NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (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
YEARS ended JUNE 30, 2016 AND 2015 (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
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
1.
|
ORGANIZATION (CONTINUED)
|
Our
corporate structure pre-restructure is set forth below
On July 16, 2015, the Company, transferred
100% of the issued and outstanding shares of Value Development Holdings, Ltd. (“Value Development”) to China Dairy
Corporation Ltd. (“China Dairy,” a Hong Kong company), which is 60% owned indirectly by the Company through the Company’s
wholly-owned subsidiary, Hope Diary Holdings Ltd. (“Hope Diary,” a British Virgin Islands company). China Dairy was
newly incorporated in January 2015 and did not have any significant assets or liabilities, or business operations, which was 100%
owned by Company’s PRC corporate advisor, who formed China Dairy on behalf of the Company. Further, the sole shareholder
transferred 60% of the total outstanding shares of China Dairy to Hope Diary and 40% to various shareholders and consultants of
the Company (as described below) for nominal consideration.
These transactions involve no consideration
received or paid as Value Development and China Dairy are under common control by the Company and this transaction is a restriction
to the Company’s interests in Value Development.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
1.
|
ORGANIZATION (CONTINUED)
|
The 40% of the 10,000 shares of China
Dairy were transferred from the sole shareholder of China Dairy to the following entities for nominal consideration, which has
direct or indirect relationship with the shareholder and consultants of the Company: 3% to Beijing Ruihua Future, 4% to Donghe
Group, 3% to Integral Capital, 20% to Dingxi Shanghai Fund and 10% to Zhiyuan International. Immediately after the transfer, 65,000
bonus shares were issued at no consideration for every existing share held by the following entities:
|
|
|
Original
Shares
|
|
|
After bonus shares issued
|
|
|
|
|
|
|
|
|
|
|
Hope Diary Holdings Ltd.
|
|
|
6,000
|
|
|
|
390,000,000
|
|
|
Beijing Ruihua Future Investment Management Co. Ltd.
|
|
|
300
|
|
|
|
19,500,000
|
|
|
Donghe Group Limited
|
|
|
400
|
|
|
|
26,000,000
|
|
|
Integral Capital Group Pty Ltd.
|
|
|
300
|
|
|
|
19,500,000
|
|
|
Dingxi (Shanghai ) Equity Investment Fund
|
|
|
2,000
|
|
|
|
130,000,000
|
|
|
Zhiyuan International Holding Co. Limited
|
|
|
1,000
|
|
|
|
65,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,000
|
|
|
|
650,000,000
|
|
Value Development is the sole owner
of Value Development Group Limited, which is the sole owner of Harbin Jiasheng Consulting Managerial Co. Ltd., which is the Company’s
subsidiary in China, with respect to which the operating company, Heilongjiang Zhongxian Information Co. Ltd., is a variable interest
entity. The effect of this transaction was to reduce the interest of the Company in its operating company by 40%. The Company uses
the China Dairy’s offering price for IPO to approximate the fair value of the 40% stock granted to the shareholder and consultants.
The Company recognized a stock compensation to the shareholder and consultants of approximately $32,098,000 and $5,664,000, respectively,
during the three months ended September 30, 2015 in general and administrative expense.
On September 16, 2015 the
Company’s 60%-owned subsidiary, Harbin Jiasheng Consulting Management Co., Ltd. ("Jiasheng Consulting"), exercised
its option to purchase all of the registered equity of the Company’s operating subsidiary, Heilongjiang Zhongxian Information
Co., Ltd. ("Zhongxian Information") from its stockholders Zhengxin Liu and Youliang Wang, who are also the members of
the Company’s Board of Directors, for RMB10, 000 (approximately $1,554).
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
1.
|
ORGANIZATION (CONTINUED)
|
Prior to the acquisition,
Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made Zhongxian Information
a variable interest entity, the effect of which was to cause the balance sheet and operating results of Zhongxian Information
to be consolidated with those of Jiasheng Consulting in the Company’s financial statements. As a result of the acquisition
by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating results of Zhongxian
Information will hereafter continue to be consolidated with those of Jiasheng Consulting as its 100% owned subsidiary. On April
8, 2016, the Company’s 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at Australian Dollar
(“AUD”) $0.2 per share on ASX and raised total fund of AUD $16,981,308 (USD $13,021,267). After the IPO, the Company’s
ownership was diluted to 53.07%.
