UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______to______.

 

CHINA MODERN AGRICULTURAL INFORMATION, INC.

(Exact name of registrant as specified in its charter)

 

Commission File Number: 000-54510

 

Nevada		27-2776002
(State or other jurisdiction of incorporation or organization)		(IRS Employee Identification No.)

 

No.A09, Wuzhou Sun Town

Limin Avenue, Limin Development District

Harbin, Heilongjiang, China

(Address of principal executive offices, Zip Code)

 

(86) 0451-84800733

(Registrant’s telephone number, including area code)

 

 

Not Applicable.

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☒
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

The registrant had 53,100,000 shares of its common stock, par value $0.001 per share, outstanding at May 16, 2014.

 

 

 

CHINA MODERN AGRICULTURAL INFORMATION, INC.

 

QUARTERLY REPORT ON FORM 10-Q

September 30, 2014

 

TABLE OF CONTENTS

 

		PAGE
PART 1 - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Mine Safety Disclosures	10
Item 5.	Other Information	10
Item 6.	Exhibits	10
		10
SIGNATURES		11

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q contains “forward-looking statements”. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

CERTAIN TERMS USED IN THIS QUARTERLY REPORT ON FORM 10-Q

 

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to China Modern Agricultural Information, Inc. and its consolidated subsidiaries Value Development Holding, Value Development Group and Jiasheng Consulting, its variable interest entity Zhongxian Information, Xinhua Cattle and Yulong Cattle, the subsidiaries of Zhongxian Information.

 

In addition, unless the context otherwise requires and for the purposes of this report only

 

●	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
●	“Jiasheng Consulting” refers to Jiasheng Consulting Managerial Co., Ltd., a PRC company;
●	“Operating Company or Operating Companies” refers to Value Development Holding, Value Development Group, Jiasheng Consulting, Zhongxian Information, Xinhua Cattle, and Yulong Cattle.
●	“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China;
●	“Renminbi” and “RMB” refer to the legal currency of China;
●	“SEC” refers to the United States Securities and Exchange Commission;
●	“Securities Act” refers to the Securities Act of 1933, as amended;
●	“Yulong Cattle” refers to ShangzhiYulong Cattle Co., Ltd., a PRC company;
●	“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;
●	“Value Development Holding” refers to Value Development Holding Limited., a British Virgin Islands company;
●	“Value Development Group” refers to Value Development Group Limited, a Hong Kong company;
●	“Xinhua Cattle” refers to Heilongjiang Xinhua Cattle Industry Co., Ltd., a PRC company;
●	“Zhongxian Information” refers to Heilongjiang Zhongxian Information Co., Ltd., a PRC company;

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

CHINA MODERN AGRICULTURAL

INFORMATION, INC. AND

SUBSIDIARIES

 

Consolidated Financial Statements for the

Three Months Ended September 30, 2014 and 2013

 

 

  

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

CONTENTS	PAGE
Consolidated FINANCIAL STATEMENTS:
Consolidated Balance Sheets	F-1
Consolidated Statements of Income and Other Comprehensive Income	F-3
Consolidated Statements of Changes in Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	F-8

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED BALANCE SHEETS

september 30, 2014 AND june 30, 2014 (IN U.S. $)

  

ASSETS		September 30, 2014				June 30, 2014
		(Unaudited)
Current assets
Cash		$	67,395,144			$	58,032,554
Accounts receivable			5,530,645				5,341,891
Inventories			1,046,690				675,542
Prepaid expenses			2,902				2,902
Interest receivable			513,135				424,409
Notes receivable, current portion			1,819,275				1,863,092
Total current assets			76,307,791				66,340,390
Property, plant and equipment, net			3,414,452				3,485,907
Other assets
Notes receivable			3,699,406				4,130,448
Prepaid land leases			21,442,955				21,657,762
Biological assets, net			33,934,630				32,288,393
Total other assets			59,076,991				58,076,603
TOTAL ASSETS		$	138,799,234			$	127,902,900

 

See accompanying notes to the consolidated financial statements.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED BALANCE SHEETS (CONTINUED)

September 30, 2014 AND june 30, 2014 (IN U.S. $)

 

LIABILITIES AND stockholders’ EQUITY		September 30, 2014				June 30, 2014
		(Unaudited)
Current liabilities
Accrued expenses and other payables		$	309,794			$	319,291
Stockholder loans			779,736				656,995
Total current liabilities			1,089,530				976,286
Deferred income taxes			33,432,874				30,653,108
Total liabilities			34,522,404				31,629,394
Commitments and contingencies
Stockholders’ equity
Common stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding			53,100				53,100
Additional paid-in capital			5,851,170				5,851,170
Retained earnings			92,352,315				84,444,386
Statutory reserve fund			792,174				792,174
Other comprehensive income			4,216,814				4,211,885
Sub-total			103,265,573				95,352,715
Noncontrolling interests			1,011,257				920,791
Total stockholders’ equity			104,276,830				96,273,506
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	138,799,234			$	127,902,900

  

See accompanying notes to the consolidated financial statements.

