.  In these events should anyone of the joint venture parties use any of the new inventions, such party shall pay the SJVC compensation, the values of which will be determined in accordance with the international market values at the time of usages.

2.
Party C shall conduct feasibility studies on the projects, in coordination with Party A, and such feasibility studies reports shall be the properties of the SJVC.  If any one of the Joint Venture partners should use any of the referred studies, such party shall pay the SJVC compensation, values of which will be determined in accordance with the international market values at the time of usages.
 

 
3.
The SJVC will appoint Sino Agro Food, Inc. as its consultant for the purpose of applying the necessary treatment to make its group and organization structures, business strategies and operation on par with the international corporate standards, to facilitate realization of its planned listing exercise on overseas bourses, and the expenses incurred thereby shall be borne by the parties hereto.
 
15.
All plant and equipment purchased by Party C shall be verified and approved by the relevant authority.

16.
Within three months after the approval of the relevant authority has been given for the contracts entered into by the SJVC Party C for the purchase of any plant and equipment, the personnel of the SJVC shall inspect and verify the purchased items and authorize Bank of China to issue the relevant letters of credit in favour of the banker of Party C.

17.
Party C shall ship all the purchased goods to a seaport directed by the SJVC within 6 months from the date of issuance of the letter of credit.

18.
The parties hereto shall abide by the time frame for allocating the land or capital, failing which the defaulting party shall bear all losses arising therefrom.

  Article 6    The Responsibilities of the Parties

19.
Party A shall have the following responsibilities:

1. 
To submit the necessary application to the relevant authorities for incorporation of the SJVC;
2.
To submit the necessary application to the relevant authorities for the use of land by the SJVC;
3.
To reasonably provide in accordance with the production requirement the necessary public facilities for the SJVC;
4.
To facilitate purchase of raw materials, and to handle all applications for the supply of water, electricity, telephone and other communication connection;
5.
To handle procurement of workers, and to recommend requisite management and technical personnel for consideration for employment by the management of the SJVC;
6.
To deal with invitation for the expatriates personnel of the SJVC, and to arrange the necessary accommodation and transportation for such personnel.
7.
To assist in matters relating to the transportation of and related customs matter for the export of the products;
8.
To be responsible for the transportation of all equipment imported by Party C from the main ports in Guangdong Province to the project sites of the SJVC; and
9.
Other matters as agreed by the parties to be the responsibilities of Party A.

20.
Party B shall have the following responsibilities:

1.
To be responsible for ensuring the safety of the SJVC’s tangible and intangible assets in the course of their usage;
2.
To handle the necessary application to the relevant authorities for the use of land by the SJVC by way of lease from the local farmers;
3.
To handle the application of permits and prearrangements needed to service the company’s logistic;
4.
To carry out the assessment of management and technical personnel recommended by Party A and Party C;
5.
To obtain all permits for the company’s produces and products from the Government bodies whenever necessary;
6.
To protect the company’s right in using assets provided either by Party A or Party C;
7.
other duties mutually agreed upon by all parties.

21.
Party C shall have the following responsibilities:

1. 
the provision of all designs and plans for the construction of the company’s production factories;
2.
the provision of a list of imported plants and equipment needed by the company;
 

 
3.
the provision of technical specification of, operation manual of, and management systems for the company’s production;
4.
the provision of information and news relating to technologies and markets needed by the company’s operation;
5.
protecting the company’s assets and training of workers for the company;
6.
assisting the company in the purchase of imported goods that could not be purchased in China;
7.
the timely shipping of goods purchased for and on behalf of the company, and for the installation of related plants and equipment;
8.
improving the company’s competitiveness, market shares and to ensure good profitability to be derived from the company’s export sales;
9.
other duties mutually agreed upon by all parties.

22.
1.
The parties hereto shall not carry out any manufacturing operation using the patent right, the specific technology, facilities and equipment and trademark as mentioned in this Agreement (save and except the SJVC) in the 13 provinces, regions or cities in the  western China (including Qinghai Province, Gansu Province, Shanxi Province, Sichuan Province, Yunnan Province, Guizhou Province, Chongqing Municipality, Guangxi Autonomous Region, Sizhan Autonomous Region, Ningxia Autonomous Region, Xinjiang Vygur Autonomous Region and Inner Mongolia Autonomous Region).

2.
If the SJVC suffers losses as a result of failure of any of the parties in carrying out its responsibilities, the defaulting party shall bear all losses arising therefrom.

Article 7    The Board of Directors

23.
The Board of Directors is the highest authority of the SJVC; it decides on important matters, and unanimous decision of the Board of Directors is required for very important matters. Simple majority decision shall suffice for other matters.

24.
The Board of Directors shall be formed on the date of registration of the incorporation of the SJVC.

25.
The Board of directors shall consist of 7 members; 3 appointees from Party A, 1 from Party B and 3 from Party C.

26.
The chair person shall be the legal representative of the company, and he shall be elected by the parties hereto.

27.
The tenure of the chair person shall be 3 years and re electable.

28.
A director appointed by Party A shall be made the first term Chair person, whereas a director appointed by Party C shall be made the first term Finance Director cum Chief Financial Officer.

29.
If the chair person for any reason is not able to carry out his duties, deputy chair person or other directors shall be empowered to represent the SJVC.

30.
The Board shall schedule to meet once a month on the 1 st Saturday of every month at Xiling City, or at any other venue when necessary.   The chair person may hold short notice meeting.   The meetings of the Board shall be chaired by the chair person or the deputy chair person or other director as directed by the chair person.   The chair person shall notify the directors of the date, venue and agenda for the meetings 3 weeks prior to the scheduled meetings.

31.
Director who is not able to attend any scheduled meeting may appoint proxy to attend the meeting in writing, and such proxy shall have the right of speech and voting right at the meetings, but such proxy shall not represent more than 1 absent director.

32.
The quorum for any meeting shall be two third of the directors (including the proxy) attending the meeting.
 

 
33.
The meetings of the board of directors shall be conducted in a respectful, fair and just manner.

34.
The following matters shall require unanimous approval of the board of directors before tabling the same at the shareholders’ meeting :

1.
Amendment to this Joint Venture Agreement or the Constitution of the SJVC;

2.
Resolution of the SJVC;

3.
Increasing, reducing or transferring the registered capital of the SJVC;

4.
Merger of the SJVC with others, re-organization of the company structure;

5.
Pledging the company’s assets as security; and

6.
Such matters that require unanimous decision of the Board of Directors.

Decision on other matters may be taken in accordance with the provisions of the Constitution of the company.

Article 8    Operation and Management

35.
The management of the SJVC shall be responsible for the day to day administration and operation of the company.  The management shall consist of 1 General Manager, 1 Deputy General Manager and several other senior managers, the employment of same shall be decided by the board of directors, for tenure of 3 years.

