The following unaudited interim financial
statements of China Modern Agricultural Information, Inc. are included in this quarterly report on Form 10-Q:
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
China
Modern Agricultural Information, Inc. (the “Company”), formerly known as Trade Link Wholesalers, Inc. (“Trade
Link”), was incorporated on December 22, 2008 under the laws of the State of Nevada. On April 4, 2011, the Board of Directors
of Trade Link filed an amendment to the Certificate of Incorporation with the State of Nevada to effect the name change from Trade
Link to China Modern Agricultural Information, Inc.
On
January 28, 2011, Trade Link entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) Value
Development Holdings, Ltd. (“Value Development”), a British Virgin Islands company, (“BVI”) (ii) Value
Development’s stockholders, (iii) Trade Link, and (iv) Trade Link’s principal stockholders. Pursuant to the terms
of the Exchange Agreement, Value Development and the Value Development stockholders transferred to Trade Link all of the shares
of Value Development in exchange for the issuance of 35,998,000 shares of Trade Link’s common stock as set forth in the
Exchange Agreement, so that the Value Development stockholders owned 87.80% of Trade Link’s outstanding shares (the “Share
Exchange”).
On
January 28, 2011, Value Development through its wholly subsidiaries, Value Development Group Limited completed the
acquisition of Harbin Jiasheng Consulting Managerial Co. Ltd. (“Jiasheng Consulting” or “WFOE”), a
holding company. Jiasheng Consulting has Variable Interest Entity (“VIE”) agreements with Mr. Liu Zhengxin, the
Company’s Chief HR Officer, and Mr. Youliang Wang, the Company’s Chief Executive Officer, as well as with
Heilongjiang Zhongxian Information Co., Ltd. (“Zhongxian Information”). Mr. Zhengxin holds a 62% equity interest
in Zhongxian Information and Mr. holds a 38% equity interest in Zhongxian Information. Pursuant to the VIE agreement
signed by Mr. Zhengxin and Mr. Wang, Jiasheng Consulting now controls and performs all management responsibilities for
Zhongxian Information. The contractual arrangements are comprised of a series of agreements, including a shareholder voting
rights proxy agreement, exclusive consulting and service agreement, exclusive call option agreement and equity pledge
agreement, through which Jiasheng Consulting has the right to provide exclusive and complete business support and technical
and consulting services to Zhongxian Information for an annual fee in the amount of Zhongxian Information’s yearly net
profits after tax. Additionally, Zhongxian Information’s stockholders have pledged their rights, title and equity
interests in Zhongxian Information as security for the collection of consulting and service fees provided through an Equity
Pledge Agreement.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
1.
|
ORGANIZATION (CONTINUED)
|
In
order to further reinforce Jiasheng Consulting’s rights to control and operate Zhongxian Information, the stockholders of
Zhongxian Information have granted Jiasheng Consulting the exclusive right and option to acquire all of their equity interests
in Zhongxian Information through an Exclusive Option Agreement.
The
exchange agreement transaction constituted a reverse takeover transaction. Accordingly, reverse takeover accounting was adopted
for the preparation of the consolidated financial statements. As a result, the consolidated financial statements are issued under
the name of China Modern Agricultural Information, Inc. (the legal acquirer), but are a continuation of the consolidated financial
statements of Value Development (the accounting acquirer) and the VIE its subsidiaries. Before and after the Share Exchange, Value
Development, Value Development Group Limited (a wholly-owned subsidiary of Value Development), Jiasheng Consulting, and Zhongxian
Information and their 99% owned subsidiary, Heilongjiang Xinhua Cattle Industry Co., Ltd. (“Xinhua Cattle”) were under
common control. Therefore, the reorganization was effectively a legal recapitalization accounted for as transactions between entities
under common control at the carry over basis, in a manner similar to pooling-of-interests accounting.
Zhongxian
Information and Xinhua Cattle are engaged in the acquisition, breeding and rearing of dairy cows, and production and sale of fresh
milk to manufacturing and distribution companies. Zhongxian Information was established in China in January 2005 with registered
capital of 10 million Renminbi (“RMB”). In February 2006, it acquired 99% of the registered capital of Xinhua Cattle,
which was established in China in December 2005 with registered capital of three million RMB. Xinhua Cattle had no significant
activities and its cost approximated the fair value at the date of acquisition.
On
November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Shangzhi Yulong Co., Ltd. (“Yulong”)
from Yulong’s original stockholders for consideration of 9,000,000 shares of the Company’s common stock and cash consideration
of $4,396,000.