 

  

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 and 2013

(UNAUDITED IN U.S. $)

 

		2014				2013
Revenues
Milk sales		$	13,724,991			$	10,747,423
Sales commission			3,043,107				3,102,040
Total revenues			16,768,098				13,849,463
Cost of goods sold			(5,840,176	)			(4,447,776	)
Gross profit			10,927,922				9,401,687
Operating expenses
Selling and marketing			191,388				193,935
General and administrative			121,734				152,827
Total operating expenses			313,122				346,762
Operating income			10,614,800				9,054,925
Other income and expenses
Interest income on notes receivable			108,420				144,345
Other non-operating income			53,230				29,273
Total other income			161,650				173,618
Income before provision for income taxes			10,776,450				9,228,543
Provision for income taxes			2,778,055				2,146,141

  

See accompanying notes to the consolidated financial statements.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (CONTINUED)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 and 2013

(UNAUDITED IN U.S. $)

 

		2014				2013
Net income before noncontrolling interests		$	7,998,395			$	7,082,402
Noncontrolling interests			(90,466	)			(65,925	)
Net income attributable to common stockholders			7,907,929				7,016,477
Other comprehensive income
Foreign currency translation adjustment			4,929				427,374
Total comprehensive income		$	7,912,858			$	7,443,851
Earnings per common share, basic and diluted		$	0.15			$	0.13
Weighted average shares outstanding, basic and diluted			53,100,000				53,100,000

 

See accompanying notes to the consolidated financial statements.

 

  

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF changes in Stockholders’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 and 2013 (UNAUDITED IN U.S. $)

  

		Common Stock				Additional Paid-in Capital				Retained Earnings				Statutory Reserve Fund				Noncontrolling Interests				Other Comprehensive Income				Total
Balance, June 30, 2014		$	53,100			$	5,851,170			$	84,444,386			$	792,174			$	920,791			$	4,211,885			$	96,273,506
Net income			-				-				7,907,929				-				90,466				-				7,998,395
Other comprehensive income			-				-				-				-				-				4,929				4,929
Balance, Sep 30, 2014		$	53,100			$	5,851,170			$	92,352,315			$	792,174			$	1,011,257			$	4,216,814			$	104,276,830

 

See accompanying notes to the consolidated financial statements.

 

  

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(UNAUDITED IN U.S. $)

 

		2014				2013
Cash flows from operating activities
Net income before noncontrolling interests		$	7,998,395			$	7,082,402
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			660,544				531,973
Deferred income taxes			2,778,055				2,146,141
(Gain) loss from disposal from biological assets			(470	)			1,747
Change in operating assets and liabilities
(Increase) in accounts receivable			(188,754	)			(120,680	)
(Increase) in inventories			(371,148	)			(473,129	)
(Increase) in prepaid expenses			-				(2,011	)
Decrease in prepaid land lease			214,807				76,419
(Increase) in interest receivable			(88,726	)			(118,235	)
(Decrease) increase in accrued expenses and other payables			(9,497	)			8,929
Net cash provided by operating activities			10,993,206				9,133,556
Cash flows from investing activities
Collection of notes receivable			474,567				465,675
Proceeds from sales of biological assets			4,869				4,701
Purchase of property, plant and equipment			(925	)			-
(Increase) in biological assets			(2,238,770	)			(1,895,067	)
Net cash (used in) investing activities			(1,760,259	)			(1,424,691	)
Cash flows from financing activities
Proceeds from stockholder loans			184,875				98,273
Repayment of stockholder loans			(62,210	)			(579	)
Net cash provided by financing activities			122,665				97,694

 

See accompanying notes to the consolidated financial statements.

 

  

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE three monthS ENDED september 30, 2014 AND 2013

(UNAUDITED IN U.S. $)

  

		2014				2013
Effect of exchange rate changes on cash			6,978				332,185
Net increase in cash			9,362,590				8,138,744
Cash, beginning of year			58,032,554				25,147,474
Cash, end of year		$	67,395,144			$	33,286,218
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	-			$	-

  

See accompanying notes to the consolidated financial statements.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

1.	ORGANIZATION

 

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 MONTHS ended SEPTEMBER 30, 2014 and 2013 (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), its subsidiaries and the VIE. 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 MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

1.	ORGANIZATION (CONTINUED)

 

As a result of the entry into the foregoing agreements, the Company has a corporate structure as set forth below:

 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Presentation

 

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.

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the financial statements of China Modern Agricultural Information, Inc. and its subsidiaries, Value Development, Value Development Group Limited, Jiasheng Consulting, and its VIE, Zhongxian Information and Zhongxian Information’s 99% owned subsidiary, Xinhua Cattle and its 100% owned subsidiary, Yulong. The Company is the primary beneficiary of the VIE and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Zhongxian Information and its subsidiaries (collectively, the “Chinese VIE”) have no assets that are collateral for or restricted solely to settle their obligations. The creditors of the Chinese VIE and its subsidiaries do not have recourse to the Company’s general credit. Because Value Development, Value Development Group Limited and Jiasheng Consulting are established for the sole purpose of holding ownership interest and do not have any operations, the financial statement amounts and balances are principally those of the Chinese VIE and its subsidiaries.

 

Under ASC 810, an enterprise has a controlling financial interest in a VIE, and must consolidate that VIE, if the enterprise has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de facto agents, has the unilateral ability to exercise those rights. The Chinese VIE’s actual stockholders do not hold any kick-out rights that will affect the consolidation determination.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign Currency Translations

 

All Company assets are located in People’s Republic of China (“PRC”). The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). The Company uses the United States dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The consolidated financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.” All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s consolidated financial statements are recorded as other comprehensive income (“OCI”).