36.
The duties and powers of the General Manager are as follows :

1.
To carry out the matters as directed in this Joint Venture Agreement, the company’s Constitution and the Board of Directors;

2.
To nominate key persons for various departments of the company, and to recruit other personnel and to notify the board of directors of such employment;

3.
To formulate the company’s operation and management systems, and to deploy, direct, supervise and inspect the operation;

4.
To periodically submit report on work progress, financial and profit & loss report to the board of directors;

5.
To be responsible for the daily operation and management: purchase of raw materials and parts & equipment, price fixing for the company’s products, marketing of products, contracts for specific cooperation with others and cash flow financing;

6.
To represent the SJVC in negotiation and signing of contracts;

7.
To hold management meetings and to execute the decisions made thereat;

8.
To resolve matters/problems raised by various departments of the company;

9.
To represent or appoint agent to represent the SJVC, as directed by the board of directors, in matters concerning the SJVC;

10.
To handle all disciplinary matters; and

11.
To handle all other matters within the ambit of duties of the General Manager.
 

 
37.
The duties and powers of the Deputy General Manager are as follows :

1.
To assist the General Manager in the operation and management of the SJVC;

2.
To take over the function of the General Manager, when the General Manager is absent;

3.
To represent the SJVC in business negotiation;

4.
To deal with conflicts arisen in the course of operation and other related problems; and

5.
To handle all other matters within the ambit of duties of the Deputy General Manager.

Article 9    Pre Development

38.
All expenses incurred during the pre development stage shall be gradually billed into the cost of production over the years.

Article 10    Management of workers and Trade Union

39.
The SJVC shall abide by the laws of China and other rules and regulations as formulated by the governmental labour department on matters relating to employment, dismissal, wages, discipline, welfare of workers employed by the SJVC.   The SJVC’s employees shall enjoy paid leave according to the laws.

40.
The workers of the SJVC shall have to right to form trade union and organize activities thereof.

Article 11    Production and Marketing

41.
The board of directors shall meet at the end of each calendar year to prepare the budget and plan for the following year for the rate of production, as well as the import and export, and report the same to the relevant governmental department according to the requirement of the regulations.  The budget and plan may be adjusted along the way according to market condition, taking into account the economic returns and balance of payment.

42.
For any purchase or procurement of material or equipment, priority must be given for such items to be sourced locally, taking into account the quality, specification and pricing of the items concerned.

43.
After due inspection has been carried out by China’s Export Goods Inspection Department, the agricultural products of the SJVC shall be exported directly according to the yearly plan for export.   The SJVC may also participate in Guangzhou Expo for purpose of exporting the products.

44.
The SJVC may export all the company’s products of export quality to attain a balance of payment in its imports and exports, and to gain more foreign exchange.

45.
Party C shall be responsible for marketing the products overseas, and the company’s products shall be sold, domestically or overseas, under the brand name of the SJVC.

46.
The pricing and quantum of exported products shall be fixed by taking into account the company’s balance of payment in foreign exchange and cost, and shall be adjusted according to the international market condition.

47.
The pricing and quantum of the products to be sold locally shall be fixed by the board of directors and implemented by the department concerned in accordance with the goods pricing policy set by the China Government.   As for the pricing of exported products, the Bbard of directors shall decide whether it shall be fixed according to the international market condition or the transacted price at Guangzhou Expo.
 

 
Article 12    Financial System

48.
The board of directors shall formulate the company’s accounting system in accordance with the regulations set by the Finance Ministry of China, taking into consideration the requirement of the company.

49.
Various reports shall be submitted to the parties before the 10 th of following calendar month, whereas year-end report shall be submitted at the end of the following month after the end of year, and audited by Chinese auditors appointed by the company.  All reports shall be extended to the relevant departments, including the statistics department, for record purpose.

50.
The SJVC shall adopt ‘credit & debit’ method for keeping accounts, to be written in Chinese language and in Renminbi denomination and other currencies shall be converted to Renminbi at the rate published by Bank of China.   Currency used in trading shall be calculated based on trading exchange rate, whereas transmission of fund in and out of the country shall comply with the foreign exchange control regulations of China.

51.
The SJVC shall engage Chinese auditors for auditing of accounts, and such audited accounts shall be submitted to the board of directors and the General Manager.

52.
The SJVC shall maintain Renminbi and foreign currency accounts with a local bank permitted by the National Foreign Exchange Control Board to operate foreign exchange transactions.

Article 13    Taxation, Profit and Loss

53.
The SJVC shall pay taxes in accordance with the laws of taxation of China.

54.
The SJVC shall apply for tax reduction or exemption or rebate according to the laws.

55.
Parties hereto shall pay their respective taxes.

56.
The board of directors may decide to distribute net profit earned by the SJVC to the parties hereto according to the agreed ratio, after set aside provisions for reserves, workers’ welfare fund, incentive fund, company development fund and payment of taxes.

57.
Party C shall follow the exchange control regulations in repatriating its net profit from this joint venture.

58.
If the company incurs losses, such losses may be, as the shareholders’ meeting shall decide, replenished by utilizing the company’s reserves or be borne by the parties according to the agreed ratio.

The parties shall share the profit and loss of the SJVC according to the ratio of their respective contribution towards the capital of the company.

Article 14    Approval, Commencement, Extension and Termination of this Agreement

59.
This Agreement shall be submitted for approval in accordance with the relevant regulations governing sino-foreign joint venture.   Thereafter the SJVC shall submit the approval letter to the Industrial and Commerce Administration Management Department for registration and issuance of business license. The tenure of the SJVC shall commence from the date of issuance of the Business License.

60.
Should the shareholders decide to continue with the joint venture 6 months before the expiration of this joint venture, the shareholders may apply to the relevant authorities to extend the validity period of this joint venture.

61.
The SJVC may be dissolved during the currency of this joint venture if :-

1. 
the company suffers severe financial losses and is not able to continue its operation as a result;
 

 
2.
a party hereto fails to fulfill its obligations herein, and the company is not able to continue its operation as a result;

3.
occurrence of natural disaster, war etc and the company suffers severe losses as a result; and

4.
the company fails to achieve its business objectives, and has no prospect of development.

5.
Despite much effort from both parties the situation is irreparable; the board of directors may submit application to the relevant authority for its early dissolution.

6.
If the company is dissolved due to the occurrence of the circumstance as stated in item 2 herein, then the defaulting party shall compensate the other parties for the losses they may suffer as a result.

62.
If the company is to be dissolved during the currency of its term, the assets of the company shall be utilized for the purpose of payment of debts, taxes and other payables, and the balance thereof shall be distributed to the parties hereto in the agreed ratio.

63.
At the expiration of the tenure of this joint venture, this Agreement shall lapse automatically, and all the assets of the company shall be reverted to Party A without any condition attached thereto.

64.
Upon dissolution of the company, all books and records shall be kept by Party A.

Article 15   Amendment to this Agreement

65.
Any amendment to this Agreement shall require written consent of all parties, and be subject to approval of the relevant authority before taking effect.

