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All Directors signed off on the K in April, including Anthony.
kavdiv
Joe is a good guy. Always looking at the rear view mirror, because he is always in reverse! I would do the same too.
Never understood why Joe moderates the board, when he claims he is busy.
kavdiv
This big
http://www.bbc.com/news/business-27615404
kavdiv
CBMG - recent Chinese small cap Nas listing
BDO USA is the auditor and they changed their auditor in 2013. They also incorporated in Delaware moving from Arizona.
BDO USA gave them a qualified opinion. Going concern is not to be assumed - aka CBMG could be in trouble, if they do not raise cash soon or their consulting rev goes up substantially.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations resulting in an accumulated deficit of $22.4 million at December 31, 2013. This factor among other things, raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BDO USA, LLP Phoenix, Arizona April 15, 2014
Given the CBMG listing, I like our chances of getting listed. Fingers crossed.
kavdiv
FT
AR could be from Consulting or the Sale of goods. The AR from the consulting services is what is used to convert to equity in the JV. The AR from the sale of products is from the Wholesalers. The AR aging table breaks it out. I think about $16 mil out of $82 mil, that is from consulting services.
The remaining $66 mil is due from Wholesalers and the issue is not a collection problem. But given the terms of the sale (180 days - too generous in my opinion), the AR is caught in a perpetual transaction cycle, where the AR balance never comes down. One AR to the largest Wholesaler of $32 mil, if that could be factored (not possible, I am told), it would have meant no dilution in 2013.
Funding should help us out and give us the ability to operate without diluting while accommodating capex for growth and working capital.
Fingers crossed on the funding and the ticker symbol from Joe.
kavdiv
FT
Cannot wait for the Sterling update. LAC looked good.
kavdiv
FT
As stated by many before, the S-1,has nothing to do with the Nasdaq or funding. In fact, dropping the S-1 maintains SIAF compliance with the SEC, if anything. Issuing equity to pay a divvy is what it looked to me. The fact that it was going to be used as collateral was comforting. But, pricing it at a buck, was a stretch.
The fact this announcement followed the Nas meeting last week (as per Sly's posting), if indeed that was the case, I see it as a big positive. We need to focus on the listing or funding as opposed to asking for an opportunity to issue more equity, sits well with me.
As always, time will tell.
A special shout out to the Stiviano babe!
kavdiv
OKC it is.
kavdiv
FT
I remember a Charlotte discussion stating that the S1 was not required at this point but SIAF chose to do it ahead of the 3 year review cycle and I think the S1 exercise preempted questions that would have been raised during the NAS listing process, as the NAS has access to the S1 back and forth. A rigorous back and forth with the SEC was good to shake things out. The process should make the 3 year SEC review cycle easier. Not a totally wasted effort or so I think.
Does not really have any effect the listing is my guess and hope. 26 mil shares at a buck when you are trading at 40 cents and capping the issuance at $1 was strange to begin with.
Seems voluntary and deliberate as Sino Agro is requesting credit too.
Time will tell.
kavdiv
Vike,
I have no idea of the probability of the results of these pursuits, nor does anyone else. I was just highlighting the thinking leading up to the different courses of action taken by Solomon and the BOD. None of these were random acts, but well thought out.
The results of these actions - as always, time will tell.
kavdiv
Vike,
From what I was told, the funding / bond has a larger dependency on the Nas listing. Easier to sell bonds to retail investors for the funding bank, if the firm is Nas listed. So, the funding bank is more inclined to extend funding to Sino Agro and at more favorable terms, if SIAF is Nas listed. The Nas listing makes it easier to find a fin institution(s) that funds Sino Agro, but is not an absolute requirement either.
The general impression I got from the Charlotte discussions was that there is more cash chasing less Chinese projects and given that scenario, there are more funding suitors for Sino Agro. Time will tell how it plays out.
I was also given to understand that SIAF need not have gone through the S1 exercise now to meet the 3 year SEC review cycle. However, Sino Agro voluntarily did the S1 ahead of time and it has helped to preempt a lot of the listing questions, as the Nas has access to the SEC S1 exercise back and forth.
If restricted shares are issued for funding, SIAF need not have gone through the S1 exercise for further equity financing. So Sino Agro made a delibrate decision to go ahead with the S1 exercise, which has earned SIAF a few brownie points. Helped establish the fact that we are not another Chinese small cap looking to dilute through the back door and that we are legit and here to stay for the long haul. It is a tough point to sell to all to the suspecting Thomases! Got give Solomon and the BOD credit for that move.
kavdiv
Andrew,
That is far from the case. The firm has the option to decide, when to pay.
