NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
China
Modern Agricultural Information, Inc. (the “Company”), formerly known as Trade Link Wholesalers, Inc. (“Trade
Link”), was incorporated on December 22, 2008 under the laws of the State of Nevada. On April 4, 2011, the Board of Directors
of Trade Link filed an amendment to the Certificate of Incorporation with the State of Nevada to effect the name change from Trade
Link to China Modern Agricultural Information, Inc.
On
January 28, 2011, Trade Link entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) Value
Development Holdings, Ltd. (“Value Development”), a British Virgin Islands company, (“BVI”) (ii) Value
Development’s stockholders, (iii) Trade Link, and (iv) Trade Link’s principal stockholders. Pursuant to the terms
of the Exchange Agreement, Value Development and the Value Development stockholders transferred to Trade Link all of the shares
of Value Development in exchange for the issuance of 35,998,000 shares of Trade Link’s common stock as set forth in the
Exchange Agreement, so that the Value Development stockholders owned 87.80% of Trade Link’s outstanding shares (the “Share
Exchange”).
On
January 28, 2011, Value Development through its wholly subsidiaries, Value Development Group Limited completed the acquisition
of Harbin Jiasheng Consulting Managerial Co. Ltd. (“Jiasheng Consulting” or “WFOE”), a holding company.
Jiasheng Consulting has Variable Interest Entity (“VIE”) agreements with Mr. Liu Zhengxin, the Company’s Chief
HR Officer, and Mr. 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 SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
|
1.
|
ORGANIZATION
(CONTINUED)
|
In
order to further reinforce Jiasheng Consulting’s rights to control and operate Zhongxian Information, the stockholders of
Zhongxian Information have granted Jiasheng Consulting the exclusive right and option to acquire all of their equity interests
in Zhongxian Information through an Exclusive Option Agreement.
The
exchange agreement transaction constituted a reverse takeover transaction. Accordingly, reverse takeover accounting was adopted
for the preparation of the consolidated financial statements. As a result, the consolidated financial statements are issued under
the name of China Modern Agricultural Information, Inc. (the legal acquirer), but are a continuation of the consolidated financial
statements of Value Development (the accounting acquirer) and the VIE its subsidiaries. Before and after the Share Exchange, Value
Development, Value Development Group Limited (a wholly-owned subsidiary of Value Development), Jiasheng Consulting, and Zhongxian
Information and their 99% owned subsidiary, Heilongjiang Xinhua Cattle Industry Co., Ltd. (“Xinhua Cattle”) were under
common control. Therefore, the reorganization was effectively a legal recapitalization accounted for as transactions between entities
under common control at the carry over basis, in a manner similar to pooling-of-interests accounting.
Zhongxian
Information and Xinhua Cattle are engaged in the acquisition, breeding and rearing of dairy cows, and production and sale of fresh
milk to manufacturing and distribution companies. Zhongxian Information was established in China in January 2005 with registered
capital of 10 million Renminbi (“RMB”). In February 2006, it acquired 99% of the registered capital of Xinhua Cattle,
which was established in China in December 2005 with registered capital of three million RMB. Xinhua Cattle had no significant
activities and its cost approximated the fair value at the date of acquisition.
On
November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Shangzhi Yulong Co., Ltd. (“Yulong”)
from Yulong’s original stockholders for consideration of 9,000,000 shares of the Company’s common stock and cash consideration
of $4,396,000.
Yulong
was a privately held company in China engaged in the acquisition, breeding and rearing of dairy cows, and production and sale
of fresh milk to manufacturing and distribution companies.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
|
1.
|
ORGANIZATION
(CONTINUED)
|
On
July 16, 2015, the Company, transferred 100% of the issued and outstanding shares of Value Development Holdings, Ltd. (“Value
Development”) to China Dairy Corporation Ltd. (“China Dairy,” a Hong Kong company), which is 60% owned indirectly
by the Company through the Company’s wholly-owned subsidiary, Hope Dairy 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 Diary 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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
|
1.
|
ORGANIZATION
(CONTINUED)
|
The
40% of the 10,000 shares of China Dairy were transferred from the sole shareholder of China Diary 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 Diary’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
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN U.S. $) (UNAUDITED)
|
1.
|
ORGANIZATION
(CONTINUED)
|
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).