Article 16   Insurance

66.
The company shall take out insurance coverage from the insurance companies licensed to operate in China.

Article 17   Brand Name and Trademark

67.
The organic agriculture products of the company shall be sold under the brand name and trademark of “San Yi” (tentative name), which is to be used after due registration of same with Trademark Control Department of China.  If necessary such trademark shall be registered internationally.

Article 18   Liability for Breach of Contract

68.
Should any party fail to pay up on schedule the contribution in accordance with the requirement as prescribed in Article 5 of this contract, the defaulting party shall pay to the innocent party or parties 5% of its share of the contribution per month starting from the first month after the breach. Should the defaulting party fail to pay up 3 months after the due date for payment, then the innocent party or parties shall have the right to terminate this Agreement and claim damages from the defaulting party.

69.
Should all or part of the contract and its appendices not be able to be performed due to the fault of one party, the defaulting party shall bear the liability for breach of contract.  Should it be the fault of both parties, they shall bear their respective liabilities according to the actual situation.

In order  to  guarantee  the  performance  of  the  contract  and  its appendices, the parties hereto  shall provide each other with bank guarantees for due performance of the contract.

Article 19   Applicable Law

70.
The formation, validity, termination and carrying into effect of this Agreement and settlement of disputes arising therefrom shall be governed by the laws of the People's Republic of China.
 

 
Article 20   Settlement of Disputes

71.
Any disputes arises in the course of carrying into effect this Agreement shall be settled through friendly consultations among the shareholders of the company. In case no settlement can be reached through consultations, the disputes shall be referred to Arbitration.

72.
The arbitration shall take place in Beijing, and shall be conducted by the China International Economic and Trade Arbitration Centre in accordance with its rules.

73.
The arbitral award is final and binding upon all parties.

74.
The fees for arbitration shall be borne by the losing Party.

75.
The terms of this Agreement, other than the part which is the subject matter of the arbitration, shall remain operational.

Article 21    Others

76.
The General Manager shall forthwith inform the shareholders of the company of the occurrence of force majeure or other matter of serious consequence, which will affect the performance of this Agreement, and shall deliver to the shareholders or the Board of Directors by registered air mail such written documents of such event.

77.
This Agreement and its attachments shall have the same legal force.

78.
This Agreement may be printed in various languages, but the version in Chinese Language shall prevail. Should this Agreement contain any ambiguity, then the Constitution of the company shall prevail. This Agreement shall take effect upon its approval by the Department of Commerce and Trade of the Xiling City. This Agreement shall be printed in 24 copies, of which each party shall have 2 copies each, and the relevant approving authorities each shall have 1 copy.  All copies shall have the same legal force.

Party A :  Qinghai Province Sanjiang Group Company Limited

Legal Representative :                  (signed)                                      

Date :  December 28, 2008

Party B:  Garwor Company Limited

Legal Representative :                   (signed)                                      

Date :  December 28, 2008

Party C :  Pretty Mountains Holdings Limited

Legal Representative :                   (signed)                                      

Date :  December 28, 2008
 

 
DEED OF TRUST
Between
 
Mr. Hung, Moon Cheung (I.C. Nol240740(9) )of Rua Cinco de Outubro, n° 150, r/c Macau (hereinafter referred to as “the Trustee” which expression shall where the context so permits include his successors in title personal representatives and permitted assigns);
 
And
 
Sino Agro Food, Inc. (of Corporation number C3048/1974) of Room 3711, China Shine Plaza, No. 9, Lin He Xi Road, Tianhe District, GuangZhou 510610.(hereinafter referred to as the Beneficiary where the context so permits and shall include their successors in title permitted assign and personal representatives.
 
WHEREAS
 
1.
The Trustee is the registered Shareholder of Two thousand Five Hundred (2,500) units of Shares of Macau$l.00 each in each of the company (listed in Table A hereof), and Three thousand units of shares of Macau$l.00 each in the Company (listed in Table (B) hereof), (hereinafter referred to as “the said Shares” collectively) which represent an approximate sum of Ten (10%) percent of the issued and paid up capital in each of the aforesaid companies.
 
Table (A)
Name of company
 
Registration
#
 
Paid up Capital
   
Shareholder’s equity %
 
       
In Macau $
   
Trustee
 
Hang Yu Tai Investment Limited
 
25487 SO
    25,000.00       10 %
A Power Agro Agriculture Development (Macau) Limited
 
29629 SO
    25,000.00       10 %
 
Table (B)
Name of company
 
Registration #
 
Paid up Capital
   
Shareholder’s equity %
 
       
In Macau $
   
Trustee
 
Macau Eiji Company Limited
 
22347 SO
    30,000.00       10 %
 
(Herein after the companies referred to in Table (A) and (B) collectively is called “PPSB” which expression shall where the context so permits include its successors and assigns).

 
 

 
 
2.
The consideration for the issue or purchase of the said Shares of RM1.00 each which represent an approximate sum of Ten (10%) percent of the issued and paid up capital of each of the aforesaid companies (hereinafter referred to as the “Trust Shares”) was fully paid out of monies provided to the Trustee by the Beneficiary, as the Trustee hereby acknowledges, and in consideration thereof received by the Trustee, the Trustee covenants to hold the said Trust Shares in trust for the Beneficiary upon the trusts and the terms and conditions hereinafter declared. The Particulars of the Trust Shares are as follows:-

10% = M$2500 = 2500 units of shares in Hang Yu Tai Investment Limited
10%= M$2500 = 2500 units of shares in A Power Agro Agriculture Development (Macau) Limited
10% = M$3000 = 3000 units of shares in Macau Eiji Company Limited

NOW THIS DEED WITNESSETH AS FOLLOWS:-
 
1.
The Trustee hereby acknowledges and declares that the Beneficiary are the sole beneficial owner of the said Trust Shares and all dividends, interest, bonuses (whether in the form of moneys or shares or otherwise) and any other sums rights and interest accrued or to accrue upon the same or any of them upon trust for the Beneficiary absolutely and the Trustee further agrees to transfer pay and deal with the said Trust Shares, dividends, interest, bonuses and any other sums right and interest and exercise all rights and privileges in relation to the said Trust Shares in such manner as the Beneficiary shall at any time and from time to time direct.
 
2.
The Trustee shall on the instructions of the Beneficiary attend all meetings of Shareholders or otherwise which the Trustee shall be entitled to attend by virtue of being the registered holder of the said Trust Shares or any of them and shall vote at every such meeting fully in accordance with the instructions of the Beneficiary. At the sole discretion and on the instructions of the Beneficiary the Trustee shall if so required by the Beneficiary execute all proxies or other documents which shall be necessary or proper to enable the Beneficiary and/or any person or person nominated by the Beneficiary to vote at any such meeting in the place of the Trustee and the Trustee shall consult and take instructions from the Beneficiary on and prior to all decisions to be taken by the Trustee by virtue of the Trustee being the registered holder of the said Trust Shares or any of them.
 
