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EX-32.2 - CERTIFICATION - China Modern Agricultural Information, Inc.f10k2016ex32ii_chinamodern.htm
EX-32.1 - CERTIFICATION - China Modern Agricultural Information, Inc.f10k2016ex32i_chinamodern.htm
EX-31.2 - CERTIFICATION - China Modern Agricultural Information, Inc.f10k2016ex31ii_chinamodern.htm
EX-31.1 - CERTIFICATION - China Modern Agricultural Information, Inc.f10k2016ex31i_chinamodern.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended June 30, 2016

 

or

 

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

 

For the transition period from ___________ to ___________

 

Commission file number 000-54510

 

China Modern Agricultural Information, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   27-2776002

State or other jurisdiction of
incorporation or organization

 

(I.R.S. Employer
Identification No.)

     

No.A09, Wuzhou Sun Town

Limin Avenue, Limin Development District

Harbin, Heilongjiang, China

 

 

 

150000

(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (86) 0451-84800733

 

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

 

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 of 1934 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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

(Do not check if a smaller reporting company)

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 aggregate market value of the Company’s common stock held by non-affiliates computed by reference to the closing bid price of the Company’s common stock, as of the last business day of the registrant’s most recently completed second fiscal quarter: $9,867,225.84.

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 53,100,000 shares of common stock, par value $0.001 per share, issued and outstanding as of September 29, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page 
  PART I  
Item 1. Business 1
Item 1A. Risk Factors 13
Item 1B. Unresolved Staff Comments 13
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Mine Safety Disclosure 14
  PART II  
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities 15
Item 6. Selected Financial Data 15
Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 16
Item 7A. Quantitative And Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements And Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants On Accounting And Financial Disclosure
Item 9A. Controls And Procedures 27
Item 9B. Other Information 27
  PART III
Item 10. Directors, Executive Officers And Corporate Governance 28
Item 11. Executive Compensation 31
Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters 33
Item 13. Certain Relationships And Related Transactions, And Director Independence 34
Item 14. Principal Accountant Fees And Services 35
  PART IV  
Item 15. Exhibits, Financial Statement Schedules 36
Signatures 37

 

 

 

 

PART I

 

Item 1. Business.

 

In this Annual Report on Form 10-K, references to “we,” “our,” “us,” “the Company,” refer to China Modern Agricultural Information, Inc. and its subsidiaries and variable interest entities on a consolidated basis.

 

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 Shangzhi Yulong 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;
“Hope Diary” refers to Hope Diary Holdings Ltd., a British Virgin Islands company;
“China Dairy” refers to China Dairy Corporation Ltd., a Hong Kong company;

 

Overview

 

We are a leading producer and distributor of raw fresh milk in China. We have two operating entities with an aggregate fresh milk production capacity of approximately 386 tons per day. We also have 63 exclusive individual partners on June 30, 2016 with an aggregate fresh milk production capacity of approximately 324 tons per day. We have four major customers, one of which is the leading dairy company in China. During the quarter ended December 31, 2015, we terminated the contracts with certain customers and entered into contracts with three new customers.

 

 1 
 

 

Corporate History

 

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

 

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

 

Zhongxian Information was incorporated in China in January 2005 with registered capital of RMB 10,000,000 or $1,206,800 US Dollars.  In February 2006, it acquired 99% of the registered capital of Heilongjiang Xinhua Cattle Industry Co., Ltd., a PRC company (“Xinhua Cattle”), which was incorporated in China in December 2005 with registered capital of RMB 3,000,000 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 breeding and fresh milk production and distribution.

 

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

 

On July 16, 2015, we transferred 100% of the issued and outstanding shares of Value Development to China Dairy Corporation Ltd., a Hong Kong company (“China Dairy”), which is 60% owned indirectly by the Company through the Company’s wholly- owned subsidiary, Hope Diary Holdings Ltd., a British Virgin Islands company (“Hope Diary”). These transactions involve no consideration received or paid as Value Development and China Dairy are under common control with us and this transaction is a restriction to our interests in Value Development. 

 

 2 
 

 

China Dairy was newly incorporated in January 2015 and did not have any significant assets or liabilities, or business operations, which is 100% owned by Company’s PRC corporate advisor. Further, the sole shareholder transferred the 10,000 shares of China Dairy to Value Development 60% and various shareholder and consultants of the Company 40% at HK$1.00 per share. 


The 40% of the 10,000 shares of China Dairy were transferred from the sole shareholder of China Dairy to the following entities at HK$1.00 per share, which has direct or indirect relationship with the shareholder and consultants of the Company: 3% to Beijing Ruihua Future, 4% to Donghe Group, 3% to Integral Capital, 20% to Dingxi Shanghai Fund and 10% to Zhiyuan International. Immediately after the transfer, 65,000 bonus shares were issued at no consideration for every existing share. 

 

Value Development is the sole shareholder of Value Development Group Limited, which is the sole shareholder of Harbin Jiasheng Consulting Managerial Co. Ltd. (“Jiasheng Consulting”), which is our subsidiary in China, with respect to which the operating company, Zhongxian Information, is a variable interest entity. The effect of this transaction was to reduce the interest of ours in its operating company by 40%. We use the China Dairy’s offering price for the Proposed Offering to approximate the fair value of the 40% stock granted to the shareholder and consultants. 

 

On September 16, 2015 our 60%-owned subsidiary, Jiasheng Consulting, exercised its option to purchase all of the registered equity of our operating subsidiary, Zhongxian Information from its stockholders Zhengxin Liu and Youliang Wang, who are also the members of our Board of Directors, for RMB10,000 (approximately $1,634). Prior to the acquisition, Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made Zhongxian Information a variable interest entity, the effect of which was to cause the balance sheet and operating results of Zhongxian Information to be consolidated with those of Jiasheng Consulting in our financial statements. As a result of the acquisition by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating results of Zhongxian Information hereafter continues to be consolidated with those of Jiasheng Consulting as its 100% owned subsidiary.

 

On April 8, 2016, our 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and raised total fund of AUD $16,981,308 (USD $13,021,267). After the IPO, our ownership was diluted to 53.07%.

 

Our current structure is set forth below:

 

 O:\1 Pre-Sub\2016\September\Morning\26\China Modern

   

 3 
 

 

Our Business Model

 

We generate revenues from three sources: sale of fresh milk, processing and sales of organic fertilizer, and assisting local farmers with their fresh milk sale efforts.

 

Fresh Milk

 

We exclusively use Holstein cows for our milk production. Holstein cows are well-regarded for their abundant milk production and high-quality milk. Our cows currently have an average milking period of 305 days and produce milk that contains approximately 3.5% fat. Each adult cow produces approximate 8,700 kilograms annually.

 

Our farmland is located in the Heilongjiang province which has a humid continental climate. This climate is ideal for the growth of grass, which in turn is essential in the grazing and feeding of our cattle that aids in our breeding of cows and calves, fresh milk production and organic fertilizer production. We maintain strict quality control and testing procedures to ensure our milk products are of high quality. The milk production and quality controls ensure that the milk produced is high in nutrients and active biological substances.

 

Cow Feeders

 

Xinhua Cattle outsources over 90% of the cow feeding to local farmers pursuant to a series of entrusting feeding agreements with the local farmers. Pursuant to these agreements, we pay for the fostering fees and feed costs. In return, the local farmers provide us with the fresh milk produced by the cows.

 

Pursuant to these entrust feeding agreements, we entrust our cattle to local farmers to assist in a more efficient means to produce fresh milk, as well as manure, used in our production of organic fertilizer. In that regard, we pay a monthly fee to local farmers that correlate to the number of calves, cattle, and cows that are placed in their care. Pursuant to the agreements, local farmers are responsible for the feeding and raising of the cattle as well as the fresh milk production. Additionally, these local farmers ensure that each cow produces a minimum of 20 kilograms of milk daily.

 

Between July and August 2015, monthly feeding fee to the local farmers is $7.77 per baby cow, $10.88 per pre-adult cow, $15.54 per young cow and $31.08 per adult cow, respectively; food costs every month to the local farmers is $51 per baby cow, $65 per pre-adult cow, $71 per young cow, and $106 per adult cow, respectively. Since August 2015, the monthly feeding fee remains the same while between September and November the food costs increased to $61 per baby cow, $76 per pre-adult cow, $85 per young cow, and $127 per adult cow, respectively. From November 2015, the food costs increased further to $70 per baby cow, $85 per pre-adult cow, $101 per young cow, and $233 per adult cow, respectively.

 

Local farmers are responsible for milk production and are required to timely deliver the milk production daily. All of the raw milk produced by the cattle is owned by us. Additionally, the local farmers are contractually obligated to conduct periodic breeding for the young cattle and cows, at our expense. The breeding is overseen by veterinarians of our choosing. All calves produced by our entrusted cows are our property, and all calve births are overseen by veterinarians of our choosing. All cow waste produced by our entrusted cattle is owned by us. The local farmers are obligated to collect the waste and provide it to us for further processing, and eventual sale as organic fertilizer.

 

Fresh Milk Customers

 

Mengniu Dairy Co. Ltd.

 

Mengniu Dairy Co. Ltd. (“Mengniu”) has been a purchaser of our raw milk products since 2006. Our current and previous contractual arrangement provides for the purchase of our milk at the base price of RMB 3.45 or $0.55/kilogram. However, the base price is based on the quality of our raw milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). Mengniu has renewed the contractual commitment to continue to purchase raw milk products from us.

 

 4 
 

 

Mengniu accounted for 7.9% of all milk sales for the fiscal year ended June 30, 2016 and 22.8% of all milk sales for the fiscal year ended June 30, 2015.

 

Qiqihaer Heshan Dairy Co., Ltd.

 

Qiqihaer Heshan Dairy Co., Ltd. (“Heshan Dairy”) was a purchaser of our fresh milk products since 2011. Our previous contractual arrangement provides for the purchase of our milk at the base price of RMB 3.50 or $0.56/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). In October 2015, we terminated our contractual relationship with Heshan Dairy. 

 

Heilongjiang Longxing Dairy Co., Ltd.

 

Heilongjiang Longxing Dairy Co., Ltd. (“Longxing Dairy”) was a purchaser of our fresh milk products from 2011 to October 2015. Our previous contractual arrangement provided for the purchase of our milk at the base price of RMB 3.50 or $0.56/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). On October 21, 2015, we terminated our contractual relationship with Longxing Dairy.

 

Heilongjiang Nongken Delong Dairy Co., Ltd.

 

Heilongjiang Nongken Delong Dairy Co., Ltd. (“Nongken Delong Dairy”) was a purchaser of our fresh milk products from 2011 to October 2015. Our previous contractual arrangement provides for the purchase of our milk at the base price of RMB 3.50 or $0.56/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). On October 15, 2015, we terminated our contractual relationship with Nongken Delong Dairy.

 

SuihuaDongxing Dairy Co., Ltd.

 

SuihuaDongxing Dairy Co., Ltd. (“Dongxing Dairy”) was a purchaser of our fresh milk products from 2011 to October 2015. Our previous contractual arrangement provides for the purchase of our milk at the base price of RMB 3.50 or $0.56/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). On October 22, 2015, we terminated our contractual relationship with Dongxing Dairy.

 

 5 
 

 

Wandashan Harbin Dairy Co., Ltd.

 

Wandashan Harbin Dairy Co., Ltd. (“Wandashan Dairy”) has been a purchaser of our fresh milk products since October 26, 2015. Our current contractual arrangement provides for the purchase of our milk at the base price of RMB 3.80 or $0.57/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). Our current contractual arrangement with Wandashan Dairy expires on October 25, 2017.

 

Wanjiabao Dairy Co., Ltd.

 

Wandashan Harbin Dairy Co., Ltd. (“Wanjiabao Dairy”) has been a purchaser of our fresh milk products since October 26, 2015. Our current contractual arrangement provides for the purchase of our milk at the base price of RMB 3.80 or $0.57/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). Our current contractual arrangement with Wanjiabao Dairy expires on October 25, 2017.

 

Harbin Ruduobao Dairy Co., Ltd.

 

Harbin Ruduobao Dairy Co., Ltd. (“Ruduobao Dairy”) has been a purchaser of our fresh milk products since October 28, 2015. Our current contractual arrangement provides for the purchase of our milk at the base price of RMB 3.80 or $0.57/kilogram. However, the base price is based on the quality of our fresh milk, namely, fat percentage of 3.1%, protein percentage of 2.95%, and the Level One microorganism quality (less than 0.5 million / ml). Our current contractual arrangement with Ruduobao Dairy expires on October 27, 2017.

 

Organic Fertilizer

 

As a by-product of the fresh milk production, we use the resulting manure as a source of additional revenue. We combine the raw material, the manure, with inoculating complex microbial agents, and then ferment the product using biological and chemical processes and microbial fermentation technology, which produces the organic fertilizer.

 

Our fertilizer product is unique, in that it decomposes slowly, maintains long fertilizing effect and slow nutrient loss. It can effectively promote the proliferation of useful microorganisms and enhance soil fertility, resulting in more abundant crop growth.

 

Zhongxian Information has formed a livestock business system which integrates fresh milk production and organic fertilizer production for direct sale to suppliers.

 

The sale of organic fertilizer only makes up a very small amount of our total revenue. We generated USD $47,537 in revenue from our organic fertilizer sales in the fiscal year ended June 30, 2016 and USD 20,401 in revenue from our organic fertilizer sales in the fiscal year ended June 30, 2015. Jianfa Bio-Organic Fertilizer Plant was the sole customer for our organic fertilizer products from 2006 to June 2011. Since July 2011, we have been selling our organic fertilizer products to Heilongjiang Soyang Bio Energy Development Ltd.

 

Sales Commissions

 

In addition to selling fresh milk to Chinese manufacturing and distribution companies of dairy products, we started to sell our milk cows to local farmers in exchange for monthly payments from the local farmers on their monthly milk sales since June 2011. The monthly payments represent the monthly installments, including interest, for the purchase price of milk cows sold, or a mix of the purchase price and commissions for our assistance in arranging for their milk sales.

 

In September 2011, August 2011, and June 2011, Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers, respectively. In November and December 2014, Yulong sold 3,714 and 2,995 cows to local farmers respectively. 3,500 of the cows sold in 2014 were purchased from outside unrelated parties for $4,550,000. The remaining cows sold were raised by Yulong. According to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk. 

 

Pursuant to the agreements signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay 30% of monthly milk sales generated from the cows purchased by the farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. 