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 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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Accounting and Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America and include the financial statements of China Modern Agricultural Information, Inc. and its subsidiaries,
Hope Diary, China Dairy (Hope Diary’s 53.07% owned subsidiary), Value Development, Value Development Group Limited, Jiasheng
Consulting, and, Zhongxian Information and Zhongxian Information’s 99% owned subsidiary, Xinhua Cattle and its 100% owned
subsidiary, Yulong. All significant intercompany accounts and transactions have been eliminated in consolidation.
The
unaudited consolidated financial statements of the Company as of December 31, 2017 and for the three and six months ended December
31, 2017 and 2016, 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, 2017, 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 and six months ended December 31, 2017 are not necessarily indicative of the results to be
expected for future quarters or for the year ending June 30, 2018.
China
Modern Agricultural Information, Inc.
and
subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
(IN
U.S. $) (UNAUDITED)
|
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.
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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Foreign
Currency Translations
All
Company assets are located in the People’s Republic of China (“PRC”). The functional currency for the majority
of the Company’s operations is the Renminbi (“RMB”). The Company uses the United States dollar (“US Dollar”
or “US$” or “$”) for financial reporting purposes. The consolidated financial statements of the Company
have been translated into US dollars in accordance with FASB ASC 830,
“Foreign Currency Matters.”
All asset
and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have
been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive
income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the
translation of the Company’s consolidated financial statements are recorded as other comprehensive income (“OCI”).
The exchange rates used to translate amounts in RMB and Australian dollars (the “A$”) into US dollars for preparing
the consolidated financial statements are as follows:
|
|
December 31,
2017
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
RMB
|
|
|
A$
|
|
|
RMB
|
|
|
A$
|
|
|
RMB
|
|
|
A$
|
|
Balance sheet items, except for stockholders’ equity, as of period end
|
|
|
0.1537
|
|
|
|
0.7807
|
|
|
|
0.1469
|
|
|
|
0.7538
|
|
|
|
0.1440
|
|
|
|
0.7208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period
|
|
|
0.1506
|
|
|
|
0.7792
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.1482
|
|
|
|
0.7533
|
|
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Foreign
Currency Translations (continued)
Foreign
currency translation adjustments of $4,694,762 and $(7,239,656), respectively, $8,525,470 and $(7,488,645), respectively, for
the three and six months ended December 31, 2017 and 2016, 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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Revenue
Recognition (continued)
Milk
sales revenue is recognized when the title has been passed to the customers, which is the date when the milk is delivered to designated
locations and accepted by the customers and the previously discussed requirements are met. Fresh milk is delivered to its customers
on a daily basis. The customers’ acceptance occurs upon inspection of the quality and measurement of quantity at the time
of delivery. The Company does not provide the customer with the right of return. Sales commission revenue is recognized on a monthly
basis based on monthly sales reports received.
Vulnerability
Due to Operations in PRC
The
Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although
the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event
of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic
and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent
or effective.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair
Value of Financial Instruments
FASB
ASC 820,
“Fair Value Measurement”
specifies a hierarchy of valuation techniques based upon whether the inputs
to those valuation techniques reflect assumptions other market participants would use based on market data obtained from independent
sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level
1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has
the ability to access.
Level
2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level
3 Inputs – Inputs based on valuation techniques that are both unobservable and significant to the overall fair value
measurements.
ASC
820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure
fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs.