3.
All the said Trust Shares are duly transferred at the request of the Beneficiary out of the Trustee’s name as registered holder thereof and the trusts pertaining thereto being duly performed and satisfied, the obligations of the Trustee hereunder shall cease but without prejudice to any claims by the Beneficiary for any antecedent breach.

 
 

 
 
4.
The Trustee and the Beneficiary hereby mutually agree and covenant, that the contents of this Deed shall be confidential and shall not be disclosed to any third party(ies) unless such disclosure is required by law or any competent and relevant authority or authorities and the party being so requested to disclose is under a legal obligation to do so.
 
5.
The Trustee agrees that so long as he holds the said Trust Shares upon trust for the Beneficiary hereunder, the Beneficiary shall have and be given sole custody of the share certificates of the said Trust Shares and valid and registered-able memorandum of transfers in respect thereof executed by the Trustee in favour of the Beneficiary or his nominee or nominees.
 
6.
Each party hereto shall execute and do all such acts documents and things as may be necessary to give full effect to all the provisions of this Trust Deed.
 
7.
The Trustee hereby confirms and agrees to forthwith do and execute any documents for the transfer and conveyance of the said Trust Shares and all rights whatsoever as aforesaid derived therefrom and/or any other securities relating thereto in such manner as the Beneficiary may direct the Trustee.
 
8.
The Trustee hereby further declares that he shall hold all monies derived from a sale of the said shares on trust for the Beneficiary and shall make payment of all such monies to such person or persons as the Beneficiary may direct.
 
9.
The Trustee hereby confirms and agrees that he shall so long as he holds the said Trust Shares and/or the rights as aforesaid and/or any securities relating thereto vote act and exercise all his rights power and obligations in PPSB and/or any other company in respect of the said Trust Shares and/or any other securities in accordance with the instructions of the Beneficiary.
 
10.
The Trustee hereby further declares that he shall hold all such other shares and/or securities as he may be offered in exchange for the said Trust Shares on trust for the Beneficiary provided that the Beneficiary shall have prior directed the Trustee to accept such other shares and/or securities in exchange for the said Trust Shares and the terms of the trusts herein declares shall be binding on all such other shares and/or securities as if the same were an accretion to the said Trust Shares or a substitution thereof.
 
11.
The power to appoint a new trustee hereof is vested in the Beneficiary during his lifetime.
 
12.
The expression “the Trustee” shall include his heirs, personal representatives, executors, trustees and successors-in-title and the trusts herein declares shall be binding on all or any of such aforesaid persons.

 
 

 
 
13.
The expression “the Beneficiary” shall include his heirs, personal representatives, executors, trustees, successors-in-title and assigns.
 
14.
Words importing the masculine gender shall include the feminine and neuter genders and words importing the singular shall include the plural and vice versa.
 
IN WITNESS WHEREOF the Trustee and the Beneficiary have hereunto set their hands the day year first above written.
 
SIGNED, SEALED and DELEVERED
)
   
by the Trustee
)
   
in the presence of:-
)
   
 
)
 
 
)
   
 
)
   
 
20 th December 2007
 
SIGNED, SEALED and DELIVERED
by the Beneficiaries
in the presence of:-
 
  For and on behalf of
Sino Agro Food, Inc.
 
/s/ Lee Solomon Yip Kun
 
Authorised Signature
 
20 th December 2007
 

DEED OF TRUST
Between
 
Mr. Hung, Moon Cheung (I.C. Nol240740(9) )of Rua Cinco de Outubro, n° 150, r/c Macau (hereinafter referred to as “the Trustee” which expression shall where the context so permits include his successors in title personal representatives and permitted assigns);
 
And
 
Sino Agro Food, Inc. (of Corporation number C3048/1974) of Room 3711, China Shine Plaza, No. 9, Lin He Xi Road, Tianhe District, GuangZhou 510610.(hereinafter referred to as the Beneficiary where the context so permits and shall include their successors in title permitted assign and personal representatives.
 
WHEREAS
 
1.
The Trustee is the registered Shareholder of Two thousand Five Hundred (2,500) units of Shares of Macau$l.00 each in each of the company (listed in Table A hereof), and Three thousand units of shares of Macau$l.00 each in the Company (listed in Table (B) hereof), (hereinafter referred to as “the said Shares” collectively) which represent an approximate sum of Ten (10%) percent of the issued and paid up capital in each of the aforesaid companies.
 
Table (A )
Name of company
 
Registration
#
 
Paid up Capital
   
Shareholder’s equity %
 
        
In Macau $
   
Trustee
 
Hang Yu Tai Investment Limited
 
25487 SO
    25,000.00       10 %
A Power Agro Agriculture Development (Macau) Limited
 
29629 SO
    25,000.00       10 %
   
Table (B)
 
Name of company
 
Registration #
 
Paid up Capital
   
Shareholder’s equity %
 
       
In Macau $
   
Trustee
 
Macau Eiji Company Limited
 
22347 SO
    30,000.00       10 %
 
(Herein after the companies referred to in Table (A) and (B) collectively is called “PPSB” which expression shall where the context so permits include its successors and assigns).
 

 
2.
The consideration for the issue or purchase of the said Shares of RM1.00 each which represent an approximate sum of Ten (10%) percent of the issued and paid up capital of each of the aforesaid companies (hereinafter referred to as the “Trust Shares”) was fully paid out of monies provided to the Trustee by the Beneficiary, as the Trustee hereby acknowledges, and in consideration thereof received by the Trustee, the Trustee covenants to hold the said Trust Shares in trust for the Beneficiary upon the trusts and the terms and conditions hereinafter declared. The Particulars of the Trust Shares are as follows:-
 
10% = M$2500 = 2500 units of shares in Hang Yu Tai Investment Limited
10%= M$2500 = 2500 units of shares in A Power Agro Agriculture Development (Macau) Limited
10% = M$3000 = 3000 units of shares in Macau Eiji Company Limited
 
NOW THIS DEED WITNESSETH AS FOLLOWS:-
 
1.
The Trustee hereby acknowledges and declares that the Beneficiary are the sole beneficial owner of the said Trust Shares and all dividends, interest, bonuses (whether in the form of moneys or shares or otherwise) and any other sums rights and interest accrued or to accrue upon the same or any of them upon trust for the Beneficiary absolutely and the Trustee further agrees to transfer pay and deal with the said Trust Shares, dividends, interest, bonuses and any other sums right and interest and exercise all rights and privileges in relation to the said Trust Shares in such manner as the Beneficiary shall at any time and from time to time direct.
 