 

In August 2015, Xinhua Cattle sold 200 cows to an outside party at a total price of RMB 160,000(US $24,861) including insurance of RMB 100,000 (US $ 15,540). The cows had a net book value approximately $43,000 as of the disposal date, which includes cost basis approximate $560,000 and accumulated depreciation approximately $516,000. In May 2016, Xinhua Cattle sold 904 cows to an outside party at a total price of RMB 3,616,000(US $561,854). The cows had a net book value approximately $564,000 as of the disposal date, which includes cost basis approximate $1,147,000 and accumulated depreciation approximately $583,000. In June 2016, Xinhua Cattle also sold 500 female calves to an outside party at a total price of RMB 2,000,000 (US $310,760). The cost of these female calves was approximate $322,000. 

 

 6 
 

 

In November 2015, Yulong Cattle Sold 347 cows to an outside party at a total price of RMB 1,144,800 (US $177,879) including insurance of RMB 104,100 (US $ 16,175). The cows had a net book value approximately $254,000 as of the disposal date, which includes cost basis approximate $588,000 and accumulated depreciation approximately $335,000. In May 2016, Yulong Cattle sold 331 cows to an outside party at a total price of RMB 1,390,200 (US $216,009). The cows had a net book value approximately $324,000 as of the disposal date, which includes cost basis approximate $709,000 and accumulated depreciation approximately $385,000.  

 

By the end of June 30, 2015, we had 35,058 cows, among which, 25,821 cows continue to be fed by local farmers, 4,200 cows are maintained by Xinhua Cattle, and 5,037 cows are maintained by Yulong Cattle.

 

Between July and August 2015, monthly feeding fee to the local farmers is $7.77 per baby cow, $10.88 per pre-adult cow, $15.54 per young cow and $31.08 per adult cow, respectively; food costs every month to the local farmers is $51 per baby cow, $65 per pre-adult cow, $71 per young cow, and $106 per adult cow, respectively. Since August 2015, the monthly feeding fee remains the same while between September and November the food costs increased to $61 per baby cow, $76 per pre-adult cow, $85 per young cow, and $127 per adult cow, respectively. From November 2015, the food costs increased further to $70 per baby cow, $85 per pre-adult cow, $101 per young cow, and $233 per adult cow, respectively.

 

The increase in feeding costs was the main reason that we disposed of a large number of our cows. The bulk sales of milk cows provide us with a new revenue stream with relatively low direct costs as the local farmers assumed the milk production function.

 

Research and Development

 

We had no expenses on research and development activities during the fiscal years ended June 30, 2016 and 2015.

 

Intellectual Property

 

We regard the protection of our copyrights, service marks, trademarks, trade secrets and other intellectual property rights as critical to our future success. We rely on contractual restrictions to protect our proprietary rights in products and services. We cannot assure you that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies.

 

Trademarks

 

Through Zhongxian Information, we have registered the following trademark with the Trademark Office, State Administration for Industry and Commerce in the PRC:

 

No.   Registration No.   Trademark  Registrant  Item Category 

Expiration

Date

 1    5980762   MANCUNXIANG  Zhongxian Information  Category No. 30 (Staple food): Coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder, salt, mustard; vinegar, sauces (condiments); spices; ice.  December 13, 2019
                    
 2    4705072   ZHONGXIAN
PROPERTY
  Zhongxian Information  Category No. 31 (Natural agricultural products): Agricultural, horticultural and forestry products and grains not included in other classes; live animals; fresh fruits and vegetables; seeds, natural plants and flowers; foodstuffs for animals, malt.  March 6,
2018
                    
 3    4705070   ZHONGXIAN
INFORMATION
  Zhongxian Information  Category No. 38 (Communication services): Telecommunications.  January 6,
2019
                    
 4    4705071   ZHONGXIAN
TECHNOLOGY
  Zhongxian Information  Category No. 42 (Scientific and technological services): Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software.  January 6,
2019

 

We plan to file for an extension with the Trademark Office of the above trademark prior to the expiration date.

 

 7 
 

 

Copyright

 

The Company currently does not own any copyrights. The copyright of Zhongxian Agricultural Economy Network Services System V1.0 and Zhongxian Agricultural Capital Information Services System V1.0 were previously contributed to the Company by its shareholders and have now been reverted back to such shareholders.

 

Domain Names

 

Zhongxian Information owns the domain name of www.hljzhongxian.com (Registration No.: Hei ICP Bei 10200342).

 

Government Regulation

 

We are subject to inspection of the Livestock and Veterinary Bureau each quarter for our breeder farms. We have never been penalized by the bureau.

 

China Regulations

 

This section sets forth a summary of the most significant Chinese regulations or requirements that may affect our business activities operated in China or our shareholders’ right to receive dividends and other distributions of profits from the PRC subsidiaries.

 

Foreign Investment in PRC Operating Companies

 

The Foreign Investment Industrial Catalogue jointly issued by the MOFCOM and the National Development and Reform Commission or the NDRC in 2007 classified various industries/business into three different categories: (i) encouraged for foreign investment; (ii) restricted to foreign investment; and (iii) prohibited from foreign investment. For any industry/business not covered by any of these three categories, they will be deemed industries/business permitted to have foreign investment. Except for those expressly provided restrictions, encouraged and permitted industries/business are usually 100% open to foreign investment and ownership. With regard to those industries/business restricted to or prohibited from foreign investment, there is always a limitation on foreign investment and ownership. The PRC Subsidiary’s business does not fall under the industry categories that are restricted to, or prohibited from foreign investment and is not subject to the limitation on foreign investment and ownership.

 

 8 
 

 

Regulation of Foreign Currency Exchange

 

Foreign currency exchange in the PRC is governed by a series of regulations, including the Foreign Currency Administrative Rules (1996), as amended, and the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange (1996), as amended. Under these regulations, the Renminbi is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loans or investments in securities outside the PRC without the prior approval of SAFE. Pursuant to the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange (1996), Foreign Invested Enterprises (“FIEs”) may purchase foreign exchange without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by SAFE, to satisfy foreign exchange liabilities or to pay dividends. However, the relevant Chinese government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside the PRC are still subject to limitations and require approvals from SAFE.

 

Regulation of FIEs’ Dividend Distribution

 

The principal laws and regulations in the PRC governing distribution of dividends by FIEs include:

 

(i) The Sino-foreign Equity Joint Venture Law (1979), as amended, and the Regulations for the Implementation of the Sino-foreign Equity Joint Venture Law  (1983), as amended;
   
(ii) The Sino-foreign Cooperative Enterprise Law (1988), as amended, and the Detailed Rules for the Implementation of the Sino-foreign Cooperative Enterprise Law  (1995), as amended;
   
(iii) The Foreign Investment Enterprise Law (1986), as amended, and the Regulations of Implementation of the Foreign Investment Enterprise Law  (1990), as amended.

 

Under these regulations, FIEs in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, foreign-invested enterprises in the PRC are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

  

Regulation of a Foreign Currency’s Conversion into RMB and Investment by FIEs

 

On August 29, 2008, SAFE issued a Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises or Notice 142, to further regulate the foreign exchange of FIEs. According to the Notice 142, FIEs shall obtain verification report from a local accounting firm before converting its registered capital of foreign currency into Renminbi, and the converted Renminbi shall be used for the business within its permitted business scope. The Notice 142 explicitly prohibits FIEs from using RMB converted from foreign capital to make equity investments in the PRC, unless the domestic equity investment is within the approved business scope of the FIE and has been approved by SAFE in advance.

 

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

 

In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Notice 75, which became effective as of November 1, 2005, and was further supplemented by two implementation notices issued by SAFE on November 24, 2005 and May 29, 2007, respectively. SAFE Notice 75 states that PRC residents, whether natural or legal persons, must register with the relevant local SAFE branch prior to establishing or taking control of an offshore entity established for the purpose of overseas equity financing involving onshore assets or equity interests held by them. The term “PRC legal person residents” as used in SAFE Notice 75 refers to those entities with legal person status or other economic organizations established within the territory of the PRC. The term “PRC natural person residents” as used in SAFE Notice 75 includes all PRC citizens and all other natural persons, including foreigners, who habitually reside in the PRC for economic benefit. SAFE implementation notice of November 24, 2005 further clarifies that the term “PRC natural person residents” as used under SAFE Notice 75 refers to those “PRC natural person residents” defined under the relevant PRC tax laws and those natural persons who hold any interests in domestic entities that are classified as “domestic-funding” interests.

 

 9 
 

 

PRC residents are required to complete amended registrations with the local SAFE branch upon (i) injection of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. PRC residents are also required to complete amended registrations or filing with the local SAFE branch within 30 days of any material change in the shareholding or capital of the offshore entity, such as changes in share capital, share transfers, and long-term equity or debt investments and these changes do not relate to return investment activities. PRC residents who have already organized or gained control of offshore entities that have made onshore investments in the PRC before SAFE Notice 75 was promulgated must register their shareholdings in the offshore entities with the local SAFE branch on or before March 31, 2006.

 

Under SAFE Notice 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under SAFE Notice 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.

 

Government Regulations Relating to Taxation

 

On March 16, 2007, the National People’s Congress or NPC, approved and promulgated the PRC Enterprise Income Tax Law , which we refer to as the New EIT Law. The New EIT Law took effect on January 1, 2008. Under the New EIT Law, FIEs and domestic companies are subject to a uniform tax rate of 25%. The New EIT Law provides a five-year transition period starting from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential lower tax rate under the then-effective tax laws or regulations.

  

On December 26, 2007, the State Council issued a Notice of Implementing Transitional Measures for Enterprise Income Tax, or the Notice, providing that the enterprises that have been approved to enjoy a low tax rate prior to the promulgation of the New EIT Law will be eligible for a five-year transition period since 1 January, 2008, during which time the tax rate will be increased step by step to the 25% unified tax rate set out in the New EIT Law. From 1 January, 2008, for the enterprises whose applicable tax rate was 15% before the promulgation of the New EIT Law, the tax rate will be increased to 18% for year 2008, 20% for year 2009, 22% for year 2010, 24% for year 2011, 25% for year 2012. For the enterprises whose applicable tax rate was 24%, the tax rate will be changed to 25% from January 1, 2008.

 

The New EIT Law provides that an income tax rate of 20% may be applicable to dividends payable to non-PRC investors that are “non-resident enterprises”. Non-resident enterprises refer to enterprises which do not have an establishment or place of business in the PRC, or which have such establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The income tax for non-resident enterprises shall be subject to withholding at the income source, with the payor acting as the obligatory withholder under the New EIT Law, and therefore such income taxes generally called withholding tax in practice. The State Council of the PRC has reduced the withholding tax rate from 20% to 10% through the Implementation Rules of the New EIT Law. It is currently unclear in what circumstances a source will be considered as located within the PRC. We are a U.S. holding company and substantially all of our income is derived from dividends we receive from our subsidiaries located in the PRC. Thus, if we are considered as a “non-resident enterprise” under the New EIT Law and the dividends paid to us by our subsidiary in the PRC are considered income sourced within the PRC, such dividends may be subject to a 10% withholding tax.

 

 10 
 

 

Such income tax may be exempted or reduced by the State Council of the PRC or pursuant to a tax treaty between the PRC and the jurisdictions in which our non-PRC shareholders reside. For example, the 10% withholding tax is reduced to 5% pursuant to the Double Tax Avoidance Agreement Between Hong Kong and Mainland China if the beneficial owner in Hong Kong owns more than 25% of the registered capital in a company in the PRC.

 

The new tax law provides only a framework of the enterprise tax provisions, leaving many details on the definitions of numerous terms as well as the interpretation and specific applications of various provisions unclear and unspecified. Any increase in the combined company’s tax rate in the future could have a material adverse effect on its financial conditions and results of operations.

 

Regulations of Overseas Investments and Listings

 

On August 8, 2006, six PRC regulatory agencies, including MOFCOM, CSRC, SASAC, SAT, SAIC and SAFE, jointly amended and released the M&A Rules, which became effective on September 8, 2006. This regulation, among other things, includes provisions that purport to require that an offshore SPV formed for purposes of overseas listing of equity interest in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by SPVs. CSRC approval procedures require the filing of a number of documents with CSRC and it would take several months to complete the approval process. The application of the M&A Rules with respect to overseas listings of SPVs remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope of the applicability of CSRC approval requirement.

 

Regulations on Work Safety

 

On June 29, 2002, the Work Safety Law (“WSL”) of the PRC was adopted by the Standing Committee of the 9th National People’s Congress and came into effect on November 1, 2002, as amended on August 27, 2009. The WSL provides general work safety requirements for entities engaging in manufacturing and business activities within the PRC. Additionally, Regulation on Work Safety Licenses (“RWSL”), as adopted by the State Council on January 7, 2004 effective on January 13, 2004, requires enterprises engaging in the manufacture of dangerous chemicals to obtain a work safety license with a term of three years. If a work safety license needs to be extended, the enterprise must go through extension procedures with authorities three months prior to its expiration. In addition, on May 17, 2004, the Measures for Implementation of Work Safety Licenses of Dangerous Chemicals Production was promulgated as implementing measures to the Regulation on Work Safety Licenses which provides that entities producing dangerous chemicals are required to obtain work safety licenses pursuant to specific requirements. Without work safety licenses, no entity may engage in the formal manufacture of dangerous chemicals.

  

The Regulations on the Safety Administration of Dangerous Chemicals (“RSADC”) was promulgated by the State Council on January 26, 2002, effective as of March 15, 2002. It sets forth general requirements for manufacturing and the storage of dangerous chemicals in China. The RSADC requires that companies manufacturing dangerous chemicals establish and strengthen their internal regulations and rules on safety control and fulfill the national standards and other relevant provisions of the State. In addition, according to the RSADC, companies that manufacture, store, transport or use dangerous chemicals shall be required to obtain corresponding approvals or licenses with the State Administration of Work Safety and its local branches and other proper authorities. Companies that manufacture or store dangerous chemicals without approval or registration with the proper authorities can be shut down, ordered to stop manufacturing or ordered to destroy the dangerous chemicals. Such companies can also be subject to fines. If criminal law is violated, the persons chiefly liable, along with other personnel directly responsible for such impropriety, shall be subject to relevant criminal liability.

