UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2015
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ______to______.
Commission
File Number: 000-54510
CHINA
MODERN AGRICULTURAL INFORMATION, INC.
(Exact
name of registrant as specified in its charter)
Nevada |
|
27-2776002 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(IRS
Employee
Identification
No.) |
No.
A09, Wuzhou Sun Town
Limin
Avenue, Limin Development District
Harbin,
Heilongjiang, China
(Address
of principal executive offices, Zip Code)
(86)
0451-84800733
(Registrant’s
telephone number, including area code)
Not
Applicable.
(Former
name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer |
☐ |
|
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
|
Smaller
reporting company |
☒ |
(Do
not check if a smaller reporting company) |
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
registrant had 53,100,000 shares of its common stock, par value $0.001 per share, outstanding at May 20, 2015.
CHINA
MODERN AGRICULTURAL INFORMATION, INC.
QUARTERLY
REPORT ON FORM 10-Q
March
31, 2015
TABLE
OF CONTENTS
|
|
PAGE |
|
|
|
PART
1 - FINANCIAL INFORMATION |
|
|
|
Item
1. |
Financial
Statements (Unaudited) |
1 |
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
39 |
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
46 |
Item
4. |
Controls
and Procedures |
46 |
|
|
PART
II - OTHER INFORMATION |
|
|
|
|
Item
1. |
Legal
Proceedings |
47 |
Item
1A. |
Risk
Factors |
47 |
Item
2. |
Unregistered
Sales of Equity Securities and Use of Proceeds |
47 |
Item
3. |
Defaults
Upon Senior Securities |
47 |
Item
4. |
Mine
Safety Disclosures |
47 |
Item
5. |
Other
Information |
47 |
Item
6. |
Exhibits |
47 |
|
|
SIGNATURES |
48 |
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This
Quarterly Report on Form 10-Q contains “forward-looking statements”. Forward-looking statements discuss matters that
are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such
as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,”
“would,” “may,” “seek,” “plan,” “might,” “will,” “expect,”
“anticipate,” “predict,” “project,” “forecast,” “potential,” “continue”
negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various
underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be
materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We
cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that
the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume
any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements
are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed
future results of our operations, including statements about potential acquisition or merger targets; business strategies; future
cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash
needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These
forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are
subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results
to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties
and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or
at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements
concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form
10-Q.
Except
to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or
otherwise.
CERTAIN
TERMS USED IN THIS QUARTERLY REPORT ON FORM 10-Q
When
this report uses the words “we,” “us,” “our,” and the “Company,” they refer to
China Modern Agricultural Information, Inc. and its consolidated subsidiaries Value Development Holding, Value Development Group
and Jiasheng Consulting, its variable interest entity Zhongxian Information, Xinhua Cattle and Yulong Cattle, the subsidiaries
of Zhongxian Information.
In addition,
unless the context otherwise requires and for the purposes of this report only:
|
● |
“Exchange
Act” refers to the Securities Exchange Act of 1934, as amended; |
|
|
|
|
● |
“Jiasheng
Consulting” refers to Jiasheng Consulting Managerial Co., Ltd., a PRC company; |
|
|
|
|
● |
“Operating
Company or Operating Companies” refers to Value Development Holding, Value Development Group, Jiasheng Consulting, Zhongxian
Information, Xinhua Cattle, and Yulong Cattle. |
|
|
|
|
● |
“PRC,”
“China,” and “Chinese,” refer to the People’s Republic of China; |
|
|
|
|
● |
“Renminbi”
and “RMB” refer to the legal currency of China; |
|
|
|
|
● |
“SEC”
refers to the United States Securities and Exchange Commission; |
|
|
|
|
● |
“Securities
Act” refers to the Securities Act of 1933, as amended; |
|
|
|
|
● |
“Yulong
Cattle” refers to ShangzhiYulong Cattle Co., Ltd., a PRC company; |
|
|
|
|
● |
“U.S.
dollars,” “dollars” and “$” refer to the legal currency of the United States; |
|
|
|
|
● |
“Value
Development Holding” refers to Value Development Holding Limited., a British Virgin Islands company; |
|
|
|
|
● |
“Value
Development Group” refers to Value Development Group Limited, a Hong Kong company; |
|
|
|
|
● |
“Xinhua
Cattle” refers to Heilongjiang Xinhua Cattle Industry Co., Ltd., a PRC company; |
|
|
|
|
● |
“Zhongxian
Information” refers to Heilongjiang Zhongxian Information Co., Ltd., a PRC company; |
PART
I—FINANCIAL INFORMATION
Item
1. Financial Statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
BALANCE SHEETS
March
31, 2015 AND June 30, 2014 (IN U.S. $)
ASSETS | |
March
31,
2015 | | |
June 30,
2014 | |
| |
(Unaudited) | | |
| |
| |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 80,241,685 | | |
$ | 58,032,554 | |
Accounts receivable | |
| 8,382,942 | | |
| 5,341,891 | |
Inventories | |
| 315,421 | | |
| 675,542 | |
Prepaid expenses | |
| 994,091 | | |
| 2,902 | |
Interest receivable | |
| 569,302 | | |
| 424,409 | |
Notes receivable, current portion | |
| 3,108,803 | | |
| 1,863,092 | |
| |
| | | |
| | |
Total current assets | |
| 93,612,244 | | |
| 66,340,390 | |
| |
| | | |
| | |
Property,
plant and equipment, net | |
| 3,289,395 | | |
| 3,485,907 | |
| |
| | | |
| | |
Other assets | |
| | | |
| | |
Notes receivable | |
| 7,574,562 | | |
| 4,130,448 | |
Prepaid land leases | |
| 21,103,916 | | |
| 21,657,762 | |
Biological assets, net | |
| 35,820,712 | | |
| 32,288,393 | |
| |
| | | |
| | |
Total other assets | |
| 64,499,190 | | |
| 58,076,603 | |
| |
| | | |
| | |
TOTAL
ASSETS | |
$ | 161,400,829 | | |
$ | 127,902,900 | |
See
accompanying notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
BALANCE SHEETS (CONTINUED)
MARCH
31, 2015 AND June 30, 2014 (IN U.S. $)
LIABILITIES AND stockholders’
EQUITY | |
March
31,
2015 | | |
June 30,
2014 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
Current liabilities | |
| | |
| |
Accrued expenses and other payables | |
$ | 367,606 | | |
$ | 319,291 | |
Stockholder loans | |
| 887,197 | | |
| 656,995 | |
| |
| | | |
| | |
Total current liabilities | |
| 1,254,803 | | |
| 976,286 | |
| |
| | | |
| | |
Deferred
income taxes | |
| 38,948,327 | | |
| 30,653,108 | |
| |
| | | |
| | |
Total liabilities | |
| 40,203,130 | | |
| 31,629,394 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
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 | |
| 5,851,170 | | |
| 5,851,170 | |
Retained earnings | |
| 108,609,608 | | |
| 84,444,386 | |
Statutory reserve fund | |
| 792,174 | | |
| 792,174 | |
Other comprehensive income | |
| 4,703,879 | | |
| 4,211,885 | |
| |
| | | |
| | |
Sub-total | |
| 120,009,931 | | |
| 95,352,715 | |
| |
| | | |
| | |
Noncontrolling interests | |
| 1,187,768 | | |
| 920,791 | |
| |
| | | |
| | |
Total stockholders’ equity | |
| 121,197,699 | | |
| 96,273,506 | |
| |
| | | |
| | |
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 161,400,829 | | |
$ | 127,902,900 | |
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
AND
OTHER COMPREHENSIVE INCOME
FOR
THE THREE AND NINE MONTHS ENDED MARCH 31, 2015 and 2014 (UNAUDITED) (IN
U.S. $)
|
|
Three Months Ended
March 31, |
|
|
Nine Months Ended
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Milk sales |
|
$ |
10,824,182 |
|
|
$ |
11,708,023 |
|
|
$ |
36,532,288 |
|
|
$ |
33,705,777 |
|
Sales commission |
|
|
5,353,361 |
|
|
|
2,998,975 |
|
|
|
12,535,223 |
|
|
|
9,172,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
16,177,543 |
|
|
|
14,706,998 |
|
|
|
49,067,511 |
|
|
|
42,878,432 |
|
Cost of goods sold |
|
|
(4,239,953 |
) |
|
|
(5,455,703 |
) |
|
|
(14,824,153 |
) |
|
|
(15,152,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
11,937,590 |
|
|
|
9,251,295 |
|
|
|
34,243,358 |
|
|
|
27,725,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
|
341,773 |
|
|
|
189,467 |
|
|
|
757,953 |
|
|
|
575,749 |
|
General and administrative |
|
|
167,664 |
|
|
|
127,777 |
|
|
|
425,937 |
|
|
|
412,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
