Sino Agro Food, Inc. - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - Sino Agro Food, Inc.	v325937_ex32.htm
EX-10.8 - EXHIBIT 10.8 - Sino Agro Food, Inc.	v325937_ex10-8.htm
EX-10.9 - EXHIBIT 10.9 - Sino Agro Food, Inc.	v325937_ex10-9.htm
EX-31.1 - EXHIBIT 31.1 - Sino Agro Food, Inc.	v325937_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Sino Agro Food, Inc.	v325937_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

For the transition period from ___________________________ to ___________________________

Commission file number: 000-54191

SINO AGRO FOOD, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

Room 3801, Block A, China Shine Plaza No. 9 Lin He Xi Road Tianhe District, Guangzhou City, P.R.C.		510610
(Address of Principal Executive Offices)		(Zip Code)

(86) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

Copies to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32^nd Floor

New York, NY10006

Attn: Mr. Marc Ross, Esq.

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

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

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

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

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

As of September 30, 2012, there were 91,931,287 shares of our common stock issued and outstanding.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	22

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES		24

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SINO AGRO FOOD, INC. AND SUBSIDIARIES

QUARTERLY FINANCIAL REPORT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

INDEX TO QUARTERLY FINANCIAL REPORT

	PAGE

CONSOLIDATED BALANCE SHEETS	F - 1

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME	F - 2

CONSOLIDATED STATEMENTS OF CASH FLOWS	F - 3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F- 4 - F - 37

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2012			December 31, 2011
	(Unaudited)			(Audited)
	$			$

ASSETS
Current assets
Cash and cash equivalents	$	5,411,583		$	1,387,908
Inventories		15,702,905			4,435,445
Cost and estimated earnings in excess of billings on uncompleted contracts		2,429,907			456,104
Deposits and prepaid expenses		31,260,184			14,868,838
Accounts receivable, net of allowance for doubtful accounts		59,880,431			27,531,915
Due from related parties		12,820,752			15,820,752
Other receivables		7,932,944			9,688,871
Total current assets		135,438,706			74,189,833
Property and equipment
Property and equipment, net of accumulated depreciation		8,003,872			2,667,765
Construction in progress		10,410,966			3,577,869
Land use rights, net of accumulated amortization		54,945,220			56,507,470
Total property and equipment		73,360,058			62,753,104
Other assets
Goodwill		724,940			724,940
Proprietary technologies, net of accumulated amortization		8,213,501			6,977,675
Long term accounts receivable		-			5,936,718
License rights		1			1
Unconsolidated equity investee		-			1,258,607
Total other assets		8,938,442			14,897,941
Total assets	$	217,737,206		$	151,840,878
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	3,284,693		$	1,202,104
Billings in excess of costs and estimated earnings on uncompleted contracts		5,198,425			1,962,119
Due to a director		1,029,974			289,764
Dividends payable		3,146,987			155,957
Other payables		11,502,538			11,968,148
Due to related parties		-			867,413
Short term bank loan		1,577,038			-
		25,739,655			16,445,505
Commitments and contingencies		-			-
Stockholders' equity
Preferred stock: $0.001 par value		-			-
(10,000,000 shares authorized, 7,000,100 shares issued and outstanding
as of September 30, 2012 and December 31, 2011, respectively)
Series A preferred stock: $0.001 par value		-			-
(100 shares designated, 100 shares issued and outstanding
as of September 30, 2012 and December 31, 2011, respectively)
Series B convertible preferred stock: $0.001 par value)		7,000			7,000
(10,000,000 shares designated, 7,000,000 shares issued and outstanding)
as of September 30, 2012 and December 31, 2011, respectively)
Series F Non-convertible preferred stock: $0.001 par value)		-			-
(1,000,000 shares designated, 0 shares issued and outstanding)
as of September 30, 2012 and December 31, 2011, respectively)
Common stock: $0.001 par value		91,931			67,034
(100,000,000 shares authorized, 91,931,287 and 67,034,262 shares issued and oustanding as of September 30, 2012 and December 31, 2011, respectively)
Additional paid - in capital		86,354,021			72,794,902
Retained earnings		85,956,571			50,395,444
Accumulated other comprehensive income		3,503,608			3,446,838
Treasury stock		(1,250,000	)		(1,250,000	)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity		174,663,131			125,461,218
Non - controlling interest		17,334,420			9,934,155
Total stockholders' equity		191,997,551			135,395,373
Total liabilities and stockholders' equity	$	217,737,206		$	151,840,878

F-1

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
	$			$			$			$
Continuing operations
Revenue		48,350,688			20,700,466			89,678,991			30,527,367
Cost of goods sold		22,597,854			10,995,486			42,354,317			15,067,749
Gross profit		25,752,834			9,704,980			47,324,674			15,459,618
General and administrative expenses		(1,317,759	)		(1,708,236	)		(6,275,758	)		(2,949,948	)
Net income from operations		24,435,075			7,996,744			41,048,916			12,509,670
Other income (expenses)
Government grant		3,312			-			82,164			-
Other income		127,551			91,289			564,749			109,905
Gain (loss) of extinguishment of debts		641,831			49,265			1,459,343			631,691
Interest expenses		(5,630	)		-			(5,630	)		-
Net other income (expenses)		767,064			140,554			2,100,626			741,596
Net income before income taxes		25,202,139			8,137,298			43,149,542			13,251,266
Provision for income taxes		-			-			-			-
Net income (loss) from continuing operations		25,202,139			8,137,298			43,149,542			13,251,266
Less: Net (income) loss attributable to the non - controlling interest		(2,476,834	)		(1,863,825	)		(4,462,754	)		(3,055,402	)
Net income (loss) from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries		22,725,305			6,273,473			38,686,788			10,195,864
Discontinued operations
Net income from discontinued operations		-			-			-			10,203,951
Less: Net income attributable to the non - controlling interest		-			-			-			-
Net income from discontinued operations attributable to the Sino Agro Food, Inc. and subsidiaries		-			-			-			10,203,951
Net income (loss) attributable to the Sino Agro Food, Inc. and subsidiaries		22,725,305			6,273,473			38,686,788			20,399,815
Other comprehensive income (loss)
Foreign currency translation gain (loss)		(545,616	)		477,072			1,095			3,329,282
Comprehensive income (loss)		22,179,689			6,750,545			38,687,883			23,729,097
Less: other comprehensive (income) loss attributable to the non - controlling interest		186,885			(185,214	)		55,675			(580,930	)
Comprehensive income (loss) attributable to the Sino Agro Food, Inc. and subsidiaries		22,366,574			6,565,331			38,743,558			23,148,167
Dividend		3,125,661			-			3,125,661			-
Earnings (loss) per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
From continuing and discontinued operations
Basic	$	0.27		$	0.11		$	0.51		$	0.34
Diluted	$	0.25		$	0.10		$	0.47		$	0.31
Earnings (loss) per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:
From continuing operations
Basic	$	0.27		$	0.11		$	0.51		$	0.17
Diluted	$	0.25		$	0.10		$	0.47		$	0.15
Weighted average number of shares outstanding:
Basic		84,475,977			57,889,347			75,676,204			59,542,620
Diluted		91,475,977			64,889,347			82,676,204			66,542,620

F-2

SINO AGRO FOOD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	Nine months ended			Nine months ended
	September 30, 2012			September 30, 2011
	(Unaudited)			(Unaudited)


Cash flows from operating activities
Net income (loss) from continuing operations	$	38,686,788		$	13,251,266
Adjustments to reconcile net income (loss) from continuing operations to net cash from operations:
Depreciation		320,519			139,251
Amortization		1,826,424			692,835
Common stock issued for services		2,139,057			1,069,529
Gain on extinguishment of debts		(1,459,343	)		(631,691	)
Changes in operating assets and liabilities:
Increase in inventories		(7,458,736	)		(529,144	)
Increase in cost and estimated earnings in excess of billings on uncompleted contacts		(1,973,803	)		(23,752	)
Increase in deposits and prepaid expenses		(18,172,533	)		(2,268,224	)
Increase in due to a director		13,966,356			1,018,321
Increase in accounts payable and accrued expenses		852,493			767,466
Increase in other payables		850,877			18,643,702
Increase in accounts receivable		(26,411,798	)		(16,018,426	)
Increase in billings in excess of costs and estimated earnings on uncompleted contracts		3,236,306			3,150,035
Decrease in amount due to related parties		(867,413	)		-
Decrease in amount due from related parties		3,000,000			-
Decrease (increase) in other receivables		1,755,926			(14,951,249	)
Net cash provided by operating activities		10,291,120			4,309,919
Cash flows from investing activities
Purchases of property and equipment		(2,527,245	)		(233,320	)
Acquisition of proprietary technologies		(1,500,000	)		-
Investment in unconsolidated corporate joint venture		-			(698,855	)
Business combination of a subsidiary		(2,499,184	)		-
Payment for construction in progress		(2,317,082	)		(624,026	)
Net cash used in investing activities		(8,843,511	)		(1,556,201	)
Cash flows from financing activities
Short term bank loan raised		1,577,038			-
Non - controlling interest contribution		2,993,186			-
Dividends paid		(134,631	)		(3,905	)
Net cash provided by (used in) financing activities		4,435,593			(3,905	)
Net cash provided by continuing operations		5,883,202			2,749,813
Cash flows from discontinued operations
Net cash provided by operating activities		-			-
Net cash used in investing activities		-			(3,137,885	)
Net cash provided by financing activities		-			-
Net cash used in discontinued operations		-			(3,137,885	)
Effects on exchange rate changes on cash		(1,859,527	)		(1,979,445	)
Increase (decrease) in cash and cash equivalents		4,023,675			(2,367,517	)
Cash and cash equivalents, beginning of period		1,387,908			3,890,026
Cash and cash equivalents, end of period		5,411,583			1,522,509
Less: cash and cash equivalents at the end of the period - discontinued operation		-			-
Cash and cash equivalents at the end of the period - continuing operations	$	5,411,583		$	1,522,509
Supplementary disclosures of cash flow information:
Cash paid for interest	$	5,630			-
Cash paid for income taxes		-			-
Non - cash transactions
Common stock issued for settlement of debts	$	14,683,489		$	4,550,369
Common stock issued for services and compensation	$	357,870		$	4,278,114
Common stock acquired for cancellation	$	-		$	(820,000	)
Common stock issued	$	-		$	780,000
Disposal proceeds receivable of sale of subsidiaries , HYT and ZX	$	2,386,233		$	17,935,905
Land use rights payable due to related parties	$	-		$	25,469,078
Transfer construction in progress to property and equipment	$	4,478,667		$	-
Acquisition of treasury stock	$	-		$	1,250,000

F-3

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

CORPORATE INFORMATION

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

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

On September 5, 2007, the Company acquired three existing businesses in the People’s Republic of China (the “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. HST was dissolved in 2010.

On November 27, 2007, MEIJI and HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”), a company incorporated in the 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 an 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“SJAP”), incorporated in the PRC, of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest in SJAP was owned by the following entities:

•

Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a company 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.

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

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

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

F-4

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

CORPORATE INFORMATION (CONTINUED)

The Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co. Limited (“EBAPCD”), in which the Company would indirectly own a 25% equity interest on February 28, 2011.

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the amount of $1,702,580. The Company presently owns a 75% equity interest in JFD and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations of JFD.

On April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“ECF”), all of which the Company would indirectly own a 25% equity interest in on November 17, 2011. On September 13, 2012 MEIJI formed Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”) in which it owns 75% equity interest with investment of $3,636,326, while withdrawing its 25% equity interest in ECF. As of September 30, 2012, the Company had consolidated the assets and operations of JHMC.

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“HSA”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%.

The Company’s principal executive office is located at Room 3901, 39^th Floor, Block A, 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 the Company and its subsidiaries are described in Note 2.2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1

FISCAL YEAR

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

F-5

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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% (12.31.2011: 100%) directly	Fishery development and holder of A-Power Technology master license.

