China Modern Agricultural Information, Inc. - FORM 10-Q

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EX-31.1 - CERTIFICATION - China Modern Agricultural Information, Inc.	f10q1213ex31i_chinamodern.htm
EX-31.2 - CERTIFICATION - China Modern Agricultural Information, Inc.	f10q1213ex31ii_chinamodern.htm
EX-32.1 - CERTIFICATION - China Modern Agricultural Information, Inc.	f10q1213ex32i_chinamodern.htm
EX-32.2 - CERTIFICATION - China Modern Agricultural Information, Inc.	f10q1213ex32ii_chinamodern.htm
EXCEL - IDEA: XBRL DOCUMENT - China Modern Agricultural Information, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2013

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

For the transition period from ______to______.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

(Exact name of registrant as specified in its charter)

Commission File Number: 000-54510

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

No.A09, Wuzhou Sun Town

Limin Avenue, Limin Development District

Harbin, Heilongjiang, China

(Address of principal executive offices, Zip Code)

(86) 0451-84800733

(Registrant’s telephone number, including area code)

_______________

Not Applicable.

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

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

Yesx No o

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

Yes x No o

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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

The registrant had 53,100,000 shares of its common stock, par value $0.001 per share, outstanding at February 13, 2014.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

QUARTERLY REPORT ON FORM 10-Q

December 31, 2013

TABLE OF CONTENTS

		PAGE
PART 1 - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

SIGNATURES		45

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

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

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

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

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

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

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

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

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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC. AND SUBSIDIARIES

Consolidated Financial Statements for the

Three and Six Months Ended December 31, 2013 and 2012

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012

CONTENTS	PAGE

Consolidated FINANCIAL STATEMENTS:

Consolidated Balance Sheets	1

Consolidated Statements of Income and Other Comprehensive Income	3

Consolidated Statements of Changes in Stockholders’ Equity	6

Consolidated Statements of Cash Flows	7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	9

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2013 AND JUNE 30, 2013 (IN U.S. $)

ASSETS	December 31, 2013			June 30, 2013
	(Unaudited)

Current assets
Cash	$	41,733,183		$	25,147,474
Accounts receivable		4,891,050			4,440,330
Inventories		578,150			271,814
Prepaid expenses		346,075			324,982
Interest receivable		227,777			252,658
Notes receivable, current portion		1,896,704			1,856,954

Total current assets		49,672,939			32,294,212

Property, plant and equipment		4,801,200			4,742,505
Less: accumulated depreciation		(1,140,129	)		(976,409	)

Property, plant and equipment, net		3,661,071			3,766,096

Other assets
Notes receivable		5,081,091			5,964,015
Prepaid land lease		22,250,582			22,406,066
Biological assets, net		29,293,573			25,985,004

Total other assets		56,625,246			54,355,085

TOTAL ASSETS	$	109,959,256		$	90,415,393

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31, 2013 AND JUNE 30, 2013 (IN U.S. $)

LIABILITIES AND STOCKHOLDERS’ EQUITY	December 31, 2013		June 30, 2013
	(Unaudited)

Current liabilities
Accrued expenses and other payables	$	376,667	$	317,689
Stockholder loans		534,924		385,156

Total current liabilities		911,591		702,845

Deferred income taxes		25,771,802		21,119,304

Total liabilities		26,683,393		21,822,149

Commitments and contingencies

Stockholders’ equity
Common stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding		53,100		53,100
Additional paid-in capital		5,851,170		5,851,170
Retained earnings		71,576,025		57,923,943
Statutory reserve fund		792,174		792,174
Other comprehensive income		4,233,476		3,337,635

Sub-total		82,505,945		67,958,022

Noncontrolling interests		769,918		635,222

Total stockholders’ equity		83,275,863		68,593,244

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	109,959,256	$	90,415,393

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (IN U.S. $)

	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012

Revenues
Milk sales	$	11,250,331		$	8,078,427		$	21,997,754		$	15,745,775
Sales commission		3,071,640			3,224,415			6,173,680			6,474,980

Total revenues		14,321,971			11,302,842			28,171,434			22,220,755
Cost of goods sold		(5,249,225	)		(4,136,219	)		(9,697,001	)		(8,032,651	)

Gross profit		9,072,746			7,166,623			18,474,433			14,188,104

Operating expenses
Selling and marketing		192,347			201,890			386,282			405,539
General and administrative		96,162			79,799			219,716			165,580

Total operating expenses		288,509			281,689			605,998			571,119

Operating income		8,784,237			6,884,934			17,868,435			13,616,985

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (UNAUDITED) (continued)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (IN U.S. $)

	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012

Other income and expenses
Other non-operating income	$	138,277		$	287,990		$	282,622		$	462,853
Other non-operating (expense)		-			(87,380	)		-			(88,542	)

Total other income		138,277			200,610			282,622			374,311

Income before income taxes		8,922,514			7,085,544			18,151,057			13,991,296
Provision for income taxes		2,218,138			1,764,705			4,364,279			3,598,129

Net income before noncontrolling interests		6,704,376			5,320,839			13,786,778			10,393,167
Noncontrolling interests		(68,771	)		(48,368	)		(134,696	)		(102,314	)

Net income attributable to common stockholders		6,635,605			5,272,471			13,652,082			10,290,853

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (UNAUDITED) (continued)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (IN U.S. $)

	Three Months Ended December 31,				Six Months Ended December 31,
	2013		2012		2013		2012