Yulong
was a privately held company in China engaged in the acquisition, breeding and rearing of dairy cows, and production and sale
of fresh milk to manufacturing and distribution companies.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
1.
|
ORGANIZATION (CONTINUED)
|
On
July 16, 2015, the Company, transferred 100% of the issued and outstanding shares of Value Development Holdings, Ltd. (“Value
Development”) to China Dairy Corporation Ltd. (“China Dairy,” a Hong Kong company), which is 60% owned indirectly
by the Company through the Company’s wholly-owned subsidiary, Hope Diary Holdings Ltd. (“Hope Diary,” a British
Virgin Islands company). China Dairy was newly incorporated in January 2015 and did not have any significant assets or liabilities,
or business operations, which was 100% owned by Company’s PRC corporate advisor, who formed China Dairy on behalf of the
Company. Further, the sole shareholder transferred 60% of the total outstanding shares of China Dairy to Hope Diary and 40% to
various shareholders and consultants of the Company (as described below) for nominal consideration.
These
transactions involve no consideration received or paid as Value Development and China Dairy are under common control by the Company
and this transaction is a restriction to the Company’s interests in Value Development.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
1.
|
ORGANIZATION (CONTINUED)
|
The
40% of the 10,000 shares of China Dairy were transferred from the sole shareholder of China Dairy to the following entities for
nominal consideration, which has
direct or indirect relationship with the shareholder
and consultants of the Company: 3% to Beijing Ruihua Future, 4% to Donghe Group, 3% to Integral Capital, 20% to Dingxi Shanghai
Fund and 10% to Zhiyuan International. Immediately after the transfer, 65,000 bonus shares were issued at no consideration for
every existing share held by the following entities.
|
|
|
Original
Shares
|
|
|
After
bonus shares issued
|
|
|
|
|
|
|
|
|
|
|
Hope
Diary Holdings Ltd.
|
|
|
6,000
|
|
|
|
390,000,000
|
|
|
Beijing
Ruihua Future Investment Management Co. Ltd.
|
|
|
300
|
|
|
|
19,500,000
|
|
|
Donghe
Group Limited
|
|
|
400
|
|
|
|
26,000,000
|
|
|
Integral
Capital Group Pty Ltd.
|
|
|
300
|
|
|
|
19,500,000
|
|
|
Dingxi
(Shanghai ) Equity Investment Fund
|
|
|
2,000
|
|
|
|
130,000,000
|
|
|
Zhiyuan
International Holding Co. Limited
|
|
|
1,000
|
|
|
|
65,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,000
|
|
|
|
650,000,000
|
|
Value
Development is the sole owner of Value Development Group Limited, which is the sole owner of Harbin Jiasheng Consulting Managerial
Co. Ltd., which is the Company’s subsidiary in China, with respect to which the operating company, Heilongjiang Zhongxian
Information Co. Ltd., is a variable interest entity. The effect of this transaction was to reduce the interest of the Company
in its operating company by 40%.
The Company uses the China Dairy’s offering
price for IPO to approximate the fair value of the 40% stock granted to the shareholder and consultants. The Company recognized
a stock compensation to the shareholder and consultants of approximately $32,098,000 and $5,664,000, respectively, during the
three months ended September 30, 2015 in general and administrative expense.
On
September 16, 2015 the Company’s 60%-owned subsidiary, Harbin Jiasheng Consulting Management Co., Ltd. ("Jiasheng Consulting"),
exercised its option to purchase all of the registered equity of the Company’s operating subsidiary, Heilongjiang Zhongxian
Information Co., Ltd. ("Zhongxian Information") from its stockholders Zhengxin Liu and Youliang Wang, who are also the
members of the Company’s Board of Directors, for RMB10,000 (approximately $1,554).
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
1.
|
ORGANIZATION (CONTINUED)
|
Prior
to the acquisition, Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made
Zhongxian Information a variable interest entity, the effect of which was to cause the balance sheet and operating results of
Zhongxian Information to be consolidated with those of Jiasheng Consulting in the Company’s financial statements. As a result
of the acquisition by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating
results of Zhongxian Information will hereafter continue to be consolidated with those of Jiasheng Consulting as its 100% owned
subsidiary.
As
a result of the entry into the foregoing agreements, the Company has a corporate structure as set forth below:
On
April 8, 2016, the Company’s 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2
per share on ASX and raised total fund of AUD $16,981,308 (USD $13,021,267). After the IPO, the Company’s ownership was
diluted to 53.07%.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Basis
of Accounting and Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America and include the financial statements of China Modern Agricultural Information, Inc. and its subsidiaries,
Hope Diary, China Dairy (Hope Diary’s 53.07% owned subsidiary), Value Development, Value Development Group Limited, Jiasheng
Consulting, and, Zhongxian Information and Zhongxian Information’s 99% owned subsidiary, Xinhua Cattle and its 100% owned
subsidiary, Yulong. All significant intercompany accounts and transactions have been eliminated in consolidation.
The
unaudited consolidated financial statements of the Company as of September 30, 2016 and for the three months ended September 30,
2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America
and the rules and regulations of the SEC which apply to interim financial statements.
