China Modern Agricultural Information 10-Q 2018 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended December 31, 2017

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

Commission File Number 000-54510

CHINA MODERN AGRICULTURAL INFORMATION, INC.

(Exact name of registrant as specified in its charter)
Nevada	27-2776002
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

No. A09, Wuzhou Sun Town

Limin Avenue, Limin Development District

Harbin, Heilongjiang, China, 150000

(Address of principal executive offices) (Zip Code)

(86) 0451-84800733

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The registrant had 53,100,000 shares of its common stock, par value $0.001 per share, outstanding at February 12, 2018.

CHINA MODERN AGRICULTURAL INFORMATION, INC.

QUARTERLY REPORT ON FORM 10-Q

December 31, 2017

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Mine Safety Disclosures	13
Item 5.	Other Information	13
Item 6.	Exhibits	13
	Signatures	14

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 Hope Diary, China Dairy, 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:

● “China Dairy” refers to China Dairy Corporation Ltd., a Hong Kong company;

● “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

● “Hope Diary” refers to Hope Diary Holdings Ltd., a British Virgin Islands company;

● “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;

● “Yulong Cattle” refers to Shangzhi Yulong Cattle Co., Ltd., a PRC company; and 

● “Zhongxian Information” refers to Heilongjiang Zhongxian Information Co., Ltd., a PRC company.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The following unaudited interim financial statements of China Modern Agricultural Information, Inc. (referred to herein as the “Company,” “we,” “us” or “our”) are included in this quarterly report on Form 10-Q:

China Modern Agricultural Information, Inc.

December 31, 2017 and 2016

INDEX TO FINANCIAL STATEMENTS

	PAGE
Consolidated Balance Sheets as of December 31, 2017 (unaudited) and June 30, 2017	F-1
Unaudited Consolidated Statements of Income and Other Comprehensive Income (Loss) for the three and six months ended December 31, 2017 and 2016	F-3
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended December 31, 2017	F-6
Unaudited Consolidated Statements of Cash Flows for the six months ended December 31, 2017 and 2016	F-7
Notes to Consolidated Financial Statements	F-9

1

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND JUNE 30, 2017 (IN U.S. $)

ASSETS	December 31, 2017		June 30, 2017
	(Unaudited)
Current assets
Cash	$	46,138,284	$	53,241,856
Accounts receivable		43,929,566		26,170,771
Inventories		1,481,899		1,042,171
Prepaid expenses		18,263,335		1,374,693
Interest receivable		1,212,275		1,023,769
Notes receivable, current portion		4,714,302		4,661,775
Total current assets		115,739,661		87,515,035
Property, plant and equipment, net		28,029,798		26,622,562
Other assets
Notes receivable		17,755,495		19,193,347
Prepaid leases		39,969,054		39,165,460
Biological assets, net		71,261,291		73,112,101
Total other assets		128,985,840		131,470,908
TOTAL ASSETS	$	272,755,299	$	245,608,505

See accompanying notes to the consolidated financial statements.

F-1

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED BALANCE SHEETS (CONTINUED)

December 31, 2017 AND JUNE 30, 2017 (IN U.S. $)

LIABILITIES AND stockholders’ EQUITY	December 31, 2017			June 30, 2017
	(Unaudited)
Current liabilities
Accrued expenses and other payables	$	456,460			888,271
Stockholder loans		2,112,268			1,918,341
Total current liabilities		2,568,728			2,806,612
Deferred income taxes		41,751,040			40,066,873
Total liabilities		44,319,768			42,873,485
Commitments and contingencies
Stockholders’ equity
Common stock, $0.001 par value; 75,000,000 shares authorized; 53,100,000 shares issued and outstanding		53,100			53,100
Additional paid-in capital		49,709,237			49,709,237
Retained earnings		71,895,436			62,878,009
Statutory reserve fund		420,406			420,406
Other comprehensive (loss)		(876,840	)		(9,402,310	)
Sub-total		121,201,339			103,658,442
Noncontrolling interests		107,234,192			99,076,578
Total stockholders’ equity		228,435,531			202,735,020
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	272,755,299		$	245,608,505

See accompanying notes to the consolidated financial statements.

F-2

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDEDDECEMBER 31, 2017 and 2016 (IN U.S. $) (UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
Revenues
Milk sales	$	30,228,162		$	25,089,800		$	58,810,640		$	51,283,205
Sales commission		3,710,260			4,510,324			8,274,518			8,333,329
Total revenues		33,938,422			29,600,124			67,085,158			59,616,534
Cost of goods sold		(26,412,857	)		(18,447,123	)		(47,826,902	)		(37,560,775	)
Gross profit		7,525,565			11,153,001			19,258,256			22,055,759
Operating expenses
Research and development		789,238			216,712			1,184,433			438,672
Selling and marketing		283,207			274,820			551,532			584,717
General and administrative		958,260			822,025			1,709,933			1,809,263
Reimbursement to farmers		-			-			4,156,560			-
Total operating expenses		2,030,705			1,313,557			7,602,458			2,832,652
Operating income	$	5,494,860		$	9,839,444		$	11,655,798		$	19,223,107

See accompanying notes to the consolidated financial statements.

F-3

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2017 and 2016 (IN U.S. $) (UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
Other income
Interest income on notes receivable	$	302,362		$	243,370		$	619,370		$	367,033
Gain on sale of cows		5,202,049			1,611,686			4,849,090			1,590,261
Other non-operating income		24,599			30,378			50,783			66,006
Total other income		5,529,010			1,885,434			5,519,243			2,023,300
Income before income taxes		11,023,870			11,724,878			17,175,041			21,246,407
Provision for income taxes		-			-			-			-
Net income before noncontrolling interests		11,023,870			11,724,878			17,175,041			21,246,407
Noncontrolling interests		(5,239,932	)		(5,562,910	)		(8,157,614	)		(10,087,015	)
Net income attributable to common stockholders	$	5,783,938		$	6,161,968		$	9,017,427		$	11,159,392

See accompanying notes to the consolidated financial statements.

