Sino Agro Food Inc (fka SIAF)

[RealDutch]

You can read all about it in the 10-K

During 2017, the Aqua-farm (4) (“AF4”) at the Mega Farm Project tried to grow multiple batches of Fresh Water Prawns (“BJP”) in commercial quantity (i.e. stocked over 1 million fingerling (of PL24 days) per APM tank of 200m3 of water to nurture the fingerling up to 54 days old supported with 4 other APM tanks for further grow-out up to 18 weeks old) but did not obtain optimal results mainly due to the BJP having not reached their desired size on schedule, with the majority of them not showing any further growth occurring after week 12. As such, AF 4 had to alter its plan of growing mainly BJP to growing fish (i.e. Jade Perch, Silver cods and other mixed fish) within some of the APM tanks in order to maintain a certain level of productivity at the farm. In conjunction with this exercise, AF4 had to develop 800 Mu of open dams (“ODRAS”) that were built using CA’s 2nd generation open dam recirculating aquaculture systems) to grow fish to certain sizes before they were transferred to the indoor APM farm for final grow-out, and allow the transfer of the 12 week old BJP grown in the indoor APM tanks to be moved to the ODRAS dams for further grow-out in a larger area.


Also, in Q3 2017, AF4’s ODRAS open dams suffered damage to its temporary built properties (i.e. the staff quarters, offices, laboratory, etc.) as well as use of AF4, itself, losing many fish and prawns stocked in the open ODRAS dams by one of the strongest typhoons in the past decade hitting the Mega Farm property and other areas of the southern coast of Guangdong Province. Although there was no structural damage done to the main APM farm buildings the damage had interrupted production until repairs were performed to both the APM tanks and ODRAS dams for the transfer of the prawn and fish, and, as such, AF4 decided in Q4 2017 to slow down its grow-out activities until after the Chinese New Year (ended end of February 2018) and in the interim to concentrate on its research and development work on the grow-out of BJP in the APM tanks aiming to find a solution to improve the growth rates and grow-out sizes of BJP to 18-weeks. Research will be focused on system design and water quality limitations. Progress is being made to improve in-tank water chemical and physical characteristics, and source water mineral composition for prawn growth. In addition, progress has been made to understand and manipulate in-tank bacterial populations to create a healthier overall rearing environment. During the first quarter of 2018, research will also assess the biological and economic feasibility of all-female and all-male populations of prawns, using patented endocrine disruptor technologies from third-party collaborators. Such non-GMO technologies result in overall faster and more uniform growth of cohorts compared to mixed populations of both males and females.



In fact, the operation of AF4 (Production factory 1), the operation of AF5 (Production factory 2) and the open dams at the Mega Farm Project had a poor start and performed badly in 2017. During the first half of 2018, we incurred debts over RMB 30 million due the followings events and reasons:



(i). Unsuccessful management coordination resulting in low productivity and sales of products.



(ii). Over spending on capital expenditure on Phase (1) of the Mega Farm Project which exceeded the original budget of US$50 million by more than 60%.



· As a result, it limited cash-flow to support the needs of working capital that affected the overall production and sales.


· And as a result, there were not enough funds to complete some of the supporting facilities needed by the APM farms (i.e., the external filtration systems, lighting, electrical wiring, external drainages for waste water and connection and fitting for the supply of fresh water etc.), supporting external water dams and waste water treatment dams, the heating facility and part of the internal filtration systems that made it difficult for the farms to carry out their production efficiently.


(iii). AP4 and AP5 are the biggest AP farms that the Company built and the Company did not have a sufficient management team to support their production operations; most of the newly recruited APM farm management personnel & workers did not have the knowledge and experience with the APRAS technology and systems and as a result, there were many mistakes made during their learning curve affecting the farms’ production.



(iv). The two APM farms are the biggest indoor farms that we have ever built, and we didn't have enough experienced personnel to support their operation; and managers of other smaller sized APM farms could not work with the Mega Farm’s top management or his team under his management.



(v). The production operation of the AF4 and AF5 started prematurely before all the completion of their construction & development works leading to the situation that, at times, the property management team of the Mega Farm Project gave direction to the farm production operation teams resulting in wrong decisions that caused many mistakes.