The
Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying
values of non-derivative financial instruments, including cash, accounts receivable, interest receivable, 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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Advertising
Costs
Advertising
costs are charged to operations when incurred. Advertising costs are $116,408 and $3,732, respectively, $160,766 and $124,520,
respectively, for the three and six months ended December 31, 2017 and 2016.
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.
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 December 31, 2017 and June 30, 2017.
Prepaid
Expenses
Prepaid
expenses as of December 31, 2017 mainly represent the prepayments of approximately $17,360,871 for prepaid cow insurance expenses
and R&D expenses. Prepaid expenses as of June 30, 2017 mainly represent the prepayment of approximately $1,375,000 for prepaid
cow insurance expenses.
Prepaid
Land Leases
Prepaid
land leases represent the prepayment for grassland rental (see Note 7).
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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 December 31, 2017 and June 30, 2017, 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.
On
June 29, 2017, Xinhua Cattle entered into agreement with Longjiang Xiandai Farm (“Longjiang”) to purchase 4,000 adult
cows at RMB 15,000 (approximately $2,255) per cow for a total price of RMB 60,000,000 (approximately $9,018,000). The purchase
price was fully paid on the date of the delivery of the cows. Xinha Cattle immediately transfers all the cows to the 13 local
farmers that entered agreement with prior for a total consideration of RMB68,000,000 (approximately $10,220,400). In October 2017,
the sales of cows to the 13 farmers was terminated and all the cows were returned to Xinhua Cattle due to omasum impaction. As
a result, Xinha Cattle paid a total of RMB27,600,000 (approximately $4,156,500) as reimbursement to farmers. Xinhua Cattle then
entered into agreement with Longing, the seller of the cows, to return all the cows to Longing for a return of the full purchase
amount of RMB60,000,000 (approximately $9,018,000) that was paid by Xinhua Cattle. The transactions, as well as the reimbursement
that payable to farmers had been properly reflected on the accompanying consolidated financial statements. On October 23, 2017,
Longjiang paid RMB 20,000,000 (approximately $3,074,000) to Xinhua Cattle. The outstanding balance from Longjiang is RMB 40,000,000
(approximate $6,148,000) as of December 31, 2017. (Also see Note 12).
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct
the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the
assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve
productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.
The
estimated useful lives for property, plant and equipment categories are as follows:
|
Machinery
and equipment
|
3
to 10 years
|
|
Automobiles
|
4
to 10 years
|
|
Building
and building improvements
|
10
to 20 years
|
|
Leasehold
improvements
|
Lesser
of the remaining term or useful life
|
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 six months ended December 31, 2017 and 2016.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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 three and six months ended December 31, 2017, a gain of $5,672,781 and $5,650,270, respectively, on the sale of
the adult cows is included in non-operating income (expenses) in the accompanying consolidated statements of income and other
comprehensive income. (See Note 5)
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 six months ended December 31, 2017 and 2016.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
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 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 December 31, 2017 and June 30, 2017, undistributed earnings allocated to
Zhongxian Information were approximately $242,300,000 and $224,700,000, 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 December 31, 2017, and June 30, 2017,
the Company does not have a liability for any uncertain tax positions.
The
income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
United
States
The
Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has
been made as the Company had no U.S. taxable income for the three and six months ended December 31, 2017 and 2016.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income
Taxes (Continued)
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.
PRC
Xinhua
Cattle and Yulong are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preferential
policy for the dairy farming industry. In January 2015, Zhongxian obtained an income tax exemption notice from the tax authority
to exempt the income tax on its investment income from its subsidiaries Xinhua Cattle and Yulong.