 

The exchange rates used to translate amounts in RMB into US dollars for preparing the consolidated financial statements are as follows:

 

September 30, 2014

June 30, 2014

September 30, 2013

Balance sheet items, except for stockholders’ equity, as of period end

0.1624

0.1624

N/A

Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period

0.1623

N/A

0.1621

 

Foreign currency translation adjustments of $4,929 and $427,374 for the three months ended September 30, 2014 and 2013, respectively, have been reported as other comprehensive income in the consolidated statements of income and other comprehensive income. Other comprehensive income of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign Currency Translations (Continued)

 

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.

 

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.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Vulnerability Due to Operations in PRC

 

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.

 

The Company believes that Jiasheng Consulting’s contractual agreements with Zhongxian Information are in compliance with PRC law and are legally enforceable. The stockholders of Zhongxian Information are also the senior management of the Company and therefore the Company believes that they have no current interest in seeking to act contrary to the contractual agreements. However, Zhongxian Information and its stockholders may fail to take certain actions required for the Company’s business or to follow the Company’s instructions despite their contractual obligations to do so. Furthermore, if Zhongxian Information or its stockholders do not act in the best interests of the Company under the contractual agreements or any dispute relating to these contractual agreements remains unresolved, the Company will have to enforce its rights through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual agreements, which could make it difficult to exert effective control over Zhongxian Information, and its ability to conduct the Company’s business may be adversely affected.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

FASB ASC 820, “Fair Value Measurement” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

 

	Level 1 Inputs –	Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
	Level 2 Inputs –	Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
	Level 3 Inputs –	Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements.

 

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.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value of Financial Instruments (Continued)

 

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, interest receivable, accrued expenses, and other payables, and stockholder loans, approximated their fair values due to the short maturity of these financial instruments. The carrying value of notes receivable is valued at their net realizable value which approximates the fair value. There were no changes in methods or assumptions during the periods presented.

 

Advertising Costs

 

Advertising costs are charged to operations when incurred. No advertising costs were incurred for the three months ended September 30, 2014 and 2013.

 

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 considers all accounts receivable at September 30, 2014 and June 30, 2014, to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Inventories

 

Inventories, comprised principally of livestock feed, are valued at the lower of cost or market value. The value of inventories is determined using the weighted average cost method.

 

The Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances, if any. There was no allowance for excessive or unusable inventories as of September 30, 2014 and June 30, 2014.

 

Prepaid Land Leases

 

Prepaid land leases represent the prepayment for grassland rental (see Note 7).

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

 

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

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Impairment of Long-lived Assets

 

The Company utilizes FASB ASC 360, “Property, Plant and Equipment” (“ASC 360”), which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company may recognize an impairment of a long-lived asset in the event the net book value of such asset exceeds the estimated future undiscounted cash flows attributable to the asset. No impairment of long-lived assets was recognized for the three months ended September 30, 2014 and 2013.

 

Biological Assets

 

Biological assets consist of dairy cows for milking purposes and breeding.

 

Immature Biological Assets

 

Immature biological assets are recorded at cost, including acquisition costs, transportation costs, insurance expenses, and feeding costs, incurred in raising the cows. Once the cow is able to produce milk, the cost of the immature biological asset is transferred to mature biological assets using the weighted average cost method.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Biological Assets (Continued)

 

Mature Biological Assets

 

Mature biological assets are recorded at their original purchase price or the weighted average immature biological asset transfer cost. Depreciation is provided over the estimated useful life of eight years using the straight-line method. The estimated residual value is 10%. Feeding and management costs incurred on mature biological assets are included as cost of goods sold. When biological assets, including male cows, are retired or otherwise disposed of in the normal course of business, the cost and accumulated depreciation will be removed from the accounts and any resulting gain or loss will be included in the results of operations for the respective period. For the three months ended September 30, 2014 and 2013, the (gain) loss of ($470) and $1,747, respectively, are included in the cost of goods sold in the accompanying consolidated statements of income and other comprehensive income.

 

The Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected from their use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current health status and production capacity. There were no impairment losses recorded during the three months ended September 30, 2014 and 2013.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (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 consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Zhongxian Information is subject to the tax rate of 25% for the earnings when distributed by Xinhua Cattle and Yulong. At September 30, 2014 and June 30, 2014, undistributed earnings allocated to Zhongxian Information were approximately $127,800,000 and $117,000,000, respectively.

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with uncertain tax positions. As of September 30, 2014 and June 30, 2014, the Company does not have a liability for any uncertain tax positions.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (Continued)

 

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

 

United States

 

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three months ended September 30, 2014 and 2013.

 

BVI

 

Value Development is incorporated in the BVI and is governed by the income tax laws of the BVI. According to current BVI income tax law, the applicable income tax rate for the Company is 0%.

 

Hong Kong

 

Value Development Group Limited is incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.

 

PRC

 

Xinhua Cattle and Yulong are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preferential policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax at 25% and files its own tax return.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Net Income (Loss) Per Share

 

The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”) and SEC SAB 98. Under the provisions of ASC 260 and SAB 98, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no dilutive shares outstanding during the three months ended September 30, 2014 and 2013.