F-4

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

AND OTHER COMPREHENSIVE INCOME (LOSS) (CONTINUED)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2017 and 2016 (IN U.S. $) (UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016
Other comprehensive income (loss):
Foreign currency translation adjustment	$	4,694,762		$	(7,239,656	)	$	8,525,470		$	(7,488,645	)
Total comprehensive income (loss) before noncontrolling interests		15,718,632			4,485,222			25,700,511			13,757,762
Comprehensive income attributable to noncontrolling interests		(5,239,932	)		(5,562,910	)		(8,157,614	)		(10,087,015	)
Net Comprehensive income (loss) attributable to common stockholders		10,478,700			(1,077,688	)		17,542,897			3,670,747
Earnings (loss) per common share, basic and diluted	$	0.11		$	0.12		$	0.17		$	0.21
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.

F-5

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OFchanges in Stockholders’EQUITY

FOR THESIX MONTHSENDEDDECEMBER 31, 2017 (IN U.S. $) (UNAUDITED)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Statutory Reserve Fund		Noncontrolling Interests		Other Comprehensive Income (loss)			Total
Balance, June 30, 2017	$	53,100	$	49,709,237	$	62,878,009	$	420,406	$	99,076,578	$	(9,402,310	)	$	202,735,020
Net income		-		-		9,017,427		-		8,157,614		-			17,175,041
Other Comprehensive income		-		-		-		-		-		8,525,470			8,525,470
Balance December 31, 2017 (Unaudited)	$	53,100	$	49,709,237	$	71,895,436	$	420,406	$	107,234,192	$	(876,840	)	$	228,435,531

See accompanying notes to the consolidated financial statements.

F-6

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THESIX MONTHSENDEDDECEMBER 31, 2017 AND 2016 (IN U.S. $) (UNAUDITED)

	2017			2016
Cash flows from operating activities
Net income	$	17,175,041		$	21,246,407
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation		4,072,794			3,688,868
Amortization for prepaid land lease		825,687			853,284
(Gain) from disposal of biological assets		(4,845,730	)		(1,613,232	)
Loss on disposal of PP&E		2,833			-
Change in operating assets and liabilities
(Increase) decrease in accounts receivable		(16,312,905	)		243,397
(Increase) decrease in inventories		(439,728	)		56,681
(Increase) in prepayment		(16,667,854	)		(349,271	)
(Increase) in interest receivable		(142,539	)		(355,934	)
(Decrease) increase in accrued expenses and other payables		(429,885	)		71,673
Net cash (used in) provided by operating activities		(16,762,286	)		23,841,873
Cash flows from investing activities
Collection of notes receivable		2,339,883			1,143,912
Proceeds from sales of biological assets		13,902,263			4,551,970
Purchase of property, plant and equipment		(1,540,341	)		(4,211,310	)
(Increase) in Biological assets		(6,873,290	)		(9,679,209	)
Purchase of biological property		-			(17,784,000	)
Net cash provided by (used in) investing activities		7,828,515			(25,978,637	)
Cash flows from financing activities
Dividends paid for subsidiary		-			(1,460,347	)
Proceeds from stockholder loans		72,456			56,679
Net cash provided by (used in) financing activities		72,456			(1,403,668	)

See accompanying notes to the consolidated financial statements.

F-7

China Modern Agricultural Information, Inc.

and subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THESIX MONTHs ENDEDDECEMBER 31, 2017 AND 2016 (IN U.S. $) (UNAUDITED)

	2017			2016
Effect of exchange rate changes on cash		1,757,743			(1,023,322	)
Net (decrease) in cash		(7,103,572	)		(4,563,754	)
Cash, beginning of year		53,241,856			30,780,198
Cash, end of year	$	46,138,284		$	26,216,444
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	-		$	-
Supplemental disclosure of non-cash activities:
Payment of accrued expenses by shareholder	$	70,000		$	75,000
Construction in Process not paid	$	-		$	-

See accompanying notes to the consolidated financial statements.

F-8

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

1. ORGANIZATION

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

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

On January 28, 2011, Value Development through its wholly subsidiaries, Value Development Group Limited completed the acquisition of Harbin Jiasheng Consulting Managerial Co. Ltd. (“Jiasheng Consulting” or “WFOE”), a holding company. Jiasheng Consulting has Variable Interest Entity (“VIE”) agreements with Mr. Liu Zhengxin, the Company’s Chief HR Officer, and Mr. Wang Youliang, the Company’s Chief Executive Officer, as well as with Heilongjiang Zhongxian Information Co., Ltd. (“Zhongxian Information”). Mr. Zhengxin holds a 62% equity interest in Zhongxian Information and Mr. Youliang holds a 38% equity interest in Zhongxian Information. Pursuant to the VIE agreement signed by Mr. Zhengxin and Mr. Youliang, Jiasheng Consulting now controls and performs all management responsibilities for Zhongxian Information. The contractual arrangements are comprised of a series of agreements, including a shareholder voting rights proxy agreement, exclusive consulting and service agreement, exclusive call option agreement and equity pledge agreement, through which Jiasheng Consulting has the right to provide exclusive and complete business support and technical and consulting services to Zhongxian Information for an annual fee in the amount of Zhongxian Information’s yearly net profits after tax. Additionally, Zhongxian Information’s stockholders have pledged their rights, title and equity interests in Zhongxian Information as security for the collection of consulting and service fees provided through an Equity Pledge Agreement.

F-9

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

1. ORGANIZATION (CONTINUED)

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

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

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

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

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

F-10

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

1. ORGANIZATION (CONTINUED)

 

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

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

F-11

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

1. ORGANIZATION (CONTINUED)

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

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

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

On September 16, 2015 the Company’s 60%-owned subsidiary, Harbin Jiasheng Consulting Management Co., Ltd. ("Jiasheng Consulting"), exercised its option to purchase all of the registered equity of the Company’s operating subsidiary, Heilongjiang

F-12

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

1. ORGANIZATION (CONTINUED)

Zhongxian Information Co., Ltd. ("Zhongxian Information") from its stockholders Zhengxin Liu and Youliang Wang, who are also the members of the Company’s Board of Directors, for RMB10,000 (approximately $1,554).