 

 11 
 

 

Regulations on Environmental Protection

 

According to the Prevention and Control of Water Pollution Law, as adopted by the Standing Committee of the 10th National People’s Congress on February 28, 2008 and effective on June 1, 2008, China adopted a licensing system for pollutant discharge. Companies directly or indirectly responsible for the discharge of industrial waste water or medical sewage to waters shall be required to obtain a pollutant discharge license. All companies are prohibited from discharging wastewater and sewage to waters without or in violation of the terms of the pollutant discharge license.

 

The Regulations on the Administration of Construction Projects Environmental Protection (“RACPEP”), as adopted by the State Council on November 18, 1998 and effective on November 29, 1998, governs construction projects and the impact such projects will have on the environment. Pursuant to the RACPEP, the governing body is responsible for supervising the implementation of a three-tiered system that includes (i) reviewing and approving a construction project, (ii) overseeing the construction project and (iii) to inspect the finished construction project and ensure that all harmful pollutants are disposed of correctly. Manufacturing companies are required to apply for inspection with environment protection authorities upon completion of a construction project.

 

Food Safety Law of the People’s Republic of China

 

The Food Safety Law of the People’s Republic of China (the “Food Safety Law”) as adopted at the 7th Session of the Standing Committee of the 11th National People’s Congress of the People’s Republic of China and effective on June 1, 2009, governs the food safety in food production and business operation activities. Pursuant to the Food Safety Law, food producers must establish an internal inspection and record system for raw materials and pre-delivery products, and food distributors must also establish internal systems to record and inspect food products procured from suppliers. In addition, any food additives that are not in the approved government catalog must not be used and no food products can be sold inspection-free.

 

Regulations on the Implementation of the Food Safety Law of the People’s Republic of China

 

The Regulations on the Implementation of the Food Safety Law of the People’s Republic of China (the “Regulations”) as adopted at the 73rd Standing Committee Meeting of the State Council on July 8, 2009 and effective on July 20, 2009, are promulgated in accordance with the Food Safety Law. The Regulations require that the local People’s Government at or above the country level shall perform the responsibility specified in the Food Safety Law, improve the ability for supervision and administration of food safety, ensure supervision and administration of food safety; establish and improve the coordination mechanism between food safety regulatory authorities, integrate and improve the food safety information network, and realize the sharing of food safety and food inspection information and other technical resources.

 

Law of the People’s Republic of China on Quality and Safety of Agricultural Products

 

The Law of the People’s Republic of China on Quality and Safety of Agricultural Products was adopted at the 21st Meeting of the Standing Committee of the Tenth National People’s Congress on April 29, 2006. This Law was enacted in order to ensure the quality and safety of agricultural products, maintain the health of the general public, and promote the development agriculture and rural economy. Pursuant to this Law, agricultural products distribution enterprises shall establish a sound system of inspection and acceptance for their purchases. In addition, agricultural products that fail to pass the inspection based on the quality and safety standards of agricultural products cannot be marketed.

 

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Compliance with Environmental Laws

 

We strive to meet the requirements provided in environmental protection regulations, and regulations related to facility safety and quality control, throughout the design, maintenance and growth of our operation facilities and manufacturing process.

 

Employees

 

We currently have approximately 172 employees of which Zhongxian Information has 8 employees, Xinhua Cattle has 78 employees and Yulong Cattle has 86 employees and all of our employees are full-time employees.

 

Item 1A. Risk Factors.

 

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

 

Item 1B. Unresolved Staff Comments

 

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

 

Item 2. Properties.

 

Farmland

 

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, 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 $5,854,800 and $5,947,900 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2015 and 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 $3,060,000 and $3,532,200 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2015 and 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 $11,986,191 and $12,177,662 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2015 and 2014, respectively. The lease provides for renewal options.

 

On May 7, 2015, the Company obtained another “land use right” to use 238,001 square meters of land, from May 7, 2015 to May 6, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 35,808 square meters on top of the land leased, an office building at 3,500 square meters and a flat building at 3,500 square meters. The lease period of all these constructions is the same as the land. The Company recorded the prepayment of RMB 74,847,600 (US$12,215,000) as prepaid lease. The prepaid lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $12,147,266 is included in prepaid lease in the consolidated balance sheets as of June 30, 2015.

 

 13 
 

 

On May 14, 2015, the Company obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015 to May 13, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 42,100 square meters, an office building at 3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions is the same as the land. The Company recorded the prepayment of RMB 111,887,500 (US$18,260,000) as prepaid lease. The prepaid lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $18,158,595 is included in prepaid lease in the consolidated balance sheets as of June 30, 2015.

 

Rent expense charged to operations for the years ended June 30, 2016 and 2015 was $1,789,248 and $1,029,601, respectively.

  

Office Space

 

We have renewed our previous arrangements with an unrelated third party to use an office space at no cost from September 1, 2015, to August 31, 2020.

 

Item 3. Legal Proceedings.

 

There are no actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock began to be quoted on the OTC Bulletin Board on July 8, 2010 and is currently quoted on OTCQB under the symbol “CMCI”. There has been a very limited public market for our common stock. There can be no assurance that a liquid market for our securities will ever develop.

 

The following table sets forth the high and low bid quotations for our common stock as reported on the OTCQB for the periods indicated.

 

  

High Bid*

($)

  

Low Bid*

($)

 
2015        
Fourth quarter  $0.65    0.51 
Third quarter  $0.54    0.33 
Second quarter  $0.89    0.46 
First quarter  $1.10    0.58 
2016          
Fourth quarter  $0.34    0.15 
Third quarter  $0.34    0.16 
Second quarter  $0.63    0.46 
First quarter  $0.68    0.50 

 

* The quotations of the closing prices reflect inter-dealer prices, without retail mark-up, markdown or commission.

 

Holders

 

As of September 29, 2016, there are 787 holders of record of the Company’s common stock.

 

Dividends

 

The Company has not paid any cash dividends to date and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company's business.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of June 30, 2016.

 

   Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)   Weighted- average exercise price of outstanding options, warrants, and rights (b)   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 
Plan category            
Plans approved by our stockholders:               
2012 Stock Incentive Plan (1)   0    0    0 

 

(1) On April 16, 2012, the Company granted 3,000,000 shares of restricted stock under the Plan to its employees and the shares were issued on April 26, 2012.  The shares, with a fair value of $1,200,000 at the grant date, were fully vested on May 20, 2012 and the fair value of the shares was charged to operations for the fiscal year ended June 30, 2012. As of September 30, 2016, there are currently no shares available to be issued.

 

Item 6. Selected Financial Data.

 

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

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.  The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in "Item 8. Financial Statements and Supplementary Data."

 

This annual report on Form 10-K contains or may contain forward-looking statements (collectively the "Filings") and information that are based upon beliefs of, and information currently available to, the Company's management as well as estimates and assumptions made by Company's management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan," or the negative of these terms and similar expressions as they relate to the Company or the Company's management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Overview 

 

We are a leading producer and distributor of raw fresh milk in China. We have two operating entities with an aggregate fresh milk production capacity of approximately 386 tons per day. We also have 63 exclusive individual partners on June 30, 2016 with an aggregate fresh milk production capacity of approximately 324 tons per day. We have four major customers, one of which is the leading dairy company in China. During the quarter ended December 31, 2015, we terminated the contracts with certain customers and entered into contracts with four new customers. 

 

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

 

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

 

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Zhongxian Information was incorporated in China in January 2005 with registered capital of RMB 10,000,000 or $1,206,800 US Dollars.  In February 2006, it acquired 99% of the registered capital of Heilongjiang Xinhua Cattle Industry Co., Ltd., a PRC company (“Xinhua Cattle”), which was incorporated in China in December 2005 with registered capital of RMB 3,000,000 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 breeding and fresh milk production and distribution.

 

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

 

On July 16, 2015, we transferred 100% of the issued and outstanding shares of Value Development to China Dairy Corporation Ltd., a Hong Kong company (“China Dairy”), which is 60% owned indirectly by the Company through the Company’s wholly-owned subsidiary, Hope Diary Holdings Ltd., a British Virgin Islands company (“Hope Diary”). These transactions involve no consideration received or paid as Value Development and China Dairy are under common control with us and this transaction is a restriction to our interests in Value Development.

 

China Dairy was newly incorporated in January 2015 and did not have any significant assets or liabilities, or business operations, which is 100% owned by Company’s PRC corporate advisor. Further, the sole shareholder transferred the 10,000 shares of China Dairy to Value Development 60% and various shareholder and consultants of the Company 40% at HK$1.00 per share. 

 

The 40% of the 10,000 shares of China Dairy were transferred from the sole shareholder of China Dairy to the following entities at HK$1.00 per share, which has direct or indirect relationship with the shareholder and consultants of the Company: 3% to Beijing Ruihua Future, 4% to Donghe Group, 3% to Integral Capital, 20% to Dingxi Shanghai Fund and 10% to Zhiyuan International. Immediately after the transfer, 65,000 bonus shares were issued at no consideration for every existing share. 

 

Value Development is the sole shareholder of Value Development Group Limited, which is the sole shareholder of Harbin Jiasheng Consulting Managerial Co. Ltd. (“Jiasheng Consulting”), which is our subsidiary in China, with respect to which the operating company, Zhongxian Information, is a variable interest entity. The effect of this transaction was to reduce the interest of ours in its operating company by 40%. We use the China Dairy’s offering price for the Proposed Offering to approximate the fair value of the 40% stock granted to the shareholder and consultants. 

 

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On September 16, 2015 our 60%-owned subsidiary, Jiasheng Consulting, exercised its option to purchase all of the registered equity of our operating subsidiary, Zhongxian Information from its stockholders Zhengxin Liu and Youliang Wang, who are also the members of our Board of Directors, for RMB10,000 (approximately $1,634). Prior to the acquisition, Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made Zhongxian Information a variable interest entity, the effect of which was to cause the balance sheet and operating results of Zhongxian Information to be consolidated with those of Jiasheng Consulting in our financial statements. As a result of the acquisition by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating results of Zhongxian Information hereafter continues to be consolidated with those of Jiasheng Consulting as its 100% owned subsidiary. On April 8, 2016, our 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and raised total fund of AUD $16,981,308 (USD $13,021,267). After the IPO, our ownership was diluted to 53.07%. 

 

Our current structure is set forth below:

  

 

  

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 the variety, aging and number of adult cows. Accordingly, we acquired Yulong Cattle in November 2011 which increased our number of cows by 3,800 and improved our production capacity by approximately 90 tons per day when acquired.
Raw Material Supplies and Prices. The per unit cost of fresh milk is affected by price volatility of our raw materials and feeding expenses in the China markets.  In response to the increased cost, we leased 16,666,750 square meters of grassland in October 2011, 427,572 square meters grassland in February 2013, and 521,336 square meters of grassland in May 2015. We believe that the hay production of this grassland can satisfy our raw material demand and lower our feeding cost.
Change of operation method. We disposed a large number of adult cows to local farmers, introduced distribution channel to them and receive up to 30% of the farmers’ milk sales as a commission. It makes our performance is stably increased and we have enough production resources to feed more cows by ourselves. In addition, we signed with another 27 local farmers to feed 2,000 adult cows in May 2016 to increase our production resources.

 

 18 
 

 

Sale of Cows

 

In September 2011, August 2011, and June 2011, Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers, respectively. In November and December 2014, Yulong sold 3,714 and 2,995 cows to local farmers respectively. 3,500 of the cows sold in 2014 were purchased from outside unrelated parties for $4,550,000. The remaining cows sold were raised by Yulong. According to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk. 

 

Pursuant to the agreements signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay 30% of monthly milk sales generated from the cows purchased by the farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. 

 

In August 2015, Xinhua Cattle sold 200 cows to an outside party at a total price of RMB 160,000(US $24,861) including insurance of RMB 100,000 (US $ 15,540). The cows had a net book value approximately $43,000 as of the disposal date, which includes cost basis approximate $560,000 and accumulated depreciation approximately $516,000. In May 2016, Xinhua Cattle sold 904 cows to an outside party at a total price of RMB 3,616,000(US $561,854). The cows had a net book value approximately $564,000 as of the disposal date, which includes cost basis approximate $1,147,000 and accumulated depreciation approximately $583,000. In June 2016, Xinhua Cattle also sold 500 female calves to an outside party at a total price of RMB 2,000,000 (US $310,760). The cost of these female calves was approximate $322,000. 

 

In November 2015, Yulong Cattle Sold 347 cows to an outside party at a total price of RMB 1,144,800 (US $177,879) including insurance of RMB 104,100 (US $ 16,175). The cows had a net book value approximately $254,000 as of the disposal date, which includes cost basis approximate $588,000 and accumulated depreciation approximately $335,000. In May 2016, Yulong Cattle sold 331 cows to an outside party at a total price of RMB 1,390,200 (US $216,009). The cows had a net book value approximately $324,000 as of the disposal date, which includes cost basis approximate $709,000 and accumulated depreciation approximately $385,000. 

 

Increase in payment to local farmers 

 

Due to the significant increase in forage price, our payment to local farmers was increased as well during last twelve months. Before March 2015, the payment which included feeding expense and forage cost was $51, $65, $75 and $115, respectively, which paid for calve, pre-adult cow, young cow and adult cow per month. Since April 2015, such expenses were increased to $59, $76, $87 and $137, respectively, paid for each type of cows. Since September 2015, such expenses were increased to $68, $87, $101 and $158, respectively. In the end of September 2015, we terminated the agreements with the original 200 local farmers and signed with new 179 local farmers near around Harbin city. However, it didn’t stop the increase in forage price. Since November 2015, the feeding expenses and forage costs were increased to $78, $96, $117 and $264 for each calve, pre-adult cow, young cow and adult cow, respectively. 

 

 19 
 

 

Results of Operations 

 

Comparison of years ended June 30, 2016 and 2015 

 

The following table sets forth certain information regarding our results of operations for the years ended June 30, 2016 and 2015. 

