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SIAF > SEC Filings for SIAF > Form 10-K on 15-Apr-2013All Recent SEC Filings

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Form 10-K for SINO AGRO FOOD, INC.


Annual Report


The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2012, found in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as "anticipate," "believe," "intends," or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under "Risk Factors" in Part I, Item 1A of this Annual Report.

Forward-looking Statements

We and our representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this quarterly report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "project," "forecast," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this annual report to conform forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:

Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

Our failure to earn revenues or profits;

Inadequate capital to continue business;

Volatility or decline of our stock price;

Potential fluctuation in quarterly results;

Rapid and significant changes in markets;

Litigation with or legal claims and allegations by outside parties; and

Insufficient revenues to cover operating costs.

Part A: Discussion and analysis on the results of operations 2012: This Part A discusses and analyzes certain items that we believe may require further clarification and explanation; and other items of comparison 2012 to 2011 are not discussed in this Part A but in Part B below).

Balance Sheet items (1) on total current assets:

                                                                              As of December 31, 2012

Cash and cash equivalents                                                                    8,424,265
Inventories                                                                                 17,114,755
Cost and estimated earnings in excess of billings on uncompleted contracts                   2,336,880
Deposits and prepaid expenses                                                               47,308,857
Accounts receivable, net of allowance for doubtful debts                                    52,948,350

Other receivables                                                                            5,954,248
 Total current assets                                                                      134,087,355

Accounts Receivable:

                                                                                                 As of 31.12.2012
                                                                                                                                               over 120 days and
                                                  Accounts receivable        Current        0-30 days        31-90 days      91-120 days       less than 1 year
Consulting and Service (from 6 contracts)
totaling                                                    32,769,312                        6,524,405       18,420,793        1,811,533               6,012,581

Sales of Fish (from Farms and from imports)                  5,216,923                        1,612,905        1,726,826        1,877,192                       -

Sales of Cattle and Beef Meats (from Enping
Farm)                                                          610,880                          335,984          274,896                -                       -

Sales of HU Flowers (Dried)                                  5,549,439                                -        2,538,175        2,749,650                 261,614

Sales Fertilizer, Bulk Stock feed and Cattle
by SJYL                                                      6,795,524                        1,950,575        3,634,487           10,982               1,199,480

Sales Fertilizer from HAS                                    2,006,272                          390,112        1,189,607          417,485                   9,068

Total Accounts Receivable                                   52,948,350                       10,813,981       27,784,784        6,866,842               7,482,743

Percentage of total population                                     100 %                             21 %             52 %             13 %                    14 %

Provision for diminution in value of accounts receivable:

Receivables from revenue derived from consulting and services billed for work completed are within our normal trading terms with our principal investor and therefore no diminution in value is required.

Fish Sales: Most farmed fish are sold to wholesalers at prevailing daily market prices capped within 90 days trading terms with a small portion at 180 days as the sale of oversized fish takes time to sell.

We sold over US$43 million of fish to the wholesalers in year 2012, and as of December 31, 2012, accounts receivable of $1,877,192 was over 180 days past due representing less than 2% of the total sales. These debtors are wholesalers who are profitable and viable businesses with a good track record and therefore provision of diminution in value is not required.

Sales of dried HU flowers: The dried flowers have been sold to wholesalers with longer trading terms (e.g., up to 180 days) so as to offset with their holding cost so that they could sell the dried flowers through the winter months (from December 2013 to June 2014 when the new season starts) whereby we agreed with the wholesalers that they would buy our dried flowers as soon as we produce them. Therefore, we consider the receivables from the sales of dried HU flowers to be from wholesalers with a good track record and therefore provision for diminution in value is not required.

Sales of fertilizer and bulk livestock feed: Sales are made to regional farmers who agree to grow crops and pasture by purchasing and using our fertilizer. The farmers raise cattle on these pastures and we have agreed to purchase the cattle from these farmers at a later date. Under this arrangement the accounts receivable that are owed to us by the farmers can be offset by the amount that we owe to the farmers for the purchase of the cattle. Therefore there is no need to provide any diminution in value to the account receivable.