Prior to the acquisition, Jiasheng Consulting controlled Zhongxian Information through a series of contractual agreements, which made Zhongxian Information a variable interest entity, the effect of which was to cause the balance sheet and operating results of Zhongxian Information to be consolidated with those of Jiasheng Consulting in the Company’s financial statements. As a result of the acquisition by Jiasheng Consulting of the registered ownership of Zhongxian Information, the balance sheet and operating results of Zhongxian Information will hereafter continue to be consolidated with those of Jiasheng Consulting as its 100% owned subsidiary.

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

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

 

F-13

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

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

The unaudited consolidated financial statements of the Company as of December 31, 2017 and for the three and six months ended December 31, 2017 and 2016, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the year ended June 30, 2017, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three and six months ended December 31, 2017 are not necessarily indicative of the results to be expected for future quarters or for the year ending June 30, 2018.

F-14

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Variable Interest Entity

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

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

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

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

F-15

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translations

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

	December 31, 2017				June 30, 2017				December 31, 2016
	(Unaudited)								(Unaudited)
	RMB		A$		RMB		A$		RMB		A$
Balance sheet items, except for stockholders’ equity, as of period end		0.1537		0.7807		0.1469		0.7538		0.1440		0.7208
Amounts included in the statements of income, statement of changes in stockholders’ equity and statements of cash flows for the period		0.1506		0.7792		N/A		N/A		0.1482		0.7533

F-16

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translations (continued)

Foreign currency translation adjustments of $4,694,762 and $(7,239,656), respectively, $8,525,470 and $(7,488,645), respectively, for the three and six months ended December 31, 2017 and 2016, have been reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17,“Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

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

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

Revenue Recognition

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

F-17

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (continued)

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

Vulnerability Due to Operations in PRC

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

Use of Estimates

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

F-18

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments

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

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

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

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

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

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

F-19

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising costs are $116,408 and $3,732, respectively, $160,766 and $124,520, respectively, for the three and six months ended December 31, 2017 and 2016.

Cash and Cash Equivalents

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

Inventories

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

The Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances if any. There was no allowance for excessive or unusable inventories as of December 31, 2017 and June 30, 2017.

Prepaid Expenses

Prepaid expenses as of December 31, 2017 mainly represent the prepayments of approximately $17,360,871 for prepaid cow insurance expenses and R&D expenses. Prepaid expenses as of June 30, 2017 mainly represent the prepayment of approximately $1,375,000 for prepaid cow insurance expenses.

Prepaid Land Leases

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

F-20

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

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

In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company has 30 days credit term for its milk sales and usually receives the payment in the following month. The Company considers all accounts receivable at December 31, 2017 and June 30, 2017, to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.

On June 29, 2017, Xinhua Cattle entered into agreement with Longjiang Xiandai Farm (“Longjiang”) to purchase 4,000 adult cows at RMB 15,000 (approximately $2,255) per cow for a total price of RMB 60,000,000 (approximately $9,018,000). The purchase price was fully paid on the date of the delivery of the cows. Xinha Cattle immediately transfers all the cows to the 13 local farmers that entered agreement with prior for a total consideration of RMB68,000,000 (approximately $10,220,400). In October 2017, the sales of cows to the 13 farmers was terminated and all the cows were returned to Xinhua Cattle due to omasum impaction. As a result, Xinha Cattle paid a total of RMB27,600,000 (approximately $4,156,500) as reimbursement to farmers. Xinhua Cattle then entered into agreement with Longing, the seller of the cows, to return all the cows to Longing for a return of the full purchase amount of RMB60,000,000 (approximately $9,018,000) that was paid by Xinhua Cattle. The transactions, as well as the reimbursement that payable to farmers had been properly reflected on the accompanying consolidated financial statements. On October 23, 2017, Longjiang paid RMB 20,000,000 (approximately $3,074,000) to Xinhua Cattle. The outstanding balance from Longjiang is RMB 40,000,000 (approximate $6,148,000) as of December 31, 2017. (Also see Note 12).

F-21

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant and Equipment

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

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

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

Impairment of Long-lived Assets

The Company utilizes FASB ASC 360,“Property, Plant and Equipment” (“ASC 360”), which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company may recognize an impairment of a long-lived asset in the event the net book value of such asset exceeds the estimated future undiscounted cash flows attributable to the asset. No impairment of long-lived assets was recognized for the three and six months ended December 31, 2017 and 2016.

F-22

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Biological Assets

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

Immature Biological Assets

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

Mature Biological Assets

Mature biological assets are recorded at their original purchase price or the weighted average immature biological asset transfer cost. Depreciation is provided over the estimated useful life of eight years using the straight-line method. The estimated residual value is 10%. Feeding and management costs incurred on mature biological assets are included as cost of goods sold. When biological assets, including male cows, are retired or otherwise disposed of in the normal course of business, the cost and accumulated depreciation will be removed from the accounts and any resulting gain or loss will be included in the results of operations for the respective period. For the three and six months ended December 31, 2017, a gain of $5,672,781 and $5,650,270, respectively, on the sale of the adult cows is included in non-operating income (expenses) in the accompanying consolidated statements of income and other comprehensive income. (See Note 5)

The Company reviews the carrying value of its biological assets for impairment at least annually or whenever events and circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected from their use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss will be recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current health status and production capacity. There were no impairment losses recorded during the three and six months ended December 31, 2017 and 2016.

F-23

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740,“Income Taxes” (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to the undistributed earnings of the Company’s subsidiary under PRC law. Deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. At December 31, 2017 and June 30, 2017, undistributed earnings allocated to Zhongxian Information were approximately $242,300,000 and $224,700,000, respectively.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with uncertain tax positions. As of December 31, 2017, and June 30, 2017, the Company does not have a liability for any uncertain tax positions.