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
YEARS ended JUNE 30, 2016 AND 2015 (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, Hope Diary, China Dairy (Hope Diary’s
53.07% owned subsidiary), Value Development, Value Development Group Limited, Jiasheng Consulting, and, Zhongxian Information and
Zhongxian Information’s 99% owned subsidiary, Xinhua Cattle and its 100% owned subsidiary, Yulong. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The audited consolidated financial
statements of the Company as of June 30, 2016 and for the years ended June 30, 2016 and 2015, have been prepared in accordance
with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply
to interim financial statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Basis
of Accounting and Presentation (continued)
Variable Interest
Entity
Pursuant to Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
“Consolidation”
(“ASC
810”), the Company is required to include in its consolidated financial statements the financial statements of its
VIE’s. ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of
loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a
company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of
the entity, and therefore the company is the primary beneficiary of the entity.
Zhongxian Information and its subsidiaries
(collectively, the “Chinese VIE”) have no assets that are collateral for or restricted solely to settle their obligations.
The creditors of the Chinese VIE and its subsidiaries do not have recourse to the Company’s general credit. Because Value
Development, Value Development Group Limited and Jiasheng Consulting are established for the sole purpose of holding ownership
interest and do not have any operations, the financial statement amounts and balances are principally those of the Chinese VIE
and its subsidiaries.
Under ASC 810, an enterprise has a controlling
financial interest in a VIE, and must consolidate that VIE, if the enterprise has both of the following characteristics: (a) the
power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation
to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company’s determination
of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise,
including its related parties and de facto agents, has the unilateral ability to exercise those rights. The Chinese VIE’s
actual stockholders do not hold any kick-out rights that will affect the consolidation determination.
On September 16, 2015 the VIE structure
was terminated when Jiasheng Consulting exercised its option to purchase all of the registered equity of Zhongxian Information.
Jiasheng Consulting became the sole owner of Zhongxian Information.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Foreign Currency Translations
All Company assets are located
in the People’s Republic of China (“PRC”). The functional currency for the majority of the Company’s
operations is the Renminbi (“RMB”). The Company uses the United States dollar (“US Dollar” or
“US$” or “$”) for financial reporting purposes. The consolidated financial statements of the Company
have been translated into US dollars in accordance with FASB ASC 830,
“Foreign Currency Matters.”
All
asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity
accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income
and other comprehensive income amounts have been translated using the average exchange rate for the periods presented.
Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other
comprehensive income (“OCI”).
The exchange rates used to translate
amounts in RMB and Australian dollars (the “A$”) into US dollars for preparing the consolidated financial statements
are as follows:
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
|
|
RMB
|
|
|
A$
|
|
|
RMB
|
|
|
A$
|
|
|
Balance sheet items, except for stockholders’ equity, as of period end
|
|
|
0.1505
|
|
|
|
0.7441
|
|
|
|
0.1632
|
|
|
|
0.7687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period
|
|
|
0.1554
|
|
|
|
0.7283
|
|
|
|
0.1627
|
|
|
|
0.8364
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Foreign
Currency Translations (continued)
Foreign
currency translation adjustments of $(11,711,703) and $560,995, respectively, for the years ended June 30, 2016 and 2015, have
been reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive income (loss).
Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC
740-30-25-17,
“Exceptions to Comprehensive Recognition of Deferred Income Taxes,”
the Company does not recognize
deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax
expense or benefit from foreign currency translation adjustments.
Although
government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain.
Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate
or any other rate.
The
value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s
political and economic conditions. Any significant revaluation of the RMB could materially affect the Company’s consolidated
financial condition in terms of US dollar reporting.
Revenue
Recognition
The
Company’s primary sources of revenues are derived from (a) sale of fresh milk to Chinese manufacturing and distribution
companies of dairy products and (b) commissions from local farmers on their monthly milk sales. The Company’s revenue recognition
policies comply with FASB ASC 605,
“Revenue Recognition.”