Capital Stage Inc. ("CS")	Belize	100% (12.31.2011: 100%) indirectly	Dormant

Capital Hero Inc. ("CH")	Belize	100% (12.31.2011: 100%) indirectly	Dormant

Tri-way Industries Limited ("TRW")	Hong Kong, PRC	100% (12.31.2011: 100%) directly	Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.

Macau Eiji Company Limited ("MEIJI")	Macau, PRC	100% (12.31.2011: 100%) directly	Investment holding

Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd ("JHST")	PRC	75% (12.31.2011: 75%) directly	Hylocereus Undatus Plantation ("HU Plantation"). The Company has not commenced beef business.





A Power Agro Agriculture Development (Macau) Limited ("APWAM")	Macau, PRC	100% (12.31.2011: 100%) directly	Investment holding


Jiang Men City A Power Fishery Development Co., Limited ("JFD")	PRC	75% indirectly treated as subsidiary (12.31.2011: 25% indirectly and treated as unconsolidated equity interest)	Fish cultivation

Jiangman Hang Mei Cattle Farm Development Co., Limited ("JHMC") Formerly known as Enping City A Power Cattle Farm Co., Limited ("ECF")	PRC	75% (12.31.2011: 25% indirectly	Beef cattle cultivation

Hunan Shenghua A Power Agriculture Co., Limited ("HSA")	PRC	26% directly and 50% indirectly (12.31.2011: 26% directly and 50% indirectly)	Manufacturing of organic fertilizer,livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures

Name of variable interest entity	Place of incorporation	Percentage of interest	Principal activities
Qinghai Sanjiang A Power Agriculture Co., Ltd ("SJAP")	PRC	45% (12.31.2011: 45%) indirectly	Manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures
Qinghai Sanjiang A Power Agriculture Co., Ltd ("SJAP")

Name of unconsolidated equity investee	Place of incorporation	Percentage of interest	Principal activities

Enping City Bi Tao A Power Prawn Culture Development Co., Limited ("EBAPCD") (pending approval)	PRC	25% (12.31.2011: 25% indirectly)	Prawn cultivation

F-6

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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”).

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, 2011.

2.4

BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, HJST, ZX, HYT, PMH, JFD, JHMC, HSA and APWAM and its variable interest entity SJAP. All material inter-company transactions and balances have been eliminated in consolidation. HYT and ZX were no longer recognized as subsidiaries as of January 1, 2011 and PMH was dissolved on January 28, 2011.

2.5

BUSINESS COMBINATION

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

2.6

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

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

2.7

USE OF ESTIMATES

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

F-7

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

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.

License fee income is recognized on the accrual basis in accordance with the agreements.

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

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

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

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

The Company’s fishery development consultancy services revenues are recognized when the relevant services are rendered to a buyer.

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

F-8

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $75,333, $0, $77,478 and $0 for the three months and the nine months ended September30, 2012 and 2011, respectively.

2.11

ADVERTISING

Advertising costs are included in general and administrative expenses, which totaled $0, $0, $3,167and $0 for the three months and the nine months ended September 30, 2012and 2011, respectively.

2.12

FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

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

For those entities whose functional currency is other than the U.S. dollar, 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 $3,503,608 as of September 30, 2012 and $3,446,838 as of December 31, 2011. The balance sheet amounts with the exception of equity as of September 30, 2012 and December 31, 2011 were translated using an exchange rate of RMB 6.34 to $1.00 and RMB 6.30 to $1.00, respectively. The average translation rates applied to the statements of income and comprehensive income and of cash flows for the nine months ended September 30, 2012 and September 30, 2011 were RMB 6.33 to $1.00 and RMB 6.51 to $1.00, respectively.

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 the PRC are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.

2.14

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 for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2012 and December 31, 2011 are $0.

F-9

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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:

(a)

raw materials – purchase cost on a weighted average basis;

(b)

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

(c)

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

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs fof 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 property and equipment as a replacement only if it is eligible for capitalization. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

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

Plant and machinery	5 - 10 years
Structure and leasehold improvements	10 - 20 years
Mature seeds	20 years
Furniture 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.

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 or separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

F-10

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.18

PROPRIETARY TECHNOLOGIES

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

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

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

2.19

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 rights to agricultural land from farmers and are amortized on the straight-line basis over their respective lease periods. The lease period of agricultural land is in the range from 30 to 60 years. Land use rights purchase prices were determined in accordance with the 2007 PRC Government’s minimum lease payments on agricultural land and mutually agreed to terms between the Company and the vendors.

2.21

CORPORATE JOINT VENTURE

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

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

2.22

VARIABLE INTEREST ENTITY

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

(a)

equity-at-risk is not sufficient to support the entity's activities;

(b)

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

(c)

the economics do not coincide with the voting interest

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

F-11

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.23

TREASURY STOCK

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

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

(a)

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

(b)

to make more shares available for acquisitions of other entities.

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

2.24

INCOME TAXES

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

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

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

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

2.25

POLITICAL AND BUSINESS RISK

The Company's operations are carried out in the PRC. Accordingly, the political, economic and legal environment in the PRC may influence the Company’s business, financial condition and results of operations 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.

F-12

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.26

CONCENTRATION OF CREDIT RISK

Cash includes cash at banks and demand deposits in accounts maintained with banks within the PRC. Total cash in these banks on September 30, 2012 and December 31, 2011 amounted to $ 4,686,589 and $1,379,837, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

Accounts receivable are derived from revenue earned from customers located primarily in the PRC. The Company performs ongoing credit evaluations of customers and has 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,
	2012			2011			2012			2011

Customer A		30.37	%		-			29.16	%		-
Customer B		19.85	%		27.79	%		23.64	%		31.57	%
Customer C		13.17	%		-			11.16	%		-
Customer D		11.04	%		11.01	%		8.26	%		7.63	%
Customer E		6.23	%		-			8.79	%		-
Customer F		-			14.91	%		-			10.78	%
Customer G		-			9.85	%		-			8.33	%
Customer H		-			7.50	%		-			-
Customer I		-			6.29	%		-			8.34	%
		80.66	%		77.35	%		81.01	%		66.65	%

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

	September 30, 2012			December 31, 2011

Customer A		17.70	%		15.31	%
Customer B		15.74	%		-
Customer C		11.01	%		8.22	%
Customer D		10.53	%		-
Customer E		10.35	%		8.39	%
Customer F		-			-
Customer G		-			9.14	%
Customer H		-			8.60	%
		65.33	%		49.66	%

F-13

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.27

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2012 and December 31, 2011, the Company determined no impairment charges were necessary.

2.28

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 three months ended September 30, 2012 and 2011, basic earnings per share from continuing and discontinued operations attributable to the Company’s common stockholders amounted to $0.27 and $0.11, respectively. For the three months ended September 30, 2012 and 2011, diluted earnings per share from continuing and discontinued operations attributable to the Company’s common stockholders amounted to $0.25 and $0.10, respectively.

For the three months ended September 30, 2012 and 2011, basic earnings per share from continuing operations attributable to the Company’s common stockholders amounted to $0.27 and $0.11, respectively. For the three months ended September 30, 2012 and 2011, diluted earnings per share from continuing operations attributable to the Company’s common stockholders amounted to $0.25 and $0.10, respectively.

For the nine months ended September 30, 2012 and 2011, basic earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.51 and $0.34, respectively. For the nine months ended September 30, 2012 and 2011, diluted earnings per share from continuing and discontinued operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.47 and $0.31, respectively.

For the nine months ended September 30, 2012 and 2011, basic earnings per share from continuing operations attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.51 and $0.17, respectively. For the nine months ended September 30, 2012 and 2011, diluted earnings per share from continuing operations attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.47 and $0.15, respectively.

2.29

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.

2.30

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 made by the employer.

F-14

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31

STOCK-BASED COMPENSATION

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

2.32

FAIR value of financial INSTRUMENTS

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

Level 1

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

Level 2

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

Level 3

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2012 or December 31, 2011, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended September 30, 2012 or September 30, 2011.

F-15

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED

2.33

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 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed ASU, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. The Company does not expect the adoption of ASU 2011-01 to have a significant impact on its consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03), intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011.The Company does not expect the adoption of ASU 2011-03to have a significant impact on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of these requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU2011-04 is effective for interim and annual periods beginning after December 15, 2011 and early application is not permitted. The Company does not expect the adoption of ASU 2011-04 to have a significant impact on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Amendments under ASU 2011-05 for public entities should be applied retrospectively for fiscal years, and interim periods within those years, beginning December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a significant impact on its consolidated financial statements.

In July 2011, the FASB issued accounting guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The guidance expands disclosures for the allowance for credit losses and financing receivables by requiring entities to disclose information at disaggregated levels. It also requires disclosure of credit quality indicators, past due information and modifications of financing receivables. The Company does not expect the adoption of this guidance to have a significant impact on its consolidated financial statements.

F-16

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.33

NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2011, the FASB issued Intangibles – Goodwill and Other (Topic 350)– Testing Goodwill for Impairment (ASU No. 2011-08), which amends ASC 350 to first assess qualitative factors before performing the quantitative goodwill impairment testing. The ASU provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative analysis indicate it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test, which is required under current U.S.GAAP, would not be necessary. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-08 to have a significant impact on its consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Topic 210 - Balance Sheet: Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”).ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 will be effective for fiscal years beginning on or after January 1, 2013, with retrospective application for all comparable periods presented. The Company does not expect the adoption of this guidance to have a material effect on the Company’s consolidated financial statements.

In July 2012, the FASB issued Accounting Standards Update ASU 2012-02, the amendments to ASC 350, Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments apply to all entities, both public and nonpublic, that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. In accordance with the amendments an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and early adoption is permitted. The Company will apply these amendments for reporting periods beginning after December 31, 2012. The Company does not expect the adoption of the amendments to have a material impact on the Company's financial statements.

F-17

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, the HU Plantation Division, the Organic Fertilizer and Bread Grass Division, the Cattle Development Division and the Corporate Division. The Company and discontinued its Dairy Production Division effective January 1, 2011.

For the three months ended September 30, 2012
	Continuing operations										Discontinued operations
	Fishery Development Division		HU Plantation Division		Organic Fertilizer and Bread Grass Division		Cattle Farm Development Division		Corporate and others		Dairy Production Division		Total

Revenue	$	27,088,699	$	7,236,186	$	5,496,650	$	8,529,153	$	-	$	-	$	48,350,688

Net income (loss)	$	11,830,875	$	4,320,995	$	1,267,065	$	5,154,959	$	151,411	$	-	$	22,725,305

Total assets	$	25,975,865	$	31,370,316	$	73,208,017	$	19,847,979	$	67,335,029	$	-	$	217,737,206

For the three months ended September 30, 2011
	Continuing operations											Discontinued operations
	Fishery Development Division		HU Plantation Division		Organic Fertilizer and Bread Grass Division		Cattle Farm Development Division		Corporate and others			Dairy Production Division		Total

Revenue	$	10,789,890	$	3,240,399	$	4,592,078	$	2,078,099	$	-		$	-	$	20,700,466

Net income (loss)	$	3,724,359		1,764,726	$	1,015,818	$	1,091,074	($	1,322,604	)	$	-	$	6,273,373

Total assets	$	29,093,904	$	26,039,074	$	13,086,816	$	6,780,853	$	75,222,029		$	-	$	150,222,676

F-18

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT INFORMATION (CONTINUED)

For the nine months ended September 30, 2012
	Continuing operations											Discontinued operations
	Fishery Development Division		HU Plantation Division		Organic Fertilizer and Bread Grass Division		Cattle Farm Development Division		Corporate and others			Dairy Production Division		Total

Revenue	$	53,983,072	$	9,318,049	$	15,125,291	$	11,252,579	$	-		$	-	$	89,678,991

Net income (loss)	$	25,423,347	$	5,411,573	$	2,302,083	$	6,341,554	$	(791,769	)	$	-	$	38,686,788

Total assets	$	25,975,865	$	31,370,316	$	73,208,017	$	19,847,979	$	67,335,029		$	-	$	217,737,206

For the nine months ended September 30, 2011
	Continuing operations											Discontinued operations
	Fishery Development Division		HU Plantation Division		Organic Fertilizer and Bread Grass Division		Cattle Farm Development Division		Corporate and others			Dairy Production Division		Total

Revenue	$	14,905,109	$	4,462,640	$	8,126,943	$	3,032,675	$	-		$	-	$	30,527,367

Net income (loss)	$	6,190,049		2,318,151	$	1,839,163	$	1,364,432	$	(1,515,931	)	$	10,203,951	$	20,399,815

Total assets	$	29,093,904	$	26,039,074	$	13,086,816	$	6,780,853	$	75,222,029		$	-	$	150,222,676

F-19

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES

United States of America

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

China

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

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

However as of September 30, 2012 JFD has been levied with an EIT of 25%, which JFD is appealing to the Taxation Department for a waiver of this tax. The Company expects to prevail in its appeal, therefore there is no EIT being provided for JFD during the nine months ended September 30, 2012.