Preference in dividends
In general, preferred stock has preference in dividend payments. The preference does not assure the payment of dividends, but the company must pay the stated dividends on preferred stock before paying any dividends on common stock.[2]
Preferred stock may be cumulative or noncumulative. A cumulative preferred requires that if a company fails to pay a dividend (or any amount below the stated rate), it must make up for it at a later time. Dividends accumulate with each passed dividend period (which may be quarterly, semi-annually or annually). When a dividend is not paid in time, it has "passed"; all passed dividends on a cumulative stock make up a dividend in arrears. A stock without this feature is known as a noncumulative, or straight,[3] preferred stock; any dividends passed are lost if not declared.[4]
Not paying is not death sentence.
kavdiv
In 2015, that would be cashflow from operations.
kavdiv
Vike,
I admire your curiosity, but to me it is really irrelevant detail at the JV level. The JV could be a group or a single person or a second group that buys out the first group. The JV partner might or might not provide some cash. Do we care, as long as we know they are not going to be providing all the funding for the project. Sino Agro might have to issue shares to settle debt for contractors at the JV level. There is only so much one can figure from a consolidated filing at the holding company filing. There is AR, pre-paid deposits, equity settled with AR and cash, value of the 25%, with a JV. The notion that you can figure out cash generated is a joke from services or deposits / equity from 10 JVs at the holding company level for a JV is comical. Who dumped and who held the shares? There is dilution to settle expenses is all that I care about and how can that be addressed.
All of us have a fairly good idea, the JVs at best are partial funders of any project, if at all. Each JV is different and equity is settled differently. The MF is very different.
Time is better spent figuring out how to factor or fund AR, so that Sino Agro does not have to dilute with the holding company equity. If we could have achieved that we need not have issued 80 mil shares, if 50% of that AR could have been factored.
Some call it a bogus issue and to me that is the only issue. Funding / factoring / Listing or anything that can stop the dilution to fund our transactional cycle to release funds from tied up AR to enable capex commitments.
kavdiv
I have no idea and nor will anyone. From Solomon's reply, I would guess it could be a contractor who has an outstanding bill with a JV and got paid with equity. Glad we had that option.
Does it really matter who is dumping? The point is that we are not generating cash to grow, as Sino Agro cash is tied up in AR. If the AR could have been converted to cash through factoring / funding, we would not have had any dilution, even with the capex.
kavdiv
Vike,
1) The JV partner owns 100% on Day1 and Sino Agro buys the 75% interest through AR / minimal cash. The JV partner keep the 25%, as they already 100% and there is no cash to paid on what they owned already.
2) Not sure of the mechanics of the billing, but that could be the case. Or, it could be a payable of the JV that Sino Agro settles by issuing equity.
kavdiv
AR is not an expense, but Consulting or product revenue for Sino Agro which can be collected from a Wholesaler or converted to equity in the JV.
Got to go to work.
avdiv
JV partners are not a cash machine. They provide minimal funding and SIAf is in a better position to raise cash.
kavdiv
Empty,
Sino Agro is cashflow positive, but not free cashflow positive, because of the capex funding required to grow. If we do not grow, neither will the revenue. The growth will taper off in due time.
The cash is tied up in AR and is the main problem to be solved. Funding the transaction cycle to free AR (factoring) or get straight funding should solve this. Factoring the AR does seem like an option, given the profile of the wholesalers. The net AR is upwards of 80 mil. That is where the cash is.
kavdiv
Andrew,
I will try to explain this without taking up too much of my time. Got to keep up with a demanding day job, which I like very much! The only reason I do this is that I gained from info posted on this board when I first started. Now, it is my turn to contribute some, whether you agree with my understanding or not.
I am long and a believer, but maintain a healthy skepticism. We all should, as investors.
Kav, I understand its not a difference. But still I dont understand the process fully obviously. Can you please let me know in which step am I wrong?
1) A local guy starts the project, along with Sino Agro, as the idea could be a joint effort or in most cases, Solomon's idea.
2) SIAF helps him with the construction, basically gives him the money for it (thats what I find unbelivable if true), a new lets say farm is built. - Not really
Try this - SIAF is the contractor on the projector, and there is no money to be paid to the JV partner. SIAF uses its own employee or contractors to build the farm and bills the JV partner, who owns 100%. Those bills are paid by the JV partner as an AR and sino Agro books that AR as consulting revenue.