Revenues from the sale of goods are recognized when
the goods are delivered and the title is transferred, the risks and rewards of ownership have been transferred to the customer,
the price is fixed and determinable and collection of the related receivable is reasonably assured.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (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.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Fair
Value of Financial Instruments
FASB
ASC 820,
“Fair Value Measurement”
specifies a hierarchy of valuation techniques based upon whether the inputs
to those valuation techniques reflect assumptions other market participants would use based on market data obtained from independent
sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
|
Level 1 Inputs
–
|
Unadjusted
quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
|
|
|
|
|
Level
2 Inputs –
|
Inputs
other than the quoted prices in active markets that are observable either directly or indirectly.
|
|
|
|
|
Level
3 Inputs –
|
Inputs
based on valuation techniques that are both unobservable and significant to the overall fair value measurements.
|
ASC
820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure
fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs.
The
Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying
values of non-derivative financial instruments, including cash, accounts receivable, interest receivable, accrued expenses, and
other payables, and stockholder loans, approximated their fair values due to the short maturity of these financial instruments.
The carrying value of notes receivable is valued at their net realizable value which approximates the fair value. There were no
changes in methods or assumptions during the periods presented.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Advertising
Costs
Advertising
costs are charged to operations when incurred. Advertising costs are $62,929 and $814, respectively, for the years ended June
30, 2016 and 2015.
Cash
and Cash Equivalents
The
Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or
less to be cash equivalents.
Accounts
Receivable
Accounts
receivable is stated at cost, net of an allowance for doubtful accounts if required. Receivables outstanding longer than the
payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary
resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis
and makes allowances where there is doubt as to the collectability of individual balances.
In
evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the
balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company has 30 days
credit term for its milk sales and usually receives the payment in the following month. The Company considers all accounts receivable
at June 30, 2016 and 2015, 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 June 30, 2016 and 2015.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Prepaid
Expenses
Prepaid expenses as of June
30, 2016 and 2015 mainly represent the prepayments of approximately $1,217,000 and $898,900, respectively for prepaid cow insurance
expenses and for heating expenses.
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 expenditure that substantially increase the assets value or extends
the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of
the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized
and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.
The
estimated useful lives for property, plant and equipment categories are as follows:
|
Machinery
and equipment
|
3
to 10 years
|
|
Automobiles
|
4
to 10 years
|
|
Building
and building improvements
|
10
to 20 years
|
|
Leasehold
improvements
|
Lesser
of the remaining term or useful life
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Impairment
of Long-lived Assets
The
Company utilizes FASB ASC 360,
“Property, Plant and Equipment”
(“ASC 360”), which addresses the
financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance
with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company may recognize an impairment of a long-lived asset in the event the net
book value of such asset exceeds the estimated future undiscounted cash flows attributable to the asset. No impairment of long-lived
assets was recognized for the years ended June 30, 2016 and 2015.
Biological
Assets
Biological
assets consist of dairy cows for milking purposes and breeding.
Immature
Biological Assets
Immature
biological assets are recorded at cost, including acquisition costs, transportation costs, insurance expenses, and feeding costs,
incurred in raising the cows. Once the cow is able to produce milk, the cost of the immature biological asset is transferred to
mature biological assets using the weighted average cost method.
Mature
Biological Assets
Mature
biological assets are recorded at their original purchase price or the weighted average immature biological asset transfer cost.
Depreciation is provided over the estimated useful life of eight years using the straight-line method. The estimated residual
value is 10%. Feeding and management costs incurred on mature biological assets are included as cost of goods sold. When biological
assets, including male cows, are retired or otherwise disposed of in the normal course of business, the cost and accumulated depreciation
will be removed from the accounts and any resulting gain or loss will be included in the results of operations for the respective
period. For the years ended June 30, 2016 and 2015, a loss of $373,108 and $1,104,345, respectively, 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 5)
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Biological
Assets (continued)
The
Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances
indicate that their carrying value may not be recoverable from the estimated future cash flows expected from their use and eventual
disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will
be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management
in performing this assessment include current health status and production capacity. There were no impairment losses recorded
during the years ended June 30, 2016 and 2015.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740,
“Income Taxes”
(“ASC 740”),
which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial
statement and income tax purposes. The differences relate principally to the undistributed earnings of the Company’s subsidiary
under PRC law. Deferred tax assets and liabilities represent the future tax consequences of those differences, which will either
be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating
losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. At June 30, 2016 and 2015, undistributed earnings allocated to Zhongxian Information
were approximately $192,800,000 and $160,600,000, respectively.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income
Taxes (Continued)
ASC
740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance
on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,
and accounting for interest and penalties associated with uncertain tax positions. As of June 30, 2016 and 2015, the Company does
not have a liability for any uncertain tax positions.