Accordingly,
they do not include all of the information and footnotes normally required by accounting principles generally accepted in the
United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction
with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the year ended
June 30, 2016, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The
results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results to be expected
for future quarters or for the year ending June 30, 2017.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Basis
of Accounting and Presentation (continued)
Variable
Interest Entity
Pursuant
to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
“Consolidation”
(“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements
of its VIE’s. ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk
of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which
a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the
entity, and therefore the company is the primary beneficiary of the entity.
Zhongxian
Information and its subsidiaries (collectively, the “Chinese VIE”) have no assets that are collateral for or restricted
solely to settle their obligations. The creditors of the Chinese VIE and its subsidiaries do not have recourse to the Company’s
general credit. Because Value Development, Value Development Group Limited and Jiasheng Consulting are established for the sole
purpose of holding ownership interest and do not have any operations, the financial statement amounts and balances are principally
those of the Chinese VIE and its subsidiaries.
Under
ASC 810, an enterprise has a controlling financial interest in a VIE, and must consolidate that VIE, if the enterprise has both
of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s
economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant
to the VIE. The Company’s determination of whether it has this power is not affected by the existence of kick-out rights
or participating rights, unless a single enterprise, including its related parties and de facto agents, has the unilateral ability
to exercise those rights. The Chinese VIE’s actual stockholders do not hold any kick-out rights that will affect the consolidation
determination.
On
September 16, 2015 the VIE structure was terminated when Jiasheng Consulting exercised its option to purchase all of the registered
equity of Zhongxian Information. Jiasheng Consulting became the sole owner of Zhongxian Information.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Foreign
Currency Translations
All
Company assets are located in the People’s Republic of China (“PRC”). The functional currency for the majority
of the Company’s operations is the Renminbi (“RMB”). The Company uses the United States dollar (“US Dollar”
or “US$” or “$”) for financial reporting purposes. The consolidated financial statements of the Company
have been translated into US dollars in accordance with FASB ASC 830,
“Foreign Currency Matters.”
All asset
and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have
been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive
income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the
translation of the Company’s consolidated financial statements are recorded as other comprehensive income (“OCI”).
The
exchange rates used to translate amounts in RMB and Australian dollars (the “AUS Dollar”,“AUD$” or “A$”)
into US dollars for preparing the consolidated financial statements are as follows:
|
|
|
September
30,
2016
|
|
|
June
30,
2016
|
|
|
September
30,
2015
|
|
|
|
|
RMB
|
|
|
A$
|
|
|
RMB
|
|
|
A$
|
|
|
RMB
|
|
|
A$
|
|
|
Balance
sheet items, except for stockholders’ equity, as of period end
|
|
|
0.1499
|
|
|
|
0.7634
|
|
|
|
0.1505
|
|
|
|
0.7687
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for
the period
|
|
|
0.1500
|
|
|
|
0.7577
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.1593
|
|
|
|
0.7257
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Foreign
Currency Translations (continued)
Foreign
currency translation adjustments of $(248,988) and $(5,040,228), respectively, for the three months ended September 30, 2016 and
2015, have been reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive
income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments.
Pursuant to ASC 740-30-25-17,
“Exceptions to Comprehensive Recognition of Deferred Income Taxes,”
the Company
does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes
no income tax expense or benefit from foreign currency translation adjustments.
Although
government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain.
Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate
or any other rate.
The
value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s
political and economic conditions. Any significant revaluation of the RMB could materially affect the Company’s consolidated
financial condition in terms of US dollar reporting.
Revenue
Recognition
The
Company’s primary sources of revenues are derived from (a) sale of fresh milk to Chinese manufacturing and distribution
companies of dairy products and (b) commissions from local farmers on their monthly milk sales. The Company’s revenue recognition
policies comply with FASB ASC 605,
“Revenue Recognition.”
Revenues from the sale of goods are recognized when
the goods are delivered and the title is transferred, the risks and rewards of ownership have been transferred to the customer,
the price is fixed and determinable and collection of the related receivable is reasonably assured.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Revenue
Recognition (continued)
Milk
sales revenue is recognized when the title has been passed to the customers, which is the date when the milk is delivered to designated
locations and accepted by the customers and the previously discussed requirements are met. Fresh milk is delivered to its customers
on a daily basis. The customers’ acceptance occurs upon inspection of the quality and measurement of quantity at the time
of delivery. The Company does not provide the customer with the right of return. Sales commission revenue is recognized on a monthly
basis based on monthly sales reports received.