3) SIAF charges him for counstruction but no money gets transferred (AR for SIAF), SIAF converts that AR into 75 % ownership over a time period (3 years in many cases)
4) The AR from the implementation and minimal cash payment from Sino Agro (amount paid to the Jv partner to secure ownership of up to 75%)
5) After securing 75% ownership, any work done by Sino Agro on the farm would be Construction-in-progress, as Sino Agro now is the majority owner. This does not mean that the Consulting revenue booked earlier when Sino Agro was not the majority owner, was bogus revenue. That is how Revenue is recognized in GAAP.
Solomon could structure a contract and pay out the JV for the 100% ownership. That would be unwise according to Solomon, as the local Jv partner provides an invaluable on-going service to get permits, lobby officials to get tax subsidies etc. Terrific strategy. If Sino Agro chose to own 100% of the project, the entrenched local interests could stall the project and the opportunity cost of the delays could far outstrip the 25% of the NI.
Sino Agro has not paid the various JVs for the 25% interest, but the accumulated dollar value of the 25% interest is disclosed in the Stockholders equity as Non-Controlling interest. Search on Non-Controlling interest in the K and you can see how the 25% of NI is calculated and accumulated in each period. This has not been paid out to the JV and would get monetized by a Cash payment or a spin-off, in the case of SJAP.
Hope that helps. Everything is legal and GAAP compliant.
kavdiv
Yup, that is correct. The JV partner in many cases looks to Sino Agro to arrange funding to scale up operations and the payment back might not always be with cash. Sino Agro has the track record and tech platform to help with the funding, as it was explained to me. Moving projects along in any country with entrenched local interests is not that easy. Each project is different.
The MF project consulting revenue payment for the most part (depends on the funding gap) will be mostly in cash. If the funding gap cannot be bridged, Sino Agro might still choose to get on with the development, carry some AR on the project and recognize revenue to that amount in each Q. Later on, Sino Agro might decide not to demand payment on the AR, but convert the AR to equity ownership in the MF. This has what has happened on all preceding projects and the way to go.
Those decisions have not been made, but could happen. Nothing illegal and all of that as explained is GAAP compliant.
I am a big fan of the JV structure and one of the reasons Sino Agro has grown as fast as we have. Full credit to Solomon for having embraced and executed this JV partnership. Explaining all of this during listing or funding takes a big effort, especially given what happened yesterday with Lihua.
kavdiv
Great note.
kavdiv
FT
Nobody knows and the funding efforts are on-going. It is a fallacy to think that at an investor conference inside info will be passed on to a few.
Funding updates were given on the cc. It could happen today, late 2014 or after that. Who knows? All of us hope that it is sooner than later.
kavdiv
Sly
It is Accounting 101. I do not have the time or inclination to educate anyone on Accounting.
Nothing illegal about a JV arrangement. Till SIAF has less than 50% ownership, it is Consulting rev AR turned in for Equity. After majority ownership, Sino Agro work on any JV project is Construction in progress. It is stated in the K and that is how accounting works. Work on any project where Sino Agro holds majority equity is Construction-in-progress and on someone else's project is Consulting rev for Sino Agro.
An unlicensed project can only be started by a Chinese national. It is stated in the K. The accounting for work on an unlicensed project owned initially by a JV can only be Consulting rev for Sino Agro. That is accounting 101 and the only way it can be done.
I have not stated anything new. Nor has Solomon. He clarified our lack of understanding of the business model.
kavdiv
Sly,
The AR issue is a real issue, not because it cannot be collected. As mentioned before, it is because Sino Agro will always be in the middle of a transaction cycle and the AR balance will keep going up, as Sales goes up. As cash is tied up, we dilute to grow, as Solomon has to keep his commitments and not just pull back from an on-going construction project.
The type of wholesalers Sino Agro deals with, are large, but AR with those types of wholesalers cannot be factored, as Solomon explained. If we get funding, then that issue will be addressed and the cash for capex will be available.
The fraud uncovered in the China sector yesterday, brings back memories from 2011, and makes it difficult to explain a rising AR balance.
Hopefully, none of this will affect our funding or listing attempts. Yesterday's news about Lihua did not make our life easier. The timing was unreal.
Time will tell.
kavdiv
They own it 100% on Day 1 and only a Chinese citizen can own / start an unlicensed project. Refer the K. Sino Agro only buys out 75% of the BV of the JV on forming the SJVC with minimal cash and mostly AR from the consulting. So the JV does not pay cash, but it would not have existed or accomplished as much and as fast, if the JV partner did not make it possible.