509,437 |
|
|
|
317,244 |
|
|
|
1,183,890 |
|
|
|
988,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
11,428,153 |
|
|
|
8,934,051 |
|
|
|
33,059,468 |
|
|
|
26,737,148 |
|
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
AND
OTHER COMPREHENSIVE INCOME (CONTINUED)
FOR
THE THREE AND NINE MONTHS ENDED march 31, 2015 and 2014 (UNAUDITED)
(IN U.S. $)
|
|
Three Months Ended
March 31, |
|
|
Nine Months Ended
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income |
|
|
228,128 |
|
|
|
172,061 |
|
|
|
605,543 |
|
|
|
520,021 |
|
Other non-operating (expense) |
|
|
- |
|
|
|
- |
|
|
|
(1,099,748 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
228,128 |
|
|
|
172,061 |
|
|
|
(494,205 |
) |
|
|
520,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11,656,281 |
|
|
|
9,106,112 |
|
|
|
32,565,263 |
|
|
|
27,257,169 |
|
Provision for income taxes |
|
|
2,873,505 |
|
|
|
2,263,883 |
|
|
|
8,133,064 |
|
|
|
6,628,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interests |
|
|
8,782,776 |
|
|
|
6,842,229 |
|
|
|
24,432,199 |
|
|
|
20,629,007 |
|
Noncontrolling interests |
|
|
(88,053 |
) |
|
|
(71,522 |
) |
|
|
(266,977 |
) |
|
|
(206,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
|
8,694,723 |
|
|
|
6,770,707 |
|
|
|
24,165,222 |
|
|
|
20,422,789 |
|
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
AND
OTHER COMPREHENSIVE INCOME (CONTINUED)
FOR
THE THREE AND NINE MONTHS ENDED march 31, 2015 and 2014 (UNAUDITED)
(IN U.S. $)
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Other comprehensive income: | |
| | |
| | |
| | |
| |
Foreign currency translation adjustment | |
| 434,595 | | |
| (741,169 | ) | |
| 491,994 | | |
| 154,672 | |
| |
| | | |
| | | |
| | | |
| | |
Total
comprehensive income | |
$ | 9,129,318 | | |
$ | 6,029,538 | | |
$ | 24,657,216 | | |
$ | 20,577,461 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per common share, basic and diluted | |
$ | 0.16 | | |
$ | 0.13 | | |
$ | 0.46 | | |
$ | 0.38 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding, basic and diluted | |
| 53,100,000 | | |
| 53,100,000 | | |
| 53,100,000 | | |
| 53,100,000 | |
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF changes in Stockholders’
EQUITY
FOR
THE NINE MONTHS ENDED MARCH 31, 2015 (UNAUDITED)
(IN U.S. $)
| |
Common
Stock | | |
Additional
Paid-in Capital | | |
Retained
Earnings | | |
Statutory
Reserve Fund | | |
Noncontrolling
Interests | | |
Other
Comprehensive Income | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance,
June 30, 2014 | |
$ | 53,100 | | |
$ | 5,851,170 | | |
$ | 84,444,386 | | |
$ | 792,174 | | |
$ | 920,791 | | |
$ | 4,211,885 | | |
$ | 96,273,506 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| 24,165,222 | | |
| - | | |
| 266,977 | | |
| - | | |
| 24,432,199 | |
Other comprehensive
income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 491,994 | | |
| 491,994 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2015 (Unaudited) | |
$ | 53,100 | | |
$ | 5,851,170 | | |
$ | 108,609,608 | | |
$ | 792,174 | | |
$ | 1,187,768 | | |
$ | 4,703,879 | | |
$ | 121,197,699 | |
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED MARCH 31, 2015 AND
2014 (UNAUDITED) (IN U.S. $)
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities | |
| | | |
| | |
Net income | |
$ | 24,432,199 | | |
$ | 20,629,007 | |
Adjustment to reconcile net income to net cash provided by (used in) operating
activities: | |
| | | |
| | |
Depreciation | |
| 1,708,469 | | |
| 1,646,314 | |
Amortization for prepaid land lease | |
| 553,846 | | |
| 646,403 | |
Deferred income taxes | |
| 8,133,064 | | |
| 6,628,162 | |
Loss from disposal from biological assets | |
| 1,100,669 | | |
| - | |
Change in operating assets and liabilities | |
| | | |
| | |
(Increase) in accounts receivable | |
| (3,041,051 | ) | |
| (700,137 | ) |
Decrease (Increase) in inventories | |
| 360,121 | | |
| (1,668,611 | ) |
(Increase) in prepaid expenses | |
| (991,189 | ) | |
| (36,378 | ) |
(Increase) in interest receivable | |
| (144,893 | ) | |
| (75,670 | ) |
Increase in accrued expenses and other
payables | |
| 48,315 | | |
| 9,387 | |
| |
| | | |
| | |
Net cash provided by operating activities | |
| 32,159,550 | | |
| 27,078,477 | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Collection of notes receivable | |
| 1,421,893 | | |
| 1,403,920 | |
Proceeds from sales of biological assets | |
| 14,219 | | |
| 12,380 | |
Purchase of property, plant and equipment | |
| (926 | ) | |
| - | |
(Increase) in biological assets | |
| (7,511,059 | ) | |
| (6,005,721 | ) |
Purchase of biological assets | |
| (4,550,000 | ) | |
| - | |
| |
| | | |
| | |
Net cash (used in) investing activities | |
| (10,625,873 | ) | |
| (4,589,421 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from stockholder loans | |
| 304,437 | | |
| 241,365 | |
Repayment of stockholder loans | |
| (89,119 | ) | |
| (1,163 | ) |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 215,318 | | |
| 240,202 | |
See accompanying
notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR
THE NINE months ENDED MARCH 31, 2015 AND
2014 (UNAUDITED) (IN U.S. $)
| |
2015 | | |
2014 | |
| |
| | |
| |
Effect
of exchange rate changes on cash | |
| 460,136 | | |
| (3,793 | ) |
| |
| | | |
| | |
Net increase in cash | |
| 22,209,131 | | |
| 22,725,465 | |
Cash,
beginning of year | |
| 58,032,554 | | |
| 25,147,474 | |
| |
| | | |
| | |
Cash,
end of year | |
$ | 80,241,685 | | |
$ | 47,872,939 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow
information: | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Cash paid for interest | |
$ | - | | |
$ | - | |
See
accompanying notes to the consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
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. Wang Youliang, 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. Youliang
holds a 38% equity interest in Zhongxian Information. Pursuant to the VIE agreement signed by Mr. Zhengxin and Mr. Youliang, 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
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
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
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
1. | | ORGANIZATION
(CONTINUED) |
As
a result of the entry into the foregoing agreements, the Company has a corporate structure as set forth below:
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
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,
Value Development, Value Development Group Limited, Jiasheng Consulting, and its VIE, Zhongxian Information and Zhongxian Information’s
99% owned subsidiary, Xinhua Cattle and its 100% owned subsidiary, Yulong. The Company is the primary beneficiary of the VIE and
its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The
unaudited interim consolidated financial statements of the Company as of March 31, 2015 and for the three and nine months ended
March 31, 2015 and 2014, 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, 2014, 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 and nine months ended March 31, 2015 are not necessarily indicative of the results
to be expected for future quarters or for the year ending June 30, 2015.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Foreign
Currency Translations
All
Company assets are located in People’s Republic of China (“PRC”). The functional currency for the majority of
the Company’s operations is the Renminbi (“RMB”). The Company uses the United States dollar (“US Dollar”
or “US$” 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 into US dollars for preparing the consolidated financial statements are as follows:
|
| |
March
31, 2015 | | |
June 30, 2014 | | |
March 31, 2014 | |
|
| |
| | |
| | |
| |
|
Balance sheet items,
except for stockholders’ equity, as of period end | |
| 0.1631 | | |
| 0.1624 | | |
| N/A | |
|
| |
| | | |
| | | |
| | |
|
Amounts included in
the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period | |
| 0.1625 | | |
| N/A | | |
| 0.1629 | |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Foreign
Currency Translations (Continued)
Foreign
currency translation adjustments of $434,595 and ($741,169) for the three months ended March 31, 2015 and 2014, respectively,
and $491,994 and $154,672 for the nine months ended March 31, 2015 and 2014, respectively, have been reported as other comprehensive
income in the consolidated statements of income and other comprehensive income. Other comprehensive income 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
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
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.