 

   For the Years ended June 30, 
           Change 
   2016   2015   Amount   % 
Revenue  $101,091,303   $66,335,166   $34,756,137    52%
Cost of goods sold   57,626,223    20,229,296    37,396,927    185%
Gross profit   43,465,080    46,105,870    (2,640,790)   (6%)
Operating expenses   43,803,797    1,930,266    41,873,531    2,169%
Operating income/(loss)   (338,717)   44,175,604    (44,514,321)   (101%)
Other income and (expenses)   538,667    (259,539)   798,206    (308%)
Income before income taxes   199,950    43,916,065    (43,716,115)   (100%)
Provision for income taxes   2,403,996    10,968,816    (8,564,820)   (78%)
Net income before noncontrolling interests   (2,204,046)   32,947,249    (35,151,295)   (107%)
Noncontrolling interests   16,641,448    355,982    16,285,455    4,575%
Net income attributable to controlling interests  $(18,845,494)  $32,591,267   $(51,436,761)   (158%)

 

 20 
 

 

Revenues 

 

Our 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 $101,091,303 for the year ended June 30, 2016, an increase of $34,756,137 or 52%, compared to $66,335,166 for the year ended June 30, 2015. There are three main reasons caused such increase: 1). approximately $8,900,000 commission revenue generated from the total 6,709 milk cows disposed of by Yulong in November and December 2014 for the year ended June 30, 2016; 2). Total average milk cows were increased from 9,831 to 16,459; 3). The milk sales price was increased from $0.54 per kg to $0.59 per kg since November 2015 for approximate 72% of total milk sales.  

 

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

 

   For the Years Ended June 30, 
           Change 
   2016   2015   Amount   % 
Sales of natural milk  $81,604,871   $48,441,505   $33,163,366    68%
Sales commissions   19,486,432    17,893,661    1,592,771    9%
Total revenue  $101,091,303   $66,335,166   $34,756,137    52%

 

For the year ended June 30, 2016, our revenue generated from natural milk sales was $81,604,871 which represented an increase of $33,163,366 or 68% compared to $48,441,505 for the year ended June 30, 2015. The increase in the natural milk sales was primarily due to the increased number of milk cows compared to the same period of prior year. 

 

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

 

   For the Years Ended June 30, 
           Change 
   2016   2015   Amount   % 
Sales of natural milk  $81,604,871   $48,441,505   $33,163,366    68%
Average number of milk cows   16,459    9,831    6,628    67%
Revenue from per milk cow  $4,958   $4,927   $31    1%

 

 21 
 

 

The revenue per milk cow increased to $4,958 for the year ended June 30, 2016 from $4,927 for the year ended June 30, 2015, an increase of $31 or 1%. Although the selling price of fresh milk was increased from $0.54 per kg to $0.59 per kg since November 30, 2015 for approximate 72% of total milk sales, we terminated the feeding agreements with the original 200 local farmers in Qiqihaer on September 25, 2015 and signed with 179 new farmers near to Harbin on September 29, 2015. The adult cows were transferred at the end of September 2015 and it slightly affected the daily production because of the traveling and new living conditions. That’s the reason caused only 1% increase in revenue per milk cow. In addition, the cold weather and increase in average age of milk cow slightly caused the decrease in production as well. The sales commissions from local farmers increased by $1,592,771 or 9% to $19,486,432 for the year ended June 30, 2016 from $17,893,661 for the year ended June 30, 2015. The average quantity of milk cows we now earn commission revenue increased by 7% or 1,033, to 16,517 for the year ended June 30, 2016 from 15,484 for the year ended June 30, 2015 due to an addition from the sale of 3,714 and 2,995 milk cows by Yulong in November and December 2014, respectively, and a deduction of 3,216 cows which had been fully depreciated from 13 farmers. The farmers started to pay the commission to Yulong since April 2015. In addition, the daily production of the cows sold by Yulong is also higher than the cows sold by Xinhua due to their younger age. 

 

Gross profit 

 

Our cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation, lease, water & electricity, etc. Because we started to use the two new farms in Shuangcheng district and Xiangfang District in Harbin, more direct production overhead was allocated to our costs of goods sold. In addition, the direct feeding expenses and food costs paid to local farmers were increased from $115 per cow since March 2015 to $264 per cow in November 2015. In December 2015, Xinhua entered into agreements with 179 local farmers to pay them additional feeding cost of RMB 600 (US$93) for each young cow and adult cow, which were transferred to the farmers for raise at the beginning of October 2015, for improving the feeding environment. The company paid 50% of the total amount RMB 6,795,000 (approximate US$1,056,000) in December 2015 and the remaining 50% was paid in January 2016. Because all the young cows we paid for additional feeding cost were transferred to adult cows, all the additional feeding cost of approximate $1,056,000 was allocated to cost of goods sold. As a result, we have seen a decrease in our margins compared with the same period in 2015. 

 

   For the Year Ended June 30, 
           Change 
   2016   2015   Amount   % 
Cost of goods sold  $57,626,223   $20,229,296   $37,396,927    185%
Average number of milk cows   16,459    9,831    6,628    67%
Cost per milk cow  $3,501   $2,058   $1,443    70%

 

The cost per milk cow increased to $3,501 for the year ended June 30, 2016 which represented an increase of $1,443 or 70% compared to $2,058 for the year ended June 30, 2015. We described the reason for the increase as above.

 

Gross profit margin 

 

Our gross profit margin was 43.0% for the year ended June 30, 2016 which decreased by 26.5% from the year ended June 30, 2015. The main reason for such a decrease was mainly due to the increase in feeding and food cost and directly production overhead.  

 

 22 
 

 

Operating expenses  

 

Our operating expenses sharply increased to $43,803,797 for the year ended June 30, 2016 from $1,930,226 for the year ended June 30, 2015, an increase of $41,873,531 or 2,169%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees associated with filings required by the securities laws of the United States, consulting fees for a Chinese financial advisory company and business taxes, etc. We incurred total of $950,302 and $ 1,002,045 in business taxes and VAT for the year ended June 30, 2016 and 2015, respectively. We classified these business taxes and VAT as selling expenses. As we discussed above, we had been listed on ASX main board and were restructured since July 2015 and lose the interest of our operating company by 40%. We treated the reduce of our interest by 40% as a stock compensation to our shareholders and consultants for a total of $37,762,400 it was recorded under our G&A expenses. This is the main reason that caused such sharp increase in our operating expenses. In addition, because our two new farms in Harbin were started to be used for the year ended June 30, 2016, the expenses, such as human costs, depreciation, lease and water & electricity, incurred for our sales and admin departments for these two farms were recorded as our operating expenses. That’s another reason caused the increase in our operating expenses for the year ended June 30, 2016 by comparing with the same period in 2015.

 

Operating income (loss) 

 

As a result of the foregoing, we had operating loss of $338,717 for the year ended June 30, 2016, representing a decrease of $44,514,321, as compared to operating income of $44,175,604 for the year ended June 30, 2015. 

 

Non-operating income (expenses) 

 

For the year ended June 30, 2016, non-operating income consists primarily of interest income of $588,822 earned on the outstanding notes receivable from the farmers and other non-operating income of $174,802 which mainly consists of bank interest earned. Non-operating expenses consist of the loss on the disposal of immature and mature biological assets of $224,957. For the year ended June 30, 2015, non-operating income consists primarily of interest income of $618,263 earned on the outstanding notes receivable from the farmers and other non-operating income of $226,543 which mainly consists of bank interest earned. Non-operating expenses consist of the loss on the disposal of mature biological assets of $1,104,345. 

 

Net Income 

 

Xinhua Cattle and Yulong Cattle are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preference policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax returns before January 16, 2015. On January 16, 2015, Zhongxian Information received a tax exemption notice from Harbin National Tax Bureau on its investment income from its subsidiaries. Jiasheng Consulting (the “WFOE”) is subject to an Enterprise Income Tax at 25% and files its own tax return before September 16, 2015. On September 16, 2015, Jiasheng Consulting purchased all of the registered equity of Zhongxian Information and the VIE structure was terminated. Under China tax law, Jiasheng Consulting is exempt from income tax on its investment income since September 16, 2015. The provision for income taxes was $2,403,996 and $10,968,816 for the years ended June 30, 2016 and 2015, respectively, primarily representing the enterprise income tax on the income of Zhongxian Information. Net income (loss) before noncontrolling interests was $(2,204,046) and $32,947,249 for the years ended June 30, 2016 and 2015, respectively, which represented a decrease in $35,151,295 or 107%. Originally we own 99% of Xinhua Cattle’s shares and our non-controlling interest is only 1% of Xinhua’s net income. On July 16, 2015, as we transferred 100% of the issued and outstanding shares of Value Development to China Dairy, which is 60% owned indirectly by us through our wholly owned subsidiary, Hope Diary. The effect of this transaction was to reduce the interest in our operating company by 40%. In addition, on April 8, 2016, our 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and after the IPO, our ownership was diluted to 53.07%. As a result, net income attributed to the non-controlling shareholders was increased from 1% to 46.93%. $16,641,448 and $355,982 was attributed to non-controlling interest for the years ended June 30, 2016 and 2015, respectively. Our net income (loss) attributable to the common stockholders of the Company was $(18,845,494) representing $(0.35) per share and $32,591,269 representing $0.61 per share for the years ended June 30, 2016 and 2015, respectively.

 

 23 
 

 

Foreign Currency Translation Adjustment 

 

Our reporting currency is the U.S. dollar. Our local currency, Renminbi, is our functional currency. All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive income and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of our consolidated financial statements are recorded as other comprehensive income (loss). Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the fiscal years ended June 30, 2016 and 2015, foreign currency translation adjustments of $(11,711,703) and $560,995, respectively, have been reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive income (loss), respectively. 

 

Liquidity and Capital Resources 

 

As of June 30, 2016 and 2015, we had no bank debt but amounts owed to shareholders of $1,672,707 and $937,524, respectively. The amounts due to our stockholders were principally for the professional fees incurred for being a reporting company in the United States and also will be in the Australian stock exchange from our stockholders’ personal bank accounts because of the restriction of official bank transfers abroad by the Bank of China. At the same time, we had $30,780,198 and $54,145,781 in cash at June 30, 2016 and 2015 as well as working capital of $55,157,784 and $64,685,249, respectively.

 

Operating activities 

 

During the year ended June 30, 2016, our operating activities provided $26,179,444 in net cash, compared to $12,491,180 during the year ended June 30, 2015. The net cash provided in the year ended June 30, 2016 was significantly higher than our net income (loss) primarily due to the increase in deferred income tax liabilities of $2,403,996, depreciation on fixed assets and biological properties of $4,828,085 and amortization on lease of $1,789,248 and the stock compensation for shareholders and consultants of $37,762,400. However, the increase in accounts receivable of $18,408,219 caused the decrease in cash. The net cash provided in the year ended June 30, 2015 was much less than the net income primarily due to the increase in the deferred income tax liabilities of $10,968,816 and prepayment for the lease of the two new farms of total $33,431,988. 

 

Investing activities 

 

During the year ended June 30, 2016, our investing activities provided a cash outflow of $58,678,207 compared with a cash outflow of $17,186,113 for the year ended June 30, 2015. The food costs and feeding expenses for biological properties used cash of $18,090,592 and $10,741,615 for the years ended June 30, 2016 and 2015, respectively. For the years ended June 30, 2016 and 2015, we spent $15,623,459 and $4,555,600, respectively, for purchasing milk cows. Conversely, we received cash of $2,090,254 and $1,875,642 during the years ended June 30, 2016 and 2015, respectively, from the collection of notes receivable from the disposal of biological properties in 2011 and 2014. For the years ended June 30, 2016 and 2015, we also received $955,494 and $19,524 in cash from our disposal of biological properties, respectively. For the years ended June 30, 2016 and 2015, we spent $28,009,904 and $3,784,064, respectively, for the addition of PP&E for daily operations. The material additions during the year ended June 30, 2016 were the production facilities, office buildings, cow-houses, and forage storage built and refurbished on the new land, which mostly were completed and in service before June 30, 2016.

 

 24 
 

 

Financing activities 

 

Our financing activities mainly included proceeds from shareholders and repayment to shareholders for the year ended June 30, 2015. For the years ended June 30, 2016 and 2015, we received $0 and $193,182 from shareholders, respectively. For the years ended June 30, 2016 and 2015, we repaid $0 and $99,316 to our shareholders, respectively. For the year ended June 30, 2016, our 53.07% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and raised a total net fund of $12,553,267.  

 

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

 

Critical Accounting Policies and Estimates 

 

Basis of Accounting and Presentation 

 

The consolidated financial statements of the Company as of June 30, 2016 and 2015 for the years ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC.

 

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 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

 25 
 

 

Item 8. Financial Statements and Supplementary Data.

 

CHINA MODERN AGRICULTURAL INFORMATION, INC. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED MAY 31, 2016 AND 2015

 

CONTENTS PAGE 
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
   
CONSOLIDATED FINANCIAL STATEMENTS:  
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Income and Comprehensive Income F-4
   
Consolidated Statements of Changes in Stockholders' Equity F-6
   
Consolidated Statements of Cash Flows F-8
   
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-10

 

 26 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of China Modern Agricultural Information, Inc. and Subsidiaries

 

We have audited the accompanying consolidated balance sheets of China Modern Agricultural Information, Inc. and Subsidiaries (the “Company”) as of June 30, 2016 and 2015 and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two year period ended June 30, 2016. China Modern Agricultural Information, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Modern Agricultural Information, Inc. and Subsidiaries as of June 30, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the years in two year period ended June 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Wei, Wei & Co., LLP  
   

Wei, Wei, & Co., LLP

Flushing, New York

September 29, 2016

 

 

 F-1 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED BALANCE SHEETS

june 30, 2016 AND 2015 (IN U.S. $)

 

 

ASSETS 

June 30,

2016

   June 30,
2015
 
         
Current assets        
Cash  $30,780,198   $54,145,781 
Accounts receivable   24,783,720    7,490,501 
Inventories   1,122,843    759,628 
Prepaid expenses   1,216,963    898,905 
Interest receivable   474,803    182,422 
Notes receivable, current portion   2,097,363    2,739,302 
           
Total current assets   60,475,890    66,216,539 
           
Property, plant and equipment, net   34,327,757    6,950,302 
           
Other assets          
Notes receivable   4,943,622    7,092,206 
Prepaid leases   45,483,513    54,257,040 
Biological assets, net   64,136,851    38,603,586 
           
Total other assets   114,563,986    99,952,832 
           
TOTAL ASSETS  $209,367,633   $173,119,673 

 

See accompanying notes to the consolidated financial statements.