Net
Income (Loss) Per Share
The
Company computes net income (loss) per common share in accordance with FASB ASC 260,
“Earnings Per Share”
(“ASC
260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available
to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income
per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares
of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted
average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations
for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no
dilutive shares outstanding during the three and six months ended December 31, 2017 and 2016.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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 December 31, 2017 and June 30, 2017, the required statutory reserve funds have been fully funded.
|
3.
|
Recently
Issued Accounting Standards
|
In
August 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and cash payments in the
statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from
a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption
is permitted. The Company is evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
In
June 2016, the FASB issued new authoritative accounting guidance on credit losses on financial instruments which replaces the
incurred-loss impairment methodology. The new guidance requires immediate recognition of estimated credit losses expected to occur
for most financial assets and certain other instruments. The standard is effective for the Company in the first quarter of 2020;
however early adoption is permitted beginning in the first quarter of 2019. The Company is currently evaluating whether this standard
will have a material impact on its financial statements.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
3.
|
Recently
Issued Accounting Standards
(CONTINUED)
|
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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
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.
|
4.
|
Property,
plant and equipment
|
Property,
plant and equipment are summarized as follows:
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
4,400,649
|
|
|
$
|
3,789,997
|
|
|
Automobiles
|
|
|
3,086,734
|
|
|
|
2,209,169
|
|
|
Building and building improvements
|
|
|
27,597,286
|
|
|
|
26,333,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,084,669
|
|
|
|
32,332,774
|
|
|
Less: accumulated depreciation
|
|
|
(7,054,871
|
)
|
|
|
(5,710,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
28,029,798
|
|
|
$
|
26,622,562
|
|
Depreciation
expense charged to operations for the three and six months ended December 31, 2017 and 2016 was $638,872 and $601,118, respectively,
$1,255,136 and 1,216,792, respectively.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
Biological
assets consist of the following:
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immature biological assets
|
|
$
|
30,054,421
|
|
|
$
|
33,409,704
|
|
|
Mature biological assets
|
|
|
46,646,375
|
|
|
|
45,460,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,700,796
|
|
|
|
78,870,222
|
|
|
Less: accumulated depreciation
|
|
|
(5,439,505
|
)
|
|
|
(5,758,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Biological assets, net
|
|
$
|
71,261,291
|
|
|
$
|
73,112,101
|
|
Xinhua
Cattle sold a total of 1,312 and 2,558 female calves to outside parties at a total price of RMB 5,248,000 (US $793,498) and RMB
10,232,000 (US $1,540,939), respectively in the three and six months ended December 31, 2017. The net value of these female calves
was approximately RMB 8,656,766 (US $1,311,776) and RMB 16,248,991 (US $2,447,098), respectively.
In
December 2017, Xinhua Cattle sold total 5,110 adult cows to three outside parties for a total price of RMB 79,989,000 (US $12,046,343).
The net residual value of these adult cows was approximately RMB 41,300,500 (US $6,219,856). The gain from the disposal of these
4,110 adult cows was RMB 37,518,395 (US $5,650,270). Xinhua Cattle received total payment of RMB 15,997,880 (US $2,458,862) and
the outstanding balance on the disposal of the 5,110 adult cows was RMB 63,991,200 (US $9,835,447) as of December 31, 2017.
Yulong
Cattle sold 236 and 511 female calves to outside parties at a total price of RMB 944,000 (US $142,733) and RMB 2,044,000 (US $307,826),
respectively, in the three and six months ended December 31, 2017. The net value of these female calves was approximately RMB
604,488 (US $91,399) and RMB 1,321,876 (US $199,075), respectively.
Depreciation
expense for the three and six months ended December 31, 2017 and 2016 was $1,479,405 and $1,428,838, respectively, $2,817,658
and $2,472,076, 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
June 2017, May 2017, December 2016, November 2016, September 2011, August 2011 and June 2011, Xinhua Cattle sold 4,000, 2,511,
130, 4,000, 3,787, 5,635, and 2,000 respectively of its cows to local farmers. 6,000 of the cows sold were purchased from outside
parties for $13,407,000. The remaining cows sold were raised by Xinhua. In November 2016, November 2014 and December 2014, Yulong
sold 4,317, 3,714 and 2,955 cows respectively, to local farmers. 5,500 of the cows sold were purchased from outside parties for
$8,996,000. The remaining cows sold were raised by Yulong.