The
Company believes that Jiasheng Consulting’s contractual agreements with Zhongxian Information are in compliance with PRC
law and are legally enforceable. The stockholders of Zhongxian Information are also the senior management of the Company and therefore
the Company believes that they have no current interest in seeking to act contrary to the contractual agreements. However, Zhongxian
Information and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s
instructions despite their contractual obligations to do so. Furthermore, if Zhongxian Information or its stockholders do not
act in the best interests of the Company under the contractual agreements or any dispute relating to these contractual agreements
remains unresolved, the Company will have to enforce its rights through the operations of PRC law and courts and therefore will
be subject to uncertainties in the PRC legal system.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED) |
Vulnerability
Due to Operations in PRC (Continued)
All
of these contractual agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the
PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance
with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce
these contractual agreements, which could make it difficult to exert effective control over Zhongxian Information, and its ability
to conduct the Company’s business may be adversely affected.
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.
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 upon 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. |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED) |
Fair
Value of Financial Instruments (Continued)
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, 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.
Advertising
Costs
Advertising
costs are charged to operations when incurred. No advertising costs were incurred for the three and nine months ended March 31,
2015 and 2014.
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED) |
Accounts
Receivable (Continued)
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 considers
all accounts receivable at March 31, 2015 and June 30, 2014, 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 March 31, 2015 and June 30, 2014.
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015 AND 2014
(UNAUDITED)
(IN U.S. $)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED) |
Property,
Plant and Equipment (Continued)
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 |
|
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 and nine months ended March 31, 2015 and 2014.
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Biological Assets (Continued)
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. For the three
and nine months ended March 31, 2015, a loss of $1,099,748 on the sale of the adult cows is included in non-operating expenses
in the accompanying consolidated statements of income and other comprehensive income.(See Note 6)
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 and nine months
ended March 31, 2015 and 2014.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
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 for 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. Zhongxian
Information is subject to the tax rate of 25% for the earnings when distributed by Xinhua Cattle and Yulong. At March 31, 2015
and June 30, 2014, undistributed earnings allocated to Zhongxian Information were approximately $149,200,000 and $117,000,000,
respectively.
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 March 31, 2015 and June 30, 2014, the Company does not have a liability for any
uncertain tax positions.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Income Taxes (Continued)
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 and nine months ended March 31, 2015 and 2014.
BVI
Value Development is 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 is
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.
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. On January 16, 2015, Zhongxian Information received a tax
exemption notice from Harbin National Tax Bureau on its investment income from its subsidiaries.
Jiasheng Consulting (the “WFOE”) is subject to an Enterprise Income Tax at 25% and files its own tax return.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
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 and nine months ended March 31, 2015 and 2014.
Statutory Reserve Fund
Pursuant to 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 March 31, 2015 and June 30, 2014,
the required statutory reserve funds have been fully funded.
Reclassifications
Certain amounts in the previous
periods presented have been reclassified to conform to the current year financial statement presentation.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
3. |
Recently Issued Accounting Standards |
In January 2015, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-01 – Income Statement –
Extraordinary and Unusual Items (Subtopic 225-20). This ASU addressed the simplification of income statement presentation by eliminating
the concept of extraordinary items. The objective of the Simplification Initiative is to identify, evaluate, and improve areas
of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving
the usefulness of the information provided to the users of financial statements. The amendments in this update are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the
amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the
financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of
adoption. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial
statements.
In August 2014, the FASB issued
authoritative guidance that requires an entity’s management to evaluate whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and requires additional
disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early
adoption permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated
financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
3. |
Recently
Issued Accounting Standards (CONTINUED) |
In June 2014, the FASB issued
ASU 2014-10, ”Development Stage Entities: Elimination of Certain Financial Reporting Requirements, Including an
Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.” This ASU amends FASB ASC Topic 915,
Development Stage Entities, to remove all incremental financial reporting requirements for development stage entities,
thereby improving financial reporting by reducing the cost and complexity associated with providing that information. The
amendments in this ASU also eliminate an exception provided to development stage entities in FASB ASC 810 for determining
whether an entity is a variable interest entity (VIE) on the basis of the amount of investment equity that is at risk. The
amendments in this ASU remove the definition of development stage entity from the FASB ASC Master Glossary, thereby removing
the financial reporting distinction between development stage entities and other entities from U.S. GAAP. In addition, the
amendments eliminate the requirements for development stage entities to (i) present inception-to-date information on the
statements of income, cash flows, and shareholder equity, (ii) label the financial statements as those of a development stage
entity, (iii) disclose a description of the development stage activities in which the entity is engaged, (iv) disclose in the
first year in which the entity is no longer a development stage entity that in prior years it had been in the development
stage. The amendments also clarify that the guidance in FASB ASC 275, Risks and Uncertainties, is applicable to entities that
have not yet commenced planned principal operations. The amendments related to the elimination of inception-to-date
information and the other remaining disclosure requirements of FASB ASC 915 should be applied retrospectively, except for the
clarification to FASB ASC 275, which should be applied prospectively. For public business entities, those amendments are
effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Earlier
implementation is allowed for any period where the reporting entity’s annual or interim financial statements have not
yet been made available for issuance. This accounting standard update will not have a
material impact on the Company’s consolidated financial statements.
In June 2014, the FASB issued Accounting
Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period (ASU 2014-12). ASU 2014-12 requires that a performance target that affects
vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should
apply existing guidance in Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation, as it relates to
such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of
two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with
performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements
and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening
retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. This accounting
standard update is not expected to have a material impact on the Company’s consolidated financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
3. |
Recently
Issued Accounting Standards (CONTINUED) |
In May 2014, the FASB issued ASU
No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements
in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective
for public companies annual reporting periods beginning after December 15, 2016, including interim periods within that reporting
period. The FASB has proposed deferring the effective date to annual reporting periods beginning at the December 15, 2017. Companies
are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted.
The Company has not yet determined the potential impact of this updated authoritative guidance on its consolidated financial statements.
4. |
Property, plant
and equipment |
Property, plant and equipment are
summarized as follows:
|
| |
March
31, 2015 | | |
June 30, 2014 | |
|
| |
(Unaudited) | | |
| |
|
| |
| | |
| |
|
Machinery and equipment | |
$ | 413,002 | | |
$ | 410,304 | |
|
Automobiles | |
| 105,615 | | |
| 105,163 | |
|
Building and building improvements | |
| 4,263,130 | | |
| 4,244,832 | |
|
| |
| | | |
| | |
|
| |
| 4,781,747 | | |
| 4,760,299 | |
|
Less: accumulated depreciation | |
| (1,492,352 | ) | |
| (1,274,392 | ) |
|
| |
| | | |
| | |
|
Property, plant and equipment, net | |
$ | 3,289,395 | | |
$ | 3,485,907 | |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
4. |
Property, plant
and equipment (CONTINUED) |
Depreciation expense charged to operations
for the three and nine months ended March 31, 2015 and 2014 were $67,943 and $75,866, respectively, and $211,685 and $226,574,
respectively.