 

 F-2 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED BALANCE SHEETS (CONTINUED)

JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

LIABILITIES AND stockholders’ EQUITY  June 30,
2016
   June 30,
2015
 
         
Current liabilities        
Accrued expenses and other payables  $528,430    593,766 
Dividend payable   3,116,969    - 
Stockholder loans   1,672,707    937,524 
           
Total current liabilities   5,318,106    1,531,290 
           
Deferred income taxes   40,876,903    41,806,633 
           
Total liabilities   46,195,009    43,337,923 
           
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   49,709,237    5,851,170 
Retained earnings   39,401,937    117,035,653 
Statutory reserve fund   420,406    792,174 
Other comprehensive (loss) income   (6,938,823)   4,772,880 
           
Sub-total   82,645,857    128,504,977 
           
Noncontrolling interests   80,526,767    1,276,773 
           
Total stockholders’ equity   163,172,624    129,781,750 
           

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $209,367,633   $173,119,673 

 

See accompanying notes to the consolidated financial statements.

 

 F-3 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED jUNE 30, 2016 and 2015 (IN U.S. $)

 

 

   2016   2015 
         
Revenues        
Milk sales  $81,604,871   $48,441,505 
Sales commission   19,486,432    17,893,661 
           
Total revenues   101,091,303    66,335,166 
Cost of goods sold   (57,626,223)   (20,229,296)
           
Gross profit   43,465,080    46,105,870 
           
Operating expenses          
R&D expenses   306,616    - 
Selling and marketing   1,889,864    1,146,798 
General and administrative   41,607,317    783,468 
           
Total operating expenses   43,803,797    1,930,266 
           
Operating income (loss)   (338,717)   44,175,604 
           
Other income and (expenses)          
Interest income on notes receivable   588,822    618,263 
Gain (loss) on disposal of properties   -    (1,104,345)
Non-operating expense   (224,957)     
Other non-operating income   174,802    226,543 
           
Total other income (expenses)   538,667    (259,539)
           
Income before provision for income taxes   199,950    43,916,065 
Provision for income taxes   2,403,996    10,968,816 

 

See accompanying notes to the consolidated financial statements.

 

 F-4 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE (LOSS) INCOME (CONTINUED)

FOR THE YEARS ENDED jUNE 30, 2016 and 2015 (IN U.S. $)

 

 

   2016   2015 
         
Net (loss) income before noncontrolling interests   (2,204,046)   32,947,249 
Noncontrolling interests   (16,641,448)   (355,982)
           
Net (loss) income attributable to common stockholders   (18,845,494)   32,591,267 
           
Other comprehensive income          
Foreign currency translation adjustment   (11,711,703)   560,995 
           
Total comprehensive (loss) income  $(30,557,197)  $33,152,262 
           
Earnings (losses) per common share, basic and diluted  $(0.35)  $0.61 
           
Weighted-average shares outstanding, basic and diluted   53,100,000    53,100,000 

 

See accompanying notes to the consolidated financial statements.

 

 F-5 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF changes in Stockholders’ EQUITY

FOR THE YEARS ENDED JUNE 30, 2016 (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   -    -    32,591,267    -    355,982    -    32,947,249 
Other comprehensive income   -    -    -    -    -    560,995    560,995 
                                    
Balance June 30, 2015  $53,100   $5,851,170   $117,035,653   $792,174   $1,276,773   $4,772,880   $129,781,750 

  

See accompanying notes to the consolidated financial statements.

 

 F-6 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF changes in Stockholders’ EQUITY (CONTINUED)

FOR THE YEARS ENDED JUNE 30, 2016 (IN U.S. $)

 

 

   Common Stock   Additional Paid-in Capital   Retained Earnings   Statutory Reserve Fund   Noncontrolling Interests  

Other Comprehensive

Income

  

Total

 
                             

Balance June 30, 2015

  $53,100   $5,851,170   $117,035,653   $792,174   $1,276,773   $4,772,880   $129,781,750 
                                    
Stock compensation   -    37,762,400    -    -    -    -    37,762,400 
Net (loss) income   -    -    (18,845,494)   -    16,641,448    -    (2,204,046)
Dividend declared   -    -    (3,009,044)   -    -    -    (3,009,044)
Reclassification for issuance of subsidiary stock for compensation   -    (482,720)   (47,542,449)   (316,870)   48,342,039    -    - 
Increase and reclassification in equity attributable to the sale of subsidiary stock        6,578,387    (8,236,729)   (54,898)   14,266,507         12,553,267 

Other comprehensive income

   -    -    -    -    -    (11,711,703)   (11,711,703)
                                    

Balance June 30, 2016

  $53,100   $49,709,237   $39,401,937   $420,406   $80,526,767   $(6,938,823)  $163,172,624 

 

See accompanying notes to the consolidated financial statements.

 

 F-7 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

   2016   2015 
         
Cash flows from operating activities        
Net (loss) income  $(2,204,046)  $32,947,249 
Adjustment to reconcile net income to net cash provided by operating activities:          
Depreciation   4,828,085    2,300,574 
Amortization for prepaid land lease   1,789,248    1,029,601 
Deferred income taxes   2,403,996    10,968,816 
Loss from disposal biological assets   215,997    1,102,921 
Loss from disposal from property, plant and equipment   -    3,244 
Stock compensation for shareholder and consultants   37,762,400    - 
Change in operating assets and liabilities          
(Increase) in accounts receivable   (18,408,219)   (2,148,610)
(Increase) in inventories   (436,162)   (84,086)
(Increase) in prepayment   (179,941)   (896,003)
(Increase) in payment for lease   -    (33,431,988)
(Increase) decrease in interest receivable   (316,576)   241,987 
Increase in accrued expenses and other payables   724,662    457,475 
           
Net cash provided by operating activities   26,179,444    12,491,180 
           
Cash flows from investing activities          
Collection of notes receivable   2,090,254    1,875,642 
Proceeds from sales of biological assets   955,494    19,524 
Purchase of property, plant and equipment   (28,009,904)   (3,784,064)
(Increase) in biological assets   (18,090,592)   (10,741,615)
Purchase of biological property   (15,623,459)   (4,555,600)
           
Net cash (used in) investing activities   (58,678,207)   (17,186,113)
           
Cash flows from financing activities          
Proceeds from sales of common stock by subsidiary   12,553,267    - 
Proceeds from stockholder loans   -    193,182 
Repayment of stockholder loans   -    (99,316)
           
Net cash provided by financing activities   12,553,267    93,866 

 

See accompanying notes to the consolidated financial statements.

 

 F-8 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE years ENDED JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

   2016   2015 
         
Effect of exchange rate changes on cash   (3,420,087)   714,294 
           
Net (decrease) in cash   (23,365,583)   (3,886,773)
Cash, beginning of year   54,145,781    58,032,554 
           
Cash, end of year  $30,780,198   $54,145,781 
           
Supplemental disclosure of cash flow information:          
           
Cash paid for income taxes  $-   $- 
           
Cash paid for interest  $-   $- 
           
Supplemental disclosure of non-cash activities:          
           
Payment of accrued expenses by shareholder  $789,998   $138,000 
           
Construction in process transferred from prepayment  $2,683,232   $- 
           
Construction in process not paid  $84,837   $- 
           
Dividend declared not paid  $3,050,615   $- 

 

See accompanying notes to the consolidated financial statements.

 

 F-9 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

1. ORGANIZATION

 

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.

 

 F-10 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

1. ORGANIZATION (CONTINUED)

 

In order to further reinforce Jiasheng Consulting’s rights to control and operate Zhongxian Information, the stockholders of Zhongxian Information have granted Jiasheng Consulting the exclusive right and option to acquire all of their equity interests in Zhongxian Information through an Exclusive Option Agreement.

 

The exchange agreement transaction constituted a reverse takeover transaction. Accordingly, reverse takeover accounting was adopted for the preparation of the consolidated financial statements. As a result, the consolidated financial statements are issued under the name of China Modern Agricultural Information, Inc. (the legal acquirer), but are a continuation of the consolidated financial statements of Value Development (the accounting acquirer) and the VIE its subsidiaries. Before and after the Share Exchange, Value Development, Value Development Group Limited (a wholly-owned subsidiary of Value Development), Jiasheng Consulting, and Zhongxian Information and their 99% owned subsidiary, Heilongjiang Xinhua Cattle Industry Co., Ltd. (“Xinhua Cattle”) were under common control. Therefore, the reorganization was effectively a legal recapitalization accounted for as transactions between entities under common control at the carry over basis, in a manner similar to pooling-of-interests accounting.

 

Zhongxian Information and Xinhua Cattle are engaged in the acquisition, breeding and rearing of dairy cows, and production and sale of fresh milk to manufacturing and distribution companies. Zhongxian Information was established in China in January 2005 with registered capital of 10 million Renminbi (“RMB”). In February 2006, it acquired 99% of the registered capital of Xinhua Cattle, which was established in China in December 2005 with registered capital of three million RMB. Xinhua Cattle had no significant activities and its cost approximated the fair value at the date of acquisition.

 

On November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Shangzhi Yulong Co., Ltd. (“Yulong”) from Yulong’s original stockholders for consideration of 9,000,000 shares of the Company’s common stock and cash consideration of $4,396,000.

 

Yulong was a privately held company in China engaged in the acquisition, breeding and rearing of dairy cows, and production and sale of fresh milk to manufacturing and distribution companies.

 

 F-11 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

1. ORGANIZATION (CONTINUED)

 

Our corporate structure pre-restructure is set forth below

 

 

 

On July 16, 2015, the Company, transferred 100% of the issued and outstanding shares of Value Development Holdings, Ltd. (“Value Development”) to China Dairy Corporation Ltd. (“China Dairy,” a Hong Kong company), which is 60% owned indirectly by the Company through the Company’s wholly-owned subsidiary, Hope Diary Holdings Ltd. (“Hope Diary,” a British Virgin Islands company). China Dairy was newly incorporated in January 2015 and did not have any significant assets or liabilities, or business operations, which was 100% owned by Company’s PRC corporate advisor, who formed China Dairy on behalf of the Company. Further, the sole shareholder transferred 60% of the total outstanding shares of China Dairy to Hope Diary and 40% to various shareholders and consultants of the Company (as described below) for nominal consideration.

 

These transactions involve no consideration received or paid as Value Development and China Dairy are under common control by the Company and this transaction is a restriction to the Company’s interests in Value Development.

 

 F-12 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

1. ORGANIZATION (CONTINUED)

 

The 40% of the 10,000 shares of China Dairy were transferred from the sole shareholder of China Dairy to the following entities for nominal consideration, which has direct or indirect relationship with the shareholder and consultants of the Company: 3% to Beijing Ruihua Future, 4% to Donghe Group, 3% to Integral Capital, 20% to Dingxi Shanghai Fund and 10% to Zhiyuan International. Immediately after the transfer, 65,000 bonus shares were issued at no consideration for every existing share held by the following entities:

 

     Original
Shares
   After bonus shares issued 
           
  Hope Diary Holdings Ltd.   6,000    390,000,000 
  Beijing Ruihua Future Investment Management Co. Ltd.   300    19,500,000 
  Donghe Group Limited   400    26,000,000 
  Integral Capital Group Pty Ltd.   300    19,500,000 
  Dingxi (Shanghai ) Equity Investment Fund   2,000    130,000,000 
  Zhiyuan International Holding Co. Limited   1,000    65,000,000 
             
  Total   10,000    650,000,000 

 

Value Development is the sole owner of Value Development Group Limited, which is the sole owner of Harbin Jiasheng Consulting Managerial Co. Ltd., which is the Company’s subsidiary in China, with respect to which the operating company, Heilongjiang Zhongxian Information Co. Ltd., is a variable interest entity. The effect of this transaction was to reduce the interest of the Company in its operating company by 40%. The Company uses the China Dairy’s offering price for IPO to approximate the fair value of the 40% stock granted to the shareholder and consultants. The Company recognized a stock compensation to the shareholder and consultants of approximately $32,098,000 and $5,664,000, respectively, during the three months ended September 30, 2015 in general and administrative expense.

 

On September 16, 2015 the Company’s 60%-owned subsidiary, Harbin Jiasheng Consulting Management Co., Ltd. ("Jiasheng Consulting"), exercised its option to purchase all of the registered equity of the Company’s operating subsidiary, Heilongjiang Zhongxian Information Co., Ltd. ("Zhongxian Information") from its stockholders Zhengxin Liu and Youliang Wang, who are also the members of the Company’s Board of Directors, for RMB10, 000 (approximately $1,554).

 

 F-13 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

1. ORGANIZATION (CONTINUED)

 

Prior to the acquisition, Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made Zhongxian Information a variable interest entity, the effect of which was to cause the balance sheet and operating results of Zhongxian Information to be consolidated with those of Jiasheng Consulting in the Company’s financial statements. As a result of the acquisition by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating results of Zhongxian Information will hereafter continue to be consolidated with those of Jiasheng Consulting as its 100% owned subsidiary. On April 8, 2016, the Company’s 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and raised total fund of AUD $16,981,308 (USD $13,021,267). After the IPO, the Company’s ownership was diluted to 53.07%.

 

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

 

 

 

 F-14 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the financial statements of China Modern Agricultural Information, Inc. and its subsidiaries, Hope Diary, China Dairy (Hope Diary’s 53.07% owned subsidiary), Value Development, Value Development Group Limited, Jiasheng Consulting, and, Zhongxian Information and Zhongxian Information’s 99% owned subsidiary, Xinhua Cattle and its 100% owned subsidiary, Yulong. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The audited consolidated financial statements of the Company as of June 30, 2016 and for the years ended June 30, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

 

 F-15 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Basis of Accounting and Presentation (continued)

 

Variable Interest Entity

 

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its VIE’s. ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

 

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

 

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

 

On September 16, 2015 the VIE structure was terminated when Jiasheng Consulting exercised its option to purchase all of the registered equity of Zhongxian Information. Jiasheng Consulting became the sole owner of Zhongxian Information.

 

 F-16 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign Currency Translations

 

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

 

The exchange rates used to translate amounts in RMB and Australian dollars (the “A$”) into US dollars for preparing the consolidated financial statements are as follows:

 

     June 30,
2016
   June 30,
2015
 
     RMB   A$   RMB   A$ 
  Balance sheet items, except for stockholders’ equity, as of period end   0.1505    0.7441    0.1632    0.7687 
                       
  Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period   0.1554    0.7283    0.1627    0.8364 

 

 F-17 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign Currency Translations (continued)

 

Foreign currency translation adjustments of $(11,711,703) and $560,995, respectively, for the years ended June 30, 2016 and 2015, have been reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

 

Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

 

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB could materially affect the Company’s consolidated financial condition in terms of US dollar reporting.