Other comprehensive income:
Foreign currency translation adjustment		468,467		100,899		895,841		109,751

Total comprehensive income	$	7,104,072	$	5,373,370	$	14,547,923	$	10,400,604

Earnings per common share, basic and diluted	$	0.12	$	0.10	$	0.26		0.19

Weighted average shares outstanding, basic and diluted		53,100,000		53,100,000		53,100,000		53,100,000

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 (UNAUDITED) (IN U.S. $)

		Common Stock		Additional Paid-in Capital		Retained Earnings		Statutory Reserve Fund		Noncontrolling Interests		Other Comprehensive Income		Total

Balance, June 30, 2013	$	53,100	$	5,851,170	$	57,923,943	$	792,174	$	635,222	$	3,337,635	$	68,593,244
Net income		-		-		13,652,082		-		134,696		-		13,786,778
Other comprehensive income		-		-		-		-		-		895,841		895,841

Balance, December 31, 2013 (unaudited)	$	53,100	$	5,851,170	$	71,576,025	$	792,174	$	769,918	$	4,233,476	$	83,275,863

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (IN U.S. $)

	2013			2012

Cash flows from operating activities
Net income before noncontrolling interests	$	13,786,778		$	10,393,167
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,083,596			765,542
Deferred income taxes		4,364,279			3,598,129
Loss from sale of biological assets		-			114,950
Change in operating assets and liabilities
(Increase) in accounts receivable		(450,720	)		(323,332	)
(Increase) in inventories		(306,336	)		(528,399	)
(Increase) in prepaid expenses		(21,093	)		(193,862	)
Decrease in prepaid land lease		155,484			231,900
Decrease in interest receivable		24,881			216,329
Increase in accrued expenses and other payables		58,978			15,053

Net cash provided by operating activities		18,695,847			14,289,477

Cash flows from investing activities
Collection of notes receivable		934,223			895,596
Proceeds from sales of biological assets		7,642			65,926
Purchase of property, plant and equipment		-			(143,081	)
(Increase) in biological assets		(3,912,396	)		(3,496,018	)

Net cash (used in) investing activities		(2,970,531	)		(2,677,577	)

Cash flows from financing activities
Proceeds from stockholder loans		145,275			84,100
Repayment of stockholder loans		(1,161	)		(37,462	)

Net cash provided by financing activities		144,114			46,638

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012 (IN U.S. $)

	2013		2012

Effect of exchange rate changes on cash		716,279		79,115

Net increase in cash		16,585,709		11,737,653
Cash, beginning of period		25,147,474		16,941,737

Cash, end of period	$	41,733,183	$	28,679,390

Supplemental disclosure of cash flow information

Cash paid for income taxes	$	-	$	-

Cash paid for interest	$	-	$	-

See accompanying notes to the consolidated financial statements.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

1. ORGANIZATION

China Modern Agricultural Information, Inc. (the “Company”), formerly known as Trade Link Wholesalers, Inc. (“Trade Link”), was incorporated on December 22, 2008 under the laws of the State of Nevada. On April 4, 2011, the Board of Directors of Trade Link filed an amendment to the Certificate of Incorporation with the State of Nevada to effect the name change from Trade Link to China Modern Agricultural Information, Inc.

On January 28, 2011, Trade Link entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) Value Development Holdings, Ltd. (“Value Development”), a British Virgin Islands company, (“BVI”) (ii) Value Development’s stockholders, (iii) Trade Link, and (iv) Trade Link’s principal stockholders. Pursuant to the terms of the Exchange Agreement, Value Development and the Value Development stockholders transferred to Trade Link all of the shares of Value Development in exchange for the issuance of 35,998,000 shares of Trade Link’s common stock as set forth in the Exchange Agreement, so that the Value Development stockholders owned 87.80% of Trade Link’s outstanding shares (the “Share Exchange”).

On January 28, 2011, Value Development through its wholly owned 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 entered into 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 all management responsibilities of 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, titles and equity interest in Zhongxian Information as security for the collection of consulting and service fees provided through an Equity Pledge Agreement.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

1. ORGANIZATION (CONTINUED)

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

At the closing of the Share Exchange, Trade Link cancelled 5,500,000 shares of its common stock previously held by previous principal stockholders.

The share exchange 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 and its subsidiaries (the accounting acquirer). 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”) are 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 of Shuangzhi Yulong Co., Ltd. (“Yulong Cattle”) from Yulong Cattle’s original stockholders for consideration of 9,000,000 shares of the Company’s common stock and cash consideration of $4,396,000.

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

1. ORGANIZATION (CONTINUED)

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change of Reporting Entity and Basis of Accounting and Presentation

The reverse acquisition described in Note 1 was treated as recapitalization of the Company. As such, China Modern Agricultural Information, Inc. is the continuing entity for financial reporting purposes. Securities and Exchange Commission (“SEC”) Manual Item 2.6.5.4 “Reverse Acquisitions” requires that “in a reverse acquisition, the historical shareholder’s equity of the accounting acquirer prior to the merger is retroactively reclassified (a recapitalization) for the equivalent number of shares received in the merger after giving effect to any difference in par value of the registrant’s and the accounting acquirer’s stock by an adjustment to additional paid-in capital.” Therefore, the consolidated financial statements have been prepared as if Value Development and its subsidiaries had always been the reporting company and then on the reverse acquisition date, had changed its name and reorganized its equity.