The
Company had agreements with local farmers entered into June 2011, for their purchase of cows to be collected over five
years, with a minimum payment of 20% of the sales price to be paid each year. The notes were recorded at their present value
with a discount rate of
12%, which was 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. As of December 31, 2017, the farmers
had fully repaid the principal payments.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
6.
|
Notes
Receivable (continued)
|
Pursuant
to agreements for the sale of cows 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. 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. The Company
signed supplemental agreements with the farmers and reduced the pay rate to 20% since September 1, 2017.
Pursuant
to the agreements signed in November 2016, December 2016 and May 2017, the sales price will be collected in monthly installments
plus interest at 5% 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 20% of monthly milk sales generated from the cows sold.
The
20% 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. While the 20% 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 and six months ended December 31, 2017 and 2016, the Company received principal and interest payments of $1,663,449
and $517,842, respectively, $2,816,714 and $1,155,011, respectively. Commission income for the three and six months ended December
31, 2017 and 2016, was $3,710,260 and $4,510,324, respectively, $8,274,518 and $8,333,329, respectively, under these agreements.
The
receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of December 31,
2017 and June 30, 2017. The related commission receivable of $5,659,686 and $7,206,564 at December 31, 2017 and June 30, 2017,
respectively, is included in accounts receivable in the consolidated balance sheets.
Notes
receivable at December 31, 2017 and June 30, 2017 consists of the following:
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
$
|
22,469,797
|
|
|
$
|
23,855,122
|
|
|
Less: discount for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,469,797
|
|
|
|
23,855,122
|
|
|
Less: current portion
|
|
|
(4,714,302
|
)
|
|
|
(4,661,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
17,755,495
|
|
|
$
|
19,193,347
|
|
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
6.
|
Notes
Receivable (continued)
|
Future
maturities of notes receivable as of December 31, 2017 are as follows:
|
Year Ending December 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
4,714,000
|
|
|
2019
|
|
|
4,182,000
|
|
|
2020
|
|
|
3,745,000
|
|
|
2021
|
|
|
3,412,000
|
|
|
2022
|
|
|
2,824,000
|
|
|
Thereafter
|
|
|
3,592,000
|
|
|
|
|
|
|
|
|
|
|
$
|
22,469,000
|
|
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.
7. LeaseS
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. On June 22, 2017, the Company subleased
183,335 square meters land of the 250,000 square meter land to a forage production company at the price of RMB 25,300,000 (US
$3,716,570). The remaining repayment of the 183,335 square meters land is RMB25,254,167 (US $3,709,837). There is a gain of the
sublease of RMB 45,833 (US $6,733). The remaining prepayment of $1,393,547 and $1,352,083 is included in prepaid land lease in
the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively. The lease provides for renewal options.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
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 $1,729,125 and $1,880,625 is included in prepaid land lease in the consolidated balance
sheets as of December 31, 2017 and June 30, 2017, 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 $10,481,492 and $10,378,572 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2017 and
June 30, 2017, respectively. The lease provides for renewal options.
On
May 7, 2015, the Company obtained another “land use right” for 250,000 square meters of land, from May 7, 2015 to
May 6, 2045. In addition, the Company also leased buildings on the land which includes cowsheds, an office building and a flat
building. The lease period for these buildings is the same as the land. The Company recorded the prepayment of RMB 74,847,600
(US$12,058,000) as prepaid leases. The prepaid lease is being amortized over the lease term of 30 years using the straight-line
method. The unamortized balance of $10,696,413 and $10,242,686 is included in prepaid leases in the consolidated balance sheets
as of December 31, 2017 and June 30, 2017, respectively.
On
May 14, 2015, the Company obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015
to May 13, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 42,100 square
meters, an office building at 3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions
is the same as the land. The Company recorded the prepayment of RMB 111,887,500 (US$18,260,000) as prepaid lease. The prepaid
lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $15,668,477
and $15,311,494 is included in prepaid lease in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively.