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

United States

The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three and six months ended December 31, 2017 and 2016.

F-24

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (Continued)

BVI

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

Hong Kong

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

PRC

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

Net Income (Loss) Per Share

The Company computes net income (loss) per common share in accordance with FASB ASC 260,“Earnings Per Share” (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for all periods reflected in the accompanying consolidated statements of income and other comprehensive income. There were no dilutive shares outstanding during the three and six months ended December 31, 2017 and 2016.

F-25

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Statutory Reserve Fund

Pursuant to the corporate law of the PRC, Jiasheng Consulting and the Company’s Chinese VIE and its subsidiaries are required to transfer 10% of their net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of its registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after such use is not less than 25% of the registered capital. As of December 31, 2017 and June 30, 2017, the required statutory reserve funds have been fully funded.

3. Recently Issued Accounting Standards

In August 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In June 2016, the FASB issued new authoritative accounting guidance on credit losses on financial instruments which replaces the incurred-loss impairment methodology. The new guidance requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. The standard is effective for the Company in the first quarter of 2020; however early adoption is permitted beginning in the first quarter of 2019. The Company is currently evaluating whether this standard will have a material impact on its financial statements.

F-26

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

3. Recently Issued Accounting Standards(CONTINUED)

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

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

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

F-27

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

3. Recently Issued Accounting Standards(CONTINUED)

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

4. Property, plant and equipment

Property, plant and equipment are summarized as follows:

	December 31, 2017			June 30,  2017
	(Unaudited)
Machinery and equipment	$	4,400,649		$	3,789,997
Automobiles		3,086,734			2,209,169
Building and building improvements		27,597,286			26,333,608
		35,084,669			32,332,774
Less: accumulated depreciation		(7,054,871	)		(5,710,212	)
Property, plant and equipment, net	$	28,029,798		$	26,622,562

Depreciation expense charged to operations for the three and six months ended December 31, 2017 and 2016 was $638,872 and $601,118, respectively, $1,255,136 and 1,216,792, respectively.

F-28

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

5. Biological assets

Biological assets consist of the following:

	December 31,  2017			June 30,  2017
	(Unaudited)
Immature biological assets	$	30,054,421		$	33,409,704
Mature biological assets		46,646,375			45,460,518
		76,700,796			78,870,222
Less: accumulated depreciation		(5,439,505	)		(5,758,121	)
Biological assets, net	$	71,261,291		$	73,112,101

Xinhua Cattle sold a total of 1,312 and 2,558 female calves to outside parties at a total price of RMB 5,248,000 (US $793,498) and RMB 10,232,000 (US $1,540,939), respectively in the three and six months ended December 31, 2017. The net value of these female calves was approximately RMB 8,656,766 (US $1,311,776) and RMB 16,248,991 (US $2,447,098), respectively.

In December 2017, Xinhua Cattle sold total 5,110 adult cows to three outside parties for a total price of RMB 79,989,000 (US $12,046,343). The net residual value of these adult cows was approximately RMB 41,300,500 (US $6,219,856). The gain from the disposal of these 4,110 adult cows was RMB 37,518,395 (US $5,650,270). Xinhua Cattle received total payment of RMB 15,997,880 (US $2,458,862) and the outstanding balance on the disposal of the 5,110 adult cows was RMB 63,991,200 (US $9,835,447) as of December 31, 2017.

Yulong Cattle sold 236 and 511 female calves to outside parties at a total price of RMB 944,000 (US $142,733) and RMB 2,044,000 (US $307,826), respectively, in the three and six months ended December 31, 2017. The net value of these female calves was approximately RMB 604,488 (US $91,399) and RMB 1,321,876 (US $199,075), respectively.

Depreciation expense for the three and six months ended December 31, 2017 and 2016 was $1,479,405 and $1,428,838, respectively, $2,817,658 and $2,472,076, respectively, all of which was included in cost of goods sold in the consolidated statements of income and other comprehensive income.

6. Notes Receivable

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

In June 2017, May 2017, December 2016, November 2016, September 2011, August 2011 and June 2011, Xinhua Cattle sold 4,000, 2,511, 130, 4,000, 3,787, 5,635, and 2,000 respectively of its cows to local farmers. 6,000 of the cows sold were purchased from outside parties for $13,407,000. The remaining cows sold were raised by Xinhua. In November 2016, November 2014 and December 2014, Yulong sold 4,317, 3,714 and 2,955 cows respectively, to local farmers. 5,500 of the cows sold were purchased from outside parties for $8,996,000. The remaining cows sold were raised by Yulong.

The Company had agreements with local farmers entered into June 2011, for their purchase of cows to be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The notes were recorded at their present value with a discount rate of12%, which was commensurate with interest rates for notes with similar risk. The Company also entered into agreements with these local farmers for a 30% commission of their monthly milk sales generated by the cows sold in exchange for the Company’s assistance in arranging for the sale of the milk. As of December 31, 2017, the farmers had fully repaid the principal payments.

F-29

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

6. Notes Receivable (continued)

Pursuant to agreements for the sale of cows signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay 30% of monthly milk sales generated from the cows purchased by the farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. The Company signed supplemental agreements with the farmers and reduced the pay rate to 20% since September 1, 2017.

Pursuant to the agreements signed in November 2016, December 2016 and May 2017, the sales price will be collected in monthly installments plus interest at 5% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay a 20% of monthly milk sales generated from the cows sold.

The 20% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for the Company’s assistance in arranging for the sale of the milk. While the 20% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price.

During the three and six months ended December 31, 2017 and 2016, the Company received principal and interest payments of $1,663,449 and $517,842, respectively, $2,816,714 and $1,155,011, respectively. Commission income for the three and six months ended December 31, 2017 and 2016, was $3,710,260 and $4,510,324, respectively, $8,274,518 and $8,333,329, respectively, under these agreements.

