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I was in Charlotte - I was impressed

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thebear37   Wednesday, 04/30/14 11:49:45 PM
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I was in Charlotte - I was impressed with Solomon. I have been invested since 2009. I would not say I left happy or disappointed just with confirmation that efforts are being made to right the ship. I received the impression that no one, including SIAF management, has a clear timeframe for any of the major initiatives (S1, Bond, NASDAQ). Management has an opinion or hope but it is out of their control so no accurate time table can be given. I also got the impression that it is not a now or never thing on all three, the company continues to mature and as it matures more doors open.

I buy into the delays in all three initiatives because all three are very difficult. As stated in Charlotte and as discussed at length tonight, the JV structure is complicated, it is difficult for the counter parties of all three initiatives to get their arms around them. Thus the extensive list of questions by the SEC and NASDAQ. Add to that the fact that this is a US company with operations in China, the china stigma and you can understand why NASDAQ is taking its time. NASDAQ does not want to make it easy for a RTO chinese stock to uplist.

On the bond, those deals take forever. Dan and Solomon confirmed. The amount of DD needed, the coordination of attorneys, The personal visits, international parties coordinating, all points to a long road and all this work is probably before a term sheet is even issued let alone the additional time needed to close once the term sheet is executed (it needs to be documented). It was stated several times that they have Bond offers or close to it however there is a huge negotiation involved in the details. Somethings that needs to be negotiated outside of the obvious (term, rate, Amount) are the covenants. What can the cash be used for, can you pay a dividend, how fast can you grow, will cash be restricted, what ratios need to be hit to have access to free cash flow etc etc. What was clear in the meeting is that management is not going to tie its hands going forward to get a bond at any cost. You can choose to agree or not but it is how i think management feels.

Solomon also talked about seasonality in agriculture and how it relates to break even and stock issuance. He said they may be cash flow positive for a year but during the year there could be some months where things are tight so stock has to be issued. Ideally at some point it would be nice to have a revolving line from a Chinese bank to help smooth this. This is common with many companies not just SIAF, Just siaf doesn't have the revolving LOC to smooth the cash crunch.

My last note has nothing to do with Charlotte but the debate on consulting revenue. Remember every JV is different so you can't paint with a broad brush. The best way I can explain it and this is just my understanding, is the consulting fees are not paid in cash or very little of it is (maybe enough to cover corporate overhead), rather they are contributed or rolled into the JV as equity or to be converted to equity at some point in the future (we have know this forever). This is common with many development projects ( i do it all the time with my real estate business in the US. I often roll fees into deals I work on for customers in exchange equity in the project. I always have to pay tax on that revenue even though I did not receive any cash and still have to recognize it as revenue to the IRS. I wish i didnt. I know its not an apples to apples comparison but it helps simplify it) This doesn't mean that the JV partners or some other party (i will call them note holders) are not putting any money in, that is wrong, but again you have to look at each JV independently because they are all different. If I am not mistaken I believe the first demonstration fish farm or one of the first projects was financed with convertible debt that was not current pay (interest accrued). Chinese business men gave siaf Chinese currency through a convertible note. When the note came due the note holders were issued shares which they at some point could sell and get US dollars (chinese business men like US dollars). The point being the either the JV partners or the note holders contributed cash to the project. SIAF also get consulting fees which are mostly rolled into equity. We would not have a 5 year cash problem if the consulting fees were/are paid in cash, the fact is they aren't thus the need to issue stock. But this should have been know for some time. it has been discussed here many times

I could be way off but it is my understanding.

Great meeting many nice SIAF shareholders in Charlotte.


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