Biological
assets consist of the following:
|
| |
March
31, 2015 | | |
June 30, 2014 | |
|
| |
(Unaudited) | | |
| |
|
| |
| | |
| |
|
Immature biological assets | |
$ | 23,046,432 | | |
$ | 18,506,045 | |
|
Mature biological assets | |
| 15,331,818 | | |
| 18,313,125 | |
|
| |
| | | |
| | |
|
| |
| 38,378,250 | | |
| 36,819,170 | |
|
Less: accumulated depreciation | |
| (2,557,538 | ) | |
| (4,530,777 | ) |
|
| |
| | | |
| | |
|
Biological assets, net | |
$ | 35,820,712 | | |
$ | 32,288,393 | |
Depreciation expense for three and
nine months ended March 31, 2015 and 2014 was $400,043 and $486,853, respectively, and $1,496,784 and $1,419,740, respectively,
all of which was included in cost of goods sold in the consolidated statements of income and other comprehensive income.
Notes receivable are related to the
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 2,995 cows to local farmers respectively. 3,500 of the cows sold were purchased from outside parties for
$4,550,000. The remaining cows sold were raised by Yulong.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
6. |
Notes Receivable (CONTINUED)
|
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.
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 March
31, 2015 and 2014, the Company received principal and interest payments of $491,363 and $503,232, respectively, and $1,707,459
and $1,524,957 for the nine months then ended, respectively. Commission income for the three months ended March 31, 2015 and 2014,
was $5,353,361 and $2,998,975, respectively, and $12,535,223 and $9,172,655 for the nine months then ended, respectively, under
these agreements.
The receivable related to the sales
of cows is included in notes receivable in the consolidated balance sheets as of March 31, 2015 and June 30, 2014. The related
commission receivable of $4,547,523 and $989,792 at March 31, 2015 and June 30, 2014, respectively, is included in accounts receivable
in the consolidated balance sheets.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
6. |
Notes Receivable (CONTINUED)
|
Notes receivable at March 31, 2015
and June 30, 2014 consists of the following:
|
|
|
March 31, 2015 |
|
|
June 30, 2014 |
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable |
|
$ |
10,745,151 |
|
|
$ |
6,114,346 |
|
|
Less: discount for interest |
|
|
(61,786 |
) |
|
|
(120,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,683,365 |
|
|
|
5,993,540 |
|
|
Less: current portion |
|
|
(2,785,142 |
) |
|
|
(1,863,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
Non-current portion |
|
$ |
7,898,223 |
|
|
$ |
4,130,448 |
|
Future
maturities of notes receivable as of March 31, 2015 are as follows:
|
Year Ending March 31, | |
| |
|
| |
| |
|
2016 | |
$ | 2,495,000 | |
|
2017 | |
| 1,853,000 | |
|
2018 | |
| 1,380,000 | |
|
2019 | |
| 638,000 | |
|
2020 | |
| 571,000 | |
|
Thereafter | |
| 979,000 | |
|
| |
$ | 7,916,000 | |
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
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.
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 Apr 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 $5,881,794 and $5,947,900 is included in prepaid land lease in the consolidated balance
sheets as of March 31, 2015 and June 30, 2014, 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 $3,180,450 and $3,532,200
is included in prepaid land lease in the consolidated balance sheets as of March 31, 2015 and June 30, 2014, respectively.
The lease provides for renewal options.
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 $12,041,672
and $12,177,662 is included in prepaid land lease in the consolidated balance sheets as of March 31, 2015 and June 30, 2014, respectively.
The lease provides for renewal options.
Rent expense charged to operations
for the three months ended March 31, 2015 and 2014 was $214,938 and $216,261, respectively, and was $644,816 and $646,403 for the
nine months then ended.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
The Company had
Employment Agreements with its executive officers which expired in 2014. The Agreements were later renewed until July 31, 2015.
For three months ended March 31, 2015 and 2014, compensation under the agreements was $8,500, and were $25,500 and $22,500, respectively
for nine months then ended March 31, 2015 and 2014.
At March 31, 2015,
the future commitment under these agreements is approximately $11,400.
9. |
Related party transactions |
The Company obtained demand loans
from one of its stockholders which are non-interest bearing. The loans of $887,197 and $656,995 as of March 31, 2015 and June
30, 2014, respectively, are reflected as stockholder loans in the consolidated balance sheets.
| | The
provision for income taxes consisted of the following for the three and nine months ended
March 31: |
|
| |
Three
Months Ended March 31, | | |
Nine
Months Ended March 31, | |
|
| |
2015
| | |
2014 | | |
2015
| | |
2014 | |
|
| |
| | |
| | |
| | |
| |
|
Current | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
|
Deferred | |
| 2,873,505 | | |
| 2,263,883 | | |
| 8,133,064 | | |
| 6,628,162 | |
|
| |
| | | |
| | | |
| | | |
| | |
|
| |
$ | 2,873,505 | | |
$ | 2,263,883 | | |
$ | 8,133,064 | | |
$ | 6,628,162 | |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
10. |
Income
taxes (CONTINUED) |
The following table reconciles the
effective income tax rates with the statutory rates for the three months ended March 31:
|
| |
For
the three months ended March 31 | |
|
| |
2015 | | |
2014 | |
|
| |
| | |
| |
|
Statutory rate | |
| 25.0 | % | |
| 25.0 | % |
|
Other | |
| 0.3 | % | |
| 0.2 | % |
|
| |
| | | |
| | |
|
Effective income
tax rate | |
| 25.3 | % | |
| 25.2 | % |
The following table reconciles the
effective income tax rates with the statutory rates for the nine months ended March 31:
|
| |
For
the nine months ended March 31 | |
|
| |
2015 | | |
2014 | |
|
| |
| | |
| |
|
Statutory rate | |
| 25.0 | % | |
| 25.0 | % |
|
Other | |
| 0.2 | % | |
| 0.2 | % |
|
| |
| | | |
| | |
|
Effective income
tax rate | |
| 25.2 | % | |
| 25.2 | % |
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.
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
10. |
Income
taxes (CONTINUED) |
Deferred tax assets (liabilities)
are comprised of the following:
|
| |
March
31, 2015 | | |
June
30, 2014 | |
|
| |
(Unaudited) | | |
| |
|
| |
| | |
| |
|
Net operating loss carryforwards | |
$ | 484,247 | | |
$ | 434,844 | |
|
Bargain purchase gain | |
| (1,430,399 | ) | |
| (1,430,399 | ) |
|
Undistributed
earnings of subsidiaries under PRC law | |
| (37,517,928 | ) | |
| (29,222,709 | ) |
|
| |
| | | |
| | |
|
| |
| (38,464,080 | ) | |
| (30,218,264 | ) |
|
Less
valuation allowance | |
| (482,247 | ) | |
| (434,844 | ) |
|
| |
| | | |
| | |
|
Net
deferred tax (liabilities) | |
$ | (38,948,327 | ) | |
$ | (30,653,108 | ) |
At March 31, 2015 and June 30, 2014,
Zhongxian Information had unused operating loss carry-forwards of approximately $1,937,000 and $1,739,000, respectively, expiring
in various years through 2019. The Company has established a valuation allowance of approximately $482,000 and $435,000 against
the deferred tax asset related to the net operating loss carryforward at March 31, 2015 and June 30, 2014, due to the uncertainty
of realizing the benefit.
The Company’s tax filings
are subject to examination by the tax authorities. The tax years from 2008 to 2013 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
and 2014. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no adjustment.
11. |
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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
11. |
CONCENTRATION OF
CREDIT RISK (CONTINUED) |
Five customers accounted for approximately
100% of milk sales for the three and nine months ended March 31, 2015 and 2014. The same five customers also accounted for approximately
46% and 79% of accounts receivable at March 31, 2015 and June 30, 2014, respectively.