The receivable related to the sales of cows is included in notes receivable in the consolidated balance sheets as of December 31, 2017 and June 30, 2017. The related commission receivable of $5,659,686 and $7,206,564 at December 31, 2017 and June 30, 2017, respectively, is included in accounts receivable in the consolidated balance sheets.

Notes receivable at December 31, 2017 and June 30, 2017 consists of the following:

	December 31, 2017			June 30, 2017
	(Unaudited)
Notes receivable	$	22,469,797		$	23,855,122
Less: discount for interest		-			-
		22,469,797			23,855,122
Less: current portion		(4,714,302	)		(4,661,775	)
Non-current portion	$	17,755,495		$	19,193,347

F-30

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

6. Notes Receivable (continued)

Future maturities of notes receivable as of December 31, 2017 are as follows:

Year Ending December 31,
2018	$	4,714,000
2019		4,182,000
2020		3,745,000
2021		3,412,000
2022		2,824,000
Thereafter		3,592,000
	$	22,469,000

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

7.       LeaseS

All land in China is government owned and cannot be sold to any individual or company. The Company obtained a “land use right” to use a track of land of 250,000 square meters at no cost through December 1, 2015. On May 10, 2013, the Company, however, entered into an agreement with the municipality of Qiqihaer to obtain the “land use right” to use this land from May 1, 2013 to April 30, 2063. The Company recorded the prepayment of RMB 37,500,000 (US$6,060,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method. On June 22, 2017, the Company subleased 183,335 square meters land of the 250,000 square meter land to a forage production company at the price of RMB 25,300,000 (US $3,716,570). The remaining repayment of the 183,335 square meters land is RMB25,254,167 (US $3,709,837). There is a gain of the sublease of RMB 45,833 (US $6,733). The remaining prepayment of $1,393,547 and $1,352,083 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively. The lease provides for renewal options.

F-31

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

7. LeaseS (CONTINUED)

On October 9, 2011, the Company entered into an operating lease, from October 9, 2011 to October 8, 2021, with the municipality of Heilongjiang to lease 16,666,750 square meters of land. The lease required the Company to prepay the ten year rental of RMB 30,000,000 (US$4,686,000). The related prepayment of $1,729,125 and $1,880,625 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively. The lease provides for renewal options.

On February 25, 2013, the Company obtained another “land use right” to use 427,572 square meters of land, from March 1, 2013 to February 28, 2063. The Company recorded the prepayment of RMB 77,040,000 (US$12,450,000) as prepaid land lease. The prepaid lease is being amortized over the land use term of 50 years using the straight-line method.  The remaining prepayment of $10,481,492 and $10,378,572 is included in prepaid land lease in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively. The lease provides for renewal options.

On May 7, 2015, the Company obtained another “land use right” for 250,000 square meters of land, from May 7, 2015 to May 6, 2045. In addition, the Company also leased buildings on the land which includes cowsheds, an office building and a flat building. The lease period for these buildings is the same as the land. The Company recorded the prepayment of RMB 74,847,600 (US$12,058,000) as prepaid leases. The prepaid lease is being amortized over the lease term of 30 years using the straight-line method. The unamortized balance of $10,696,413 and $10,242,686 is included in prepaid leases in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively.

On May 14, 2015, the Company obtained another “land use right” to use 283,335 square meters of land, from May 14, 2015 to May 13, 2045. In addition, the Company also leased all the constructions on the land which includes cowsheds at 42,100 square meters, an office building at 3,000 square meters and a flat building at 3,000 square meters. The lease period of all these constructions is the same as the land. The Company recorded the prepayment of RMB 111,887,500 (US$18,260,000) as prepaid lease. The prepaid lease is being amortized over the lease term of 30 years using the straight-line method. The remaining prepayment of $15,668,477 and $15,311,494 is included in prepaid lease in the consolidated balance sheets as of December 31, 2017 and June 30, 2017, respectively.

Rent expense charged to operations for the three and six months ended December 31, 2017 and 2016 was $414,488 and $421,538, respectively, $825,687 and $853,284, respectively.

F-32

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

8. EMPLOYMENT AGREEMENTS

The Company had Employment Agreements with its executive officers and directors for a one year period with renewal options after expiration, with the current agreements expiring on June and August, 2017. For the three and six months ended December 31, 2017 and 2016, compensation under these agreements was $49,756 and $69,987, respectively, $103,797 and $135,996, respectively.

At December 31, 2017, the future commitment under these agreements is approximately $100,287.

9. Related party transactions

In July 2016 and April 2017, Xinhua Cattle contributed total net profit of $6,491,798 and $92,772, respectively, to Zhongxian Information and the 1% owned minority shareholder. The total represents the net profit of Xinhua Cattle for the years ended June 30, 2008 and 2007, January 2016 and February 2016.

In March 2015, Zhongxian Information and the Executive Chairman of the Company entered into a loan agreement pursuant to which the Executive Chairman provides a loan facility to Zhongxian Information, which is non-interest bearing and due on demand. The maximum amount of the loan is RMB 50,000,000 (US $7,845,000). The loans outstanding were $2,112,268 and $1,918,341 as of December 31, 2017 and June 30, 2017, respectively.

In 2012, CMCI issued 9,000,000 shares of common stock, valued at $0.34 per share, for a total of RMB 19,428,571 (US $3,060,000) to the shareholder of Yulong on behalf Zhongxian Information for the acquisition of Yulong. Zhongxian Information recorded the value of these shares as due to CMCI. China Dairy paid CMCI on June 29, 2016.