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

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the financial statements of China Modern Agricultural Information, Inc. and its subsidiaries, Value Development, Value Development Group Limited, Jiasheng Consulting, and its VIE, Zhongxian Information and their 99% owned subsidiary, Xinhua Cattle and its 100% owned subsidiary, Yulong Cattle from November 23, 2011, the date of acquisition. The Company is the primary beneficiary of the VIE and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Change of Reporting Entity and Basis of Accounting and Presentation (Continued)

Zhongxian Information and its subsidiaries (collectively, the “Chinese VIE”) have no assets that are collateralized 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, 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.

The unaudited interim consolidated financial statements of the Company as of December 31, 2013 and for the three and six months ended December 31, 2013 and 2012, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K filed with the SEC. The results of operations for the three and six months ended December 31, 2013 are not necessarily indicative of the results to be expected for future quarters or for the year ending June 30, 2014.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translations

All Company assets are located in People’s Republic of China (“PRC”). The functional currency for the majority of the Company’s operations is the 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 (loss) (“OCI”).

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

	December 31, 2013		June 30, 2013

Balance sheet items, except for stockholders’ equity, as of period end		0.1636		0.1616

	For the three months ended December 31,				For the six months ended December 31,
	2013		2012		2013		2012

Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period		0.1632		0.1579		0.1626		0.1584

Foreign currency translation adjustments of $468,467 and $100,899, for the three months ended December 31, 2013 and 2012, respectively, and $895,841 and $109,751, for the six months then ended, respectively, have been reported as other comprehensive income in the consolidated statements of income and other comprehensive income. Other comprehensive income of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translations (Continued)

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

The value of 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 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.

Milk sales revenue is recognized when the title to the goods 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 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.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Vulnerability Due to Operations in PRC

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

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

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

Fair Value of Financial Instruments

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

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

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

Level 3 Inputs – Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements.

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments (Continued)

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

Advertising Costs

Advertising costs are charged to operations when incurred. No advertising costs were incurred for the three and six months ended December 31, 2013 and 2012.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required. Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at December 31, 2013 and June 30, 2013, 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.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

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

The Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances, if any. There was no allowance for excessive or unusable inventories as of December 31, 2013 and June 30, 2013.

Prepaid Expenses

Prepaid expenses as of December 31, 2013 and June 30, 2013 mainly represent the prepayments of approximately $320,000 for consulting services.

Prepaid Land Lease

Prepaid land lease represents the prepayment of $22,250,582 for grassland rental (see Note 7).

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or 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.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant and Equipment (Continued)

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

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 future undiscounted cash flows attributable to the asset. No impairment of long-lived assets was recognized for the three and six months ended December 31, 2013 and 2012.

Biological Assets

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

Immature Biological Assets

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Biological Assets (Continued)

Mature Biological Assets

Mature biological assets are recorded at their original purchase price or weighted average immature biological assets 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 is removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. For the three months ended December 31, 2013 and 2012, losses of $1,404 and $0, respectively, and losses of $3,151 and $0 for the six months then ended, respectively are included in the cost of goods sold in the accompanying consolidated statements of income and other comprehensive income.

The Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current health status and production capacity. There were no impairment losses recorded during the three and six months ended December 31, 2013 and 2012.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to the undistributed earnings of the Company’s subsidiary under PRC law. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Zhongxian Information is subject to the tax rate of 25% for the earnings when distributed by Xinhua Cattle and Yulong Cattle. At December 31, 2013 and June 30, 2013, undistributed earnings allocated to Zhongxian Information were approximately $98,500,000 and $79,800,000, respectively.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with uncertain tax positions. As of December 31, 2013 and June 30, 2013, the Company does not have a liability for any uncertain tax positions.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (Continued)

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

United States

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three and six months ended December 31, 2013 and 2012.

BVI

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

Hong Kong

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

PRC

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Share

The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”) and SEC SAB 98. Under the provisions of ASC 260 and SAB 98, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no dilutive shares outstanding during the three and six months ended December 31, 2013 and 2012.

Statutory Reserve Fund

Pursuant to corporate law of the PRC, 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 the its registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the registered capital. As of December 31, 2013 and June 30, 2013, the applicable statutory reserve funds are fully funded.

Reclassifications

Certain amounts in the prior year’s financial statements have been reclassified for comparative purposes to conform to the presentation in the current period’s financial statements. These reclassifications had no effect on previously reported earnings.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

3. RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this pronouncement did not have a material effect on the consolidated financial statements.

On March 5, 2013, the FASB issued ASU 2013-05 to provide guidance for whether to release cumulative translation adjustments (“CTA”) upon certain derecognition events. The update was issued to resolve the diversity in practice about whether Subtopic ASC 810-10, “Consolidation-Overall,” or ASC 830-30, “Foreign Currency Matters-Translation of Financial Statements,” applies to such transactions. ASU 2013-05 is effective prospectively for all entities with derecognition events after the effective date. For public entities, the guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2013. ASC 830-30 applies when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Consequently, the CTA is released into net income only if the transaction results in complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resided. Otherwise, no portion of the CTA is released. The adoption of this pronouncement is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

	December 31, 2013			June 30, 2013

Machinery and equipment	$	419,062		$	413,940
Automobiles		105,940			104,645
Building and building improvements		4,276,198			4,223,920

		4,801,200			4,742,505
Less: accumulated depreciation		(1,140,129	)		(976,409	)

Property, plant and equipment, net	$	3,661,071		$	3,766,096

Depreciation expense charged to operations for the three months ended December 31, 2013 and 2012 was $75,678 and $74,587, respectively, and was $150,708 and $130,384, for the six months then ended, respectively.