 

Statutory Reserve Fund

 

Pursuant to corporate law of the PRC, Jiasheng Consulting and the Company’s Chinese VIE and its subsidiaries are required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of its registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the registered capital. As of September 30, 2014 and June 30, 2014, the required statutory reserve funds have been fully funded.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

3.	Recently Issued Accounting Standards

 

In June 2014, the FASB issued ASU 2014-10, ”Development Stage Entities: Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.” This ASU amends FASB ASC Topic 915, Development Stage Entities, to remove all incremental financial reporting requirements for development stage entities, thereby improving financial reporting by reducing the cost and complexity associated with providing that information. The amendments in this ASU also eliminate an exception provided to development stage entities in FASB ASC 810 for determining whether an entity is a variable interest entity (VIE) on the basis of the amount of investment equity that is at risk. The amendments in this ASU remove the definition of development stage entity from the FASB ASC Master Glossary, thereby removing the financial reporting distinction between development stage entities and other entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (i) present inception-to-date information on the statements of income, cash flows, and shareholder equity, (ii) label the financial statements as those of a development stage entity, (iii) disclose a description of the development stage activities in which the entity is engaged, (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments also clarify that the guidance in FASB ASC 275, Risks and Uncertainties, is applicable to entities that have not yet commenced planned principal operations. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of FASB ASC 915 should be applied retrospectively, except for the clarification to FASB ASC 275, which should be applied prospectively. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Earlier implementation is allowed for any period where the reporting entity’s annual or interim financial statements have not yet been made available for issuance. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

3.	Recently Issued Accounting StandardS (CONTINUED)

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. The Company has not yet determined the potential impact of this updated authoritative guidance on its consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which amends the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. In addition, this ASU requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

4.	Property, plant and equipment

 

Property, plant and equipment are summarized as follows:

 

			September 30, 2014				June 30, 2014
	Machinery and equipment		$	411,230			$	410,304
	Automobiles			105,163				105,163
	Building and building improvements			4,244,832				4,244,832
				4,761,225				4,760,299
	Less: accumulated depreciation			(1,346,773	)			(1,274,392	)
	Property, plant and equipment, net		$	3,414,452			$	3,485,907

 

Depreciation expense charged to operations for the three months ended September 30, 2014 and 2013 was $72,337 and $75,030, respectively. 

 

5.	Biological assets

 

Biological assets consist of the following:

 

			September 30, 2014				June 30, 2014
	Immature biological assets		$	19,958,476			$	18,506,045
	Mature biological assets			19,095,500				18,313,125
				39,053,976				36,819,170
	Less: accumulated depreciation			(5,119,346	)			(4,530,777	)
	Biological assets, net		$	33,934,630			$	32,288,393

 

Depreciation expense for three months ended September 30, 2014 and 2013 was $588,207 and $456,943, respectively, all of which was included in cost of goods sold in the consolidated statements of income and other comprehensive income.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

6.	Notes Receivable

 

Notes receivable are related to the sales of cows (mature biological assets) to local farmers. Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers in September 2011, August 2011, and June 2011, respectively.

 

According to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk. Pursuant to the agreements signed in August and September 2011, the sales price will be collected in monthly installments plus interest at 7% on any outstanding balance, over the remaining useful lives of the cows, which range from three to eight years. Local farmers are required to pay 30% of monthly milk sales generated from the cows sold to the farmers. The required 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. During the three months ended September 30, 2014 and 2013, the Company received principal and interest payments of $494,316 and $512,760, respectively. Sales commission income for the three months ended September 30, 2014 and 2013, was $2,513,061 and $$2,553,015, respectively, under these two agreements.

 

The receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of September 30, 2014 and June 30, 2014. The related commission receivable of $990,412 and $989,792 at September 30, 2014 and June 30, 2014, respectively, is included in accounts receivable in the consolidated balance sheets.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

6.	Notes Receivable (CONTINUED)

 

Notes receivable at September 30, 2014 and June 30, 2014 consists of the following:

 

			September 30,				June 30,
	Notes receivable		$	5,619,725			$	6,114,346
	Less: discount for interest			(101,044	)			(120,806	)
				5,518,681				5,993,540
	Less: current portion			(1,819,275	)			(1,863,092	)
	Non-current portion		$	3,699,406			$	4,130,448

 

Future maturities of notes receivable as of September 30, 2014 are as follows:

 

	Year Ending September 30,
	2015		$	1,819,275
	2016			1,515,098
	2017			1,005,931
	2018			873,943
	2019			304,434
			$	5,518,681

 

The Company considers these notes to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. The Company will continue to review the notes receivable on a periodic basis and where there is doubt as to the collectability of individual balances, it will provide an allowance, if necessary.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

7.

LeaseS

 

The Company leases an office at no cost from an unrelated third party. On September 1, 2010, the Company entered into an operating lease agreement expiring on August 31, 2015. The lease agreement does not provide for payment of rent.

 

All land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right” to use a track of land of 250,000 square meters at no cost through December 1, 2015. On May 10, 2013, the Company, however, entered into an agreement with the municipality of Qiqihaer to obtain the “land use right” to use this land from May 1, 2013 to Apr 30, 2063. The Company recorded the prepayment of RMB 37,500,000 ($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 $5,917,450 and $5,947,900 is included in prepaid land lease in the consolidated balance sheets as of September 30, 2014 and June 30, 2014, respectively. The lease provides for renewal options.

 

On October 9, 2011, the Company entered into an operating lease, from October 9, 2011 to October 8, 2021, with the municipality of Heilongjiang to lease 16,666,750 square meters of land. The lease required the Company to prepay the ten year rental of RMB 30,000,000 (US$4,686,000). The related prepayment of $3,410,400 and $3,532,200 is included in prepaid land lease in the consolidated balance sheets as of September 30, 2014 and June 30, 2014, respectively. The lease provides for renewal options.