F-33

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

10. 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,
		2017		2016		2017		2016
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current	$	-	$	-	$	-	$	-
Deferred		-		-		-		-
	$	-	$	-	$	-	$	-

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

	2017			2016
	(Unaudited)			(Unaudited)
Statutory rate		25.00	%		25.00	%
Allowance		0.35	%		(0.32	%)
Tax exemption		(25.00	%)		(25.00	%)
Other		(0.35	%)		(0.32	%)
Effective income tax rate		-			-

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

F-34

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

10. Income taxes (continued)

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

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

	December 31,  2017			June 30,  2017
	(Unaudited)
Net operating loss carryforwards	$	562,492		$	520,965
Bargain purchase gain		(1,430,399	)		(1,430,399	)
Undistributed earnings of subsidiaries under PRC law upon VIE structure terminated		(40,320,641	)		(38,636,474	)
		(41,188,548	)		(39,545,908	)
Less valuation allowance		(562,492	)		(520,965	)
Net deferred tax (liabilities)	$	(41,751,040	)	$	(40,066,873	)

At December 31, 2017 and June 30, 2017, Zhongxian Information had unused operating loss carry-forwards of approximately $2,250,000 and $2,084,000, respectively, expiring in various years through 2020. The Company has established a valuation allowance of approximately $560,000 and $521,000 against the deferred tax asset related to the net operating loss carry forward at December 31, 2017 and June 30, 2017, due to the uncertainty of realizing the benefit.

The Company’s tax filings are subject to examination by the tax authorities. The tax years from 2010 to 2016 remain open to examination by tax authorities in the PRC. The Company’s U.S. tax returns are subject to examination by the tax authorities for tax years 2014, 2015 and 2016. The year ended June 30, 2013 was examined by the Internal Revenue Service and resulted in no adjustment.

F-35

China Modern Agricultural Information, Inc.

and subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THETHREE AND SIX MONTHS ended DECEMBER 31, 2017 AND 2016

(IN U.S. $) (UNAUDITED)

11. CONCENTRATION OF CREDIT RISK

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

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

Three customers accounted for approximately 100% and 98% of milk sales for the three months ended December 31, 2017 and 2016, respectively. Three customers and four customers accounted for approximately 100% and 99% of milk sales for the six months ended December 31, 2017 and 2016, respectively. Four customers accounted for approximately 65% and 72% of accounts receivable at December 31, 2017 and June 30, 2017, respectively.

Eighty-four farmers and ninety-two farmers accounted for the notes receivable at December 31, 2017 and June 30, 2017, respectively.

F-36

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

The following discussion and analysis of the results of operations and financial condition of the Company for the quarters ended December 31, 2017 and 2016. Such discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Quarterly Report.

Overview

We are a leading producer and distributor of raw fresh milk in China. We have two operating entities with an aggregate fresh milk production capacity of approximately 558 tons per day. We also have 84 exclusive individual partners as of December 31, 2017 with an aggregate fresh milk production capacity of approximately 522 tons per day. We have three major customers as of December 31, 2017.

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

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

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

Zhongxian Information was incorporated in China in January 2005 with registered capital of RMB 10,000,000 or $1,206,800 US Dollars. In February 2006, it acquired 99% of the registered capital of Heilongjiang Xinhua Cattle Industry Co., Ltd., a PRC company (“Xinhua Cattle”), which was incorporated in China in December 2005 with registered capital of RMB 3,000,000 or $371,580 US Dollars. Xinhua Cattle is located in Qiqihar, Heilongjiang Province, in northeast China and is a livestock company that engages in cow breeding and fresh milk production and distribution.

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

2

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

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

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

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

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

3

Our current structure is set forth below:

Factors Affecting Our Results of Operations

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

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

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

● Raw Material Supplies and Prices. The per unit cost of fresh milk is affected by price volatility of our raw materials and feeding expenses in the China markets. In response to the increased cost, we leased 16,666,750 square meters of grassland in October 2011, 427,572 square meters grassland in February 2013, and 521,336 square meters of grassland in May 2015. We believe that the hay production of this grassland can satisfy our raw material demand and lower our feeding cost.

● Change of operation method. We disposed a large number of adult cows to local farmers, introduced distribution channel to them and receive up to 30% (before September 1, 2017) of the farmers’ milk sales as a commission. It makes our performance is stably increased and we have enough production resources to feed more cows by ourselves. In addition, we signed with another 27 local farmers to feed 2,000 adult cows in May 2016 to increase our production resources.

Sale of Cows

We had agreements with local farmers entered into June 2011, for their purchase of cows to be collected over five years, with a minimum payment of 20% of the sales price to be paid each year. The notes were recorded at their present value with a discount rate of 12%, which was commensurate with interest rates for notes with similar risk. We 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 our assistance in arranging for the sale of the milk. As of September 30, 2017, the farmers had fully repaid the principal payments.

In May 2017, December 2016, November 2016, September 2011, August 2011, and June 2011, Xinhua Cattle sold 2,511, 130, 4,000, 3,787, 5,635, and 2,000 of its cows to local farmers, respectively. 2,000 of the cows sold were purchased from outside parties for $4,407,000. The remaining cows sold were raised by Xinhua. In November 2016, November2014 and December 2014, Yulong sold 4,317, 3,714 and 2,995 cows to local farmers respectively. 5,500 of the cows sold were purchased from outside unrelated parties for $8,996,000. The remaining cows sold were raised by Yulong.

4

Pursuant to agreements for the sale of cows signed in August 2011, September 2011, November 2014, and December 2014, the sales price will be collected in monthly installments plus interest at 7% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay 30% of monthly milk sales generated from the cows purchased by the farmers. The 30% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for our assistance in arranging for the sale of the milk. While the 30% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price. We signed supplemental agreements with the farmers and reduced the pay rate to 20% since September 1, 2017 due to the increased feeding costs.

Pursuant to the agreements signed in November 2016, December 2016 and May 2017, the sales price will be collected in monthly installments plus interest at 5% on the outstanding balance, over the remaining useful lives of the cows, which range from one to eight years. Local farmers are required to pay a 20% of monthly milk sales generated from the cows sold. The 20% monthly payments are to be applied first to the monthly installment of principal for the cows sold and the balance as commission income for our assistance in arranging for the sale of the milk. While the 20% rate and the amount applied to monthly installments for the purchase price of the cows remain the same, the amount of sales commission income will vary depending on total monthly milk sales and the progress of repayments towards the purchase price.