Vulnerability
Due to Operations in PRC
The
Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event
of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic
and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent
or effective.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Fair
Value of Financial Instruments
FASB
ASC 820,
“Fair Value Measurement”
specifies a hierarchy of valuation techniques based upon whether the inputs
to those valuation techniques reflect assumptions other market participants would use based on market data obtained from independent
sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
|
Level
1 Inputs –
|
Unadjusted quoted
market prices for identical assets and liabilities in an active market that the Company has the ability to access.
|
|
|
|
|
Level 2 Inputs –
|
Inputs other than
the quoted prices in active markets that are observable either directly or indirectly.
|
|
|
|
|
Level 3 Inputs –
|
Inputs based on
valuation techniques that are both unobservable and significant to the overall fair value measurements.
|
ASC
820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure
fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs.
The
Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying
values of non-derivative financial instruments, including cash, accounts receivable, interest receivable, notes receivable, prepayments,
accrued expenses, and other payables, and stockholder loans, approximated their fair values due to the short maturity of these
financial instruments. The carrying value of notes receivable is valued at their net realizable value which approximates the fair
value. There were no changes in methods or assumptions during the periods presented.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Advertising
Costs
Advertising
costs are charged to operations when incurred. Advertising costs are $120,788 and $0, respectively, for the three months ended
September 30, 2016 and 2015.
Cash
and Cash Equivalents
The
Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or
less to be cash equivalents.
Accounts
Receivable
Accounts
receivable is stated at cost, net of an allowance for doubtful accounts if required. Receivables outstanding longer than the payment
terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting
from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes
allowances where there is doubt as to the collectability of individual balances.
In
evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the
balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company has 30 days’
credit term for its milk sales and usually receives the payment in the following month. The Company considers all accounts receivable
at September 30, 2016 and June 30, 2016, to be fully collectible and, therefore, did not provide an allowance for doubtful accounts.
For the periods presented, the Company did not write off any accounts receivable as bad debts.
Inventories
Inventories,
comprised principally of livestock feed, are valued at the lower of cost or market value. The value of inventories is determined
using the weighted average cost method.
The
Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances
if any. There was no allowance for excessive or unusable inventories as of September 30, 2016 and June 30, 2016.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Prepaid
Expenses
Prepaid
expenses as of September 30, 2016 and June 30, 2015 mainly represent the prepayments of approximately $1,278,600 and $1,217,900,
respectively for prepaid cow insurance expense. Prepayment as of September 30, 2016 represents the payment for purchase of machineries.
Prepaid
Land Leases
Prepaid
land leases represent the prepayment for grassland rental (see Note 7).
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct
the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the
assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve
productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.
The
estimated useful lives for property, plant and equipment categories are as follows:
|
Machinery
and equipment
|
|
3
to 10 years
|
|
Automobiles
|
|
4
to 10 years
|
|
Building
and building improvements
|
|
10
to 20 years
|
|
Leasehold
improvements
|
|
Lesser
of the remaining term or useful life
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Impairment
of Long-lived Assets
The
Company utilizes FASB ASC 360,
“Property, Plant and Equipment”
(“ASC 360”), which addresses the
financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance
with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company may recognize an impairment of a long-lived asset in the event the net
book value of such asset exceeds the estimated future undiscounted cash flows attributable to the asset. No impairment of long-lived
assets was recognized for the three months ended September 30, 2016 and 2015.
Biological
Assets
Biological
assets consist of dairy cows for milking purposes and breeding.
Immature
Biological Assets
Immature
biological assets are recorded at cost, including acquisition costs, transportation costs, insurance expenses, and feeding costs,
incurred in raising the cows. Once the cow is able to produce milk, the cost of the immature biological asset is transferred to
mature biological assets using the weighted average cost method.
Mature
Biological Assets
Mature
biological assets are recorded at their original purchase price or the weighted average immature biological asset transfer cost.
Depreciation is provided over the estimated useful life of eight years using the straight-line method. The estimated residual
value is 10%. Feeding and management costs incurred on mature biological assets are included as cost of goods sold. When biological
assets, including male cows, are retired or otherwise disposed of in the normal course of business, the cost and accumulated depreciation
will be removed from the accounts and any resulting gain or loss will be included in the results of operations for the respective
period.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Biological
Assets (continued)
The
Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances
indicate that their carrying value may not be recoverable from the estimated future cash flows expected from their use and eventual
disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will
be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management
in performing this assessment include current health status and production capacity. There were no impairment losses recorded
during the three months ended September 30, 2016 and 2015.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740,
“Income Taxes”
(“ASC 740”),
which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial
statement and income tax purposes. The differences relate principally to the undistributed earnings of the Company’s subsidiary
under PRC law. Deferred tax assets and liabilities represent the future tax consequences of those differences, which will either
be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating
losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. At September 30, 2016 and June 30, 2016, undistributed earnings allocated to
Zhongxian Information were approximately $195,800,000 and $192,800,000, respectively.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Income
Taxes (Continued)
ASC
740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance
on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,
and accounting for interest and penalties associated with uncertain tax positions. As of September 30, 2016 and June 30, 2016,
the Company does not have a liability for any uncertain tax positions.