 

On February 25, 2013, the Company obtained another “land use right” to use 427,572 square meters of land, from March 1, 2013 to February 28, 2063. The Company recorded the prepayment of RMB 77,040,000 (US$12,450,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment of $12,115,105 and $12,366,666 is included in prepaid land lease in the consolidated balance sheets as of September 30, 2014 and June 30, 2014, respectively. The lease provides for renewal options.

 

Rent expense charged to operations for the three months ended September 30, 2014 and 2013 was $214,674 and $215,071, respectively.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

8.	EMPLOYMENT AGREEMENTS

 

The Company had Employment Agreements with its executive officers which expired in 2014. The Agreements were later renewed until July 31, 2015. For three months ended September 30, 2014 and 2013, compensation under there agreements was RMB 210,000, or USD 8,521.

 

At September 30, 2014, the future commitments under these agreements is $28,402.  

 

9.	Related party transactions

 

The Company obtained demand loans from one of its stockholders which are non-interest bearing. The loans of $779,736 and $656,995 as of September 30, 2014 and June 30, 2014, respectively, are reflected as stockholder loans in the consolidated balance sheets.

  

10.	Income taxes

 

The provision for income taxes consisted of the following for the periods ended September 30:

 

			2014				2013
	Current		$	-			$	-
	Deferred			2,778,055				2,146,141
			$	2,778,055			$	2,146,141

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

10.	Income taxes (CONTINUED)

 

The following table reconciles the effective income tax rates with the statutory rates for the three months ended September 30:

 

			2014				2013
	Statutory rate			25.00	%			25.00	%
	Valuation Allowance			0.11	%			-
	Other			0.66	%			(1.74	)%
	Effective income tax rate			25.78	%			23.26	%

 

Deferred tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effects for the year in which the differences are expected to reverse.

 

The 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.

 

Deferred tax assets (liabilities) are comprised of the following:

 

			September 30, 2014				June 30, 2014
	Net operating loss carryforwards		$	447,189			$	434,844
	Bargain purchase gain			(1,430,399	)			(1,430,399	)
	Undistributed earnings of subsidiaries under PRC law			(32,002,475	)			(29,222,709	)
				(32,985,685	)			(30,218,264	)
	Less valuation allowance			(447,189	)			(434,844	)
	Net deferred tax (liabilities)		$	(33,432,874	)		$	(30,653,108	)

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

10.	Income taxes (CONTINUED)

 

At September 30, 2014 and June 30, 2014, Zhongxian Information had an unused operating loss carry-forward of approximately $1,789,000 and $1,739,000, respectively, expiring in various years through 2019. The Company has established a valuation allowance of approximately $447,000 and $435,000 against the deferred tax asset related to the net operating loss carryforward at September 30, 2014 and June 30, 2014, due to the uncertainty of realizing the benefit.

 

The Company’s tax filings are subject to examination by the tax authorities.  The tax years from 2008 to 2013 remain open to examination by tax authorities in the PRC. The Company’s U.S. tax returns are generally not subject to examination by the tax authorities for tax years before 2011. 

 

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.

 

Five customers accounted for approximately 100% of milk sales for the three months ended September 30, 2014 and 2013. The same five customers also accounted for approximately 82% and 79% of accounts receivable at September 30, 2014 and June 30, 2014, respectively.

 

Thirty nine farmers accounted for the notes receivable at September 30, 2014 and June 30, 2014.

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

12.	Parent company only condensed financial information

 

The following is the condensed financial information of China Modern Agricultural Information, Inc. only, the US parent, balance sheets as of September 30, 2014 and June 30, 2014, and its statements of income, and cash flows for the three months ended September 30, 2014 and 2013:

 

Condensed Balance Sheets

 

	ASSETS		September 30, 2014				June 30, 2013
			(Unaudited)
	Receivable from VIE		$	3,060,000			$	3,060,000
	Investment in subsidiaries and VIE			100,205,573				92,292,715
	TOTAL ASSETS		$	103,265,573			$	95,352,715
	LIABILITIES AND stockholders’ EQUITY
	Total liabilities		$	-			$	-
	Stockholders’ equity
	Common stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding			53,100				53,100
	Additional paid-in capital			5,851,170				5,851,170
	Retained earnings			97,361,303				89,448,445
	Total stockholders’ equity			103,265,573				95,352,715
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	103,265,573			$	95,352,715

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

12.	Parent company only condensed financial information (CONTINUED)

 

Condensed Statements of Income (Unaudited)

 

			For three months ended September 30,
			2014				2013
	Revenues
	Share of earnings from investment in subsidiaries and VIE		$	7,907,929			$	7,016,477
	Operating expenses
	General and administrative			-				-
	Net income		$	7,907,929			$	7,016,477

 

Condensed Statements of Cash Flows (Unaudited)

 

			2013				2013
	Cash flows from operating activities
	Net income		$	7,907,929			$	7,016,477
	Adjustments to reconcile net income to net cash provided by (used in) operating activities
	Share of earnings from investment in subsidiaries and VIE			(7,907,929	)			(7,016,477	)
	Net cash provided by (used in) operating activities			-				-
	Net change in cash			-				-
	Cash, beginning of period			-				-
	Cash, end of period		$	-			$	-

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

12.

Parent company only condensed financial information (CONTINUED)

 

Basis of Presentation

 

The Company records its investment in its subsidiaries and VIE under the equity method of accounting. Such investments are presented as “Investment in subsidiaries and VIE” on the condensed balance sheets and the subsidiaries and VIE profits are presented as “Share of earnings from investments in subsidiaries and VIE” in the condensed statements of income.