The
income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
United
States
The
Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has
been made as the Company had no U.S. taxable income for the years ended June 30, 2016 and 2015.
BVI
Value
Development and Hope Diary are incorporated in the BVI and is governed by the income tax laws of the BVI. According to current
BVI income tax law, the applicable income tax rate for the Company is 0%.
Hong
Kong
Value
Development Group Limited and China Dairy are incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company
is not subject to tax on non-Hong Kong source income.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income
Taxes (Continued)
PRC
Xinhua
Cattle and Yulong are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preferential
policy for the dairy farming industry. In January 2015, Zhongxian Information obtained an income tax exemption notice from the
tax authority to exempt the income tax on its investment income from its subsidiaries Xinhua Cattle and Yulong.
Net
Income (Loss) Per Share
The
Company computes net income (loss) per common share in accordance with FASB ASC 260,
“Earnings Per Share”
(“ASC
260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available
to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income
per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares
of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted
average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations
for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no
dilutive shares outstanding during the years ended June 30, 2016 and 2015.
Statutory
Reserve Fund
Pursuant
to the corporate law of the PRC, Jiasheng Consulting and the Company’s Chinese VIE and its subsidiaries are required to
transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until
such reserve balance reaches 50% of its registered capital. The statutory reserve fund is non-distributable other than during
liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used
to increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the
registered capital. As of June 30, 2016 and 2015, the required statutory reserve funds have been fully funded.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
3.
|
Recently Issued Accounting
Standards
|
In
April 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. In May 2014,
the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current
guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related
to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to
defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP,
the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15,
2016. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2016, the FASB
issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that
requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.
Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the
income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing
at or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain
practical expedients available. This accounting standard update is not expected to have a material impact on the Company’s
financial statements.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which
includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard
is effective for the Company beginning June 1, 2018. The Company is currently evaluating the effect the guidance will have on
the Consolidated Financial Statements.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
|
3.
|
Recently
Issued Accounting Standards
(CONTINUED)
|
In
September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16: Simplifying the Accounting for Measurement-Period
Adjustments (“ASU 2015-16”), which eliminates the requirement to restate prior period financial statements for measurement
period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact
on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim
and annual periods beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected
to have a material impact on the Company’s consolidated financial statements.
In
August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment is effective for all
entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application
is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within
that reporting period. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.
In
May 2015, the FASB issued ASU No. 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts.”
This guidance requires insurance entities to disclose for annual reporting periods incurred and paid claims development information
by accident year, after reinsurance, for the number of years for which claims typically remain open. Disclosures should also include
quantitative information about claim frequency and a qualitative description of methodologies used for determining claim frequency
information. This guidance is effective for annual reporting periods, including interim periods, beginning after December 15,
2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early and retrospective application is 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
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
3.
|
Recently Issued Accounting
Standards
(CONTINUED)
|
In
May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force).” This
guidance removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using
the net asset value per share practical expedient and removes certain related disclosure requirements. This guidance is effective
for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's
fiscal year beginning June 1, 2016. Early adoption is permitted. This accounting standard update is not expected to have a material
impact on the Company’s consolidated financial statements.
In
April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This guidance clarifies the accounting treatment
for fees paid in cloud computing arrangements, including the determination of whether a cloud computing arrangement includes a
software license. This guidance is effective for annual reporting periods, including interim periods, beginning after December
15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early adoption is permitted. This accounting
standard update is not expected to have a material impact on the Company’s consolidated financial statements.
