China Modern Agricultural Information, Inc. - FORM 8-K - EX-99.2 - CONDENSED CONSOLIDATED BALANCE SHEETS OF SHANGZHI YULONG AS OF SEPTEMBER 30, 2011 (UNAUDITED) AND JUNE 30, 2010, AND THE RELATED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME, CHANGES IN MEMBERS? EQUITY AND CASH FLOWS FOR THE THREE MONTHS ENDED S

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8-K - CURRENT REPORT - China Modern Agricultural Information, Inc.	f8k112311_chinamodern.htm
EX-99.3 - UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 2011 AND THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AND INCOME STATEMENT AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011. - China Modern Agricultural Information, Inc.	f8k11231199iii_chinamodern.htm
EX-99.1 - AUDITED CONSOLIDATED BALANCE SHEETS OF SHANGZHI YULONG AS OF JUNE 30, 2011 AND 2010, AND THE RELATED AUDITED CONSOLIDATED STATEMENTS OF INCOME, CHANGES IN MEMBERS? EQUITY AND CASH FLOWS FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED JUNE 30, 2011 AND 2010; - China Modern Agricultural Information, Inc.	f8k11231199i_chinamodern.htm

Exhibit 99.2

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

BALANCE SHEETS

SEPTEMBER 30, 2011 AND JUNE 30, 2011

ASSETS	September 30, 2011			June 30, 2011
	(Unaudited)

Current assets:
Cash	$	2,884,452		$	3,255,736
Accounts receivable		1,170,426			912,044
Inventories		1,064,245			52,882
Prepaid expenses		2,348			2,325

Total current assets		5,121,471			4,222,987

Property, plant and equipment		2,909,237			2,731,240
Less: accumulated depreciation		(434,457	)		(389,994	)

Total property, plant and equipment, net		2,474,780			2,341,246

Biological assets, net		6,653,712			6,690,108

TOTAL ASSETS	$	14,249,963		$	13,254,341

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

BALANCE SHEETS

SEPTEMBER 30, 2011 AND JUNE 30, 2011

LIABILITIES AND STOCKHOLDERS’ EQUITY	September 30, 2011		June 30, 2011
	(Unaudited)

Current liabilities:
Accounts payable	$	29,429	$	621,537
Accrued expenses and other payables		57,166		58,346
Deposit payable		2,186,800		-
Loans payable		42,599		2,207,990

Total current liabilities		2,315,994		2,887,873

Total liabilities		2,315,994		2,887,873

Stockholders’ equity:
Registered capital		2,734,000		2,734,000
Retained earnings		7,628,468		6,312,403
Statutory reserve fund		847,607		701,378
Other comprehensive income		723,894		618,687

Total stockholders’ equity		11,933,969		10,366,468

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,249,963	$	13,254,341

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

	2011			2010

Revenues	$	3,405,785		$	2,361,264
Cost of goods sold		(1,898,345	)		(1,236,433	)

Gross profit		1,507,440			1,124,831

Operating expenses:
Selling and marketing		(14,854	)		(73,209	)
General and administrative		(30,292	)		(56,413	)

Total operating expenses		(45,146	)		(129,622	)

Income before income taxes		1,462,294			995,209
Provision for income taxes		-			-

Net income		1,462,294			995,209
Other comprehensive income:
Foreign currency translation adjustment		105,207			86,798

Total comprehensive income	$	1,567,501		$	1,082,007

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

	Registered Capital		Retained Earnings			Statutory Reserve Fund		Other Comprehensive Income		Total

Balance, June 30, 2011	$	2,734,000	$	6,312,403		$	701,378	$	618,687	$	10,366,468
Net income		-		1,462,294			-		-		1,462,294
Appropriation of statutory reserves		-		(146,229	)		146,229		-		-
Other comprehensive income		-		-			-		105,207		105,207

Balance, September 30, 2011	$	2,734,000	$	7,628,468		$	847,607	$	723,894	$	11,933,969

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

	2011			2010

Cash flows from operating activities:
Net income	$	1,462,294		$	995,209
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		233,874			195,245
Change in operating assets and liabilities:
(Increase) in accounts receivable		(258,383	)		(42,377	)
(Increase) in inventories		(1,011,363	)		(22,550	)
(Increase) in prepaid expenses		(23	)		(820	)
(Decrease) in accounts payable		(592,108	)		(423,575	)
(Decrease) increase in accrued expenses and other payables		(1,180	)		13,154

Net cash (used in) provided by operating activities		(166,889	)		714,286

Cash flows from investing activities:
Purchase of property, plant and equipment		(151,029	)		(19,890	)
Capitalized expenses immature biological assets		(285,437	)		(931,310	)

Net cash (used in) investing activities		(436,466	)		(951,200	)

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD.