 

Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. The parent only financial information has been derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements.

 

There were no cash transactions in the US parent company during the periods ended September 30, 2014 and 2013.

 

Restricted Net Assets

 

Under PRC laws and regulations, the Company’s PRC subsidiaries and VIE are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries and the VIE amounted to $100,205,573 and $92,292,715 as of September 30, 2014 and June 30, 2014, respectively. 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ended SEPTEMBER 30, 2014 and 2013 (UNAUDITED)

 

12.

Parent company only condensed financial information (CONTINUED)

 

The Company’s operations and revenues are conducted and generated in the PRC, and all of the Company’s revenues being earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.

 

Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of the parent company to be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by its subsidiaries in the form of loans, advances or cash dividends without the consent of a third party. The condensed parent company only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Company’s PRC subsidiaries and VIE exceed 25% of the consolidated net assets of the Company.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the results of operations and financial condition of the Company for the three months ended September 30, 2014 and 2013. Such discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Quarterly Report. 

 

Overview 

 

We are a leading producer and distributor of raw fresh milk in China. We have three operating entities with an aggregate fresh milk production capacity of approximately 149 tons per day. We also have 39 exclusive individual partners with an aggregate fresh milk production capacity of approximately 245 tons per day. We have five major customers, one of which is the leading dairy company in China. 

 

We were incorporated on December 22, 2008 under the laws of the State of Nevada.    We were formerly known as Trade Link. On April 4, 2011, the Board of Directors of Trade Link filed an amendment to the Certificate of Incorporation with the State of Nevada and changed our name from Trade Link to China Modern Agricultural Information, Inc.  

 

On January 28, 2011, we entered into the Exchange Agreement by and among (i) Value Development, a British Virgin Islands company, (ii) Value Development’s shareholders, (iii) us, and (iv) our former principal stockholders.    Pursuant to the terms of the Exchange Agreement, Value Development’s shareholders transferred to us all of the shares of Value Development in exchange for the issuance of 35,998,000 shares of our common stock. The shares issued to Value Development’s shareholders in the Securities Exchange constituted approximately 87.80% of our issued and outstanding shares of common stock as of and immediately after the consummation of the Securities Exchange. As a result of the Securities Exchange, Value Development became our wholly owned subsidiary and Value Development’s former principal stockholder became our principal stockholder. 

 

On January 28, 2011, Value Development completed the acquisition of Jiasheng Consulting.    Jiasheng Consulting entered into a series of agreements with Zhongxian Information, Mr. Zhengxin Liu, our Chief Human Resource Officer and holder of 62% of equity interest in Zhongxian Information, and Mr. Youliang  Wang, our Chief Executive Officer and holder of 38% of equity interest of Zhongxian Information. Pursuant to the Contractual Arrangements, Jiasheng Consulting controls all managerial power of Zhongxian Information.    The contractual arrangements include a shareholder voting rights proxy agreement, exclusive consulting and services agreement, exclusive call option agreement and equity pledge agreement, pursuant to which, Jiasheng Consulting shall provide exclusive and complete business support and technical and consulting services to Zhongxian Information in exchange for an annual fee in the amount of Zhongxian Information’s yearly net profits after tax, and Zhongxian Information’s stockholders pledged their rights, titles and equity interest in Zhongxian Information as security for the collection of such consulting and services fees provided in that certain equity pledge agreement.

 

Zhongxian Information was incorporated in China in January 2005 with registered capital of 10 million Renminbi or $1,206,800 US Dollars.  In February 2006, it acquired 99% of the registered capital of Xinhua Cattle, which was incorporated in China in December 2005 with registered capital of three million RMB or $371,580 US Dollars. Xinhua Cattle is located in Qiqihar, Heilongjiang Province, in northeast China and is a livestock company that engages in cow breading and fresh milk distribution.

 

 

On November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Yulong Cattle in exchange for (i) issuance of 9,000,000 shares of our common stock, and (ii) a cash payment of $4,396,000 U.S. Dollars, to Yulong Cattle’s former shareholders. Yulong Cattle was incorporated on December 4, 2007 under the laws of the PRC. Yulong Cattle, located in Harbin, Heilongjiang, in northeast China, is a livestock company that engages in cow breeding and fresh milk distribution, and primarily generates its revenue from the sale of fresh milk. 

 

Factors Affecting our Results of Operations 

 

Our operating results are primarily affected by the following present factors:

 

Dairy Industry Growth. We believe the market for dairy products in China for the long term will grow rapidly, driven by China’s economic growth, improved living quality and increased penetration of infant formula. Accordingly, we believe that the demand for fresh milk will increase rapidly. 

 

Production Capacity. Our revenue largely depends on our production capacity. The production capacity in this industry is determined by variety, aging and number of adult cows. Accordingly, we acquired Yulong Cattle in November 2011 which increased our number of the cows by 3,800 and improved our production capacity by approximately 90 tons per day. 

 

Raw Material Supply and Prices. The per unit cost of fresh milk is affected by price volatility of our raw materials and feeding expenses in the China markets.  In response to the increased cost, we leased 16,666,750 square meters of grassland in October 2011 and 427,572 square meters of grass land in February 2013. We believe that the hay production of this grassland can satisfy our raw material demand and lower our feeding cost. 

 

Results of Operations 

 

The following tables present certain consolidated statements of income and other comprehensive income information. Financial information is presented for the three months ended September 30, 2014 and 2013. 