In
April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs.” This Guidance requires debt issuance costs to be presented in the balance sheet as a reduction
of the related debt liability rather than an asset. This guidance is effective for annual reporting periods, including interim
periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early adoption
is permitted for financial statements not previously issued. 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
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
4.
|
Property, plant and equipment
|
Property,
plant and equipment are summarized as follows:
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
3,866,619
|
|
|
$
|
222,147
|
|
|
Automobiles
|
|
|
2,253,832
|
|
|
|
2,071,656
|
|
|
Building and building improvements
|
|
|
26,865,993
|
|
|
|
6,246,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,986,444
|
|
|
|
8,540,306
|
|
|
Less: accumulated depreciation
|
|
|
(3,354,779
|
)
|
|
|
(1,590,004
|
)
|
|
Construction in process
|
|
|
4,696,092
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
34,327,757
|
|
|
$
|
6,950,302
|
|
The
increase was the office buildings, cow-houses, and forage storage built and refurbished on the new land, which are completed
and in service before June 30, 2016. Construction in Progress (the “CIP”) contains amount paid and accrued for
completed new construction but has not been placed into service as of June 30, 2016. No depreciation on those CIP as of June
30, 2016. In addition, a significant amount of production facilities and automobiles were purchased. Depreciation expense
charged to operations for the years ended June 30, 2016 and 2015 were $1,950,157 and $339,274, respectively.
On January 20, 2016, the Company
signed an agreement with Harbin Donghui Architecture Co., Ltd to construct a new forage production plant. The total agreement amount
is RMB 45,615,000 (US $ 6,864,237). Per the agreement, the company is required to pay according to progress completion for different
parts at the plant. As of June 30, 2016, the company paid RMB 28,321,000 (US $ 4,261,801) and committed to pay RMB 17,294,000 (US
$ 2,602,436) after the construction is completed.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
Biological
assets consist of the following:
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Immature biological assets
|
|
$
|
32,518,050
|
|
|
$
|
24,555,303
|
|
|
Mature biological assets
|
|
|
36,660,416
|
|
|
|
18,271,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,178,466
|
|
|
|
42,826,788
|
|
|
Less: accumulated depreciation
|
|
|
(5,041,615
|
)
|
|
|
(4,223,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Biological assets, net
|
|
$
|
64,136,851
|
|
|
$
|
38,603,586
|
|
In
July 2015, Xinhua Cattle and Yulong purchased 2,000 and 2,300 adult cows, respectively at a price RMB 8,500 (US $1,321) per cow
from an outside party. In February and April 2016, Xinhua Cattle purchased 2,000 adult cows, respectively, at a price RMB 16,000
(US $2,486) per cow from an outside party.
In August 2015, Xinhua Cattle sold
200 cows to an outside party at a total price of RMB 160,000(US $24,861) including insurance of RMB 100,000 (US $ 15,540). The
cows had a net book value of approximately $43,000 as of the disposal date, which includes cost basis approximately $560,000 and
accumulated depreciation of approximately $516,000. In May 2016, Xinhua Cattle sold 904 cows to an outside party at a total price
of RMB 3,616,000(US $561,854). The cows had a net book value approximately $564,000 as of the disposal date, which includes cost
basis approximately $1,147,000 and accumulated depreciation approximately $583,000. In June 2016, Xinhua Cattle also sold 500
female calves to an outside party at a total price of RMB 2,000,000 (US $310,760). The cost of these female calves was approximate
$322,000.
In
November 2015, Yulong Cattle sold 347 cows to an outside party at a total price of RMB 1,144,800 (US $177,879) including insurance
of RMB 104,100 (US $ 16,175). The cows had a net book value of approximately $254,000 as of the disposal date, which includes cost
basis approximately $588,000 and accumulated depreciation approximately $335,000. In May 2016, Yulong Cattle sold 331 cows to
an outside party at a total price of RMB 1,390,200 (US $216,009). The cows had a net book value approximately $324,000 as of the
disposal date, which includes cost basis approximately $709,000 and accumulated depreciation approximately $385,000.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
5.
|
Biological assets (continued)
|
In
December 2015, Xinhua Cattle entered into agreements with 179 local farmers to pay them additional feeding cost of RMB 600 (US$93)
for each young cow and adult cow, which were transferred to the farmers for feeding at the beginning of October 2015, for improving
the feeding environment. The company paid 50% of the total amount RMB 6,795,000 (US$1,056,000) in December 2015 and the remaining
50% was paid in January 2016. 100% of the additional cost for mature cows was included as cost of goods sold as incurred and the
remaining are capitalized for immature cows.
Depreciation
expense for the years ended June 30, 2016 and 2015 was $2,878,298 and $1,961,300, 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 sales of cows (mature biological assets) to local farmers.
In
September 2011, August 2011, and June 2011, Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers, respectively.