5. BIOLOGICAL ASSETS

Biological assets consist of the following:

	December 31, 2013			June 30, 2013

Immature biological assets	$	17,202,961		$	14,628,840
Mature biological assets		15,635,565			13,930,630

		32,838,526			28,559,470
Less: accumulated depreciation		(3,544,953	)		(2,574,466	)

Biological assets, net	$	29,293,573		$	25,985,004

Depreciation expense for three months ended December 31, 2013 and 2012 was $475,945 and $347,085, respectively, and was $932,888 and $635,158 for the six months then ended, respectively, all of which was included in cost of goods sold in the consolidated statements of income and other comprehensive income.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

6. NOTES RECEIVABLE

Notes receivable are related to the sales of cows (mature biological assets) to local farmers. Xinhua Cattle sold 3,787, 5,635, and 2,000 of its cows to local farmers in September 2011, August 2011, and June 2011, respectively. The cost and accumulated depreciation were removed from the accounts and a gain was recognized.

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 per year. The related receivable is recorded at its present value at a discount rate of 12%, which was commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk. Pursuant to the agreements signed in August and September 2011, the sales price will be collected in monthly installments plus interest at 7% on any outstanding balance, over the remaining useful lives of the cows, which range from three to eight years. Local farmers are required to pay 30% of their monthly milk sales generated from the cows sold to the farmers. The required 30% monthly payments are to be applied first to the monthly installment of principal and interest 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 will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. During the three months ended December 31, 2013 and 2012, the Company received principal and interest payments of $508,965 and $691,111, respectively, and $1,021,725 and $1,266,650 for the six months then ended, respectively. Commission income for the three months ended December 31, 2013 and 2012, was $2,520,021 and $3,011,439, respectively, and $5,073,036 and $5,674,314 for the six months then ended, respectively, under these two agreements.

The receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of December 31, 2013 and June 30, 2013. The related commission receivable of $1,038,414 and $1,022,905 at December 31, 2013 and June 30, 2013, respectively, is included in accounts receivable in the consolidated balance sheets. Commission income of $3,062,072 and $3,224,415, respectively, and $6,164,112 and $6,474,980, respectively, is included in revenues in the consolidated statements of income and other comprehensive income for the three and six months ended December 31, 2013 and 2012, respectively.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

6. NOTES RECEIVABLE (CONTINUED)

Notes receivable at December 31, 2013 and June 30, 2013 consists of the following:

	December 31, 2013			June 30, 2013

Notes receivable	$	7,156,077		$	8,052,963
Less: discount for interest		(178,282	)		(231,994	)

		6,977,795			7,820,969
Less: current portion		(1,896,704	)		(1,856,954	)

Non-current portion	$	5,081,091		$	5,964,015

Future maturities of notes receivable as of December 31, 2013 are as follows:

Year Ending December 31,	Annual Amount

2014	$	1,896,704
2015		1,932,253
2016		1,775,748
2017		661,242
2018		632,758
Thereafter		79,090

	$	6,977,795

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 collectibility of individual balances, it will provide an allowance, if necessary.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

7. LEASES

On September 12, 2011, the Company entered into a lease agreement for one of its offices under an operating lease with a monthly rental of $2,369, which expired on September 30, 2012 and was not renewed.

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

All land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right” to use a track of land of 250,000 square meters at no cost for the period from December 2, 2005 to 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 effective from May 1, 2013 to April 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 $6,053,200 and $6,039,800 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2013 and June 30, 2013, respectively. The lease provides for renewal options. Pursuant to the lease, the Company has the right to occupy and use the land leased during the lease term.

On October 9, 2011, the Company entered into an operating lease, effective 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 $3,803,700 and $3,999,600 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2013 and June 30, 2013, respectively. The lease provides for renewal options. Pursuant to the lease, the Company has the right to occupy, use, and transfer the land leased during the lease term.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

7. LEASES (CONTINUED)

On February 25, 2013, the Company obtained another “land use right” to use 427,572 square meters of land, effective from March 1, 2013 to February 28, 2063. The Company recorded the prepayment of RMB 77,040,000 (US$12,450,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method. The remaining prepayment of $12,393,682 and $12,366,666 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2013 and June 30, 2013, respectively. The lease provides for renewal options. Pursuant to the lease, the Company has the right to occupy and use the land leased during the lease term.

Rent expense charged to operations for the three months ended December 31, 2013 and 2012 was $215,071 and $0, respectively, and was $430,142 and $7,128 for six months then ended.

8. RELATED PARTY TRANSACTIONS

The Company obtained demand loans from one of its stockholders which are non-interest bearing. The loans of $534,924 and $385,156 as of December 31, 2013 and June 30, 2013, respectively, are reflected as stockholder loans in the consolidated balance sheets.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

9. INCOME TAXES

The provision for income taxes consisted of the following for the three and six months ended December 31:

	Three Months Ended December 31,				Six Months Ended December 31,
	2013		2012		2013		2012

Current	$	-	$	-	$	-	$	-
Deferred		2,218,138		1,764,705		4,364,279		3,598,129

	$	2,218,138	$	1,764,705	$	4,364,279	$	3,598,129

The following table reconciles the effective income tax rates with the statutory rates for the three months ended December 31:

	2013			2012

As calculated at the statutory rate		25.00	%		25.00	%
Other		(0.14	%)		(0.09	%)

Effective income tax rate		24.86	%		24.91	%

The following table reconciles the effective income tax rates with the statutory rates for the six months ended December 31:

	2013			2012

As calculated at the statutory rate		25.00	%		25.00	%
Other		(0.96	%)		0.72	%

Effective income tax rate		24.04	%		25.72	%

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

CHINA MODERN AGRICULTURAL INFORMATION, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

DECEMBER 31, 2013 AND 2012 (UNAUDITED)

9. INCOME TAXES (CONTINUED)

The laws of China permit the carry forward of net operating losses for a period of five years. Undistributed earnings from Xinhua Cattle and Yulong Cattle are not taxable until such earnings are actually distributed.