There is a real service the Jv provides, which an outsider can never accomplish. Their value is local or the same JV partner will not have the same influence in another part of China.
Sino Agro needs to engage different JV local partners for different projects. The accounting follows the equity percent ownership of the JV.
The JV arrangement is a non-issue. The real question is when will we be free cashflow positive. All else is noise.
kavdiv
Thanks Vike.
All for a JV arrangement and it adds value to SIAF. Nothing illegal about a JV arrangement. Till SIAF has less than 50% ownership, it is consulting rev AR turned in for Equity. After majority ownership, Sino Agro work on project is Construction in progress. It is stated in the K and how accounting work. Work on your project is CIP and on someelse's project is Consulting rev.
An unlicensed project can only be started by a Chinese national. Stated in the K. The accounting for work on an unlicensed project owned by a JV can only be Consulting rev for Sino Agro. That is accounting 101 and the only way it can be done.
Vike, if you go back to you an earlier cc, Solomon responded to your question on whether the JV partner paid his percent of the cost on SJAP, by responding they delivered other things. Nothing wrong with that.
I have not stated anything new. Nor has Solomon. He clarified our lack of understanding of the business model.
kavdiv
Andrew,
How one accounts for consulting revenue from a JV and cashes it in for equity or owns and constructs the JV from Day 1 is the same. That is what I stated and that is a very small amount of revenue.
It makes no difference is what I stated. A unlicensed project can only be started by a Chinese citizen. Read the filing. Hence the arrangement on Day 1.
I am all for a JV structure.
kavdiv
The update was given on the cc regrading the funding.
kavdiv
NJM
What I stated on the JV is in the K and the Q. Just need to understand it. I like the JV arrangement, as it is legit and above board and totally worthwhile for Sino Agro. That is what I stated.
kavdiv
NMJ, maybe. Not me.
kavdiv
RD
SIAF has AR of 82 mil and Other Rec of 10 mil. 1 mil in Cash at hand, and to raise 18 mil in cash to settle debt in 2013, SIAF issues 35 mil shares.
Why would they want to convert candy (AR) into gold (Cash) bars? Do not convert AR to get better margins is what you recommend. Dilute away is what you recommend instead of converting part of the 82 mil AR to settle the debt.
Will let somebody else sort this puzzle out for you. Just back from work and not sure I have the patience.
kavdiv
RD
The AR balance cannot be factored and will not come down as the revenue goes up. It is that simple. I did not say it was a collection problem, but that the transaction cycle is such that the AR balance will not come down. It is the cost of doing business in the co-op model, SIAF has chosen to do. It gets paid back and put back on with each transaction cycle. Solomon agreed with that, as SIAF funds the wholesaler and the co-op farmer. That will never change and that is what I said.
You got a problem understanding basic explanations, RD. An AR that cannot be converted to cash or factored is of no use. That is why SIAF has to dilute without cashing / factoring AR, but issuing equity at these low prices.
I don't give two hoots whether you get it or not. If you believe that the SIAF AR could be cashed but Solomon chose to dilute with equity to raise funds inspite of the AR option, I got a bridge for sale.
kavdiv
Vike,
Barring SJAP, most of the project costs so far were not capital intensive. Most of it is consulting and implementation services, along with minimal capex initially. The JV partner does pay for the project cost, but not in cash, but as an AP to SIAF for inplementing the project. That AP is an AR for SIAF, which is used to acquire equity of up to 75% only, by design. Solomon does not want to buy out the JV entirely. They provide a soft service. Zoning rights during expansion, permits etc and there is value to SIAF to get these permits in place expeditiously to scale up.
So does the JV pay for the initial project? Yes, the JV does pay as an AP. Who is on the other side of that AP? SIAF. So, the filing is true. For the minimal capital costs on these initial projects, SIAF arranges the funding. not the JV.
For example, SJAP requires 25 mil in funding for 2014. SIAF owns 45% and the JV 55%. But who is funding the entire 25 mil? SIAF, it is. SJAP is going to be restructured for SIAF to have more ownership. The gist is that for the JV and SIAF is the funding conduit. Translation - equity holders till the project generates free cashflow.