In
November and December 2014, Yulong sold 3,714 and 2,955 cows respectively, to local farmers. 3,500 of the cows sold were purchased
from outside parties for $4,550,000. The remaining cows sold were raised by Yulong.
According
to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum
payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount
rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with
these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s
assistance in arranging for the sale of the milk.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
6.
|
Notes Receivable (continued)
|
Pursuant
to the agreements signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in
monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range
from one to eight years. Local farmers are required to pay a 30% of monthly milk sales generated from the cows purchased by the
farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance
as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue
over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase
price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the
progress of repayments towards the purchase price.
During
the years ended June 30, 2016 and 2015, the Company received principal and interest payments of $2,300,347 and $2,681,845, respectively.
Commission income for the years ended June 30, 2016 and 2015, was $19,486,432 and $17,893,661, respectively, under these agreements.
The
receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of June 30, 2016
and 2015. The related commission receivable of $6,962,080 and $3,408,759 at June 30, 2016 and 2015, respectively, is included
in accounts receivable in the consolidated balance sheets.
Notes
receivable at June 30, 2016 and 2015 consists of the following:
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
$
|
7,052,255
|
|
|
$
|
9,873,474
|
|
|
Less: discount for interest
|
|
|
(11,270
|
)
|
|
|
(41,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,040,985
|
|
|
|
9,831,508
|
|
|
Less: current portion
|
|
|
(2,097,363
|
)
|
|
|
(2,739,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
4,943,622
|
|
|
$
|
7,092,206
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
6.
|
Notes Receivable (continued)
|
Future
maturities of notes receivable as of June 30, 2016 are as follows:
|
Year Ending June 30,
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
2,097,000
|
|
|
2018
|
|
|
1,621,000
|
|
|
2019
|
|
|
1,319,000
|
|
|
2020
|
|
|
618,000
|
|
|
2021
|
|
|
527,000
|
|
|
Thereafter
|
|
|
859,000
|
|
|
|
|
|
|
|
|
|
|
$
|
7,041,000
|
|
The
Company considers these notes to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. The
Company will continue to review the notes receivable on a periodic basis and where there is doubt as to the collectability of
individual balances, it will provide an allowance, if necessary.
All
land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right”
to use a track of land of 250,000 square meters at no cost through December 1, 2015. On May 10, 2013, the Company, however, entered
into an agreement with the municipality of Qiqihaer to obtain the “land use right” to use this land from May 1, 2013
to April 30, 2063. The Company recorded the prepayment of RMB 37,500,000 (US$6,060,000) as prepaid land lease. The prepaid lease
is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment of $5,285,680
and $5,854,800 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016 and 2015, 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
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
(US $4,686,000). The related
prepayment of $2,370,092 and $3,060,000 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016
and 2015, 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 $10,820,258 and
$11,986,191 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively. The
lease provides for renewal options.
The
Company leases an office at no cost from an unrelated third party. On September 1, 2010, the Company entered into an operating
lease agreement expiring on August 31, 2015. The lease agreement does not provide for payment of rent and it was not subsequently
renewed.
On May 14, 2015, the Company
obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015 to May 13, 2045. In addition,
the Company also leased all the constructions on the land which includes cowsheds at 42,100 square meters, an office building at
3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions is the same as the
land. The Company recorded the prepayment of RMB 111,887,500 (US $18,260,000) as prepaid lease. The prepaid lease is being amortized
over the lease term of 30 years using the straight-line method. The remaining prepayment of $16,182,280 and $18,158,595 is included
in prepaid lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively.
Rent
expense charged to operations for the years ended June 30, 2016 and 2015 was $1,789,248 and $1,029,601, respectively.
The Company had Employment
Agreements with its executive officers and directors for a one-year period with renewal options after expiration, with the current
agreements expiring in June and August, 2017. For the years ended June 30, 2016 and 2015, compensation under these agreements
was $187, 000 and $33,923, respectively.
At June 30, 2016, the future
commitment under these agreements is approximate $283, 000.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
9.
|
Related party transactions
|
In March 2015, Zhongxian Information
and the Executive Chairman of the Company entered into a loan agreement pursuant to which Executive Chairman provides a loan facility
to Zhongxian Information, which is non-interest bearing and due on demand. The maximum amount of the loan is RMB 50,000,000 (US
$7,845,000). Any borrowings in excess of this amount may be negotiated between the parties. The loans outstanding were $1,655,744
and $937,524 as of June 30, 2016 and 2015, respectively.