2.
The Trustee shall on the instructions of the Beneficiary attend all meetings of Shareholders or otherwise which the Trustee shall be entitled to attend by virtue of being the registered holder of the said Trust Shares or any of them and shall vote at every such meeting fully in accordance with the instructions of the Beneficiary. At the sole discretion and on the instructions of the Beneficiary the Trustee shall if so required by the Beneficiary execute all proxies or other documents which shall be necessary or proper to enable the Beneficiary and/or any person or person nominated by the Beneficiary to vote at any such meeting in the place of the Trustee and the Trustee shall consult and take instructions from the Beneficiary on and prior to all decisions to be taken by the Trustee by virtue of the Trustee being the registered holder of the said Trust Shares or any of them.
 
3.
All the said Trust Shares are duly transferred at the request of the Beneficiary out of the Trustee’s name as registered holder thereof and the trusts pertaining thereto being duly performed and satisfied, the obligations of the Trustee hereunder shall cease but without prejudice to any claims by the Beneficiary for any antecedent breach.
 

 
4.
The Trustee and the Beneficiary hereby mutually agree and covenant, that the contents of this Deed shall be confidential and shall not be disclosed to any third party(ies) unless such disclosure is required by law or any competent and relevant authority or authorities and the party being so requested to disclose is under a legal obligation to do so.
 
5.
The Trustee agrees that so long as he holds the said Trust Shares upon trust for the Beneficiary hereunder, the Beneficiary shall have and be given sole custody of the share certificates of the said Trust Shares and valid and registered-able memorandum of transfers in respect thereof executed by the Trustee in favour of the Beneficiary or his nominee or nominees.
 
6.
Each party hereto shall execute and do all such acts documents and things as may be necessary to give full effect to all the provisions of this Trust Deed.
 
7.
The Trustee hereby confirms and agrees to forthwith do and execute any documents for the transfer and conveyance of the said Trust Shares and all rights whatsoever as aforesaid derived therefrom and/or any other securities relating thereto in such manner as the Beneficiary may direct the Trustee.
 
8.
The Trustee hereby further declares that he shall hold all monies derived from a sale of the said shares on trust for the Beneficiary and shall make payment of all such monies to such person or persons as the Beneficiary may direct.
 
9.
The Trustee hereby confirms and agrees that he shall so long as he holds the said Trust Shares and/or the rights as aforesaid and/or any securities relating thereto vote act and exercise all his rights power and obligations in PPSB and/or any other company in respect of the said Trust Shares and/or any other securities in accordance with the instructions of the Beneficiary.
 
10.
The Trustee hereby further declares that he shall hold all such other shares and/or securities as he may be offered in exchange for the said Trust Shares on trust for the Beneficiary provided that the Beneficiary shall have prior directed the Trustee to accept such other shares and/or securities in exchange for the said Trust Shares and the terms of the trusts herein declares shall be binding on all such other shares and/or securities as if the same were an accretion to the said Trust Shares or a substitution thereof.
 
11.
The power to appoint a new trustee hereof is vested in the Beneficiary during his lifetime.
 
12.
The expression “the Trustee” shall include his heirs, personal representatives, executors, trustees and successors-in-title and the trusts herein declares shall be binding on all or any of such aforesaid persons.
 

 
13.
The expression “the Beneficiary” shall include his heirs, personal representatives, executors, trustees, successors-in-title and assigns.
 
14.
Words importing the masculine gender shall include the feminine and neuter genders and words importing the singular shall include the plural and vice versa.

IN WITNESS WHEREOF the Trustee and the Beneficiary have hereunto set their hands the day year first above written.

SIGNED, SEALED and DELEVERED
)
   
by the Trustee
)
   
in the presence of:-
)
   
 
)
 
 
)
   
 
)
   

20 th December 2007
 
SIGNED, SEALED and DELIVERED
by the Beneficiaries
in the presence of:-
 
For and on behalf of
 
Sino Agro Food, Inc.
 
/s/ Lee Solomon Yip Kun
 
Authorised Signature
 
20 th December 2007
 

 
 
DEED OF TRUST
Between
 
Mr. Hung, Moon Cheung (I.C. Nol240740(9) )of Rua Cinco de Outubro, n° 150, r/c Macau (hereinafter referred to as “the Trustee” which expression shall where the context so permits include his successors in title personal representatives and permitted assigns);
 
And
 
Sino Agro Food, Inc. (of Corporation number C3048/1974) of Room 3711, China Shine Plaza, No. 9, Lin He Xi Road, Tianhe District, GuangZhou 510610.(hereinafter referred to as the Beneficiary where the context so permits and shall include their successors in title permitted assign and personal representatives.
 
WHEREAS
 
1.
The Trustee is the registered Shareholder of Two thousand Five Hundred (2,500) units of Shares of Macau$l.00 each in each of the company (listed in Table A hereof); and Three thousand units of shares of Macau$1.00 each in the Company (listed in Table (B) hereof), (hereinafter referred to as “the said Shares” collectively) which represent an approximate sum of Ten (10%) percent of the issued and paid up capital in each of the aforesaid companies.
 
Table (A )
Name of company
 
Registration
#
 
Paid up Capital
   
Shareholder’s equity %
 
       
In Macau $
   
Trustee
 
Hang Yu Tai Investment Limited
 
25487 SO
    25,000.00       10 %
A Power Agro Agriculture Development (Macau) Limited
 
29629 SO
    25,000.00       10 %
   
Table (B)
 
Name of company
 
Registration #
 
Paid up Capital
   
Shareholder’s equity %
 
       
In Macau $
   
Trustee
 
Macau Eiji Company Limited
 
22347 SO
    30,000.00       10 %
 
(Herein after the companies referred to in Table (A) and (B) collectively is called “PPSB” which expression shall where the context so permits include its successors and assigns).
 

 
2.
The consideration for the issue or purchase of the said Shares of RM1.00 each which represent an approximate sum of Ten (10%) percent of the issued and paid up capital of each of the aforesaid companies (hereinafter referred to as the “Trust Shares”) was fully paid out of monies provided to the Trustee by the Beneficiary, as the Trustee hereby acknowledges, and in consideration thereof received by the Trustee, the Trustee covenants to hold the said Trust Shares in trust for the Beneficiary upon the trusts and the terms and conditions hereinafter declared. The Particulars of the Trust Shares are as follows:-
 
10% = M$2500 = 2500 units of shares in Hang Yu Tai Investment Limited
10%= M$2500 = 2500 units of shares in A Power Agro Agriculture Development (Macau) Limited
10% = M$3000 = 3000 units of shares in Macau Eiji Company Limited

NOW THIS DEED WITNESSETH AS FOLLOWS:-
 
1.
The Trustee hereby acknowledges and declares that the Beneficiary are the sole beneficial owner of the said Trust Shares and all dividends, interest, bonuses (whether in the form of moneys or shares or otherwise) and any other sums rights and interest accrued or to accrue upon the same or any of them upon trust for the Beneficiary absolutely and the Trustee further agrees to transfer pay and deal with the said Trust Shares, dividends, interest, bonuses and any other sums right and interest and exercise all rights and privileges in relation to the said Trust Shares in such manner as the Beneficiary shall at any time and from time to time direct.
 
