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

 
FORM 10
Amendment No. 2
 
SEC File No.  000-54191
 
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  o
  
Accelerated filer o
Non-accelerated filer   o   (Do not check if a smaller reporting company)
  
Smaller reporting company  o
 
 
 

 

SINO AGRO FOOD, INC.

FORM 10

TABLE OF CONTENTS

ITEM 1. BUSINESS
3
ITEM 1A. RISK FACTORS
38
ITEM 2.  FINANCIAL INFORMATION.
38
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
ITEM 3. PROPERTIES
54
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
56
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
58
ITEM 6.  EXECUTIVE COMPENSATION
59
ITEM 7.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
61
ITEM 8.  LEGAL PROCEEDINGS
63
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
63
ITEM 10.  RECENT SALES OF UNREGISTERED SECURITIES
63
ITEM 11.  DESCRIPTION OF REGISTRANTS’ SECURITIES TO BE REGISTERED
66
ITEM 12.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
68
ITEM 13.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
68
ITEM 14.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
68
ITEM 15.  FINANCIAL STATEMENTS AND EXHIBITS
68

 
2

 

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.

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 $2,000,000 and the issuance of 2 million shares of our common stock valued at $3,878,739 of $1.939 per share.

 
3

 
 
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 of $1,000,000 was due on December 31, 2009. A second installment was 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. Currently, the entire $8,000,000 has been paid as follows:

Date
 
Description of settlements
 
DR.
US$
 
CR.
US$
 
Balance Due
US$
 
30.11.2008
 
Part Payment made for the acquisition
    4,422.736.00         3,577,264.00  
As at 31.12.2009
 
Due to the seller
              3,577,264.00  
30.07.2010
 
Payments effected by issuance of 975,000 shares @ 0.75 each to a third party
 
Adjustment of 1,734.00
 
731,250.00
        2,844,280.00  
31.08.2010
 
Payments effected by issuance of 1,625,000 shares @ 0.75 each to a third party
    1,218,750.00         1,625,530.00  
30. 09.2010
 
Payments effected by issuance of 1,380,000 shares @ 0.75 each to a third party
    1,035,000.00         590,530.00  
31.12.2010
 
Payments effected by issuance of 790,855 shares @ 0.75 each to a third party
    590,530.00         0  

The total settlement debt of US $3,573,530.00 was credited into common stock capital of US $4,771.00 at par of US $0.001 each and additional capital for amount of US $3,910,665.00 respectively and there was a loss of $73,950.00 being recorded on the transaction calculated between the fair value of the shares at respective issuance date and their respective consideration received.

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.

Upon completion of this exercise and the subsequent reorganization, Pretty Mountain Holdings, Inc. was dissolved on January 28, 2011.

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.

 
4

 
 
In January 2010, Pan Shi Fang and Deng Jie Min (“Chinese Businessmen”) and Capital Award have entered into a Consulting Service Agreement (“the Consulting Service Agreement”), wherein Capital Award would supply the equipment and provide consulting services for the installation and construction of the fish farm and the related supporting services in Enping City, Guangdong Province of the People’s Republic of China.  It was a term of the Consulting Service Agreement that the parties thereto would form a sino foreign joint venture company (SFJVC) to own and operate the fish farm, and that Capital Award would have the right to nominate its associate company or a company within its group of companies to substitute Capital Award as a party to the SFJVC.  Upon the nomination of Capital Award, Tri-Way entered into a joint venture agreement with the Chinese Businessmen to incorporate the SFJVC to be named as Enping City Bi Tao A Power Fishery Development Co., Ltd. to own and operate the fish farm. On February 28, 2011, the Company applied to form Enping City Bi Tao A Power Fishery Development Co. Limited (EBAPFD), of which the Company would own a 25% equity interest.  The approvals of the formation of EBAPFD by the relevant authorities of the PRC Government are pending.

In February 2011, we as Vendor sold our 78% interest in ZhongXing to Ximin SUN (“Purchaser”) on the following terms:

1.  Total purchase price was RMB204,600,000.00 (equivalent to US$31,000,000.00) which is equivalent to 78% of the net assets of ZhongXing plus a surplus sum of US$4,937,000.00 as reflected in the ZhongXing’s Management Accounts  upon the terms hereinafter provided

2.  A deposit of RMB5,011,000.00 (equivalent to US$759,242.50)   was paid by the Purchaser upon execution of this Agreement to the Vendor by way of deposit and part payment towards the purchase price for the Vendor’s Shares

3.
Payment of the Balance of the Purchase Price

3.1
The balance of the Purchase Price amounting to RMB199,589,000.00 (equivalent to US$30,240,758.00) only (hereinafter called "the Balance Purchase Price”) shall be paid by the Purchaser in the manner set forth hereunder:-

 
(a)
A sum of RMB25,055,000.00 (equivalent to US$3,796,212.50) (hereinafter called “the Further Payment”) in cash shall be paid by the Purchaser to the Vendor by way of 5 equal instalments of RMB5,011,000.00 (equivalent to US$759,242.50) each, on or before the following dates :-

 
(1)
April 30, 2011 ;
 
(2)
June 30, 2011 ;
 
(3)
August 31, 2011 ;
 
(4)
October 31, 2011; and
 
(5)
December 31, 2011.

 
(b)
The remainder of the Balance Purchase Price in the amount of RMB174,534,000.00 (equivalent to US$26,444,545.00) (hereinafter referred to as “the Final Payment”) shall be settled by the Purchaser by way of cash contribution towards part payment of the Land Price.

3.2
The parties hereto hereby acknowledge that despite the fact the respective relevant land authorities of the said Lands (hereinafter collectively referred to as “the said Land Authorities”) have verbally agreed to contribute a combined amount of RMB36,974,996.00 towards the payment of the Land Price, either by way of a grant, discount or otherwise (hereinafter called “the said Rebate”), it shall not be deemed a discharge of the Purchaser’s obligation herein towards payment of the Purchase Price or any part thereof.

3.3
The Purchaser hereby further acknowledges and covenants that the Purchaser shall procure:-

 
(a)
the said Rebate of the said Land Authorities ; and
 
(b)
the approval by the said Land Authorities of the transfer of the said Land Use Rights of the said Lands to the Vendor and/or the Vendor’s Associated Companies.

4.
Completion

4.1
The Completion of this Agreement shall take place upon approval of the granting of the said Land Use Rights of the said Lands by the said Land Authorities to the Vendor being obtained (hereinafter referred to as “the Completion Date”), whereupon the Purchaser shall be entitled to all rights thereafter attaching to the Vendor’s Shares or accruing thereon including without limitation, all bonuses, rights, dividends and other distributions declared, paid or made thereof thereafter free from all liens, assignments, pledges, charges and other encumbrances whatsoever Provided that the Purchaser shall have paid the Purchase Price in full in accordance with the terms as prescribed herein.
 
 
5

 
 
4.2
Notwithstanding anything to the contrary herein, the Vendor shall have the right to claim against the Purchaser for the Balance Purchase Price or any part thereof remaining unpaid by the Purchaser pursuant to the terms and conditions set forth in Clause 3.1 hereof.

5.
Debts and Liabilities

 
Upon the completion of this Agreement, the Vendor shall not be liable for any indebtedness incurred by ZhongXing as from January 1, 2011, and the Purchaser shall indemnify the Vendor and shall keep the Vendor indemnified against any loss claim or liability resulting therefrom.
 
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.
   
 
6

 
 
 
*   On February 11, 2011, the Company through Capital Award entered into an agreement to form Enping City Bi Tao A Power Prawn Culture Development Co. Limited of which the Company would own a 25% equity interest.  The approvals of the formation of of BT A Power Prawn by the relevant authorities of the PRC Government are in process.

**  As at February 28, 2011, the application to incorporate BT A Power is still pending approvals of the relevant authorities of the PRC Government, and we anticipate such approvals will be granted on or before May 31, 2011.

[1]  Sold in February 2011

Revenues and Incomes Generating Businesses

We conduct our operations through five 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 ;

 
7

 
 
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 [Sold in February 2011]; 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.

Tri-Way Industries Ltd, which has the right initially by cash contribution to own 25% of the SFJVC, to be named Enping City Bi Tao A Power Fishery Development Co., Ltd., in Enping City, Guangdong Province of the People’s Republic of China to own and operate the fish farm in Enping City.  The application to incorporate the SFJVC is pending approvals of the relevant authorities of the PRC Government, and we anticipate such approvals will be granted on or before May 31, 2011.  Capital Award is the consultant on this fish farm project.
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. [Sold in February 2011]
 
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.
 
 
8

 
 
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 principals 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 soluble 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;
 
·
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.

 
9

 
 
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.   

Items of comparison
 
APT farms
 
Conventional farms
         
Surface area measured for productivity
 
25 tons per year per 72 mІ
 
0.5 tons per year per 660mІ
         
Water capacity measured for productivity
 
25 tons per year per 100 mі
 
0.5 tons per year per 1320mі
         
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
 
 
10

 
 
Fish Farm Development

On January 15, 2010, we executed a service and consulting contract with a group of Chinese businessmen (Chinese Businessmen), wherein Capital Award would supply the equipment and provide consulting services for the installation and construction of the fish farm and the related supporting services in Enping City, Guangdong Province of the People’s Republic of China.  It was a term of the Consulting Service Agreement that the parties thereto would form a sino foreign joint venture company (SFJVC) for the operation and management of the fish farm, and that Capital Award would have the right to nominate its associate company or a company within its group of companies to substitute Capital Award as a party to the SFJVC.  Upon the nomination of Capital Award, Tri-Way entered into a joint venture agreement with the Chinese Businessmen to incorporate SFJVC to be named as Enping City Bi Tao A Power Fishery Development Co., Ltd. to own and operate the fish farm in accordance with the terms and conditions as prescribed therein.
  
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 we believe is a Chinese species in demand in the local market.  It commands average wholesale price of US$27.00 (live fish) and US$23.00 (live fish) per kilogram (recorded on June 21, 2010 and December 31, 2010 respectively).
  
The current progress report on the fish farm development as at December 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 (subsequently the construction of the fish farm was completed on November 26, 2010).
 
Construction of all 16 fish tanks were constructed, fully installed and fitted on December 5, 2010, and since the end of December 2010, the farm underwent a nurturing period to nurture and to grow filtration bacteria needed in the tanks for consumption of bio-mass, and as such we expect that the tanks will be ready for stocking up fingerling to grow-out into marketable size fish on or before the mid-February 2011.  We target the first sale of fish to start by July 2011.
 
Contracts on the provision of related services and consultancies needed for the operation of the farm have been organized By December 26, 2010, a new management team for the operation of the farm has been recruited consisting at present of 10 personnel including the farm manager, supervisors, skilled and non-skilled workers.
 
300,000 fingerlings have been ordered for delivery from September 2010 through November 2010.  On our last inspection at the supplier’s farm on August 18 2010, the fingerlings were at an average size of 60 mm and growing healthily.  In anticipation of a possible colder early winter, we subsequently at the end of November 2010 helped our supplier to install heating systems to cover their outdoor farms where our fingerling were being kept to ensure that our fingerlings would not suffer from any adverse effect arising from severe winter weather.   The aforesaid measure was effective and timely as the Southern China is experiencing one of its coldest winter in the early weeks of January 2011,
 
·
As at December 31, 2010 the Chinese Businessmen have funded just under US$3.9 Million for the development of the
Fishery covering the followings:
 
§
Standby diesel powered generator capable of providing electricity during outages;
 
§
All underground and surface drainage, water works and electrical connections;
 
§
Heating provided by boiler driven heat exchangers capable of heating each tanks water 6° C in 30 minutes
 
§
Dry storage of approximately 9,000 m²;
 
§
Guard house, office and staff quarters to handle up to 15 personnel;
 
§
Farm building measuring over 4,000 m² housing16 grow-out tanks each with the capacity to hold up to 120,000 liter of water with built-in solid waste and soluble waste filters, ultraviolet and O³ disinfectors, and aerators that will have the capacity to grow-out an average of 25 tons of fish per tank per year;
 
§
A nursery facility that has the capacity to grow-out 2 million fingerlings per year from 25mm per piece to 100mm per piece;
 
§
Freezing and cool room facilities;
 
§
Feed processing facilities and feed preparation rooms;
 
§
Landscaping areas covering more than 15,000 m² and all boundary fences of the complex; and
 
§
External water holding tanks with total holding capacity of more than 3 million liters of water at any given time, supplied by 4 underground bores of various depth measuring from 80m to 150m.
 
At January 31, 2011, all developments mentioned above were completed and the fish farm is in operation.

 
·
Subsequently the Chinese Businessmen will need to provide a further sum estimated up to US$1.3 million as working capital to cover the followings within and up to the next 8 months before incomes will be generated from the sales of fish:
 
 
11

 
 
§        Up to a period of 2 months for trials and testing of plants and equipment and water, nurturing of bacteria, trial growing and recording of sample species of fish to be grown in the farm, etc.; (This was completed as at February 28, 2011)
§        Training of staffs and workers; (It was completed by February 28, 2011)
§        Purchases of operational, feed preparation and office plants and equipment and laboratory instruments, etc. (Completed by February 28, 2011)
§        Up to 8 months of daily administration and operation expenses; (6 more months to completion)
§        Stocking of spare parts and components and feed staffs etc.; (On -going events) and
§        Gradually and rotationally stocking of fingerlings in the farm from February to March 2011 in order to achieve the targeted sales of grown fish from July 2011 onwards. (25,000 Sleepy cod fingerlings and 50,000 prawn fingerlings were stocked on February 15, 2011, and the next batch consisting of 250,000 sleepy cod fingerlings will be stocked on March 15, 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 disease free (DF) 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 DF fingerlings so that the Sleepy Cods fingerlings will be DF 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 one full year of operation.  As described above, we have already started ordering the fingerlings. 

“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.
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.

Enping City Bi Tao A Power Prawn Culture Development Co., Ltd

On February 11, 2011, Wei Da Xing and Capital Award Inc entered into a 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 to incorporate a sino foreign joint venture company at No. 1-5, 1 st Floor, Jiangzhou Shui Zha Office Building, No 19, Jiang Jun road Jiangzhou, Juntang Town, Enping City, Guangdong Province of the People’s Republic of China, to be tentatively named as Enping City Bi Tao A Power Prawn Culture Development Co., Ltd (“SFJVC”).

The Parties' purpose in establishing the SFJVC is to develop a prawn farm, that will produce high standard of quality fresh prawns and products that will have the competitive edge to develop sustained markets internationally, through the application of modern aquaculture technology and related management systems to gain economic benefit to the Parties as well as to generate social benefits to the communities as a whole.

The production capacity will be 2,000 tons of quality fish and prawns per year.

 
·
It is estimated that the construction of the Prawn farm will be completed within a period of 6 months counting from date of the Agreement; subsequently business operation of the Prawn farm will be commence, such that the targeted production of operational year (1) is for 250 tons of prawn.
 
·
From the second year of operation to the fifth year of operation, the production will be increased gradually to its final annual productivity of 2,000 tons per year, including the development of more than 3 species of fish and prawns.

The tenure of the SFJVC shall be for a period of 50 years.  The SFJVC’s Board of Directors may decide to extend the tenure of the SFJVC by applying to the China Business Registration Department (or its related authorized approving authority) within 6 months from day of expiry thereof.
 
The total investment capital of the SFJVC shall be US$5 million to be invested over a period of 5 years, whereas the Registered Capital of the SFJVC shall be US$100,000 for the first year and be increased gradually to US$5 million by the fifth year subject to the decision made by the Board of Directors of the SFJVC at the time.
 
 
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The parties’ respectively capital contribution in the 5 years are as follows :

 
·
First Year :  Wei Ds Xing shall contribute US$80,000 in cash, whereas Capital Award shall contribute US$20,000 in cash.

 
·
From the second year onward, Capital Award shall have the option to increase its share of equity interest in the SFJVC, and the parties will contribute their share of equity stake (or to increase part of the SFJVC’s registered capital by means of converting the SFJVC’s assets) in accordance with the guidelines as shown in the Table below:

First Year

Parties
 
Change of equity
interest up to
 
Assets that may be converted
 
Maximum % that will
be converted
 
               
Wei Ds Xing
    75 %
Cash
    10 %
         
Plants and equipment
    25 %
         
Properties
    25 %
         
Land Use Right
    10 %
         
Others
    5 %
         
Total contribution of Wei Ds Xing
    75 %
Capital Award
    25 %
Cash
    25 %

Second Year Onward

Parties
 
Change of equity
interest up to
 
Assets that may be converted
 
Maximum % that will
be converted
 
               
Wei Ds Xing
    25 %
Cash
    2.5 %
         
Plants and equipment
    6.25 %
         
Properties
    6.25 %
         
Land Use Right
    2.5 %
         
Others
    1.25  
         
Total contribution of Wei Ds Xing
    25 %
Capital Award
    75 %
Cash
    75 %

Schedule of Payment by the Parties of the Registered Capital : In the first year, the Parties hereto shall pay for the US$100,000 Registered Capital of the SFJVC in accordance with their respective share of equity interest in the SFJVC within 6 months from date of issuance of the business license of the SFJVC.  From the second year onward, the Parties shall pay their respective share of contribution of the Registered capital in the manner as mentioned above and in accordance with the time schedule as set forth by the Board of Directors of the SFJVC as and when it shall be necessary.

If either of the Parties hereto shall decide to sell all or part of its equity in the SFJVC to any third party, the selling party hereto shall obtain the prior consent of the other party hereto before such sale, and shall grant the first right of refusal to the other party hereto on the like terms for the intended sale.
 
The responsibilities of Wei Ds Xing:
 
 
1.
To pay its share of the Registered Capital on a timely manner.
 
2.
To apply to relevant Chinese Authorities in order to obtain the official approval, registration and business license for the incorporation of the SFJVC.
 
3.
To apply to the Land Authorities of China to obtain official approval of the Land Use Right of the project land.
 
4.
To introduce and to organize all local sub-contractors and contractors to carry out construction work relating to the scopes of civil engineering, designs, building and all other related matters for the SFJVC for the purpose of developing the fish farm.
 
5.
To introduce to and to organize all local suppliers and manufacturers for the SFJVC such that the SFJVC will be able to obtain supplies and manufacturing of plants and equipment for the fish farm.
 
 
13

 
 
   
6.
To apply to the customs authorities and to obtain import clearance for all imported plants and equipment of the fish farm and to arrange local transportation for the delivery of the imported plants and equipment to the project site.
 
7.
To introduce to and to organize all local contractors and sub-contractors for the SFJVC such that the SFJVC will be able to construct and to connect all basic infrastructure and utility services needed at the project site of the fish farm.
 
8.
To assist the SFJVC in recruiting chinese management personnel, technical personnel, workers and other workers needed for its fish farm.
 
9.
To assist foreign workers and staffs of the SFJVC in their applications for entry visas, work permits and other associated local traveling arrangements.
 
10.
To co-ordinate other general necessities requested by the SFJVC from time to time during the development period of the SFJVC.

The responsibilities of Capital Award

 
1.
To pay its share of the Registered Capital on a timely manner.
 
2.
To organize and to arrange supplies, purchases, delivery and related matters of all imported plants and equipment needed by the Fish Farm.
 
3.
To organize and to arrange all transportation and related logistics needed for the importation of imported plants and equipment for delivery to the appropriate sea port in China.
 
4.
To provide qualified technical supervisors, personnel and inspectors for the installation and commissioning of all plants and equipment of the fish farm.
 
5.
To provide training to the personnel and workers needed for the operation of the fish Farm.
 
6.
Capital Award shall ensure that the performance of the Fish Farm (including but not limiting to the productivity and durability of the Fish Farm) will be reached within the targeted schedule.
 
7.
To assist the SFJVC in other matters related to the Fish Farm Development works as and when requested by the SFJVC.

Consulting Agreement

An AP Technology Consulting Services Agreement between Capital Award and a Group of China Parties represented by Mr. Wei Da Xing (“Employer”) was executed on February 11, 2011.under which the parties agreed to build and develop a prawn farm at a site in Enping District, Guangdong Province within close proximity to the HangSingTai HU Plantation, Enping using the AP Technology and System, with the exact location to be determined after results of testing of inflow water quality and quantity and soil that will be carried out on the various blocks of land in the Enping District.

The Parties agreed to apply to the China Authorities to form a Sino Foreign Joint Venture Company (herein after called “SFJVC”) to develop the Project, and prior to the official approval of the SFJVC, the Employer shall be responsible to provide funding for the development needs of the Project, and such, upon the official establishment of the SFJVC, the Parties agree to transfer this Agreement to the SFJVC, and the SFJVC will be responsible to fund the required development capital needs of the Project.  The Parties further agreed that after the official formation of the SFJVC, the SFJVC will reimburse the Employer for amounts paid by Employer on the Project prior to its official formation.  Capital Award shall provide technical service to the Employer prior to the official formation of SFJVC for the development of the Project.

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

 
14

 
 
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.

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 August 1, 2006 for a term of 60 years.   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 License with a condition that the Company was required to pay the license fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008.  This license 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 license fee to Infinity once the Company sold the license to his customer.  The Company has met all payment obligations to Infinity as follows:
   
Date
 
Description of transactions
 
Payments
US$
   
Amounts Due
US$
   
Balance
US$
 
As at 31.07.2007
 
Due to Infinity for the contractual 500 units of APM
          2,500,000       2,500,000  
20.12.2007
 
Payment made to Infinity under our CR#(08)Infinity20.12.07
    2,500,000                  
07. 01. 2008
 
Due to Infinity for an additional 500 units of APM contracted to one of our clients in 2008
            2,500,000       2,500,000  
18.09. 2009
 
Payments made to Infinity under our CR#001
    2,500,000               0  
31.12.2010
                        0  

We also have rights to a different RAS Technology which we don’t intend to use in our fishery developments in China, however, it may still be useful and applicable in other countries, (i.e. Vietnam or Indonesia etc.), so we have left these rights on our balance sheet at minimal value.  They are not the same as the rights we are using as described above.

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 such as the fish farm in the PRC are required to furnish an Environmental Impact Assessment (“EIA”) Report to the local authorities.   The EIA was submitted together with the aforesaid SFJVC agreement to the relevant PRC Authorities on October 29, 2010 for the application for the formation of the SFJVC.  Normally the process will take anywhere up to eight months from date of submission.

 
15

 
 
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.

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 16.5 million pieces of fresh flowers, whereas the Year 2008 planting showed a total yield of 2.5 million pieces of fresh flowers. Total harvesting for the season of 2010 was at about 31.5 million pieces of fresh flowers..

 
16

 

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 mІ plot.    The cool room facility an d 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.

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.     At December 31, 2010, the average wholesale price was recorded at US$7.23 per kilogram.

 
17

 

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. However, we do not have a binding agreement with any of these potential sales agents 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.

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:
 
 
18

 
 
 
·
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
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 sold its fresh unprocessed organic milk during 2009 at an average of RMB4,500 (equivalent to $662) per ton. In early January of 2010 the PRC Government set an average wholesale price of fresh un-processed milk across the country at RMB4,100 per ton (equivalent to US$616.50 per ton based on exchange rate as at December 31, 2010 of US$1=RMB6.65) and we currently sell at this price.

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.

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.
 
 
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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 part of such raw materials from these growers for our livestock feed manufacturing operation by requesting the growers / suppliers to cultivate their cropping field with organic fertilizer that may be supplied by us or other suppliers by way of (barter trade in earlier days during 2007 but normal trade from 2008 onward without 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 surplus fertilizer by way of (barter trade in earlier days during 2007 but normal trade from 2008 onward without 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. to some the regional growers who are supplying raw materials to us for our manufacturing of our live stock feed.
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).
 
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 unwritten 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 2,800 young cows to our stock of herds through this arrangement in 2010.

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.

 
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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. The certification has been reviewed by the Agriculture Department of the PRC Government in subsequent years and currently is effective for fiscal year 2011.

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, and transportation of manures in properly equipped vehicles.  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.  The effect of this treatment to the current investors is minimal because although investment in ZhongXing at this stage is not protected under Chinese laws governing foreign investments, it is still protected under domestic commercial and company laws of China which entitle SIAF to retain or contribute to its share of profit or loss and ownership of ZhongXing’s assets and liabilities similarly in any other developed countries. However, the major issue under this circumstance is the repatriation of funds arising from SIAF’s share of profits received from ZhongXing’s operation and/or SIAF’s shares of capital investment in ZhongXing, that will not be affected for the next two years while ZhongXing is still developing.
 
In February 2011, we as Vendor sold our 78% interest in ZhongXing to Ximin SUN (“Purchaser”) on the following terms:

1.  Total purchase price was RMB204,600,000.00 (equivalent to US$31,000,000.00) which is equivalent to 78% of the net assets of ZhongXing plus a surplus sum of US$4,937,000.00 as reflected in the ZhongXing’s Management Accounts  upon the terms hereinafter provided

2.  A deposit of RMB5,011,000.00 (equivalent to US$759,242.50)   was paid by the Purchaser upon execution of this Agreement to the Vendor by way of deposit and part payment towards the purchase price for the Vendor’s Shares

3.
Payment of the Balance of the Purchase Price
 
 
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3.2
The balance of the Purchase Price amounting to RMB199,589,000.00 (equivalent to US$30,240,758.00) only (hereinafter called "the Balance Purchase Price”) shall be paid by the Purchaser in the manner set forth hereunder:-

 
(c)
A sum of RMB25,055,000.00 (equivalent to US$3,796,212.50) (hereinafter called “the Further Payment”) in cash shall be paid by the Purchaser to the Vendor by way of 5 equal instalments of RMB5,011,000.00 (equivalent to US$759,242.50) each, on or before the following dates :-

 
(6)
April 30, 2011 ;
 
(7)
June 30, 2011 ;
 
(8)
August 31, 2011 ;
 
(9)
October 31, 2011; and
 
(10)
December 31, 2011.

 
(d)
The remainder of the Balance Purchase Price in the amount of RMB174,534,000.00 (equivalent to US$26,444,545.00) (hereinafter referred to as “the Final Payment”) shall be settled by the Purchaser by way of cash contribution towards part payment of the Land Price.

3.2
The parties hereto hereby acknowledge that despite the fact the respective relevant land authorities of the said Lands (hereinafter collectively referred to as “the said Land Authorities”) have verbally agreed to contribute a combined amount of RMB36,974,996.00 towards the payment of the Land Price, either by way of a grant, discount or otherwise (hereinafter called “the said Rebate”), it shall not be deemed a discharge of the Purchaser’s obligation herein towards payment of the Purchase Price or any part thereof.

3.3
The Purchaser hereby further acknowledges and covenants that the Purchaser shall procure:-

 
(c)
the said Rebate of the said Land Authorities ; and
 
(d)
the approval by the said Land Authorities of the transfer of the said Land Use Rights of the said Lands to the Vendor and/or the Vendor’s Associated Companies.

4.
Completion

4.1
The Completion of this Agreement shall take place upon approval of the granting of the said Land Use Rights of the said Lands by the said Land Authorities to the Vendor being obtained (hereinafter referred to as “the Completion Date”), whereupon the Purchaser shall be entitled to all rights thereafter attaching to the Vendor’s Shares or accruing thereon including without limitation, all bonuses, rights, dividends and other distributions declared, paid or made thereof thereafter free from all liens, assignments, pledges, charges and other encumbrances whatsoever Provided that the Purchaser shall have paid the Purchase Price in full in accordance with the terms as prescribed herein.

4.2
Notwithstanding anything to the contrary herein, the Vendor shall have the right to claim against the Purchaser for the Balance Purchase Price or any part thereof remaining unpaid by the Purchaser pursuant to the terms and conditions set forth in Clause 3.1 hereof.

5.
Debts and Liabilities . Upon the completion of this Agreement, the Vendor shall not be liable for any indebtedness incurred by ZhongXing as from January 1, 2011, and the Purchaser shall indemnify the Vendor and shall keep the Vendor indemnified against any loss claim or liability resulting therefrom.

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.

Upon completion of this exercise and the subsequent reorganization, Pretty Mountain Holdings, Inc. was dissolved on January 28, 2011.

 
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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.

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 mІ 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 mІ  of built-up area for the development of the manufacturing plants for bio-organic f ertilizer;
 
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.

 
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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.

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.

 
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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.

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 mІ of built up area (39 buildings, each of approximately 538 mІ) (“Project Site”) to Sanjiang A Pow er 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).

 
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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 December 31, 2010, Sanjiang A Power has carried out the following works on the Project Site:

 
Renovation and building work on staff quarters, capable to house up to 70 workers at a time, and subsequently these were completed before end of March 2010;
 
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, (Subsequently these were completed by November 17, 2010 as such by December 5 2010, two of these cattle houses are housing 240 heads of 6 months old cattle brought by SJAP);
 
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, (subsequently by December 15, 2010 SJAP has sold more than 2500 Tons of fertilizer regionally with good responds from the buyers);
 
Construction of a new four storey height headquarter office building consisting of 2,500mІ was commenced on June 12, 2010 (subsequently as at the end of December 2010, all four floors have been constructed waiting on final installations and fittings s uch that we are expecting full completion within April Month 2011 as during winter months now it is difficult to carry out construction works);
 
 
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, (subsequently from July 2010 we used this Enzyme to produce our fertilizer and livestock feed successfully);

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.
 