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

	December 31, 2013			June 30, 2013

Net operating loss carryforwards	$	326,986		$	291,041
Bargain purchase gain		(1,430,399	)		(1,430,399	)
Undistributed earnings of subsidiaries under PRC law		(24,667,521	)		(19,979,946	)

Net deferred tax (liabilities)	$	(25,770,934	)	$	(21,119,304	)

At December 31, 2013 and June 30, 2013, Zhongxian Information had an unused operating loss carry-forward of approximately $1,308,000 and $1,164,000, respectively, expiring in various years through 2018.

The Company’s tax filings are subject to examination by the tax authorities. The tax years from 2007 to 2012 remain open to examination by tax authorities in the PRC. The Company’s U.S. tax returns are generally not subject to examination by the tax authorities for tax years before 2010.

10. CONCENTRATION OF CREDIT RISK

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

Five customers for the sale of milk accounted for approximately 100% of milk sales for the three and six months ended December 31, 2013 and 2012, respectively. The same five customers also accounted for approximately 78% and 77% of accounts receivable at December 31, 2013 and June 30, 2013, respectively.

Thirty nine farmers accounted for the notes receivable at December 31 and June 30, 2013.

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

The following is a discussion and analysis of the results of operations and financial condition of the Company for the three months and six months ended December 31, 2013 and 2012. Such discussion and analysis should be read in conjunction with our interim consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this quarterly report.

Overview

We are a leading producer and distributor of raw fresh milk in China. We operate our business in China through, our variable interest entity, Zhongxian Information and its two subsidiaries, Xinhua Cattle and Yulong Cattle. We are capable of producing approximately 207 tons fresh milk a day and, our 39 exclusive partners expand our daily production capacity by approximately 245 tons. As a by-product of the fresh milk production, we also make and sell organic fertilizer. In June 2011, in addition to fresh milk and organic fertilizer, we started to sell our milk cows to local farmer in exchange for monthly payments from the local farmers, which represent either installment payment including interest for milk cow purchase price, or a mix of purchase price and commissions for our assistance in selling fresh milk produced by local farmers.

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 securities exchange agreement by and among (i) Value Development, a British Virgin Islands company, (ii) Value Development’s shareholders, (iii) us, and (iv) our former principal stockholders. Pursuant to the terms of such 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, representing approximately 87.8% of our outstanding common stock immediately after the consummation of the securities exchange. As a result of the securities exchange, Value Development became our wholly-owned subsidiary and Value Development’s former principal stockholder became our principal stockholder.

On January 28, 2011, Value Development acquired Jiasheng Consulting. Jiasheng Consulting has a series of contractual arrangements with Zhongxian Information, of which Mr. Zhengxin Liu, our Chief Human Resource Officer holds 62% equity interest, and Mr. Youliang Wang, our Chief Executive Officer holds 38% equity interest. Pursuant to the contractual arrangements, Jiasheng Consulting has the managerial power of Zhongxian Information. The contractual arrangements consist of a shareholder voting rights proxy agreement, exclusive consulting and services agreement, exclusive call option agreement and equity pledge agreement. Pursuant to the exclusive consulting and services agreement, 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. Pursuant to the equity pledge agreement, Zhongxian Information’s stockholders pledged their rights, titles and equity interest in Zhongxian Information as security for the collection of such consulting and services fees provided in that certain equity pledge agreement.

Zhongxian Information was incorporated in China in January 2005. In February 2006, Zhongxian Information acquired 99% equity interest of Xinhua Cattle, a company incorporated in China in December 2005. Xinhua Cattle, located in Qiqihar, Heilongjiang Province, in northeast China, engages in cow breading and fresh milk productions.

On November 23, 2011, Zhongxian Information acquired 100% of the equity interest of Yulong Cattle in exchange for (i) issuance of 9,000,000 shares of our common stock, and (ii) a cash payment of $4,396,000, 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 March 16, 2012, the Board of Directors adopted the China Modern Agricultural Information, Inc. Stock Incentive Plan (the “Plan”). The purpose of the Plan was to attract, motivate and retain top-quality directors, officers, employees, consultants, advisers and independent contractors, provide substantial incentives, to act in the best interests of the stockholders of the Company and to reward extraordinary effort. The awards under the Plan may be in the form of stock options, restricted stock, restricted stock units or performance share units. The total number of shares of Stock reserved for distribution under the Plan was 3,000,000.

On April 16, 2012, we granted 3,000,000 shares of restricted stock under the Plan to our employees and the shares were issued on April 27, 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 year ended June 30, 2012. There are currently no shares available to be issued.