The
income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
United
States
The
Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has
been made as the Company had no U.S. taxable income for the three months ended September 30, 2016 and 2015.
BVI
Value
Development and Hope Diary are incorporated in the BVI and is governed by the income tax laws of the BVI. According to current
BVI income tax law, the applicable income tax rate for the Company is 0%.
Hong
Kong
Value
Development Group Limited and China Dairy are incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company
is not subject to tax on non-Hong Kong source income.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Income
Taxes (Continued)
PRC
Xinhua
Cattle and Yulong are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preferential
policy for the dairy farming industry. In January 2015, Zhongxian obtained an income tax exemption notice from the tax authority
to exempt the income tax on its investment income from its subsidiaries Xinhua Cattle and Yulong.
Net
Income (Loss) Per Share
The
Company computes net income (loss) per common share in accordance with FASB ASC 260,
“Earnings Per Share”
(“ASC
260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available
to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income
per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares
of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted
average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations
for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no
dilutive shares outstanding during the three months ended September 30, 2016 and 2015.
Statutory
Reserve Fund
Pursuant
to the corporate law of the PRC, Jiasheng Consulting and the Company’s Chinese VIE and its subsidiaries are required to
transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until
such reserve balance reaches 50% of its registered capital. The statutory reserve fund is non-distributable other than during
liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to
increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the registered
capital. As of September 30, 2016 and June 30, 2016, the required statutory reserve funds have been fully funded.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
3.
|
Recently Issued
Accounting Standards
|
In
August 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and cash payments in the
statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from
a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption
is permitted. The Company is evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
In
June 2016, the FASB issued new authoritative accounting guidance on credit losses on financial instruments which replaces the
incurred-loss impairment methodology. The new guidance requires immediate recognition of estimated credit losses expected to occur
for most financial assets and certain other instruments. The standard is effective for the Company in the first quarter of 2020;
however early adoption is permitted beginning in the first quarter of 2019. The Company is currently evaluating whether this standard
will have a material impact on its financial statements.
In
April 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. In May 2014,
the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current
guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related
to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to
defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP,
the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15,
2016. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at or entered into after, the beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. This accounting standard update is not expected to have a material impact
on the Company’s financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
|
3.
|
Recently
Issued Accounting Standards
(CONTINUED)
|
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which
includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard
is effective for the Company beginning June 1, 2018. The Company is currently evaluating the effect the guidance will have on
the Consolidated Financial Statements.
In
September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16: Simplifying the Accounting for Measurement-Period
Adjustments (“ASU 2015-16”), which eliminates the requirement to restate prior period financial statements for measurement
period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact
on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim
and annual periods beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected
to have a material impact on the Company’s consolidated financial statements.
In
August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment is effective for all
entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application
is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within
that reporting period. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
4.
|
Property, plant
and equipment
|
Property,
plant and equipment are summarized as follows:
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
3,851,690
|
|
|
$
|
3,866,619
|
|
|
Automobiles
|
|
|
2,245,130
|
|
|
|
2,253,832
|
|
|
Building
and building improvements
|
|
|
26,762,266
|
|
|
|
26,865,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,859,086
|
|
|
|
32,986,444
|
|
|
Less:
accumulated depreciation
|
|
|
(3,957,206
|
)
|
|
|
(3,354,779
|
)
|
|
Construction
in process
|
|
|
5,930,533
|
|
|
|
4,696,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$
|
34,832,413
|
|
|
$
|
34,327,757
|
|
There
was no any addition for the three months ended September 30, 2016. Construction in Progress (the “CIP”) contains amounts
paid and accrued for completed new construction but has not been placed into service as of September 30, 2016 and June 30, 2016.
No depreciation has been taken on CIP as of September 30, 2016 and June 30, 2016. In addition, a significant amount of production
facilities and automobiles were purchased. Depreciation expense charged to operations for the three months ended September 30,
2016 and 2015 were $615,674 and $275,705, respectively.
On
January 20, 2016, the Company signed an agreement with Harbin Donghui Architecture Co., Ltd to construct a new forage production
plant. The total agreement amount is RMB 45,615,000 (US $ 6,864,387). Per the agreement, the company is required to pay according
to progress completion for different parts of the plant. As of September 30, 2016 and June 30, 2016, the company paid RMB 35,511,000
(US $ 5,323,134) and RMB 28,321,000 (US $ 4,261,801), respectively, and committed to pay RMB 10,104,000 (US $ 1,514, 253) and
RMB 17,294,000 (US $ 2,602,436), respectively, after the construction is completed.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
Biological
assets consist of the following:
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immature
biological assets
|
|
$
|
35,045,991
|
|
|
$
|
32,518,050
|
|
|
Mature
biological assets
|
|
|
38,271,574
|
|
|
|
36,660,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,317,565
|
|
|
|
69,178,466
|
|
|
Less:
accumulated depreciation
|
|
|
(6,064,887
|
)
|
|
|
(5,041,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Biological
assets, net
|
|
$
|
67,252,678
|
|
|
$
|
64,136,851
|
|
Xinhua
Cattle sold 990 female calves to an outside party at a total price of RMB 3,960,000 (US $593,893) in the three months ended September
30, 2016. The cost of these female calves was approximate $666,000.