 

Comparison of Three Months Ended September 30, 2014 and 2013

 

The following table sets forth certain information regarding our results of operations for the three months ended September 30, 2014 and 2013. 

 

		For the three months ended September 30,
										Change
		2014				2013				Amount				%
Revenue		$	16,768,098			$	13,849,463			$	2,918,635				21	%
Cost of goods sold			5,840,176				4,447,776				1,392,400				31	%
Gross profit			10,927,922				9,401,687				1,526,235				16	%
Operating expenses			313,122				346,762				(33,640	)			(10	%)
Operating income/(loss)			10,614,800				9,054,925				1,559,875				17	%
Other income and expenses			161,650				173,618				(11,968	)			(7	%)
Income before income tax			10,776,450				9,228,543				1,547,907				17	%
Provision for income tax			2,778,055				2,146,141				631,914				29	%
Net income before noncontrolling interests			7,998,395				7,082,402				915,993				13	%
Less: noncontrolling interests			90,466				65,925				24,541				37	%
Net income attributable to controlling interests		$	7,907,929			$	7,016,477			$	891,452				13	%

 

 

Revenues 

 

The revenue was primarily generated from sales of fresh milk and commissions on fresh milk sales by farmers to whom we sold cows. We had total revenues of $16,768,098 for the three months ended September 30, 2014, an increase of $2,918,635 or 21%, compared to $13,849,463 for the three months ended September 30, 2013. The increase was principally driven by an increase of 2,283 in the number of our milk cows compared to the same period in 2013.

 

The following table shows a breakdown of revenue from natural milk sales and sales commission, respectively: 

 

		For the three months ended September 30,
										Change
		2014				2013				Amount				%
Sales of natural milk		$	13,724,991			$	10,747,423			$	2,977,568				28	%
Sales commissions			3,043,107				3,102,040				(58,933)				(2	%)
Total revenue		$	16,768,098			$	13,849,463			$	2,918,635				21	%

 

For the three months ended September 30, 2014, our revenue generated from natural milk sales was $13,724,991 which represented an increase of $2,977,568 or 28% compared to $10,747,423 for the three months ended September 30, 2013. The increases in natural milk sales were directly related to the increased number of milk cows compared to the same period of 2013.

 

The following table sets forth information regarding the number of milk cows and the revenue per cow:

 

		For the three months ended September 30,
										Change
		2014				2013				Amount				%
Sales of natural milk		$	13,724,991			$	10,747,423			$	2,977,568				28	%
Average number of milk cows			11,092				8,809				2,283				26	%
Revenue from per milk cow		$	1,237			$	1,220			$	17				1	%

 

The revenue per milk cow increased to $1,237 for the three months ended September 30, 2014 from $1,220 for the three months ended September 30, 2013, an increase of $17 or 1%. Such increase was a result of the increase in number of young adult cows with higher daily production compared to the three months ended September 30, 2013, but the increase is minimal. 

 

Sales commissions, however, decreased caused by a decline in the daily milk production of the group of milk cows owned by the local farmers.  The sales commissions from local farmers decreased by $58,933 or 2% to $3,043,107 for the three months ended September 30, 2014 from $3,102,040 for the three months ended September 30, 2013. We believe that the daily production of these milk cows have peaked and has begun to decline as the cows age.  

 

Gross profit 

 

Our cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation, water & electricity, etc. Our direct costs have been reduced as a result of lowered feeding food costs and, we have seen a marked improvement in our margins comparing the past two years to 2012.

 

		For the three months ended September 30,
										Change
		2014				2013				Amount				%
Cost of goods sold		$	5,840,176			$	4,447,776			$	1,392,400				31	%
Average number of milk cows			11,092				8,809				2,283				26	%
Cost per milk cow		$	527			$	505			$	22				4	%

 

The cost per milk cow increased to $527 for the three months ended September 30, 2014 which represented an increase of $22 or 4% compared to $505 for the three months ended September 30, 2013. More costs invested resulted in an increase of 1% in revenue per milk cow compared with the three months ended September 30, 2013.

 

Gross profit margin

 

Our gross profit margin was 65% for the three months ended September 30, 2014 which decreased by 2.7% from the three months ended September 30, 2013. We do not consider this to be a material change in the gross profit margin and was due to the above discussed factors. 

 

 

Operating expenses

 

Our operating expenses decreased to $313,122 for the three months ended September 30, 2014 from $346,762 for the three months ended September 30, 2013, a decrease of $33,640 or 10%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees associated with filings required by the securities laws of the United States, consulting fees to a Chinese financial advisory company and business taxes, etc. We incurred $170,414 and $173,714 in business taxes for the three months ended September 30, 2014 and 2013. We classified these business taxes as selling expenses.

 

Operating income

 

As a result of the foregoing, we had operating income of $10,614,800 for the three months ended September 30, 2014, representing an increase of $1,559,875, as compared to operating income of $9,054,925 for the three months ended September 30, 2013. 

 

Non-operating income 

 

For the three months ended September 30, 2014, non-operating income consists primarily of interest income of $108,420 charged on the outstanding notes receivable from the farmers and other non operating income of $53,230 which mainly consists of bank interest. For the three months ended September 30, 2013, non-operating income consists primarily of interest income of $144,345 charged on the outstanding notes receivable from the farmers and other non operating income of $29,273 which mainly consists of bank interest.  