Recent Development

Bulk sales of milk cows

In June 2011, we sold 2,000 milk cows to six local farmers with the purchase price being paid in installments over a five-year period with a minimum payment of 20% of the sales price annually. No down payment was made by the farmers for these sales in June 2011. In August 2011, after initial negotiation and subsequent modification of sales terms, we sold 5,635 milk cows to 20 local farmers with a 10% down payment plus monthly installments with interest at 7% on any remaining principal payment over a period of the remaining useful life of the cows sold. In September 2011, we also sold 3,787 milk cows to 13 local farmers with monthly installments over a period of the remaining useful life of the cows sold with no down payment. The receivables related to the sales of these all cows is included in notes receivable in the accompanying consolidated balance sheets as of December 31, 2013 and June 30, 2013. In addition to monthly installments for the purchase price of the cows sold, these local farmers who bought our cows in August and September 2011 also pay commissions to us each month for our assistance in arranging for the sale of their milk. Pursuant to the agreements with these local farmers entered in August and September 2011, we are entitled to 30% of the monthly milk sales generated by the cows sold. The 30% monthly payments represent the monthly installments for the purchase price of cows sold and commissions for our assistance in arranging for the sale of the milk. We also entered into agreements with local farmers for a 30% commission of their monthly milk sales generated by the cows sold in June 2011. At December 31, 2013, we had 18,655 cows, among which, 13,633 cows are reared by local farmers, 400 cows are reared by our variable interest entity Xinhua Cattle, and 4,622 cows are reared by Yulong Cattle.

Starting the quarter ended September 30, 2011, the food costs for feeding cows increased significantly. The food costs paid to the farmers for feeding cows per month increased from $32 to $46 for baby cows, $46 to $57 for pre-adult cows, $49 to $62 for young cows, and $73 to $88 for adult cows, respectively. The feeding fee also increased from $4.90 to $8.10 per baby cow, $8.10 to $11.30 per pre-adult cow, $13.00 to $16.20 per young cow and $29.20 to $32.40 per adult cow. 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 provides us with a new revenue stream with relatively low direct costs after the local farmers assumed the milk production function.

Factors Affecting our Results of Operations

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

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

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

o Raw Material Supply and Prices. The per unit cost of fresh milk is impacted by price volatility of our raw material and feeding expenses in the China markets. In response to the increased cost, we leased the 16,666,750 square meters grassland in October 2011 and 427,572 square meters land in February 2013. In addition, we leased 250,000 square meters of land in May 2013. We believe that the hay production of this grassland can satisfy our raw material demand and lower our feeding cost.

Results of Operations

The following tables present certain consolidated statements of income and other comprehensive income information. Financial information is presented for the three and six months ended December 31, 2013 and 2012.

Comparison of Three and Six Months Ended December 31, 2013 and 2012

The following table sets forth certain information regarding our results of operations for the three months ended December 31, 2013 and 2012.

	For the three months ended December 31,
							Change
	2013			2012			Amount			%
Revenue	$	14,321,971		$	11,302,842		$	3,019,129			27	%
Cost of goods sold		(5,249,225	)		(4,136,219	)		(1,113,006	)		27	%
Gross profit		9,072,746			7,166,623			1,906,123			27	%
Operating expenses		288,509			281,689			6,820			2	%
Operating income/(loss)		8,784,237			6,884,934			1,899,303			28	%
Other income and expenses		138,277			200,610			(62,333	)		(31	%)
Income before income tax		8,922,514			7,085,544			1,836,970			26	%
Provision for income tax		2,218,138			1,764,705			453,433			26	%
Net income before noncontrolling interests		6,704,376			5,320,839			1,383,537			26	%
Noncontrolling interests		(68,771	)		(48,368	)		(20,403	)		42	%
Net income attributable to common stockholders’	$	6,635,605		$	5,272,471		$	1,363,134			26	%

The following table sets forth certain information regarding our results of operations for the six months ended December 31, 2013 and 2012.

	For the six months ended December 31,
							Change
	2013			2012			Amount			%
Revenue	$	28,171,434		$	22,220,755		$	5,950,679			27	%
Cost of goods sold		(9,697,001	)		(8,032,651	)		(1,664,350	)		21	%
Gross profit		18,474,433			14,188,104			4,286,329			30	%
Operating expenses		605,998			571,119			34,879			6	%
Operating income/(loss)		17,868,435			13,616,985			4,251,450			31	%
Other income and expenses		282,622			374,311			(91,689	)		(24	%)
Income before income tax		18,151,057			13,991,296			4,159,761			30	%
Provision for income tax		4,364,279			3,598,129			766,150			21	%
Net income before noncontrolling interests		13,786,778			10,393,167			3,393,611			33	%
Noncontrolling interests		(134,696	)		(102,314	)		(32,382	)		32	%
Net income attributable to common stockholders’	$	13,652,082		$	10,290,853		$	3,361,229			33	%

Revenues

The revenue was primarily generated from sales of fresh milk and commissions on fresh milk sales by famers to whom we sold cows. We had total revenues of $14,321,971 and $28,171,434 for the three and six months ended December 31, 2013, respectively, an increase of $3,019,129 or 27% and $5,950,679 or 27%, compared to $11,302,842 and $22,220,755 for the three and six months ended December 31, 2012, respectively. Such increases were directly related to an increase of 2,562 in the number of our milk cows compared to the same period in 2012. Additionally, we believe that the acquisition of Yulong Cattle in November 2011 has continued to drive the increases of our total revenue.