No EIT has been provided in the financial statements of CA, ZX, JHST and SJAP since they are exempt from EIT for the nine months ended September 30, 2012 and 2011 as they are within the agriculture, dairy and fishery sectors.

No EIT has been provided in the financial statements of HSA for the income earned during the nine months ended September 30, 2012 and 2011 as HSA incurred a tax loss for the period.

Belize and Malaysia

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in 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 is imposed on a territorial basis and not on a worldwide basis, CA’s income is not subject to Malaysian corporate tax.

As a result, neither Belize nor Malaysia corporate tax is provided for in the financial statements of CA for the nine months ended September 30, 2012 and 2011.

Hong Kong

No Hong Kong profits tax has been provided in the financial statements of PMH and TRW, since these entities did not earn any assessable profits for the nine months ended September 30, 2012 and 2011.

Macau

No Macau Corporation tax has been provided in the financial statements of HYT, APWAM and MEIJI since these entities did not earn any assessable profits for the nine months ended September 30, 2012 and 2011.

F-20

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NET INCOME FROM DISCONTINUED OPERATIONS

On February 15, 2011 and on March 29, 2011, the Company entered into an agreement and memorandum of understanding, respectively, to sell 100% equity interest in HYT group (including HYT and ZX)to Mr. Xin Ming Sun, a director of ZhongXingNong Nu Co., Ltd for $45,000,000, with an effective date of January 1, 2011. HYT group contributed revenue and net income for the Dairy Production Division. Prior to the sale of HYT group, the Dairy Production Division represented a separate business segment; the disposal group has been treated as a discontinued operation in this quarterly financial report. The post-tax result of the Dairy Production Division has been disclosed as a discontinued operation in the consolidated statement of income and comprehensive income.

(a)

Net income from discontinued operations

		Nine months ended		Nine months ended
	Note	September 30, 2012		September 30, 2011
		(Unaudited)		(Unaudited)

Revenue		$	-	$	-

Cost of goods sold			-		-

Gross profit			-		-

General and administrative expenses			-		-
Net income from operations			-		-

Interest expense			-		-
Net income before income taxes			-		-

Net income from sale of subsidiaries			-		10,203,951
Net income before income taxes			-		10,203,951
Provision for income taxes			-		-
Net income from discontinued operations			-		10,203,951
Less: Net income attributable to the non - controlling interest			-		-
Net income from discontinued operations attributable to the Company and subsidiaries		$	-	$	10,203,951

(b)

Consideration received

	Nine months ended
	September 30,2012

Consideration received in cash and cash equivalents	$	704,388
Disposal proceeds receivable of sale of subsidiaries		44,295,612
Total consideration proceeds	$	45,000,000

F-21

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NET INCOME FROM DISCONTINUED OPERATIONS (CONTINUED)

(c)

Analysis of consolidated assets and liabilities of subsidiaries, HYT and ZX as of December 31, 2010

	December 31, 2010

ASSETS
Current assets
Cash and cash equivalents	$	3,137,885
Inventories		7,495,794
Deposits and prepaid expenses		8,874,285
Accounts receivable, net of allowance for doubtful accounts		6,044,666
Other receivables		2,069,514
Total current assets		27,622,144
Property and equipment

Property and equipment, net of accumulated depreciation		14,612,953
Goodwill		11,275,060
Land use rights, net of accumulated amortization		9,441,158
Total property and equipment		35,329,171

Total assets	$	62,951,315

Less: LIABILITIES

Current liabilities
Accounts payable and accrued expenses	$	22,409
Other payables		11,167,319
Total current liabilities		11,189,728

Other liabilities
Long term debt		3,776,435

Total liabilities		14,966,163
Net assets of subsidiaries, HYT and ZX as of December 31, 2010 disposed of	$	47,985,152

(d)

Net cash outflow on sale of subsidiaries, HYT and ZX

	Nine months ended
	September 30, 2011

Cash and cash equivalents balance disposed of	$	(3,137,885	)
Net cash outflow on sale of subsidiaries, HYT and ZX	$	(3,137,885	)

F-22

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NET INCOME FROM DISCONTINUED OPERATIONS (CONTINUED)

(e)

Detailed cash flow from discontinued operations

		Nine months ended		Nine months ended
	Note	September 30, 2012		September 30, 2011
		(Unaudited)		(Unaudited)

Cash flows from operating activities
Net income for the period		$	-	$	10,203,951
Adjustments to reconcile net income to net cash from operations:
Depreciation			-		-
Amortization			-		-
Net gain of sale of subsidiaries, HYT and ZX			-		(10,203,951	)
Changes in operating assets and liabilities:
Increase in inventories			-		-
Increase in deposits and prepaid expenses			-		-
Increase in other payables			-		-
Decrease in accounts receivable			-		-
Decrease in other receivables			-		-
Net cash provided by operating activities			-		-
Cash flows from investing activities
Net cash outflow on sale of subsidiaries, HYT and ZX			-		(3,137,885	)
Payment for acquisition of land use rights			-		-
Payment for construction in progress			-		-
Net cash used in investing activities			-		(3,137,885	)
Cash flows from financing activities
Net cash provided by financing activities			-		-

Effects on exchange rate changes on cash			-		-
(Decrease) increase in cash and cash equivalents			-		(3,137,885	)

Cash and cash equivalents, beginning of period			-		3,137,885

Cash and cash equivalents, end of period		$	-	$	-

Supplementary disclosures of cash flow information:
Cash paid for interest		$	-	$	-
Cash paid for income taxes		$	-	$	-
Non - cash transactions
Disposal proceeds receivable of sale of subsidiaries, HYT and ZX		$	2,386,233	$	44,295,612

F-23

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DIVIDEND

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted F Non – Convertible Preferred Stock for every 100 shares of common stock owned by the stockholders as of September 28, 2012 (the “Record Date”), with lesser or greater amounts being rounded up to the nearest 100 shares of common stock for purpose of the computing the dividend. The holders of record of shares of Series F Non – Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014.

As of September 30, 2012, the Company had issued 91,931,287 issued and outstanding shares common stock.

Three months

Nine months

ended

September 30, 2012

September 30, 2011

September 30, 2012

September 30, 2011

Dividend

3,125,661

CASH AND CASH EQUIVALENTS

	September 30, 2012		December 31, 2011

Cash and bank balances	$	5,411,583	$	1,387,908

INVENTORIES

As of September 30, 2012, inventories are as follows:

	September 30, 2012		December 31, 2011

Marble Goble	$	1,409,422	$	-
Bread grass		1,505,249		449,984
Beef cattle		3,929,206		825,853
Beef meat		218,605
Organic fertilizer		982,317		807,689
Forage for cattle and consumable		698,521		-
Raw materials for bread grass and organic fertilizer		6,860,931		1,398,965
Raw materials for HU plantation		-		11,111
Immature seeds		-		842,313
Unharvested HU plantation		98,654		99,530
		15,702,905		4,435,445

F-24

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

DEPOSITS AND PREPAID EXPENSES

	September 30, 2012		December 31, 2011
	$		$

Deposits for
acquisition of land use rights		4,453,665		4,453,665
inventory purchases		19,227,736		5,190,952
Shares issued for employee compensation and oversea professional fee		357,870		2,139,057
Aquaculture contract with Gao Riqiang		3,872,808		3,085,164
Temporary payment for acquiring equity investments		3,348,105		-
		31,260,184		14,868,838

The Company made temporary deposit payments for equity investments in the future development of a prawn farm hatchery and a prawn farm nursery.

10.

ACCOUNTS RECEIVABLE

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2012 and December 31, 2011. Bad debts written off for the nine months ended September 30, 2012 and 2011 are $0.

Aging analysis of accounts receivable is as follows:

	September 30, 2012		December 31, 2011

0 - 30 days	$	12,551,746	$	20,061,598
31 - 90 days		36,484,545		1,828,058
91 - 120 days		7,055,652		2,457,259
over 120 days and less than 1 year		3,788,488		3,185,000
over 1 year		-		5,936,718
		59,880,431		33,468,633
Less: amounts reclassified as long term accounts receivable		-		(5,936,718	)
	$	59,880,431	$	27,531,915

11.

OTHER RECEIVABLES

	September 30, 2012		December 31, 2011

Temporary payments	$	2,561,111	$	656,092
Due from employees		246,459		130,191
Due from third parties		5,125,375		8,902,588
	$	7,932,945	$	9,688,871

Payments due from employees and third parties are unsecured, interest free and without fixed term of repayment. Payments 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-25

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

DUE FROM RELATED PARTIES

	December 31, 2011

Due from proceeds receivable	$	2,386,233	$	5,386,233

Due from HYT		10,434,519		10,434,519
	$	12,820,752	$	15,820,752

The Company sold the HYT group (including HYT and ZX) effective January 1, 2011. Due from HYT is an unsettled balance, which is unsecured, interest free and to be repaid within one year from December 31, 2011.

Disposal proceeds receivable in the amount of $44,295,612 from the sale of subsidiaries are due from Mr. Xi Ming Sun, a director of ZhongXingNong Nu Co., Ltd., (i) of which $3,796,215 was settled by way of equal installments of $759,243 each on April 30, June 30, August 31, October 31 and December 31 of 2011; and (ii) the remaining $40,499,397 shall be settled by way of cash toward the Company’s purchase cost of Land (or land use rights) and / or by way of Land (or land use rights) acceptable to the Company as stated in the agreement.

As of September 30, 2012, the outstanding amount due from Mr. Xi Ming Sun is $2,386,233.

Due from proceeds receivable is unsecured, interest free and has no fixed term of repayment.

13.

PLANT AND EQUIPMENT

	September 30, 2012		December 31, 2011

Plant and machinery		1,960,736	$	1,855,068
Structure and leasehold improvements		4,132,181		27,211
Mature seeds		1,373,759		503,663
Furniture and equipment		1,349,077		773,185
Motor vehicles		106,298		106,298
		8,922,051		3,265,425

Less: Accumulated depreciation		(918,179		(597,660	)
Net book value		8,003,872		2,667,765

Depreciation expense was $ 137,365 and $53,485 for the three months ended September 30, 2012 and 2011, respectively.

Depreciation expense was $320,519 and $139,251 for the nine months ended September 30, 2012 and 2011, respectively.

14.

CONSTRUCTION IN PROGRESS

	September 30, 2012		December 31, 2011

Construction in progress
- Oven room for production of dried flowers	$	821,650	$	826,359
- Office, warehouse and organic fertilizer plant in Shenghua Yili		510,450		26,646
- Organic fertilizer and bread grass production plant, and office buildings		5,861,064		2,724,864
- Rangeland for beef cattle and office building		3,217,803		-
	$	10,410,967	$	3,577,869

F-26

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

15.