 
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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.
 
Subsequently On November 5, 2010 the Authority of Business Registration Department of Xining City, PRC approved SJAP’s application to increase its Registered Capital to US$5,000,000.
 
The Business Plans of Sanjiang A Power  
Sanjiang A Power started to generate revenues from some of the following activities from July 2010 and we expect that the others will generate revenues from April 2011 onward as described below:

 
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; subsequently we manufactured over 5,000 tons of livestock by the end of September 2010 and out of which we sold 2,000 tons to the local farmers and kept the other 3,000 Tons to be used for our own cattle that will be reared in our own cattle facilities.
 
Manufacturing of bio-organic fertilizer to reach 10,000 tons; subsequently we sold 2,500 tons of fertilizer by month of November 2010 with production rate running at 60 tons per day currently and we are producing right through the winter months made possible by our developed Enzyme.
 
Rearing and fattening of beef cattle to reach a minimum of 1,000 heads subsequently as at January 3, 2011 we bought more than 500 heads of young cattle housing in four of our 7 newly constructed cattle houses and expecting to increase the number of cattle to 2,500 heads within 2011.
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. (Subsequently we sold over 2,000 tons of our livestock feed in November 2010 at an average price of US$114.25 / Tons based on exchange rate of US$1=RMB6.65, as such we are expecting that there may not be a need to obtain the said subsidy of US$29.04 / Ton granted by the Government although it is still available currently).

 
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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 seven demonstration farms were constructed at the Project Site by the end of August 2010 and three of which are being used to house the newly acquired 500 heads of cattle with the others to be filled on or before May 1, 2011.
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 met its purchase orders of 2500 tons for delivery on or before the end of November 2010.   It is currently has a production volume of 60 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;
 
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 equiv alent of 122,200 mІ) of land, on which there is over 21,000 mІ 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 buil t 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”).
 
 
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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:
 
 
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. (Subsequently all three tranches were fully paid on or before December 31, 2010 by the issuance of shares at an average price of US$0.75 / share).
 
Tri-way intends to generate operation revenues by engaging in following operations:

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

 
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
 
 
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Training of personnel of the related operation.

Tri-way has not generated any revenues through these services.

In addition, we also anticipate that Tri-way will generate revenues through 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 25% 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.

 
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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

In January 2010, Pan Shi Fang and Deng Jie Min (“Chinese Businessmen”) and Capital Award haves entered into a Consulting Service Agreement (“the Consulting Service Agreement”), wherein Capital Award would supply the equipment and provide consulting services for the installation and construction of the fish farm and the related supporting services in Enping City, Guangdong Province of the People’s Republic of China.  It was a term of the Consulting Service Agreement that the parties thereto would form a sino foreign joint venture company (SFJVC) to own and operate the fish farm, and that Capital Award would have the right to nominate its associate company or a company within its group of companies to substitute Capital Award as a party to the SFJVC.  Upon the nomination of Capital Award, Tri-Way entered into a joint venture agreement with the Chinese Businessmen to incorporate SFJVC to be named as Enping City Bi Tao A Power Fishery Development Co., Ltd. to own and operate the fish farm in accordance with the terms and conditions as prescribed therein.  The documents related to the application for setting up of the SFJVC as provided in the joint venture agreement has been finalized by the Chinese party’s lawyer, and the above mentioned application was submitted to the relevant Authorities on October 29, 2010.

Principal terms and conditions of the aforesaid joint venture agreement are as follows:

 
·
The parties thereto shall share the indebtedness, risks and losses of the SFJVC as well its profit in accordance with their respective equity interest ratio in the SFJVC.

 
·
The tenure of the SFJVC shall be for a period of 50 years.  The SFJVC’s Board of Directors may decide to extend the tenure of the SFJVC by applying to the China Business Registration Department (or its related authorized approving authority) within 6 months from day of expiry thereof.

 
·
The total investment capital of the SFJVC shall be US$5 million to be invested over a period of 5 years, whereas the Registered Capital of the SFJVC shall be US$100,000 for the first year and be increased gradually to US$5 million by the fifth year subject to the decision made by the Board of Directors of the SJVC at the time.

 
·
The parties’ respectively registered capital contribution in the 5 years are as follows :

 
First Year : 
The Chinese Businessmen shall contribute US$75,000 in cash. However they will be allowed to convert some of the assets of the fish farm they have funded to equity.

 
Tri-way shall contribute US$25,000 in cash.

From the second year onward, Tri-way shall have the option to increase its share of equity interest in the SFJVC, and the parties will contribute their share of equity stake (or to increase part of the SFJVC’s registered capital by means of converting the SFJVC’s assets) in accordance with the guidelines as shown in the Table below:

Additional shareholders paid-in capital will be funded in cash by Triway and by the Chinese businessmen in form of cash and / or by converting some of the assets in manner as described in the tables listed below:

 
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First Year

Parties
 
Change of equity
interest up to
 
Assets that may be converted
 
Maximum % that will
be converted
 
               
Chinese Businessmen
    75 %
Cash
    10 %
         
Plants and equipment
    25 %
         
Properties
    25 %
         
Land Use Right
    10 %
         
Others
    5 %
         
Total contribution of Chinese Businessmen
    75 %
Tri-way
    25 %
Cash
    25 %

Second Year Onward

Parties
 
Change of equity
interest up to
 
Assets that may be converted
 
Maximum % that will
be converted
 
               
Chinese Businessmen
    25 %
Cash
    2.5 %
         
Plants and equipment
    6.25 %
         
Properties
    6.25 %
         
Land Use Right
    2.5 %
         
Others
    1.25  
         
Total contribution of Chinese Businessmen
    25 %
Tri-way
    75 %
Cash
    75 %

 
·
The responsibilities of the Chinese Businessmen:

 
1.
To pay their share of the Registered Capital on a timely manner.
 
2.
To apply to relevant Chinese Authorities in order to obtain the official approval, registration and business license for the incorporation of the SFJVC.
 
3.
To apply to the Land Authorities of China to obtain official approval of the Land Use Right of the project land.
 
4.
To introduce and to organize all local sub-contractors and contractors to carry out construction work relating to the scopes of civil engineering, designs, building and all other related matters for the SFJVC for the purpose of developing the fish farm.
 
5.
To introduce to and to organize all local suppliers and manufacturers for the SFJVC such that the SFJVC will be able to obtain supplies and manufacturing of plants and equipment for the fish farm.
 
6.
To apply to the customs authorities and to obtain import clearance for all imported plants and equipment of the fish farm and to arrange local transportation for the delivery of the imported plants and equipment to the project site.
 
7.
To introduce to and to organize all local contractors and sub-contractors for the SFJVC such that the SFJVC will be able to construct and to connect all basic infrastructure and utility services needed at the project site of the fish farm.
 
8.
To assist the SFJVC in recruiting Chinese management personnel, technical personnel, workers and other workers needed for its fish farm.
 
9.
To assist foreign workers and staffs of the SFJVC in their applications for entry visas, work permits and other associated local traveling arrangements.
 
10.
To co-ordinate other general necessities requested by the SFJVC from time to time during the development period of the SFJVC.

 
·
The responsibilities of Tri-way:

 
1.
To pay its share of the Registered Capital on a timely manner.
 
2.
To organize and to arrange supplies, purchases, delivery and related matters of all imported plants and equipment needed by the Fish Farm.
 
3.
To organize and to arrange all transportation and related logistics needed for the importation of imported plants and equipment for delivery to the appropriate sea port in China.
 
 
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4.
To provide qualified technical supervisors, personnel and inspectors for the installation and commissioning of all plants and equipment of the fish farm.
 
5.
To provide training to the personnel and workers needed for the operation of the fish Farm.
 
6.
Being the Master license holder of the AP Technology, Tri-way shall ensure that the performance of the Fish Farm (including but not limiting to the productivity and durability of the Fish Farm) will be reached within the targeted schedule.
 
7.
To assist the SFJVC in other matters related to the Fish Farm Development works as and when requested by the SFJVC.
 
·
The Board of directors shall consist of 3 members; 1 appointee from Chinese Businessmen and 2 from Tri-way.  The director appointed by Chinese Businessmen shall be made the Chairperson, whereas 1 director appointed by Tri-way shall be made the Deputy Chairperson.  The tenure of the Chairperson and the Deputy Chairperson shall be 3 years, renewable at the discretion of the appointing party.

  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.  These patents were granted on 18 October 2008 for a duration of 30 years.

Agreements Concerning Livestock Feed involving ENPING CITY JUNTANG TOWN HANG SING TAI AGRICULTURE CO. LTD .

Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Cooperation Agreement

An Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Cooperation Agreement
between ENPING CITY JUNTANG TOWN HANG SING TAI AGRICULTURE CO. LTD. (“Enping Sing Tai”) and Mr. LIU XUESONG was entered into between the parties on March 21, 2011.  The basis for the agreement was that
Enping Sing Tai intends to develop a sizeable beef cattle breeding farm Enping City, Guangdong Province of the PRC, utilizing and developing the locally available resources.  Mr. Liu Xuesong is the expert and the inventor of a domestically developed premium beef cattle nutritional feed recipe and technology (“the said Technology”).  Mr. Liu Xuesong shall provide technical services to Enping Sing Tai on the organic premium beef cattle breeding technology and product development.  Both parties shall jointly notify the State on the deployment of said Technology in any development projects in any provincial cities and collectively promote such development projects and the advancement of the said Technology, in order to attain mutual benefit on a win-win basis in development of value added agricultural products.

The rights and obligations of Enping Sing Tai are:

1.           Mr. Liu Xuesong shall provide the said Technology and its related feed recipe to Enping Sing Tai in accordance with the progress of the transfer of the said Technology, and shall transfer the intellectual property rights to the said Technology exclusively to Enping Sing Tai, and thereafter Mr. Liu Xuesong shall cease to be entitled to the intellectual property rights of the said Technology.
   
2.           Enping Sing Tai has the right to transfer or grant the right to use the intellectual property rights of the said Technology to any third parties.

3.           Enping Sing Tai shall have the right to advertise and sell the products, so produced utilizing the said Technology, in packaging bearing the descriptive words “Fragrant Beef” thereon.

4.  The Parties are to ensure the quality of raw material procured, and to work together under the premise that the Parties shall strive to reduce the cost of production of the premium beef products and improve the competitiveness and economic benefits of the products.

5.           Enping Sing Tai is obliged to supply updated market information and timely feedback to Mr. Liu Xuesong, to enable Mr. Liu Xuesong to adjust the recipe of the feed or to dispatch technical personnel to provide technical services to the relevant market.

6.  Both parties agree that the transfer fee for this transaction shall be settled by way of RMB 100,000 in cash and 100,000 units of the shares of Sino Agro Food, Inc. (“SIAF”).

7.  Payment Terms:  Enping Sing Tai shall pay a lump sum of RMB100,000 to Mr. Liu Xuesong as the  transfer fee within 7 days from the date of signing of this Agreement.  The balance of the transfer fee shall be settled by way of issuance or transfer of 50,000 units of SIAF’s shares on or before July 30, 2011 and another 50,000 units of SIAF’s shares on or before April 15, 2012.
 
 
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The rights and obligations of Mr. Liu Xuesong are:

Mr. Liu Xuesong shall not transfer or disclose the intellectual property rights to the said Technology and the related feed recipe to any other party.

Mr. Liu Xuesong shall formulate the appropriate recipe for the feed and breeding technique for organic premium beef cattle in accordance with the needs of the market as per Enping Sing Tai's request, and shall warranty the recipe for the feed conforms to the relevant requirement accorded to organic products, to ensure the texture and quality of the products are more superior than other like products in the country, and Mr. Liu Xuesong shall also adjust the recipe for the feed timely according to the actual market’s condition in order to satisfy the needs of the consumers towards green organic products.

Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Sale and Transfer Agreement

On March 25, 2011 an Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Sale and Transfer Agreement was entered into between Enping Sing Tai and HANG YU TAI INVESTIMENTO LIMITADA (“Hang Yu”).

Upon the principles of strategic cooperation, and for the purpose of improving the competitiveness of Enping Sing Tai's said Technology and enhancing Hang Yu's economic benefits, the parties enter into this Agreement for the deployment of the said Technology, wherein Enping Sing Tai shall provide technical services to Hang Yu on the organic premium beef cattle breeding technology and product development.  Both parties shall jointly notify the State on the deployment of said Technology in any development projects in any provincial cities and collectively promote such development projects and the advancement of the said Technology, in order to attain mutual benefit on a win-win basis in development of value added agricultural products.

The rights and obligations of Enping Sing Tai are as follows:

1.           Enping Sing Tai shall provide the said Technology and its related feed recipe to Hang Yu in accordance with the progress of the transfer of the said Technology, and shall transfer the intellectual property rights to the said Technology exclusively to Hang Yu, and thereafter Enping Sing Tai shall cease to be entitled to the intellectual property rights of the said Technology.
   
2.           Hang Yu has the right to transfer or grant the right to use the intellectual property rights of the said Technology to any third parties.

3.           Hang Yu shall have the right to advertise and sell the products, so produced utilizing the said Technology, in packaging bearing the descriptive words “Fragrant Beef” thereon.

4.  The Parties are to ensure the quality of raw material procured, and to work together under the premise that the Parties shall strive to reduce the cost of production of the premium beef products and improve the competitiveness and economic benefits of the products.

5.           Hang Yu is obliged to supply updated market information and timely feedback to Enping Sing Tai, to enable Enping Sing Tai to adjust the recipe of the feed or to dispatch technical personnel to provide technical services to the relevant market.

6.  Both parties agree that the transfer fee for this transaction shall be US$1,500,000 (equivalent to RMB9,675,000).
 
7.  Payment Terms:  Hang Yu shall pay a lump sum of US$150,000 (equivalent to RMB967,500) to Enping Sing Tai as the transfer fee within 7 days from the date of signing of this Agreement.  The balance of the transfer fee shall be settled by 3 installments as follows :
 
1 st installment :    by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of Sino Agro Food, Inc. (“SIAF”), or part cash part shares, on or before July 30, 2011;

2 nd installment :   by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of SIAF, or part cash part shares, on or before December 31, 2011; and

3 rd installment :    by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of SIAF, or part cash part shares, on or before March 31, 2012.

The rights and obligations of Hang Yu are as follows:

1,      Enping Sing Tai shall not transfer or disclose the intellectual property rights to the said Technology and the related feed recipe to any other party.
 
 
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2.      Enping Sing Tai shall formulate the appropriate recipe for the feed and breeding technique for organic premium beef cattle in accordance with the needs of the market as per Hang Yu's request, and shall warranty the recipe for the feed conforms to the relevant requirement accorded to organic products, to ensure the texture and quality of the products are more superior than other like products in the country, and Hang Yu shall also adjust the recipe for the feed timely according to the actual market’s condition in order to satisfy the needs of the consumers towards green organic products.

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.
 
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.

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.

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.
 
 
35

 
 
 
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.

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
 
 
36

 
 
 
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
 
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.

 
37

 
 
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
[1]
 
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
 
135
 
230
 
146
 
548
 
 
[1]  Sold in February 2011

ITEM 1A. RISK FACTORS
 
Smaller reporting companies are not required to provide the information required by this item.
  
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. [Sold in February 2011]

 
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.

 
38

 
 
Consolidated Results of Operations Fiscal Year 2009 Compared to Fiscal Year 2008
 
Revenues
Revenues increased by $18,825,227 or 86.65% to $40,551,066 for the year ended December 31, 2010 from $21,725,839 for the year ended December 31, 2009.  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 the increase of the number of milking cows. And in the Plantation operation, there were higher yield from the HU Plants when majority of them are reaching three years old (as explained in Overview above)
 
The following chart illustrates the changes by category from the year-ended December 31, 2010 to December 31, 2009.
 
Category
 
2010
   
2009
   
Difference
 
                   
Fishery
  $ 4,163,833     $ 726,702     $ 3,437,131  
                         
Dairy
    29,632,300       18,087,972       11,544,328  
                         
Plantation
    4,774,854       2,911,165       1,863,689  
                         
Beef
    1,980,079       -       1,980,079  
                         
Totals
  $ 40,551,066     $ 21,725,839     $ 18,825,227  
 
Cost of Goods Sold
 
Cost of goods sold increased by $8,712,199 or 92.83% to $18,097,642 for the year ended December 31, 2010 from $9,385,442 for the year ended December 31, 2009.  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, 2010 to December 31, 2009.
 
Category
 
2010
   
2009
   
Difference
 
                   
Fishery
 
$
1,055,089
   
$
-
   
$
1,055,089
 
                         
Dairy
   
14,366,437
     
8,579,738
     
5,786,699
 
                         
Plantation
   
1,828,324
     
805,704
     
1,022,620
 
                         
Beef
   
847,791
     
-
     
847,791
 
                         
Totals
 
$
18,097,641
   
$
9,385,442
   
$
8,712,199
 
 
 
39

 
 
The gross profit by category is as follows:
 
  
 
Years-ended December 31,
 
             
Category
 
2010
   
2009
 
             
Fishery
    3,108,744       726,702  
                 
      (75 )%     (100 )%
                 
Dairy
    15,265,863       9,508,234  
                 
      (52 )%     (53 )%
                 
Plantation
    2,946,530       2,105,461  
                 
      (62 )%     (72 )%
                 
Beef
    1,132,288       -  
                 
      (57 )%     -  
 
Depreciation and Amortization
Depreciation and amortization increased by $526,401 or 31.23% to $2,212,106 for the year ended December 31, 2010 from $1,685,705 for the year ended December 31, 2009.  The increase was primarily due to the increase of depreciation of $435,358 for year ended December 31,2010 from depreciation of $820,193 for the year ended December 31, 2009.

General and Administrative Expenses, and Interest Expenses
 
General and administrative expenses (including depreciation and amortization) increased by $699,477 or 24.53% to $3,551,561 from $2,852,084 for the year ended December 31, 2009.  The increase was primarily due to increase on the overall general and administration expenses amounting to $3,551,561 during year ended December 31, 2010 from $2,852,084 for the year ended December 31, 2009 and the increase in depreciation & amortization charges of $244,177 for year ended December 31, 2010 from $101,485 for the year ended December 31, 2009.
 
Category
 
2010
   
2009
   
Difference
 
                   
Office and corporate expenses
  $ 1,660,959     $ 1,468,377     $ (192,582 )
                         
Wages and Salaries
  $ 1,403,102     $ 1,018,497     $ (384,605 )
                         
Traveling and related lodging
  $ 124,024     $ 76,636     $ (47,388 )
                         
Motor vehicles expenses and local transportation
  $ 54,697     $ 9,540     $ (45,157 )
                         
Entertainments and meals
  $ 39,090     $ 148,971     $ 109,881  
                         
Others and miscellaneous
  $ 25,512     $ 28,578     $ 3,066  
                         
Depreciation and amortization
  $ 244,177     $ 101,485     $ (142,692 )
                         
Sub-total
  $ 3,551,561     $ 2,852,084     $ (699,477 )
                         
Interest expenses
    354,140       470,019       115,879  
                         
Total
  $ 3,905,701     $ 3,322,103     $ (583,598 )
                         
 
In this respect, total depreciation and amortization amounted to $2,212,106 for the year ended December 31, 2010, out of which amount, $244,177 was booked under General and administration expenses and $1,967,929 was booked under cost of goods sold; whereas total depreciation and amortization was at $1,685,705 for the year ended December 31, 2009 and out of which amount, $101,485 was booked under General and Administration expenses and $1,584,220 was booked under cost of goods sold.
 
 
40

 
 
    Income Taxes

There was no income tax payable in year ended December 31, 2010 and 2009.

Off Balance Sheet Arrangements

At December 31, 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 statements.

OTHER SIGNIFICANT TRANSACTIONS THAT AFFECT CASH/LIQUIDITY:

Seasonal Factors Affecting our Operations

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.

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, our 2010 harvest was at 31.5 million pieces which is twice the volume of our 2009 harvest of 16.5 million pieces in 2009. This harvest of 31.5 million is still insufficient flowers to be processed into dried flowers to be stored and sold through to June 2011 to even out our annual sales through the year of 2011.

The Fishery – during 2010 we completed 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.
 
As at December 31, 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.”
 
 
41

 
 
INCOME STATEMENT FOR THE YEAR ENDED 31DECEMBER 2010

   
2010
   
2009
 
   
$
   
$
 
             
Revenue
    40,551,066       21,725,839  
Cost of goods sold
    18,097,641       9,385,442  
Gross profit
    22,453,425       12,340,397  
General and administrative expenses
    (3,540,166 )     (2,852,084 )
Net income from operations
    18,913,259       9,488,313  
Other income (expenses)
               
Other income
    226,586       26  
Loss on extinguishment of debts
    (6,088,625 )     -  
Interest expense
    -354,140       -470,019  
Net income  (expenses)
    (6,216,179 )     (469,993 )
Net income  before income taxes
    12,697,080       9,018,320  
Provision for income taxes
    -       -  
Net income
    12,697,080       9,018,320  
                 
Less: Net income attributable to the non - controlling interest
    (4,196,258 )     (2,210,381 )
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    8,500,822       6,807,939  
Other comprehensive income
               
Foreign currency translation gain
    2,097,324       31,118  
Comprehensive income
    10,598,146       6,839,057  
Less: other comprehensive income attributable to the non - controlling interest
    (461,411 )     (1,359 )
Comprehensive income attributable to Sino Agro Food, Inc.  and subsidiaries
    10,136,735       6,837,698  
                 
Earnings per share attributable to Sino Agro Food, Inc.and subsidiaries common stockholders:
               
Basic
  $ 0.16     $ 0.13  
Diluted
  $ 0.14     $ 0.13  
Weighted average number of shares outstanding:
               
Basic
    54,223,823       52,889,473  
Diluted
    61,223,823       52,889,473  
 
 
42

 
 
Comparison for the years ended December 31, 2009 and December 31, 2010 presented with segments’ information and analysis
The revenue table for the years ended December 31, 2009 and December 31, 2010.

   
Year
Ended
December
31
 
2009
 
 
 
Fishery
  $ 726,702  
Dairy
  $ 18,087,972  
Plantation    
  $ 2,911,165  
Beef
    -  
Total
  $ 21,725,839  
         
2010
       
Fishery
  $ 4,163,833  
Dairy
  $ 29,632,300  
Plantation
  $ 4,774,854  
Beef
  $ 1,980,079  
Total
  $ 40,511,066  

 Seasonal Factors Affecting our Operations

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.

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, our 2010 harvest was at 31.5 million pieces which is twice the volume of our 2009 harvest of 16.5 million pieces in 2009. This harvest of 31.5 million is still insufficient flowers to be processed into dried flowers to be stored and sold through to June 2011to even out our annual sales through the year of 2011.

The Fishery – during 2010 we completed 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.
 
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, our fishery operation is starting to generate higher positive incomes in 2010 earned from services rendered for the development of our first fish farm at Enping City and will eventually generate high earnings from the sales of fish starting in 2nd half of 2011for our group thereon.
 
 
43

 
 
Our Beef operation at Xining City started to generate sales revenues from Q3 2010 from the selling of its Bio-organic fertilizer and live-stock feed.

 
As such, currently all of our four businesses are generating incomes which are expecting to maintain a strong growth rate starting from the 2nd half of 2011.
 
At December 31, 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.”

 
Total Revenues (collectively from all operations) increased by $18,825,227 or 86.65% to $40,551,066 for the year ended December 31, 2010 from $21,725,839 for the year ended December 31, 2009.  The increase was primarily due to the increased activities of and revenues generated from each of the businesses mentioned above.
 
The costs of goods table for the year ended December 31, 2009 and the year ended December 31, 2010.

   
Year
ended
December
31
 
2009
     
Fishery
  $ -  
Dairy
  $ 8,579,738  
Plantation
  $ 805,704  
Beef
  $ -  
Total
  $ 9,385,442  
         
2010
       
Fishery
  $ 1,055,089  
Dairy
  $ 14,366,437  
Plantation
  $ 1,828,324  
Beef
  $ 847,791  
Total
  $ 18,097,641  

Cost of goods sold increased by $8,712,199 or 92.83% to $18,097,641 for the year ended December 31, 2010 from $9,385,442 for the year ended December 31, 2009. The increase primarily due to the increase on the Dairy’s production cost of dairy products and raw liquid milk and increases of costs on the other businesses due to increase of sales revenues respectively.

The gross profit table for the year ended December 31, 2009 and the year ended December 31, 2010.
 
   
Year
ended 
December
31.
 
2009
     
Fishery
  $ 726,702  
Dairy
  $ 9,508,234  
Plantation
  $ 2,105,461  
Beef
  $ -  
Total
  $ 12,340,397  
         
2010
       
Fishery
  $ 3,108,744  
Dairy
  $ 15,265,863  
Plantation
  $ 2,946,529  
Beef
  $ 1,132,288  
Total
  $ 22,453,424  

Gross Profit increased by $10,113,027 or 81.95% to $22,453,424 for the year ended December 31, 2010 from $12,340,397 for the year ended December 31, 2009. The increase primarily due to the increase of sales margin of the Beef, and the increase of sales activities and revenues on all other businesses of the Company.

 
44

 
 
Loss on extinguishment of debts

The Company entered  several  agreements with third parties to acquire land use rights and proprietary technology and agreed to settle of debts by exchange of shares of the Company at agreed price and time schedule. Loss of extinguishment debts are the amount of fair value of shares exchange over the amount of debts and that loss has no effects on cash flows, total assets and total liabilities.
Ta xes
There was no income tax payable in both of the years ended December 31, 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 December 31, 2010, we had unrestricted cash and cash equivalents of $3,890,026, (see notes to the consolidated account), and our working capital as of December 31, 2010 was at $40,892,846
As of December 31, 2010, our total long term debts are as follows:

Contractual
Obligations
 
Less than
1 year
   
1-3 years
   
3-5
years
   
More
than 5
years
   
Total
 
                               
Long Term Bank Debts
 
$
-
   
$
3,776,435
   
$
-
   
$
      
$
3,776,435
 

Cash provided by operating activities totaled $11,311,452 for the year ended December 31, 2010.  This compares with cash provided by operating activities of $4,670,864 for the year ended December 31, 2009.  The increase in cash flows from operations primarily resulted from net cash provided by net income for the year after adjustments of non- cash items.

Cash used in investing activities totaled $111,045,516 for the year ended December 31, 2010.  This compares with cash used in investing activities of $4,286,086 for the year ended December 31, 2009.  The increase in cash used in investing activities primarily resulted from the purchase of property and equipment of $4,479,880, acquisition land use rights of $3,223,411, payment for construction in progress of $2,984,687 for the year ended December 31, 2010 from $4,286,886 for year ended December 31, 2009.

Cash provided by financing activities totaled $3,059,788 for the year ended December 31, 2010.  This compares with cash provided by financing activities of $214,375 for the year ended December 31, 2009.  The decrease in cash flows from financing activities primarily resulted from repayments of debt of $3,059,788 compares to the nil net movement repayments of debts in 2009.
Bank Loan
As of December 31, 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 statements.

Related Parties 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:-

 
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Name of related party
 
Nature of transactions
     
Mr. Rui Xiong He, director of Enping City Juntang Town Hang Sing Tai Agriculture Development Co Ltd, subsidiary of the Company
 
Included in other payables, due to Mr. Rui Xiong He is $nil and $16,985 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Xiang Jun Fang, director of Enping City Juntang Town Hang Sing Tai Agriculture Development Co Ltd, subsidiary of the Company
 
Included in other receivables, due from Mr. Xiang Jun Fang is $nil and $260,101 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
Included in other payables, due to Mr. Xiang Jun Fang is $nil and $150,057 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Mr. Solomon Yip Kun Lee, Chairman
 
Included in due to directors, due to Mr. Solomon Yip Kun Lee is $926,196 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
Included in due from directors, Mr. Solomon Yip Kun Lee is $nil and $73,164 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Michael Bor Hann Chen, director and company secretary
 
Included in due from directors, due from Mr. Michael Bor Hann Chen is $nil and $38,228 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”), investee
 
Included in other payable, due to SJAP is $nil and $2,494 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Mr. Xi Ming Sun, director of ZhongXingNong Nu Co., Ltd
 
Included in other payable, due to Mr. Xi Ming Sun is $213,223 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
     
Mr. YiLin Zhao, director of Qinghai Sanjiang A Power Agriculture Co., Ltd
 
Included in other payable, due to Mr. YiLin Zhao is $19,661 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
Notes: Banking Regulations and tax laws in China and the trading habit of the farming society are in general rather different to many other Western Developing Countries, (i.e. Maximum daily Cash withdrawn from banks is limited to RMB50,000. / consecutive day without having to go through regulatory application processes, a company is not allowed to issue paid-cheque to a person with its current bank account, in the agriculture sector, growers and suppliers would deal mainly in cash transactions and most of the taxes for goods sold and purchased are to be paid up-front by buying the tax coupons in advance and others etc.). It is due to these reasons, it is necessary for the company to keep certain cash balances under the accounts of respective directors to be able to operate efficiently.