Deposits and Prepayments (Break-down)

Deposits for Prepayments for purchases of equipment                            318,192
Miscellaneous                                                                4,892,258
Deposits for- acquisition of land use right                                  7,826,508
Deposits for- inventory purchases                                            2,228,854
Deposits for- aquaculture contract                                           7,062,600
Deposits for- building materials                                             2,000,000
Deposits for- proprietary technology                                         2,254,539
Prepayments for construction in progress                                    14,423,021
Shares issued for employee compensation and oversea professional fee           271,800
Temporary deposits payment for acquiring equity investments                  6,030,785

Balance Sheet Item (2) on Current Liabilities:

                                                                              As of December 31, 2012
Current liabilities
Accounts payable and accruals                                                                5,762,643
Billings in excess of cost and estimated earnings on uncompleted contracts                   2,790,084
Due to a director                                                                            3,345,803
Dividend payable                                                                               951,308
Other payables                                                                               6,422,478
Short term bank loan                                                                         3,181,927
Total current liabilities                                                                   22,686,243

Account payables and Accruals:

Our current trading environment does not include many suppliers who will offer credit terms which means that most purchases are paid for in cash and this results in a low trade account payables balance of $8,762,643 representing about 8.4% of total sales of $68.8 million for the reasons stated below: (Note: For % cost of sales of the segment, please also refer to Table below).

Trading environment of the following activities:

1. Consulting and services since inception account is the major contributor of income to date and cost of sales average 27% for cattle farms and others, and 40% for prawn or fish farms. We supply the following cost elements: our own staff, engineering, technology implementation, supervision, training and associated management work and most of the building sub-contractors worked on sub-contract at cost fixed by us; as such no big profit margin is accepted plus we require a prolonged credit term. For contracts related to the construction of farms we use plants, equipment, parts and components that were specially manufactured and made as per our own designs and engineering by local manufacturers and suppliers (who carry a high amount of initial development costs and inventories for us based on the understanding that we would pay for the deliveries of goods sold within shorter trading terms such that they could afford to carry such costs). We believe that, as time has passed, our track record has earned us excellent creditability with all of our suppliers and sub-contractors due to our good standing.

2. Fish Sales started gradually from late 2011with low cost of sales averaging 47% (the bulk of the cost comes from the supplies of baby fingerlings and the live-bait as the main fish feed), and customary trading terms of Chinese suppliers is on a cash on delivery basis, and suppliers who provide credit terms presently is limited to no more than a select few.

3. Cattle sales at Xining SJAP's own cattle stations and from its cooperative farmers started in 2011at lower profit margins compared to the sales of fish with cost of sales averaging 77%, and it is also customary in China to pay for the young live-cattle by cash on deliveries. The Enping cattle farm started to buy young cattle in 2011 and started sales of mature cattle in 2012, but at small quantities with cost of sales averaging at 72% which is lower than in SJAP due to the fact that sales of mature cattle were from JHMC directly without the sales from cooperative farmers as in SJAP. Most of the young cattle supplies were from small primary producers (local small farmers) who did not have great resources of finance; as such we paid for these supplies of young cattle in cash on deliveries.

4. In SJAP, the actual cost of sales are averaging 49% and the bulk of our fertilizers were sold to farmers who are growing pastures and crops for us such that their fertilizer sales were kept as book entries that would be contrasted with the pastures and crops that we would buy back from them. In the case of JHMC, in 2012, its cost of sales were higher than in SJAP at 77% due to the fact that JHMC did not have its own production facilities constructed in 2012, such that its organic fertilizer was supplied from SJAP and thus involved additional transportation costs.

5. Bulk livestock feed are produced by regional cooperative growers under contract to us and they use our supply of fertilizer and seeds that represented the main cost components enhancing cost of sales at an average of 48%. Again, sale of fertilizer is held on credit against crops and pasture grass purchased from them, as well as bulk livestock feed sold to the mfor cattle rearing, and reconciled once cattle are purchased from them.

Other Payables: As of December 31, 2012, we have other payables totaling $6,422,478. Promissory notes amounting to $3,352,394 were issued to third parties and personally guaranteed by a director, repayable within two year with no interest being accrued Promissory notes could be repaid either as cash or shares of the Company or a combination of both. Debt amounts and the conversion rates applicable to the shares are determined by both parties as they agree to settle the debt by the Company's issuance of shares.