 

Revenue Recognition

 

The Company’s primary sources of revenues are derived from (a) sale of fresh milk to Chinese manufacturing and distribution companies of dairy products and (b) commissions from local farmers on their monthly milk sales. The Company’s revenue recognition policies comply with FASB ASC 605, “Revenue Recognition.” Revenues from the sale of goods are recognized when the goods are delivered and the title is transferred, the risks and rewards of ownership have been transferred to the customer, the price is fixed and determinable and collection of the related receivable is reasonably assured.

 

 F-18 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition (continued)

 

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

 

Vulnerability Due to Operations in PRC

 

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

 

Use of Estimates

 

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

 

 F-19 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value of Financial Instruments

 

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

 

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

 

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

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

 

 F-20 

 

  

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Advertising Costs

 

Advertising costs are charged to operations when incurred. Advertising costs are $62,929 and $814, respectively, for the years ended June 30, 2016 and 2015.

 

Cash and Cash Equivalents

 

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable is stated at cost, net of an allowance for doubtful accounts if required. Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances.

 

In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company has 30 days credit term for its milk sales and usually receives the payment in the following month. The Company considers all accounts receivable at June 30, 2016 and 2015, to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

 

Inventories

 

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

 

The Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances if any. There was no allowance for excessive or unusable inventories as of June 30, 2016 and 2015.

 

 F-21 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Prepaid Expenses

 

Prepaid expenses as of June 30, 2016 and 2015 mainly represent the prepayments of approximately $1,217,000 and $898,900, respectively for prepaid cow insurance expenses and for heating expenses.

 

Prepaid Land Leases

 

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

 

Property, Plant and Equipment

 

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

 

The estimated useful lives for property, plant and equipment categories are as follows:

 

  Machinery and equipment 3 to 10 years
  Automobiles 4 to 10 years
  Building and building improvements 10 to 20 years
  Leasehold improvements Lesser of the remaining term or useful life

 

 F-22 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Impairment of Long-lived Assets

 

The Company utilizes FASB ASC 360, “Property, Plant and Equipment” (“ASC 360”), which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company may recognize an impairment of a long-lived asset in the event the net book value of such asset exceeds the estimated future undiscounted cash flows attributable to the asset. No impairment of long-lived assets was recognized for the years ended June 30, 2016 and 2015.

 

Biological Assets

 

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

 

Immature Biological Assets

 

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

 

Mature Biological Assets

 

Mature biological assets are recorded at their original purchase price or the weighted average immature biological asset transfer cost. Depreciation is provided over the estimated useful life of eight years using the straight-line method. The estimated residual value is 10%. Feeding and management costs incurred on mature biological assets are included as cost of goods sold. When biological assets, including male cows, are retired or otherwise disposed of in the normal course of business, the cost and accumulated depreciation will be removed from the accounts and any resulting gain or loss will be included in the results of operations for the respective period. For the years ended June 30, 2016 and 2015, a loss of $373,108 and $1,104,345, respectively, on the sale of the adult cows is included in non-operating expenses in the accompanying consolidated statements of income and other comprehensive income. (See Note 5)

 

 F-23 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Biological Assets (continued)

 

The Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected from their use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current health status and production capacity. There were no impairment losses recorded during the years ended June 30, 2016 and 2015.

 

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to the undistributed earnings of the Company’s subsidiary under PRC law. Deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. At June 30, 2016 and 2015, undistributed earnings allocated to Zhongxian Information were approximately $192,800,000 and $160,600,000, respectively.

 

 F-24 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (Continued)

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with uncertain tax positions. As of June 30, 2016 and 2015, the Company does not have a liability for any uncertain tax positions.

 

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

 

United States

 

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the years ended June 30, 2016 and 2015.

 

BVI

 

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

 

Hong Kong

 

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

 

 F-25 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (Continued)

 

PRC

 

Xinhua Cattle and Yulong are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preferential policy for the dairy farming industry. In January 2015, Zhongxian Information obtained an income tax exemption notice from the tax authority to exempt the income tax on its investment income from its subsidiaries Xinhua Cattle and Yulong.

 

Net Income (Loss) Per Share

 

The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no dilutive shares outstanding during the years ended June 30, 2016 and 2015.

 

Statutory Reserve Fund

 

Pursuant to the corporate law of the PRC, Jiasheng Consulting and the Company’s Chinese VIE and its subsidiaries are required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of its registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the registered capital. As of June 30, 2016 and 2015, the required statutory reserve funds have been fully funded.

 

 F-26 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

3. Recently Issued Accounting Standards

 

In April 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606).'' This guidance supersedes current guidance on revenue recognition in Topic 605, "Revenue Recognition.'' In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective for the Company beginning June 1, 2018. The Company is currently evaluating the effect the guidance will have on the Consolidated Financial Statements.

 

 F-27 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

3.Recently Issued Accounting Standards (CONTINUED)

 

In September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment is effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.

 

In May 2015, the FASB issued ASU No. 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts.” This guidance requires insurance entities to disclose for annual reporting periods incurred and paid claims development information by accident year, after reinsurance, for the number of years for which claims typically remain open. Disclosures should also include quantitative information about claim frequency and a qualitative description of methodologies used for determining claim frequency information. This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early and retrospective application is permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

 F-28 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

3. Recently Issued Accounting Standards (CONTINUED)

 

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force).” This guidance removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient and removes certain related disclosure requirements. This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This guidance clarifies the accounting treatment for fees paid in cloud computing arrangements, including the determination of whether a cloud computing arrangement includes a software license. This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This Guidance requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather than an asset. This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016. Early adoption is permitted for financial statements not previously issued. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

  

 F-29 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

4. Property, plant and equipment

 

Property, plant and equipment are summarized as follows:

 

    

June 30,

2016

   June 30,
2015
 
             
  Machinery and equipment  $3,866,619   $222,147 
  Automobiles   2,253,832    2,071,656 
  Building and building improvements   26,865,993    6,246,503 
             
      32,986,444    8,540,306 
  Less: accumulated depreciation   (3,354,779)   (1,590,004)
  Construction in process   4,696,092    - 
             
  Property, plant and equipment, net  $34,327,757   $6,950,302 

 

The increase was the office buildings, cow-houses, and forage storage built and refurbished on the new land, which are completed and in service before June 30, 2016. Construction in Progress (the “CIP”) contains amount paid and accrued for completed new construction but has not been placed into service as of June 30, 2016. No depreciation on those CIP as of June 30, 2016. In addition, a significant amount of production facilities and automobiles were purchased. Depreciation expense charged to operations for the years ended June 30, 2016 and 2015 were $1,950,157 and $339,274, respectively.

 

On January 20, 2016, the Company signed an agreement with Harbin Donghui Architecture Co., Ltd to construct a new forage production plant. The total agreement amount is RMB 45,615,000 (US $ 6,864,237). Per the agreement, the company is required to pay according to progress completion for different parts at the plant. As of June 30, 2016, the company paid RMB 28,321,000 (US $ 4,261,801) and committed to pay RMB 17,294,000 (US $ 2,602,436) after the construction is completed.

 

 F-30 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

5. Biological assets

 

Biological assets consist of the following:

 

    

June 30,

2016

   June 30,
2015
 
             
  Immature biological assets  $32,518,050   $24,555,303 
  Mature biological assets   36,660,416    18,271,485 
             
      69,178,466    42,826,788 
  Less: accumulated depreciation   (5,041,615)   (4,223,202)
             
  Biological assets, net  $64,136,851   $38,603,586 

 

In July 2015, Xinhua Cattle and Yulong purchased 2,000 and 2,300 adult cows, respectively at a price RMB 8,500 (US $1,321) per cow from an outside party. In February and April 2016, Xinhua Cattle purchased 2,000 adult cows, respectively, at a price RMB 16,000 (US $2,486) per cow from an outside party.

 

In August 2015, Xinhua Cattle sold 200 cows to an outside party at a total price of RMB 160,000(US $24,861) including insurance of RMB 100,000 (US $ 15,540). The cows had a net book value of approximately $43,000 as of the disposal date, which includes cost basis approximately $560,000 and accumulated depreciation of approximately $516,000. In May 2016, Xinhua Cattle sold 904 cows to an outside party at a total price of RMB 3,616,000(US $561,854). The cows had a net book value approximately $564,000 as of the disposal date, which includes cost basis approximately $1,147,000 and accumulated depreciation approximately $583,000. In June 2016, Xinhua Cattle also sold 500 female calves to an outside party at a total price of RMB 2,000,000 (US $310,760). The cost of these female calves was approximate $322,000.

 

In November 2015, Yulong Cattle sold 347 cows to an outside party at a total price of RMB 1,144,800 (US $177,879) including insurance of RMB 104,100 (US $ 16,175). The cows had a net book value of approximately $254,000 as of the disposal date, which includes cost basis approximately $588,000 and accumulated depreciation approximately $335,000. In May 2016, Yulong Cattle sold 331 cows to an outside party at a total price of RMB 1,390,200 (US $216,009). The cows had a net book value approximately $324,000 as of the disposal date, which includes cost basis approximately $709,000 and accumulated depreciation approximately $385,000.

 

 F-31 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

5. Biological assets (continued)

 

In December 2015, Xinhua Cattle entered into agreements with 179 local farmers to pay them additional feeding cost of RMB 600 (US$93) for each young cow and adult cow, which were transferred to the farmers for feeding at the beginning of October 2015, for improving the feeding environment. The company paid 50% of the total amount RMB 6,795,000 (US$1,056,000) in December 2015 and the remaining 50% was paid in January 2016. 100% of the additional cost for mature cows was included as cost of goods sold as incurred and the remaining are capitalized for immature cows.

 

Depreciation expense for the years ended June 30, 2016 and 2015 was $2,878,298 and $1,961,300, respectively, all of which was included in cost of goods sold in the consolidated statements of income and other comprehensive income.

 

6. Notes Receivable

 

Notes receivable are related to sales of cows (mature biological assets) to local farmers.

 

In September 2011, August 2011, and June 2011, Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers, respectively.

 

In November and December 2014, Yulong sold 3,714 and 2,955 cows respectively, to local farmers. 3,500 of the cows sold were purchased from outside parties for $4,550,000. The remaining cows sold were raised by Yulong.

 

According to the agreements signed with the local farmers in June 2011, the sales price will be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The related receivable is recorded at its present value at a discount rate of 12%, which is commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk.

 

 F-32 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

6. Notes Receivable (continued)

 

Pursuant to the agreements signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay a 30% of monthly milk sales generated from the cows purchased by the farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. The 30% monthly payments will continue over the entire remaining life of the cows sold. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price.

 

During the years ended June 30, 2016 and 2015, the Company received principal and interest payments of $2,300,347 and $2,681,845, respectively. Commission income for the years ended June 30, 2016 and 2015, was $19,486,432 and $17,893,661, respectively, under these agreements.

 

The receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of June 30, 2016 and 2015. The related commission receivable of $6,962,080 and $3,408,759 at June 30, 2016 and 2015, respectively, is included in accounts receivable in the consolidated balance sheets.

 

Notes receivable at June 30, 2016 and 2015 consists of the following:

 

    

June 30,

2016

   June 30,
2015
 
             
  Notes receivable  $7,052,255   $9,873,474 
  Less: discount for interest   (11,270)   (41,966)
             
      7,040,985    9,831,508 
  Less: current portion   (2,097,363)   (2,739,302)
             
  Non-current portion  $4,943,622   $7,092,206 

 

 F-33 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

6. Notes Receivable (continued)

 

Future maturities of notes receivable as of June 30, 2016 are as follows:

 

  Year Ending June 30,    
        
  2017  $2,097,000 
  2018   1,621,000 
  2019   1,319,000 
  2020   618,000 
  2021   527,000 
  Thereafter   859,000 
        
     $7,041,000 

 

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

 

7. LeaseS

 

All land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right” to use a track of land of 250,000 square meters at no cost through December 1, 2015. On May 10, 2013, the Company, however, entered into an agreement with the municipality of Qiqihaer to obtain the “land use right” to use this land from May 1, 2013 to April 30, 2063. The Company recorded the prepayment of RMB 37,500,000 (US$6,060,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment of $5,285,680 and $5,854,800 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively. The lease provides for renewal options.

 

On October 9, 2011, the Company entered into an operating lease, from October 9, 2011 to October 8, 2021, with the municipality of Heilongjiang to lease 16,666,750 square meters of land. The lease required the Company to prepay the ten year rental of RMB 30,000,000

 

 F-34 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

7. LeaseS (CONTINUED)

 

(US $4,686,000). The related prepayment of $2,370,092 and $3,060,000 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively. The lease provides for renewal options.

 

On February 25, 2013, the Company obtained another “land use right” to use 427,572 square meters of land, from March 1, 2013 to February 28, 2063. The Company recorded the prepayment of RMB 77,040,000 (US $12,450,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method.  The remaining prepayment of $10,820,258 and $11,986,191 is included in prepaid land lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively. The lease provides for renewal options.

 

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

 

On May 14, 2015, the Company obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015 to May 13, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 42,100 square meters, an office building at 3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions is the same as the land. The Company recorded the prepayment of RMB 111,887,500 (US $18,260,000) as prepaid lease. The prepaid lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $16,182,280 and $18,158,595 is included in prepaid lease in the consolidated balance sheets as of June 30, 2016 and 2015, respectively.

 

Rent expense charged to operations for the years ended June 30, 2016 and 2015 was $1,789,248 and $1,029,601, respectively.

 

8. EMPLOYMENT AGREEMENTS

 

The Company had Employment Agreements with its executive officers and directors for a one year period with renewal options after expiration, with the current agreements expiring in June and August, 2017. For the years ended June 30, 2016 and 2015, compensation under these agreements was $187, 000 and $33,923, respectively.

 

At June 30, 2016, the future commitment under these agreements is approximate $283, 000.

 

 F-35 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

9. Related party transactions

 

In March 2015, Zhongxian Information and the Executive Chairman of the Company entered into a loan agreement pursuant to which Executive Chairman provides a loan facility to Zhongxian Information, which is non-interest bearing and due on demand. The maximum amount of the loan is RMB 50,000,000 (US $7,845,000). Any borrowings in excess of this amount may be negotiated between the parties. The loans outstanding were $1,655,744 and $937,524 as of June 30, 2016 and 2015, respectively.

 

In 2012, CMCI issued 9,000,000 shares of common stock, par value of $0.001 at $0.34 per share, totaled of RMB 19,428,571 (US $3,060,000) to the shareholder of Yulong on behalf Zhongxian Information for the acquisition of Yulong by Zhongxian Information.  The loan was fully paid off by China Dairy to CMCI on June 29, 2016.