Xinhua Cattle sold a total of 1,312 and 2,558 female calves to outside parties at a total price of RMB 5,248,000 (US $793,498) and RMB 10,232,000 (US $1,540,939), respectively in the three and six months ended December 31, 2017. The net value of these female calves was approximately RMB 8,656,766 (US $1,311,776) and RMB 16,248,991 (US $2,447,098), respectively. Yulong Cattle sold 236 and 511 female calves to outside parties at a total price of RMB 944,000 (US $142,733) and RMB 2,044,000 (US $307,826), respectively, in the three and six months ended December 31, 2017. The net value of these female calves was approximately RMB 604,488 (US $91,399) and RMB 1,321,876 (US $199,075), respectively.

 In December 2017, Xinhua Cattle sold total 5,110 adult cows to three outside parties for a total price of RMB 79,989,000 (US $12,046,343). The net residual value of these adult cows was approximately RMB 41,300,500 (US $6,219,856). The gain from the disposal of these 4,110 adult cows was RMB 37,518,395 (US $5,650,270). Xinhua Cattle received total payment of RMB 15,997,880 (US $2,458,862) and the outstanding balance on the disposal of the 5,110 adult cows was RMB 63,991,200 (US $9,835,447) as of December 31, 2017.

Increase in payment to local farmers 

Due to the significant increase in forage price, our payment to local farmers was increased as well during last twelve months. Before March 2015, the payment which included feeding expense and forage cost was $50, $63, $72 and $111, respectively, which paid for calf, pre-adult cow, young cow and adult cow per month. Since April 2015, such expenses increased to $57, $74, $84 and $133, respectively, paid for each type of cows. Since September 2015, such expenses increased to $66, $84, $98 and $154, respectively. In the end of September 2015, we terminated the agreements with the original 200 local farmers and signed with new 179 local farmers near around Harbin city. However, it didn’t stop the increase in forage price. Since November 2015, the feeding expenses and forage costs increased to $75, $93, $113 and $256 for each calf, pre-adult cow, young cow and adult cow, respectively. Since September 2017, the feeding expenses and forage costs significantly increased to $75, $118, $140 and $307 for each calf’, pre-adult cow, young cow and adult cow, respectively.

5

Results of Operations

Comparison of results of operations for the three months ended December 31, 2017 and 2016

The following table sets forth certain information regarding our results of operations for the three months ended December 31, 2017 and 2016. 

	For the three months ended December 31,
					Change
	2017		2016		Amount			%
Revenue	$	33,938,422	$	29,600,124	$	4,338,298			15	%
Cost of goods sold		26,412,857		18,447,123		7,965,734			43	%
Gross profit		7,525,565		11,153,001		(3,627,436	)		(33	%)
Operating expenses		2,030,705		1,313,557		717,148			55	%
Operating income/(loss)		5,494,860		9,839,444		(4,344,584	)		(44	%)
Other income and (expenses)		5,529,040		1,885,434		3,643,576			193	%
Income before income taxes		11,023,870		11,724,878		(701,008	)		(6	%)
Provision for income taxes		-		-		-			N/A
Net income before noncontrolling interests		11,023,870		11,724,878		(701,008	)		(6	%)
Noncontrolling interests		5,239,932		5,562,910		(322,978	)		(6	%)
Net income attributable to controlling interests	$	5,783,938	$	6,161,968	$	(322,978	)		(6	%)

Revenues 

Our revenue was primarily generated from sales of fresh milk and commissions on fresh milk sales by farmers to whom we sold cows. We had total revenues of $33,938,422 for the three months ended December 31, 2017, an increase of $4,338,298 or 15%, compared to $29,600,124 for the three months ended December 31, 2016. There are two main reasons caused such increase: 1) total average milk cows for milk sales increased from 20,044 to 23,313 and; 2) foreign currency exchange rate increased 2% and resulted in more revenue in U.S dollars.

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

	For the three months ended December 31,
					Change
	2017		2016		Amount			%
Sales of natural milk	$	30,228,162	$	25,089,800	$	5,138,362			20	%
Sales commissions		3,710,260		4,510,324		(800,064	)		(18	%)
Total revenue	$	33,938,422	$	29,600,124	$	4,338,298			15	%

For the three months ended December 31, 2017, our revenue generated from natural milk sales was $30,228,162 which represented an increase of $5,138,362 or 20% compared to $25,089,800 for the three months ended December 31, 2016. The increase in the natural milk sales was primarily due to the increased number of milk cows compared to the same period of prior year and the increase in exchange rate as explained above.

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

	For the three months ended December 31,
					Change
	2017		2016		Amount		%
Sales of natural milk	$	30,228,162	$	20,089,800	$	5,138,362		20	%
Average number of milk cows		23,313		20,044		3,269		16	%
Revenue from per milk cow	$	1,297	$	1,252	$	45		4	%

The revenue per milk cow increased to $1,297 for the three months ended December 31, 2017 from $1,252 for the three months ended December 31, 2016, an increase of $45 or 4%. After seeing above table, we can easily find the primary reason for the increase in sales of milk which is total average milk cows were increased from 20,044 to 23,313 which represented an increase by 16%. In addition, average younger age of the milk cows slightly increased the production capacity of each milk cow and the increase in foreign currency exchange rate resulted in more revenue in U.S dollars.

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The sales commissions from local farmers increased by $800,064 or 18% to $3,710,260 for the three months ended December 31, 2017 from $4,510,324 for the three months ended December 31, 2016. The average quantity of milk cows we now earn commission on increased by 15% or 2,902, to 21,674 for the three months ended December 31, 2017 from 18,771 for the three months ended December 31, 2016 due to the new disposal of total 10,958 adult cows in May 2017, November 2016 and December 2016. However, per the new contract term, the sales commission was only deducted from 20% milk sales less principle payment but not 30% milk sales like before and the original pay rate of 30% reduced to 20% as well since September 1, 2017. In conclusion, the sales commission increased by 18% for the three months ended December 31, 2017 by comparing with prior period.