Take the MF, and SIAF is an active player to get the seed funding beyond the 60 mil currently raised by GODL. SIAF has a track record and a platform to raise funds. GODL does not. After the initial phase, the cashflow from the project pays for the expansion. Did the HK JV bring anything to the table? They did and were instrumental in selling and closing the deal with the Chinese business group. The Chinese business group arranged the LUR, prime LUR is what I was told. SIAF has no ownership interest in GODL, by design. Otherwise, the license revenue would be a related party transaction, according to Solomon.
SIAF pays 75% of the BV of the project and in another discussion I heard that it was 100%. Basically, it is the accumulated AP to SIAF plus minimal cash being moved around to alter ownership. I am sure there is some horse trading going on there, as the deal is done.
My understanding is that (entirely mine) that the JV partner does pay off some local official initially to speed things up, which is the initial investment of the JV partner. I also suspect that is the cash SIAF pays to secure ownership, small amount. Speculating now and this is not from Solomon.
To me, the JV structure is a necessary arrangement to get this done without SIAF having to pay off officials. The JV partner does some of that dirty work and SIAF is SOX compliant. Does not get better than that.
The question is when will the projects generate free cashflow. To me, all else is noise.
kavdiv
Vike,
None of it was my theory, but straight from the man himself. Believe me, Solomon knows. SIAF is a US firm with Chinese operations. Sell a JV - the dairy operations were sold, as it did not hold promise. The LUR comes from the Chinese partner, by way of contacts using the agricultural promotion subsidy by the local govt. The dev cost is nothing but consulting services by SIAF employees on the project. Those services are billed with a margin greater than 30%. The cash exchange is minimal and the AR from the SIAF consulting service rev is used to buy the equity that the local Chinese partner owns to 75%. Not sure what the lie here is or why it is difficult to understand. For the 25%, the JV partner provides access to officials, permits, negotiated tax breaks etc to be signed-off by the local officials. It is a valuable service and not just shuffling papers. Lobbyist are paid with cash, here it is SIAF equity for the JV partner.
Owning 100% is just a JV structure to show consulting services that would normally be CIP, as revenue initially. There is no profit in the first three years for the owner, as there is no profit. 25% of future profits is what Solomon thinks access is worth. The JV owner has not been paid a dime and the non-controlling interest is just a dollar figure that will be monetized when the JV is spun off. Solomon is not paying anything now for this arrangement. That will come much later, should SIAF choose to do it. The JV partner does not even get a divvy, as it is at the holding company level.
The JV partner is not involved in the project at all. Nor will anyone for the MF, outside of supervision, as cash is from the SJVC. It is reported in the filing and the SEC approves the S1. It is a business arrangement, that does not need regulatory approval. Just a business arrangement between the JV partner and SIAF.
1) Cashflow from operations (selling a real product - fish prawns etc) funds capex and the rest from equity.
2) Already answered in my earlier posting.
Not trying to convince you, but that is what it is.
Got to go and do not want to use all my break time convincing you!
kavdiv
kavdiv
HY
2014 capex is a function of funding and so there was no projected number. I heard 25 mil or so for SJAP.
kavdiv
FT
Non-controlling interest is the dollar value accrued to the JV partners over time and is in the stockholders equity. That is amount SIAF had to leave to the JV partners for operational ease. Otherwise, that would have belonged to SIAF and been part of SIAF (our equity) equity.
kavdiv
I meant, not an income producing project, then SIAF will walk away.
kavdiv
Vike,
Not sure I completely understand the question? If the project is an income producing project then SIAF will not attempt to own it and walk away or sell at a discount. When SIAF walks away from the project, the project is dead, as we are the project.
If SIAF owns an unprofitable project, SIAF will shut it down or sell at a discount.
SIAF makes all the decisions and runs the project 100%. SIAF does not own any project at the beginning, so that it can book consulting revenue.
kavdiv
Empty,
Not sure of the dumping time period. How does SAIF pay for project costs, when it expected funding, but funding did not materialize.
Why would I not finish the half finished conveyor belt somehow, even though I do ot have funding. SIAF earns revenue when the conveyor belt is completed and fully functional, not half finished. So, issue equity (last option) and finish it to earn revenue.
Not sure who buys and sells the shares. The JV partner is not some guy who understands the reality of the ground (project) but some smart ass with connections. He or she has probably been to the project site, maybe once or twice. Not sure they would know the difference between a pregnant prawn from a cow's ass. Slightly, exaggerating now, but only slightly. The notion that they know the reality on the ground is a fantasy. They are just a mechanism to raise funds as a last option for SIAF. I am glad that option is there, but disappointed it has to be exercised.
kavdiv