 

 F-36 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

10. Income taxes

 

The provision for income taxes consisted of the following for the years ended June 30:

 

     2016   2015 
           
  Current  $-   $- 
  Deferred   2,403,996    10,968,816 
             
     $2,403,996   $10,968,816 

 

The following table reconciles the effective income tax rates with the statutory rates for the years ended June 30:

 

     2016   2015 
             
  Statutory rate   25.00%   25.00%
  Allowance   0.32%   0.00%
  Other   1176.98%   (0.02%)
             
  Effective income tax rate   1202.30%   24.98%

 

The stock compensation of approximately $37,762,400 would be deductible only to the U.S. parent company and accordingly, there is no deferred tax benefit to be recognized.

 

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

 

 F-37 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

10. Income taxes (continued)

 

The tax laws of China permit the carry forward of net operating losses for a period of five years. Undistributed earnings from Xinhua Cattle and Yulong are not taxable until such earnings are actually distributed to Jiasheng Consulting. A deferred tax liability was provided for the tax to be paid when these earnings are distributed. On September 16, 2015 due to the termination of VIE structure (Note 1), Jiasheng Consulting would not be taxable in the future undistributed earnings from Xinhua Cattle and Yulong under the Enterprise Income Tax Law that Chinese resident enterprise is an exemption of dividend income received from another Chinese resident enterprise.

 

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

 

    

June 30,

2016

   June 30,
2015
 
             
  Net operating loss carryforwards  $497,542   $458,947 
  Bargain purchase gain   (1,430,399)   (1,430,399)
  Undistributed earnings of subsidiaries under PRC law upon VIE structure terminated   (39,446,504)   (40,376,234)
             
      (40,379,361)   (41,347,686)
  Less valuation allowance   (497,542)   (458,947)
             
  Net deferred tax (liabilities)  $(40,876,903)  $(41,806,633)

 

At June 30, 2016 and 2015, Zhongxian Information had unused operating loss carry-forwards of approximately $1,990,000 and $1,836,000, respectively, expiring in various years through 2020. The Company has established a valuation allowance of approximately $498,000 and $460,000 against the deferred tax asset related to the net operating loss carry forward at June 30, 2016 and 2015, due to the uncertainty of realizing the benefit.

 

 F-38 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

10. Income taxes (continued)

 

The Company’s tax filings are subject to examination by the tax authorities. The tax years from 2009 to 2015 remain open to examination by tax authorities in the PRC. The Company’s U.S. tax returns are subject to examination by the tax authorities for tax years 2012, 2014 and 2015. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no adjustment.

 

11. CONCENTRATION OF CREDIT RISK

 

Substantially all of the Company’s bank accounts are located in The People’s Republic of China and are not covered by protection similar to that provided by the FDIC on funds held in United States banks.

 

In November 2015, the Company entered milk sale agreement with another three customers and terminated the contracts with the original four customers. In February 2016, the Company entered into a new milk sale agreement with one customer after terminated the contract with the original customer.

 

Three customers accounted for approximately 72% and four customers accounted approximately 100% of milk sales for the years ended June 30, 2016 and 2015, respectively. Three customers and four customers also accounted for approximately 71% and 48% of accounts receivable at June 30, 2016 and 2015, respectively.

 

Seventy-six farmers and thirty-nine farmers accounted for the notes receivable at June 30, 2016 and 2015, respectively.

 

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 June 30, 2016 and 2015, statements of income for the years ended June 30, 2016 and 2015, and statements of cash flows for the years ended June 30, 2016 and 2015:

 

 F-39 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

12. Parent company only condensed financial information (CONTINUED)

 

Condensed Balance Sheets

 

  ASSETS 

June 30,

2016

   June 30,
2015
 
           
  Cash  $3,067,131   $- 
  Loan Receivable   -    3,208,151 
  Investment in subsidiaries   88,190,256    126,051,350 
             
  TOTAL ASSETS  $91,257,387   $129,259,501 
             
  LIABILITIES AND stockholders’ EQUITY        
           
  Stockholder loans  $1,672,707   $937,524 
             
  Stockholders’ equity          
  Common stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding   53,100    53,100 
  Additional paid-in capital   49,709,237    5,851,170 
  Retained earnings   39,822,343    122,417,707 
             
  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $91,257,387   $129,259,501 

 

 F-40 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

12.

Parent company only condensed financial information (CONTINUED)

 

Condensed Statements of Income

 

     For the years ended
June 30,
 
     2016   2015 
           
  Revenues        
  Share of earnings (loss) from investment in subsidiaries and VIE  $18,935,506   $32,408,267 
             
  Operating expenses          
  General and administrative   37,781,000    183,000 
             
  Net (loss) income  $(18,845,494)  $32,225,267 

 

Condensed Statements of Cash Flows

 

     For the years ended
June 30,
 
     2016   2015 
           
  Cash flows from operating activities        
  Net (loss) income  $(18,845,494)  $32,225,267 
  Adjustments to reconcile net income to net cash provided by (used in) operating activities          
  Share of earnings from investment in subsidiaries and VIE   (18,935,506)   32,225,267 
  Stock compensation for shareholder and consultants   37,781,000      
  Decrease in loan receivable   3,208,151      
             
  Net cash provided by (used in) operating Activities   3,208,151    - 
             
  Effect of exchange rate changes on cash   (141,020)     
             
  Net change in cash   3,067,131    - 
  Cash, beginning of period   -    - 
             
  Cash, end of period  $3,067,131   $- 

 

Basis of Presentation

 

The Company records its investment in its subsidiaries under the equity method of accounting. Such investments are presented as “Investment in subsidiaries” on the condensed balance sheets and the subsidiaries and VIE profits upon September 16, 2015 (the date of VIE structure dissolved - Note 1)) are presented as “Share of earnings from the investment in subsidiaries” in the condensed statements of income.

 

 F-41 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

12.Parent company only condensed financial information (CONTINUED)

 

Basis of Presentation (continued)

 

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

 

There were no cash transactions in the US parent company during the years ended June 30, 2016 and 2015.

 

Restricted Net Assets

 

Under PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries and amounted to $ 155,919,882 and $ 123,732,097 as of June 30, 2016 and 2015, respectively.

 

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

  

 F-42 

 

 

China Modern Agricultural Information, Inc.

and subsidiaries

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ended JUNE 30, 2016 AND 2015 (IN U.S. $)

 

 

12.Parent company only condensed financial information (CONTINUED)

 

Restricted Net Assets (continued)

 

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

 

13. Subsequent event

 

In July 2016, the Company paid the dividends at AUD $0.0057 per share, a total of AUD $4,188,967 to all its shareholders.

In July 2016, Xinhua Cattle contributed the net profit of $6,225,856 and $99,923, respectively, to Zhongxian Information and the 1% owned minority shareholder. The total represents the net profit of Xinhua Cattle for the years ended June 30, 2008 and 2007.

 

 F-43 

 

 

Item 9A. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

(b) Management's Annual Report on Internal Control over Financial Reporting

 

Management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).  Management conducted an assessment as of December 31, 2011 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework ("COSO").  Based on that evaluation, our CEO and CFO concluded that, as of June 30, 2016, the Company had a material weakness with respect to its internal controls over financial reporting because it did not have a sufficient number of personnel to provide for adequate segregation of duties and independent review and approval of specific transactions.  In addition, the Company lacked a sufficient number of personnel with an appropriate level of knowledge and experience of generally accepted accounting principles in the United States of America (U.S. GAAP).

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report.

 

(c) Changes in Internal Controls

 

There have been no changes in the Company's internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Item 9B. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed. 

 

 27 
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Set forth below is information regarding our directors and executive officers.

 

Name   Age   Position
Liu Enjia   69   Chairman of the Board of Directors
Wang Youliang   48   Chief Executive Officer, Director
Shan Yanqin   69   Director
Liu Yanyan   42   Chief Financial Officer
Qin Libei   64   Chief Operating Officer
Liu Zhengxin   43   Chief Human Resource Officer

 

A brief description of the background and business experience of our sole executive officer and director for the past five years is as follows:

 

Mr. Liu Enjia

 

Mr. Liu Enjia is the Chairman of the Company. In 1985, Mr. Liu Enjia served as the Chairman of the Board for Hong Kong Yunli Development (Heilongjiang) Co. Thereafter, in 1991, Mr. Liu Enjia served as the Chairman and President of Hong Kong Yunli Group. Mr. Liu Enjia has also served as faculty member and lecturer at numerous Chinese universities. In 1994, he was a guest lecturer and Visiting Professor at the Social Development Institute at Peking University. Also, in 1994, he served as a Visiting Professor at Shenzhen University. In 1995, he was a guest researcher with the State Economic System Reform Committee. Also in 1995, Mr. Liu Enjia served as consultant for the Heilongjiang Provincial Government System, as well as the Honorary President of Chamber of Commerce of the Heilongjiang Province.

 

In 1996, at the National Agricultural Conference, Mr. Liu Enjia proposed the business model for agricultural enterprise, which was published in the People’s Forum. Mr. Liu Enjia also established the “Zhongxian Agriculture” theory and the harmonious ecological agricultural practice model which has been implemented in the Heilongjiang Province, winning high praise from State leaders and the State Council.

 

Mr. Liu Enjia is a dedicated researcher of China’s economic behavior and reform. To that end, he currently serves as the Director of China’s Economic Behavior Research Center. Mr. Liu Enjia is credited with advancing the “Zhongxian” model and business commercialization theory, which brought about entrusted operations in state-owned enterprises, attracting the eye of the international community.

 

We believe that Mr. Liu Enjia is qualified to serve on our Board of Directors because he brings a broad base of knowledge and experience in the agriculture industry.

 

 28 
 

 

Mr. Wang Youliang

 

Mr. Youliang is the Chief Executive Officer and a Director of the Company. From 1991 to 1997, Mr. Youliang was a staff member of the Tonghua Branch of China Construction Bank. Thereafter, from 1997 to 2006, he was the founder and President of TonghuaHongyuan Trading Co., Ltd. From 2006 to 2008, Mr. Youliang served as the CMO of Yunnan NanyaoJiaoxiong Pharmaceutical Co., Ltd. From 2008 to 2010 he served as the Vice President of Guofa Venture Investment Co., Ltd. Currently, Mr. Youliang is the General Manager, Chief Executive Officer and Director of Heilongjiang Zhongxian Information Co., Ltd. Mr. Youliang graduated from Jilin University with a degree in Finance.

 

We believe that Mr. Wang Youliang is qualified to serve on our Board of Directors because he brings a broad base of knowledge and experience in business administration and management. 

  

Ms. Shan Yanqin

 

Ms. Shan Yangin serves as a Director. While working with Harbin Thermodynamic Company from 1990-2000, she served as the office director and manager of the company. Thereafter, from 2000-2005, Ms. Yangin was the founder and Vice President of Daqing Sunlight Terrestrial Heat Tubing Sales Co., Ltd. From 2005 to the present, Ms. Yangin serves as a Director for Heilongjiang Zhongxian Information Co., Ltd. Ms. Shan Yangin graduated from the Harbin University of Commerce with a Business Administration degree.

 

We believe that Ms. Shan Yanqin is qualified to serve on our Board of Directors because she brings a broad base of knowledge and experience in business administration and management.

 

Ms. Liu Yanyan

 

Ms. Liu Yanyan serves as the Chief Financial Officer of the company. Ms. Yanyan has over a decade of experience in accounting and financial management. From 1995-2000 she served as a staff member of the Harbin Decorative Advertisement Design Corporation. Thereafter, she served as a staff member of Baixin Shoes Co., Ltd from 2000-2001. More recently, from 2002 to May 2010, Ms. Yanyan was a member of Harbin CaiyunTradings Company. Ms. Liu Yanyan graduated from the Heilongjiang College of Commerce with an accounting degree.

 

Mr. Qin Libei

 

Mr. Qin Libei serves as the Chief Operating Officer of the company. Mr. Libei has significant experience in the agricultural and livestock field. From 1981 to 1986, he was the Chief Secretary of Heilongjiang Bureau of Animal Husbandry. From 1986 to 1990 he was the Deputy Chief of Heilongjiang Livestock Breeding Guidance Station. Then, from 1991 to 1994, he served as the Deputy Chief of Heilongjiang Grassland Fodder Center experiment station. Additionally, from 1995 to 2000 he served as the Chairman of Heilongjiang Grassland Fodder Development Co., Ltd. and President of Heilongjiang Caiyuan Information Co. Ltd. More recently, from 2001 to 2010 Mr. Libei was a researcher with the Heilongjiang Grassland Fodder Center experimentation station. Currently, Mr. Libei also serves as the Chief Operating Officer for Heilongjiang Zhongxian Information Co., Ltd. Mr. Libei graduated from Heilongjiang University with a degree in Economics and Management.

 

Mr. Liu Zhengxin

 

Mr. Lin Zhengxin serves as the Chief Human Resource Officer of the company. From 1992 to 1993, Mr. Zhengxin was a sales representative with Yunli Development (Heilongjiang) Co., Ltd. Then, from 1993 to 2005, he serves as sales director for Yunli Development (Heilongjiang) Co., Ltd. More recently, from 2005 to 2010, Mr. Zhengxin was the Assistant President of Heilongjiang Zhongxian Information Co. Ltd. From 2008 to the present, Mr. Zhengxin also serves as the CHO for Heilongjiang Zhongxian Information Co. Ltd. Mr. Zhengxin holds an accounting degree from Heilongjiang Institute of Economic Management, and a minor in Human Resource Management.

 

 29 
 

 

Term of Office

 

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the Board of Directors.

 

There are no agreements or understandings among Mr. Liu Enjia, Mr. Wang Youliang, Ms. Shan Yanqin, Ms. Liu Yanyan, Mr. Qin Libei, and Mr. Liu Zhengxin and any other person pursuant to which Mr. Liu Enjia, Mr. Wang Youliang, Ms. Shan Yanqin, Ms. Liu Yanyan, Mr. Qin Libei, and Mr. Liu Zhengxin were selected as a director or executive officer.

 

Family Relationships

 

Mr. Liu Enjia and Mr. Liu Zhengxin are father and son. There are no other family relationships between our director and executive officers.

 

Involvement in Legal Proceedings

 

To the best of our knowledge, our director or executive officer has not, during the past ten years:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

  been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” our director or executive officer has not been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

 

Potential Conflicts of Interest

 

We are not aware of any current or potential conflicts of interest with our directors or executive officers.