2.
The Trustee shall on the instructions of the Beneficiary attend all meetings of Shareholders or otherwise which the Trustee shall be entitled to attend by virtue of being the registered holder of the said Trust Shares or any of them and shall vote at every such meeting fully in accordance with the instructions of the Beneficiary. At the sole discretion and on the instructions of the Beneficiary the Trustee shall if so required by the Beneficiary execute all proxies or other documents which shall be necessary or proper to enable the Beneficiary and/or any person or person nominated by the Beneficiary to vote at any such meeting in the place of the Trustee and the Trustee shall consult and take instructions from the Beneficiary on and prior to all decisions to be taken by the Trustee by virtue of the Trustee being the registered holder of the said Trust Shares or any of them.
 
3.
All the said Trust Shares are duly transferred at the request of the Beneficiary out of the Trustee’s name as registered holder thereof and the trusts pertaining thereto being duly performed and satisfied, the obligations of the Trustee hereunder shall cease but without prejudice to any claims by the Beneficiary for any antecedent breach.
 

 
4.
The Trustee and the Beneficiary hereby mutually agree and covenant, that the contents of this Deed shall be confidential and shall not be disclosed to any third party(ies) unless such disclosure is required by law or any competent and relevant authority or authorities and the party being so requested to disclose is under a legal obligation to do so.
 
5.
The Trustee agrees that so long as he holds the said Trust Shares upon trust for the Beneficiary hereunder, the Beneficiary shall have and be given sole custody of the share certificates of the said Trust Shares and valid and registered-able memorandum of transfers in respect thereof executed by the Trustee in favour of the Beneficiary or his nominee or nominees.
 
6.
Each party hereto shall execute and do all such acts documents and things as may be necessary to give full effect to all the provisions of this Trust Deed.
 
7.
The Trustee hereby confirms and agrees to forthwith do and execute any documents for the transfer and conveyance of the said Trust Shares and all rights whatsoever as aforesaid derived therefrom and/or any other securities relating thereto in such manner as the Beneficiary may direct the Trustee.
 
8.
The Trustee hereby further declares that he shall hold all monies derived from a sale of the said shares on trust for the Beneficiary and shall make payment of all such monies to such person or persons as the Beneficiary may direct.
 
9.
The Trustee hereby confirms and agrees that he shall so long as he holds the said Trust Shares and/or the rights as aforesaid and/or any securities relating thereto vote act and exercise all his rights power and obligations in PPSB and/or any other company in respect of the said Trust Shares and/or any other securities in accordance with the instructions of the Beneficiary.
 
10.
The Trustee hereby further declares that he shall hold all such other shares and/or securities as he may be offered in exchange for the said Trust Shares on trust for the Beneficiary provided that the Beneficiary shall have prior directed the Trustee to accept such other shares and/or securities in exchange for the said Trust Shares and the terms of the trusts herein declares shall be binding on all such other shares and/or securities as if the same were an accretion to the said Trust Shares or a substitution thereof.
 
11.
The power to appoint a new trustee hereof is vested in the Beneficiary during his lifetime.
 
12.
The expression “the Trustee” shall include his heirs, personal representatives, executors, trustees and successors-in-title and the trusts herein declares shall be binding on all or any of such aforesaid persons.
 

 
13.
The expression “the Beneficiary” shall include his heirs, personal representatives, executors, trustees, successors-in-title and assigns.
 
14.
Words importing the masculine gender shall include the feminine and neuter genders and words importing the singular shall include the plural and vice versa.

IN WITNESS WHEREOF the Trustee and the Beneficiary have hereunto set their hands the day year first above written.

SIGNED, SEALED and DELEVERED
)
   
by the Trustee
)
   
in the presence of:-
)
 
 
)
   
 
)
   
 
)
   

20 th December 2007
 
SIGNED, SEALED and DELIVERED
by the Beneficiaries
in the presence of:-
 
For and on behalf of
 
Sino Agro Food, Inc.
 
/s/ Lee Solomon Yip Kun
 
Authorised Signature
 
20 th December 2007



A POWER TECHNOLOGY
 
REGIONAL MASTER
 
LICENSE AGREEMENT
 

 
BETWEEN
 
INFINITY ENVIRONMENTAL GROUP LTD.
(“INFINITY”)

and
 
CAPITAL AWARD INC .
(“THE LICENSEE”)

DATE    1 st . AUGUST 2006

 
 

 
 
THIS AGREEMENT is made the 1 st day of August 2006
 
BETWEEN:
INFINITY ENVIRONMENTAL GROUP LTD
of 34 Peartree Circuit, West Pennant Hills, NSW 2125 AUSTRALIA (“Infinity”) of the first Part.
 
AND:
CAPITAL AWARD INC. of 19A, Jalan Wawasan Ampang 68000 SELANGOR, MALAYSIA (“The Licensee”) of the second part.
 
RECITALS
 
A.
Infinity is the designed of “A Power” Aquaculture Technology Systems (APTS) and is entitled to use and license other users of the secrets, copyrights, processes, know-how or other intellectual property associated with APTS.
B.
Infinity has agreed to grant the Licensee an exclusive license to use and exploit the intellectual property for the project in the manner referred to in this Agreement.
 
NOW THE PARTIES AGREE as follows:
 
1.
Interpretation
 
(1) 
In this agreement the following definitions shall apply:
 
A Power Technology and Systems (APTS) means the re-circulation fish farm modules designed by Infinity, all components forming the A Power Modules and the operation and management systems related to the A Power Modules.
 
A Power Module (APM) means an engineered water treatment system for the growing of fish on a commercial scale particular of which are set out in paragraph hereof.
 
It consists of “Grow-out tanks” and a “Treatment System” placed away from the grow-out tanks and treats the water in which the fish are to be grown.
“The Treatment System” is an integrated water treatment system containing the following components; “Inlet screens, an Airlift pump to air lift un-dissolved solid wastes, a Drum filter to remove the un-dissolved solid wastes, Aeration diffusers, Bio-filtration Media to remove the dissolved wastes, Outlet screens, A degassing system, An Ozone generator, An Ultra-violet Light dis-infection System and An Oxygen generator. All components of the Treatment System are designed and manufactured in accordance with Infinity’s designs, directions and / or specifications. The combination of these components assembled specially to grow fish on a commercial scale is defined as the A Power Module.
 
A standard unit of an A Power Module is designed to treat up to 120,000 litre of water in which the fish will be grown and has the designed capacity of producing up to 25 Metric tones of fish per year.

 
 

 
 
“Intellectual Property” includes but is limited to the technology, copyright, processes, know-how, designs, and operations manuals. Specifications of equipment and descriptions of operating principles and technology or other like rights particulars of which are in Schedule 2.
 