LAND USE RIGHTS

Private ownership of agricultural land is not permitted in the PRC. Instead, the Company has leased five lots of land. The cost of the first lot of land use rights acquired in 2007 was $6,194,505, which consists of 1,985.06 acres in the Hebei Province with leaseholds expiring in 2036, 2051, 2067 and 2077. The cost of the second lot of land use rights acquired in 2007 in the Guangdong Province was $6,408,289 and consists of 174.94 acres with the lease expiring in 2067. The cost of the third lot of land use rights acquired in 2008 in the Guangdong Province was $764,128, which consists of33.68 acres with the lease expiring in 2068. The cost of the fourth lot of land use rights acquired in 2010 in the Hebei Province was $3,223,411, which consists of 825 acres with the lease expiring in 2066.The first lot of land use rights with the original cost of $6,194,505 and the fourth lot of land use rights with the original cost of $3,223,411 were disposed of with the sale of a subsidiary of ZX. The cost of the fifth lot of land use rights acquired in 2011 was $7,042,831, which consists of 57.58 acres in the Guangdong Province, with the lease expiring in 2037.

	September 30, 2012			December 31,2011


Cost	$	57,845,574		$	57,845,574

Less: Accumulated amortization		(2,900,354	)		(1,338,104	)

Net carrying amount	$	54,945,220		$	56,507,470

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 $476,096 and $ 306,405 for the three months ended September 30, 2012 and 2011, respectively. Amortization of land use rights was $1,562,250 and $435,049 for the nine months ended September 30, 2012 and 2011, respectively.

16.

PROPRIETARY TECHNOLOGIES

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On March 6, 2012 MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattlefor$1,500,000.

	September 30, 2012			December 31, 2011

Proprietary technologies	$	9,500,000		$	8,000,000
Less: Accumulated amortization		(1,286,499	)		(1,022,325	)
Net carrying amount	$	8,213,501		$	6,977,675

Amortization of proprietary technologies was $88,166 and $79,692 for the three months ended September 30, 2012 and 2011, respectively. Amortization of proprietary technologies was $264,174 and $ 257,786 for the nine months ended September 30, 2012 and 2011, respectively.

F-27

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.

GOODWILL

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

	September 30, 2012		December 31, 2011

Goodwill from acquisition	$	724,940	$	724,940
Less: Accumulated impairment losses		-		-
Net carrying amount	$	724,940	$	724,940

18.

UNCONSOLIDATED EQUITY INVESTEE

On February 11, 2011, CA applied to form a corporate joint venture, Enping City Bi Tao A Power Prawn Culture Development Co. Limited (“EBAPCD”), incorporated in the People’s Republic of China. CA has the right to acquire up to a 75% equity interest in EBAPCD. EBAPCD has not commenced its business of prawn cultivation.

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while it withdrew its 25% equity interest in EBAPFD. As of December 31, 2011, the Company invested $1,258,607 in JFD. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for the amount of $1,662,365. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the amount of $1,702,580. The Company presently owns a 75% equity interest in JFD and controls its board of directors. As result, the Company has consolidated the assets and operations of JFD.

The Company has consolidated the assets and operations of JFD.

On April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“ECF”), incorporated in the People’s Republic of China. MEIJI had 25% equity interest in ECF. The PRC Government granted the official name of Jiangmen Hang Meiji Cattle Farm Development Co., Limited (“JHMC”) to ECF on June 3, 2012. As of September 30, 2012, the Company has invested $1,076,489 in JHMC, which has not commenced operations.

	September 30, 2012		December 31,2011

Investment in unconsolidated joint venture	$	-	$	1,258,607

F-28

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

19.

VARIABLE INTEREST ENTITY (CONTINUED)

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), which was incorporated in the People’s Republic of China. As of June 30, 2012, the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

Continuous assessment of the VIE relationship with SJAP

The Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately 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 managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2012, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

The reasons for the changes are as follows:

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

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

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

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

20.

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 the 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.

F-29

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.

OTHER PAYABLES

	September 30, 2012		December 31, 2011

Due to third parties	$	11,502,538	$	10,794,449
Due to employees and others		-		1,114,848
Land use rights payable		-		58,851
	$	11,502,538	$	11,968,148

Payables due to third parties, related parties, employees and others are unsecured, interest free and have no fixed terms of repayment.

22.

DUE TO RELATED PARTIES

	September 30, 2012		December 31, 2011

Due to related parties		-	$	867,413

Payables due to related parties are unsecured, interest free and have no fixed terms of repayment.

23.

COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS/BILLINGS ON UNCOMPLETED CONTRACTS IN EXCESS OF COSTS AND ESTIMATED EARNINGS

(i)

The net liabilities position for contracts in progress consisted of the following at September 30, 2012 and December 31, 2011.

	September 30, 2012			December 31, 2011

Billings	$	30,365,325		$	21,472,040
Less: Costs		(8,348,756	)		(9,136,685	)
Estimated earnings		(19,428,051	)		(10,829,340.0	)
Billing in excess of costs and estimated earnings on uncompleted contract	$	2,588,518		$	1,506,015

(ii)

	September 30, 2012			December 31, 2011

Costs	$	4,377,167		$	887,540
Estimated earnings		9,922,820			1,974,204
Less: Billings		(11,870,080	)		(2,405,640.0	)
Costs and estimated earnings in excess of billings on uncompleted contract	$	2,429,907		$	456,104

F-30

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

23.

COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS/BILLINGS ON UNCOMPLETED CONTRACTS IN EXCESS OF COSTS AND ESTIMATED EARNINGS (CONTINUED)

(iii)

	September 30, 2012			December 31, 2011

Billings	$	18,495,245		$	19,066,400
Less: Costs		(3,791,589	)		(8,249,145	)
Estimated earnings		(9,505,231	)		(8,855,136	)
Billing in excess of costs and estimated earnings on uncompleted contract	$	5,198,425		$	1,962,119

24.

SHORT TERM BANK LOAN

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. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par.

Name of bank

Interest
rate

Term

September 30, 2012

December 31, 2011

Agricultural Bank of China,

August 8, 2012 -

Huang Yuan Country branch, PRC

August 29, 2013

1,577,038

guaranteed by third parties

secured by land use rights

F-31

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25.

SHAREHOLDERS’ EQUITY

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

The Series A preferred stock:

(i)

does not pay a dividend;

(ii)

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

(iii)

ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively.

The Series B convertible preferred stock:

On March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred stock at $1.00 per share. There were 7,000,000 shares of Series B convertible preferred stock issued and outstanding as of September 30, 2012 and December 31, 2011, respectively.

On August 13, 2012, the Company designated 1,000,000 shares of preferred stock with a par value per share of $0.001 as Series F Non-Convertible Preferred Stock with a face value of $1.00 per share with 0 shares issued and outstanding as of September 30, 2012.

The Series F Non-Convertible Preferred Stock:

(i)

is not redeemable;

(ii)

except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to (a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.

(iii)

except for (iv), shall not entitled to receive any dividend; and

(iv)

on May 30, 2014, the holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Record Holder shall no longer own any shares of Series F that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

During the year ended December 31, 2011: (i) the Company reacquired 1,000,000 shares of its common stock which became treasury shares, for $1,250,000 at a price of $1.25 per share; (ii) the Company issued 15,619,397 shares of common stock for $12,499,902 at values ranging from$0.50 to $1.50 per share to settle debts due to third parties; (iii) the Company purchased 8,620,000 shares for $1,579,400 at prices ranging from $0.01 to $0.78 for cancellation; (iv) the Company issued employees a total of 2,760,729 shares of common stock valued at fair value of range from $0.895 per share to $1.01 per share for $2,667,114; and (v) the Company issued 1,800,000 shares of common stock to a certain company that provided consulting services for the benefit of the Company at $0.895 per share for $1,620,000.

F-32

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

25.

SHAREHOLDERS’ EQUITY (CONTINUED)

During the three months ended September 30, 2012, the Company issued (i) 11,692,014 shares of common stock for $6,946,250 at values ranging from $0.51 to $0.62 per share to settle debts due to third parties; and (ii) 906,000 shares of common stock valued at fair value of range from $0.40 per share for $357,870 to employees.

During the nine months September 30, 2012, the Company issued 23,991,025 shares of common stock for $14,683,489 at values ranging from $0.43 to $0.64 per share to settle debts due to third parties; and (ii) 906,000 shares of common stock valued at fair value of range from $0.40 per share for $357,870 to employees.

26.

OBLIGATION UNDER OPERATING LEASES

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $512 in Enping City, Guangdong Province, PRC, its lease expiring on March 31, 2014;(ii) 2,300 square feet of office space in Guangzhou City, Guangdong Province, PRC for a monthly rent of $4,238, its lease expiring on October 15, 2012; (iii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, PRC for a monthly rent of $11,838, its lease expiring on July 8, 2014 (iv) 1,555 square feet each for two staff quarter in Lilin Country, Hunan Province, PRC for a monthly rent of $159, its lease expiring on January 23, 2013 and May 1, 2014.

Lease expense was $51,546 and $ 14,150 for the three months ended September 30, 2012 and 2011, respectively. Lease expense was $ 83,719 and $ 28,300 for the nine months ended September 30, 2012 and 2011, respectively.

The future minimum lease payments as of September 30, 2012, are as follows:

	September 30, 2012
	$

Year ended December 31, 2012		38,002
Year ended December 31, 2013		152,008
Year ended December 31, 2014		85,038
Thereafter		-
		275,048

27.

BUSINESS COMBINATION

Business combination of JFD

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested $1,258,607 in JFD. JFD is engaged as an operator of an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the amount of $1,702,580.The Company presently owns a 75% equity interest in JFD and controls its board of directors. As of June 30, 2012, the Company had consolidated the assets and operations of JFD.

First acquisition on January 1, 2012 – 25% equity interest in JFD

F-33

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS COMBINATION (CONTINUED)

The Company allocated the purchase price based on the fair value of the assets acquired as of January 1, 2012.

Net assets acquired:
Property, plant and equipment	$	34,919
Construction in progress		4,495,306
Inventories		1,838,337
Less: Other payables		(92,603	)
Non-controlling interest		(3,324,729	)
25% held by the Company		(1,662,365	)
	$	1,288,865

Satisfied by
Purchase consideration	$	1,662,365
Less: Cash acquired		(373,500	)
	$	1,288,865

Second acquisition on April 1, 2012 – 25% equity interest in JFD

The Company allocated the purchase price based on the fair value of the assets acquired as of April 1, 2012.

Net assets acquired:
Property, plant and equipment	$	33,535
Construction in progress		4,499,376
Inventories		1,970,387
Accounts receivable		1,337,519
Less: Other payables		(292,663	)
Accounts payable		(1,230,096	)
Non-controlling interest		(1,702,580	)
50% held by the Company		(3,405,159	)
	$	1,210,319

Satisfied by
Purchase consideration	$	1,702,580
Less: Cash acquired		(492,261	)
	$	1,210,319

F-34

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

28.

STOCK BASED COMPENSATION

On July 1, 2011 and July 11, 2011, the Company issued employees a total of 2,760,729 shares of common stock valued at fair value of range from $0.895 per share to $1.00 per share for services rendered to the Company. On July 11, 2011, the Company issued 1,800,000 shares of common stock to a company to provide consulting services for the benefit of the Company. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $0.895 per share.

The Company calculated stock based compensation of $4,635,984 and $4,278,114 and recognized $0 and $1,069,528 for the three months ended September 30, 2012 and 2011, respectively.

The Company calculated stock based compensation of $4,635,984 and $4,278,114 and recognized $2,139,057 and $1,069,528 for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, the deferred compensation balance was $357,870, which is being amortized over twelve months beginning October 1, 2012.

29.

CONTINGENCIES

As of September 30, 2012 and December 31, 2011, 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.

30.