Rent
expense charged to operations for the three and six months ended December 31, 2017 and 2016 was $414,488 and $421,538, respectively,
$825,687 and $853,284, respectively.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
The
Company had Employment Agreements with its executive officers and directors for a one year period with renewal options after expiration,
with the current agreements expiring on June and August, 2017. For the three and six months ended December 31, 2017 and 2016,
compensation under these agreements was $49,756 and $69,987, respectively, $103,797 and $135,996, respectively.
At
December 31, 2017, the future commitment under these agreements is approximately $100,287.
|
9.
|
Related
party transactions
|
In
July 2016 and April 2017, Xinhua Cattle contributed total net profit of $6,491,798 and $92,772, 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, January 2016 and February 2016.
In
March 2015, Zhongxian Information and the Executive Chairman of the Company entered into a loan agreement pursuant to which the
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). The loans outstanding were $2,112,268 and $1,918,341 as of December 31,
2017 and June 30, 2017, respectively.
In
2012, CMCI issued 9,000,000 shares of common stock, valued at $0.34 per share, for a total of RMB 19,428,571 (US $3,060,000) to
the shareholder of Yulong on behalf Zhongxian Information for the acquisition of Yulong. Zhongxian Information recorded the
value of these shares as due to CMCI. China Dairy paid CMCI on June 29, 2016.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
The
provision for income taxes consisted of the following for the three and six months ended December 31:
|
|
|
Three Months Ended
December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following table reconciles the effective income tax rates with the statutory rates for the six months ended December 31:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Statutory rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
Allowance
|
|
|
0.35
|
%
|
|
|
(0.32
|
%)
|
|
Tax exemption
|
|
|
(25.00
|
%)
|
|
|
(25.00
|
%)
|
|
Other
|
|
|
(0.35
|
%)
|
|
|
(0.32
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
-
|
|
|
|
-
|
|
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
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
10.
|
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:
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
562,492
|
|
|
$
|
520,965
|
|
|
Bargain purchase gain
|
|
|
(1,430,399
|
)
|
|
|
(1,430,399
|
)
|
|
Undistributed earnings of subsidiaries
under PRC law upon VIE structure terminated
|
|
|
(40,320,641
|
)
|
|
|
(38,636,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,188,548
|
)
|
|
|
(39,545,908
|
)
|
|
Less valuation allowance
|
|
|
(562,492
|
)
|
|
|
(520,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)
|
|
$
|
(41,751,040
|
)
|
|
$
|
(40,066,873
|
)
|
At
December 31, 2017 and June 30, 2017, Zhongxian Information had unused operating loss carry-forwards of approximately $2,250,000
and $2,084,000, respectively, expiring in various years through 2020. The Company has established a valuation allowance of approximately
$560,000 and $521,000 against the deferred tax asset related to the net operating loss carry forward at December 31, 2017 and
June 30, 2017, 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 2010 to 2016 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 2014, 2015 and 2016. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no
adjustment.
China
Modern Agricultural Information, Inc.
|
and
subsidiaries
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE
THREE
AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016
|
(IN
U.S. $) (UNAUDITED)
|
|
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.
In
November 2015, the Company entered milk sale agreement with another three customers and terminate the contracts with the original
four customers. In February 2016, the Company entered into a new milk sale agreement with one customer after terminating the contract
with the original customer.
Three
customers accounted for approximately 100% and 98% of milk sales for the three months ended December 31, 2017 and 2016, respectively.
Three customers and four customers accounted for approximately 100% and 99% of milk sales for the six months ended December 31,
2017 and 2016, respectively. Four customers accounted for approximately 65% and 72% of accounts receivable at December 31, 2017
and June 30, 2017, respectively.
Eighty-four
farmers and ninety-two farmers accounted for the notes receivable at December 31, 2017 and June 30, 2017, respectively.