“Manufacture” includes construct, assemble, produce or otherwise prepared for commercial use or exploitation;
 
“Processes” includes technologies, products, devices, processes or techniques;
 
“Product” means the products and / or processes set forth as “Components” in Clause (1), which incorporate the use of the Intellectual Property;
 
“Project” means the aquaculture development set forth in Schedule (4).
 
“License Fee” means the fee payable to Infinity by the Licensee for the license in Clause (5 ) as detailed in Schedule (6), (7) and (9);
 
“The Farm” means the aquaculture farm or farms to be erected by the Licensee or by other developers authorized or nominated by the Licensee, (hereinafter called the Authorized Agents), in accordance with the plans and the Intellectual Property of APTS.
 
“The Plans” means the artistic and / or engineered works created by Infinity including but not limited to the plans, drawings and specifications designed specifically for the project.
 
“The Master License” means the Licensee is the holder of a License for the region specified under the project, and it will allow the Licensee to promote and to use the Intellectual Property for the development of the farm and the project in the referred region governed by the terms and conditions of this Agreement.
 
(2)
Except for the purpose of identification, headings and underlining have been inserted in this Agreement for the purpose of guidance only and shall not be part of this Agreement.
 
(3)
The Recitals and the Schedules shall form part of this Agreement.
 
(4)
Commencement and Term
 
This Agreement shall commence on the Commencement Date and continue subject to rights of termination at Clause ( 7 ) for the respective terms stipulated in Schedules.
 
(5)
License
 
(5.1) In consideration of the payment of the License fee to be paid by the Licensee to Infinity in accordance with the Schedule (6), (7) and (9), Infinity grants to the Licensee an Exclusive License to use within the Project for the term of this Agreement with the right to sub-license the Intellectual Property as stipulated in Clause (9) and Schedule (10).

 
 

 
 
(5.2)  Infinity will furnish the Intellectual Property to the Licensee for the purpose of this Agreement in the manner as stipulated in Schedule ( 3 )
 
(5.3)  Where Infinity has indicated to the Licensee that the whole or any part or parts of the Intellectual Property comprises confidential material the Licensee will not at any time during the term of this Agreement or after its termination or expiration disclose such confidential material to any person or corporation without first obtaining the consent of Infinity and the Licensee will take such steps as may be necessary to ensure that any of its servants or agents do not disclose such confidential material.
 
(5.4)  The Licensee acknowledges that copyright in the plans or any part of the plans is and remains the property of Infinity and that the Plans must only be used or dealt with by the Licensee as provided in this Agreement.
 
(5.5)  The Licensee must ensure that all copies of the Plans printed, published, made, reproduced, or otherwise communicated to any person or corporation in the construction of the Farm (including electronic material) by the Licensee bears the symbol ( @ ) accompanied by the Infinity’s name and the year of the first publication of the plans along with any other acknowledgement Infinity may direct the Licensee to include from time to time.
 
(5.6) The Licensee must ensure that the Plans are not subjected to any treatment, which is prejudicial to the honour or reputation of Infinity, or the author of the Plans.
 
(6) 
Obligation and warranties of the Parties
 
(6.1) Obligation of the Licensee
 
(a) On signature of this Agreement the Licensee will pay Infinity the fee as per Schedule ( 7 and 9 ) as payment for the License. The total number of modules shall not exceed the number licensed.
 
(a.1) Every 3 months the Licensee must provide Infinity a schedule indicating the number of Modules planned for construction in the following period of 12 months for the project.
 
(a.2) The Licensee must notify and verify to Infinity at the start of construction of each module and at the start of operation of each module.
The verification of the number of modules must be certified by Infinity.
 
(b) The Licensee must:
 
(b. 1) promptly advise Infinity of any litigation or arbitration or treat of litigation or arbitration, which may involve the Intellectual Property and / or the Plans;
 
(b.2) if requested by Infinity, keep Infinity advised of the progress of any litigation or arbitration involving the Intellectual Property or the Plans. In particular, The Licensee must take into account and adhere to the view of Infinity in relation to the conduct or settlement of any such litigation;

 
 

 
 
(b.3) for the purpose of this clause (b) the Licensee must provide to Infinity, at the request of Infinity, copies of any documents or other material including legal advice relating to such litigation or arbitration.
 
(c) The Licensee must not:
 
(c.1) hold itself out, engage in any conduct or make any representation, which may suggest to any person that Infinity is for any purposes the agent of Infinity;
 
(c.2) sell, offer to sell or license the plans to any other party, nor to disclose them, other than in accordance with this Agreement.
 
(d) The Licensee:
 
(d.1) shall for the purpose of the project provide its own team of engineers to design and to draw up all engineering drawings and plans required to be submitted to any relevant body to enable the Licensee or its authorized agents to gain development consent of the farm and the project.
 
(d.2) agrees that the Plans, documents and drawings prepared and supplied by Infinity are the property of Infinity whether the farm or the project for which they are made for is built or developed or not, and on the completion of the erection of the farm and the development of the project, return all the plans and all drawings including any copies relating to the Plans supplied by Infinity to Infinity and cease to make any use of the plans.
 
(6.2) Warranties of Infinity
 
Infinity hereby warrants to the Licensee that:
 
(a)
the use of any or all of the Intellectual Property and the Plans according to the terms and conditions of this Agreement will not result in the infringement of proprietary rights of third parties:
(b)
the plans and the Intellectual Property are original work designed by Infinity and Infinity is their sole proprietor and they do not infringe any existing copyright.
 
(6.3)  Obligation of Infinity
 
(a)
Infinity must provide sufficient information as requested by the Licensee or its authorized agent for the purpose set out in Clause (d.l)
(b)
Infinity must supply to the Licensee two copies of the Plans for the purpose set out in Clause (5).
(c)
Infinity allows for the plans to be submitted to any relevant body for purpose set out in Clause (d.l).
(d)
Infinity agrees that there is nothing in the Agreement requiring the Licensee or its authorized agent to follow the Plans or to prevent the Licensee or its authorized agent departing from the Plans in such manner as it thinks fit or to satisfy development requirements by the appropriate development body.

 
 

 
 
(7)
Termination
 
(7.1)  This Agreement may be terminated forthwith by Infinity by written notice to the Licensee if the Licensee commits any breach of any provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt of written notice requiring it to be remedied.
 
(7.2)  Infinity may by notice in writing terminate this Agreement if an insolvency event occurs:
 
 
(a)
the making or filing of an application to wind up the Licensee (otherwise than for the purpose of reconstruction or amalgamation) under any law or government regulation relating to bankruptcy or insolvency;
 
(b)
the appointment of a receiver for all or substantially all of the assets of the Licensee;
 
(c)
the making by the Licensee of any assignment or attempted assignment for the benefit of its creditors;
 
(d)
the institution by the Licensee of any proceedings for the liquidation or winding up of its business.
 