STATEMENTS OF CASH FLOWS (continued)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

	2011			2010

Effect of exchange rate changes on cash		232,071			59,434

Net (decrease) in cash		(371,284	)		(177,480	)
Cash, beginning of period		3,255,736			668,768

Cash, end of period	$	2,884,452		$	491,288

Supplemental disclosure of cash flow information:

Cash paid for income taxes	$	-	$	-

Cash paid for interest	$	-	$	-

Supplemental disclosure of non-cash financing and investing activities:

Conversion of loan payable to non-interest bearing deposit	$	2,186,800	$	-

See accompanying notes to financial statements.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

1.	ORGANIZATION

Shangzhi Yulong Cattle Industry Co., Ltd. (the “Company”) is engaged in acquisition, breeding and rearing of dairy cows, and production and sale of fresh milk to manufacturing and distribution companies. The Company was established in China in December 2007 with a registered capital of 20 million Renminbi (“RMB”).

The Company is a Chinese private company located in Harbin, China, which was a 100% owned subsidiary of Harbin JinShangjing Technology Investment Co., Ltd. On September 23, 2011, Harbin JinShangjing Technology Investment Co., Ltd. transferred its ownership to eight individual stockholders.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Foreign Currency Translations

All Company assets are located in People’s Republic of China (“PRC”). The functional currency for the majority of the Company’s operations is the RMB. The Company uses the United States dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 financial statements are recorded as other comprehensive income.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translations (continued)

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

September 30, 2011

June 30,

2011

September 30, 2010

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

0.1562

0.1547

N/A

Amounts included in the statements of income and other comprehensive income, and statements of cash flows for the period

0.1557

N/A

0.1497

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

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

The Company’s primary source of revenues are derived from sale of fresh milk to one major Chinese manufacturing and distribution company of dairy products. The Company’s revenue recognition policies comply with U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) 104. Revenues from sales 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.

Revenue is recognized when the title to the goods has been passed to customer, which is the date when the goods are delivered to designated locations and accepted by the customer and the previously discussed requirements are met. Fresh milk is delivered on a daily basis. The customer’s 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 to return goods.

Gross revenues for the three months ended September 30, 2011 and 2010 were $3,405,785 and $2,361,264, respectively. The increase in revenue was primarily due to the increase in the selling price of fresh milk from RMB2.10 per ton to RMB2.70 per ton starting in the beginning of August 2011.

Vulnerability Due to Operations in PRC

The Company’s operations could 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.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising cost totaled $0 and $60,106 for the three months ended September 30, 2011 and 2010, respectively.

Fair Value of Financial Instruments

Financial instruments include accounts receivable, accounts payable, accrued expenses and other payables, and the loans payable. As of September 30, 2011 and June 30, 2011, the carrying values of accounts receivable, accounts payable, accrued expenses and other payables approximated their fair values due to the short maturity of these financial instruments. The carrying value of the loans payable are valued at their original value which approximates the fair value.

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 resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at September 30, 2011 and June 30, 2011, to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

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

The Company purchased a significant amount of raw material in advance with the expectation of increase in future prices. As a result, there was a significant increase in ending inventory as of September 30, 2011.

The Company estimates an inventory allowance, if necessary, for excessive or unusable inventories. Inventory amounts are reported net of such allowances, if any. There were no allowances for excessive or unusable inventories as of September 30, 2011 and 2010.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost include the prices paid to acquire or construct the assets, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or extend 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
Trucks	4 years
Building and building improvements	20 years

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of Long-lived Assets

The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with FASB ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amount of an asset may not be recoverable. The Company may recognize impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to these assets. No impairment of long-lived assets was recognized for the three months ended September 30, 2011 and 2010.