The Company needs to bring cash directly to the farmers and some suppliers to buy material and other goods from the farmers as well as to buy some of capital expenditure items from suppliers (i.e.) building and construction materials and locally manufacturing plants and equipment.  Usually cash are given to the Directors or advanced by the directors personally for these purposes. These cash transactions are being booked temporary under Director’s individual accounts as "due from directors" or when the goods or materials are being delivered, we booked in the said director’s account as “Due to the director", such that these type s of entries were primarily to make easier book keeping and that we don’t regard the referred transactions are personal loans to the directors for the purpose of Section 13(k) of the Exchange Act.

 
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OTHER SIGNIFICANT TRANSACTIONS THAT AFFECT CASH/LIQUIDITY:
 
As of December 31, 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.”
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of SIAF, its subsidiaries CA, CS, CH, TRW, PMH, MEIJI, JHST, HYT, ZX, and APWAM and its variable interest entity SJAP. All material inter-company transactions and balances have been eliminated in consolidation.

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

BUSINESS COMBINATION

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

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

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

  USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principals 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.

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.

COST OF GOODS SOLD

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies.
 
 
47

 
 
SHIPPING AND HANDLING
   
Shipping and handling costs related to cost of goods sold are included in general and administrative  expenses which totaled $nil and $nil for the years ended December 31, 2010 and December 31, 2009, respectively.
 
ADVERTISING
 
Advertising costs are included in general and administrative expenses which totaled $nil for the years ended December 31, 2010 and   December 31, 2009, respectively.
 
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 other comprehensive income as incurred.
 
Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $3,804,116 as of December 31, 2010 and $2,168,203 as of December 31, 2009. The balance sheet amounts with the exception of equity at December 31, 2010 and December 31, 2009 were translated at RMB6.62  to $1.00 and RMB6.82 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the years ended December 31, 2010 and December 31, 2009 were RMB6.73 to $1.00 and RMB6.82 to $1.00, respectively.
 
CASH AND CASH EQUIVALENTS
 
The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents.  Cash and cash equivalents kept with financial institutions in People’s Republic of China (“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.
 
ACCOUNTS RECEIVABLE

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
The standard credit period 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. Provision for doubtful accounts as of December 31, 2010 and December 31, 2009 are $nil.

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

Costs incurred in bringing each product to its location and conditions are accounted for as follows:
-
raw materials – purchase cost on a weighted average basis;
-
manufactured finished goods and work-in-progress – cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding  borrowing costs; and
-
retail and wholesale merchandise finished goods – purchase cost on a weighted average basis.

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

 
48

 
 
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 lives 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

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

GOODWILL

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment on an annual basis at the end of the company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired three groups of companies, HYT, TRW and MEIJI. HYT is engaged in the dairy farm, TRW is engaged in the holding of proprietary technologies 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.

PROPRIETARY TECHNOLOGIES

The Company has determined that technological feasibility is established at the time a working model of products is completed. A master license of stock feed manufacturing technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. 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.

CONSTRUCTION IN PROGRESS

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

LAND USE RIGHTS
  
Land use rights represent acquisition of land use right rights of agriculture land from farmers and are amortized on the straight line basis over 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.

CORPORATE JOINT VENTURE
 
A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is defined as a joint venture.

Investee entities in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income.

 
49

 
 
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.

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 principal, 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.

POLITICAL AND BUSINESS RISK

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

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, 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, 2010 and December 31, 2009, the Company determined no impairment charges were necessary.

EARNINGS PER SHARE

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

For the years ended December 31, 2010 and December 31, 2009, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.16 and $0.13, respectively. For the years  ended December 31, 2010 and December 31, 2009, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.14 and $0.13, respectively.
 
 
50

 
 
ACCUMULATED OTHER COMPREHENSIVE INCOME

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

RETIREMENT BENEFIT COSTS

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

STOCK-BASED COMPENSATION
 
The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50,“Equity-Based Payments to Non-Employees” using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principals 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 December 31, 2010 or December 31, 2009, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal years ended December 31, 2010 or December 31, 2009.
   
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 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.
 
51

 
 
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. The Company adopted this standard and has determined the standard does not have material effect on the Company’s consolidated financial statements.

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. The Company is currently evaluating the impact of this ASU, however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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.

 
52

 
 
In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update amends codification topic 310 on receivables to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. This guidance is being phased in, with the new disclosure requirements for period end balances effective as of December 31, 2010, and the new disclosure requirements for activity during the reporting period are effective March 31, 2011. The troubled debt restructuring disclosures in this ASU have been delayed by ASU 2011-01 “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” which was issued in January 2011.

In December 2010, the FASB issued Accounting Standards Update 2010-28 which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances changes that would more likely than not reduce the faire value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010-29 which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of this ASU and expected the adoption of this ASU will have an impact on its future business combinations.

SHAREHOLDERS’ EQUITY

During the year ended December 31, 2009, the Company issued 615,000 shares of common stock for cash in the amount of $215,250.  On December 23, 2009, 825,000 shares of common stock were voluntarily cancelled by shareholders of the Company.

On various dates through January 1, 2010 to December 31, 2010, (i) 9,680,145 shares of common stock  were issued for $10,445,084 at fair value ranging from $0.48 to $1.27 to settle debts due to third parties; (ii) 4,770,855 shares of common stock  were issued for $3,915,436 at fair value ranging from $0.50 to $1.27 to settle debts due to proprietary technologies payable  (iii) 2,190,002 shares of common stock  were voided for $nil, (iv) 3,000,000 shares of common stock  were retired for $3,000.

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 cancelled and the Company issued 7,000,000 shares of Series B convertible preferred stock of $1 per share. The company has authorized 10,000,000 shares of Series B convertible  preferred stock with 7,000,000  and  0 shares issued and outstanding as of September  30, 2010 and December 31, 2009, respectively.

Series A preferred stock stockholders

 
(i)
are not entitled to receive any dividend;

 
(ii)
vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders.  Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.
 
 
(iii)
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 December 31, 2010 and December 31, 2009, respectively.
 
 
53

 
 
On May 4, 2010, the Company issued employees a total of 497,059 shares of common stock valued at fair value of  $1.00 per share for $497,059 as stock based compensation. On October 30, 2010, the Company issued employees a total of 22,500 shares of common stock valued at  fair value of $1.50 per share for $33,750  as stock based compensation. The Company recognized $530,809 of stock based compensation as this was the dollars amount of the service rendered to the Company.

 
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 ftІ
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 ftІ
Name of Landlord: Huangyuan Government, Commercial and Trade Department.
Term of Lease: 5 years
Monthly Rental: Free
  
 
3.
Address: Enping City, Guangzhou
Number of square feet: 2,178 ft
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
 
 
54

 
 
 
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

 
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
 
 
55

 
 
 
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

   
22.
Location: Guangdong Province, Enping City, Liangxi Town Yane Shang Chong Village, east of the village Namdu village areas (formerly sugar cane farm)
Number of acres:  68.62 acresDate of Grant: February 22, 2011
Duration of land use right: 26 years

 
23.
Address: Guangdong Province, Enping City, Liangxi Town Yane Nandu Village (hereinafter called "the Landowner"), east of the village at Tongwali, neigbouring the ponds, Shatiangang, both sides of the road, Chuanyaodeng, Shadu areas (formerly sugar cane farm)
 
Number of acres:  280.90 acres
Date of Grant: February 22, 2011
Duration of land use right: 26 years

 
24.
Address: Guangdong Province, Enping City, Liangxi Town Yane Xiaoban Village
Number of acres:  86.16 acres
Date of Grant: February 22, 2011
Duration of land use right: 26 years

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.
 
 
56

 
 
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
     
24.33
%
Tan Poay Teik
   
4,500,000
     
8.11
%
Chen Bor Hann
   
900,000
     
1.62
%
All officers and directors as a group [3 persons]
   
18,900,000
     
34.06
%

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 55,474,136 shares of Common Stock issued and outstanding as of December 31, 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 December 31, 2010.
     
Rights and Preferences of Series A Preferred Stock

VOTING RIGHTS:  The outstanding shares of Series A Preferred Stock shall vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders.  Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.

Combined Voting Rights of Principal Shareholders Owning Common Stock and Series A Preferred Stock

NAME OF
PRINCIPAL
SHAREHOLDER
 
NUMBER OF VOTES
OF COMMON
STOCK
   
NUMBER OF VOTES
OF SERIES A
PREFERRED STOCK
   
COMBINED
NUMBER OF VOTES
   
PERCENTAGE OF
VOTES FOR
COMBINED
OWNERSHIP
 
Lee Yip Kun Solomon
    13,500,000       30,737,742       44,237,742       79.74 %
Tan Poay Teik
    4,500,000       10,977,765       15,477,765       27.90 %
Chen Bor Hann
    900,000       2,195,553       3,095,553       5.58 %
All officers and directors as a group [3 persons]
    18,900,000       43,911,060       62,811,060       113.22 %

 
·
Applicable % is based on 55,474,136 Common shares fully issued as at December 31, 2010.
 
 
57

 
 
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
%
 
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 December 31, 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
 
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.
 
 
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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.

 
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, 2010.

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
 
   
2010
   
336,000
             
336,000
 
                             
Mr. Tan Paoy Teik, Chief Marketing Officer
 
2009
   
174,000
     
0
     
174,000
 
   
2010
   
174,000
             
174,000
 
                             
Mr. Chen Bor Hann, Secretary
 
2009
   
60,000
     
0
     
60,000
 
   
2010
   
60,000
             
60,000
 
 
 
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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, 2010.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2010.

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
             
672,000
     
967,680
 
Mr. Tan Paoy Teik
   
0
     
0
     
0
     
0
     
0
     
348,000
     
501,120
 
Mr. Chen Bor Hann
   
0
     
0
     
0
     
0
     
0
     
120,000
     
172,800
 
  
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 have been issued but that are not vested are reflected in the tables above.  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
 
 
60

 
 
 
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, 2010
 
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.  Directors did not receive any compensation except for that received as executive officers as set forth above.

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
 
Included in other payables, due to Mr. Rui Xiong He is $nil and $16,985 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has 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 $nil and $260,101 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
Included in other payables, due to Mr. Xiang Jun Fang is $nil and $150,057 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”), investee
 
Included in other payable, due to SJAP is $nil and $2,494 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
 
 
 
Mr. Solomon Yip Kun Lee, Chairman
 
Included in due to directors, due to Mr. Solomon Yip Kun Lee is $926,196 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
Included in due from directors, Mr. Solomon Yip Kun Lee is $nil and $73,164 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
 
 
 
Mr. Michael Bor Hann Chen, director and company secretary
 
Included in due from directors, due from Mr. Michael Bor Hann Chen is $nil and $38,228 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
 
 
61

 
 
Mr. Xi Ming Sun, director of ZhongXingNong Nu Co., Ltd
 
 
Included in other payable, due to Mr. Xi Ming Sun is $213,223 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
     
Mr. Yi Lin Zhao, director of Qinghai Sanjiang A Power Agriculture Co., Ltd
 
 
Included in other payable, due to Mr. Yi Lin Zhao is $19,661 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
Notes: Banking Regulations and tax laws in China and the trading habit of the farming society are in general rather different to many other Western Developing Countries, (i.e. Maximum daily Cash withdrawn from banks is limited to RMB50,000. / consecutive day without having to go through regulatory application processes, a company is not allowed to issue paid-cheque to a person with its current bank account, in the agriculture sector, growers and suppliers would deal mainly in cash transactions and most of the taxes for goods sold and purchased are to be paid up-front by buying the tax coupons in advance and others etc.). It is due to these reasons, it is necessary for the company to keep certain cash balances under the accounts of respective directors to be able to operate efficiently.

The Company needs to bring cash directly to the farmers to buy material and other inputs from the farmers.  This cash is given to the Directors personally but solely for this purpose.  But because the money is given in cash to Directors, we are technically required to record the amounts in our account as "due from directors" or "other receivable-related party". After the material or other inputs were bought back, we credit the amount in "due from directors" or "other receivable——related party" such that we don’t regard the referred transactions are personal loans to the directors for the purpose of Section 13(k) of the Exchange Act.

The Table below details these transactions:

Date
 
Name of director account
 
DR
$
   
CR
$
   
Balance
$
 
As of 12/31/2009
 
Due to, Mr. Rui Xiong He,
          16,985       -16,985  
As of 12/31/2010
 
Repayment made to Mr. Rui Xiong He
    16,985               0  
                             
As of 12/31/2009
 
Due from Mr. Xiang Jun Fang
    260,101.               260,101  
   
Due to Mr. Xiang Jun Fang
            150,057       110,044  
As of 12/31/2010
 
Due from Mr. Xiang Jun Fang
    0               0  
   
Due to Mr. Xiang Jun Fang
            0       0  
As of 01/31/2011
 
Balance of Mr. Xiang Jun Fang
                    0  
                             
As of 12/31/2009
 
Due to Mr. Solomon Lee
            0       0  
   
Due from Mr. Solomon Lee
    73,164               73,164  
As of 12/31/2010
 
Due to Mr. Solomon Lee
            926,196          
   
Due from Mr. Solomon Lee
                       
As of 12/31/2010
 
Balance due to Mr. Solomon Lee
                    -926,196  
                             
As of 12/31/2009
 
Due from Mr. Chen Bor Hann
    38,228               38,228  
As of 12/31/2010
 
Due to Mr. Chen Bor Hann
            0       0  
                             
As of 12/31/2010
 
Due to Mr. Xi Ming Sun
            213,223       -213,223  
                             
As of 12/31/2010
 
Due to Mr. Yi Lin Zhao
            19,661       -19,661  

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.
 
 
62

 
 
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
 
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
   
$
0.1
 
July 1 – September 30, 2009
 
$
1.01
   
$
0.5
 
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
 
July 1 - September 30, 2010
 
$
1.44
   
$
0.47
 
October 1 – December 31, 2010
 
$
1.80
   
$
1.15
 

Record Holders

As of December 31, 2010 there were 5,263 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.
 
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  
                                             
Sept. 5, 2007
 
Issuance of shares for the acquisition of 100% equity in Macau Eiji Company Limitada
    2,000,000         1.939       3,878,739       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
        42,000,000               42,777,896                  
 
 
63

 
 
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 cancelled (from
Solomon Lee share account)
   
-875,000
             
0
     
0
     
0
 
Total for 2009
       
-260,000
             
215,250
                 
 
 
64

 
 
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
     
1.24
     
1,664,080
 
7
   
0
 
Feb. 10
   
780,000
     
1.20
     
936,000
 
1
   
0
 
March 12 to 19
   
2,625,000
     
1.19
     
3,123,750
 
3
   
0
 
April 15 to 27
   
1,055,000
     
1.10
     
1,160,500
 
4
   
0
 
May 13
   
800,000
     
0.525
     
420,000
 
2
   
0
 
May 14
   
350,000
     
0.525
     
183,750
 
2
   
0
 
June 10.
   
1,000,000
     
0.48
     
480,000
 
5
   
0
 
Total Issuance of shares in settlement of debts
   
7,952,000
             
7,968,080
 
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)
             
(7,000,000) 
           
June 26, 2010 issuance of Preference Series A & B
   
7,000,100
     
1.00
     
7,000,100
 
3
   
0
 
Balanced issuance of shares for 1st half 2010
   
6,259,157
             
8,465,239
           
                                   
(iv) Issuance of shares in settlement of debts accrued under Tri-way Subsidiary 
                                 
                                   
In July 2010 
   
975,000
     
0.50
     
487,500
           
In August 2010 
   
 1,625,000
     
 0.57
     
926,250
 
Collectively 
       
In September 2010 
   
1,380,000
     
 1.50
     
1,497,300
 
       
In October 2010
   
  790,855
     
1.27
     
1,004,386
           
Total for debt settlements 
   
4,770,855
             
3,915,436
           
                                   
(v) Issuance of common shares in settlement of debts due to third parties                                  
In October 2010
   
566,145
     
1.27
     
719,004
 
1
       
In November 2010
   
1,172,000
     
1.50
     
1,758,000
 
1
       
                                   
Total for settlement of debts
   
1,738,145
             
2,477,004
           
                                   
(vi) Issuance of shares for workers’ compensation
                                 
In October 2010
   
   22,500
     
  1.50
     
   33,750
 
3
       
                                   
(vii) Shares being retired
                                 
In October 2010
   
3,000,000
     
0
     
   0
           
                                   
Balance as at December 31, 2010
   
55,474,136
             
50,884,475
           
June 26, 2010 issuance of Pref. Series B shares
   
7,000,000
     
1.00
     
7,000,000
 
3
       
June 26, 2010 Issuance of Pref. Series B shares
   
100
     
1.00
     
100
           
Total
   
62,474,236
             
57,884,575
 
136
   
5,123
 
 
[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.
 
Note:

 
· 
Total number of common shares issued = 55,474,136
 
· 
Total number of Preference Series A shares issued = 100
 
 
65

 
 
   
·
Total number of Preference Series B shares issued and outstanding = 7,000,000
 
·
Total issuance of shares (including preference series A & B) shares = 62,474,236
 
·
Total consideration received = $57,884,575
 
·
Total number of non-USA investors = 136
 
·
Total number of USA investors = 5,123
 
·
Total number of shareholders = 5,259
 
·
Basic number of shares issued and outstanding = 55,474,136
 
·
Fully Diluted number of shares issued and outstanding = 62,474,136
 
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.

 
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.  However, under the terms of our Series A Preferred Stock, Holders of Series A Preferred Stock shall vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders.  Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.

 
66

 
 
The shareholders of our Common Stock and Series A Preferred 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.  Because the holders of Common Stock only have a maximum of only 20% of these voting rights, so long as the Series A Preferred Stock is issued and outstanding, Common Stockholders alone will always be minority shares and thus alone will not be able to elect any of the such directors.  The vote of the holders of a majority of the voting rights of the issued and outstanding shares of Common Stock combined with the voting rights of the Series A Preferred 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.
 
 
67

 
 
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.
 
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.

The Financial Statements are set forth below:
 

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

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009
 
 
68

 
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   
PAGE
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    F-1  
CONSOLIDATED BALANCE SHEETS
    F-2  
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
    F-3  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
    F-4  
CONSOLIDATED STATEMENTS OF CASH FLOWS
    F-5  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    F-6  
 
 
F-1

 
 
Madsen & Associates CPAs, Inc.
 
684 East Vine Street #3, Murray, UT 84107 PHONE: (801) 268-2632 FAX: (801) 268-3978
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Sino Agro Food, Inc.

We have audited the accompanying consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries (“the Company”) as of December 31, 2010 and December 31, 2009 and the consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2010 and December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements referred to above present fairly, in all material aspects, the financial position of the Company as of December 31, 2010 and 2009, and the consolidated results of its operations and cash flows for each of the years in the two year period ended December 31, 2010 and December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
s/ Madsen & Associates CPA’s, Inc.
Madsen & Associates CPA’s, Inc.
 
Salt Lake City, Utah
April 13, 2011
 
 
F-2

 
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND DECEMBER 31, 2009
   
2010
   
2009
 
    $     $  
ASSETS
               
Current assets
               
Cash and cash equivalents
    3,890,026       2,360,587  
Inventories
    8,913,127       6,099,411  
Deposits and prepaid expenses
    14,229,711       10,189,266  
Accounts receivable, net of allowance for doubtful accounts
    12,803,771       6,869,505  
Other receivables
    3,967,680       1,885,491  
Due from directors
    -       112,267  
Total current assets
    43,804,315       27,516,527  
Property and equipment
               
Property and equipment, net of accumulated depreciation
    17,155,782       7,564,664  
Construction in progress
    2,231,475       5,995,939  
Land use rights, net of accumulated amortization
    16,829,410       13,769,496  
Total property and equipment
    36,216,667       27,330,099  
Other assets
               
Goodwill
    12,000,000       12,000,000  
Proprietary technologies, net of accumulated amortization
    7,287,883       7,634,635  
Long term accounts receivable
    8,459,044       9,338,477  
License rights
    1       1  
Investment in unconsolidated corporate joint venture
    -       242,669  
Total other assets
    27,746,928       29,215,782  
Total assets
    107,767,910       84,062,408  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accrued expenses
    390,846       756,209  
Due to a director
    926,196       -  
Dividends payable
    210,262       -  
Other payables
    1,412,290       4,536,128  
Short term debt
    -       2,435,221  
Total current liabilities
    2,939,594       7,727,558  
Other liabilities
               
Long term debt
    3,776,435       4,401,002  
Total liabilities
    6,716,029       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 December 31, 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 December 31, 2010 and December 31, 2009, respectively)
               
Series B convertible preferred stock: $0.001 par value)
    7,000       -  
(10,000,000 shares authorized, 7,000,000 and 0 shares issued and outstanding) as of December 31, 2010 and December 31, 2009, respectively)
               
Common stock: $0.001 par value
    55,474       52,684  
(100,000,000 shares authorized, 55,474,136 and 52,683,579 shares issued and oustanding as of December 31, 2010 and December 31, 2009, respectively)
               
Additional paid - in capital
    58,586,362       43,704,723  
Retained earnings
    25,019,971       17,086,949  
Accumulated other comprehensive income
    3,804,116       2,168,203  
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
    87,472,923       63,012,559  
Non - controlling interest
    13,578,958       8,921,289  
Total stockholders' equity
    101,051,881       71,933,848  
Total liabilities and stockholders' equity
    107,767,910       84,062,408  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-3

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

   
2010
   
2009
 
    $     $  
Revenue
    40,551,066       21,725,839  
Cost of goods sold
    18,097,641       9,385,442  
Gross profit
    22,453,425       12,340,397  
General and administrative expenses
    (3,551,561 )     (2,852,084 )
Net income from operations
    18,901,864       9,488,313  
Other income (expenses)
               
                 
Other income
    226,586       26  
Loss on extinguishment of debts
    (6,077,230 )     -  
Interest expense
    (354,140 )     (470,019 )
Net income (expenses)
    (6,204,784 )     (469,993 )
Net income before income taxes
    12,697,080       9,018,320  
Provision for income taxes
    -       -  
Net income
    12,697,080       9,018,320  
                 
Less: Net income attributable to the non - controlling interest
    (4,196,258 )     (2,210,381 )
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    8,500,822       6,807,939  
Other comprehensive income
               
Foreign currency translation gain
    2,097,324       31,118  
Comprehensive income
    10,598,146       6,839,057  
Less: other comprehensive income attributable to the non - controlling interest
    (461,411 )     (1,359 )
Comprehensive income attributable to Sino Agro Food, Inc. and subsidiaries
    10,136,735       6,837,698  
                 
Earnings per share attributable to Sino Agro Food, Inc.
               
and subsidiaries common stockholders:
               
Basic
  $ 0.16     $ 0.13  
Diluted
  $ 0.14     $ 0.13  
Weighted average number of shares outstanding:
               
Basic
    54,223,823       52,889,473  
Diluted
    61,223,823       52,889,473  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

 
Common stock
Par value $0.001
   
Series A
Preferred stock
Par value $0.001
   
Series B Convertible
Preferred stock
Par value $0.001
   
Additional
         
Accumulated
other
   
Non -
       
 
Number of shares
   
Amount
   
Number of shares
   
Amount
   
Number of shares
   
Amount
   
paid - in capital
   
Retained earnings
   
comprehensive income
   
controlling interest
   
Total
 
        $             $             $     $     $     $     $     $  
    52,943,579       52,944       -       -       -       -       43,489,213       10,279,010       2,138,447       6,709,549       62,669,163  
    615,000       615       -       -       -       -       214,635       -       -       -       215,250  
    (875,000 )     (875 )     -       -       -       -       875       -       -       -       -  
    -       -       -       -       -       -       -       6,807,939       -       2,210,381       9,018,320  
    -       -       -       -       -       -       -       -       29,756       1,359       31,115  
                                                                                       
    52,683,579       52,684       -       -       -       -       43,704,723       17,086,949       2,168,203       8,921,289       71,933,848  
    -       -       100       -       -       -       100       -       -       -       100  
    -       -       -       -       7,000,000       7,000       6,993,000       -       -       -       7,000,000  
                                                                                       
                                                                                       
    9,690,145       9,690       -       -       -       -       10,435,394       -       -       -       10,445,084  
                                                                                       
    4,770,855       4,771       -       -       -       -       3,910,665       -       -       -       3,915,436  
    519,559       519       -       -       -       -       530,290       -       -       -       530,809  
                                                                                       
                                                                                       
                                                                                       
    (7,000,000 )     (7,000 )     -       -       -       -       (6,993,000 )     -       -       -       (7,000,000 )
    (5,190,002 )     (5,190 )     -       -       -       -       5,190       -       -       -       -  
    -       -       -       -       -       -       -       8,500,822       -       4,196,258       12,697,080  
                                                                                       
    -       -       -       -       -       -       -       (567,800 )     -       -       (567,800 )
                                                                                       
    -       -       -       -       -       -       -       -       1,635,913       461,411       2,097,324  
    55,474,136       55,474       100       -       7,000,000       7,000       58,586,362       25,019,971       3,804,116       13,578,958       101,051,881  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-5

 
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009
 
 
   
2010
   
2009
 
    $     $  
Cash flows from operating activities
               
Net income for the year
    12,697,080       9,018,320  
Adjustments to reconcile net income to net cash from operations:
               
Depreciation
    1,255,551       820,193  
Amortization
    956,555       865,512  
Loss on extinguishment of debts
    6,077,230       -  
Common stock issued for services
    530,809       -  
Changes in operating assets and liabilities:
               
Increase in inventories
    (2,813,716 )     (900,170 )
Increase in deposits and prepaid expenses
    (4,040,445 )     -  
Decrease in due from directors
    112,267       723,286  
Increase in due to a director
    3,403,200       -  
Decrease in accounts payable and accrued expenses
    (365,363 )     (274,486 )
Increase (decrease) in other payables
    2,682,364       (85,551 )
Increase in accounts receivable
    (5,054,833 )     (4,809,241 )
Increase in other receivables
    (2,082,189 )     (687,874 )
Net cash provided by operating activities
    13,358,510       4,669,989  
Cash flows from investing activities
               
Purchases of property and equipment
    (4,479,880 )     (1,414,336 )
Investment in unconsolidated corporate joint venture
    -       (242,669 )
Acquisition of land use rights
    (3,223,411 )     (858,195 )
Payment for construction in progress
    (2,984,687 )     (1,771,686 )
Net cash used in investing activities
    (10,687,978 )     (4,286,886 )
Cash flows from financing activities
               
Series A Preferred stock issued for cash
    100       -  
Common stock issued for cash
    -       215,250  
Proceeds from debts
    -       2,435,221  
Dividend paid
    (357,538 )     -  
Repayment of long term and short term debt
    (3,059,788 )     (2,435,221 )
Net cash (used in) provided by financing activities
    (3,417,226 )     215,250  
Effects of exchange rate changes on cash
    2,276,133       31,116  
Increase in cash and cash equivalents
    1,529,439       629,469  
Cash and cash equivalents, beginning of year
    2,360,587       1,731,118  
Cash and cash equivalents, end of year
    3,890,026       2,360,587  
Supplementary disclosures of cash flow information:
               
Cash paid for interest
    354,140       470,019  
Cash paid for income taxes
    -       -  
Non-cash transactions:
               
14,461,000 shares of common stock were issued
               
for settlement of debts and proprietary technologies payable
    14,360,520       -  
5,190,002 shares of common stock were cancelled
    -       -  
519,559 shares of common stock issued for employee's compensation
    519,559       -  

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-6

 
 
SINO AGRO FOOD, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
Fiscal Year Ending December 31, 2010
 
 
1.
CORPORATE INFORMATION

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

The Company was engaged in the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the Company entered into a Merger and Acquisition Agreement with Capital Award Inc. (“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. 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 acquired three existing businesses in the People’s Republic of China (“PRC”):

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

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

 
c)
Macau Eiji Company Limited (“MEIJI”), a company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“HST”), a 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 company incorporated in the PRC with MEIJI owning a 75% interest and HST owning a 25% interest.

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited. (“PMH”), a company incorporated in Hong Kong with a 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foregin joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd (“SJAP”), incorporated in the People’s Republic of China of which PMH owns a 45% equity interest. The remaining 55% equity interest in SJAP is owned by the following entities:

 
·
Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a company owned by the PRC 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.

 
·
SJAP is engaged in the business of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, PRC.
 
 
F-7

 
 
1.
CORPORATE INFORMATION (CONTINUED)

In September, 2009, the Company carried out an internal re-organization of its corporate structure and business, and formed a 100% owned subsidiary A Power Agro Agriculture Development (Macau) Limited (APWAM) which was formed in Macau. APWAM then acquired PMH’s 45 % equity interest in SJAP. By virtue of the Assignment, APWAM assumed all obligations and liabilities of PMH under the Sino Foreign Joint Venture Agreement. 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.

On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The aforesaid sale and transfer was approved by the State Administration for Industry And Commerce of Xining City Government of the People’s Republic of China. As a result, SJAP was owned by APWAM with a 45% interest and Garwor with a 55% interest.

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.
 