 

Board Committees

 

We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee as of the filing of this Annual Report. Our Board of Directors performs the principal functions of an Audit Committee. We currently do not have an audit committee financial expert on our Board of Directors. We believe that an audit committee financial expert is not required because the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time.

 

 30 
 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, officers and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and are required to furnish us with copies of these reports. Based solely on our review of the reports filed with the SEC, we believe that all persons subject to Section 16(a) of the Exchange Act timely filed all required reports in fiscal year ended June 30, 2016, except that reports were not filed by the following persons:

 

Name  Number of 
Late Reports
   Transactions 
Not Timely 
Reported
   Known 
Failures  
to File a  
Required
Form
 
Liu Enjia   1    0    1 
Wang Youliang   1    0    1 
Shan Yanqin   1    0    1 
Liu Yanyan   1    0    1 
Qin Libei   1    0    1 
Liu Zhengxin   1    0    1 

 

Code of Ethics

 

We have not adopted a Code of Ethics that is applicable to our Chief Executive Officer and chief financial and principal accounting officer. We are in the process of formulating a code of ethics and intend to adopt one in the future.

 

Item 11. Executive Compensation.

 

The following table sets forth the compensation paid or accrued by us to our President, Chief Executive Officer, Chief Financial Officer and each of our other officers for the fiscal year ended June 30, 2015.

 

Name and Principal Position 

Fiscal

Year

  

Salary

(USD $)

  

Bonus

(USD $)

  

Option
Awards

(USD $)

  

All Other Compensation

(USD $)

  

Total

(USD $)

 
Wang Youliang   2015    11,714    -    -    -    11,714 
Chief Executive Officer   2016    21,442    -    -    -    21,442 
                               
Liu Yanyan   2015    8,786    -    -    -    8,786 
Chief Financial Officer   2016    18,646    -    -    -    18,646 
                               
Qin Libei (1)   2015    7,810    -    -    -    7,810 
Chief Operating Officer   2016    414    -    -    -    414 
                               
Liu Pingzhi   2015    0    -    -    -    0 
Chief Human Resource Officer   2016    18,646    -    -    -    18,646 

 

(1)Mr. Qin resigned as the Chief Operating Officer on July 21, 2015.

 

Narrative Disclosure to Summary Compensation Table

 

Mr. Wang Youliang

 

For the fiscal years ended June 30, 2016 and 2015, Mr. Wang Youliang received annual compensation of RMB 72, 000, or USD $11,714 and $11,714 respectively due to the fluctuating currency exchange rate between USD and RMB in the respective year.

 

 31 
 

 

We entered into an Employment Agreement with Wang Youliang (the “Youliang Agreement”). Pursuant to the Youliang Agreement, Mr. Wang will serve as our Chief Executive Officer. The current term of the agreement starts on July 1, 2016 and expires on June 30, 2017. The Youliang Agreement provides that Mr. Wang’s base salary during the term shall be RMB 180,000, or approximately USD $27,272 per annum. Mr. Wang’s salary shall be paid on monthly basis, payable on the 30th day of each following month. If the Company unilaterally terminates the employment within the term of the agreement, the Company shall, on the termination date, make a lump-sum salary payment of the immediately preceding month to Mr. Wang plus compensation equal to three (3) months of Mr. Wang’s salary.

 

The agreement provides that it will automatically terminate upon either the expiration of the term of the Youliang Agreement or the occurrence of events authorizing such termination or the dissolution of the Company. The Youliang Agreement may also be terminated upon the occurrence of either a serious violation of company policy by Mr. Wang or by any major damages to the Company resulting from Mr. Wang’s failure to duly perform his duties.

 

Ms. Liu Yanyan

 

For the fiscal year ended June 30, 2016 and 2015, Ms. Liu Yanyan received annual compensation of RMB 54,000, or USD $ 8,695 and $8,786 respectively due to the fluctuating currency exchange rate between USD and RMB in the respective year.

 

We entered into an Employment Agreement with Liu Yanyan (the “Yanyan Agreement”). Pursuant to the Yanyan Agreement, Ms. Liu serves as our Chief Financial Officer. The current term of the agreement starts on July 1, 2016 and expires on June 30, 2017. The Yanyan Agreement provides that Ms. Liu’s base salary during the term shall be RMB 180,000, or approximately $27,272 per annum. Ms. Liu’s salary shall be paid on monthly basis, payable on the 30th day of each following month. If the Company unilaterally terminates Ms. Liu within the term of the agreement, the Company shall, on the termination date, make a lump-sum salary payment of the immediately preceding month to Ms. Liu plus compensation equal to three (3) months of Ms. Liu’s salary.

 

The agreement provides that it will automatically terminate upon either the expiration of the term of the Yanyan Agreement or the occurrence of events authorizing such termination or the dissolution of the Company. The Yanyan Agreement may also be terminated upon the occurrence of either a serious violation of the company policy by Ms. Liu or by any major damages to the Company resulting from Ms. Liu’s failure to duly perform her duties.

 

 32 
 

 

Mr. Liu Zhengxin

 

For the fiscal year ended June 30, 2016 and 2015, Mr. Liu Zhengxin received annual compensation of RMB 36,000, or USD $5,797 and $5,857 respectively due to the fluctuating currency exchange rate between USD and RMB in the respective fiscal year.

 

We entered into an Employment Agreement with Liu Zhengxin (the “Zhengxin Agreement”). Pursuant to the Zhengxin Agreement, Mr. Liu serves as our Chief HR Officer. The current term of the agreement starts on July 1, 2016 and expires on June 30, 2017. The Zhengxin Agreement provides that Mr. Liu’s base salary during the term shall be 180,000 RMB or USD $27,272 per annum. Mr. Liu’s salary shall be paid on monthly basis, payable on the 30th day of each following month. If the Company unilaterally terminates Ms. Zhengxin within the term of the agreement, the Company shall, on the termination date, make a lump-sum salary payment of the immediately preceding month to Mr. Liu plus compensation equal to three (3) months of Mr. Liu’s salary.

 

The agreement provides that it will automatically terminate upon either the expiration of the term of the Zhengxin Agreement or the occurrence of events authorizing such termination or the dissolution of the Company. The Zhengxin Agreement may also be terminated upon the occurrence of either a serious violation of the company policy by Mr. Liu or by any major damages to the Company resulting from Mr. Liu’s failure to duly perform his duties.

  

Outstanding Equity Awards at Fiscal Year-End Table

 

None.

 

Director Compensation

 

The members of our board of directors are not compensated for serving on the board.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table shows the number of our securities beneficially owned by our named executive officers, our director, our executive officers and directors as a group, and each person known to us to own more than 5% of our outstanding shares of common stock as of September 29, 2016. Except as otherwise indicated, all shares are owned directly and the shareholders possess sole voting and investment power with respect to the shares listed below. As of September 29, 2016, 53,100,000 shares of our common stock were issued and outstanding. Unless otherwise stated, the business address of the person listed below is c/o No.A09, Wuzhou Sun Town Limin Avenue, Limin Development District Harbin, Heilongjiang, China.

 

Name and Address  Amount and Nature of Beneficial
Ownership (1)
   Percentage of
Class (2)
 
Youliang Wang, 
Chief Executive Officer and Director
   4,049,775    7.63%
Yanyan Liu, 
Chief Financial Officer
   0    0%
Libei Qin, 
Chief Operating Officer
   0    0%
Zhengxin Liu, 
Chief Human Resource Officer
   7,936,784    14.95%
Enjia Liu, 
Chairman of the Board of Directors
   0    0%
Yanqin Shan, 
Director
   0    0%
All officers and directors as group (6)   11,986,559    22.88%

 

(1) A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through such as exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers are exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.

 

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(2) For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of September 29, 2016. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of September 29, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

The Company obtained demand and non-interest bearing loans from an affiliated party. The following sets forth the name and affiliation of such affiliated party, the aggregate amount of principal loaned during 2016 and 2015, the amount of principal paid during 2016 and 2015, and the outstanding balance as of June 30, 2016 and 2015.

 

Name of     Aggregate Amount 
of Principal Loaned
   Amount of Principal Paid   Outstanding Balance as of
June 30,
 
Related Party  Affiliation  2016   2015   2016   2015   2016   2015 
Liu Enjia  Director  $104,000   $193,182   $   0     $99,316   $    1,672,707    $937,524 

 

In March 2015, Zhongxian Information and the Executive Chairman of the Company entered into a loan agreement pursuant to which Executive Chairman provides a loan facility to Zhongxian Information, which is non-interest bearing and due on demand. The maximum amount of the loan is RMB 50,000,000 (US $7,845,000). Any borrowings in excess of this amount may be negotiated between the parties. The loans outstanding were $1,672,707 and $937,524 as of June 30, 2016 and 2015, respectively.

 

In 2012, Company issued 9,000,000 shares of common stock, par value of $0.001 at $0.34 per share, totaled of RMB 19,428,571 (US $3,060,000) to the shareholder of Yulong on behalf Zhongxian Information for the acquisition of Yulong by Zhongxian Information. The loan was fully paid off by China Dairy to CMCI on June 29, 2016. 

 

Director Independence

 

Mr. Liu Enjia, Mr. Wang Youliang, and Ms. Shan Yanqin, the members of our Board of Directors, are not independent using the definition of independence under the rules of the SEC.

 

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Item 14. Principal Accounting Fees and Services.

 

The following table shows the aggregate fees billed for professional services provided to us by Wei, Wei & Co., LLP for 2016 and 2015:

 

   2016   2015 
Audit Fees  $130,000   $90,000 
Audit-Related Fees   -    - 
Tax Fees   4,500    4,500 
All Other Fees   -    - 
    -    - 
Total  $134,500   $94,500 

 

For the fiscal years ended June 30, 2016 and 2015, the aggregate fees billed for professional services rendered for the audit and review of our financial statements were approximate $130, 000 and $90,000, respectively.

 

There were no fees for other audit-related services for the fiscal years ended June 30, 2016 and 2015.

 

For our fiscal years ended June 30, 2016 and 2015, the aggregate fees billed for professional services rendered for tax compliance, tax advice, and tax planning were approximate $4,500 and $4,500, respectively. 

 

All Other Fees

 

We did not incur any other fees related to services rendered by our independent registered public accounting firm for the fiscal years ended June 30, 2016 and 2015.

 

The SEC requires that before our independent registered public accounting firm is engaged by us to render any auditing or permitted non-audit related service, the engagement be either: (i) approved by our Audit Committee or (ii) entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided that the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’s responsibilities to management.

 

We do not have an Audit Committee. Our Board of Directors pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees during 2015 and 2014 were reviewed and approved by our Board of Directors either before or after the respective services were rendered.

  

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PART IV

 

Item 15. EXHIBITS

 

(a) Exhibits

 

Exhibit Number   Description
     
2.1   Share Exchange Agreement between Trade Link Wholesalers, Inc. and Value Development Holdings Limited, dated January 28, 2011, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
2.2   Letter of Intent dated as of July 10, 2011, by and between Heilongjiang Zhongxian Information Co., Ltd. and Harbin JinShangjing Technology Investment Co., Ltd. (English Translation), incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on July 14, 2011.
2.3   Letter of Intent, dated as of July 10, 2011, by and between Heilongjiang Zhongxian Information Co., Ltd. and Harbin JinShangjing Technology Investment Co., Ltd. (English Translation), incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on September 30, 2011.
2.4   Equity Transfer Agreement, dated November 23, 2011, among China Modern Agricultural Information, Inc., Heilongjiang Zhongxian Information Co., Ltd., ShangzhiYulong Co., Ltd., and ShangzhiYulong Shareholders, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on November 30, 2011.
2.5   Share Transfer Agreement dated July 16, 2015 between the Company and Youliang Wang, incorporated by reference to Exhibit 2.5 to the Annual Report on Form 10-K filed on October 13, 2015.
2.6   Share Transfer Agreement, dated July 16, 2015, by and between the Company and China Dairy Corporation Limited, incorporated by reference to Exhibit 2.5 to the Annual Report on Form 10-K filed on October 13, 2015.
10.1   Exclusive Consulting and Service Agreement between Harbin Jiasheng Consulting Managerial Co., Ltd. and Heilongjiang Zhongxian Information Co., LTD., dated December 21, 2010, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
10.2   Shareholders Voting Right Proxy Agreement between Mr. Wang Youliang, Mr. Liu Zhengxin, Harbin Jiasheng Consultation & Management Co., LTD. and Heilongjiang Zhongxian Information Co., LTD., dated December 21, 2010, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
10.3   Exclusive Call Options Agreement between Mr. Wang Youliang, Mr. Liu Zhengxin, Harbin Jiasheng Consultation & Management Co., LTD. and Heilongjiang Zhongxian Information Co., LTD., dated December 21, 2010, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
10.4   Equity Pledge Agreement between Mr. Wang Youliang, Mr. Liu Zhengxin, Harbin Jiasheng Consultation & Management Co., LTD. and Heilongjiang Zhongxian Information Co., LTD., dated December 21, 2010, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
10.5   Form Employment Agreement, incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on February 3, 2011, as amended.
10.6   Land Use Right Purchase Agreement dated May 10, 2013, incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on October 9, 2013.
10.7   Land Use Right Purchase Agreement dated February 25, 2013, incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed on October 9, 2013.
10.8   Land Use Transfer Agreement (as amended) dated May 14, 2015 by and between Heilongjiang Xinhua Cattle Co., Ltd. and the People’s Government of Shuangcheng District of Harbin, incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed on October 13, 2015.
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
    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.

 

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

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CHINA MODERN AGRICULTURAL INFORMATION, INC.
   
Dated: September 29, 2016 By: /s/ Youliang Wang
    Youliang Wang
    Chief Executive Officer 
(Principal Executive Officer)
     
Dated: September 29, 2016 By: /s/ Yanyan Liu
    Yanyan Liu
    Chief Financial Officer 
(Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Enjia Liu        
Enjia Liu   Chairman of the Board of Directors   September 29, 2016
         
/s/ Youliang Wang   Chief Executive Officer and Director    
Youliang Wang   (Principal Executive Officer)   September 29, 2016
         
/s/ Yanqin Shan        
Youqin Shan   Director   September 29, 2016
         
/s/ Yanyan Liu   Chief Financial Officer    
Yanyan Liu   (Principal Financial Officer)   September 29, 2016

 

 

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