Yulong
Cattle sold 334 female calves to an outside party at a total price of RMB 1,336,000 (US $200,364) in the three months ended September
30, 2016. The cost of these female calves was approximate $150,000.
Depreciation
expense for the three months ended September 30, 2016 and 2015 was $1,043,238 and $622,935, respectively, all of which was included
in cost of goods sold in the consolidated statements of income and other comprehensive income.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
Notes
receivable are related to sales of cows (mature biological assets) to local farmers.
In
September 2011, August 2011, and June 2011, Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers, respectively.
In
November and December 2014, Yulong sold 3,714 and 2,955 cows respectively, to local farmers. 3,500 of the cows sold were purchased
from outside parties for $4,550,000. The remaining cows sold were raised by Yulong.
According
to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum
payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount
rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with
these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s
assistance in arranging for the sale of the milk.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
6.
|
Notes Receivable
(continued)
|
Pursuant
to the agreements signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in
monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range
from one to eight years. Local farmers are required to pay a 30% of monthly milk sales generated from the cows purchased by the
farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance
as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue
over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase
price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the
progress of repayments towards the purchase price.
During
the three months ended September 30, 2016 and 2015, the Company received principal and interest payments of $637,169 and $861,666,
respectively. Commission income for the three months ended September 30, 2016 and 2015, was $3,823,005 and $5,192,856, respectively,
under these agreements.
The
receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of September 30,
2016 and June 30, 2016. The related commission receivable of $6,056,776 and $6,962,080 at September 30, 2016 and June 30, 2016,
respectively, is included in accounts receivable in the consolidated balance sheets.
Notes
receivable at September 30, 2016 and June 30, 2016 consists of the following:
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
receivable
|
|
$
|
6,388,164
|
|
|
$
|
7,052,255
|
|
|
Less:
discount for interest
|
|
|
(2,088
|
)
|
|
|
(11,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,386,076
|
|
|
|
7,040,985
|
|
|
Less:
current portion
|
|
|
(1,919,317
|
)
|
|
|
(2,097,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
$
|
4,466,759
|
|
|
$
|
4,943,622
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
6.
|
Notes
Receivable (continued)
|
Future
maturities of notes receivable as of September 30, 2016 are as follows:
|
Year
Ending September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
1,919,000
|
|
|
2018
|
|
|
1,529,000
|
|
|
2019
|
|
|
1,145,000
|
|
|
2020
|
|
|
543,000
|
|
|
2021
|
|
|
525,000
|
|
|
Thereafter
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
$
|
6,386,000
|
|
The
Company considers these notes to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. The
Company will continue to review the notes receivable on a periodic basis and where there is doubt as to the collectability of
individual balances, it will provide an allowance, if necessary.
All
land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right”
to use a track of land of 250,000 square meters at no cost through December 1, 2015. On May 10, 2013, the Company, however, entered
into an agreement with the municipality of Qiqihaer to obtain the “land use right” to use this land from May 1, 2013
to April 30, 2063. The Company recorded the prepayment of RMB 37,500,000 (US$6,060,000) as prepaid land lease. The prepaid lease
is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment of $5,237,166
and $5,285,680 is included in prepaid land lease in the consolidated balance sheets as of September 30, 2016 and June 30, 2016,
respectively. The lease provides for renewal options.
On
October 9, 2011, the Company entered into an operating lease, from October 9, 2011 to October 8, 2021, with the municipality of
Heilongjiang to lease 16,666,750 square meters of land. The lease required the Company to prepay the ten-year rental of RMB 30,000,000
(US$4,686,000). The related prepayment of $2,248,515 and $2,370,092 is included in prepaid land lease in the consolidated balance
sheets as of September 30, 2016 and June 30, 2016, respectively. The lease provides for renewal options.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
On
February 25, 2013, the Company obtained another “land use right” to use 427,572 square meters of land, from March
1, 2013 to February 28, 2063. The Company recorded the prepayment of RMB 77,040,000 (US$12,450,000) as prepaid land lease. The
prepaid lease is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment
of $10,720,740 and $10,820,258 is included in prepaid land lease in the consolidated balance sheets as of September 30, 2016 and
June 30, 2016, respectively. The lease provides for renewal options.