(vi). Guangzhou experienced a very hot summary in 2017 that killed and retarded many stocks in the open dams and one of the big typhoons during August 2017 caused flooding that washed away hundreds of tons of fish and prawns in the open dams that would have been ready for harvest in September & October of 2017. Also, the extremely strong Typhoon in September 2018 caused power stoppage that killed hundreds of tons of stock including some valuable brood stock.



· By May 2018, our CEO & teams (the “Team”) at head office took the following actions:


1. Stop all production & operation of all farms (covering both in-door APM farms and open dam farms).
2. Sell off most inventories in all farms.
3. Trim down its work force by 85% or more from 155 persons.
4. Trim down all operational expenditures of the farms
5. Stop all capital expenditure of the MFP
6. Reorganize the management team
7. Form a selective team to start talking to the creditors.


· By July 2018 the Team managed to rectify the following:


1. All open dam operations stopped with about two tanks of stock remaining in the APM farms.
2. There were just 20 workers remaining at the farm complex.
3. Closed the operation at the head quarter office at Zhongshan City.
4. Cut down the Mega Farm’s monthly expenditures from RMB1.5 million/month to within RMB 450,000/month.
5. Cut off more than 95% in capital expenditure spending.
6. Temporary clamming down many creditors and reduced the Mage Farm’s debt of RMB 30 million to just under RMB 21 million financed by other Segments of operation and loans granted by friendly third parties.
7. Starting to look into the revitalized plan of the MFP.


· By August 2018, the Team initiated the interim direction of the MFP aiming to achieve the following objectives & directions as soon as possible:


1. Production of the APM farms are the most important fundamentals and it will not mean anything if that cannot be achieved within a short space of time considering that the Mega Farm Project still has a monthly operational expenditure of RMB 450,000/month excluding depreciation & amortization and the Research and Development (R&D) Team monthly wages and expenses are adding an extra (RMB 230,000 to RMB 240,000/month) making the total operation expenses at RMB 690,000/month collectively.


2. Must develop an operational team that can work effectively and cohesively for the benefit of the Company without fraction among one another and be friendly with one another to help each other to develop efficiency and proficiency as a team that can be relied upon. The Team must be able to work hard, relentlessly and diligently under the Chinese farming customs and practice that is a 24/7 hours per week such that management must keep that in mind and organize their respective roster schedule accordingly.


3. All management must try to do all interim retrofitting, remodeling, and reconstruction work at the lowest cost as possible and to use whatever is available from inventory without having to buy more new plants and equipment, materials and parts and component etc. The moral of the spirit is that no matter how hard and difficult, the priority is production that must be made to happen, and watch every penny that needs to be spent and don't spend any unless it is absolutely necessary.


4. To have all production sections find some extra-funds (whether from its own savings or from friendly investors) to support part of the working capital and capital expenditure needs during the interim periods. In this respect, the past attitude of looking at hand - out from the head quarter is definitely out.


5. There is no borrowing unless production will have the ability to repay the borrowings satisfactorily.


6. All production must be profitable ultimately within schedule; and any mistakes (if any) must be rectified within the shortest time possible and repetition of the same mistakes will not be tolerated.


7. A suitable program in "Award and Penalty" must be formulated to provide incentives to all working teams.


· By end August 2018 the Interim Revitalization Plan was formulated and put into motion.


The revitalization plan has the following basic fundamentals:



Essentially, the current Mega Farm Project has two major divisions: (i) the Property Management division and (ii) the Production division:



· The Property Management division is managing the properties of the Mega Farm Project by leasing out all of the land either to external operators or internal divisional operators at rental fees according to leasing market values (includes the open dams, in-door APM production factories and plantation land, etc.). This division supports the leases with basic maintenance, security and supplies of utilities, etc.


· The Production division will have the following subdivisions:


At AF4 (Factory 1)



1. Fish fingerling production
2. Mexican White Prawn (“MWP”) production
3. Research and Development (R&D) and Bio-security Operation.



At AF5 (Factory 2)



1. Nurturing of fish fingerling
2. Grow-out fish or MWP.


At the end of December 2018, the early winter of the Guangdong districts slowed down the revitalization programs planned for AF4 and AF5 due primarily to the external supporting facilities (i.e. water holding dams, waste water treatment dams, external disinfection tanks and proper heating facilities etc.) were not completed. As such, the revitalization plan of these two farms will be delayed until such time as the supporting facilities are completed and working efficiently. In the meantime, operations on a small scale are being carried out in both AF4 and AF5 with the aim of slowly recruiting the right personnel to move ahead after the spring of 2019.