GAIN ON EXTINGUISHMENT OF DEBTS

The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $641,831 and $49,265 has been credited to operations for the three months ended September 30, 2012 and 2011, respectively. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $1,459,343 and $631,691 has been credited to operations for the nine months ended September 30, 2012 and 2011, respectively.

F-35

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

31.

RELATED PARTY TRANSACTIONS

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the nine months ended September 30, 2012 and 2011, the Company had the following significant related party transactions:

Name of related party		Nature of transactions
Xiang Jun Fang, director of Jiang Men City Hang Sing Tai Agriculture Development Co Ltd, subsidiary of the Company		Included in due to related parties, due to Mr.Xiang Jun Fang is $0 and $1,413 as of September 30, 2012 and December 31, 2011, respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

Mr. Xi Ming Sun, director of ZhongXingNong Nu Co., Ltd		During the nine months ended September 30, 2011, the Company sold its 100% equity interest in HYT group (including HYT and ZX) for $45,000,000. Included in due from related parties, due from Mr. Xi Ming Sun is $2,386,233 and $5,386,233 as of September 30, 2012 and December 31, 2011. The amount is unsecured, interest free and has a fixed term of repayment.
Mr. Solomon Yip Kun Lee, Chairman		Included in due to a director, due to Mr. Solomon Yip Kun Lee is $1,029,974 and $289,764 as of September 30, 2012 and December 31, 2011, respectively. The amount is unsecured, interest free and has no fixed term of repayment.

Hang Yu Tai Investment Limited controlled by Mr. Xi Ming Sun		Included in due from related parties, due from Hang Yu Tai Investment Limited is $10,434,519 as September 30, 2012 and December 31, 2011, respectively. The amount is unsecured, interest free and has no fixed term of repayment.

Jiang Men City A Power Fishery Development Co., Limited (previously known as Enping Bi Tao A Power Fishery Development Co., Ltd), equity investee		During the nine months ended September 30, 2011, the Company entered into a fishery farm contract with Jiang Men City A Power Fishery Development Co., Limited with a contract value of $4,509,869 and recognized income of $2,407,764. Billings in excess costs and estimated earnings on uncompleted contract, due to Jiang Men City A Power Fishery Development Co., Limited is $0 and $1,484,320 as of September 30, 2012 and December 31, 2011, respectively. The amount is unsecured, interest free and has no fixed term of repayment.
Enping City Bi Tao A Power Prawn Culture Development Co. Limited, equity investee		During the nine months ended September 30, 2011, the Company entered into a prawn farm contract with Enping Bi Tao A Power Prawn Culture Development Co. Ltd (under application) with a contract value of $8,665,980 and recognized income of $3,179,113. Billings in excess costs and estimated earnings on uncompleted contract, due to Enping City Bi Tao A Power Prawn Culture Development Co. Limited (under application) is $0 and $528,271 as of September 30, 2012 and December 31, 2011, respectively. The amount is unsecured, interest free and has no fixed term of repayment.

F-36

SINO AGRO FOOD, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS

31.

RELATED PARTY TRANSACTIONS
(CONTINUED)

Enping City A Power Cattle Farm Co.,

Limited, equity investee

During the nine months ended September 30, 2011, the Company entered into a with Jiang Men City Hang Mei Cattle Farm Development Co., Limited with a contract value of $3,007,699 and recognized income of $1,485,349.

Billings in excess costs and estimated earnings on uncompleted contract, due to Jiang Men City Hang Mei Cattle Farm Development Co., Limited Enping City A Power Cattle Farm Co., Limited (under application) is $0 and $251,964 as of September 30, 2012 and December 31, 2011, respectively. The amount is unsecured, interest free and has no fixed term of repayment.

F-37

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10−Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,”“projects,”“plans,”“believes,”“expects,”“anticipates,”“intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2012 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

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

Overview

We are an integrated developer, producer and distributor of high quality organic agriculture and aquaculture products through our subsidiaries operating in China.

Below is a summary of our operational and/or developing stage business activities that are or are expected to generate revenues within year 2012 carried out by our existing or newly formed subsidiaries.

Categories of business activities:

1. Fishery Division and operation: (categorized as “Fishery” in accounting tables below)

1.1

Capital Award Inc. (“CA”) is one of our wholly owned subsidiaries established and incorporated in Belize City in 2004; its main revenues are generated from the following activities:

1.1.1.

Engineering and Technology services earned through consulting and servicing contracts and management fees. As of September 30, 2012, CA has five consulting and servicing contracts, consisting of the following:

(a)

A contract for developing a fish farm (Fish Farm 1) has been completed and generating revenue since August 2011.

(b) Phase 1 development work on a prawn hatchery and nursery farm (Prawn Farm 2) was completed, and has been generating revenue since May 2012 with Phase 2 development work to develop facilities for the production of prawns, brood stock, and associated expansion activities having commenced in May 2012. Phase 2 work continued progressing throughout the third quarter of 2012, and is expected to be completed sometime in 2013.

(c) The development of a prawn production farm (Prawn Farm 1) was 90% complete as of September 30, 2012, and the Company is now running tests and expects production to start before year-end 2012.

(d) The development work on the fish and eel farm (Fish Farm 2) is still in progress, but is being delayed because the property is situated on an islet that is making drainage extremely difficult and costly. In response, we are engineering a solution that should resolve this problem.

(e) The development of a “marketing, distribution, seafood processing and sales” complex (Wholesale Center 1) situated at the Guangzhou City, LiWan District, New Wholesale Market. Work on this project began in May 2012, and as of September 30, 2012 70% of the work has been completed with business operations anticipated to begin on or before November 30, 2012.

(f) New Project: (Prawn Farm 3):

On August 16, 2012 CA began development of a new project, namely an additional Prawn Grow-out Farm (Prawn Farm 3) at Unit 1, Front Block A, No. 498, Bei Da Road, Huangyuan County, Xining City, QuingHai Province China.

1.1.2. Marketing and sales of live seafood (e.g., fish, prawns), and the marketing and distribution agent of the fishery farms developed by CA in China. As of September 30, 2012, there are two CA fish farms generating revenue.

1.1.3. Sales of fish grown by contracted 3^rd-party fish farms. CA has contracted with one fish farm in China, namely Gao Aquaculture Fish Farm, which is used to produce fish to sell locally.

1.1.4. Import/Export seafood trade that began in May 2012.

1.2 The Company’s subsidiaries that are or will be operated under a Sino Joint Venture Company incorporated in China to carry out fishery operations consist of the following:

1.2.1. Jiangman A Power Fishery Development Co. Ltd. (“JAPF”) or (Fish Farm 1). JAPF is the owner and operator of Fish Farm 1. On June 30, 2012, the Company, through Triway Industrial Ltd. (Triway), a company incorporated in Hong Kong, and a wholly owned subsidiary of the Company, acquired a total of 75% equity interest in JAPF; as such, the Company’s third quarter 2012 consolidated financial statements incorporate the financial results of JAPF.

1.2.2. Enping A Power Prawn Culture Co. Ltd. (“EAPPC”) or (Prawn Farm 1). Enping A Power Prawn Culture Co. Ltd. is a tentative name subject to approval granted by relevant Chinese authorities under the Company’s application for the formation of a Sino Joint Venture Company (“SJVC 1”) to own and operate Prawn Farm 1. EAPPC expects to generate revenue during the fourth quarter of 2012. However, EAPPC’s financial statements will not be included in the Company’s consolidated account until such time as SJVC 1 is formalized, and one of the Company’s subsidiaries acquires a majority equity interest in it.

1.2.3. Zhong Shan A Power Prawn Farms Development Co. Ltd. (“ZSAPP”) or (Prawn Farm 2): Zhong Shan A Power Prawn Farms Development Co. Ltd. is also a tentative name subject to approval by relevant Chinese authorities on its application for the formation of a Sino Joint Venture Company (“SJVC 2”) to own and operate Prawn Farm 2. ZSAPP has been generating revenues since May 2012. However ZSAPP’s financial statements will not be included in the Company’s consolidated account until such time as SJVC 2 is formalized and one of the Company’s subsidiaries acquires a majority equity interest in it. In the meantime, CA recognizes income from the sale and marketing of its prawn flies as its marketing and sales agent.

2. Beef Cattle Farms’ operation and division: (Categorized as “Beef” in accounting tables below except for manufacturing and sales of fertilizer and item 2.3.2 hereof)

There are three divisional operations spread over three provinces in China targeting to generate revenues ultimately from the sale of beef cattle supported by fully integrated facilities and services;

2.1 Division (1) is operated from Huangyuan District of Xining City, Qinghai Province by QingHai Sanjiang YiLi Agriculture Co. Ltd.(“SJYL”), a subsidiary of the Company incorporated in China in 2009.

As of September 30, 2012, SJYL has the following business activities that are generating revenues:

*Manufacturing and sales of organic fertilizer(categorized as Fertilizer in the accounting tables below).

* Manufacturing and sales of livestock feed.

* Rearing and sales of beef cattle.

As of September 30, 2012, SJYL has the following business activities that are in development stage:

* Manufacturing and sales of Enzyme.

* Manufacturing and sales of concentrated livestock feed for husbandry animals.

* A mash gas station to generate electricity.

* A slaughterhouse with a boning facility to support sales of value added beef and beef by-products.

2.2 Division (2) is operated in Hunan Province, Linli District by Hunan Shanghua Yi Li Agriculture Co. Ltd. (“HSYLA”), a subsidiary of the Company majority owned jointly by the Company and HSJYLA.

As of September 30, 2012 HSYLA has the following business activities that are in the development stage:

* Manufacturing and sales of organic and mixed fertilizer. Although the main components of its fertilizer-factory are still under construction, as of September 30, 2012 HSYLA has generated sales revenues from over 4,000 MT of fertilizer.

* Cultivation of pastures and crops in preparation for the establishment of beef cattle farm.

2.3 Division (3) has two sub-divisions:

2.3.1 Division (3a) is a beef cattle farm (Cattle Farm 1) situated at Guangdong Province, Enping City, owned and operated by Jiangman Hang Meiji Cattle Farm Co. Ltd. (“HMCF”), a name officially approved by the Company Registrar of Guangdong Government in April 2012. On September 17^, 2012, its application to become a Sino Joint Venture Company (SJVC 3) was approved and granted by the relevant Chinese authorities.

Please refer to the HMCL “Statutory Documents “attached to this Form 10-Q as Exhibit 10.8

On September 17, 2012, the Company, through Macau MEIJI Company Limited (“MEIJI”) a wholly owned subsidiary of the Company incorporated in Macau, China, acquired a total of 75% equity interest in and became the controlling shareholder of HMCF; as such, the Company’s consolidated financial statements include the financial statements of HMCL beginning with the third quarter of 2012.

2.3.2 Division (3b) (Categorized as “Cattle Farm” in the accounting table below) is operated in Guangdong Province, Guangzhou City by MEIJI.

As of September 30, 2012, MEIJI generates revenues through engineering and technology services obtained through consulting and servicing contracts and management fees. In this respect MEIJI has (i) completed the contract to develop Cattle Farm 1 in the first quarter of 2012, and (ii) began work under another contract to build a second cattle farm (Cattle Farm 2) in another district within Enping City, Guangdong Province during the second quarter of 2012 with work in progress continuing throughout the third quarter of 2012; the Company anticipates completing Cattle Farm 2 by mid-year 2014.

MEIJI is the marketing and distribution agent for all cattle farms that are and will be developed by MEIJI using its “Semi-free growing” management systems and aromatic-feed programs and systems to grow beef cattle.

MEIJI started the deboning activity of and sales of beef to various restaurants in the Guangzhou City during the second quarter of 2012.

3. HU plantation operations (categorized as “Plantation” in the accounting tables below)

Hang Sang Tai Agriculture Development Co. Ltd. (“HST”), a Sino Joint Venture Company that is majority owned by MEIJI, is the owner and operator of the HU Plantation situated at Enping City, Guangdong Province. The plantation was developed in 2008 with revenues generated since year 2009.