Biological Assets

Biological assets consist of dairy cows for milking purposes.

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 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 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. There was no gain or loss recognized during the three months ended September 30, 2011 and 2010.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Biological Assets (continued)

Mature Biological Assets (continued)

The Company reviews the carrying value of biological assets for impairment whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current health status of the asset and production capacity. There were no impairment losses recorded during the three months ended September 30, 2011 and 2010.

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. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of September 30, 2011 and 2010, the Company did not have any deferred income taxes since it is entitled to a full exemption (see below).

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 tax positions. As of September 30, 2011 and 2010, the Company does not have a liability for any unrecognized tax benefits.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

The Company is entitled to a tax exemption for full Enterprise Income Tax in China due to a government tax preferential policy for the dairy farming industry.

Statutory Reserve Fund

Pursuant to corporate law of the PRC, the Company is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the Company’s 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 issue is not less than 25% of the registered capital.

3.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at September 30, 2011 and June 30, 2011 are summarized as follows:

	September 30, 2011			June 30, 2011

Machinery and equipment	$	286,790		$	133,976
Trucks		79,298			78,537
Building and building improvements		2,543,149			2,518,727

		2,909,237			2,731,240
Accumulated depreciation		(434,457	)		(389,994	)

Property, plant and equipment, net	$	2,474,780		$	2,341,246

Depreciation expense charged to operations for the three months ended September 30, 2011 and 2010 was $44,463 and $33,933, respectively.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

4.	BIOLOGICAL ASSETS

Biological assets consist of the following as of September 30, 2011 and June 30, 2011:

	September 30, 2011			June 30, 2011

Immature biological assets	$	1,008,807		$	1,049,298
Mature biological assets		7,039,079			6,829,515

		8,047,886			7,878,813
Accumulated depreciation		(1,394,174	)		(1,188,705	)

Biological assets, net	$	6,653,712		$	6,690,108

Depreciation expense for the three months ended September 30, 2011 and 2010 was $205,469 and $161,312, respectively, all of which was recorded in cost of goods sold in the statements of income and other comprehensive income.

5.	LOANS PAYABLE

Loans payable at June 30, 2011 include a non-interest bearing loan of RMB14,000,000 (US$2,186,800) from a company (the “Acquirer”) with which the Parent signed a letter of intent for the acquisition of 100% of the equity interests of the Company in July 2011. Upon the execution of the letter of intent, the loan was converted to a non-interest bearing deposit payable, to be applied against the purchase price of the acquisition (see Note 8). Loans payable at June 30, 2011 also includes a non-interest bearing loan of $42,190 from one of the Acquirer’s stockholders, which represents loans payable of $42,599 at September 30, 2011.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

6.	FAIR VALUE MEASUREMENTS

FASB ASC 820, “Fair Value Measurements and Disclosures,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).

In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs – Inputs based on prices or 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 and liabilities that are required to be presented on the balance sheets at fair value.

7.	CONCENTRATION OF CREDIT RISK

Substantially all of the Company’s bank accounts are in banks 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.

One customer accounted for 100% of sales of milk and accounts receivable for the three months ended September 30, 2011 and 2010.

SHANGZHI YULONG CATTLE INDUSTRY CO., LTD

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

8.	SUBSEQUENT EVENTS

On October 18, 2011, the eight individual stockholders of the Company entered into a stock transfer agreement with two individuals to reallocate Company’s shares among the ten individuals.

On November 23, 2011, stockholders of the Company entered into an acquisition agreement (“Acquisition Agreement”) with Heilongjiang Zhongxian Information Co., Ltd. (“Acquirer”), a variable interest entity in China of a U.S. public company. According to the Acquisition Agreement, the Acquirer purchased 100% of the equity interests of the Company from the stockholders of the Company for consideration of 9,000,000 shares of the U.S. public company’s common stock and cash consideration of RMB28,000,000, of which RMB14,000,000 (US$2,186,800) of which was paid by a deposit (see Note 5).

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China Modern Agricultural Information, Inc. Reports