 
F-8

 
 
2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 REPORTING ENTITY

The accompanying consolidated financial statements include the following entities:
 
Name of subsidiaries
 
Place of incorporation
 
Percentage of ownership interest
 
Principal activities
Capital Award Inc. ("CA")
 
Belize
 
100% (2009: 100%) directly
 
Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. ("CS")
 
Belize
 
100% (2009: 100%) indirectly
 
Dormant
             
Capital Hero Inc. ("CH")
 
Belize
 
100% (2009: 100%) indirectly
 
Dormant
             
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
100% (2009: 100%) directly
 
Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
             
Pretty Mountain Holdings Limited ("PMH")
 
Hong Kong, PRC
 
80% (2009: 80%) directly
 
Dormant
             
Macau Eiji Company Limited ("MEIJI")
 
Macau, PRC
 
100% (2009: 100%) directly
 
Investment holding
             
Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd ("HST")
 
PRC
 
Nil% (2009: 75%) indirectly
 
Hylocereus Undatus Plantation ("HU Plantation")
             
Jiang Men City Heng ShengTai Agriculture Development Co. Ltd ("JHST")
 
PRC
 
75% (2009: 75%) directly
 
Hylocereus Undatus Plantation ("HU Plantation"). The Company has not commenced
           
beef business.
             
Hang Yu Tai Investment Limited ("HYT")
 
Macau, PRC
 
100% (2009: 100%) directly
 
Investment holding
             
ZhongXingNongMu Co. Ltd ("ZX")
 
PRC
 
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
 
100% (2009: 100%) directly
 
Investment holding
 
Name of variable interest entity/unconsolidated corporate joint venture
 
Place of incorporation
 
Percentage of interest
 
Principal activities
Qinghai Sanjiang A Power Agriculture Co., Ltd
 
PRC
 
45% (2009: 45%) indirectly
 
Manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures
 
 
F-9

 
 
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, its subsidiaries CA, CS, CH, TRW, PMH, MEIJI, HJST, HYT, ZX, and APWAM and its variable interest entity SJAP. All material inter-company transactions and balances have been eliminated in consolidation.

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

2.5 BUSINESS COMBINATION

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed 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 acquisition as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. 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.
 
 
F-10

 
 
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 general and administrative expenses which totaled $nil and $nil for the years ended December 31, 2010 and December 31, 2009, respectively.

2.11 ADVERTISING
 
Advertising costs are included in general and administrative expenses which totaled $nil for the years ended December 31, 2010 and December 31, 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 other comprehensive income as incurred.
 
Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $3,804,116 as of December 31, 2010 and $2,168,203 as of December 31, 2009. The balance sheet amounts with the exception of equity at December 31, 2010 and December 31, 2009 were translated at RMB6.62 to $1.00 and RMB6.82 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the years ended December 31, 2010 and December 31, 2009 were RMB6.73 to $1.00 and RMB6.82 to $1.00, respectively.
 
 
F-11

 
 
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. 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. Provision for doubtful accounts as of December 31, 2010 and December 31, 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 overhead based on normal operation capacity but excluding borrowing costs; and
 
 
·
retail and wholesale merchandise finished goods – purchase cost on a weighted average basis.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
 
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 lives 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
 
 
F-12

 
 
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 at the end of the company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired three groups of companies, HYT, TRW and MEIJI. HYT is engaged in the dairy farm, TRW is engaged in the holding of proprietary technologies 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. A master license of stock feed manufacturing technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. 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 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.

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 is defined as a joint venture.
 
Investee entities in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income.
 
 
F-13

 
 
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 banks within the People’s Republic of China. Total cash in these banks on December 31, 2010 and December 31, 2009 amounted to $3,525,224 and $1,686,349, respectively 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.
 
 
F-14

 
 
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:
 
   
2010
   
2009
 
Customer A
    21.39 %     21.20 %
Customer B
    16.80 %     22.54 %
Customer C
    12.81 %     12.26 %
Customer D
    17.00 %     9.62 %
Customer E
    0.33 %     -  
Customer F
    -       9.35 %
      68.33 %     74.97 %

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

   
2010
   
2009
 
Customer A
    28.37 %     35.48 %
Customer B
    16.85 %     22.49 %
Customer C
    14.00 %     9.17 %
Customer D
    12.55 %     -  
Customer E
    7.49 %     17.58 %
Customer F
    -       11.04 %
      79.26 %     95.76 %
 
2.25 IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, 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, 2010 and December 31, 2009, the Company determined no impairment charges were necessary.
 
 
F-15

 

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.26 EARNINGS PER SHARE

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

For the years ended December 31, 2010 and December 31, 2009, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.16 and $0.13, respectively. For the years ended December 31, 2010 and December 31, 2009, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.14 and $0.13, 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
 
The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50,“Equity-Based Payments to Non-Employees” using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.
 
2.30 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:-
 
 
F-16

 

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.30 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

 
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 December 31, 2010 or December 31, 2009, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal years ended December 31, 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 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. The Company adopted this standard and has determined the standard does not have material effect on the Company’s consolidated financial statements.
 
 
F-17

 
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31 NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

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. The Company is currently evaluating the impact of this ASU, however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

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.
 
 
F-18

 
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31 NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update amends codification topic 310 on receivables to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. This guidance is being phased in, with the new disclosure requirements for period end balances effective as of December 31, 2010, and the new disclosure requirements for activity during the reporting period are effective March 31, 2011. The troubled debt restructuring disclosures in this ASU have been delayed by ASU 2011-01 “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” which was issued in January 2011.

In December 2010, the FASB issued Accounting Standards Update 2010-28 which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances changes that would more likely than not reduce the faire value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010-29 which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of this ASU and expected the adoption of this ASU will have an impact on its future business combinations.

 
 
F-19

 

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 four principal reportable segments: Fishery Development Division, Dairy Production Division and HU Plantation Division and Organic Fertilizer and Bread Grass Division.
 
   
2010
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation Division
   
Organic
Fertilizer and
Bread Grass
Division
   
Corporate and
others
   
Total
 
    $     $     $     $     $     $  
Revenue
    4,163,833       29,632,300       4,774,854       1,980,079       -       40,551,066  
                                                 
Net income (loss)
    3,605,581       10,233,169       2,081,642       413,900       (7,833,470 )     8,500,822  
                                                 
Total assets
    17,685,816       51,675,685       14,804,908       4,359,809       19,241,692       107,767,910  
 
   
2009
 
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU
Plantation
Division
   
Organic
Fertilizer and
Bread Grass
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       -       20,602,905       84,062,408  
 
4.
INCOME TAXES

United States of America

SIAF was incorporated in the United States of America. SIAF has no trading operations in United States of America and no US corporate tax has been provided in the financial statements of SIAF.

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.
 
 
F-20

 

No EIT has been provided in the financial statements of CA, ZX, JHST and SJAP since they are exempted from EIT for the years ended December 31, 2010 and December 31, 2009 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, 2010 and December 31, 2009.

Hong Kong

No Hong Kong profits tax has been provided in the financial statements of PMH and TRW, since they did not earn any assessable profits for the years ended December 31, 2010 and December 31, 2009.

 Macau

No Macau Corporation tax has been provided in the financial statements of HYT, APWAM and MEIJI since they did not earn any assessable profits for the years ended December 31, 2010 and December 31, 2009.
 
5.
DIVIDENDS

On August 23, 2010, the Company declared a cash dividend of $0.01 per share, which was accrued on October 15, 2010, to the stockholders as of the close of business on August 27, 2010. As of August 27, 2010, the Company had 56,780, 043 issued and outstanding shares common stock.

   
2010
   
2009
 
    $     $  
Dividends
    567,800       -  
 
The Company paid $357,538 of this amount in cash during the year ended December 31, 2010.
 
6.
CASH AND CASH EQUIVALENTS

   
2010
   
2009
 
    $     $  
Cash and bank balances
    3,890,026       2,360,587  
 
 
F-21

 
 
7.
INVENTORIES

As of December 31, 2010 inventories are as follows:
 
   
2010
$
   
2009
$
 
Bread grass
    54,096       -  
Beef cattle
    3,338,237          
Organic fertilizer
    56,593       -  
Raw materials for bread grass and organic fertilizer
    141,839       -  
Raw materials for HU plantation
    64,353       -  
Immature seeds
    801,596       411,594  
Harvested HU plantation
    199,234       53  
Unharvested HU plantation
    29,079       89,666  
Forage for milk cows and consumable
    4,228,100       5,598,098  
      8,913,127       6,099,411  

8.
DEPOSITS AND PREPAID EXPENSES

   
2010
$
   
2009
$
 
Deposits for
           
acquisition of land use rights
    4,453,665       4,453,666  
inventory purchases
    648,303       219,551  
lease agreements
    2,129       2,129  
materials used for construction in progress
    251,329       79,607  
Prepayments for purchases of milk cows, dairy farm and containers
    8,874,285       5,434,313  
      14,229,711       10,189,266  

9. 
ACCOUNTS RECEIVABLE

The company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the company. As such, all trade receivables are reflected as a current asset and no allowance for bad debt has been recorded as of December 31. 2010 and December 31, 2009. Bad debts written off for the years ended December 31, 2010 and December 31, 2009 are Nil.

Aging analysis of accounts receivable is as follows:
 
   
2010
$
   
2009
$
 
0 - 30 days
    5,083,928       1,530,838  
31 - 90 days
    175,843       -  
91 - 120 days
    1,093,642       5,338,667  
over 120 days and less than 1 year
    6,450,358       -  
over 1 year
    8,459,044       9,338,477  
      21,262,815       16,207,982  
Less: amounts reclassified as long term accounts receivable
    (8,459,044 )     (9,338,477 )
      12,803,771       6,869,505  

10.
OTHER RECEIVABLES

   
2010
$
   
2009
$
 
Advance to service providers
    -       12,983  
Due from related parties
    -       260,101  
Due from employees
    374,622       430,552  
Due from third parties
    2,636,966       1,181,855  
Temporary payments for potential investment
    956,092       -  
      3,967,680       1,885,491  
 
Due from related parties, employees 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, and are reconciled once the business transactions have been completed.
 
 
F-22

 

11.
PLANT AND EQUIPMENT
 
   
2010
$
   
2009
$
 
Milk cows
    7,659,263       4,953,669  
Plant and machinery
    11,604,975       2,948,148  
Structure and leasehold improvements
    110,801       783,491  
Mature seeds
    498,824       484,436  
Furniture and equipment
    263,981       85,506  
Motor vehicles
    47,568       83,493  
      20,185,412       9,338,743  
                 
                 
Less: Accumulated depreciation
    (3,029,630 )     (1,774,079 )
Net booking value
    17,155,782       7,564,664  
 
Depreciation expense was $1,255,551 and $820,193 for the years ended December 31, 2010 and December 31, 2009, respectively.
 
12.
CONSTRUCTION IN PROGRESS

   
2010
$
   
2009
$
 
Construction in progress
           
- Rangeland for milk cows
    -       5,741,168  
- Oven room for production of dried flowers
    479,559       254,771  
- Organic fertilizer and bread grass production plant
    1,751,916       -  
      2,231,475       5,995,939  

13.
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 which consisted of 1,985.06 acres in the Hebei Province and the leases expire in 2036, 2051, 2067 and 2077. The costs of the second lot of land use rights acquired in 2007 in the Guangdong Province, PRC was $6,408,289 and consists of 174.94 acres and the lease expires in 2067. The cost of the third lot of land use rights acquired in 2008 in the Guangdong Province, PRC was $764,128 which consists 33.68 acres and the lease expires in 2068. The cost of the fourth lot of land use rights acquired in 2010 in the Hebei Province, PRC was $3,223,411 which consists 825.00 acres and the lease expires in 2066.
 
   
2010
$
   
2009
$
 
Cost
    18,776,139       15,107,879  
Less: Accumulated impairment losses
    (1,946,729 )     (1,338,383 )
Net book value
    16,829,410       13,769,496  
 
Land use rights are amortized on the straight line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years.

Amortization of land use rights was $609,804 and $553,480 for the years ended December 31, 2010 and December 31, 2009, respectively.

 
F-23

 
 
14.
PROPRIETARY TECHNOLOGIES

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

   
2010
$
   
2009
$
 
Proprietary technologies
    8,000,000       8,000,000  
Less: Accumulated amortization
    (712,117 )     (365,365 )
Net carrying amount
    7,287,883       7,634,635  

Amortization of proprietary technologies was $346,751 and $312,032 for the year ended December 31, 2010 and December 31, 2009, respectively. No impairment of proprietary technologies has identified during the years ended December 31, 2010 and 2009.

15.
GOODWILL

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

   
2010
$
   
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  
 
16.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE

On Septembter 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino - Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), which was incorporated in the People’s Republic of China. As of December 31, 2010, the Company has invested $1,168,829 into this joint venture. SJAP has not   commenced its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures. On December 31, 2010, the Company evaluated VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and SJAP qualifies as a VIE of the Company. As result, the company had consolidated SJAP as a VIE of the Company, and the investment of $1,168,829 was eliminated in the consolidated financial statements.
 
   
2010
$
   
2009
$
 
Investment in unconsolidated joint venture
    -       242,669  
 
 
F-24

 
 
16.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE (CONTINUED)

Continuous assessment of its 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 a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant management judgment because of the inherent limitations that relate to the use of historical data for the projection of future events.
 
On December 31, 2010, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP ’s expected losses or residual returns and SJAP qualifies as a VIE of the Company.

The reasons for the changes are as follows:

 
·
Originally, the board of directors of Sanjiang A Power (SJAP) consisted of 7 members; 3 appointees from Qinghai Sanjiang( one of stockholder), 1 from Garwor (one of stockholder), and 3 from the Company such that the Company did not have majority interest represented in the board of directors of SJAP.
 
 
·
On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The aforesaid sale and transfer was approved by the State Administration for Industry And Commerce of Xining City Government of the People’s Republic of China.
 
Consequently Garwor and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the financial officer of SJAP was appointed by SIAF’s management. As result, the financial statements of SJAP were included in the consolidated financial statements of the company.

16.
LICENSE 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 License with a condition that the Company was required to pay the license fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008. This license 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 a license fee to Infinity once the Company has sold the license to its customer. Under the said license, 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.


18.
OTHER PAYABLES

   
2010
$
   
2009
$
 
Proprietary technologies payable
    -       3,577,264  
Due to third parties
    1,077,738       601,326  
Due to related parties
    223,884       169,536  
Stamp duty payable
    -       4,678  
Due to employees and others
    110,668       183,324  
      1,412,290       4,536,128  
 
Proprietary technologies were acquired from a third party and proprietary technologies payable represents the amount of the unpaid balance. Due to third parties, related parties employees and others are unsecured, interest free and without fixed term of repayment.
 
 
F-25

 
 
19.
SHAREHOLDERS’ EQUITY .

During the year ended December 31, 2009, the Company issued 615,000 shares of common stock for cash in the amount of $215,250. On December 23, 2009, 825,000 shares of common stock were voluntarily cancelled by shareholders of the Company.

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 cash in the amount of $100.

On various dates through January 1, 2010 to December 31, 2010, (i) 9,680,145 shares of common stock were issued for $10,445,084 at fair value ranging from $0.48 to $1.27 to settle debts due to third parties; (ii) 4,770,855 shares of common stock were issued for $3,915,436 at fair value ranging from $0.50 to $1.27 to settle debts due to proprietary technologies payable (iii) 5,190,002 shares of common stock were voluntarily cancelled by shareholders.

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 cancelled and the Compay issued 7,000,000 shares of Series B convertible preferred stock of $1 per share. The company has authorized 10,000,000 shares of Series B convertible preferred stock with 7,000,000 and 0 shares issued and outstanding as of December 31, 2010 and December 31, 2009, respectively.

Series A preferred stock stockholders
 
 
(i)
are not entitled to receive any dividend;

 
(ii)
vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.
 
 
(iii)
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 December 31, 2010 and December 31, 2009, respectively.
 
On May 4, 2010, the Company issued employees a total of 497,059 shares of common stock valued at fair value of $1.00 per share for $497,059 as stock based compensation. On October 30, 2010, the Company issued employees a total of 22,500 shares of common stock valued at fair value of $1.50 per share for $33,750 as stock based compensation. The Company recognized $530,809 of stock based compensation as this was value services rendered to the Company.
 
 
F-26

 
 
20.
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
 
                 
Amount
 
Name of bank
 
Interest rate
   
Term
 
Security
 
2010
$
   
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
 
                 
Amount
 
Name of bank
 
Interest rate
   
Term
 
Security
 
2010
$
   
2009
$
 
Agricultural Development Bank of China
    6.75 %  
4/29/2007-4/28/2012
 
Corporate guarantee by third party
    3,776,435       4,401,002  

21.
OBLIGATION UNDER OPERATING LEASES
 
The Company leases (i) 2,178 square feet of agriculture space used for offices, currently with a monthly rent of $479 in Enping City, Guangdong Province, PRC, and the lease expires on March 31, 2014 and (ii)2,300 square feet of office space in Guangzhou City, Guangdong Province, PRC, currently with a monthly rent of $4,238 and the lease expires on October 15, 2012.

The future minimum lease payments at December 31, 2010, are as follows:

   
2010
$
 
Year ended December 31,2011
    56,600  
Year ended December 31,2012
    48,124  
Year ended December 31,2013
    5,747  
Year ended December 31,2014
    1,437  
Thereafter
    -  
      111,908  
 
Lease expense was $57,439 and $56,668 for the years ended December 31, 2010 and 2009, respectively.
 
 
F-27

 

22.
CONTINGENCIES

As of December 31, 2010 and 2009, 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 incomes and comprehensive income or cash flows.

23.
STOCK BASED COMPENSATION
 
On May 4, 2010, the Company issued employees a total of 497,059 shares of common stock valued at fair value of $1.00 per share for $497,059 value as stock based compensation. On October 30, 2010, the Company issued employees a total of 22,500 shares of common stock valued at fair value of $1.50 per share for $33,750 as stock based compensation. The Company recognized $530,809 of stock based compensation as this was the dollars amount of the service rendered to the Company.

24.
LOSS ON EXTINGUISHMENT OF DEBTS

The Company entered several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the share were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a loss on the extinguishment of debts has been charged to operation during the year ended December 31, 2010.

 
F-28

 
 
25.
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 and Hang Sing Tai Agriculture Development Co Ltd, subsidiary of the Company
 
Included in other payables, due to Mr. Rui Xiong He is $nil and $16,985 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Xiang Jun Fang, director of Enping City Juntang Town and Hang Sing Tai Agriculture Development Co Ltd, subsidiary of the Company
 
Included in other receivables, due from Mr. Xiang Jun Fang is $nil and $260,101 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
Included in other payables, due to Mr. Xiang Jun Fang is $nil and $150,057 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Mr. Solomon Yip Kun Lee, Chairman
 
Included in due to directors, due to Mr. Solomon Yip Kun Lee is $926,196 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
Included in due from directors, Mr. Solomon Yip Kun Lee is $nil and $74,039 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Michael Bor Hann Chen, director and
company secretary
 
Included in due from directors, due from Mr. Michael Bor Hann Chen is $nil and $38,228 as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and has no fixed term of repayment.
     
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”), investee
 
Included in other payable, due to SJAP is $nil and $2,494 as of December, 31, 2010 and December 31, 2009, respectively. The amount is unsecured, interest free and has no fixed term of repayment.

Mr. Xi Ming Sun, director of
ZhongXingNong Nu Co., Ltd
 
Included in other payable, due to Mr. Xi Ming Sun is $213,223 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.

Mr. Yi Lin Zhao, director of Qinghai Sanjiang A Power Agriculture Co., Ltd
 
Included in other payable, due to Mr. Yi Lin Zhao is $19,661 and $nil as of December, 31, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.
 
26.
SUBSEQUENT EVENTS

On January 28, 2011, PMH was dissolved.

On February 15, 2011, the company sold its 78% equity interest in its subsidiary, ZX for $31,000,000. In February, 2011, the company acquired land use rights for lots of land in the PRC for $52,703,690.

On February 28, 2011, the Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co., Limited (BTAPP), of which the Company would own a 25% equity interest. The approvals of the formation of BTAPP by the relevant authorities of the PRC Government is pending.

 
F-29

 
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES

QUARTERLY FINANCIAL REPORT

FOR THE NINE  MONTHS ENDED SEPTEMBTER 30, 2010

 
F-30

 
 
SINO AGRO FOOD, INC.
CONSOLIDATED  BALANCE SHEETS

   
(Restated)
       
   
September 30 ,2010
   
December 31 ,2009
 
   
(Unaudited)
   
(Audited)
 
   
$
   
$
 
ASSETS
           
Current assets
           
Cash and cash equivalents
    2,534,168       2,360,587  
Inventories
    9,050,220       6,099,411  
Deposits and prepaid expenses
    12,398,272       10,189,266  
Accounts receivable, net of allowance for doubtful accounts
    7,719,843       6,869,505  
Other receivables
    1,228,327       1,885,491  
Due from directors
    -       112,267  
Total current assets
    32,930,830       27,516,527  
Property and equipment
               
Property and equipment, net of accumulated depreciation
    13,484,334       7,564,664  
Construction in progress
    7,860,795       5,995,939  
Land use rights, net of accumulated amortization
    14,765,682       13,769,496  
Total property and equipment
    36,110,811       27,330,099  
Other assets
               
Goodwill
    12,000,000       12,000,000  
Proprietary technologies, net of accumulated amortization
    7,386,667       7,634,635  
Long term accounts receivable
    9,325,174       9,338,477  
License rights
    1       1  
Investment in unconsolidated corporate joint venture
    -       242,669  
Total other assets
    28,711,842       29,215,782  
                 
Total assets
    97,753,483       84,062,408  
                 
LIABILITIES  AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
Accounts payable and accrued expenses
    373,736       756,209  
Due to a director
    964,766       -  
Dividends payable
    567,800       -  
Other payables
    2,005,816       4,536,128  
Short term debt
    -       2,435,221  
Total current liabilities
    3,912,118       7,727,558  
                 
Other liabilities
               
Long term debt
    3,731,343       4,401,002  
                 
Total liabilities
    7,643,461       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  September 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 September 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 September 30, 2010 and December 31,  2009, respectively)
    7,000       -  
Common stock:  $0.001 par value
(100,000,000 shares authorized, 55,922,636 and 52,683,579 shares issued
and outstanding as of September 30, 2010 and December 31, 2009, respectively)
    55,922       52,684  
Additional paid - in capital
    55,101,898       43,704,723  
Retained earnings
    19,631,605       17,086,949  
Accumulated other comprehensive income
    3,391,977       2,168,203  
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
    78,188,402       63,012,559  
Non - controlling interest
    11,921,620       8,921,289  
Total stockholders' equity
    90,110,022       71,933,848  
Total liabilities and stockholders' equity
    97,753,483       84,062,408  
 
See accompanying notes of these consolidated financial statements
 
F-31

 

SINO AGRO FOOD, INC.
 CONSOLIDATED  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

   
(Restated)
         
(Restated)
       
   
Three months
   
Three months
   
Nine months
   
Nine months
 
   
ended
   
ended
   
ended
   
ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Revenue
  $ 15,183,169     $ 4,616,991     $ 24,565,757     $ 12,653,149  
Cost of goods sold
    6,182,708       2,202,211       10,059,718       5,894,130  
Gross profit
    9,000,461       2,414,780       14,506,039       6,759,019  
General and administrative expenses
    (705,445 )     (611,807 )     (2,369,757 )     (1,891,887 )
Net income from operations
    8,295,016       1,802,973       12,136,282       4,867,132  
Other income (expenses)
                               
Net gain (loss) of extinguishment of debts
    73,950       -       (6,077,230 )     -  
Interest expense
    (50,565     (117,348     (291,433     (353,345
Net income  (expenses)
    23,385       (117,348 )     (6,368,663 )     (353,345 )
Net income  before income taxes
    8,318,401       1,685,625       5,767,619       4,513,787  
Provision for income taxes
    -       -       -       -  
Net income
    8,318,401       1,685,625       5,767,619       4,513,787  
Less: Net income attributable to the non - controlling interest
    (1,966,222 )     (486,209 )     (2,655,164 )     (1,101,545 )
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    6,352,179       1,199,416       3,112,455       3,412,242  
Other comprehensive income
    .               .          
Foreign currency translation gain
    858,949       (585,120 )     1,568,941       (569,561 )
Comprehensive income
    7,211,128       614,296       4,681,396       2,842,681  
Less: other comprehensive income attributable to the non - controlling interest
    (184,995 )     125,983       (345,167 )     125,303  
Comprehensive income attributable to Sino Agro Food, Inc.  and subsidiaries
    7,026,133       740,279       4,336,229       2,967,984  
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
                               
Basic
  $ 0.12     $ 0.02     $ 0.06     $ 0.06  
Diluted
  $ 0.11     $ 0.02     $ 0.05     $ 0.06  
Weighted average number of shares outstanding:
                               
Basic
    53,134,303       52,943,579       54,223,823       52,943,579  
Diluted
    60,134,303       52,943,579       56,685,361       52,943,579  
 
See accompanying notes of these consolidated financial statements
 
F-32

 

SINO AGRO FOOD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
(Restated)
       
   
Nine months ended
   
Nine months ended
 
   
September 30,2010
   
September 30, 2009
 
   
(Unaudited)
   
(Unaudited)
 
   
$
   
$
 
Cash flows from operating activities
           
Net income for the period
    5,767,619       4,513,787  
Adjustments to reconcile net income to net cash from operations:
               
Depreciation
    1,102,290       1,054,398  
Impairment losses
    (303,791 )     -  
Amortization
    658,567       651,221  
Common stock issued for services
    497,059       -  
Loss on extinguishment of debts
    6,077,230       -  
Changes in operating assets and liabilities:
               
Increase in inventories
    (2,950,809 )     (3,716,531 )
(Increase) decrease in deposits and prepaid expenses
    (2,209,006 )     4,690,038  
Decrease in due from  directors
    111,392       424,959  
Increase in due to a director
    964,766       -  
(Decrease) increase in  accounts payable and accrued expenses
    (382,473 )     5,095  
(Decrease) increase in  other payables
    8,348,818       116,218  
(Increase) decrease in accounts  receivable
    (837,035 )     543,818  
Decrease in other receivables
    657,164       1,223,075  
Net cash provided by operating activities
    17,501,791       9,506,078  
Cash flows from investing activities
               
Purchases of property and equipment, and construction in progress
    (8,460,013 )     (3,912,256 )
Decrease (increase) in investment in unconsolidated corporate joint venture
    -       (242,669 )
Acquisition of land use rights
    (1,438,052 )     -  
Net cash used in investing activities
    (9,898,065 )     (4,154,925 )
Cash flows from financing activities
               
Series A Preferred stock issued for cash
    100       -  
Proceeds from debts
    -       2,430,454  
Repayment of long term and short term debt
    (3,104,880 )     (2,443,836 )
Net cash used in financing activities
    (3,104,780 )     (13,382 )
Effects on exchange rate changes on cash
    (2,238,912 )     (3,677,810 )
Increase in cash and cash equivalents
    2,260,034       1,659,961  
Cash and cash equivalents, beginning of period
    2,360,587       1,731,118  
Cash and cash equivalents, end of period
    4,620,621       3,391,079  
Supplementary disclosures of cash flow information:
               
Cash paid for interest
    291,433       235,998  
Cash paid for income taxes
    -       -  
Non-cash transactions:
               
11,932,000 shares of common stock were issued for settlement of debts due to third parties
    10,879,050       -  
2,190,000 shares of common stock were cancelled
    -       -  
497,059 shares of common stock issued for employee's compensation
    497,059       -  
 
See accompanying notes of these consolidated financial statements
 
F-33

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 was engaged in the  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 Macau  Special Administrative Region,  PRC. 10% of the equity interest 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.

See accompanying notes of these consolidated financial statements
 
F-34

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 a 45% equity interest.  On December 28, 2008,  PMH, entered into a sino-foreign joint venture agreement with the following parties to set up of a sino - foreign joint venture company, named as Qinghai Sanjiang A Power Agriculture Co. , Ltd (”SJAP”).

 
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.

SJAP was incorporated in the PRC on May 25, 2009 and was engagged in the business of manufacturing bio-organic fertilizer, livestock feed and to develop other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, PRC:

In September, 2009,the Company carried out an internal re-organization of its corporate structure and businesses, and on September 28, 2009, APWAM acquired the PMH’s 45 % equity interest in SJAP. By virtue of the Assignment, APWAM assumed all obligations and liabilities of PMH under the Sino Foreign Joint Venture Agreement. 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.

In accordance with Sino Joint Venture Agreement between MEIJI and HST dated August 23, 2007,  JHST took up 100% assets of HSTof which MEIJI only had 75% equity interest in HST in exchange for MEIJI contributed 100% registered capital to JHST for 75% equity interest in JHST. Pursuant to the resolution from HST  dated January 1, 2010, HST executes the aforesaid arrangemen and MEIJI transferred its 75% equity interest in HST to third party.

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.