Seventy six farmers and Thirty nine
famers accounted for the notes receivable at March 31, 2015 and June 30, 2014, respectively.
12. |
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 March 31, 2015 and June 30,
2014, statements of income for the three and nine months ended March 31, 2015 and 2014, and statements of cash flows for the nine
months ended March 31, 2015 and 2014:
Condensed Balance Sheets
|
ASSETS | |
March
31, 2015 | | |
June
30, 2014 | |
|
| |
(Unaudited) | | |
| |
|
| |
| | |
| |
|
Investment
in subsidiaries and VIE | |
$ | 120,776,128 | | |
$ | 95,871,710 | |
|
| |
| | | |
| | |
|
TOTAL
ASSETS | |
$ | 120,776,128 | | |
$ | 95,871,710 | |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
| 12. | Parent
company only condensed financial information (CONTINUED) |
Condensed Balance Sheets (Continued)
|
LIABILITIES AND stockholders’ EQUITY |
|
March 31, 2015 |
|
|
June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
Stockholder loans |
|
$ |
887,197 |
|
|
$ |
656,995 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
5,851,170 |
|
|
|
5,851,170 |
|
|
Retained earnings |
|
|
113,984,661 |
|
|
|
89,310,445 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
120,776,128 |
|
|
$ |
95,871,710 |
|
Condensed Statements of Income (Unaudited)
|
| |
For
three months ended
March 31, | | |
For
nine months ended March 31, | |
|
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
|
| |
| | |
| | |
| | |
| |
|
Revenues | |
| | |
| | |
| | |
| |
|
Share
of earnings from investment in subsidiaries and VIE | |
$ | 8,627,723 | | |
$ | 6,743,707 | | |
$ | 24,044,222 | | |
$ | 20,361,789 | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Operating
expenses | |
| | | |
| | | |
| | | |
| | |
|
General
and administrative | |
| 67,000 | | |
| 27,000 | | |
| 121,000 | | |
| 81,000 | |
|
| |
| | | |
| | | |
| | | |
| | |
|
Net
income | |
$ | 8,560,723 | | |
$ | 6,716,707 | | |
$ | 23,923,222 | | |
$ | 20,280,789 | |
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
| 12. | Parent
company only condensed financial information (CONTINUED) |
Condensed Statements of Cash Flows (Unaudited)
|
| |
For
the nine months ended March 31 | |
|
| |
2015 | | |
2014 | |
|
Cash
flows from operating activities | |
| | |
| |
|
Net income | |
$ | 23,923,222 | | |
$ | 20,280,789 | |
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities | |
| | | |
| | |
|
Share
of earnings from investment in subsidiaries and VIE | |
| (23,923,222 | ) | |
| (20,280,789 | ) |
|
| |
| | | |
| | |
|
Net
cash provided by (used in) operating activities | |
| - | | |
| - | |
|
| |
| | | |
| | |
|
Net
change in cash | |
| - | | |
| - | |
|
Cash,
beginning of period | |
| - | | |
| - | |
|
| |
| | | |
| | |
|
Cash,
end of period | |
$ | - | | |
$ | - | |
Basis of Presentation
The Company records its investment
in its subsidiaries and VIE under the equity method of accounting. Such investments are presented as “Investment in subsidiaries
and VIE” on the condensed balance sheets and the subsidiaries and VIE profits are presented as “Share of earnings
from investment in subsidiaries and VIE” in the condensed statements of income.
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 and nine months ended March 31, 2015 and 2014.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE AND NINE MONTHS ended MARCH 31, 2015
AND 2014
(UNAUDITED)
(IN U.S. $)
| 12. | Parent
company only condensed financial information (CONTINUED) |
Restricted Net Assets
Under PRC laws and regulations,
the Company’s PRC subsidiaries and VIE 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 the
VIE amounted to $120,776,128 and $95,871,710 as of March 31, 2015 and June 30, 2014, 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 and VIE exceed 25% of
the consolidated net assets of the Company.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis of the results of operations and financial condition of the Company for the three and nine months
ended March 31, 2015 and 2014. Such discussion and analysis should be read in conjunction with our consolidated financial statements
and the related notes thereto and other financial information contained elsewhere in this Quarterly Report.
Overview
We are a leading
producer and distributor of raw fresh milk in China. We have two operating entities with an aggregate fresh milk production capacity
of approximately 217 tons per day. We also have 76 exclusive individual partners with an aggregate fresh milk production capacity
of approximately 406 tons per day. We have five major customers, one of which is the leading dairy company in China.
We
were incorporated on December 22, 2008 under the laws of the State of Nevada. We were formerly known as
Trade Link. On April 4, 2011, the Board of Directors of Trade Link filed an amendment to the Certificate of Incorporation with
the State of Nevada and changed our name from Trade Link to China Modern Agricultural Information, Inc.
On
January 28, 2011, we entered into the Exchange Agreement by and among (i) Value Development, a British Virgin Islands company,
(ii) Value Development’s shareholders, (iii) us, and (iv) our former principal stockholders. Pursuant
to the terms of the Exchange Agreement, Value Development’s shareholders transferred to us all of the shares of Value Development
in exchange for the issuance of 35,998,000 shares of our common stock. The shares issued to Value Development’s shareholders
in the Securities Exchange constituted approximately 87.80% of our issued and outstanding shares of common stock as of and immediately
after the consummation of the Securities Exchange. As a result of the Securities Exchange, Value Development became our wholly
owned subsidiary and Value Development’s former principal shareholders became our principal shareholders.
On January
28, 2011, Value Development completed the acquisition of Jiasheng Consulting. Jiasheng Consulting entered
into a series of agreements with Zhongxian Information, Mr. Zhengxin Liu, our Chief Human Resource Officer and holder of 62% the
of equity interest in Zhongxian Information, and Mr. Youliang Wang, our Chief Executive Officer and holder of 38% of the equity
interest of Zhongxian Information. Pursuant to the Contractual Arrangements, Jiasheng Consulting controls all managerial power
of Zhongxian Information. The contractual arrangements include a shareholder voting rights proxy agreement,
exclusive consulting and services agreement, exclusive call option agreement and equity pledge agreement, pursuant to which, Jiasheng
Consulting shall provide exclusive and complete business support and technical and consulting service to Zhongxian Information
in exchange for an annual fee in the amount of Zhongxian Information’s yearly net profits after tax, and Zhongxian Information’s
stockholders pledged their rights, title and equity interest in Zhongxian Information as security for the collection of such consulting
and service fees provided in the equity pledge agreement.
Zhongxian
Information was incorporated in China in January 2005 with registered capital of 10 million Renminbi or $1,206,800 US Dollars. In
February 2006, it acquired 99% of the registered capital of Xinhua Cattle, which was incorporated in China in December 2005 with
registered capital of three million RMB or $371,580 US Dollars. Xinhua Cattle is located in Qiqihar, Heilongjiang Province, in
northeast China and is a livestock company that engages in cow breading and fresh milk production and distribution.
On
November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Yulong Cattle in exchange for (i) issuance of
9,000,000 shares of our common stock, and (ii) a cash payment of $4,396,000, to Yulong Cattle’s former shareholders. Yulong
Cattle was incorporated on December 4, 2007 under the laws of the PRC. Yulong Cattle, located in Harbin, Heilongjiang, in northeast
China, is a livestock company that engages in cow breeding and fresh milk distribution, and primarily generates its revenue from
the sale of fresh milk.
Factors
Affecting our Results of Operations
Our
operating results are primarily affected by the following present factors:
|
● |
Dairy
Industry Growth. We believe the market for dairy products in China for the long term will grow rapidly, driven by China’s
economic growth, improved living quality and increased penetration of infant formula. Accordingly, we believe that the demand
of fresh milk will increase rapidly. |
|
● |
Production
Capacity. Our revenue largely depends on our production capacity. The production capacity in this industry is determined by
the variety, aging and number of adult cows. Accordingly, we acquired Yulong Cattle in November 2011 which increased our number
of cows by 3,800 and improved our production capacity by approximately 90 tons per day when acquired. |
|
● |
Raw Material Supplies and Prices. The per unit cost of fresh milk is affected by price volatility of
our raw materials and feeding expenses in the China markets. In response to the increased cost, we leased 16,666,750
square meters of grassland in October 2011 and 427,572 square meters grassland in February 2013. We believe that the hay production
of this grassland can satisfy our raw material demand and lower our feeding cost.
|
Sale
of Cows
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 2,995 cows to local farmers respectively. 3,500 of the cows sold in 2014 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.