Income Statements (1) Segment break-down on Revenue (to Third Parties):

            Segments                Sales Revenue      % of total       Cost of sales       % of total cost      Gross Profit       % of total
                                         2012            Revenue            2012               of sales              2012             gross
                                          $                                   $                                        $              profit
Fishery Sector
Consulting and Service                  36,193,780              26 %        14,340,937                    21 %      21,852,843               31 %
Others in sales of Fish, Prawns
and commissions and management
services                                44,798,779              32 %        23,329,038                    34 %      21,469,741               31 %
Fish Farm 1 (75% subsidiary)
Sales of Fish                              391,009            0.28 %           183,774                     0 %         207,235                0 %
Cattle Farm Sector
Consulting and Service                  11,080,131               8 %         2,998,343                     4 %       8,081,788               12 %
Others in sales of cattle, meat
and commission etc.                      5,688,904               4 %         4,419,418                     6 %       1,269,486                2 %
Cattle Farm 1 (75% subsidiary)             268,966            0.19 %           193,656                     0 %          75,310                0 %
Beef Organic fertilizer Sector
Qinghai Sanjiang A Power,
HuangYuan, Xining (45%
Fertilizer                               3,825,194               3 %         2,136,239                     3 %       1,688,955                2 %
Bulk Live Stock Feed                     2,863,637               2 %         1,382,827                     2 %       1,480,810                2 %
Cattle                                  14,445,695              10 %        11,079,144                    16 %       3,366,551                5 %
Hunan Shanghua A Power (75%
Fertilizer                               2,213,038               2 %         1,699,593                     2 %         513,445                1 %
HU Plant Sector
Jiang Men HST (75% subsidiary)          11,878,599               9 %         5,035,955                     7 %       6,842,644               10 %
Corporate Sector
Consulting and Service                   3,267,401               2 %           909,677                     1 %       2,357,724                3 %
Others                                   1,698,506               1 %         1,098,870                     2 %         599,636                1 %
Total                                  138,613,639             100 %        68,807,471                   100 %      69,806,168              100 %

Segment of Revenue analysis and explanation:

1. In 2012, revenue of the consulting and management service by segments aggregated 36% (or $50.5 million) of the total revenue ($138.6 million) of the Company derived collectively from Capital Award (26% or $36.2 million), MEIJI (8% or $11 million) and SIAF (2% or $3.3 million).

The revenue from consulting and management service by segments has been reduced by 4% from 40% in 2011 to 36% in 2012 as shown in the table below. The reason for such decrease is primarily due to the increase of sales revenue of other segments (e.g., sales of fish, cattle and other goods), and this trend is expected to continue as more farms are anticipated to be developed and as the productivity of the existing developed farms increases. However, as we are an agriculture engineering based company, we intend to continue to build farms and other wholesaling and retailing facilities with the objective of maintaining the revenue from consulting and management service within 25% to 30% of the Company's total consolidated revenue year to year.

                                                                           Financial information 2010 to 2012 of the segments
        Segments                               Revenue                                         Cost of Sales                                     Gross Profit
                               2010             2011             2012             2010             2011             2012            2010             2011             2012
                                $                $                 $                $               $                $                $               $                $
Fishery Sector
Consulting and Service        4,163,833       16,488,192        36,193,780       1,006,209        7,561,874       14,340,937       3,157,624        8,926,318       21,852,843
Beef Sector
Consulting and Service                -        4,159,921        11,080,131               -        2,511,508        2,998,343               -        1,648,413        8,081,788
Corporate Sector
Consulting and Service                                           3,267,401               -                -          909,677               -                -        2,357,724

Total sales revenue of
the segments                  4,163,833       20,648,113        50,541,312       1,006,209       10,073,382       18,248,957       3,157,624       10,574,731       32,292,355
Segment % of the group
consolidated total                   38 %             40 %              36 %
Group consolidated total
of continuing operations     10,918,766       51,879,903       138,613,639       3,731,204       26,951,874       68,807,471       7,187,562       24,928,029       69,806,168

2. In 2012, the revenue from other segments (e.g., sales of fish, fertilizer, bulk livestock feed, cattle, etc.) had increased by 4% from 60% in 2011 to 64%. This increase is due primarily to additional farms being built in 2012, contributing to the increase of production as shown in the table below.