See accompanying notes of these consolidated financial statements
 
F-35

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Name of subsidiaries
 
Place of incorporation
 
Percentage of interest
 
Principal activities
             
Capital Award Inc. ("CA")
 
Belize
 
100% (2009: 100%) directly
 
Fishery development and holder of A-Power Technology master license
             
Capital Stage Inc. ("CS")
 
Belize
 
100% (2009: 100%) indirectly
 
Dormant
             
Capital Hero Inc. ("CH")
 
Belize
 
100% (2009: 100%) indirectly
 
Dormant
             
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
100% (2009: 100%) directly
 
Investment holding, holder of enzyme technology master license 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
 
80% (2009: 80%) directly
 
Dormant
             
Macau Eiji Company Limited ("MEIJI")
 
Macau, PRC
 
100% (2009: 100%) directly
 
Investment holding
             
Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd ("HST")
 
PRC
 
Nil% (2009: 75%) indirectly
 
Hylocereus Undatus  Plantation ("HU Plantation")
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd ("JHST")
 
PRC
 
75% (2009: 75%) directly
 
Hylocereus Undatus  Plantation ("HU Plantation"). The Company has not commenced beef business.
             
Hang Yu Tai Investment Limited ("HYT")
 
Macau, PRC
 
100% (2009: 100%) directly
 
Investment holding
             
ZhongXingNongMu Co. Ltd ("ZX")
 
PRC
 
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
 
100% (2009: 100%) directly
 
Investment holding
             
Name of variable interest
entity/unconsolidated corporate joint
venture
 
Place of incorporation
 
Percentage of interest
 
Principal activities
             
Qinghai Sanjiang A Power Agriculture Co., Ltd ("SJAP")
 
PRC
 
45% (2009: 45%) indirectly
 
Manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures. The Company has not commenced beef business.

See accompanying notes of these consolidated financial statements
 
F-36

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.3
BASIS OF PRESENTATION

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

 
2.4
BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of SIAF,  its subsidiaries CA, CS, CH, TRW, PMH, MEIJI, JHST,  HYT, ZX, and APWAM and its variable interest entity SJAP. 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,  HYT, ZX, APWAM and SJAP 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.

See accompanying notes of these consolidated financial statements
 
F-37

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2010 and September 30, 2009, respectively. Shipping and handling costs amounted to $nil and $nil for the nine months ended September 30, 2010 and September  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 September 30, 2010 and September 30, 2009, respectively. Advertising costs amounted to $nil and $nil for the nine months ended September 30, 2010 and September 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 $3,391,977 as of Septembter  30, 2010 and $2,168,203 as of December 31, 2009. The balance sheet amounts with the exception of equity at Septembter 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 nine months ended Septembter 30, 2010 and Septembter 30, 2009 were RMB6.75 to $1.00 and RMB6.82 to $1.00 respectively.

See accompanying notes of these consolidated financial statements
 
F-38

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2010 and December 31,  2009 are $nil. Bad debts written off for the three months ended September 30, 2010 and September 30, 2009  and for the nine months ended September 30, 2010 and September 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.

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

See accompanying notes of these consolidated financial statements
 
F-39

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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  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.

See accompanying notes of these consolidated financial statements
 
F-40

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

See accompanying notes of these consolidated financial statements
 
F-41

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 institutions on September 30, 2010 and December 31, 2009 amounted to $2,112,368 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 5  major customers whose revenue individually represented the following percentages of the Company’s total revenue:

   
Three months
   
Three months
   
Nine months
   
Nine months
 
   
ended
   
ended
   
ended
   
ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Customer A
    23.55 %     -       12.34 %     -  
Customer B
    16.02 %     25.82 %     24.74 %     28.39 %
Customer C
    14.55 %     24.27 %     20.02 %     30.89 %
Customer D
    11.93 %     27.19 %     13.17 %     30.42 %
Customer E
    10.42 %     5.22 %     5.46 %     2.13 %
Customer F
    -       6.36 %     -       -  
Customer G
    -       -       -       2.71 %
      76.47 %     88.86 %     75.73 %     94.54 %

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

   
September 30, 2010
   
December 31, 2009
 
             
Customer A
    37.45 %     35.48 %
Customer B
    17.30 %     22.49 %
Customer C
    9.21 %     9.17 %
Customer D
    7.47 %     -  
Customer E
    6.68 %     11.04 %
Customer F
    -       17.58 %
      78.11 %     95.76 %

See accompanying notes of these consolidated financial statements
 
F-42

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.25
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 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 September 30, 2010 and September 30, 2009, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders  amount to $0.12  and $0.02, respectively. For the three months ended September 30, 2010 and and September 30, 2009, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders  amount to $0.11 and $0.02, respectively. For the nine months  ended September  30, 2010 and September 30, 2009, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders amount to $0.06 and $0.06,  respectively. For the nine months  ended September  30, 2010 and September 30, 2009, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders amount to $0.05  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

The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50,“Equity-Based Payments to Non-Employees” using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

See accompanying notes of these consolidated financial statements
 
F-43

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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 as of September  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 nine months ended September 30, 2010 or September 30, 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.

See accompanying notes of these consolidated financial statements
 
F-44

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

See accompanying notes of these consolidated financial statements
 
F-45

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

See accompanying notes of these consolidated financial statements
 
F-46

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

See accompanying notes of these consolidated financial statements
 
F-47

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

See accompanying notes of these consolidated financial statements
 
F-48

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

3.
SEGMENT INFORMATION

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in financial statements. The Company operates in four principal reportable segments: Fishery Development Division, Dairy Production Division, HU Plantation Division  and  Organic Fertilizer and Bread Grass Division.

   
Three months ended September 30, 2010
 
       
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Organic
Fertilizer and
Bread Grass
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
   
$
 
                                     
Revenue
    1,320,223       9,669,582       3,509,397       683,967       -       15,183,169  
                                                 
Net income (loss)
    845,161       3,599,033       2,077,703       211,535       (381,253 )     6,352,179  
                                                 
Total assets
    15,711,315       44,653,524       14,585,276       3,269,375       19,533,993       97,753,483  

   
Three months ended September 30, 2009
 
       
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Organic
Fertilizer and
Bread Grass
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
   
$
 
                                     
Revenue
    -       3,685,058       931,933       -       -       4,616,991  
                                                 
Net income (loss)
    -2,951       1,179,615       460,491       -       (437,739 )     1,199,416  
                                                 
Total assets
    13,711,470       39,760,522       10,201,312       -       4,157,852       67,831,156  

See accompanying notes of these consolidated financial statements
 
F-49

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

3.
SEGMENT INFORMATION (CONTINUED)

   
Nine months ended September 30, 2010
 
       
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Organic
Fertilizer and
Bread Grass
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
   
$
 
                                     
Revenue
    2,015,754       18,356,639       3,509,397       683,967       -       24,565,757  
                                                 
Net income (loss)
    2,142,928       6,084,346       2,014,175       211,535       (7,340,529 )     3,112,455  
                                                 
Total assets
    15,711,315       44,653,524       14,585,276       3,269,375       19,533,993       97,753,483  

   
Nine months ended September 30, 2009
 
       
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Organic
Fertilizer and
Bread Grass
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
   
$
 
                                     
Revenue
    726,702       10,842,977       1,083,470       -       -       12,653,149  
                                                 
Net income (loss)
    717,850       3,359,402       462,066       -       (1,127,076 )     3,412,242  
                                                 
Total assets
    13,711,470       39,760,522       10,201,312       -       4,157,852       67,831,156  

4.
INCOME TAXES

United States of America

SIAF was incorporated in the United States of America. SIAF has no trading operations in United States of America and no US corporate tax has been provided in the financial statements of SIAF.

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%.

See accompanying notes of these consolidated financial statements
 
F-50

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

4.
INCOME TAXES (CONTINUED)

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 nine months ended September 30, 2010 and September 30, 2009 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 nine months ended September  30, 2010 and September 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 nine months  ended September  30, 2010 and September 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 nine months  ended September 30, 2010 and September 30, 2009.

5.
DIVIDEND

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. As of August 27, 2010, the Company has 56,780, 043 outstanding shares common stocks.

   
Three months
   
Three months
   
Nine months
   
Nine months
 
   
ended
   
ended
   
ended
   
ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
$
   
$
   
$
   
$
 
                         
56,780,043 outstanding shares of $0.01
    567,800       -       567,800       -  

6.
CASH AND CASH EQUIVALENTS

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Cash and bank balances
    2,534,168       2,360,587  

See accompanying notes of these consolidated financial statements
 
F-51

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

7.
INVENTORIES

As of September 30, 2010 inventories are as follows:

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Bread grass
    328,358       -  
Organic fertilizer
    12,228       -  
Raw materials for bread grass and organic fertilizer
    290,212       -  
Immature seeds
    788,383       411,594  
Harvested HU plantation
    -       53  
Unharvested HU plantation
    55,298       89,666  
Forage for milk cows and consumable
    7,575,741       5,598,098  
      9,050,220       6,099,411  

8.
DEPOSITS AND PREPAID EXPENSES

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Deposits for
           
acquisition of land use rights
    4,453,666       4,453,666  
inventory purchased
    649,388       219,551  
tenancy agreement
    2,129       2,129  
materials used for construction in progress
    95,074       79,607  
Prepayments for purchases of milk cows, dairy farm  and  containers
    7,198,015       5,434,313  
      12,398,272       10,189,266  

9.
ACCOUNTS RECEIVABLE

Aging analysis of accounts receivable is as follows:

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
0 - 30 days
    175,844       1,530,838  
31 - 90 days
    1,093,642       -  
91 - 120 days
    3,337,755       5,338,667  
over 120 days and less than 1 year
    3,112,602       -  
over 1 year
    9,325,174       9,338,477  
      17,045,017       16,207,982  
Less: amounts reclassified as long term accounts receivable
    (9,325,174 )     (9,338,477 )
      7,719,843       6,869,505  

See accompanying notes of these consolidated financial statements
 
F-52

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

10 .
OTHER RECEIVABLES

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Advance to service providers
    -       12,983  
Due from related parties
    -       260,101  
Due from employees
    327,560       430,552  
Due from third parties
    900,767       1,181,855  
      1,228,327       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.

11.
PROPERTY AND EQUIPMENT

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Milk cows
    10,476,330       4,953,669  
Plant and machinery
    3,686,668       2,948,148  
Structure and leasehold improvements
    1,285,133       783,491  
Mature seeds
    492,868       484,436  
Furniture and equipment
    372,136       85,506  
Motor vehicles
    47,568       83,493  
      16,360,703       9,338,743  
                 
Less: Accumulated depreciation
    (2,876,369 )     (1,774,079 )
Net carrying amount
    13,484,334       7,564,664  

Depreciation expense was $373,551 and $352,666 for the three months ended September 30, 2010 and September 30, 2009 respectively. Depreciation expense was $1,102,290 and $1,054,398  for the nine months ended September 30, 2010 and September  30, 2009 respectively.

12.
CONSTRUCTION IN PROGRESS

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Construction in progress
           
- Rangeland for milk cows
    6,054,689       5,741,168  
- Oven room for production of dried flowers
    473,833       254,771  
- Organic fertilizer and bread grass production plant
    1,332,273       -  
      7,860,795       5,995,939  

See accompanying notes of these consolidated financial statements
 
F-53

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

13.
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. The cost of the fourth lot of land use rights acquired in 2010 in the Hebei  Province, PRC was $3,223,411 which consists 825.00 acres and the lease expires in 2066.

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.

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Cost
    16,545,931       15,107,879  
Less: Accumulated impairment losses
    (1,780,249 )     (1,338,383 )
Net carrying amount
    14,765,682       13,769,496  

Amortization expense was $139,094 and $136,867 for the three months ended September 30, 2010 and September 30, 2009, respectively. Amortization expense was $418,567 and $410,601 for the nine months ended September  30, 2010 and September 30, 2009, respectively.

14.
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.

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Proprietary technologies
    8,000,000       8,000,000  
Less: Accumulated amortisation
    (613,333 )     (365,365 )
Net carrying amount
    7,386,667       7,634,635  

Amortization of proprietary technologies was $80,000 and $80,207 for the three months ended September  30, 2010 and September 30, 2009, respectively. Amortization expense was $240,000 and $240,620 for the nine months ended September  30, 2010 and Semptember  30, 2009, respectively.

See accompanying notes of these consolidated financial statements
 
F-54

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

15.
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.

   
September 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.

16.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE

On Septembter  28, 2009,  APWAM acquired the PMH’s 45% equity interest in Sino - Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), incorporated in the People’s Republic of China, of registered capital of $1,400,000. As of  September  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.  On July1, 2010, the Company evaluated VIE testing results and concluded that the Company is the priminart beneficiary of SJAP’s expected losses or residual returns and SJAP qualifies as a VIE of the Company. As  result, investment in SJAP of $843,202, as VIE of the Company, was eliminated upon consolidation of SJAP in the consolidated financial statements.

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Investment in unconsolidated joint venture
    -       242,669  

Continuous assessment of its 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 a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant management judgment because of the inherent limitations that relate to the use of historical data for the projection of future events.

See accompanying notes of these consolidated financial statements
 
F-55

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

17.
INVESTMENT IN UNCONSOLIDATED CORPORATE JOINT VENTURE (CONTINUED)

Continuous assessment of its VIE relationship with SJAP (continued)

On July 1, 2010, the Company evaluated  the above VIE testing results and concluded that the Company is  the primary beneficiary of SJAP ’s expected losses or residual returns and SJAP  qualifies as a VIE of the Company. On December 31, 2010, the Company evaluated  the above VIE testing results and concluded that the Company is  the primary beneficiary of SJAP ’s expected losses or residual returns and SJAP  qualifies as a VIE of the Company.

The reasons for the changes are as follows:

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

 
 
·
On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest  in SJAP to  Garwor. The aforesaid sale and transfer was approved by the State Administration for Industry And Commerce of Xining City Government of the People’s Republic of China.
 
Consequently Garwor and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the financial officer of SJAP was appointed by SIAF’s management.

As result, the financial statements of SJAP were included in the consolidated financial statements of the company.

18.
LICENSE 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 License with a condition that the Company required to pay the license fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008.  This license 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 license fee to Infinity once the Company sold the license 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.

19.
OTHER PAYABLES

   
September 30, 2010
   
December 31, 2009
 
   
$
   
$
 
             
Proprietary technologies payable
    -       3,577,264  
Due to third parties
    1,994,449       601,326  
Due to related parties
    11,367       169,536  
Stamp duty payable
    -       4,678  
Others
    -       183,324  
      2,005,816       4,536,128  

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

See accompanying notes of these consolidated financial statements
 
F-56

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

19.
SHAREHOLDERS’ EQUITY

During the year ended December 31, 2009, the Company issued 615,000 shares of common stock for cash in the amount of $215,250.  On December 23, 2009, 825,000 shares of common stock were voluntarily cancelled by shareholders of the Company.

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 cash in the amount of $100.

On various dates through January 1, 2010 to September 30, 2010,(i) 11,932,000 shares of common stock  were issued for $10,879,130 at fair  value ranging from $0.50 to $1.27 to settle debts due to  in settlement of debts due to proprietary technologies payable; (ii)2,190,002 shares of common stock  were  voluntarily cancelled by shareholders.

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 cancelled and the Company issued 7,000,000 shares of Series B convertible preferred stock of $1 per share. The company has authorized 10,000,000 shares of Series B convertible preferred stock with 7,000,000  and  0 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively.

Series A preferred stock stockholders
 
(i)
are not entitled to receive any dividend;

 
(ii)
vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders.  Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.

 
(iii)
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 December 31, 2010 and December 31, 2009, respectively.

On May 4, 2010, the Company issued employees a total of 497,059 shares of common stock valued at fair value of  $1.00 per share for $497,059 as stock based compensation. The Company recognized $497,059 of stock based compensation as this was value services rendered to the Company.

See accompanying notes of these consolidated financial statements
 
F-57

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

20.
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
 
               
September 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
 
               
September 30, 2010
   
December 31, 2009
 
               
$
   
$
 
                         
Agricultural Development Bank of China
    6.75 %
4/29/2007-4/28/2012
 
Corporate guarantee by third party
    3,731,343       4,401,002  
                    3,731,343       4,401,002  

See accompanying notes of these consolidated financial statements
 
F-58

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

21.
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 as of September 30, 2010, are as follows:

   
September 30, 2010
 
   
$
 
       
Year ended December 31,2010
    14,091  
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
    -  
      137,139  

Lease expense was $14,091 and $14,091 for the three months ended September 30, 2010 and September 30, 2009 respectively. Lease  expense was $42,273 and $42,273 for the nine months ended September 30, 2010 and September 30, 2009 respectively.

22.
CONTINGENCIES

As of September 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.

23.
NET GAIN (LOSS) ON EXTINGUISHMENT OF DEBTS

The Company entered  several  agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the share were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain/(loss) on the extinguishment of debts has been credited/ (charged) to operation during the three months and nine months  ended September 20, 2009, respectively.

See accompanying notes of these consolidated financial statements
 
F-59

 

SINO AGRO FOOD, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

24.
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 payables, due to 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 to a director, due to Mr. SolomonYip Kun Lee is $964,766 as of  September 30, 2010. The amount is unsecured, interest free and have no fixed term of repayment.
 
Included in due from directors, due from Mr. SolomonYip Kun Lee is $74,039 as of ,  December 31, 2009. 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, due from 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.
 
Mr. Yi Lin Zhao, director of Qinghai Sanjiang A Power Agriculture Co., Ltd
 
 
Included in other payable, due to Mr. Yi Lin Zhao is $11,3671 and $nil as of September 30, 2010 and December 31, 2009 respectively. The amount is unsecured, interest free and have no fixed term of repayment.

25.
SUBSEQUENT EVENTS

On various dates through October 1, 2010 to December 22, 2010,(i) 790,855 shares of common stock  were issued for $1,004,386  in settlement of debts due to third parties; (ii) additional 1,738,145 shares of common stock  were issued for $2,477,004  in settlement of debts; (iii)  3,000,000 shares of common stock  were cancelled; and (iv) additional 22,500   shares of common stock for $33,750 were issued to employees as stock based compensation. The Company recognized $33,750 of stock based compensation as this was  value services rendered to the Company.
 
26.
RESTATEMENT
 
The Company is restating its consolidated balance sheets, statements of income and comprehensive income and statements of cash flows to correct accounting errors relating to the recording of gain / (loss) on the extinguishment of debts by the issuance of shares of common stock of the Company. The effect on net income and earnings per share amounts are reported below:
 
Plus an XL file which does not show here.  (See page 32,)
 
Effect of correction of accounting errors relating to the recognition of gain / (loss) on the extinguishment of debts on the Company’s consolidated balance sheet is set forth below:
Plus another XL file which does not show up here.(See page 32)
  
See accompanying notes of these consolidated financial statements
 
F-60

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

CONSOLIDATED  FINANCIAL STATEMENTS

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

 
F-61

 
 
Madsen & Associates CPAs, Inc.
684 East Vine Street #3, Murray, UT 84107
PHONE: (801) 268-2632
FAX: (801) 268-3978
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
Stockholders of Sino Agro Food, Inc. and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of Sino Agro Food, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2009. Sino Agro Food, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
As noted in note 24 to the consolidated financial statements, the Company is restating its consolidated financial statements for the year ended December 31, 2008 to correct an error in the consolidated statements of cash flows.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sino Agro Food, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

s/Madsen & Associates CPA’s, Inc.
Madsen & Associates CPA’s, Inc.
 
Murray, Utah
 
September 21, 2010
Except note 24 to the consolidated financial statements which is dated April 21, 2011

 
F-62

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2008

   
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
    112,267       835,553  
Total current assets
    27,516,527       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
               
License rights
    1       1  
Investment in unconsolidated corporate joint venture
    242,669       -  
      242,670       1  
                 
Total assets
    84,062,408       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
    43,704,723       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
    63,012,559       55,959,614  
Non - controlling interest
    8,921,289       6,709,549  
Total stockholders' equity
    71,933,848       62,669,163  
Total liabilities and stockholders' equity
  $ 84,062,408     $ 75,157,760  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-63

 

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 )     (3,104,756 )
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)
               
Profit of disposal of unconsolidated equity interest
    -       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.

 
F-64

 

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
    615,000       615       214,635       -       -       -       215,250  
                                                         
Common stock cancelled
    (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       43,704,723       17,086,949       2,168,203       8,921,289       71,933,848  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-65

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

         
(Restated)
 
   
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:
               
Depreciation
    820,193       706,912  
Impairment loss
    -       293,404  
Net income from discontinued operation
               
-   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 deposits and prepaid expenses
    -       (2,407,014 )
Decrease (increase) in due from  directors
    723,286       (826,867 )
Decrease in  accounts payable and accruals
    (274,486 )     (2,310,953 )
(Decrease) increase in  other payables
    (85,551 )     33,565  
(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
    4,669,989       3,421,791  
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
    -       (4,422,736 )
Proceeds from disposal of unconsolidated equity investee
    -       4,405,000  
Acquisition of land use rights
    (858,195 )     (764,128 )
Payment for construction in progress
    (1,771,686 )     (391,869 )
Net cash used in investing activities
    (4,286,886 )     (3,157,397 )
Cash flows from financing activities
               
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
    215,250       447,498  
Effects of exchange rate changes on cash
    31,116       660,712  
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
    -       -  
Non cash investing activities
           
Acquisition of proprietary technologies through the issuance of promissory notes
    -       3,577,264  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-66

 

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.

 
F-67

 

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
 
75% (2008: 75%) 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
corporate joint venture
 
Place of
incorporation
 
Issued and
paid - in capital
 
Percentage of
interest
 
Principal
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
 
 
F-68

 

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.

 
F-69

 

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.

 
F-70

 

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
 
 
F-71

 

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 t he 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.

 
F-72

 

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.

 
F-73

 

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.

 
F-74

 

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.

 
Leve l3 
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.

 
F-75

 

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 .

 
F-76

 

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 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.

 
F-77

 

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.

 
F-78

 

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 Division 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  
 
 
F-79

 

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

United States of America

SIAF was incorporated in the United States of America. SIAF has no trading operations in United States of America and no US corporate tax has been provided in the financial statements of SIAF.
 
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  
 
 
F-80

 

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  
 
 
F-81

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

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  

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.

 
F-82

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

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.

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.

 
F-83

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

   
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.

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.

 
F-84

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

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.

 
F-85

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

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.
 
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 voluntarily cancelled by shareholders of the Company.
 
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.

 
F-86

 

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.

 
F-87

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

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

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  
 
 
F-88

 

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.

 
F-89

 

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 $74,039 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.

 
F-90

 


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 valued at fair value of $1.00 per share for $497,097 at stated value as stock based compensation. The fair value of these shares of approximately $497,097 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.
 
24.
RESTATEMENT
 
The Company has restated the consolidated statement of cash flows for the year ended December 31, 2008 to correct an error in the cash flows for investing activities. In the original consolidated statement of cash flows, the Company had reported that the Company had used $8,000,000 of cash flows from investing activities to acquire proprietary technologies. In the restated consolidated statements of cash flows, the Company used $4,422,736 in cash flows from investing activities to acquire the proprietary technologies and the balance of the purchase price was paid through the issuance of promissory notes by the Company in the amount totaling to $3,577,264.

This correction made by the Company did not have any impact on the net income or earnings per share of the Company.
 
 
F-91

 
 

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

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

 
F-92

 
 
Madsen & Associates CPAs, Inc.
     
684 East Vine Street #3, Murray, UT 84107
 
PHONE: (801) 268-2632  FAX: (801) 268-3978
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
Stockholders of Sino Agro Food, Inc. and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of Sino Agro Food, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2008. Sino Agro Food, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
As noted in note 24 to the consolidated financial statements, the Company is restating its consolidated financial statements for the year ended December 31, 2008 to correct an error in the consolidated statements of cash flows.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sino Agro Food, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
 
s/Madsen & Associates CPA’s, Inc.
Madsen & Associates CPA’s, Inc.
 
Murray, Utah
 
September 21, 2010
Except note 24 to the consolidated financial statements which is dated April 21, 2011.
 
 
F-93

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND DECEMBER 31, 2007

   
2008
   
2007
 
   
$
   
$
 
             
ASSETS
           
Current assets
           
Cash and cash equivalents
    1,731,118       358,514  
Inventories
    5,199,241       626,801  
Deposits and prepaid expenses
    10,189,266       7,782,252  
Accounts receivable, net of allowance for doubtful accounts
    2,073,567       19,243,730  
Other receivables
    1,197,617       472,167  
Due from directors
    835,553       8,686  
Total current assets
    21,226,362       28,492,150  
Property and equipment, net of accumulated depreciation
    6,970,522       5,330,122  
Construction in progress
    4,224,253       3,832,384  
Land use rights, net of accumulated amortization
    13,464,781       12,385,369  
      24,659,556       21,547,875  
Other assets
               
Goodwill
    12,000,000       12,000,000  
Proprietary technologies, net of accumulated amortization
    7,946,667       -  
Long term accounts receivable
    9,325,174       -  
Licence rights
    1       1  
Investment in unconsolidated equity investee
    -       800,559  
      29,271,842       12,800,560  
                 
Total assets
  $ 75,157,760     $ 62,840,585  
                 
LIABILITIES  AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
Accounts payable and accruals
    1,030,695       3,341,648  
Other payables
    4,621,679       588,114  
Short term debt
    -       2,275,812  
Total current liabilities
    5,652,374       6,205,574  
                 
Other liabilities
               
Long term debt
    6,836,223       4,112,913  
                 
Total liabilities
    12,488,597       10,318,487  
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,52,943,579 shares issued
and outstanding at December 31,2008 and December 31, 2007, respectively)
    52,944       52,944  
Additional paid - in capital
    43,489,213       43,489,213  
Retained earnings
    10,279,010       3,174,089  
Accumulated other comprehensive income
    2,138,447       398,520  
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
    55,959,614       47,114,766  
Non - controlling interest
    6,709,549       5,407,332  
Total stockholders' equity
    62,669,163       52,522,098  
Total liabilities and stockholders' equity
  $ 75,157,760     $ 62,840,585  

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

 
F-94

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

   
2008
   
2007
 
   
$
   
$
 
             
Revenue
    16,189,467       16,230,827  
Cost of goods sold
    7,947,659       3,956,157  
Gross profit
    8,241,808       12,274,670  
Selling and marketing expenses
    -       (89,744 )
General and administrative expenses
    (2,811,352 )     (2,212,805 )
Impairment loss
    (293,404 )     (6,786,942 )
Net income from operations
    5,137,052       3,185,179  
Other income (loss)
               
Other income
    62,142       199,604  
Interest expenses
    (419,130 )     (77,495 )
Total other income (expenses)
    (356,988 )     122,109  
Income from unconsolidated corporate joint venture and equity investee
    191,992       54,873  
Net income  from continuing operations before income taxes
    4,972,056       3,362,161  
Provision for income taxes
    -       (354 )
Net income from continuing operations
    4,972,056       3,361,807  
Net income from discontinued operations net of amount attributable to non - controlling interest (net of income taxes of $0)
    3,412,449       -  
Net income
    8,384,505       3,361,807  
Less: Net income attributable to the non - controlling interest
    (1,279,584 )     (219,718 )
Net income attributable to the Sino Agro Food, Inc. and subsidiaries
    7,104,921       3,142,089  
Other comprehensive income
               
Foreign currency translation gain
    1,762,560       398,520  
Comprehensive income
    8,867,481       3,540,609  
Less: other comprehensive income attributable to the non - controlling interest
    (22,633 )     -  
Comprehensive income attributable to Sino Agro Food, Inc.  and subsidiaries
    8,844,848       3,540,609  
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
               
Basic - From continuing operations
    0.07       0.08  
Basic - From discontinued operations
    0.06       -  
      0.13       0.08  
Diluted - From continuing operations
    0.07       0.06  
Diluted - From discontinued operations
    0.06       -  
      0.13       0.06  
Weighted average number of shares outstanding:
               
Basic
    52,943,579       39,893,158  
Diluted
    52,943,579       52,943,579  

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

 
F-95

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

     
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,  2007
    32,000,000       32,000       19,675,157       32,000       -       -       19,739,157  
                                                         
July 24, 2007  Issue ordinary shares to existing debenture holders from additional paid-in capital
    10,804,579       10,805       (10,805 )     -       -       -       -  
                                                         
July 24, 2007  Issue ordinary shares to existing public shareholders from additional paid - in capital
    139,000       139       (139 )     -               -       -  
                                                         
September 5, 2007  Issue ordinary shares for acquisition of 100% equity of Macau Eiji Company Limited
    2,000,000       2,000       4,673,000       -       -       -       4,675,000  
                                                         
September 5, 2007  Issue ordinary shares for acquisition of 100% equity of Hang Yu Tai Investment Limited
    7,000,000       7,000       16,903,000       -       -       -       16,910,000  
                                                         
September 5, 2007  Issue ordinary shares for acquisition of 100% equity of Tri-way Industries Limited
    1,000,000       1,000       2,249,000       -       -       -       2,250,000  
                                                         
Capital contribution of non-controlling interest of Enping City Juntang Town Hang Sing Tai Agriculture Co. Limited
    -       -       -       -       -       1,984,663       1,984,663  
                                                         
Capital contribution of non-controlling interest of ZhongXingNongMu Co. Limited
    -       -       -       -       -       3,202,951       3,202,951  
                                                         
Net income for the year
    -       -       -       3,142,089       -       219,718       3,361,807  
                                                         
Foreign currency translation gain
    -       -       -       -       398,520       -       398,520  
                                                         
Balance at December 31, 2007
    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  

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

 
F-96

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

   
(Restated)
       
   
2008
   
2007
 
   
$
   
$
 
             
Cash flows from operating activities
           
Net income for the year
    8,384,505       3,361,807  
Adjustments to reconcile net income to net cash from operations:
               
Impairment loss
    293,404       6,786,942  
Depreciation
    706,912       177,642  
Net income from discontinued operation
               
- Profit from disposal of unconsolidated equity investee
    (3,412,449 )     -  
Income from unconsolidated equity investee
    (191,992 )     (54,873 )
Amortization
    605,581       217,425  
Changes in operating assets and liabilities:
               
Increase in inventories
    (4,572,440 )     (626,801 )
Increase in construction in progress
    (391,869 )     (3,832,384 )
Increase in deposits and prepaid expenses
    (2,407,014 )     (7,782,252 )
Increase in due from  directors
    (826,867 )     (8,686 )
(Decrease) increase in  accounts payable and accruals
    (2,310,953 )     633,763  
Decrease in sales deposits received
    -       (50,000 )
Decrease  in amount due to directors
    -       (237,797 )
Increase in  other payables
    33,565       588,114  
Decrease (increase) in accounts receivables
    7,844,989       (7,043,730 )
(Increase) decrease in other receivables
    (725,450 )     9,773,184  
Net cash provided by operating activities
    3,029,922       1,902,354  
Cash flows from investing activities
               
Purchases of property and equipment
    (1,983,664 )     (5,423,477 )
Acquisition of companies, net of cash received
    -       (18,786,942 )
Acquisition of proprietary technologies
    (4,422,736 )     -  
Proceeds from disposal of unconsolidated equity investee
    4,405,000       -  
Investment in unconsolidated equity investee
    -       (745,686 )
Acquisition of land use rights
    (764,128 )     (12,602,794 )
Net cash used in investing activities
    (2,765,528 )     (37,558,899 )
Cash flows from financing activities
               
Proceeds from issuance of debts
    2,723,310       6,388,725  
Additional contribution from non - controlling interest
    -       5,187,614  
Repayment of debts
    (2,275,812 )     -  
Common stock issued
    -       23,835,000  
Net cash provided by financing activities
    447,498       35,411,339  
Effects on exchange rate changes on cash
    660,712       398,520  
Increase in cash and cash equivalents
    1,372,604       153,314  
Cash and cash equivalents, beginning of year
    358,514       205,200  
Cash and cash equivalents, end of year
    1,731,118       358,514  
Supplementary disclosures of cash flow information:
               
Cash paid for interest
    419,130       77,495  
Cash paid for income taxes
    -       1,114  

Note   (1) In 2008,   Cash flow of acquisition of proprietary technologies was restated from $(8,000,000) as $(4,422,736) to reflect  actual cash flows  from investing activities.
(2) In 2008, Net income from discontinued operation was reworded as Net income from discontinued operation – Profit from disposal of unconsolidated equity interest.