 

Income taxes

 

Xinhua Cattle and Yulong Cattle 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. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax returns. The provision for income taxes was $2,778,055 and $2,146,141 for the three months ended September 30, 2014 and 2013, respectively, primarily representing the enterprise income tax on the income of Zhongxian Information.

 

Net Income 

 

Net income before noncontrolling interests was $7,998,395 and $7,082,402 for the three months ended September 30, 2014 and 2013, respectively, which represented an increase in $915,993 or 13%. As we own 99% of Xinhua Cattle’s shares, net income attributed to the minority interest shareholder was $90,466 and $65,925 for the three months ended September 30, 2014 and 2013, respectively. Our net income attributable to the common stockholders of the Company was $7,907,929 representing $0.15 per share and $7,016,477 representing $0.13 per share for the three months ended September 30, 2014 and 2013, respectively. 

 

Foreign Currency Translation Adjustment 

 

Our reporting currency is the U.S. dollar. Our local currency, Renminbi, is our functional currency. All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive income amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of our consolidated financial statements are recorded as other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the three months ended September 30, 2014 and 2013, foreign currency translation adjustments of $4,929 and $427,374 respectively, have been reported as other comprehensive income in the consolidated statements of income and other comprehensive income. 

 

 

Liquidity and Capital Resources 

 

As of September 30, 2014 and June 30, 2014, we had no bank debt but amounts owed to shareholders of $779,736 and $656,995, respectively. The amounts due to our stockholders was principally for the payment of professional fees incurred for being a reporting company in the United States by our stockholders’ because of the restriction of official bank transfers abroad by the Bank of China. At the same time, we had $67,395,144 and $58,032,554 in cash at September 30, 2014 and June 30, 2014 as well as net working capital of $75,218,261 and $65,364,104, respectively. 

 

Operating activities

 

During the three months ended September 30, 2014, our operating activities provided $10,993,206 in net cash, compared to $9,133,556 during the three months ended September 30, 2013. The net cash provided in the three months ended September 30, 2014 and 2013 was greater than our net income primarily due to the non-cash expense of deferred income taxes of $2,778,055 and $2,146,141, respectively.

 

Investing activities

 

During the three months ended September 30, 2014, our investing activities provided a cash outflow of $1,760,259 compared with a cash outflow of $1,424,691 for the three months ended September 30, 2013. The food costs and feeding expenses for immature biological properties used cash of $2,238,770 and $1,895,067 for the three months ended September 30, 2014 and 2013, respectively. Conversely, we received cash of $474,567 and $465,675 during the three months ended September 30, 2014 and 2013, respectively, from collection of notes receivable from the disposal of biological properties in 2011. For the three months ended September 30, 2014 and 2013, we also received $4,869 and 4,701 in cash from our disposal of biological properties, respectively.

 

Financing activities

 

Our financing activities mainly included proceeds from and repayment to shareholders of their loan to the Company. For the three months ended September 30, 2014 and 2013, we received from shareholders $184,875and $98,273, respectively. For the three months ended September 30, 2014 and 2013, we repaid $62,210 and $579 to our shareholders, respectively. 

 

We have historically financed our operations through cash generated from our fresh milk sales and commissions from milk sales of local farmers. Over the long term, it is our expectation to utilize our additional capital resources for investments to expand our operating activities. At the present time, however, we are able to operate profitably without any significant additional investment. Moreover, our observation of the equity markets indicates that we would be unlikely to obtain financing or, if available, on favorable terms at this time. Accordingly, our near term plan is to continue to finance our operations by proceeds from our operational activities. 

 

Critical Accounting Policies and Estimates 

 

Basis of Accounting and Presentation 

 

The consolidated financial statements of the Company as of September 30, 2014 and for the three months ended September 30, 2014 and 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC.

 

 

Revenue Recognition

 

The Company’s primary sources of revenues are derived from (a) sale of fresh milk to Chinese manufacturing and distribution companies of dairy products and (b) commissions from local farmers on their monthly milk sales. The Company’s revenue recognition policies comply with SEC Staff Accounting Bulletin (“SAB”) 104. Revenues from the sale of milk are recognized when the milk is delivered and the title is transferred, the risks and rewards of ownership have been transferred to the customer, the price is fixed and determinable and collection of the related receivable is reasonably assured.

 

Milk sales revenue is recognized when the title to the goods has been passed to our customers, which is the date when the goods are delivered to designated locations and accepted by the customers and the previously discussed requirements are met. Fresh milk is delivered to our customers on a daily basis. The customers’ acceptance occurs upon inspection of quality and measurement of quantity at the time of delivery. The Company does not provide the customer with the right of return. Sales commission revenue is recognized on a monthly basis based on monthly sales reports received from the dairy companies.

 

Estimates 

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Off-Balance Sheet Arrangements 

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officers as appropriate, to allow timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of March 31, 2014, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms due to a material weakness related to the lack of accounting personnel with sufficient experience in maintaining books and records and preparing financial statements in accordance with U.S. GAAP. 

 

Changes in Internal Control over Financial Reporting

 

No changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

To the best of our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

 

Item 1A. Risk Factors.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

(a) Exhibits

 

Exhibit Number		Description
31.1		Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+		Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+		Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

 

+ In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	CHINA MODERN AGRICULTURAL INFORMATION, INC.
Dated: November 14, 2014	By:	/s/ Youliang Wang
		Youliang Wang
		Chief Executive Officer (Principal Executive Officer)

 

Dated: November 14, 2014	By:	/s/ Liu Yanyan
		Liu Yanyan
		Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)

 

 

 

11

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