As of September 30, 2012, HST has two types of operations;

* Growing and sales of HU Flowers; and

* Drying and value added processing and sales of HU flower products.

Consolidated Results of Operations for the Three Months ended September 30, 2012 Compared to the Three Months ended September 30, 2011

Revenue

Revenue including continued and discontinued operations increased by $ 27,650,222 or 133.57% to $48,350,688 for the three months ended September 30, 2012 from $20,700,466 for the three months ended September 30, 2011. The increase was primarily due to the natural growth of revenue generated from the fishery, plantation, organic fertilizer, cattle farms, beef and the maturity of on-going divisional businesses improving their revenues. The Company earned no revenue for the three months ended September 30, 2012 and 2011 respectively from the discontinued segment – dairy. There is one new development project undertaken by CA that started during the third quarter of 2012.

There is one new development project undertaken by CA that started during the third quarter of 2012. This new development project is opening a “Marketing, distribution, beef packaging and sales complex” (Wholesale Center 2), also situated in the LiWan District, Guangzhou City, Guangdong province, PRC. It is a new wholesale market but on a different block than (e) above consisting of 26 shops; development work commenced on August 16, 2012.

The following chart illustrates the changes by category from the three months ended September 30, 2012, compared to the three months ended September 30, 2011.

Revenue
	2012		2011
Category	Q3		Q3		Difference
	$		$		$
Fishery		27,088,699		10,789,890		16,298,809

Plantation		7,236,186		3,240,399		3,995,787

Organic Fertilizer		1,710,686		-		1,710,686

Cattle farm		8,529,153		2,078,099		6,451,054

Beef (SJYL)		3,785,964		4,592,078		(806,114	)

Total		48,350,688		20,700,466		27,650,222

Fishery: Revenue from fishery increased by $16,298,809 or 151.06% to $27,088,699 for the three months ended September 30, 2012 from $10,789,890 for the three months ended September 30, 2011. The increase was primarily due to our increased contract service income from fishery, Wholesale Center 1 and prawn development contracts and sale of fish for the three months ended September 30, 2012 versus consulting income and sale of fish for the three months ended September 30, 2011.

Plantation: Revenue from plantation of flowers increased by $3,995,787 or 123.31% to $7,236,186 for the three months ended September 30, 2012 from $3,240,399 for the three months ended September 30, 2011. The increase was primarily due to the increase of wholesale prices in fresh and dried flowers during the three months ended September 30, 2012.

Organic fertilizer: Revenue from organic fertilizer increased by $1,710,686 for the three months ended September 30, 2012 from $0 for the three months ended September 30, 2011. The increase was primarily due to the start-up of the new business of organic fertilizer during the first quarter of 2012.

Cattle farm: Revenue from the cattle farm increased by $6,451,054 or 310.43% to $7,266,365 for the three months ended September 30, 2012 from $2,078,099 for the three months ended September 30, 2011. The increase was primarily due to increased development contract service of cattle farms for the three months ended September 30, 2012.

Beef: Revenue from beef decreased by $806,114, or 17.55%, to $3,785,964 for the three months ended September 30, 2012 from $4,592,078 for the three months ended September 30, 2011. The decrease was primarily due to the fact that calves grow and become salable beef cattle during this quarter.

Cost of Goods Sold

Cost of goods sold included in continued and discontinued operations increased by $11,602,369 or 105.52% to $22,597,855 for the three months ended September 30, 2012 from $10,995,486 for the three months ended September 30, 2011. The increase was primarily due to the Company increasing its scale of operations from continuing operations in terms of its fishery, plantation, cattle farm and beef operations for three months ended September 30, 2012 as compared for the three months ended September 30, 2011 and the new organic fertilizer division that began to operate during the first quarter of 2012.

The following chart illustrates the changes by category from the three months ended September 30, 2012 to three months ended September 30, 2011.

Cost of Goods Sold

	2012		2011
Category	Q3		Q3		Difference
	$		$		$
Fishery		12,077,613		7,000,004		5,077,609

Plantation		2,915,191		858,473		2,056,718

Organic Fertilizer		1,532,639		-		1,532,639

Cattle farm		3,293,875		926,423		2,367,452

Beef		2,778,536		2,210,586		567,950

Total		22,597,854		10,995,486		11,602,368

Fishery: Cost of goods sold from fishery increased by $5,077,609 or 72.54% to $12,077,613 for the three months ended September 30, 2012 from $7,000,004 for the three months ended September 30, 2011. The increase was primarily due to an increase in the sales volume relating to fish and the expansion of contracted services for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Plantation: Cost of goods sold from plantation of flowers increased by $2,056,718 or 239.58% to $2,915,191 for the three months ended September 30, 2012 from $858,473 for the three months ended September 30, 2011. The increase was primarily due to cost increases in farm labor, logistic and associated general overhead of operations.

Organic fertilizer. Cost of goods sold from organic fertilizer increased by $1,532,639 to $1,532,639 for the three months ended September 30, 2012 from $0 for the three months ended September 30, 2011. The increase was primarily due to the start-up of the new business of organic fertilizer during the third quarter of 2012.

Cattle farm. Cost of goods sold from cattle farm development increased by $2,367,452 or 255.55% to $3,293,875 for the three months ended September 30, 2012 from $926,423 for the three months ended September 30, 2011. The increase was primarily due to increased development contract service of cattle farm for the three months ended September 30, 2012.

Beef: Cost of goods sold from beef increased by $567,950 or 25.69% to $2,227,536 for the three months ended September 30, 2012.from $2,210,586 for the three months ended September 30, 2011. The increase was primarily due to the increased sales of beef, which led to a corresponding increase in the cost of such sales.

Gross Profit

Gross profit, including continued and discontinued operations, increased by $16,047,854 or 62.31% to $25,752,834 for the three months ended September 30, 2012 from $9,704,980 for the three months ended September 30 2011. The increase was primarily due to the corresponding increases in revenues from our fishery, plantation, organic fertilizer, cattle farm and beef operations.

The following chart illustrates the changes by category from the three months ended September 30, 2012 to the three months ended September 30, 2011.

Gross Profit

	2012		2011
Category	Q3		Q3		Difference
	$		$		$
Fishery		15,011,086		3,789,886		11,221,200

Plantation		4,320,995		2,381,926		1,939,069

Organic Fertilizer		178,049		-		178,049

Cattle farm		5,235,278		1,151,676		4,083,602

Beef		1,007,428		2,381,492		(1,374,064	)

Total		25,752,834		9,704,980		16,047,854

Fishery: Gross profit from fishery increased by $11,221,200 or 296.08% to $15,011,086 for the three months ended September 30, 2012 from $3,789,886 for the three months ended September 30, 2011. The increase was primarily due to our increased contract service income from fishery and prawn development contracts and sale of fish for the three months ended September 30, 2012 versus consulting income and sale of fish for the three months ended September 30, 2011.

Plantation: Gross profit from the plantation of flowers increased by $1,939,070 or 81.41% to $4,320,995 for the three months ended September 30, 2012 from $2,381,926 for the three months ended September 30 2011. The increase was due mainly to the increase of wholesale prices both on dried and fresh flowers in the third quarter of 2012.

Organic fertilizer: Gross profit from organic fertilizer increased by $178,047 to $178,047 for the three months ended September 30, 2012 from $0 for the three months ended September 30, 2011. The increase was primarily due to the start-up of our new business of organic fertilizer during the third quarter of 2012.

Cattle farm: Gross profit from cattle farm development increased by $4,083,602 or 354.58% to $5,235,278 for the three months ended September 30, 2012 from $1,151,676 for the three months ended September 30, 2011. The increase was primarily due to the fact that consulting services provided to the Cattle Farm 2 were done by our in-house staff. As a result, our cost of consulting services was reduced, leading to higher gross profit margins.

Beef: Gross profit from beef decreased by $1,374,064 or 57.7%, to $1,007,428 for the three months ended September 30, 2012 from $2,381,492 for the three months ended September 30, 2011. The decrease was primarily due to the fact that calves grow and become salable beef cattle during this quarter.

General and Administrative Expenses and Interest Expenses

General and administrative expenses (including depreciation and amortization) in continuing operations decreased by $390,477, or 22.85%, to $1,317,759 for the three months ended September 30, 2012 from $1,708,236 for the three months ended September 30 2011. The decrease was primarily due to a decrease in office and corporate expenses wages and salaries, and other miscellaneous costs amounting to $302,971, $413,606 and $27,314, respectively.

The following chart illustrates the changes by category from the three months ended September 30, 2012 compared to the three months ended September 30 2011.

Category	2012 Q3		2011 Q3		Difference
	$		$		$
Office and corporate expenses		254,802		557,773		(302,971	)

Wages and salaries		416,489		830,095		(413,606	)

Travel and related lodging		42,806		31,592		11,214

Motor vehicles expenses and local transportation		22,438		20,778		1,660

Entertainment and meals		36,373		33,164		3,209

Others and miscellaneous		47,930		75,244		(27,314	)

Depreciation and amortization		496,921		159,590		337,331

Sub-total		1,317,759		1,708,236		(390,477	)

Interest expenses		5,630				5,630

Total		1,323,389		1,708,236		(384,847	)

Gain (loss) of extinguishment of debts

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debts of $641,831 and $49,265 has been credited (charged) to operations for the three months ended September 30, 2012 and 2011, respectively.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Revenues

Revenues including continued and discontinued operations increased by $59,151,625 or 193.77% to $89,678,991 for the nine months ended September 30, 2012 from $30,527,367 for the nine months ended September 30, 2011. The increase was primarily due to the increase of revenue generated from the fishery, plantation, beef and the maturity of other sectors’ businesses improving their revenues.

The following chart illustrates the changes in revenue by category from the nine months ended September 30, 2012 to September 30, 2011.

Category	2012		2011		Difference
	Q1 –Q3		Q1 –Q3

Fishery	$	53,983,072	$	14,905,109	$	39,077,963

Plantation		9,318,049		4,462,640		4,855,409

Organic fertilizer		3,893,903				3,893,903

Cattle farm		11,252,579		3,032,676		8,219,903

Beef		11,231,388		8,126,942		3,104,446

Total		89,678,991		30,527,367		59,151,624

Fishery. Revenues from fishery increased by $39,077,963 or 262.18% to $53,983,072 for the nine months ended September 30, 2012 from $14,905,109 for the nine months ended September 30, 2011. The increase in fishery was primarily due to our increased contract service income from fishery and prawn development contract for the three months ended September 30, 2012.

Plantation. Revenues from plantation of flowers increased by $4,855,409 or 108.80% to $9,318,049 for the nine months ended September 30, 2012 from $4,462,640 for the nine months ended September 30, 2011. The increase in plantation was primarily due to the increase of wholesale prices in fresh and dried flowers in the first half year.

Organic fertilizer. Revenue from organic fertilizer increased by $3,893,903 to $3,893,903 for the nine months ended September 30, 2012 from $0 for the nine months ended September 30, 2011. The increase was due to thestart-up of the new business of organic fertilizer during the nine months ended September 30, 2012.

Cattle farm. Revenue from cattle farm development increased by $8,219,903 or 271.04% to $11,252,579 for the nine months ended September 30, 2012 from $3,032,676 for the nine months ended September 30, 2011. The increase was primarily due to the additional amount of work involved in the consulting and servicing contracts for developing Cattle Farm 1 and Cattle Farm 2 provided during the nine months ended September 30, 2012.

Beef. Revenue from beef increased by $3,104,446 or 38.20% to $11,231,388 for the nine months ended September 30, 2012 from $8,126,942 for the nine months ended September 30, 2011. The increase in beef was primarily due to the increase in consumer demand and our installment of new weather insulated facilities to maintain production.

Cost of Goods Sold

Cost of goods sold increased by $27,286,568 or 181.09% to $42,354,317 for the nine months ended September 30, 2012 from $15,067,749 for the nine months ended September 30, 2011. The increase was primarily due to the Company’s increased scale of operation from fishery, plantation, organic fertilizer, cattle farm and beef for nine months ended September 30, 2012 as compared for the nine months ended September 30, 2011.