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

 
F-97

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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. Limited (“ZX”);

 
b)
Tri-way Industries Limited (“TRW”), a Hong Kong incorporated company, the owner of 30% equity interest of TianQuan Science and Technology Limited (“TQST”) 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, the Company established Pretty Mountain Holdings Limited. (“PMH”), a Hong Kong incorporated company of 80% equity interest.

On November 27, 2007, MEIJI and HST established a corporate joint venture, Jiang Men City Juntang  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.

 
F-98

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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% (2007: 100%) directly
 
Fishery development and holder of A-Power Technology master licence
                 
Capital Stage Inc. ("CS")
 
Belize
 
$50,000
 
100% (2007: 100%) indirectly
 
Dormant
                 
Capital Hero Inc. ("CH")
 
Belize
 
$50,000
 
100% (2007: 100%) indirectly
 
Dormant
                 
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
HK$10,000
 
100% (2007: 100%) directly
 
Investment holding, holder of master licence of stock feed  manufacturing technology  and has yet commenced its business of fish farm operation
                 
Pretty Mountain Holdings Limited ("PMH")
 
Hong Kong, PRC
 
HK$10,000
 
80% (2007: Nil%) directly
 
Dormant
               
                 
Macau Eiji Company Limited ("MEIJI")
 
Macau, PRC
 
Pataca 30,000
 
100% (2007: 100%) directly
 
Investment holding
                 
Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd ("HST")
 
PRC
 
RMB100,000
 
75% (2007: 75%) indirectly
 
Hylocereus Undatus  Plantation ("HU Plantation")
             
                 
 Jiang Men City Juntang Heng ShengTai Agriculture Development Co. Ltd ("JHST")
 
PRC
 
Issued  capital:
 
 75% (2007: 75%) indirectly
 
The Company has yet commenced its business of Hylocereus Undatus  Plantation ("HU Plantation")
     
$600,000
     
     
Paid -  in capital:
     
       
$119,975
     
                 
Hang Yu Tai Investment
 
Macau, PRC
 
Pataca 25,000
 
 100% (2007: 100%) directly
 
Investment holding
Limited ("HYT")
               
                 
ZhongXingNongMu Co. Ltd ("ZX")
 
PRC
 
RMB60,000,000
 
78% (2007: 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% (2007: 100%) directly
 
Investment holding
       
                 
Name of unconsolidated
 
Place of
 
Issued and
 
Percentage of
 
Principal
 equity investee
 
incorporation
 
paid - in capital
 
interest
 
activity
                 
TianQuan Science and
 
PRC
 
RMB10,000,000
 
Nil (2007: 30%) indirectly
 
Turf farming and agriculture
Technology Limited
  
 
  
 
  
 
  
technology development
 
 
F-99

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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, 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.

 
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 inventories reserves.

 
F-100

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 client by reference to stage of completion of service. 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 $41,363 for the years ended December 31, 2008 and December 31, 2007, respectively.

 
2.11
ADVERTISING

Advertising costs are expensed as incurred when incurred and totaled $nil for the years ended December 31, 2008 and December 31, 2007, 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 other comprehensive 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 sheet. Translation adjustments resulting from this process are included in accumulated 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 statements of shareholders’ equity amounted to $2,138,447 as of December 31, 2008 and $398,520 as of December 31, 2007. The balance sheet amounts with the exception of equity at December 31, 2008 and December 31, 2007 were translated at RMB6.82 to $1.00 and RMB7.29 to $1.00, respectively. The average translation rates applied to the statements of income and of cash flows for the years ended December 31, 2008 and December 31, 2007 were RMB6.94 to $1.00 and RMB7.62 to $1.00, respectively.
 
 
F-101

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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, 2008 and December 31, 2007.

 
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

 
F-102

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 after deduction of impairment loss, 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 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 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
EQUITY METHOD INVESTMENTS

Investee entities in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income.

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

 
F-103

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
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
ECONOMIC AND POLITICAL 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 institution within the People’s Republic of China. Total cash in these financial institutions on December 31, 2008 and December 31, 2007 amounted to $1,270,785 and $90,990 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.
 
 
F-104

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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:

   
2008
   
2007
 
             
Customer A
    21.86 %     -  
Customer B
    18.11 %     -  
Customer C
    17.02 %     15.00 %
Customer D
    8.07 %     1.30 %
Customer E
    4.20 %     -  
Customer F
    -       77.01 %
Customer G
    -       2.83 %
Customer H
    -       2.26 %
      69.26 %     98.40 %

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

   
2008
   
2007
 
             
Customer A
    50.45 %     51.96 %
Customer B
    31.36 %     29.10 %
Customer C
    14.68 %     14.53 %
Customer D
    2.39 %     -  
Customer E
    1.01 %     -  
Customer F
    -       3.56 %
Customer G
    -       0.53 %
      99.89 %     99.68 %

The Company had four customers as of December 31, 2008 that comprised approximately 65.06% of total revenue. These customers had accounts receivable of $ 2,060,343 as of December 31, 2008.  The Company had two customers as of December 31, 2007 that comprised approximately 92.01% of total revenue. These customers had accounts receivable of $ 12,796,019 as of December 31, 2007.

 
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, 2008 and December 31, 2007, the Company determined no impairment charges were necessary.
 
 
F-105

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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, 2008 and December 31, 2007, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from continuing operations amount to $0.07 and $0.08, respectively. For the years ended December 31, 2008 and December 31, 2007, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from discontinued operations amount to $0.06 and $nil, respectively. For the years ended December 31, 2008 and December 31, 2007, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from continuing operations amount to $0.07 and $0.06, respectively. For the years ended December 31, 2008 and December 31, 2007, diluted earnings per share attributable to Sino Agro Food, Inc. and subsidiaries stockholders from discontinued operations amount to $0.06 and $nil, 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 plan and the payments to the plan are charged as expenses when employees have rendered service entitling them to the contribution.

 
2.29
STOCK-BASED COMPENSATION

As of December 31, 2008 and December 31, 2007, the Company had no stock-based compensation plans.
 
 
F-106

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 as of December 31, 2008 or December 31, 2007, 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, 2008 or December 31, 2007.

 
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.
 
 
F-107

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
2.31
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

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. 2009-09 “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.

 
F-108

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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.

 
F-109

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 Division and HU Plantation Division.

   
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  
                                         
    2007          
   
Fishery
Development
Division
   
Dairy
Production
Division
   
HU Plantation
Division
   
Corporate and
others
   
Total
 
   
$
   
$
   
$
   
$
   
$
 
                                         
Revenue
    13,608,000       2,622,827       -       -       16,230,827  
                                         
Net income (loss)
    9,337,181       805,205       (27,437 )     (6,972,860 )     3,142,089  
                                         
Total assets
    18,454,484       23,666,363       7,916,802       12,802,936       62,840,585  
                                         
Capital expenditures
    138,469       14,545,725       6,863,681       -       21,547,875  
 
 
F-110

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

4.
INCOME TAXES

United States of America

SIAF was incorporated in the United States of America. SIAF has no trading operations in United States of America and no US corporate tax has been provided in the financial statements of SIAF.

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, 2008 and December 31, 2007 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, 2008 and December 31, 2007.

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, 2008 and December 31, 2007.

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, 2008 and December 31, 2007.

5.
CASH AND CASH EQUIVALENTS

   
2008
   
2007
 
   
$
   
$
 
             
Cash and bank balances
    1,731,118       358,514  

 
F-111

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

6.
INVENTORIES

As of December 31, 2008 inventories are as follows:

   
2008
   
2007
 
   
$
   
$
 
             
Immature seeds
    397,275       -  
Harvested HU plantation
    16       -  
Unharvested HU plantation
    106,478       431,356  
Forage for milk cows and consumable
    4,695,472       195,445  
      5,199,241       626,801  

7.
DEPOSITS AND PREPAID EXPENSES

   
2008
   
2007
 
   
$
   
$
 
             
Deposits for
           
acquistion of land use rights
    4,453,666       2,500,000  
inventory purchased
    219,551       431,527  
tenancy agreement
    2,129       2,129  
materials used for construction in progress
    79,607       147,736  
Prepayments for purchases of milk cows, dairy farm and milk containers
    5,434,313       4,700,860  
      10,189,266       7,782,252  

8.
ACCOUNTS RECEIVABLE

Aging analysis of accounts receivable is as follows:

   
2008
   
2007
 
   
$
   
$
 
             
0 - 30 days
    387,576       661,463  
31 - 90 days
    -       7,809,454  
91 – 120 days
    1,672,767       137,505  
over 120 days and less than 1 year
    13,224       635,308  
over 1 year
    9,325,174       10,000,000  
      11,398,741       19,243,730  
Less:  amount reclassified as long term accounts receivable
    (9,325,174 )     -  
      2,073,567       19,243,730  
 
 
F-112

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

9.
OTHER RECEIVABLES

   
2008
   
2007
 
   
$
   
$
 
             
Advance to builders for  construction of rangeland
    307,302       63,005  
Advance to service providers
    12,983       12,133  
Due from construction material suppliers
    88,020       82,258  
Due from related parties
    114,630       -  
Due from employees
    653,168       294,666  
Due from third parties
    21,514       20,105  
      1,197,617       472,167  

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 milk cows.  Due from employees are the amounts advanced for handling business transactions on behalf of the Company.

10.
PROPERTY AND EQUIPMENT

   
2008
   
2007
 
   
$
   
$
 
             
Milk cows
    3,666,376       2,535,634  
Plant and machinery
    2,948,148       2,755,163  
Structure and leasehold improvements
    656,448       110,801  
Mature seeds
    484,436       -  
Furniture and equipment
    85,506       83,942  
Motor vehicles
    83,493       81,142  
 
    7,924,407       5,566,682  
                 
Less: Accumulated depreciation
    (953,885 )     (236,560 )
Net carrying amount
    6,970,522       5,330,122  

Depreciation expense was $706,912 and $102,172 for the years ended December 31, 2008 and December 31, 2007, respectively and included in general and administrative expenses

 
F-113

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

11.
CONSTRUCTION IN PROGRESS

   
2008
   
2007
 
   
$
   
$
 
             
Construction in progress
           
- Rangeland for milk cows
    4,224,253       3,353,624  
-  Structure for HU Plantation
    -       478,760  
      4,224,253       3,832,384  

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 cost 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 cost 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.
 
   
2008
   
2007
 
   
$
   
$
 
             
Cost
    14,249,684       12,602,794  
Less: Accumulated amortization
    (784,903 )     (217,425 )
Net carrying amount
    13,464,781       12,385,369  

Amortization of land use rights was $552,248 and $217,425 for the years ended December 31, 2008 and December 31, 2007, respectively.

 
F-114

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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.

   
2008
   
2007
 
   
$
   
$
 
             
Proprietary technologies
    8,000,000       -  
Less: Accumulated amortization
    (53,333 )     -  
Net carrying amount
    7,946,667       -  

Amortization of proprietary technologies was $53,333 and $nil for the years ended December 31, 2008 and December 31, 2007, respectively. No impairments of proprietary technologies have been identified during the years ended December 31, 2008 and December 31, 2007.

14.
GOODWILL

   
2008
   
2007
 
   
$
   
$
 
             
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  

Impairment loss on goodwill was $nil and $6,786,942 for the years ended December 31, 2008 and December 31, 2007, respectively.

15.
INVESTMENT IN UNCONSOLIDATED EQUITY INVESTEE

As of September 5, 2007, the Company purchased the 100% equity interest (100% ) in Tri-way Industries Limited (“TRW”), a company incorporated in Hong Kong. TRW had 30% equity interest in TianQuan Science and Technology Limited (“TQST”), a company incorporated in the People’s Republic of China (“PRC”) on April 4, 1999.  Therefore, in turn the company indirectly held 30% equity in TQST. On January 31, 2008, the Company further invested of $95,000 giving total interest of $895,559. As of October 29, 2008, the Company disposed its 30% equity interest in TQST for $4,500,000 to third party, and recorded net income from discontinued operations of $3,604,441.
  
   
2008
   
2007
 
   
$
   
$
 
             
Investment at cost
    -       745,686  
Share of post acquisition profits
    -       54,873  
      -       800,559  
 
 
F-115

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 license 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

   
2008
   
2007
 
   
$
   
$
 
             
Proprietary technologies payable
    3,577,264       -  
Due to third parties
    601,326       547,775  
Due  to related parties
    415,108       -  
Stamp duty payable
    4,678       4,371  
Others
    23,303       35,968  
      4,621,679       588,114  

Proprietary technologies are acquired from third party and proprietary technologies payable represents the amount of unsettled balance.

 
F-116

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

18.
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
 
               
2008
   
2007
 
               
$
   
$
 
                         
Argicultural Development Bank of China
    6.84 %
1/23/2007-1/22/2008
 
Corporate guarantee by third party
    -       1,316,132  
                               
Argicultural Development Bank of China
    6.12 %
1/23/2007-1/22/2008
 
Corporate guarantee by third party
    -       664,921  
                               
Argicultural Development Bank of China
    6.12 %
1/23/2007-1/22/2008
 
Corporate guarantee by third party
    -       294,759  
                    -       2,275,812  
                               
Long term debt
                             
                               
Name of bank
 
Interest rate
 
Term
 
Security
 
Amount
 
                 
2008
   
2007
 
                 
$
   
$
 
Argicultural Development Bank of China
    6.84 %
1/23/2007-7/31/2010
 
Corporate guarantee by third party
    1,408,321       -  
                               
Argicultural Development Bank of China
    6.12 %
1/23/2007-7/22/2010
 
Corporate guarantee by third party
    711,495       -  
                               
Argicultural Development Bank of China
    6.12 %
1/23/2007- 8/8/2010
 
Corporate guarantee by third party
    315,405       -  
                               
Argicultural Development Bank of China
    6.75 %
4/29/2007-4/28/2012
 
Corporate guarantee by third party
    4,401,002       4,112,913  
                    6,836,223       4,112,913  
 
 
F-117

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

19.
SHARE CAPITAL

The Company’s share capital as of December 31, 2008 and December 31, 2007 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

On July, 24 2007 the Company completed the implementation of capital reduction scheme and reverse merger that resulted in:-

 
(a)
The cancellation of shares outstanding of 9,900,000 valued at US$199,800.

 
(b)
The issuance of 10,804,579 shares value at US$10,805 to existing debenture holders; and

 
(c)
The issuance of 139,000 shares valued at US$139 to existing public shareholders.

 
(d)
Reverse merger of 100% equity of Capital Award Inc.

The purchase price of $19,707,157 was satisfied by the issuance of 32,000,000 SIAF shares valued at $19,707,157 or $ 0.6158 per share each in exchange for shares of CA.

On September 5, 2007, the Company completed the acquisition of the following subsidiaries as follows:-

 
(a)
Acquisition of 100% equity of Macau Eiji Company Limited

The purchase price of $5,878,739 was satisfied by the issuance of 2,000,000 SIAF shares valued at $3,878,739 or $1.939 per share and the balance of $2,000,000 paid in cash.

 
(b)
Acquisition of 100% equity of Hang Yu Tai Investment Limited

The purchase price of $17,760,099 was satisfied by the issuance of 7,000,000 SIAF shares valued at $7,760,099 or $1.108 per share and the balance of $ 10,000,000 paid in cash.

 
(c)
Acquisition  of 100% equity of Tri-way Industries Limited

The purchase price of $2,501,289 was satisfied by the issuance of 1,000,000 SIAF shares valued at $1,501,289 or $1.501 per share and the balance of $1,000,000 paid in cash.

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 52,943,579 shares issued and outstanding as of December 31, 2008 and December 31, 2007,  respectively.

 
F-118

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

20. 
OBLIGATION UNDER OPERATING LEASES

The Company leases (i) 2,178  square feet of agriculture land space in used for office in Enping City, Guangdong Province, PRC, currently with a monthly rent of $430 and the  lease expires on March 31, 2009 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 as of December 31, 2008, are as follows:

   
2008
 
   
$
 
       
Year ended December 31,2009
    51,772  
Year ended December 31,2010
    40,534  
Thereafter
    -  
      92,306  

Lease expense was $52,560 and $5,354 for the years ended December 31, 2008 and 2007, respectively.

21.
CONTINGENCIES

As of December 31, 2008 and 2007, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income or cash flows.

 
F-119

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

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 $306,620 and $nil as of December 31, 2008 and December 31, 2007 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
 
During the year ended December 31, 2007, Mr.  Xiang Jun Fang sold his land use rights to the Company for $1,943,717.
   
Included in other receivables, due from Mr. Xiang Jun Fang is $114,630 and $nil as of December 31, 2008 and December 31, 2007 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 $108,488 and $nil as of December 31, 2008 and December 31, 2007 respectively. 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. Solomon Lee is $798,058 and $8,686 as of December 31, 2008 and December 31, 2007 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 $37,495 and $nil as of December 31, 2008 and December 31, 2007 respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

23.
SUBSEQUENT EVENTS

On various dates through January 1, 2009 to September 15, 2010,(i) additional 8,567,000 shares of Common Stock  were issued for $2,032,150 at stated value in settlement of debts under under promissory notes; (ii)3,065,002 shares of Common Stock  were redeemed at $0.001 per share for $3,065 at par value.

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 - Foreign 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”) .   APWAM invested $630,000 in SJAP for its 45% equity interest. The main principal activity of SJAP are planting of pastures and crops, manufacturing livestock feed and bio-organic fertilizer, cattle rearing and fattening stations. 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.

 
F-120

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND DECEMBER 31, 2007

23.
SUBSEQUENT EVENTS (CONTINUED)

On January 29, 2010, the China auditors of JHST, 100% equity interest of Sino - Foreign corporate joint venture subsidiary, issued final capital verification report that JHST’s registered capital of $600,000 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 ireedemable, 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.

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.
    
24.
  RESTATEMENT
 
The Company has restated the consolidated statement of cash flows for the year ended December 31, 2008 to correct an error in the cash flows for investing activities. In the original consolidated statement of cash flows, the Company had reported that the Company had used $8,000,000 of cash flows from investing activities to acquire proprietary technologies. In the restated consolidated statements of cash flows, the Company used $4,422,736 in cash flows from investing activities to acquire the proprietary technologies and the balance of the purchase price was paid through the issuance of promissory notes by the Company in the amount totaling to $3,577,264.

This correction made by the Company did not have any impact on the net income or earnings per share of the Company.
 
F-121

 

Appendix I

NEW ENGLISH TRANSLATION NAME OF SUBSIDIARIES
   
( Old English translation name)
( New English translation name)
Name of subsidiaries
Name of subsidiaries
   
Macau Eiji CompanyLimitada ("MEIJI")
Macau Eiji Company Limited ("MEIJI")
   
Hang Yu Tai Investmento
Hang Yu Tai Investment
Limitada ("HYT")
Limited ("HYT")
   
ZhongXian Agriculture and
ZhongXingNongMu Co. Limited ("ZX")
Husbandry Co Limited ("ZX")
 
   
Hang Sing Tai  Agriculture
Enping City Juntang Town Hang Sing Tai
Co Limited ("HST")
Agriculture Co. Ltd ("HST")
   
A Power Agro Agriculture Development
A Power Agro Agriculture Development
(Macau) Limited ("APAA")
(Macau) Limited ("APWAM")
 
 
F-122

 
 
(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.

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: April 19, 2011

 
69

 

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
     
  4.3
 
Certificate of Rights and Preferences – Series B Preferred
     
4.4
 
Certificate of Rights and Preferences – Series A Preferred *
     
4.5
 
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
 
 
70

 
 
  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.
     
  10.8
 
Capital Award Consulting Service Agreement
     
   10.9
 
Tri-Way Joint Venture Agreement
     
10.10
 
Share Sale Agreement of ZHONGXINGNONGMU CO. LTD. *
     
10.11
 
Joint Venture Agreement for Enping City Bi Tao A Power Prawn Culture Development Co., Ltd  *
     
10.12
 
AP Technology Consulting Services Agreement between Capital Award and a Group of China Parties *
     
10.13   Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Cooperation Agreement *
     
10.14   Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Sale and Transfer Agreement  *
  
All other Exhibits called for by Rule 601 of Regulation SK are not applicable to this filing.
 
*  Filed Herewith

(1) Information pertaining to our common stock is contained in our Articles of Incorporation and Bylaws.
 
 
71

 
 
Exhibit A
CERTIFICATE OF THE DESIGNATIONS, POWERS
PREFERENCES AND RIGHTS
OF THE
SERIES A PREFERRED STOCK
($0.001 PAR VALUE PER SHARE)

OF

 
SINO AGRO FOOD, INC.
A NEVADA CORPORATION

Sino Agro Food, Inc., a Nevada corporation (the “Corporation”), hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation:

RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Certificate of Incorporation of the Corporation (as amended, the “Certificate of Incorporation”), there hereby is created, out of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, of the Corporation authorized in the Certificate of Incorporation (the “Preferred Stock”), a series of the Preferred Stock of the Corporation consisting of 100 shares, which series shall have the following powers, designations, preferences and relative, participating, optional and other rights, and the following qualifications, limitations and restrictions:

1.               Designation and Amount.
 
This series of Preferred Stock shall be designated “Series A Preferred Stock” and the authorized number of shares constituting such series shall be 100.  The par value of the Series A Preferred Stock shall be $0.001 per share. Shares of the Series A Preferred Stock shall have a stated value of One Dollar ($1.00) per share (the “Stated Value”).

2.               Dividends.
 
The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends.

3.               Preferences on Liquidation.
 
(a)             Subject to the provisions of Section 6 below, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of the Series A Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, an amount equal to one dollar ($1.00) per share.
 
 
–1–

 
 
4.               Voting Rights.
 
Except as otherwise required by law or by the Certificate of Incorporation and except as set forth in Section 6(b) below, the outstanding shares of Series A Preferred Stock shall vote together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders.  Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80% which is allocated to the outstanding shares of Series A Preferred Stock.

5.             Negative Covenants.
 
The Corporation will not, by amendment of the Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Certificate of Incorporation and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Series A Preferred Stock against impairment.

6.             Ranking; Changes Affecting Series A.
 
(a)             The Series A Preferred Stock shall, with respect to distribution rights on liquidation, winding up and dissolution, (i) rank senior to any of the shares of Common Stock of the Corporation, and any other class or series of stock of the Company which by its terms shall rank junior to the Series A Preferred Stock, and (ii) rank junior to any other series or class of preferred stock of the Corporation and any other class or series of stock of the Corporation which by its term shall rank senior to the Series A Preferred Stock.
 
(b)           So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not (i) alter or change any of the powers, preferences, privileges or rights of the Series A Preferred Stock, or (ii) amend the provisions of this Section 6; in each case, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, as to changes affecting the Series A Preferred Stock.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its President this 19 th day of April, 2010.
 
 
Sino Agro Food, Inc.
     
 
/s/ Solomon Lee
     
 
By:
 
   
Solomon Lee
   
CEO and Chairman
 
 
–2–

 

EXHIBIT A

CERTIFICATE OF THE DESIGNATIONS, POWERS
PREFERENCES AND RIGHTS
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
($0.001 PAR VALUE PER SHARE)

OF

SINO AGRO FOOD, INC.
A NEVADA CORPORATION



Sino Agro Food, Inc. , a Company organized and existing under the Nevada Revised Statutes of the State of Nevada (the “Company” or the “Corporation”), hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation:

RESOLVED , that pursuant to authority conferred upon the Board of Directors of the Company (the “Board”) by the Certificate of Incorporation of the Corporation as amended, and pursuant to the provisions of SECTION 78.209 of the Nevada Revised Statutes, there hereby is created out of the 10,000,000 shares of Preferred Stock, par value $0.001 per share, authorized in the Certificate of Incorporation (the “Preferred Stock”), a Series of the Preferred Stock consisting of seven million ( 7,000,000 ) shares, $0.001 par value per share, to be designated “Series B Convertible Preferred Stock”, and to that end the Board adopted a resolution providing for the designation, powers, preferences and rights, and the qualifications, limitations and restrictions, of the Series B Convertible Preferred Stock, which resolution is as follows:

RESOLVED , that the Certificate of the Designations, Powers, Preferences and Rights of the Series B Convertible Preferred Stock (“Certificate of Designation”) be and is hereby authorized and approved, which Certificate of Designation shall be filed with the Nevada Secretary of State in the form as follows:

1.            DESIGNATIONS AND AMOUNT .      Seven Million (7,000,000) shares of the Preferred Stock of the Company, $0.001 par value per share, shall constitute a class of Preferred Stock designated as “Series B Convertible Preferred Stock” (the “Series B Convertible Preferred Stock”) with a face value of one dollar ($1.00) per share (the “Face Amount”). After the initial issuance of shares of Series B Convertible Preferred Stock, no additional shares of Series B Convertible Preferred Stock may be issued by the Company except as provided in SECTION 7 hereof.

2.            CONVERSION.

(a)            CONVERSION AT THE OPTION OF THE HOLDER .  Each holder of Series B Stock shall have the right, at such holder’s option, at any time or from time to time from and after the day immediately following the date the Series B Stock is first issued, to convert each share of Series B Stock into One (1) fully-paid and non-assessable share of Common Stock, par value $0.001 per share.

 
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(b)            MECHANICS OF CONVERSION .      In order to effect a Conversion, a Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion (attached hereto) to the Company for the Common Stock and (y) surrender or cause to be surrendered the original certificates representing the Series B Stock being converted (the “Preferred Stock Certificates”), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Company or the transfer agent. The Company shall not be obligated to issue shares of Common Stock upon a conversion unless either the Preferred Stock Certificates are delivered to the Company or the transfer agent as provided above, or the Holder notifies the Company or the transfer agent that such certificates have been lost, stolen or destroyed (subject to the requirements of SECTION 11).

“Conversion Date” means the date specified in the Notice of Conversion in the form attached hereto, so long as the copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Company before Midnight, Eastern U.S. time, on the Conversion Date indicated in the Notice of Conversion. If the Notice of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date a Holder faxes or otherwise delivers the Notice of Conversion to the Company.

(i)         Delivery of Common Stock Upon Conversion .    Upon the surrender of Preferred Stock Certificates from a Holder of Series B Stock accompanied by a Notice of Conversion (attached hereto), the Company shall, no later than the second business day following the later of (a) the Conversion Date (hereinafter defined) and (b) the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to SECTION 11 (the “Delivery Period”), issue and deliver to the Holder (x) that number of shares of Common Stock issuable upon conversion of such shares of Series B Stock being converted and (y) a certificate representing the number of shares of Series B Stock not being converted, if any.