The following table shows a breakdown of revenue from natural milk sales and sales commission, respectively, for the three months ended December 31, 2013 and 2012:

	For the three months ended December 31,
					Change
	2013		2012		Amount			%
Sales of natural milk	$	11,250,331	$	8,078,427	$	3,171,904			39	%
Sales commission		3,071,640		3,224,415		(152,775	)		(5	%)
Total revenue	$	14,321,971	$	11,302,842	$	3,019,129		$	27	%

The following table shows a breakdown of revenue from natural milk sales and sales commission, respectively, for the six months ended December 31, 2013 and 2012:

	For the six months ended December 31,
					Change
	2013		2012		Amount			%
Sales of natural milk	$	21,997,754	$	15,745,775	$	6,251,979			40	%
Sales commission		6,173,680		6,474,980		(301,300	)		(5	%)
Total revenue	$	28,171,434	$	22,220,755	$	5,950,679			27	%

For the three months ended December 31, 2013, our revenue generated from natural milk sales was $11,250,331 which represented an increase of $3,171,904 or 39% compared to $8,078,427 for the three months ended December 31, 2012. For the six months ended December 31, 2013, our revenue generated from natural milk sales was $21,997,754 which represented an increase of $6,251,979 or 40% compared to $15,745,775 for the six months ended December 31, 2012. Two factors are considered to have primary led to such increases: First, the average milk selling price increased from $0.55 per kg to $0.56 per kg, an increase of $0.01 per kg or 2%; Second, the number of our milk cows increased by 2,562 from the same period of 2012.

The following table sets forth information regarding the number of milk cows and the revenue per cow for the three months ended December 31, 2013 and 2012:

	For the three months ended December 31,
					Change
	2013		2012		Amount			%
Sales of natural milk	$	11,250,331	$	8,078,427	$	3,171,904			39	%
Average number of milk cows		9,209		6,585		2,624			40	%
Revenue from per milk cow	$	1,222	$	1,227	$	(5	)		-	%

The following table sets forth information regarding the number of milk cows and the revenue per cow for the six months ended December 31, 2013 and 2012:

	For the six months ended December 31,
					Change
	2013		2012		Amount			%
Sales of natural milk	$	21,997,754	$	15,745,775	$	6,251,979			40	%
Average number of milk cows		9,008		6,446		2,562			40	%
Revenue from per milk cow	$	2,442	$	2,443	$	(1	)		-	%

The revenue per milk cow was $1,222 for the three months ended December 31, 2013 compared to $1,227 for the three months ended December 31, 2012, a slight decrease of $5. The revenue per milk cow was $2,442 for the six months ended December 31, 2013 compared to $2,443 for the six months ended December 31, 2012, a slight decrease of $1. The average quantity of milk cows increased to 9,209 and 9,008 for the three and six months ended December 31, 2013, respectively, from 6,585 and 6,446 for the three and six months ended December 31, 2012, respectively, an increase of 2,624 or 40% and 2,562 or 40%, respectively.

However, the sales commissions from local farmers decreased by $152,775 or 5% to $3,071,640 for the three months ended December 31, 2013 from $3,224,415 for the three months ended December 31, 2012 and by $301,300 or 5% to $6,173,680 for the six months ended December 31, 2013 from $6,474,980 for the six months ended December 31, 2012. We believe that the daily production of the group of milk cows owned by local farmers have peaked and begun to decline.

Gross profit

Our cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation, water & electricity, etc. After the shift of milk production and distribution functions from us to local farmers, our direct costs have been reduced as a result of lowered feeding food costs and, we have seen a marked improvement in our margins comparing the past two years to 2011.

The following table sets forth information regarding the cost of goods sold and the cost per milk cow for the three months ended December 31, 2013 and 2012:

	For the three months ended December 31,
							Change
	2013			2012			Amount			%
Cost of goods sold	$	(5,249,225	)	$	(4,136,219	)	$	(1,113,006	)		27	%
Average number of milk cows		9,209			6,585			2,624			40	%
Cost per milk cow	$	570		$	628		$	(58	)		(9	)%

The following table sets forth information regarding the cost of goods sold and the cost per milk cow for the six months ended December 31, 2013 and 2012:

	For the six months ended December 31,
							Change
	2013			2012			Amount			%
Cost of goods sold	$	(9,697,001	)	$	(8,032,651	)	$	1,664,350）			21	%
Average number of milk cows		9,008			6,446			2,562			40	%
Cost per milk cow	$	1,076		$	1,246		$	(170	)		(14	%)

The cost per milk cow decreased to $570 for the three months ended December 31, 2013, which represented a decrease of $58 or 9% compared to $628 for the three months ended December 31, 2012. The cost per milk cow decreased to $1,076 for the six months ended December 31, 2013, which represented a decrease of $170 or 14% compared to $1,246 for the six months ended December 31, 2012. The decreases were due to the save in our cost when an increasing number of cows are fed by local farmers. As a result, the cost per milk cow decreased accordingly.

Gross profit margin

Our gross profit margin remained 63% for the three months ended December 31, 2013 and 2012. Our gross profit margin increased to 66% for the six months ended December 31, 2013 from 64% for the six months ended December 31, 2012. The main reason for such increase was the decrease in the feeding cost per milk cow.

Operating expenses

Our operating expenses increased to $288,509 for the three months ended December 31, 2013 from $281,689 for the three months ended December 31, 2012, an increase of $6,820 or 2%. Our operating expenses increased to $605,998 for the six months ended December 31, 2013 from $571,119 for the six months ended December 31, 2012, an increase of $34,879 or 6%. Our operating expenses primarily consist of human resource cost, depreciation, professional fees associated with filings required by the securities laws of the United States and business taxes, etc. We incurred $170,949 and $179,991, respectively, and $344,663 and $342,519, respectively, in business tax for the three and six months ended December 31, 2013 and 2012. We classified these business taxes as selling expenses, as part of operating expenses.