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 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.
Results
of Operations
Comparison
of Quarters Ended March 31, 2015 and 2014
The
following table sets forth certain information regarding our results of operations for the quarters ended March 31, 2015 and 2014.
|
|
For the quarters ended March 31, |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
Revenue |
|
$ |
16,177,543 |
|
|
$ |
14,706,998 |
|
|
$ |
1,470,545 |
|
|
|
10 |
% |
Cost of goods sold |
|
|
4,239,953 |
|
|
|
5,455,703 |
|
|
|
(1,215,750 |
) |
|
|
(22 |
%) |
Gross profit |
|
|
11,937,590 |
|
|
|
9,251,295 |
|
|
|
2,686,295 |
|
|
|
29 |
% |
Operating expenses |
|
|
509,437 |
|
|
|
317,244 |
|
|
|
192,193 |
|
|
|
61 |
% |
Operating income/(loss) |
|
|
11,428,153 |
|
|
|
8,934,051 |
|
|
|
2,494,102 |
|
|
|
28 |
% |
Other income and (expenses) |
|
|
228,128 |
|
|
|
172,061 |
|
|
|
56,067 |
|
|
|
33 |
% |
Income before income taxes |
|
|
11,656,281 |
|
|
|
9,106,112 |
|
|
|
2,550,169 |
|
|
|
28 |
% |
Provision for income taxes |
|
|
2,873,505 |
|
|
|
2,263,883 |
|
|
|
609,622 |
|
|
|
27 |
% |
Net income before noncontrolling interests |
|
|
8,782,776 |
|
|
|
6,842,229 |
|
|
|
1,940,547 |
|
|
|
28 |
% |
Noncontrolling interests |
|
|
88,053 |
|
|
|
71,522 |
|
|
|
16,531 |
|
|
|
23 |
% |
Net income attributable to controlling interests |
|
$ |
8,694,723 |
|
|
$ |
6,770,707 |
|
|
$ |
1,924,016 |
|
|
|
28 |
% |
Revenues
The revenue
was primarily generated from sales of fresh milk and commissions on fresh milk sales by famers to whom we sold cows. We had total
revenues of $16,177,543 for the quarter ended March 31, 2015, an increase of $1,470,545 or 10%, compared to $14,706,998 for the
quarter ended March 31, 2014. Such increases were driven by approximately $2.5 million commission revenue generated from the total
6,709 milk cows disposed by Yulong in November and December 2014 although the average quantity of milk cows decreased by 761.
The
following table shows a breakdown of revenue from natural milk sales and sales commission, respectively:
| |
For the quarters ended March 31, | |
| |
| | |
| | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
Sales of natural milk | |
$ | 10,824,182 | | |
$ | 11,708,023 | | |
$ | (883,841 | ) | |
| (8 | %) |
Sales commissions | |
| 5,353,361 | | |
| 2,998,975 | | |
| 2,354,386 | | |
| 79 | % |
Total revenue | |
$ | 16,177,543 | | |
$ | 14,706,998 | | |
$ | 1,470,545 | | |
| 10 | % |
For
the quarter ended March 31, 2015, our revenue generated from natural milk sales was $10,824,182 which represented a decrease of
$883,841 or 8% compared to $11,708,023 for the quarter ended March 31, 2014. The decrease in the natural milk sales was directly
related to the decreased number of milk cows compared to the same period of 2014.
The
following table sets forth information regarding the number of milk cows and the revenue per cow:
| |
For the quarters ended March 31, | |
| |
| | |
| | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
Sales of natural milk | |
$ | 10,824,182 | | |
$ | 11,708,023 | | |
$ | (883,841 | ) | |
| (8 | %) |
Average number of milk cows | |
| 8,934 | | |
| 9,695 | | |
| (761 | ) | |
| (8 | %) |
Revenue from per
milk cow | |
$ | 1,212 | | |
$ | 1,208 | | |
$ | 4 | | |
| 0 | % |
The
revenue per milk cow increased to $1,212 for the quarter ended March 31, 2015 from $1,208 for the quarter
ended March 31, 2014, an increase of $4 or 0%. Such increase was a result of the increase in number of young adult cows with high
daily production comparing to the quarter ended March 31, 2014, but the increase is very slight.
The
sales commissions increased from local farmers increased by $2,354,386 or 79% to $5,353,361 for the quarter ended March 31, 2015
from $2,998,975 for the quarter ended March 31, 2014. The quantity of milk cows we now earn commission revenue increased by 59%
or 6,709, to 18,131 for the quarter ended March 31, 2015 from 11,422 for the quarter ended March 31, 2014 due to the sale of cows
by Yulong in November and December 2014. However, the sales commission generated from the cows disposed by Yulong had not been
received yet by the end of March 2015. The farmers paid us since April 2015. In addition, the daily production of the cows sold
by Yulong is also higher than the cows sold by Xinhua due to their younger age.
Gross profit
Our
cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs,
depreciation, water & electricity, etc. Upon the shift of milk production and distribution responsibilities from us to local
farmers, our direct costs have been reduced as a result of lowered feeding food costs due to lower quantity of milk cows and,
we have seen a marked improvement in our margins compared with the past two years.
| |
For the quarters ended March 31, | |
| |
| | |
| | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
Cost of goods sold | |
$ | 4,239,953 | | |
$ | 5,455,703 | | |
($ | 1,215,750 | ) | |
| (22 | %) |
Average number of milk cows | |
| 8,934 | | |
| 9,695 | | |
| (761 | ) | |
| (8 | %) |
Cost per milk
cow | |
$ | 475 | | |
$ | 563 | | |
$ | (88 | ) | |
| (16 | %) |
The cost per
milk cow decreased to $475 for the three months ended March 31, 2015 which represented a decrease of $88 or 16% compared to $563
for the three months ended March 31, 2014. The main reason for the decrease was due to the increase in the cows fed by local farmers
at a lower cost. As a result, the cost per milk cow decreased accordingly.
Gross profit
margin
Our gross profit margin was 73.8% for
the quarter ended March 31, 2015 which increased by 17.3% from the quarter ended March 31, 2014. The main reason for such an increase
was mainly due to the disposal of adult cows by Yulong for which we now earn commissions.
Operating
expenses
Our operating
expenses increased to $509,437 for the quarter ended March 31, 2015 from $317,244 for the quarter ended March 31, 2014, an increase
of $192,193 or 61%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees associated
with filings required by the securities laws of the United States, consulting fees for a Chinese financial advisory company and
business taxes, etc. We incurred $324,708 and $ 167,943 in business taxes for the quarter ended March 31, 2015 and 2014, respectively.
We classified these business taxes as selling expenses.
Operating
income
As a result
of the foregoing, we had operating income of $11,428,153 for the quarter ended March 31, 2015, representing an increase of $2,494,102,
as compared to operating income of $8,934,051 for the quarter ended March 31, 2014.
Non-operating
income (expenses)
For the
quarter ended March 31, 2015, non-operating income consists primarily of interest income of $165,475 earned on the
outstanding notes receivable from the farmers and other non-operating income of $62,653 which mainly consists of bank
interest earned. For the quarter ended March 31, 2014, non-operating income consists primarily of interest income of $131,635
earned on the outstanding notes receivable from the farmers and other non operating income of $40,426 which mainly consists
of bank interest earned.