(ii)        Taxes .    The Corporation shall pay any and all taxes and all other reasonable expenses, which may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series B Stock.

(iii)       No Fractional Shares .    If any conversion of Series B Stock would result in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Series B Stock shall be the next higher whole number of shares.

(c)            PARTIAL CONVERSION .       In the event some but not all of the shares of Series B Stock represented by a certificate(s) surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series B Stock which were not converted.

(d)            RESERVATION OF COMMON STOCK .        The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Stock, in addition to such other remedies as shall be available to the holder of such Series B Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase, and shall increase, its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 
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(e)           NO REISSUANCE OF SERIES B STOCK .        In the event any shares of Series B Stock shall be converted pursuant to this SECTION 2 or otherwise reacquired by the Company, the shares so converted or reacquired shall be canceled. The Certificate of Incorporation of the Company may be appropriately amended from time to time to effect the corresponding reduction in the Company’s authorized capital stock.

(f)          In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series B Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(g)         The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Company upon conversion of any shares of Series B Stock; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series B Stock in respect of which such shares are being issued.

(h)         All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Company, be validly issued, fully paid and nonassessable and free from all taxes (except income taxes), liens or charges with respect thereto.

3.            NO REDEMPTION .         The shares of the Series B Convertible Preferred Stock are not redeemable.

4.            RANK .                Except as specifically provided below, the Series B Convertible Preferred Stock shall, with respect to dividend rights, rights on liquidation, winding up and dissolution, rank senior to (i) all classes of Common Stock, $0.001 par value per share, of the Company (the “Common Stock”) and (ii) any class or series of capital stock of the Company hereafter created (unless, with the consent of the Holder(s) of Series B Convertible Preferred Stock).

5.            LIQUIDATION PREFERENCE

Except as otherwise provided by the Nevada Business Corporation Act or elsewhere in this certificate, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of the Series B Convertible Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, an amount equal to one dollar ($1.00) per share.

6.            DIVIDENDS .

The holders of shares of Series B Convertible Preferred Stock shall not be entitled to receive any dividends.

 
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7.            VOTING RIGHTS .

(a)           The Holders of the Series B Convertible Preferred Stock have no voting power whatsoever, except as otherwise provided by the Nevada Business Corporation Act, in this SECTION 7 and in SECTION 8 below.

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.

8.            PROTECTION PROVISIONS

So long as any shares of Series B Convertible Preferred Stock are outstanding, the Company shall not, without first obtaining the approval (by vote or written consent, as provided by the Nevada Business Corporation Act) of the Holders of at least a majority of the then outstanding shares of Series B Convertible Preferred Stock:

(a)           alter or change the rights, preferences or privileges of the Series B Convertible Preferred Stock;

(b)           alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series B Convertible Preferred Stock;

(c)           create any new class or series of capital stock having a preference over the Series B Convertible Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company (as previously defined, “Senior Securities”);

(d)           create any new class or series of capital stock ranking pari passu with the Series B Convertible Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company (as previously defined, “Pari Passu Securities”);

(e)           increase the authorized number of shares of Series B Convertible Preferred Stock;

(f)           issue any shares of Series B Convertible Preferred Stock other than pursuant to the Securities Purchase Agreement with the original parties thereto;

(g)           issue any additional shares of Senior Securities; or

(h)           redeem, or declare or pay any cash dividend or distribution on, any Junior Securities.

 
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If holders of at least a majority of the then outstanding shares of Series B Convertible Preferred Stock agree to allow the Company to alter or change the rights, preferences or privileges of the shares of Series B Convertible Preferred Stock pursuant to subsection (a) above, then the Company shall deliver notice of such approved change to the Holders of the Series B Convertible Preferred Stock that did not agree to such alteration or change (the “Dissenting Holders”).

9.            MERGER, CONSOLIDATION, ETC .

(a)           If at any time or from time to time there shall be (i) a merger, or consolidation of the Company with or into another corporation, (ii) the sale of all or substantially all of the Company’s capital stock or assets to any other person, (iii) any other form of business combination or reorganization in which the Company shall not be the continuing or surviving entity of such business combination or reorganization, or (iv) any transaction or Series of transactions by the Company in which in excess of 50 percent of the Company’s voting power is transferred (each, a “Reorganization”), then as a part of such Reorganization, provision shall be made so that the holders of the Series B Convertible Preferred Stock shall thereafter be entitled to receive the same kind and amount of stock or other securities or property (including cash) of the Company, or of the successor corporation resulting from such Reorganization.

(b)           The provisions of this SECTION 9 are in addition to and not in lieu of the provisions of SECTION 6 hereof.

10.            NO IMPAIRMENT .        The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Certificate of Designation and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Convertible Preferred Stock against impairment.

11.            LOST OR STOLEN CERTIFICATES .    Upon receipt by the Company of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date.

IN WITNESS WHEREOF , Sino Agro Food, Inc. has caused this Certificate of Designation to be executed this March 22, 2010/

Sino Agro Food, Inc.

By:
   
 
 
Solomon Lee
 
Chief Executive Officer and Chairman
 
 
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NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Series B Convertible Preferred Stock)

The undersigned hereby irrevocably elects to convert ____________ shares of Series B Stock (the “Conversion”), represented by stock certificate No.(s). ___________ (the “Preferred Stock Certificates”) into shares of Common Stock (“Common Stock”) of Sino Agro Food, Inc. (the “Company”) according to the conditions of the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock (the “Certificate of Designation”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series B Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption from registration under the Act.

¨            The undersigned hereby requests that the Company transmit the Common Stock issuable pursuant to this Notice of Conversion to the address of the undersigned.

Date of Conversion: ____________________________

Applicable Conversion Rate:        Each share of Series B Stock is convertible into one Share of Common Stock.

Number of Shares of Common Stock to be Issued: _____________________

Signature: _____________________________________

Name: __________________________________________

Address: _______________________________________

* The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company or its transfer agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than the later of (a) two (2) business days following receipt of this Notice of Conversion and (b) delivery of the original Preferred Stock Certificates (or evidence of loss, theft or destruction thereof) and shall make payments pursuant to the Certificate of Designation for the failure to make timely delivery.

 
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(Translation)

AGREEMENT FOR THE FORMATION AND OPERATION OF A
SINO FOREIGN JOINT VENTURE COMPANY

THIS AGREEMENT is made on February 11, 2011.

Article 1
Upon basis of fairness and mutual benefit, Wei Da Xing (“Party A”) and Capital Award Inc (“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

(1) Party A :
Mr. Wei Da Xing of Chinese ID number: IC#42202212196910250434 of No. 02073, Da Yang Village, An Sheng Town , An Sheng Country, Hua Nam Province.

(2) Party B :
Capital Award Inc. (a Belize incorporation) with its business address at Rm3711 China Shine Plaza, No.9, Lin He Xi Road, Tianhe District, Guangzhou, 510610 PRC, which shall include its assigns, successor in title or nominee (represented by Mr. Solomon Lee of Australian Passport Number E4010069, a director.

(hereinafter Party A and Party B shall be collectively referred to as “the Parties”)

Article 3
For mutual benefit, the parties hereto agree to incorporate a sino foreign joint venture company at No. 1-5, 1 st Floor, Jiangzhou Shui Zha Office Building, No 19, Jiang Jun road Jiangzhou, Juntang Town, Enping City, Guangdong Province of the People’s Republic of China, to be tentatively named as Enping City Bi Tao A Power Prawn Culture Development Co., Ltd (“SFJVC”).

Article 4
The parties hereto shall share the indebtedness, risks and losses of the SFJVC as well its profit in accordance with their respective equity interest ratio in the SFJVC.

Article 5
The Parties' purpose in establishing the SFJVC is to develop a prawn farm, that will produce high standard of quality fresh prawns and products that will have the competitive edge to develop sustained markets internationally, through the application of modern aquaculture technology and related management systems to gain economic benefit to the Parties as well as to generate social benefits to the communities as a whole.

Article 6
Scope of business operation :  development and operation of Pawn farms.

Article 7
Production Capacity :  2,000 tons of quality fish and prawns per year.

 
(1)
It is estimated that the construction of the Prawn farm will be completed within a period of 6 months counting from date of the Agreement; subsequently business operation of the Prawn farm will be commence, such that the targeted production of operational year (1) is for 250 tons of prawn.
 
(2)
From the second year of operation to the fifth year of operation, the production will be increased gradually to its final annual productivity of 2,000 tons per year, including the development of more than 3 species of fish and prawns.

Article 8
The tenure of the SFJVC shall be for a period of 50 years.  The SFJVC’s Board of Directors may decide to extend the tenure of the SFJVC by applying to the China Business Registration Department (or its related authorized approving authority) within 6 months from day of expiry thereof.
 
Article 9
The total investment capital of the SFJVC shall be US$5 million to be invested over a period of 5 years, whereas the Registered Capital of the SFJVC shall be US$100,000 for the first year and be increased gradually to US$5 million by the fifth year subject to the decision made by the Board of Directors of the SFJVC at the time.

Article 10
The parties’ respectively capital contribution in the 5 years are as follows :

 
First Year : 
Party A shall contribute US$80,000 in cash, whereas Party B shall contribute US$20,000 in cash.

 
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From the second year onward, Party B shall have the option to increase its share of equity interest in the SFJVC, and the parties will contribute their share of equity stake (or to increase part of the SFJVC’s registered capital by means of converting the SFJVC’s assets) in accordance with the guidelines as shown in the Table below:

First Year

Parties
 
Change of equity
interest up to
   
Assets that may be converted
 
Maximum % that will
be converted
 
                 
Party A
    75 %  
Cash
    10 %
           
Plants and equipment
    25 %
           
Properties
    25 %
           
Land Use Right
    10 %
           
Others
    5 %
           
Total contribution of Party A
    75 %
Party B
    25 %  
Cash
    25 %

Second Year Onward

Parties
 
Change of equity
interest up to
   
Assets that may be converted
 
Maximum % that will
be converted
 
                  
Party A
    25 %  
Cash
    2.5 %
           
Plants and equipment
    6.25 %
           
Properties
    6.25 %
           
Land Use Right
    2.5 %
           
Others
    1.25  
           
Total contribution of Party A
    25 %
Party B
    75 %  
Cash
    75 %

Article 11
Schedule of Payment by the Parties of the Registered Capital : In the first year, the Parties hereto shall pay for the US$100,000 Registered Capital of the SFJVC in accordance with their respective share of equity interest in the SFJVC within 6 months from date of issuance of the business license of the SFJVC.  From the second year onward, the Parties shall pay their respective share of contribution of the Registered capital in the manner as mentioned above and in accordance with the time schedule as set forth by the Board of Directors of the SFJVC as and when it shall be necessary.

Article 12
If either of the Parties hereto shall decide to sell all or part of its equity in the SFJVC to any third party, the selling party hereto shall obtain the prior consent of the other party hereto before such sale, and shall grant the first right of refusal to the other party hereto on the like terms for the intended sale.

Article 13
The responsibilities of Party A:

 
1.
To pay its share of the Registered Capital on a timely manner.
 
2.
To apply to relevant Chinese Authorities in order to obtain the official approval, registration and business license for the incorporation of the SFJVC.
 
3.
To apply to the Land Authorities of China to obtain official approval of the Land Use Right of the project land.
 
4.
To introduce and to organize all local sub-contractors and contractors to carry out construction work relating to the scopes of civil engineering, designs, building and all other related matters for the SFJVC for the purpose of developing the fish farm.
 
5.
To introduce to and to organize all local suppliers and manufacturers for the SFJVC such that the SFJVC will be able to obtain supplies and manufacturing of plants and equipment for the fish farm.
 
6.
To apply to the customs authorities and to obtain import clearance for all imported plants and equipment of the fish farm and to arrange local transportation for the delivery of the imported plants and equipment to the project site.
 
7.
To introduce to and to organize all local contractors and sub-contractors for the SFJVC such that the SFJVC will be able to construct and to connect all basic infrastructure and utility services needed at the project site of the fish farm.
 
8.
To assist the SFJVC in recruiting chinese management personnel, technical personnel, workers and other workers needed for its fish farm.

 
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9.
To assist foreign workers and staffs of the SFJVC in their applications for entry visas, work permits and other associated local traveling arrangements.
 
10.
To co-ordinate other general necessities requested by the SFJVC from time to time during the development period of the SFJVC.

Article 14
The responsibilities of Party B

 
1.
To pay its share of the Registered Capital on a timely manner.
 
2.
To organize and to arrange supplies, purchases, delivery and related matters of all imported plants and equipment needed by the Fish Farm.
 
3.
To organize and to arrange all transportation and related logistics needed for the importation of imported plants and equipment for delivery to the appropriate sea port in China.
 
4.
To provide qualified technical supervisors, personnel and inspectors for the installation and commissioning of all plants and equipment of the fish farm.
 
5.
To provide training to the personnel and workers needed for the operation of the fish Farm.
 
6.
Party B shall ensure that the performance of the Fish Farm (including but not limiting to the productivity and durability of the Fish Farm) will be reached within the targeted schedule.
 
7.
To assist the SFJVC in other matters related to the Fish Farm Development works as and when requested by the SFJVC.

Article 15
The date of registration of the SFJVC shall be the date whereupon the SFJVC shall officially constitute its Board of Directors.

Article 16
The Board of directors shall consist of 3 members; 1 appointee from Party A and 2 from Party B.  The director appointed by Party A shall be made the Chairperson, whereas 1 director appointed by Party B shall be made the Deputy Chairperson.  The tenure of the Chairperson and the Deputy Chairperson shall be 3 years, renewable at the discretion of the appointing party.

Article 17
The highest authority of the SFJVC company shall be its Board of Directors. The following matters shall require unanimous approval of the Board of Directors:

 
(1)
Amendments made to the Articles of Association of the SFJVC;
 
(2)
The termination and dissolution of the SFJVC;
 
(3)
Any Changes made to the Registered Capital of the SFJVC and the assignment or sales of the equity stakes in the SFJVC by any one of the parties.
 
(4)
Merger of the SFJVC with other business entity.

Article 18
Save and except for the matters as stated in Article 17, all other matters of the SFJVC shall only require the majority decision of the Board of Directors. The quorum for any meeting shall be two third of the members of the board.

Article 19
The Chairperson of the board is the legal representative of the SFJVC.  If the Chairperson for any reason is not able to carry out his duties, the Deputy Chairperson or any other director may be empowered to represent the SFJVC.

Article 20
The Board of Directors shall convene at least twice every year, and meetings shall be called by the Chairperson of the Board of Directors or such other director as directed by the Chairperson.  The Chairperson may convene short notice meeting upon his receipt of such requisition from one third or more of the directors.  All corresponding minutes of the board meetings shall be recorded on file of the SFJVC. 

Article 21
Each Party hereto shall share the profit or loss derived from the operation of the SFJVC in accordance with percentage of their respective equity held in the SFJVC.

Article 22
The management of the SFJVC shall be responsible for the day to day administration and operation of the company.  The management shall consist of 1 General Manager to be nominated by Party A, 1 Deputy General Manager to be nominated by Party B, the employment of same shall be decided by the board of directors, for a tenure of 3 years renewable if the board of directors shall so decide.

Article 23
The general manager of the SFJVC will be responsible to the Board of Directors of the SFJVC and to manage all daily affairs of the SFJVC; the Deputy General Manager will assist the General Manager in managing the daily affairs of the SFJVC, and be the acting General Manager in the absence of the General Manager. All other management personnel and workers will be appointed by the General Manger.

 
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Article 24
The Board of Directors of the SFJVC shall have the right to terminate the appointment of the General Manager and / or the Deputy General Manager in the event if either or both of them shall act intentionally or negligently causing the SFJVC to suffer loss or damage.
 
Article 25
The SFJVC shall have an Audit Committee consists of 3 members, of whom Party A shall nominate 2 persons and Party B shall nominate one person. One of the members nominated by Party A shall be made the Chairperson of the Audit Committee.  Members of the Audit Committee shall be formally appointed by the Board of Directors of the SFJVC for a minimum term of 3 years.

Article 26
All matters of the SFJVC concerning recruitment, dismissal, wages, workers’ insurance, Disabled Fund, Flood Control Fund, welfare of workers and rewards and penalties shall be implemented in accordance with the Regulations of the People s Republic of China on Labor Management and its Implementing Rules, and the policies thereof formulated by the Board of Directors of the SFJVC, and incorporated into the employment contracts.
 
Article 27
The SFJVC shall pay all taxes in accordance with the China’s taxation law and regulations.
 
 
Article 28
The staffs and workers of the SFJVC shall pay all taxes accordance with the income tax law of China.

Article 29
The SFJVC shall make provision in Reserved Fund, Expansion Fund and Employees’ Welfare Fund in accordance with the provisions of the Sino Foreign Joint Venture Law of China, the quantum of which shall be decided by the board of directors of the SFJVC according to the prevailing financial capacity of the SFJVC from time to time.

Article 30
The fiscal year of the SFJVC shall be from July 1 of the year to June 30 of the subsequent year. All the accounting vouchers, accounting books and records shall be written in Chinese and in English.

Article 31
The SFJVC shall engage a Chinese auditor for auditing of accounts, and such   audited accounts shall be submitted to the board of directors and the General Manager.

Article 32
The General Manager of the SFJVC shall submit the annual financial report for the preceding fiscal year to its Board of Directors within first three months of each fiscal year.

Article 33
All the insurance coverage of the SFJVC shall be decided by the board of directors.

Article 34
Upon expiration or early termination of the SFJVC, the SFJVC shall be liquidated in accordance with the relevant laws of China and the assets of the SFJVC shall be distributed to the parties hereto proportionately according to the percentage of each party’s equity interest in the SFJVC.

Article 35
Any amendment to this Agreement and its appendices shall require written consent of both parties, and be subject to approval of the relevant authority before taking effect.

Article 36
If this Agreement cannot be implemented due to Force Majeure, or the SFJVC suffers severe financial losses and is not able to continue its operation as a result, then the SFJVC may be dissolved upon the unanimous decision of the Board of Directors and the approval of the relevant approving authority.

Article 37
Should the joint venture company be unable to continue its operation or achieve its business purpose due to the fact that one of the contracting parties fails to fulfill the obligations prescribed by the contract and articles of association, that party shall be deemed to have unilaterally terminated the contract. The other party shall have the right to terminate the contract in accordance with the provisions of the contract after approval by the original approving authority, and to claim damages from the defaulting party.  Should it be the fault of both parties, the parties shall bear their liabilities according to the gravity of fault committed by the parties. If both parties cannot agree on the quantum of liabilities, either party shall have the right to refer the dispute to the Shenzhen branch of the China International Economic and Trade Arbitration Commission for arbitration.   If both parties agree to continue operation of the SFJVC, the defaulting party shall compensate the SFJVC its financial losses.

Article 38
Should either of the parties hereto be prevented from executing the contract by force majeure, such as earthquake, typhoon, flood, fire, war or other unforeseen events, and their occurrence and consequences are unpreventable and unavoidable, the prevented party shall notify the other party by telegram without any delay, and within 15 days thereafter provide detailed information of the events and a valid evidential document issued by the relevant public notary organization explaining the reason of its inability to execute or delay the execution of all or part of the contract. Both parties shall, through consultations, decide whether to terminate the contract or to exempt part of the obligations for implementation of the contract or whether to delay the execution of the contract according to the effects of the events on the performance of the contract.

 
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Article 39
Should either Party hereto fail to pay on schedule its agreed capital contribution in accordance with the provisions herein, the defaulting party shall pay to the other party hereto liquidated damages equivalent to 10% of its agreed capital contribution every month starting from the date of occurrence of such breach. Should the defaulting party fail to pay after 3 months, liquidated damages equivalent to 30% of its capital contribution shall be paid to the other party, who shall have the right to terminate the contract and to claim damages from the defaulting party. 

Article 40
The formation, validity, interpretation, execution and settlement of disputes in respect of, this contract shall be governed by the relevant laws of the People s Republic of China. 

Article 41
In the event any dispute arising in the course of carrying into effect this Agreement cannot be settled through friendly consultations between the parties hereto, such dispute shall be referred to the Shenzhen branch of China International Economic and Trade Arbitration Commission for arbitration in accordance with its rules.  The arbitral award is final and binding upon all parties.

Article 42
In the arbitration process, the terms of this Agreement, other than the part which is the subject matter of the arbitration, shall remain operational.

Article 43
This Agreement shall take effect upon the approval thereof by the Ministry of Commerce and Trade of China (or its related authorized approving authority).

Article 44
The parties hereto may communicate with each other by, but not limited to, the telegraph, telephone, mail, fax, e-mail, MSN, QQ, telex and other effective means agreed by both parties, but any matter concerning the rights and obligations of the parties hereto should be conveyed to the other party in writing.  The addresses of Party A and Party B as stated in this Agreement shall be the postal addresses of the parties hereto. 

Article 45
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 :
Mr. Wei Da Xing
Party B:
Capital Award Inc
       
(Signed)
 
(Signed)
 
   
(Solomon Lee, Director)
________________ ________________
 
February 11, 2011
 
 
5

 

Dated February 11, 2011

AP TECHNOLOGY CONSULTING SERVICES
AGREEMENT

Between:

Consulting Services Provider :                                CAPITAL AWARD INC.

And

The Employer :
A Group of China Parties represented by Mr. Wei Da Xing

Ref.No.CA(APM)Service15012010

 
Page 1 of 13

 

THIS CONTRACT is made on February 11, 2011

Between:

The Service Provider :    CAPITAL AWRARD INC. (hereinafter called "CA")
And

The Employer :  A group of China's businessmen represented by Mr. WEI DA XING of Chinese ID Number: IC#42202212196910250434 of No. 02073, Da Yang Village, An Sheng Town, An Sheng Country, Hunam Province (hereinafter called "the Employer").

Recitals
1.  CA is the holder of the Master License in AP Technology and Systems (hereinafter called "AP Technology") for China and has the know-how to build fish and prawn farms using the AP Technology and to manage the related fish and prawn farms operated under the AP management systems.
 
2.  The Employer is a group of businessmen in China having various business activities and operation in China.
 
3.  CA and the Employer are hereinafter collectively referred to as “The Parties”.
 
4.  The Parties hereto agree to build and develop a prawn farm at a site in Enping District, Guangdong Province within close proximity to the HangSingTai HU Plantation, Enping using the AP Technology and System.
 
Whereas description of the development project is summarized as follow:
 
Name of the Project: “Demonstration Prawn Farm” Enping.
 
Location of Project:
 
Exact Location will be determined by the Parties after results of
     
   
testing of inflow water quality and quantity and soil that will be carried out on the various blocks of land in the Enping District that the Parties have the option to acquire.

Development Components of the Project:
 
More particularly set out in Item 1 of Information List as attached hereto.
Development Schedule of the Project:
 
More particularly set out in Item 2 of Information List” attached hereto.

5.       The Parties agree to apply to the China Authorities to form a Sino Foreign Joint Venture Company (herein after called “SFJVC”) to develop the Project, and prior to the official approval of the SFJVC, the Employer shall be responsible to provide funding for the development needs of the Project, and such, upon the official establishment of the SFJVC, the Parties agree to transfer this Agreement to the SFJVC, and the SFJVC will be responsible to fund the required development capital needs of the Project.
 
6.       The Parties further agree that after the official formation of the SFJVC, the SFJVC will reimburse the Employer for amounts paid by Employer on the Project prior to its official formation.
 
7.       CA shall be providing technical service to the Employer prior to the official formation of SFJVC for the development of the Project.
 
8.       The Employer agreed to secure CA’s services and CA agreed to provide the services on the Project in accordance to terms and conditions herein set forth:
 
NOW THE PARTIES AGREE AS FOLLOWS:
 
1 INTERPRETATION
 
In this Agreement the following definitions shall apply:
 
commencement Date ”  means the date on which this Agreement is fully executed;

 
Page 2 of 13

 

A.Power Module
 
means an engineered, self-contained, water treatment system for the growing of aquatic animals on a commercial scale.
 
It consists of a Grow-out Basin or multiple of grow-out basins and a Treatment System placed away from the Basin. The Basin holds the water in which the animals are to be grown. The Treatment System is fitted away from the Basin but pumps and treats the water from the   grow-out basin.
 
The Treatment System is made up of: inlet screens, a solid wastes separator, aeration diffusers, Bio-filter (consists of bio-filter media), oxygen distributor, ozone and Ultra Violet coordinator, outlet screens, an un-dissolved solids airlift pump, and a degassing system. The Grow-Out Basin(s) and all Treatment System components are designed and manufactured specifically as per A Power (“AP”") Fish Farms’ designs and specifications.
 
The combined system assembles of these components away from the Basin(s) treats the water to allow the growing of aquatic animals on a commercial scale is defined as the A.Power Module (APM).
     
Intellectual Property
 
includes but is not limited to the technology, copyrights, processes, know-how, designs, operations manuals, specifications of equipment and descriptions of operating principles and technology or other like rights;
     
Manufacture
 
includes constructs, assemble, produce or otherwise prepare for commercial use or exploitation;
     
processes
 
includes technologies, products, devices, processes or techniques;
     
product
 
means the products and /or processes which incorporate the use of  the intellectual Property;
     
“User Certificate”
 
means the entitlement of the Purchaser to utilize the intellectual property for the operation of the Project and certifies the performance of the A.Power Modules.
 
A reference to persons shall include corporations; words including singular number shall include plural number and vice versa; words including a gender shall include all other genders.
 
A reference in this Agreement to a statute or a section of a statute includes all amendments to that statute or a section passed in substitution for incorporating any of its provisions.
 
Except for the purpose of identification, headings and underlines have been inserted in this Agreement for the Purpose of Guidance only and shall not be part of this Agreement.
 
Recitals and the “Information” attached hereto shall be regarded as part of this Agreement.
 
2.
COMMENCEMENT
 
The time for commencement of the Parties'contractual obligations pursuant to this Agreement occurs on the date of execution of this Agreement by the parties hereto.
 
3.
RESPONSIBILITIES OF THE PARTIES
 
3.1  The Employer will make payments to CA or to its designated agents, in United State currency or Renminbi at Hong Kong and / or China or in such manner and at such other place as may be agreed between the parties, for work done and provided by CA in accordance with the terms and conditions described in Item 4 of the “Information List” set forth herein.
 
3.2  CA will carry out and provide the services to the Employer in accordance with the scope of works as described in Item 3 of the “Information List” set forth herein.

 
Page 3 of 13

 

3.3  Time shall be of the essence with respect to all payments.

4.  SUB-CONTRACT
 
CA will have the right to contract with any person for the performance of the whole or any part of the building construction work, supplies of parts and components for the construction and / or assembling of farm’s plants and equipment contained in this Agreement.
 
5.  DELAYS OUTSIDE OF CA’s CONTROL
 
5.1
Times for completion of the Contractor’s contractual obligations are given as accurately as possible but are not warranted and are subject to extension to allow for delay caused by:
 
(a)  War, civil commotion, legislation, strikes, lock outs, break downs, delays in transport, fire and flood;
 
(b)  Unavailability of raw materials, disruption and supply of water and electricity or any other cause whatsoever beyond the control of CA.
 
5.2   CA shall not be responsible or under any liability for failure to complete its contractual obligations within any time specified in this Contract due to any of the events referred to in Clause 5.1hereof, including liability in respect of any consequential economic loss or damage.
 
6.    EXTRA COSTS
 
(a) 
If CA incurs any extra costs as a result of any delays arising out of the circumstances defined in clause 5.1 or interruptions or suspension of work due to the Employer's instructions or failure to give instructions, CA shall be entitled to increase the Contract Price by the amount of any such extra costs so caused calculated on a basis as close as possible to that used to arrive at the Contract Price.
 
(b)
Should any material supplied by the Employer for use in carrying out the scope of work is defective or unsuitable in any way, the Employer will pay to CA in addition to the Contract Price the costs of all extra work carried out and materials supplied by the CA to overcome such defect.
 
(c)
Except as otherwise stated in this Agreement, packing of equipment or part comprising the scope of work shall be suitable for shipment of the same by shipping container from Australia, European countries, Hong Kong or any other countries to the Site and will be effected in accordance with CA’s or its suppliers’ standard practices, the cost of which is included in the Contract price. Insofar as any packing that does not conform to CA's standard practice is required for the purposes of the Contract and the cost of which is in excess of the cost of the CA's standard practices, the excess shall be borne by the Employer.
 
7.  RISK AND INSURANCE
 
(a)
The Employer shall insure for full invoiced value all equipment, parts or materials shipped pursuant to this Agreement against damage or loss in transit. If any of the said equipment, parts or materials are damaged or lost in the course of shipment CA shall be under no liability whatsoever in respect of such damage or loss.
 
(b)
The Employer shall take out a public liability policy with a reputable insurer approved by CA in the name of both the Employer and CA providing each of them with indemnity in the amount of $10,000,000.00 in respect of all and any liability, including to each other and any third party, arising out of and/or in connection with that portion of the scope of work which takes place on the Employer's premises including the Site.
 