The following chart illustrates the changes in cost of goods sold by category from the nine months ended September 30, 2012 to September 30, 2011.

Category	2012		2,011		Difference
	Q1 –Q3		Q1 –Q3

Fishery	$	24,168,364	$	8,606,585	$	15,561,779

Plantation		3,473,538		1,289,869		2,183,669

Organic fertilizer		2,607,967		0		2,607,967

Cattle farm		4,354,988		1,546,897		2,808,091

Beef		7,749,460		3,624,398		4,125,062

Total		42,354,317		15,067,749		27,286,568

Fishery. Cost of goods sold from fishery increased by $15,561,779, or 180.81%, from $8,606,585 for the nine months ended September 30, 2011 to $24,168,364 for the nine months ended September 30, 2012. The increase in fishery was primarily due to cost of sales for our increased contract service of fishery and prawn development contracts.

Plantation. Cost of goods sold from plantation of flowers increased by $2,183,669 or 169.29% to $3,473,538 for the nine months ended September 30, 2012 from $1,289,869 for the nine months ended 30 September 2011. The increase was primarily due to the increase in sale volume of these products.

Organic fertilizer. Cost of goods sold from organic fertilizer increased by $2,607,967 to $2,607,967 for the nine months ended September 30, 2012 from $0 for the nine months ended September 30, 2011. The increase was due to the start-up of our new business of organic fertilizer during the nine months ended September 30, 2012.

Cattle farm. Cost of goods sold from cattle farm development increased by $2,808,091 or 181.53% to $4,354,988 for the nine months ended September 30, 2012 from $1,546,897 for the nine months ended 30 September 2011. The increase was primarily due to the additional amount of work involved in the consulting and servicing contracts for developing Cattle Farm 1 and Cattle Farm 2 provided during the nine months ended September 30, 2012.

Beef. Cost of goods sold from beef increased by $4,125,062 or 113.81% to $7,749,460 for the nine months ended September 30, 2012from $3,624,398 for the nine months ended September 30, 2011. The increase was primarily due to the increase in sales volume of the product and increase of material price during the nine months ended September 30, 2012.

Gross Profit

Gross profit including continued and discontinued business increased by $31,865,056 or 206.12% to $47,324,674 for the nine months ended September 30, 2012 from $15,459,618 for the nine months ended September 30, 2011. The increase was primarily due to the corresponding increase in operation revenues.

The following chart illustrates the changes in gross profit by category from the nine months ended September 30, 2012 to September 30, 2011.

The gross profit by category is as follows:

Nine Months Ended September 30,

Category	2012		2011		Difference
	Q1 –Q3		Q1 –Q3

Fishery	$	29,814,708	$	6,298,524	$	23,516,184

Plantation		5,844,511		3,172,771		2,671,740

Organic fertilizer		1,285,936		0		1,285,936

Cattle farm		6,897,591		1,485,779		5,411,812

Beef		3,481,928		4,502,544		-1,020,616
				0
Total		47,324,674		15,459,618		31,865,056

Fishery. Gross profit from fishery increased by $23,516,184 or 373.36% from $6,298,524 for the nine months ended September 30, 2011 to $29,814,708 for the nine months ended September 30, 2012. The increase in fishery was primarily due to our increased contract service from fishery and prawn development contract for the nine months ended September 30, 2012

Plantation. Gross profit from plantation of flowers increased by $2,671,740 or 84.21% from $3,172,771 for the nine months ended September 30, 2011 to $5,844,511 for the nine months ended September 30, 2012. The increase in plantation was primarily due to the increase in wholesale prices of fresh and dried flowers during the first half year.

Organic fertilizer. Gross profit from organic fertilizer increased by $1,285,936 to $1,285,936 for the nine months ended September 30, 2012 from $0 for the nine months ended September 30, 2011. The increase was due to the start-up of our new business of organic fertilizer during the nine months ended September 30, 2012.

Cattle farm. Gross profit from cattle farm development increased by $5,411,812 or 364.24% from $1,485,779 for the nine months ended September 30, 2011 to $6,897,591 for the nine months ended September 30, 2012. The increase in gross profit from cattle farms was primarily due to the additional amount of work derived from the consulting and servicing contracts for developing Cattle Farm 1 and Cattle Farm 2 provided in the nine months ended September 30, 2012.

Beef. Gross profit from beef was $3,481,928 for the nine months ended September 30, 2012. The decrease was primarily due to the fact that calves grow and become salable beef cattle during the nine months ended September 30, 2012.

General and Administrative Expenses and Interest Expenses

General and administrative expenses and interest expenses (including depreciation and amortization) increased by $3,331,440 or112.93% to $6,281,388 for the nine months ended September 30, 2012 from $2,949,948 for the nine months ended September 30, 2011. The increase was primarily due to increase of $1,071,608 in the wages and salaries expense from $1,208,172 for the nine months ended September 30, 2011 to $2,279,780 for the nine months ended September 30, 2012 and the increase of 999,957 in depreciation & amortization charges from $400,462 for the nine months ended September 30, 2011 to $1,400,419 for the nine months ended September 30, 2012.

Category
	2012		2011
	Q1 - Q3		Q1 - Q3		Difference
	$		$		$
Office and corporate expenses		1,406,241		1,027,054		379,187

Wages and Salaries		2,279,780		1,208,172		1,071,608

Traveling and related lodging		63,081		69,131		-6,050

Motor vehicles expenses and local transportation		59,638		40,534		19,104

Entertainments and meals		88,767		69,800		18,967

Others and miscellaneous		977,832		134,795		843,037

Depreciation and amortization		1,400,419		400,462		999,957

Sub-total		6,275,758		2,949,948		3,325,810

Interest expenses		5,630		10,531		5,630

Total		6,281,388		2,949,948		3,331,440

Depreciation and Amortization

Depreciation and amortization of continued and discontinued business increased by $1,314, 857, or 158.02% to $2,146,943 for the nine months ended September 30, 2012 from $832,086 for the nine months ended September 30, 2011. The increase was primarily due to the increase of depreciation by $181,268, or 130.17% to $320,519 for the nine months ended September 30, 2012 from depreciation of $139,251 for the nine months ended September 30, 2011 and the increase of amortization by $1,133,589, or 163.62% to $2,139,057 for the nine months ended September 30, 2012 from amortization of $692,835 for the nine months ended September 30, 2011.

Gain (loss) of extinguishment of debts

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debts of $1,459,343 and $631,691 has been credited (charged) to operations for the nine months ended September 30, 2012 and 2011, respectively.

CRITICAL ACCOUNTING POLICIES

Please refer to the Consolidated Financial Statements above.

NEW ACCOUNTING PRONOUNCEMENTS

Please refer to the Consolidated Financial Statements above.

Progress Reports and Subsequent Events

Fishery Operation:

As of September 30, 2012, Capital Award (“CA”) had four fishery development projects in progress, and sales of fish (sleepy-cod) generated from two of the farms; their status summarized as follows:

(1) The 1^st Demonstration fish farm(Fish Farm 1), situated at the district of Enping City operating under “Jiangman A Power Fishery Development Co. Ltd.” (“Fish Farm 1”), was built and completed for operation in February 2011 and is underway with production. During the third quarter of 2012, CA sold just over 493,700 sleepy-cod weighing between 516g to 628g per fish from Fish Farm 1 compared to the second quarter of 2012 with just under 260,000 fish being sold, and purchased from our contracted grower (supplier) over 402,000 fish weighing between 250g to 350g per fish. Inventory at Fish Farm 1 was estimated at 60,200 fish as of September 30, 2012.

(2) The 1^st Demonstration prawn farm(Prawn Farm 1) is also situated in the district of Enping City. The development of a prawn grow-out farm (Prawn Farm 1) was 90% complete as of September 30, 2012, and is now running test trials expecting production to start before year-end of 2012.

(3) 2^nd Fish (and Eel)Farm(Fish Farm 2) is situated in the District of Jiangman City. Its development began in May 2011, and the Company is expecting its Phase 1 to be completed during 2012, and Phase 2 development, (involving the grow-out farms, the nursery fingerling farm, the Research and Development Station and all other associated facilities) to be underway in January 2013 with production operations beginning by year-end of 2013.

As reported in an earlier quarterly report on Form 10-Q, the main work in progress in Phase 1’s development during the Company’s first quarter of 2012 was on the construction of a new road leading from the external main access road to the project site, and the construction of a new bridge connecting the new road to the site. The road and bridgework was completed by July 1, 2012 and presently provides access for heavy equipment to the project site for work on drainage construction. Management expects that landfill preparation to construct the Re-circulating Aquaculture System (“RAS”) farms to begin in early 2013.

As mentioned above, work on the fish and eel farm (Fish Farm 2) is still in progress, but is being delayed because the property is situated on an islet that is making drainage extremely difficult and costly. In response, we are engineering a solution that should resolve this problem.

(4) The 2^ndprawn farm(Prawn Farm 2) is situated in the District of Zhong Shan City. Its development was begun in November 2011. As of September 30, 2012 Phase 1work in progress is reported as follows:

Boundary fencing (2.3 Km) (50% completed);

Heating room (completed); and

3^rdnursery station for nurturing high-value prawn flies (completed).

The Company’s application for a permit to import the high-value brood-stock prawns and to sell their flies to local growers has been tentatively approved by the authorities pending the completion of the boundary fence, which is the last prerequisite necessary for official approval.

Phase 2 of the development is being carried out on an adjacent 200 Mu (132,000 square meters) block of land. Construction began in May of 2012, which was extended into two (2) stages of construction as a result of quadrupling the size and scope of the project from the originally planned 50 Mu (33,000 square meters). The first stage is anticipated to be completed by December 31, 2013, and the second by April 30, 2014.

As of September 30, 2012, 53% of Stage 1 construction had been completed.

Prawn Farm (2) production and sales:

Production of Mexican prawn flies is operating smoothly having produced and sold over 165 million flies in the third quarter of 2012 generating over $400,000 in sales revenue for the quarter. CA earns income from Farm 2 in fixed monthly service fees and in sales commissions as the farm’s marketing and sales agent until such time as Prawn Farm 2 becomes a Sino Foreign Joint Venture Company (SJVC), allowing the Company to include its revenue within the consolidated statement. The Company is preparing documents to apply for its SJVC with the relevant authorities. One of the documents, the environmental impact study report, is requiring a substantial amount of time, and therefore management anticipates that this SJVC will be approved sometime during the third quarter of 2013.

(5) Operation of the 600 Mu of open dam fish farm

During the third quarter of 2012 CA sold over 315,400 sleepy cod weighing between 505g to 545g per fish with current inventory estimated at 490,680 fish at the end of the quarter.

(6) New contracts in developing new prawn farm

On August 16, 2012, CA began development of a new project, namely an additional Prawn Grow-out Farm (Prawn Farm 3) at Unit 1, Front Block A, No. 498, Bei Da Road, Huangyuan County, Xining City, QuingHai Province China.

Significant Events that may affect Fishery Operations’ Cash Flow:

As stated in an earlier quarterly report on Form 10-Q, as of April 30, 2012, the income tax rate of 50% was reduced to 25% by the local authorities. However, while the rate has been reduced, it is still in CA’s management’s opinion that any tax on agriculture, amount notwithstanding, is contradictory to the Chinese Central Government’s incentive policy toward the agriculture industry. Accordingly, management has further filed its appeal on this issue. As of September 30, 2012 this appeal remains pending.

CA does not carry a builder or a developer license in China, and as a result, its contracts are structured based on it providing consulting services, and subcontracting with licensed builders and developers to handle construction and payment of capital improvement taxes.