The
Company leases an office at no cost from an unrelated third party. On September 1, 2010, the Company entered into an operating
lease agreement expiring on August 31, 2015. The lease agreement does not provide for payment of rent and it was not subsequently
renewed.
On
May 14, 2015, the Company obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015
to May 13, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 42,100 square
meters, an office building at 3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions
is the same as the land. The Company recorded the prepayment of RMB 111,887,500 (US$18,260,000) as prepaid lease. The prepaid
lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $15,980,035
and $16,182,280 is included in prepaid lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively.
Rent
expense charged to operations for the three months ended September30, 2016 and 2015 was $431,746 and $458,597, respectively.
The
Company had Employment Agreements with its executive officers and directors for a one-year period with renewal options after expiration,
with the current agreements expiring on June and August, 2017. For the three months ended September 30, 2016 and 2015, compensation
under these agreements was $66,009 and $19,541, respectively.
At
September 30, 2016, the future commitment under these agreements is approximate $190,449.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
9.
|
Related
party transactions
|
In
March 2015, Zhongxian Information and the Executive Chairman of the Company entered into a loan agreement pursuant to which Executive
Chairman provides a loan facility to Zhongxian Information, which is non-interest bearing and due on demand. The maximum amount
of the loan is RMB 50,000,000 (US $7,845,000). Any borrowings in excess of this amount may be negotiated between the parties.
The loans outstanding were $1,747,120 and $1,672,707 as of September 30, 2016 and June 30, 2016, respectively.
In
2012, CMCI issued 9,000,000 shares of common stock, par value of $0.001 at $0.34 per share, totaled of RMB 19,428,571 (US $3,060,000)
to the shareholder of Yulong on behalf Zhongxian Information for the acquisition of Yulong by Zhongxian Information. The
loan was fully paid off by China Dairy to CMCI on June 29, 2016.
In
July 2016, Xinhua Cattle contributed net profit of $6,225,856 and $99,923, respectively, to Zhongxian Information and the 1% owned
minority shareholder. The total represents the net profit of Xinhua Cattle for the years ended June 30, 2008 and 2007.
In
July 2016, the Company paid the dividend declared at AUD $0.0057 per share, total of AUD $1,965,967 to its minority shareholders.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
The
provision for income taxes consisted of the following for the threes ended September 30:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Deferred
|
|
|
-
|
|
|
|
2,464,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
2,464,645
|
|
The
following table reconciles the effective income tax rates with the statutory rates for the three months ended September 30:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
Allowance
|
|
|
(0.02
|
)%
|
|
|
0.03
|
%
|
|
Other
|
|
|
(24.98
|
)%
|
|
|
(34.48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
-
|
|
|
|
(9.45
|
)%
|
Deferred
tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates in effects for the year in which the differences
are expected to reverse.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
11.
|
Income
taxes (continued)
|
The
tax laws of China permit the carry forward of net operating losses for a period of five years. Undistributed earnings from Xinhua
Cattle and Yulong are not taxable until such earnings are actually distributed to Jiasheng Consulting. A deferred tax liability
was provided for the tax to be paid when these earnings are distributed. On September 16, 2015 due to the termination of VIE structure
(Note 1), Jiasheng Consulting would not be taxable in the future undistributed earnings from Xinhua Cattle and Yulong under the
Enterprise Income Tax Law that Chinese resident enterprise is an exemption of dividend income received from another Chinese resident
enterprise.
Deferred
tax assets (liabilities) are comprised of the following:
|
|
|
September 30,
2016
|
|
|
June
30,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
504,380
|
|
|
$
|
497,542
|
|
|
Bargain
purchase gain
|
|
|
(1,430,399
|
)
|
|
|
(1,430,399
|
)
|
|
Undistributed
earnings of subsidiaries under PRC law upon VIE structure terminated
|
|
|
(39,288,681
|
)
|
|
|
(39,446,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,214,700
|
)
|
|
|
(40,379,361
|
)
|
|
Less
valuation allowance
|
|
|
(504,380
|
)
|
|
|
(497,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax (liabilities)
|
|
$
|
(40,719,080
|
)
|
|
$
|
(40,876,903
|
)
|
At
September 30, 2016 and June 30, 2016, Zhongxian Information had unused operating loss carry-forwards of approximately $2,018,000
and $1,990,000, respectively, expiring in various years through 2020. The Company has established a valuation allowance of approximately
$504,000 and $498,000 against the deferred tax asset related to the net operating loss carry forward at September 30, 2016 and
June 30, 2016, due to the uncertainty of realizing the benefit.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
11.
|
Income
taxes (continued)
|
The
Company’s tax filings are subject to examination by the tax authorities. The tax years from 2009 to 2015 remain open to
examination by tax authorities in the PRC. The Company’s U.S. tax returns are subject to examination by the tax authorities
for tax years 2012, 2014 and 2015. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no
adjustment.