(8)  
Consequences of Termination
 
In the event of termination, all rights of The Licensee granted under this Agreement terminates immediately and the Licensee must immediately cease to use in any manner whatsoever the Intellectual Property and the Plans and the Licensee shall deliver to Infinity all the Plans (including all copies) in its possession and will do such further things as may be reasonably required by Infinity to protect its right, title and interest in the Intellectual Property and the Plans PROVIDED THAT in the event of termination Infinity retains its right to continue the supply of the Intellectual Property and the Plans until the completion of any contracts already entered into by Infinity.
 
(9)
Assignment
 
The Licensee shall assign all or any of its rights in this Agreement with the consent of Infinity.
 
(10) 
Applicable Law
 
This Agreement shall be read and construed according to the Law of the State of New South Wales, Australia and the parties submit to the jurisdiction of that State.

 
 

 
 
(11)
Goods and Services Tax
 
The parties acknowledge and agree that Good and Services Tax shall not be applicable to this Agreement as the License shall be applied oversea and is therefore exempted from the payment of any Good and Services as if it will be applied in Australia.
 
(12) 
Amendments
 
This Agreement shall not be varied except in writing signed by both the parties.
 
(13) 
Severability
 
If any provision of this Agreement is held by a court to be unlawful, invalid, unenforceable or in conflict with any rule of Law, Statute, Ordinance or Regulation it is to be severed so that the validity and enforceability of the remaining provisions shall not be affected.
 
(14) 
Further Agreements
 
Each Party shall do all such acts and execute all such documents as necessary to give effect to this Agreement.
 
(15) 
Notices
 
All notices shall be in writing and shall be given by any one of the following means:
 
(15.a) by delivering to the Address of the party on a business day during normal business hours. A notice shall be deemed to be given and received on the next business day after the day of delivery to the place of delivery.
(15.b) by sending it to the address of the party by pre-paid airmail post. A notice shall be deemed to be given and received five (5) clear business days after the day of posting to the place of delivery.
(15.c) by sending it by email or facsimile transmission to the email address or facsimile of the party. A notice shall be deemed to be given and received on the next business day after transmission to the place of delivery.
(15.d) The address, email address and facsimile numbers referred to in this clause in the absence of notices to the contrary shall be
 
For Infinity
   
Address
 
P.O. Box 2381, Carlingford Court, Carlingford, NSW 2118, Australia
Email Address
 
headoff@apoweragro.com or gvadvisor@gmail.com
Fax. number
 
612-98725602
     
For the Licensee
   
Address
 
No. 19A, Jalan Wawasan Ampang, 2/8, Bandar Baru Ampang, 68000 Selangor, Malaysia
Fax. Number
 
603-56367043

 
 

 
 
EXECUTED as an Agreement.
   
     
SIGNED SEALED AND
   
     
DELIVERED by a director of
INFINITY ENVIRONMENTAL GROUP LTD.
   
   
 
For and behalf of
 
Infinity Environmental Group Ltd
 
/s/ ILLEGIBLE  
 
Authorized Signature
 
Authorized representative of
Infinity Environmental Group Ltd.
 
SIGNED SEALED AND
   
     
DELIVERED by a director of
   
CAPITAL AWARD INC
   
 
 
 
For and on behalf of
CAPITAL AWARD INC.
Authorized representative of
Capital Award Inc.
 
/s/ Lee Solomon Yip Kun
   
Authorized Signature(s)


 
 

 

SCHEDULES

1
The Licensee
Capital Award Inc.
Address: No. 19A, Jalan Wawasan Ampang 2/8, Bandar Baru
Ampang, 68000, Selangor Malaysia
         
2
The Intellectual
 
(a)
The A Power Module inclusive
  Property  
(b)
The A Power integrated water treatment system including all
       
components and operation manual.
     
(c)
The A Power farm management systems and procedures.
         
3
Manner in which
the Intellectual
Property is to   
The Intellectual Property provided under the License will be provided as required for the implementation of the project at a time as determined by Infinity in the following format:
  be supplied  
(a)
promotion videos
       
(b)
design specifications
     
(c)
operation and service manuals
     
(d)
training
     
(e)
on line support during the life of the license.
         
4
The Project
The Development in all provinces of the Peoples Republic Of China of the A Power fish farms in the locations to be identified by the Licensee and accepted by Infinity before commencement of work.
     
5
Terms
The Licensee shall be allowed to issue Operator Licenses, for the A Power Modules, which shall remain valid for 55 years from date of commencement of the operation of the A Power Modules. The right of the License under this Agreement shall remain valid for 55 years from date of this Agreement.
         
6
License Fee
The License fee is to be calculated based on US$5,000.00 per A Power Module.
         
7
Payment terms of the License fee
 
(a)
All payments shall be paid within 60 days from date of the monthly invoiced statement issued by Infinity.
         
 
   
(b)
The Licensee shall inform Infinity the number of Modules that has been sold within 30 days from date of sales such that Infinity shall issue corresponding invoices and monthly Statement accordingly.
 
 
 

 
 
8
Special Conditions
 
(a)
All engineering drawing and plans as referred to in Clause 6.d.2 must be approved by Infinity prior to the submission to the relevant body.
         
     
(b)
All Building and / or Installation work for the A Power Modules must be completed by Certified Installation Contractors approved by Infinity for the purpose of the execution of the Project.
         
     
(c)
All Components and parts of the A Power Modules constructed with the use of the License must be purchased from suppliers approved by Infinity.
         
     
(d)
All farm operation Managers and Supervisors working in the farms under the License must be qualified personnel certified by Infinity.
         
     
(e)
All fingerlings and fish stocks of the farms under the License must be free from any Special Pathogen certified by Veterinary approved by Infinity before their entry to the farms.
         
9
Performance of the Licensee
The parties hereby agree that in consideration of Infinity allowing the Licensee to pay for the License fee in manner as described in Schedule (7), the Licensee shall pay Infinity a sum of US$2,500,000.00 on or before 31 st . July 2008 representing License fee covering 500 units of APM construed as the minimum performance required of the Licensee during the period from 1 st . August 2006 to 31 st . July 2008. (Hereinafter called the Performance Payment).
         
    The “Performance Payment” of US$2,500,000.00 shall be paid by the Licensee regardless whether the Licensee will or will not have sold or built any of the said 500 units of APM during the said period.
         
    The Licensee shall be allowed to deduct from the “Performance Payment” all Payments referred to in Schedule (7) paid for AP Modules built or sold during the said period as long as the said numbers are below 500 units.
         
10
Authorization of the License
The Licensee shall be permitted to grant to its authorized agents the authority to develop the farm and the project, and shall be permitted to issue “Operator Licenses” for the developed farm in accordance with the terms and conditions of this Agreement.
 
 
 

 
 
11
Training
Infinity shall provide the Licensee with farm operation training services for farm operators at a mutually agreed service fee per trainee subjected to the cost factors at the time that the amount of training will be required.
         
12
General Conditions
The parties agree and accept these Schedules shall form part of this Agreement.