Net Income
Xinhua
Cattle and Yulong Cattle are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preference
policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax
returns before January 16, 2015. On January 16, 2015, Zhongxian Information received a tax exemption notice from Harbin National
Tax Bureau on its investment income from its subsidiaries. Jiasheng
Consulting (the “WFOE”) is subject to an Enterprise Income Tax at 25% and files its own tax return. The provision for
income taxes was $2,873,505 and $2,263,883 for the quarters ended March 31, 2015 and 2014, respectively, primarily representing
the enterprise income tax on the income of Zhongxian Information. Net income before noncontrolling interests was $8,782,776 and
$6,842,229 for the quarters ended March 31, 2015 and 2014, respectively, which represented an increase in $1,940,547 or 28%. As
we own 99% of Xinhua Cattle’s shares, net income attributed to the non controlling shareholders was $88,053 and $71,522 for
the quarters ended March 31, 2015 and 2014, respectively. Our net income attributable to the common stockholders of the Company
was $8,694,723 representing $0.16 per share and $6,770,707 representing $0.13 per share for the quarters ended March 31, 2015 and
2014, respectively.
Comparison
of the nine months Ended March 31, 2015 and 2014
The following
table sets forth certain information regarding our results of operations for the nine months ended March 31, 2015 and 2014.
|
|
For the nine months ended March 31, |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
Revenue |
|
$ |
49,067,511 |
|
|
$ |
42,878,432 |
|
|
$ |
6,189,079 |
|
|
|
14 |
% |
Cost of goods sold |
|
|
14,824,153 |
|
|
|
15,152,704 |
|
|
|
(328,551 |
) |
|
|
(2 |
%) |
Gross profit |
|
|
34,243,358 |
|
|
|
27,725,728 |
|
|
|
6,517,630 |
|
|
|
24 |
% |
Operating expenses |
|
|
1,183,890 |
|
|
|
988,580 |
|
|
|
195,310 |
|
|
|
20 |
% |
Operating income/(loss) |
|
|
33,059,468 |
|
|
|
26,737,148 |
|
|
|
6,322,320 |
|
|
|
24 |
% |
Other income and (expenses) |
|
|
(494,205 |
) |
|
|
520,021 |
|
|
|
(1,014,226 |
) |
|
|
(195 |
%) |
Income before income tax |
|
|
32,565,263 |
|
|
|
27,257,169 |
|
|
|
5,308,094 |
|
|
|
19 |
% |
Provision for income tax |
|
|
8,133,064 |
|
|
|
6,628,162 |
|
|
|
1,504,902 |
|
|
|
23 |
% |
Net income before noncontrolling interests |
|
|
24,432,199 |
|
|
|
20,629,007 |
|
|
|
3,803,192 |
|
|
|
18 |
% |
Noncontrolling interests |
|
|
266,977 |
|
|
|
206,218 |
|
|
|
60,759 |
|
|
|
29 |
% |
Net income attributable to controlling interests |
|
$ |
24,165,222 |
|
|
$ |
20,422,789 |
|
|
$ |
3,742,433 |
|
|
|
18 |
% |
Revenues
Revenue was
primarily generated from sales of fresh milk and commissions on fresh milk sales by famers to whom we sold cows. We had total revenues
of $49,067,511 for the nine months ended March 31, 2015, an increase of $6,189,079 or 14%, compared to $42,878,432 for the nine
months ended March 31, 2014. The change was driven by an increase of 658 in the average number of our milk cows compared to the
same period in 2014 and the additional commission revenue generated from the 6,709 milk cows disposed by Yulong in November and
December 2014.
The following
table shows a breakdown of revenue from natural milk sales and sales commission, respectively:
|
|
For the nine months ended March 31, |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
Sales of natural milk |
|
$ |
36,532,288 |
|
|
$ |
33,705,777 |
|
|
$ |
2,826,511 |
|
|
|
8 |
% |
Sales commissions |
|
|
12,535,223 |
|
|
|
9,172,655 |
|
|
|
3,362,568 |
|
|
|
37 |
% |
Total revenue |
|
$ |
49,067,511 |
|
|
$ |
42,878,432 |
|
|
$ |
6,189,079 |
|
|
|
14 |
% |
For the nine
months ended March 31, 2015, our revenue generated from natural milk sales was $36,532,288 which represented an increase of $2,826,511
or 8% compared to $33,705,777 for the nine months ended March 31, 2014. The increase in natural milk sales were directly related
to the increased number of milk cows compared to the same period of 2014.
The following
table sets forth information regarding the number of milk cows and the revenue per cow:
|
|
For the nine months ended March 31, |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
Sales of natural milk |
|
$ |
36,532,288 |
|
|
$ |
33,705,777 |
|
|
$ |
2,826,511 |
|
|
|
8 |
% |
Average number of milk cows |
|
|
9,895 |
|
|
|
9,237 |
|
|
|
658 |
|
|
|
8 |
% |
Revenue from per milk cow |
|
$ |
3,692 |
|
|
$ |
3,649 |
|
|
$ |
43 |
|
|
|
1 |
% |
The revenue
per milk cow increased to $3,692 for the nine months ended March 31, 2015 from $3,649 for the nine months ended
March 31, 2014, an increase of $43 or 1%. The change was a result of the increase in number of young adult cows with higher daily
production compared to the nine months ended March 31, 2014, but the increase was slight.
The sales commissions
earned from local farmers increased by $3,362,568 or 37% to $12,535,223 for the nine months ended March 31, 2015 from $9,172,655
for the nine months ended March 31, 2014. The quantity of milk cows we now earn commission revenue increased by 58% or 6,709, to
18,131 for the nine months ended March 31, 2015 from 11,422 for the nine months ended March 31, 2014.
Gross profit
Our cost of
goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation,
water & electricity, etc. Upon the shift of milk production and distribution responsibilities from us to local farmers, our
direct costs have been reduced as a result of lowered feeding food costs due to lower quantity of milk cows and, we have seen a
marked improvement in our margins comparing the past two years to 2012.
|
|
For the nine months ended March 31, |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2015 |
|
|
2014 |
|
|
Amount |
|
|
% |
|
Cost of goods sold |
|
$ |
14,824,153 |
|
|
$ |
15,152,704 |
|
|
$ |
(328,551 |
) |
|
|
(2 |
%) |
Average number of milk cows |
|
|
9,895 |
|
|
|
9,237 |
|
|
|
658 |
|
|
|
7 |
% |
Cost per milk cow |
|
$ |
1,498 |
|
|
$ |
1,640 |
|
|
$ |
(142 |
) |
|
|
(9 |
%) |
The cost per
milk cow decreased to $1,498 for the nine months ended March 31, 2015 which represented a decrease of $142 or 9% compared to $1,640
for the nine months ended March 31, 2014. The main reason for such a decrease was due to an increase in the number of the cows
fed by local farmers which increased materially due to the sale of cows to local farmers in November and December of 2014 at a
lower cost. As a result, the cost per milk cow decreased accordingly.
Gross profit
margin
Our gross profit
margin is 69.8% for the nine months ended March 31, 2015 which increased by 7.9% from the nine months ended March 31, 2014. The
main reason for such an increase was mainly due to the disposal of adult cows by Yulong for which we now earn commissions during
November and December in 2014.
Operating
expenses
Our operating
expenses increased to $1,183,890 for the nine months ended March 31, 2015 from $988,580 for the nine months ended March 31, 2014,
an increase of $195,310 or 20%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees
associated with filings required by the securities laws of the United States, consulting fees for a Chinese financial advisory
company and business taxes, etc. We incurred $701,973 and $512,597 in business taxes for the nine months ended March 31, 2015 and
2014. We classify these business taxes as selling expenses.
Operating
income
As a result
of the foregoing, we had operating income of $33,059,468 for the nine months ended March 31, 2015, representing an increase of
$6,322,320, as compared to operating income of $26,737,148 for the nine months ended March 31, 2014.
Non-operating
income (expenses)
For the nine
months ended March 31, 2015, non-operating income consists primarily of interest income of $428,103 earned on the outstanding notes
receivable from the farmers and other non operating income of $177,440 which mainly consists of bank interest earned. Non-operating
expenses consists of the loss on the disposal of mature biological assets of $1,099,748. For the nine months ended March 31, 2014,
non-operating income consists primarily of interest income of $414,257 earned on the outstanding notes receivable from the farmers
and other non operating income of $105,764 which mainly consists of bank interest earned.