12.
|
CONCENTRATION
OF CREDIT RISK
|
Substantially
all of the Company’s bank accounts are located in The People’s Republic of China and are not covered by protection
similar to that provided by the FDIC on funds held in United States banks.
In
November 2015, the Company entered milk sale agreement with another three customers and terminate the contracts with the original
four customers. In February 2016, the Company entered into a new milk sale agreement with one customer after terminating the contract
with the original customer.
Three
customers accounted for approximately 98% and five customers for approximately 100% of milk sales for the three months ended September
30, 2016 and 2015, respectively. Three customers also accounted for approximately 75% and 71% of accounts receivable at September
30, 2016 and June 30, 2016, respectively.
Seventy-six
farmers and thirty-nine farmers accounted for the notes receivable at September 30, 2016 and June 30, 2016, respectively.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
13.
|
Parent
company only condensed financial information
|
The
following is the condensed financial information of China Modern Agricultural Information, Inc. only, the US parent, balance sheets
as of September 30, 2016 and June 30, 2016, statements of income for the three months ended September 30, 2016 and 2015, and statements
of cash flows for the three months ended September 30, 2016 and 2015:
Condensed
Balance Sheets
|
ASSETS
|
|
June
30,
2016
|
|
|
June
30,
2015
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,067,131
|
|
|
$
|
-
|
|
|
Loan
Receivable
|
|
|
-
|
|
|
|
3,208,151
|
|
|
Investment
in subsidiaries
|
|
|
90,778,893
|
|
|
|
126,051,350
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
93,846,024
|
|
|
$
|
129,259,501
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND stockholders’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder
loans
|
|
$
|
1,672,707
|
|
|
$
|
937,524
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding
|
|
|
53,100
|
|
|
|
53,100
|
|
|
Additional
paid-in capital
|
|
|
49,709,237
|
|
|
|
5,851,170
|
|
|
Retained
earnings
|
|
|
42,410,980
|
|
|
|
122,417,707
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
93,846,024
|
|
|
$
|
129,259,501
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
|
13.
|
Parent
company only condensed financial information (
CONTINUED)
|
Condensed
Statements of Income
|
|
|
For
the years ended June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
Share
of earnings (loss) from investment in subsidiaries and VIE
|
|
$
|
18,935,506
|
|
|
$
|
32,408,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
37,781,000
|
|
|
|
183,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(18,845,494
|
)
|
|
$
|
32,225,267
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
|
13.
|
Parent
company only condensed financial information (CONTINUED)
|
Condensed
Statements of Cash Flows
|
|
|
For
the years ended June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(18,845,494
|
)
|
|
$
|
32,225,267
|
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
Share
of earnings from investment in subsidiaries and VIE
|
|
|
(18,935,506
|
)
|
|
|
32,225,267
|
|
|
Stock
compensation for shareholder and consultants
|
|
|
37,781,000
|
|
|
|
-
|
|
|
Decrease
in loan receivable
|
|
|
3,208,151
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
3,208,151
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(141,020
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
3,067,131
|
|
|
|
-
|
|
|
Cash,
beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
3,067,131
|
|
|
$
|
-
|
|
Basis
of Presentation
The
Company records its investment in its subsidiaries under the equity method of accounting. Such investments are presented as “Investment
in subsidiaries” on the condensed balance sheets and the subsidiaries and VIE profits upon September 16, 2015 (the date
of VIE structure dissolved - Note 1)) are presented as “Share of earnings from the investment in subsidiaries” in
the condensed statements of income.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. $)
FOR
THE
THREE MONTHS ended SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
|
13.
|
Parent
company only condensed financial information (
CONTINUED)
|
Basis
of Presentation (continued)
Certain
information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles
generally accepted in the United States of America have been condensed or omitted. The parent-only financial information has been
derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s
consolidated financial statements.
There
were no cash transactions in the US parent company during the three months ended September 30, 2016 and 2015.
Restricted
Net Assets
Under
PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net
assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC
subsidiaries and amounted to $ 97,170,741 and $ 92,173,317 as of September 30, 2016 and June 30, 2016, respectively.
The
Company’s operations and revenues are conducted and generated in the PRC, and all of the Company’s revenues being
earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and,
as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations
that restrict the Company’s ability to convert RMB into US Dollars.
Schedule
I of Article 5-04 of Regulation S-X requires the condensed financial information of the parent company to be filed when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the
Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the
end of the most recent fiscal year may not be transferred to the parent company by its subsidiaries in the form of loans, advances
or cash dividends without the consent of a third party. The condensed parent company only financial statements have been prepared
in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiaries
exceed 25% of the consolidated net assets of the Company.