In 2012, CMCI issued 9,000,000 shares
of common stock, par value of $0.001 at $0.34 per share, totaled of RMB 19,428,571 (US $3,060,000) to the shareholder of Yulong
on behalf Zhongxian Information for the acquisition of Yulong by Zhongxian Information. The loan was fully paid off by China
Dairy to CMCI on June 29, 2016.
10.
|
interim
dividend
On
May 24, 2016, the Board of China Dairy Corporation Limited (“CDC”), the Company’s 53.07% owned subsidiary,
has approved an announced an interim dividend for its shareholders in line with CDC’s dividend policy. An unfranked
interim dividend of AUD $0.0057 per CDI is to be paid to both China and Australia shareholders.
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
The
provision for income taxes consisted of the following for the years ended June 30:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Deferred
|
|
|
2,403,996
|
|
|
|
10,968,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,403,996
|
|
|
$
|
10,968,816
|
|
The
following table reconciles the effective income tax rates with the statutory rates for the years ended June 30:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
Allowance
|
|
|
0.32
|
%
|
|
|
0.00
|
%
|
|
Other
|
|
|
1176.98
|
%
|
|
|
(0.02
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
1202.30
|
%
|
|
|
24.98
|
%
|
The
stock compensation of approximately $37,762,400 would be deductible only to the U.S. parent company and accordingly, there is no
deferred tax benefit to be recognized.
Deferred
tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates in effects for the year in which the differences
are expected to reverse.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
11.
|
Income
taxes (continued)
|
The tax laws of China permit the carry
forward of net operating losses for a period of five years. Undistributed earnings from Xinhua Cattle and Yulong are not taxable
until such earnings are actually distributed to Jiasheng Consulting. A deferred tax liability was provided for the tax to be paid
when these earnings are distributed. On September 16, 2015 due to the termination of VIE structure (Note 1), Jiasheng Consulting
would not be taxable in the future undistributed earnings from Xinhua Cattle and Yulong under the Enterprise Income Tax Law that
Chinese resident enterprise is an exemption of dividend income received from another Chinese resident enterprise.
Deferred
tax assets (liabilities) are comprised of the following:
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
497,542
|
|
|
$
|
458,947
|
|
|
Bargain purchase gain
|
|
|
(1,430,399
|
)
|
|
|
(1,430,399
|
)
|
|
Undistributed earnings of
subsidiaries under PRC law upon VIE structure terminated
|
|
|
(39,446,504
|
)
|
|
|
(40,376,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,379,361
|
)
|
|
|
(41,347,686
|
)
|
|
Less valuation allowance
|
|
|
(497,542
|
)
|
|
|
(458,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)
|
|
$
|
(40,876,903
|
)
|
|
$
|
(41,806,633
|
)
|
At
June 30, 2016 and 2015, Zhongxian Information had unused operating loss carry-forwards of approximately $1,990,000 and $1,836,000,
respectively, expiring in various years through 2020. The Company has established a valuation allowance of approximately $498,000
and $460,000 against the deferred tax asset related to the net operating loss carry forward at June 30, 2016 and 2015, due to
the uncertainty of realizing the benefit.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
11.
|
Income
taxes (continued)
|
The
Company’s tax filings are subject to examination by the tax authorities. The tax years from 2009 to 2015 remain open to
examination by tax authorities in the PRC. The Company’s U.S. tax returns are subject to examination by the tax authorities
for tax years 2012, 2014 and 2015. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no
adjustment.
12.
|
CONCENTRATION
OF CREDIT RISK
|
Substantially
all of the Company’s bank accounts are located in The People’s Republic of China and are not covered by protection
similar to that provided by the FDIC on funds held in United States banks.
In November 2015, the Company entered
milk sale agreement with another three customers and terminated the contracts with the original four customers. In February 2016,
the Company entered into a new milk sale agreement with one customer after terminated the contract with the original customer.
Three customers
accounted for approximately 72% and four customers accounted approximately 100% of milk sales for the years ended June 30, 2016
and 2015, respectively. Three customers and four customers also accounted for approximately 71% and 48% of accounts receivable
at June 30, 2016 and 2015, respectively.