Net Income
Xinhua
Cattle and Yulong Cattle are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preference
policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax
returns before January 16, 2015. On January 16, 2015, Zhongxian Information received a tax exemption notice from Harbin National
Tax Bureau on its investment income from its subsidiaries. Jiasheng
Consulting (the “WFOE”) is subject to an Enterprise Income Tax at 25% and files its own tax return. The
provision for income taxes was $8,133,064 and $6,628,162 for the nine months ended March 31, 2015 and 2014, respectively, primarily
representing the enterprise income tax on the income of Zhongxian Information. Net income before noncontrolling interests was
$24,432,199 and $20,629,007 for the nine months ended March 31, 2015 and 2014, respectively, which represented an increase in
$3,803,192 or 18%. As we own 99% of Xinhua Cattle’s shares, net income attributed to the non controlling shareholders was
$266,977 and $206,218 for the nine months ended March 31, 2015 and 2014, respectively. Our net income attributable to the common
stockholders of the Company was $24,165,222 representing $0.46 per share and $20,422,789 representing $0.38 per share for the
nine months ended March 31, 2015 and 2014, respectively.
Foreign
Currency Translation Adjustment
Our reporting
currency is the U.S. dollar. Our local currency, Renminbi, is our functional currency. 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 and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting
from the translation of our consolidated financial statements are recorded as other comprehensive income (loss). Transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred. For the three and nine months ended March 31, 2015 and 2014, foreign
currency translation adjustments of $434,595 and ($741,169), respectively, and $491,994 and $154,672, respectively, have been reported
as other comprehensive income in the consolidated statements of income and other comprehensive income, respectively.
Liquidity
and Capital Resources
As of March
31, 2015 and June 30, 2014, we had no bank debt but amounts owed to shareholders of $887,197 and $656,995, respectively. The amounts
due to our stockholders was principally for the professional fees incurred for being a reporting company in the United States from
our stockholders’ personal bank accounts because of the restriction of official bank transfers abroad by the Bank of China.
At the same time, we had $80,241,685 and $58,032,554 in cash at March 31, 2015 and June 30, 2014 as well as working capital of
$92,357,441 and $65,364,104, respectively.
Operating
activities
During the
nine months ended March 31, 2015, our operating activities provided $32,159,550 in net cash, compared to $27,078,477 during the
nine months ended March 31, 2014. The net cash provided in the nine months ended March 31, 2015 and 2014 was much more than
our net income primarily due to the increase in the deferred income tax liabilities of $8,133,064 and $6,628,162, respectively.
Investing
activities
During the
nine months ended March 31, 2015, our investing activities provided a cash outflow of $10,625,873 compared with a cash outflow
of $4,589,421 for the nine months ended March 31, 2014. The food costs and feeding expenses for biological properties used cash
of $7,511,059 and $6,005,721 for the nine months ended March 31, 2015 and 2014, respectively. For the nine months ended March 31,
2015, we spent $4,550,000 for purchasing milk cows. Conversely, we received cash of $1,421,893 and $1,403,920 during the nine months
ended March 31, 2015 and 2014, respectively, from collection of notes receivable from the disposal of biological properties in
2011 and 2014. For the nine months ended March 31, 2015 and 2014, we also received $14,219 and $12,380 in cash from our disposal
of biological properties, respectively. For the nine months ended March 31, 2015, we also spent $926 for addition of office equipment
for daily operations.
Financing
activities
Our financing
activities mainly included proceeds from shareholders and repayment to shareholders. For the nine months ended March 31, 2015 and
2014, we received $304,437 and $241,365 from shareholders, respectively. For the nine months ended March 31, 2015 and 2014, we
repaid of $89,119 and $1,163 to our shareholders, respectively.
We have historically
financed our operations through cash generated from our fresh milk sales and commissions from milk sales from local farmers. Over
the long term, it is our expectation to utilize our additional capital resources to expand our operating activities. At the
present time, however, we are able to operate profitably without any significant additional investment. Moreover, our observation
of the equity markets indicates that we would be unlikely to obtain financing, or if available, on favorable terms at this time.
Accordingly, our near term plan is to finance our operations with our current working capital and with the expected income from
our ongoing operations.
Critical
Accounting Policies and Estimates
Basis
of Accounting and Presentation
The
consolidated financial statements of the Company as of March 31, 2015 and June 30, 2014 and for the three and nine months ended
March 31, 2015 and 2014, have been prepared in accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the SEC.
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 SEC Staff Accounting Bulletin (“SAB”) 104. Revenues
from the sale of milk are recognized when the milk is 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.
Milk
sales revenue is recognized when the title to the goods has been passed to our customers, which is the date when the goods are
delivered to designated locations and accepted by the customers and the previously discussed requirements are met. Fresh
milk is delivered to our customers on a daily basis. The customers’ acceptance occurs upon inspection
of 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 from the dairy companies.
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.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition or results of operations.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Smaller
reporting companies are not required to provide the information required by this item.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed
to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information
is accumulated and communicated to management, including the principal executive and financial officers as appropriate, to allow
timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of disclosure controls and procedures as of March 31, 2015, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings
is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms due to a
material weakness related to the lack of accounting personnel with sufficient experience in maintaining books and records and
preparing financial statements in accordance with U.S. GAAP.
Changes
in Internal Control over Financial Reporting
No
changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
To
the best of our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property
is the subject.
Item
1A. Risk Factors.
Smaller
reporting companies are not required to provide the information required by this item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
Not
applicable.
Item
5. Other Information.
None.
Item
6. Exhibits.
(a)
Exhibits
Exhibit
Number |
|
Description |
|
|
|
31.1 |
|
Certifications
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certifications
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1+ |
|
Certification
pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2+ |
|
Certification
pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
|
XBRL
Instance Document |
101.SCH |
|
XBRL
Taxonomy Extension Schema Document |
101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document. |
101.DEF* |
|
XBRL
Taxonomy Extension Definition Linkbase Document. |
+
In accordance with the SEC Release 33-8238, deemed being furnished and not filed.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
CHINA
MODERN AGRICULTURAL INFORMATION, INC. |
|
|
Dated:
May 20, 2015 |
By: |
/s/
Youliang Wang |
|
|
Youliang
Wang |
|
|
Chief
Executive Officer
(Principal
Executive Officer) |
Dated:
May 20, 2015 |
By: |
/s/
Liu Yanyan |
|
|
Liu
Yanyan |
|
|
Chief
Financial Officer
(Principal
Financial Officer and
Chief
Accounting Officer) |
48
EXHIBIT 31.1
CERTIFICATION
OF PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Youliang Wang, certify that:
1. I have reviewed this
Quarterly Report on Form 10-Q of China Modern Agricultural Information, Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and |
5. The registrants’
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 20, 2015
|
|
/s/ Youliang Wang |
|
Wang Youliang
Chief Executive Officer
(Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION
OF PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Yanyan Liu, certify that:
1. I have reviewed this
Quarterly Report on Form 10-Q of China Modern Agricultural Information, Inc.
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and |
5. The registrants’
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 20, 2015
|
|
/s/ Yanyan Liu |
|
Yanyan Liu
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
the undersigned officer of China Modern Agricultural Information, Inc. (the “Company”), does hereby certify,
to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the
periods presented in the Form 10-Q.
Date: May 20, 2015
|
|
/s/ Youliang Wang |
|
Youliang Wang
Chief Executive Officer
(Principal Executive Officer) |
|
The foregoing certification is being
furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed
as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
the undersigned officer of China Modern Agricultural Information, Inc. (the “Company”), does hereby certify, to such
officer’s knowledge, that:
The Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the
periods presented in the Form 10-Q.
Date: May 20, 2015
|
|
/s/ Yanyan Liu |
|
Yanyan Liu
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
The foregoing certification is being
furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed
as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated
by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.