(c) 
All equipment, parts and material being constituents of the scope of work delivered to the Site or other premises nominated by the Employer shall be at the risk of the Employer from the time of their dispatch to the Employer from the premises of CA or its suppliers as the case may be.
 
(d)
CA shall be under no obligation to insure the equipment, parts or materials being constituents of the scope of work.
 
 
Page 4 of 13

 

8.  WARRANTY
 
CA agrees to warrant the quality of equipment supplied comprising the scope of work referred to in Item 6 of “the Information List” subject to the following conditions:
 
(a)  on delivery will be new and unused;
 
(b)  will be of good and merchantable quality;
 
(c)  will comply with the description of the equipment referred to in Item 6 of the Information List hereto; and
 
(d)  will be free from defects and materials and installation of work.
 
9.   LIMITATION OF LIABILITY
 
Save as expressly provided for in this Agreement, CA shall not be liable to the Employer or its servants or agents or contractors for any direct, indirect, incidental or consequential damages of any nature howsoever caused(whether based on tort or contract or otherwise) including but not limited to loss of profits, loss of production, loss of sales opportunity or business reputation, direct or indirect labour costs and overhead expenses and damage to equipment or property or any other claim whatsoever arising directly or indirectly out of or in any way attributable to the execution and performance of the Contract.

10. THE EMPLOYER TO INDEMNIFY
 
The Employer shall has a separate and distinct obligation indemnify CA its servants and agents and at all times, keep CA its servants and agents indemnified against all actions, proceedings and claims whatsoever brought against CA, it servants or agents in relation to any injury, loss of life or damage to any property or financial other consequential loss for and in respect of any loss injury expense or damage howsoever caused or arising from any cause whatsoever arising directly or indirectly out of or in any way attributable or incidental to the execution or performance of this Agreement.
 
11. DEFAULT AND TERMINATION
 
Ground of Termination
 
(a)  Should the Employer make default in payment of any amount due to CA or in carrying out any other obligation on the Employer’s part under this Agreement ,CA shall be entitled to give the Employer written notice of such default requiring the Employer to remedy the same within seven (7) days of service of such notice, and should the Employer fail to remedy its default, CA may if it so elects terminate this agreement forthwith or waiver the Employer's default upon the condition that in consideration thereof the Employer shall make payment to CA forthwith by way of liquidated damages the difference between the amount paid by the Employer to the date of default and the total of all CA's invoices to the date of default unpaid by the Employer plus interest at the rate of 10% per annum on amounts comprising such difference for the periods that they remain unpaid from date of invoice.
 
(b)       Upon termination of this Agreement for any reason whatsoever the Employer shall not be relieved of its obligation to pay all amounts owed by it to CA or any account whatsoever.
 
12 INSTALLATION
 
(a)       The scope of work requires CA to perform the fitting out or commissioning of equipment or parts as such:
 
(b)       The Employer will provide CA with suitable access to the Site at all times necessary and convenient to CA for the purpose of this Agreement;
 
(c)       The Employer will provide at its cost suitable accommodation and transportation for CA's servants, agents, subcontractors or employees;

 
Page 5 of 13

 

(d)       The Employer undertakers that its servants, agents and subcontractors carrying out or involved in the scope of work will at all times promptly give effect to CA’s directions and requests relating to the same;
 
(e)       The Employer will provide suitable on site storage facilities of equipment and parts to be installed and materials to be used under this Agreement.
 
(f)        The Employer will provide electrical power and water supply so that construction and installation of the A.Power Modules can be carried out continuously;
 
(g)       The Employer will integrate the CA’s construction and installation work at the Site as depicted and defined in the scope of work so as to facilitate supply and installation by CA of the equipment parts and materials comprising A.Power Modules. If for any reason beyond the control of CA, including the Employers default or issue of a variation instructions, installation of the A.Power Modules cannot proceed without additional cost to CA and/or delay in the completion of the A.Power Modules occurs, the Employer will pay to CA such amount in addition to the Contract Price as are required to compensate CA for such additional cost and/or delay calculated on a basis as similar as possible to that used by CA to calculate its costs of manufacture, supply or supervision of installation, including all additional costs for equipment, parts and material and expense in unloading or placing into storage equipment, parts and materials to be used in connection with or comprising the scope of work and any idle time of the Contractor’s employees or subcontractors resulting from such delay;
 
(h)       If any of CA’s employees or subcontractors are required to work overtime or his normal work is interrupted as a result of the action, instructions or the failure to give instruction by the Employer, the Employer will pay to CA in addition to the Contract Price the additional costs of such overtime or interrupted work calculated on a basis as similar as possible as that used to calculate the cost of labour supervision of installation comprised in the Contract Price;
 
(i)       CA shall be under no liability for the correctness or suitability of any site works, foundations or piles buildings or structures constructed by any other person and the Employer shall be deemed to warrant the correctness and suitability for the purposes of the scope of work
 
13.   ARBITRATION
 
If at any time any question, dispute or difference whatsoever shall arise between CA and the Employer upon, in relation, or in connection with the Contract or the performance thereof, either party may give to the other notice in writing of the existence of such question, dispute or difference and the same shall be referred to the arbitration before a person to be mutually agreed upon, or failing agreement within fourteen (14) days of receipt of such notice, before a person appointed by the President ,for the time being, of the Institution of Engineers China, Guangzhou Branch. The submissions shall be deemed to be a submission to arbitration within the meaning of the Commercial Arbitration Act China or any statutory modification or re- enactment thereof.
 
14 COMPLETE AGREEMENT
 
The terms and conditions of this Agreement shall constitute the sole contract between CA and the Employer and the same shall not be varied or added to in any way whatsoever nor shall any purported variation or addition whether before or after the date hereof, have any legal effect unless agreed to in writing by both parties.
 
15 FRUSTRATION
 
Whilst CA will use its best Endeavour to fulfill its contractual obligations hereunder, if this Contract shall become impossible to perform through no fault of CA or shall be otherwise frustrated, the Employer shall be liable to pay to CA all costs which CA, its suppliers or subcontractors have incurred directly or indirectly or for which CA is liable under this Agreement at the time of impossibility of performance, or frustration provided that CA shall not require payment for any standard parts or materials which CA may be able to sue at the time any other contract then current. Any prepayments which may have been made to CA under this Agreement shall be applied towards satisfaction of such sum as may become due to CA under this provision, and the excess(if any) of such prepayments will be refunded to the Employer

 
Page 6 of 13

 

16 SECRECY OBLIGATION AND CONDITION
 
All information and technical date relating to the intellectual Property disclosed by CA to the Employer (“Confidential information”) shall be used by the Employer and its successors as owners or operators of the A Power Modules for this and no other purpose. the Employer and its successors will keep the all such information confidential. The Employer and its successors will use the confidential information exclusively for the operation and maintenance of the A. Power Modules. The Employer will take all reasonable steps to prevent unauthorized use of the Confidential information by its personnel or by third parties.
 
17 .   GENERAL
 
(a)       Waiver
 
Any waiver or forbearance in regard to the performance of this Agreement shall operate only if in writing and shall apply only to the specified instance and shall not affect the existence and continued applicability of the terms of it thereafter.
 
(b)       Entire Agreement
 
This Agreement embodies all the terms binding between the parties and replaces all previous representations or proposals not embodied herein.
 
(c)       Applicable Law
 
This Agreement shall be read and construed according to the laws of China and the parties submit to the jurisdiction of that Country.
 
(d)       Amendments
 
This Agreement may not be varied except in writing signed by the parties.
 
(e)       Severability
 
If any provision of this Agreement is held by a court to be unlawful, neither the legality, validity or enforceability of the remaining provisions hereof, nor the legality, validity or enforceability of such provision shall in any way be affected or impaired thereby.
 
(f)        Notices
 
All notices shall be in writing and shall be given by anyone of the following means:
 
(i)     by delivering to the address of the party on a business day during normal business hours;
 
(ii)    by sending it to the address of the party on a business day during normal business hours;
 
  (iii)   by sending it by email or facsimile transmission to the telex number or facsimile of the party.
 
CAPITAL AWARD INC.
 
Address: Room 3711, China Shine Plaza, No.9, Lin He Xi Road, Tianhe District, Guangzhou (510610)
 
Legal Representative Solomon Lee (E4010069 Australian Passport)
 
Telephone:  86-20-22057860
 
Facsimile :  86-20-22057863

 
Page 7 of 13

 
 
The Employer :  Wei Da Xing (IC#42202212196910250434)
 
Address :  No. 02073, Da Yang Village, An Sheng Town , An Sheng County, Hunam Province.
 
(g)  Further Agreement
 
Each party shall execute such agreements, deeds and document and do or cause to be executed or done all such acts and things as shall be necessary to give effect to this Agreement.
 
(h)  Charges
 
All stamp duties and governmental charges arising out of or incidental to this Agreement shall be paid by the Parties collectively.
 
(i)  Drawings and Plans
 
All CA’s drawings, designs and specifications relating to the A. Power Modules are and shall remain CA’s property, the Employer will not part with possession of the same, disclose to any other person any part of the contents thereof nor allow any part of the same to be copied without CA’s prior written consent.
 
EXECUTED UNCONDITIONALLY by the parties:

THE COMMON SEAL OF CAPITAL AWARD INC.
was hereunto affixed in the presence of

    
(Solomon Lee)
Date: February 11, 2010

THE EXECUTION of: The China Party represented by

    
Mr. Wei Da Xing

Date: February 11, 2011
 
 
Page 8 of 13

 

“Information List”

Item #
 
Item names
 
Description
         
1
 
The Project
 
“A Power” demonstration fish farm has the equivalent of 16 APMs and Consisting the followings:
         
       
Section A, building of 4000m² to house with equivalent of 16 Large AP Grow-out tanks to produce up to 500 Metric Tons of prawns per year. The Engineering designed Capacity of the Farm is designed based on the practical capacity to produce up to 500 Metric Ton of fresh water fish per year.
         
       
Section B, including in the building to build to Brood-stock and nursery station capable to produce up to 200 Million fingerling per housing over 200,000 of mother stock at given time.
       
(hereinafter called “the Farm”)
         
2
 
Scope of Work
   
         
2.1
 
Project and engineering Management
 
Provision of concept designs, engineering analysis, determination of systems, and construction design and drawing for the Demonstration farm. Supervise the Construction and building of all Sections covering installation of water and electrical work, and lay-out of ground pipes etc.
         
2.1.1
 
Installation Supervision
 
Supervise the installation of all AP designed and / or the Contractor’s specified plants and equipment. Supervise the Commissioning of all AP modules and related facilities.
         
2.1.2
 
Commissioning supervision, Farm Management
 
To provide related management and personnel training service for the demo-farm’s operation, and to supervise the farm’s operation until such time, workers are fully trained to manage the operation of the farm.
         
2.2
 
Supply of plants and equipment
 
To supply the plants, equipment, parts and components as detailed in item 3 of this Information List.
         
         
3
 
Project Site
 
The project site of 40 Mu is situated at a location to be mutually agreed by the parties, situated at a district of Enping City, Guangdong Province, China.
         
4
 
The Contract Price
 
Total=US$3,500,000 (United State Dollar Three Million and Five Hundred Thousand covering the followings:
         
4.1
 
The  Project  and Engineering designs and consultation
 
US$500,000.00 (United State Dollar Five Hundred thousand)
         
4.2
 
Sub-contracting of building of farm buildings and tanks and related infrastructure preparation and work.
 
US$1,500,000.00 (United State Dollar One Million and Five Hundred Thousand)
         
4.3
 
Supply of Farm plants and equipment and accessories.
 
US$1,000,000.00 (United State Dollars One Million)
 
 
Page 9 of 13

 
 
         
4.4
 
Installation and related supervision and work for commissioning and testing.
 
US$250,000.00 (United State Dollar two hundred thousand).
         
4.5
 
Farm training for personnel and management
 
US$300,000.00 (United State Dollar Three Hundred Thousand).
         
4.6
 
Air fare, accommodation, lodging and out of pocket expenses
 
These items are not included in the above amount and will be paid by the Employer in accordance with their actual expenditure at the time. The air fares will be based on business class air fare from Australia / China.
         
4.7
 
Notes to the charges
 
All figures quoted hereof are in round figures for present calculation purpose, and actual figures will be billed in accordance with CA’s invoices, but in any case the actual total charges will be capped within a tolerance +/- 10%.
         
4.8
 
Technology Fee
 
CA shall grant the Employer the “Right to use and to operate” the AP Modules hereto under a Certificate namely the “User Certificate” for a period of 55 years at a consideration calculated at US$ 25,000.00 per APM totaling to US$350,000.00 (herein after called the UC fee).
         
5
 
Payment terms
 
(a) A deposit payment of US$250,000.00 payable within 30 days from date of invoice commencing from 1st. February 2010.
         
5.1
 
For items 4.1,
 
(b) Subsequent payments payable within 30 days from date of invoices issued based on monthly payment of no less than US$25,000 / month.
         
5.2
 
For item 4.2
 
Payments to be paid within 30 days from date of invoice and in accordance with the related progressive payment terms of the sub-contractors.
         
5.3
 
For Item 4.3
 
Payments to be paid within 30 days from date of invoice and in accordance with the related progressive delivery terms and conditions of the suppliers and sub-contractors.
         
5.4
 
For Item 4.4, 4.5 and 4.6
 
Payments to be paid within 30 days from date of invoices.
         
5.5
 
For item 4.8
 
Payments to be made commencing 30 days after the farm will be in operation based on equally divided periodical monthly payments over  a period of 2 years with invoices to be given by CA that will be payable within 30 days from date of invoices.
         
5.6
 
Late payments
 
Any late payments in relation hereto shall be subject to a penalty payment calculated to the rate of 10% per annual payable monthly for a maximum period of 90 days such that any due payment exceeds the said period shall be deemed as default by the Vendor unless CA consents to the extension of the said late payments in writing. In any case should there will be extended period for any corresponding payments CA will specify accordingly in the said corresponding invoices detailing the related period of extension and change of payment terms (if any).
 
 
Page 10 of 13

 

6
 
List of Plants and Equipment
 
Quantity
 
Unit price
 
Amounts in US$
                 
6.1
 
Water Treatment Compartment
           
   
Solid Wastes Separators
 
16 sets
       
   
Bio-filter treatment sets for treatment of soluble wastes
 
16 sets
       
   
Foam eliminators
 
16 sets
       
   
Air –blowers
 
16 sets
       
   
Aerators
 
16sets
       
   
Oxygen injectors
 
16 sets
       
   
UV-light sets
 
16 sets
       
   
Heating units
 
16 sets
       
   
O3 treatment units
 
16 sets
       
   
Inlet and outlet water pumps
 
32 sets
       
   
All related parts and components
           
   
All related fittings and connections
           
6.2
 
Stand-by generator set
 
1 set
       
6.3
 
Auto-Fish Graders
 
2 sets
       
6.4
 
All related operation plants and equipment for operation of each tank individually
           
6.5
 
All associated filtration materials
 
6 tons
       
 
7
 
Other conditions of the referred relevant Management
7.1
 
Related to the Project and Engineering Management
 
The Employer agrees that CA shall undertake and carry out on behalf of the Employer the following activities:
7.1.1
     
To approve on the lay-out plan of the project land, all drawings and designs of the buildings and all aspect of engineering and technologies applied for the construction of the sections and farms.
7.1.2
     
To evaluate work of the sub-contractors, tradesmen, quotes and tenders and make recommendation to the Employer to allow the Employer to enter into suitable contracts (if necessary).
7.1.3
     
To make recommendation tothe Employerfor the dismissal and control over building and supplying agents or individual contractors.
7.1.4
     
To procure the services of external experts, consultants to provide technical, design, legal, and other professional and advisory services as may be appropriate in relation to the construction and development of farms and related facilities.
7.1.5
     
To make recommendation to the Employer for the dismissal of incompetent advisers, superintendents and engineers.
7.2
 
Related to the Farm and Fishery Management
 
The Employer agrees that CA shall be entitled to and empowered to exercise all powers, authorities and discretions in relation to the management of the activities referred below:
7.2.1
     
All the lay-out plans of the plants and equipment in and of the farm.
7.2.2
     
To source for and the use of feed stocks, fingerlings and other materials that will be needed for the operation and fish production of the farm.
7.2.3
     
The training of farm operators and staffs of the farm.
7.2.4
     
The appointment of maintenance and service contractors for the service and maintenance of plants and equipment of the farm.
7.2.5
     
The day to day management of the operation of the farm until such time the farm’s management will be able to operate the farm by them.
 
 
Page 11 of 13

 

7.2.6
     
To accept quotes and tenders for on behalf of WD.
7.2.7
     
The appointment and dismissal of services from experts, consultants and other professional as may be appropriate in relation to the operation of the farm.
7.3.
 
Related to the Technology
 
 
The Employer agrees to acquire from CA and CA agrees to grant to the Employer an UC for the operation of the farm consisting up to 14 APMs for a period of 55 years under the following additional conditions:
7.3.1
     
CA shall provide the Employer with the technology, processes, know-how, designs, operation manuals, specification of equipment and description of operation principles and technology.
CA shall provide the Employer with technical support by way of the Employerto appoint CA as the said farm and fishery Management.
The Employer shall permit CA to inspect the AP modules and other related facilities in the farm from time to time to ensure that the related plants and equipment are being serviced and maintained regularly and that the number of APM s are the number of APMs provided by CA.
shall keep confidential all information and technical data disclosed by CA to WD, provided that the Employer shall the right to disclose such information to its employees in so far as it is necessary for them to know the information, and the Employer shall not use any of the CA’s disclosures or other information or technical data except for other purpose apart from the operation of the farm.
The Employer shall be allowed to assign or transfer the UC only after obtaining CA’s approval.
The Employer agrees that all installation works for the APMs in the Farm must be completed by Installation Contractors approved by CA, all plants and equipment for the building of the Farm must be supplied by the suppliers and / or manufacturers approved by CA, and on completion of each and every APM, CA shall inspect and approve the commissioning of the completed APM.
 
7.4
 
Warranty Period
Warranty Period of all Plants and equipment, parts and components and building materials shall be in accordance with the Warranty Periods and Conditions as given by their manufacturers or suppliers with the exception of the items that shall be manufactured directly by the Contractor or its subsidiaries, in which case, their warranty period shall be for a period of 12 months.
8
 
Schedule of work
Schedule are given by CA to assist the Employer in its planning of work relating to the construction of the Farm and it is given as a guideline only which should not be understood as the final development or work schedule. As such, more accurate development schedules in respect of each stage of the development work will be supplied by CA progressively during the development period of the farm.
 
   
Item and description of work
 
Commenced Date
 
Completed date
8.1
 
Soil and water drilling, analysis and geo-technical testing and site surveying
 
March 2011
 
April 2011
8.2
 
Determination of Prawn species
 
March 2010
 
April 2010
8.3
 
Land clearing, leveling and infrastructure construction
 
April 2010
 
July 2010
8.4
 
Commissioning and formalization of all engineering designs and drawings
 
January 2011
 
March 2011
             
8.5
 
Commissioning and formalization of all local manufactured plants and equipment of the tanks and systems.
 
February 2011
 
April 2011
 
 
Page 12 of 13

 

8.6
 
Investigation and determination of supply bases for fingerlings
 
February 2011
 
April 2011
8.7
 
Investigation and determination of supply of feed staffs
 
April 2011
 
April 2011
8.8
 
Construction of farm buildings
 
March 2011
 
June 2011
8.9
 
Construction of tanks
 
April 2011
 
June 2011
8.10
 
Construction of external dams and water tanks and connections
 
April 2011
 
June 2011
8.11
 
Installation of all farm plants and equipment
 
June 2011
 
June 2011
8.12
 
Testing and commissioning of tanks
 
July 2011
 
June 2011
8.13
 
Commencement of Stocking of fingerlings
 
August 2011
 
Continuous Processes
8.14
 
Training of staffs and workers
 
June 2011
 
Continuous processes
8.15
 
Commencement of first harvest of fish
 
October 2011
 
Continuous processes

The Parties hereby agree and accept the terms and conditions specified hereof and execute this agreement with mutual consent:

(Signed)
 
(Signed)
Solomon Lee
 
Mr. Wei Da Xing
For and behalf of
 
For and on behalf of
CAPITAL AWARD INC
 
The China Parties

Date: February 11, 2011

 
Page 13 of 13

 
(Translation)

Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Cooperation Agreement

Party A:    ENPING CITY JUNTANG TOWN HANG SING TAI AGRICULTURE CO. LTD.

And

Party B :          Mr. LIU XUESONG

Party A intends to develop a sizeable beef cattle breeding farm Enping City, Guangdong Province of the PRC, utilizing and developing the locally available resources.  Party B is the expert and the inventor of a domestically developed premium beef cattle nutritional feed recipe and technology (“the said Technology”).  Upon the basis of fairness and mutual benefit, the parties hereby agree to enter into this Technology Cooperation Agreement as follows:

Article 1         Purpose of Cooperation

Upon the principles of strategic cooperation, and for the purpose of improving the competitiveness of Party B's said Technology and enhancing Party A's economic benefits, the parties enter into this cooperation on the deployment of the said Technology, wherein Party B shall provide technical services to party A on the organic premium beef cattle breeding technology and product development.  Both parties shall jointly notify the State on the deployment of said Technology in any development projects in any provincial cities and collectively promote such development projects and the advancement of the said Technology, in order to attain mutual benefit on a win-win basis in development of value added agricultural products.

Article 2         The Rights and Obligations of Parties

The rights and obligations of Party A

1.        Party B shall provide the said Technology and its related feed recipe to Party A in accordance with the progress of the transfer of the said Technology, and shall transfer the intellectual property rights to the said Technology exclusively to Party A, and thereafter Party B shall cease to be entitled to the intellectual property rights of the said Technology.
 
2.        Party A has the right to transfer or grant the right to use the intellectual property rights of the said Technology to any third parties.

3.        Party A shall have the right to advertise and sell the products, so produced utilizing the said Technology, in packaging bearing the descriptive words “Fragrant Beef” thereon.

4.        The Parties are to ensure the quality of raw material procured, and to work together under the premise that the Parties shall strive to reduce the cost of production of the premium beef products and improve the competitiveness and economic benefits of the products.

5.        Party A is obliged to supply updated market information and timely feedback to Party B, to enable Party B to adjust the recipe of the feed or to dispatch technical personnel to provide technical services to the relevant market.

6.        Both parties agree that the transfer fee for this transaction shall be settled by way of RMB 100,000 in cash and 100,000 units of the shares of Sino Agro Food, Inc. (“SIAF”).

 
 

 
 
7.        Payment Terms:  Party A shall pay a lump sum of RMB100,000 to Party B as the  transfer fee within 7 days from the date of signing of this Agreement.  The balance of the transfer fee shall be settled by way of issuance or transfer of 50,000 units of SIAF’s shares on or before July 30, 2011 and another 50,000 units of SIAF’s shares on or before April 15, 2012.

The rights and obligations of Party B

1.        Party B shall not transfer or disclose the intellectual property rights to the said Technology and the related feed recipe to any other party.

2.        Party B shall formulate the appropriate recipe for the feed and breeding technique for organic premium beef cattle in accordance with the needs of the market as per Party A's request, and shall warranty the recipe for the feed conforms to the relevant requirement accorded to organic products, to ensure the texture and quality of the products are more superior than other like products in the country, and Party B shall also adjust the recipe for the feed timely according to the actual market’s condition in order to satisfy the needs of the consumers towards green organic products.

Article 3  Remedies of Parties in the event of Default

1.        If Party A shall fail to settle the transfer fee in accordance with the provision of this Agreement, Party B shall have the right to recover the same from Party A.

2.        If Party B shall breach any warranties, covenants or commitment as contained herein, then Party A shall have the right to recover from Party B all the losses and damage that Party A may suffer as a result thereof.

Article 4      This Agreement shall be signed in quadruplicate, all of which shall have the same legal force , and each party shall hold two copies each.   

Article 5  If there is any matter not clearly stated in this Agreement, the Parties shall amicably resolve the same through friendly consultation and negotiation in the spirit of friendly and continuing cooperation.   If any dispute cannot be resolved, such dispute shall be referred to the local People's Court for adjudication and resolution.

   The venue for signing this Agreement : The Representative Office of Sino Agro Food, Inc. at Rm 3711 China Shine Plaza, No. 9, Lin He Xi Road, Tianhe District, Guangzhou, 510610 People’s Republic of China.

Party A  :
 
Party B  :
     
Fang XianJun
 
Liu XueSong
(Signed)
 
(Signed)
Party A’s Legal Representative
 
Identity Card No. 220523195808160310
March 21, 2011
 
March 21, 2011

 
 

 
(Translation)

Organic Premium Beef Cattle (Fragrant Beef) Breeding and Feed Production Technology Sale and Transfer Agreement

Party A:  ENPING CITY JUNTANG TOWN HANG SING TAI AGRICULTURE CO. LTD.

And

Party B :  HANG YU TAI INVESTIMENTO LIMITADA

Party A has its place of business in Enping City, Guangdong Province of the PRC and is engaged in beef cattle breeding business, and possessing a premium beef cattle breeding and nutritional feed recipe technology (“the said Technology”).  Party B is a foreign investment company incorporated in Macau.  Upon the basis of fairness and mutual benefit, the parties hereby agree to enter into this Technology Sale and Transfer Agreement as follows:

Article 1        The Basis for the Transfer of the said Technology

Upon the principles of strategic cooperation, and for the purpose of improving the competitiveness of Party A's said Technology and enhancing Party B's economic benefits, the parties enter into this Agreement for the deployment of the said Technology, wherein Party A shall provide technical services to party B on the organic premium beef cattle breeding technology and product development.  Both parties shall jointly notify the State on the deployment of said Technology in any development projects in any provincial cities and collectively promote such development projects and the advancement of the said Technology, in order to attain mutual benefit on a win-win basis in development of value added agricultural products.

Article 2        The Rights and Obligations of Parties

The rights and obligations of Party A

1.       Party A shall provide the said Technology and its related feed recipe to Party B in accordance with the progress of the transfer of the said Technology, and shall transfer the intellectual property rights to the said Technology exclusively to Party B, and thereafter Party A shall cease to be entitled to the intellectual property rights of the said Technology.
 
2.       Party B has the right to transfer or grant the right to use the intellectual property rights of the said Technology to any third parties.

3.       Party B shall have the right to advertise and sell the products, so produced utilizing the said Technology, in packaging bearing the descriptive words “Fragrant Beef” thereon.

4.       The Parties are to ensure the quality of raw material procured, and to work together under the premise that the Parties shall strive to reduce the cost of production of the premium beef products and improve the competitiveness and economic benefits of the products.

5.       Party B is obliged to supply updated market information and timely feedback to Party A, to enable Party A to adjust the recipe of the feed or to dispatch technical personnel to provide technical services to the relevant market.

6.       Both parties agree that the transfer fee for this transaction shall be US$1,500,000 (equivalent to RMB9,675,000).
 
 
 

 
 
7.       Payment Terms:  Party B shall pay a lump sum of US$150,000 (equivalent to RMB967,500) to Party A as the transfer fee within 7 days from the date of signing of this Agreement.  The balance of the transfer fee shall be settled by 3 installments as follows :

 
  1 st installment :
by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of Sino Agro Food, Inc. (“SIAF”), or part cash part shares, on or before July 30, 2011;

 
  2 nd installment :
by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of SIAF, or part cash part shares, on or before December 31, 2011; and

 
  3 rd installment :
by cash US$450,000 (equivalent to RMB2,902,000) or 300,000 units of the shares of SIAF, or part cash part shares, on or before March 31, 2012.

The rights and obligations of Party B

1.     Party A shall not transfer or disclose the intellectual property rights to the said Technology and the related feed recipe to any other party.

2.     Party A shall formulate the appropriate recipe for the feed and breeding technique for organic premium beef cattle in accordance with the needs of the market as per Party B's request, and shall warranty the recipe for the feed conforms to the relevant requirement accorded to organic products, to ensure the texture and quality of the products are more superior than other like products in the country, and Party B shall also adjust the recipe for the feed timely according to the actual market’s condition in order to satisfy the needs of the consumers towards green organic products.

Article 3 Remedies of Parties in the event of Default

1.    If Party B shall fail to settle the transfer fee in accordance with the provision of this Agreement, Party A shall have the right to recover the same from Party B.

2.     If Party A shall breach any warranties, covenants or commitment as contained herein, then Party B shall have the right to recover from Party A all the losses and damage that Party B may suffer as a result thereof.

Article 4       This Agreement shall be signed in quadruplicate, all of which shall have the same legal force , and each party shall hold two copies each.   

Article 5      If there is any matter not clearly stated in this Agreement, the Parties shall amicably resolve the same through friendly consultation and negotiation in the spirit of friendly and continuing cooperation.  If any dispute cannot be resolved, such dispute shall be referred to the local People's Court for adjudication and resolution.

  The venue for signing this Agreement : Enping City, Guangdong Province.

Party A  :
 
Party B  :
 
       
Fang XianJun
 
Chen Bor Hann
 
(Signed)
 
(Signed)
 
Party A’s Legal Representative
 
Party A’s Legal Representative
 
March 25, 2011
 
March 25, 2011