                                                                           Financial information 2010 to 2012 of the segments
        Segments                               Revenue                                         Cost of Sales                                     Gross Profit
                               2010             2011             2012             2010             2011             2012            2010             2011             2012
                                $                $                 $                $               $                $                $               $                $
Fishery Sector
Others in sales of Fish,
Prawns and commissions
etc.                                           9,933,933        44,798,779                        7,830,404       23,329,038               -        2,103,529       21,469,741
Fish Farm 1 (75%
subsidiary)                                                                                                                                -                -                -
Sales of Fish                         -                -           391,009               -                -          183,774               -                -          207,235
Cattle Farm Sector                                                                                                                         -                -                -
MEIJI                                                                                                                                      -                -                -
Others in sales of
cattle, meat and
commission etc.                       -                -         5,688,904               -                -        4,419,418               -                -        1,269,486
Cattle Farm 1 (75%
subsidiary)                           -                -           268,966               -                -          193,656               -                -           75,310
Beef Organic fertilizer
Sector                                                                                                                                     -                -                -
Sanjiang YiLi HuangYuan,
Xining (45% subsidiary)                                                                                                                    -                -                -
Fertilizer                    1,400,712       11,814,921         3,825,194         525,646        4,975,462        2,136,239         875,066        6,839,459        1,688,955
Bulk Live Stock Feed            579,367        2,514,617         2,863,637         371,024        1,205,763        1,382,827         208,343        1,308,854        1,480,810
Cattle                                -          852,751        14,445,695                          793,649       11,079,144               -           59,102        3,366,551
Concertrated Live Stock
Feed (Only for 2013)                                                                                                                       -                -                -
Hunan Linli Shanghua A
Power (75% Subsidiary)                                                                                                                     -                -                -
Fertilizer                            -            2,453         2,213,038               -            2,381        1,699,593               -               72          513,445
Cattle (Only for 2013)                                                                                                                     -                -                -
HU Plant Sector                                                                                                                            -                -                -
Jiangman HST (75%
subsidiary)                   4,774,854        6,113,115        11,878,599       1,828,325        2,070,833        5,035,955       2,946,529        4,042,282        6,842,644
Corporate Sector                                                                                                                           -                -                -
SIAF                                                                                                                                       -                -                -
Others                                                           1,698,506               -                -        1,098,870               -                -          599,636
                                                                                                                                           -                -                -
Segments' Total               6,754,933       31,231,790        88,072,327       2,724,995       16,878,492       50,558,514       4,029,938       14,353,298       37,513,813
Segment % of the group
consolidated total                   62 %             60 %              64 %
Group consolidated total
of                           10,918,766       51,879,903       138,613,639       3,731,204       26,951,874       68,807,471       7,187,562       24,928,029       69,806,168

Part B Consolidated Results of Operations Fiscal Year 2012 Compared to Fiscal
Year 2011


Revenues including continued and discontinued operations increased by $86,733,736 or 167.18% from $51,879,903 for the year ended December 31, 2011to $138,613,639 for the year ended December 31, 2012. The increase was primarily due to maturity of all business sectors of the Company except for beef (i.e., fishery, plantation, organic fertilizer and cattle farm) as they gradually move into operational stages instead of developing stages.

The following chart illustrates the changes of revenues by category from the year ended December 31, 2012 to December 31, 2011.

                         2012              2011          Difference
                           $                $                $
Fishery                 86,346,475       26,422,125       59,924,350
Plantation              11,878,599        6,113,155        5,765,444
Beef                    14,224,324       15,182,222         -957,898
Organic Fertilizer       9,126,240            2,480        9,123,760
Cattle Farm             17,038,001        4,159,921       12,878,080
Total                  138,613,639       51,879,903       86,733,736

Revenue -Fishery: Revenue from fishery increased by $59,924,350 or 226.80% from $26,422,125 for the year ended December 31, 2011 to $86,346,475 for the year ended December 31, 2012. The increase in fishery was primarily due to our increase in revenue from the sale of fish and prawn and development contracting services for the year ended December 31, 2012 compared to the sale of fingerlings and consulting income for the year ended December 31, 2011.

Revenue -Plantation: Revenue from our plantation increased by $5,765,444 or 94.31%, from $6,113,155 for the year ended December 31, 2011 to $11,878,599 for the year ended December 31, 2012.The increase was primarily due to the increase of wholesale prices in fresh and dried flowers for the year ended December 31, 2012.

Revenue - Beef: Revenue from beef decreased by $957,898 or 6.31%, from $15,182,222 for the year ended December 31, 2011 to $14,224,324 for the year ended December 31, 2012. The decrease was primarily due to the fact that calves grew and become salable beef cattle.

Revenue - Organic fertilizer: Revenue from organic fertilizer increased by $9,123,760 from $2,480 for the year ended December 31, 2011 to $9,126,240 for the year ended December 31, 2012. The increase was primarily due to the startup of the new business of organic fertilizer during the year ended December 31, 2012.

Revenue - Cattle farm: Revenue from cattle farm development increased by $12,878,080 or 309.57%, from $4,159,921 for the year ended December 31, 2011 to $17,038,001 for the year ended December 31, 2012. The increase was primarily due to increased development contract service of cattle farms for the year ended December 31, 2011.

Cost of Goods Sold

. . .

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