Operating income

As a result of the foregoing, we had operating income of $8,784,237 and 17,868,435 for the three and six months ended December 31, 2013, respectively, representing an increase of $1,899,303 or 22% and $4,251,450 or 24%, respectively, as compared to operating income of $6,884,934 and 13,616,985 for the three and six months ended December 31, 2012, respectively.

Non-operating income

For the three months ended December 31, 2013, non-operating income primarily consists of interest income of $138,277 on the outstanding notes receivable from the local farmers. For the three months ended December 31, 2012, non-operating income primarily consists of the interest income of $169,190 on the outstanding notes receivable from the local farmers and a government subsidy of $118,800, offset by loss incurred from disposing biological properties of $87,380. For the six months ended December 31, 2013, non-operating income primarily consists of interest income of $282,622 on the outstanding notes receivable from the local farmers. For the six months ended December 31, 2012, non-operating income primarily consists of the interest income of $344,053 on the outstanding notes receivable from the local farmers and a government subsidy of $118,800, offset by loss incurred from disposing biological properties of $88,542.

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 preferential policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax returns. The provision for income taxes was $2,218,138 and $1,764,705, respectively, and 4,364,279 and $3,598,129, respectively, for the three and six months ended December 31, 2013 and 2012, primarily representing enterprise income taxes on the income of Zhongxian Information. Net income before non-controlling interests was $6,704,376 and $5,320,839, respectively, and $13,786,778 and $10,393,167, respectively, for the three and six months ended December 31, 2013 and 2012, which represented an increase in $1,383,537 or 26% and $3,393,611 and 33%, respectively. In addition, we own 99% of Xinhua’s equity interest. As a result, net income attributed to the 1% minority interest shareholder was $68,771 and $48,368, respectively, and $134,696 and $102,314, respectively, for the three and six months ended December 31, 2013 and 2012; Net income attributed to the shareholders of our Company was $6,635,605 representing $0.12 per share and $5,272,471 representing $0.10 per share, respectively, and $13,652,082 representing $0.26 per share and $10,290,853 representing $0.19 per share for the three and six months ended December 31, 2013 and 2012, respectively.

Foreign Currency Translation Adjustment

Our reporting currency is the U.S. dollar. Our local currency, Renminbi, is our functional currency. All asset and liability accounts are translated using the exchange rate in effect at the balance sheet dates. Equity accounts are translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive income amounts are 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 three and six months ended December 31, 2013 and 2012, foreign currency translation adjustments of $468,467 and $100,899, respectively, and $895,841 and $109,751, respectively, have been reported as other comprehensive income in the consolidated statements of income and other comprehensive income.

Liquidity and Capital Resources

We had $41,733,183 and $25,147,474 in cash and net working capital of $48,761,348 and $31,591,367 at December 31, 2013 and June 30, 2013, respectively. At December 31, 2013 and June 30, 2013, we had no bank debt but funds owed to shareholders of $534,924 and $385,156, respectively. The amounts due to our stockholders were principally for the professional fees incurred for being a reporting company in the United States. Due to certain restrictions on overseas fund transfers, these amounts came mostly from personal bank accounts of our stockholders.

Operating activities

During the six months ended December 31, 2013, our operating activities provided $18,695,847 in net cash, compared to $14,289,477 during the six months ended December 31, 2012. The net cash provided in the six months ended December 31, 2013 was materially more than our net income, primarily a result of the increase in deferred income tax liabilities of $4,364,279.

Investing activities

During the six months ended December 31, 2013, our investing activities provided a cash outflow of $2,970,531 compared with a cash outflow of $2,677,577 for the six months ended December 31, 2012. The food costs and feeding expenses for immature biological properties used cash of $3,912,396 and $3,496,018 for the six months ended December 31, 2013 and 2012, respectively. Conversely, we received cash of $934,223 and $895,596 during the six months ended December 31, 2013 and 2012, respectively, from collecting notes receivable relating to the disposal of biological properties in 2011. Also, for the six months ended December 31, 2012 we spent $143,081 in purchasing property, plant and equipment.

Financing activities

Our financing activities mainly included receiving proceeds from stockholders and repayment to stockholders. For the six months ended December 31, 2013 and 2012, we received from stockholders $145,275 and $84,100, respectively. For the six months ended December 31, 2013 and 2012, we repaid $1,161 and $37,462 to our stockholders, respectively.

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

Critical Accounting Policies and Estimates

Basis of Accounting and Presentation

The consolidated financial statements of the Company as of December 31, 2013 and for the three and six months ended December 31, 2013 and 2012, 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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officers as appropriate, to allow timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of December 31, 2013, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms due to a material weakness related to the lack of accounting personnel with sufficient experience in maintaining books and records and preparing financial statements in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

Exhibit Number		Description

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

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

SIGNATURES

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

	CHINA MODERN AGRICULTURAL INFORMATION, INC.

Dated: February 14, 2014	By:	/s/ Wang Youliang
		Wang Youliang
		Chief Executive Officer (Principal Executive Officer)

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

China Modern Agricultural Information, Inc. - FORM 10-Q - February 14, 2014

Attached files

China Modern Agricultural Information, Inc. Reports