The profit CA derives from these contracts is retained in China and is recorded as payable to CA by the SJVC and/or as prepayments and deposits, which CA may later elect to exchange for equity interests in the SJVC as provided within the terms and conditions of each contract. At such time, if and when CA decides to exercise its option to secure equity in the SJVC, certain tax implications might be triggered and have to be accounted for.

Beef and Cattle Division:

As of September 30, 2012, the Company had three separate entities operating within this division plus an additional project in development of another cattle farm in the Enping district as described in the quarterly report on Form 10-Q for the second quarter of 2012.

1. Sanjiang Yi Li Agriculture Development Co. Ltd. (Huangyuan, Xining) (SYLA)

During the third quarter of 2012, SYLA:

Sold 3,971 MT and manufactured 5,047 MT of organic fertilizer with end of quarter inventory at 5,989 MT;

Sold 879 MT and produced 24,866 MT of livestock feed with end of quarter inventory at 25,391 MT;

Sold 1,290 head of 13+ month-old cattle with end of quarter inventory at 1,118 head; and

Saw its restaurant operations continue to perform well.

Subsequently

SJYLA will apply the loan proceeds of RMB 20 million obtained from the Agriculture Bank of China to the development of the new enzyme factory that will be developed on a block of land adjacent to the corporate building, the new concentrated livestock feed manufacturing factory on another piece of land adjacent to the existing property, and other associated developments.

New developments during the third quarter of 2012

* The Company is exploring the possibility of a new joint venture with a reputable and experienced local value-added beef processing firm to jointly develop the slaughter house with a boning factory that will be built on an adjacent site (90 Mu) in an effort to reduce the learning curve in establishing this type of operation.

* Management is projecting a five-year plan from year 2013 onward summarized as follows:

1. To establish a chain of 50 restaurants using our existing Xining restaurant as a model under the brand name “BULL” throughout major China cities within our franchising and management system.

2. To slaughter and process up to 15,000 head of cattle and 100,000 sheep per year.

3. To generate annual sales revenue up to RMB 485 million per year, and targeting annual income of no less than RMB 65 million/year (excluding revenue and income of the 50 franchised restaurants).

4. To become a Dragon Head company during or before 2014.

2. The Enping demonstration Cattle Farm (Cattle Farm 1) and Macau EIJI:

On September 17, 2012, the Company, through MEIJI, a wholly owned subsidiary of the Company incorporated in Macau, China, acquired a total of 75% equity interest in and became the controlling shareholder of HMCF.

Work in progress continued during the third quarter of 2012, constructing more cattle houses to house more than 600 head of cattle in the fourth quarter of 2012.

Cattle sales of Cattle Farm 1 and MEIJI during the third quarter of 2012

MEIJI, as the marketing agent of Cattle Farm 1, has sold 256 head of cattle weighting between 668Kg to 726Kg per head to the Guangzhou cattle wholesale markets and bought/inventoried 240 head of young cattle weighting between 162Kg to 168Kg per head during the third quarter of 2012.

New Consulting and Servicing Contract for MEIJI in the second quarter of 2012 to build “Cattle Farm 2 Enping”:

On May 25, 2012, a Sino Joint Venture Agreement (an “SJVA”) was executed between MEIJI and another group of Chinese businessmen for the development and construction of a cattle farm at a 500 Mu site in YaneXiaoban Village, Enping District for the growth of cattle and sheep using our aromatic-feed formula and our free ranging system.

As of September 30, 2012, 59% of the work in progress on the Phase (1) development of Cattle Farm 2 was completed, with a view to complete this phase on or before May 2013.

3. Hunan Shenghua Yi LiAgriculture Co. Ltd. (“HSYLA”)

As of April 30, 2012 development and construction work on the mixed fertilizer manufacturing facility for HSYLA was being carried out consisting of a 7,000 square meter production and storage factory, external fencing to cover the production area of about 11.55 acres of land, internal roads, landscaping, drainage, a 300 square meter office, staff quarters that will provide accommodation for up to 25 workers and all related basic infrastructure, etc. As of September 30, 2012, construction on one of the production and manufacturing buildings was completed, production and packaging plants are being installed, and part of the fermentation and germination building was partially finished to enable the installation of plant and equipment.

Management is excited by the test results of its organic fertilizer being applied by fresh-water lake fish growers to the lakes where their fish are grown shown to enhance water quality and protein enriched enzymatic fish feed, which is in line with the Government’s current policy to discourage lake fish growers from applying mineral rich fertilizer to their lakes. The Company also has received positive feedback from regional grape growers who are pleased with the organic fertilizer’s application results, as well. HSYLA has sold more than 4,000 MT of fertilizer during the third quarter of 2012, 60% of which was supplied to lake fish growers. Potentially, if all continues well with the test results, there may be sales of up to 30,000 MT/year to fish growers throughout the region.

H U Plantation:

Harvest results as of September 30, 2012 were much better than the same period last year, where more than 27 million pieces of fresh flowers were harvested, but it is still below our expectation due to disease problems. However, the Company managed to purchase from external growers roughly an additional 20 million pieces of fresh flowers for drying. Coupled with the higher sales price of HU flowers this season, revenue of US$8.8M generated during the third quarter of 2012 was much healthier than the same period last year the when no more than $3.24M in revenue was generated as a result of dry season.

Marketing and Distribution Network Developments:

The Seafood wholesale shops and Processing Factory at Guangzhou’s new wholesale food market:

Renovation on this property (Lot 206 to 216) remains in progress for our first wholesale distribution center consisting of a cold storage facility including quick freezing, freezer and chill rooms, a processing and packaging area, and a retail outlet for live and frozen seafood, which the Company refers to as its Wholesale and Seafood Processing Shop (“Wholesale 1”).

As of September 30, 2012, all refrigerated cold storage, a small sales office, frozen seafood shop, and the process factory were completed with work in progress continuing on the live seafood shop. Management is expecting Wholesale 1 to commence operations during the fourth quarter of 2012.

New Beef Wholesale Shop and Packing Facility (“Wholesale 2”) located on lots 217 to 223of the GZ Market

On August 15, 2012, Guangzhou YiLi Na Wei Trading Co. Ltd. granted a consulting and service contract to the Company to develop a beef wholesale shop on lots 217 to 223, including the second and the third floors of existing facilities, in the GZ Market to include cold and dry storage, value added processing and packaging, a beef wholesale shop, sales office, and staff quarters, etc.

Renovation and development work is in progress with completion projected by July 2013.However, management expects that sufficient progress will have been made to allow the beef wholesale shop to begin operating by November 30, 2012 simultaneously with Wholesale 1’s operation.

Please refer to the consulting and service contract of Wholesale 2 attached to this Form 10-Q as Exhibit 10.9.

Progress on Import and Export of Seafood:

As of September 30, 2012, Wholesale 1 has frozen seafood inventory in Cod Fish imported from Norway, Cuttlefish, Squids and Ribbonfish imported from Malaysia and Prawn meats packed in our facility in preparation of Wholesale 1’s business operations opening during the fourth quarter of 2012.

Progress and development on the Restaurant Chain:

The Company is negotiating a consulting and service contract with Guangzhou City Wang XiangCheng Enterprise Management Consulting Co. Ltd. (WXCE) to build and develop a central kitchen with distribution center on another block of 20 shops in the GZ Market that will facilitate up to 60 catering outlets and/or restaurants in the Guangzhou City. If this contract gets underway it will help to accelerate our marketing plans in 2013 for the sale and marketing of our line of products.

Off Balance Sheet Arrangements:

None.

Other Significant Factors That May Affect Cash/Liquidity:

Inflation factors affecting operations:

On the surface the, Government’s anti-inflationary measures seemed to be working during the first quarter of 2012. However, management remains concerned since most of the building materials, cost of labor and essential consumer goods are still rising at a higher rate than GDP. Its impact on consumer spending has not seemed to materialize, though, with growth in spending maintaining an upward trajectory.

As of September 30, 2012, the Company had no other significant transactions that may affect our cash/liquidity other than those mentioned in this Form 10-Q.

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 at that institution.

Income Taxes

There was no income tax for the three months ended September 30, 2012 or 2011. Under tax legislation in China, beginning January 2008, the agriculture, dairy and aquaculture sectors were exempted from enterprise income taxes. However, as mentioned earlier, as of April 30, 2012, the income tax rate of JFD of 50% was reduced to 25% by the local authorities, while the Company remains in negotiation with local tax authorities to resolve this issue. While the rate has been reduced, management of CA remains of the opinion that any tax on agriculture, amount notwithstanding, is contradictory to the Chinese Central Government’s incentive policy toward the industry. Therefore, management has decided to continue its appeal on this issue which is not resolved and pending as at September 30, 2012.

Liquidity and Capital Resources

As of September 30, 2012, we have unrestricted cash and cash equivalents of $5,411,583 (see notes to the consolidated financial statements), and our working capital as of September 30, 2012 was at $109,699,051.

As of September 30, 2012, we have short term debts of $ 1,577,038 with annual interest rate of 6% that are repayable within one year from August 8, 2012.

Cash provided by operating activities from continuing operations totaled $10,291,120 for the nine months ended September 30, 2012. This compares with cash used in operating activities from continuing operations of $4,309,919 for the nine months ended September 30, 2011. 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 from continuing operations totaled ($8,843,511) for the nine months ended September 30, 2012. This compares with cash used in investing activities from continuing operations of ($1,556,201) for the nine months ended September 30, 2011.

Cash provided by financing activities from continuing operations totaled $4,435,593 for the nine months ended September 30, 2012. This compares with cash used in financing activities from continuing operations of ($3,905) for the nine months ended September 30, 2011.

Cash provided by operating activities from discontinued operations totaled $0 for the nine months ended September 30, 2012. This compares with cash used in operating activities from discontinued operations totaled $0 for the nine months ended September 30, 2011.

Cash used in investing activities from discontinued operation totaled $0 for the nine months ended September 30, 2012. This compares with cash used in investing activities of ($3,137,885) for the nine months ended September 30, 2011 due to withdrawal of cash and cash equivalents of discontinued dairy segment of ($3,137,885) during the first quarter of 2011.

Cash provided by financing activities from discontinued operation totaled $0 for the nine months ended September 30, 2012. This compares with cash provided by financing activities from discontinued operations of $0 for the nine months ended September 30, 2011.

During the period covered by this quarterly report, we issued an aggregate of 13,255,393 shares of our common stock in consideration for extinguishment of debt in the aggregate amount of $7,739,239 based on a price of the common stock of an average of approximately $0.58 per share.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting

Limitations on the Effectiveness of Controls

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

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

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this quarterly report, we issued an aggregate of 13,255,393 shares of our common stock to seven persons, one of whom is resident of the United States. The shares were issued pursuant to the exemption from registration under the Securities Act provided by its Section 4(2). The shares were issued in consideration for extinguishment of debt in the aggregate amount of $7,739,239 based on a price of the common stock of an average of approximately $0.58 per share, and we issued an aggregate of nine hundred and six thousand shares of our common stock to 10 persons on workers compensation under Rule 144.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

Exhibit No.		Description of Exhibits

10.8		HMCL Statutory Documents

10.9		Consulting and Service Agreement (Wholesale 2)

* Filed Herewith

SIGNATURES

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

		SINO AGRO FOOD, INC.

November 15, 2012	By:	/s/ LEE YIP KUN SOLOMON
		Lee Yip Kun Solomon
		Chief Executive Officer
		(Principal Executive Officer
		Principal Financial Officer
		Principal Accounting Officer)

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

November 15, 2012	By:	/s/ LEE YIP KUN SOLOMON
		Lee Yip Kun Solomon
		Chief Executive Officer, Director
		(Principal Executive Officer
		Principal Financial Officer
		Principal Accounting Officer)

November 15, 2012	By:	/s/ TAN POAY TEIK
		Tan PoayTeik
		Chief Officer, Marketing

November 15, 2012	By:	/s/ CHEN BORHANN
		Chen BorHann
		Corporate Secretary

Attached files

Sino Agro Food, Inc. Reports

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