Seventy-six farmers and thirty-nine
farmers accounted for the notes receivable at June 30, 2016 and 2015, respectively.
13.
|
Parent
company only condensed financial information
|
The
following is the condensed financial information of China Modern Agricultural Information, Inc. only, the US parent, balance sheets
as of June 30, 2016 and 2015, statements of income for the years ended June 30, 2016 and 2015, and statements of cash flows for
the years ended June 30, 2016 and 2015:
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
13.
|
Parent
company only condensed financial information (CONTINUED)
|
Condensed
Balance Sheets
|
ASSETS
|
|
June
30,
2016
|
|
|
June
30,
2015
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,067,131
|
|
|
$
|
-
|
|
|
Loan Receivable
|
|
|
-
|
|
|
|
3,208,151
|
|
|
Investment
in subsidiaries
|
|
|
90,778,893
|
|
|
|
126,051,350
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
93,846,024
|
|
|
$
|
129,259,501
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder
loans
|
|
$
|
1,672,707
|
|
|
$
|
937,524
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding
|
|
|
53,100
|
|
|
|
53,100
|
|
|
Additional paid-in capital
|
|
|
49,709,237
|
|
|
|
5,851,170
|
|
|
Retained
earnings
|
|
|
42,410,980
|
|
|
|
122,417,707
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
93,846,024
|
|
|
$
|
129,259,501
|
|
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
|
13.
|
Parent
company only condensed financial information (
CONTINUED)
|
Condensed
Statements of Income
|
|
|
For the years ended
June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
Share of earnings (loss) from investment in subsidiaries and VIE
|
|
$
|
18,935,506
|
|
|
$
|
32,408,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
37,781,000
|
|
|
|
183,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(18,845,494
|
)
|
|
$
|
32,225,267
|
|
Condensed
Statements of Cash Flows
|
|
|
For the years ended
June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(18,845,494
|
)
|
|
$
|
32,225,267
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
Share of earnings from investment in subsidiaries and VIE
|
|
|
(18,935,506
|
)
|
|
|
32,225,267
|
|
|
Stock compensation for shareholder and consultants
|
|
|
37,781,000
|
|
|
|
|
|
|
Decrease in loan receivable
|
|
|
3,208,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating Activities
|
|
|
3,208,151
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(141,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
3,067,131
|
|
|
|
-
|
|
|
Cash, beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
3,067,131
|
|
|
$
|
-
|
|
Basis
of Presentation
The
Company records its investment in its subsidiaries under the equity method of accounting. Such investments are presented as
“Investment in subsidiaries” on the condensed balance sheets and the subsidiaries and VIE profits upon September
16, 2015 (the date of VIE structure dissolved - Note 1)) are presented as “Share of earnings from the investment in
subsidiaries” in the condensed statements of income.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
|
13.
|
Parent
company only condensed financial information (
CONTINUED)
|
Basis
of Presentation (continued)
Certain
information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles
generally accepted in the United States of America have been condensed or omitted. The parent-only financial information has been
derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s
consolidated financial statements.
There
were no cash transactions in the US parent company during the years ended June 30, 2016 and 2015.
Restricted
Net Assets
Under PRC laws and regulations,
the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in
the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries and amounted
to $ 92,173,317 and $ 128,321,977 as of June 30, 2016 and 2015, 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.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE
YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)
|
13.
|
Parent
company only condensed financial information (
CONTINUED)
|
Restricted
Net Assets (continued)
Schedule
I of Article 5-04 of Regulation S-X requires the condensed financial information of the parent company to be filed when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the
Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the
end of the most recent fiscal year may not be transferred to the parent company by its subsidiaries in the form of loans, advances
or cash dividends without the consent of a third party. The condensed parent company only financial statements have been prepared
in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiaries
exceed 25% of the consolidated net assets of the Company.
In July 2016, Xinhua Cattle contributed
the net profit of $6,225,856 and $99,923, respectively, to Zhongxian Information and the 1% owned minority shareholder. The total
represents the net profit of Xinhua Cattle for the years ended June 30, 2008 and 2007.
In
July 2016, CDC paid the dividend declared at AUD $0.0057 per share, a total of AUD 1,965,967 to its minority shareholders.