Gross profit 

Our cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation, lease, water & electricity, etc. Because we started to use the two new farms in Shuangcheng district and Xiangfang District in Harbin, more direct production overhead was allocated to our costs of goods sold. In addition, the direct feeding expenses and food costs paid to local farmers increased from $256 per cow before September 2017 to $307 per cow since September 2017. As a result, we saw a decrease in our margins compared with the same period in 2016. 

	For the three months ended December 31,
					Change
	2017		2016		Amount		%
Cost of goods sold	$	26,412,857	$	18,447,123	$	7,965,734		43	%
Average number of milk cows		23,313		20,044		3,269		16	%
Cost per milk cow	$	1,133	$	920	$	213		23	%

The cost per milk cow increased to $1,133 for the three months ended December 31, 2017 which represented an increase of $213 or 23% compared to $920 for the three months ended December 31, 2016. As we explained above, the direct feeding expenses and food costs paid to local farmers increased from $256 per cow before September 2017 to $307 per cow since September 2017. The average number of milk cows also increased by 3,269 or 16% from 20,044 for the three months ended December 31, 2016 to 23,313 for the three months ended December 31, 2017. These two reasons primarily caused the increase in cost of goods sold.

Gross profit margin 

Our gross profit margin was 22.2% for the three months ended December 31, 2017 which decreased by 41% from 37.7% for the three months ended December 31, 2016. The main reason for such a decrease was primarily due to the increase in feeding and food cost.

Operating expenses

Our operating expenses increased to $2,030,705 for the three months ended December 31, 2017 from $1,313,557 for the three months ended December 31, 2016, an increase of $717,148 or 55%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees associated with filings required by the securities laws of the United States, consulting fees for a Chinese financial advisory company and VAT surcharges, etc. The primary reason for the increase in our operating expenses because of the increase in R&D expenses due to 500 adult cows fed by Yulong was used for R&D purpose since September 2017. In addition, G&A expenses also increased primarily due to the increase in professional fees incurred by our 53.07% owned Australian subsidiary.

Operating income (loss)

As a result of the foregoing, we had operating income of $5,494,860 for the three months ended December 31, 2017, representing a decrease of $4,344,584, as compared to operating income of $9,839,444 for the three months ended December 31, 2016.

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Non-operating income (expenses)

For the three months ended December 31, 2017, non-operating expenses consists primarily of interest income of $302,362 earned on the outstanding notes receivable from the farmers and other non-operating income of $24,599 which mainly consists of bank interest earned. We also had a net gain from disposal of biological properties of $5,205,819 and a loss from disposal of PP&E of $3,770, respectively, for the three months ended December 31, 2017.For the three months ended December 31, 2016, non-operating income consists primarily of interest income of $243,370 earned on the outstanding notes receivable from the farmers and other non-operating income of $30,378 which mainly consists of bank interest earned. We also had a net gain from disposal of biological properties of $1,611,686 for the three months ended December 31, 2016.

Comparison of results of operations for the six months ended December 31, 2017 and 2016

The following table sets forth certain information regarding our results of operations for the six months ended December 31, 2017 and 2016. 

	For the six months ended December 31,
					Change
	2017		2016		Amount			%
Revenue	$	67,085,158	$	59,616,534	$	7,468,624			13	%
Cost of goods sold		47,826,902		37,560,775		10,266,127			27	%
Gross profit		19,258,256		22,055,759		(2,797,503	)		(13	%)
Operating expenses		7,602,458		2,832,652		4,769,806			168	%
Operating income/(loss)		11,655,798		19,223,107		(7,567,309	)		(39	%)
Other income and (expenses)		5,519,243		2,023,300		3,495,943			173	%
Income before income taxes		17,175,041		21,246,407		(4,071,336	)		(19	%)
Provision for income taxes		-		-		-			N/A
Net income before noncontrolling interests		17,175,041		21,246,407		(4,071,336	)		(19	%)
Noncontrolling interests		8,157,614		10,087,105		(1,929,491	)		(19	%)
Net income attributable to controlling interests	$	9,017,427	$	11,159,302	$	(2,141,875	)		(19	%)

Revenues 

Our revenue was primarily generated from sales of fresh milk and commissions on fresh milk sales by farmers to whom we sold cows for the six months ended December 31, 2017 and 2016. We had total revenues of $67,085,158 for the six months ended December 31, 2017, an increase of $7,468,624 or 13%, compared to $59,616,534 for the six months ended December 31, 2016. There are two main reasons caused such increase: 1) total average milk cows for milk sales increased from 20,327 to 22,631 and; 2) foreign currency exchange rate increased 2% and resulted in more revenue in U.S dollars. Although total average milk cows for commission income also increased significantly, commission rate on sales decreased materially.

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

	For the six months ended December 31,
					Change
	2017		2016		Amount			%
Sales of natural milk	$	58,810,640	$	51,283,205	$	7,527,435			15	%
Sales commissions		8,274,518		8,333,329		(58,811	)		(1	%)
Total revenue	$	67,085,158	$	59,616,534	$	7,468,624			13	%

For the six months ended December 31, 2017, our revenue generated from natural milk sales was $58,810,640 which represented an increase of $7,527,435 or 15% compared to $51,283,205 for the six months ended December 31, 2016. The increase in the natural milk sales was primarily due to the increased number of milk cows compared to the same period of prior year. 

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

	For the six months ended December 31,
					Change
	2017		2016		Amount		%
Sales of natural milk	$	58,810,640	$	51,283,205	$	7,527,435		15	%
Average number of milk cows		22,631		20,327		2,304		11	%
Revenue from per milk cow	$	2,599	$	2,523	$	76		3	%

The revenue per milk cow increased to $2,599 for the six months ended December 31, 2017 from $2,523 for the six months ended December 31, 2016, an increase of $76 or 3%. After seeing above table, we can easily find the primary reason for the increase in sales of milk which is total average milk cows were increased from 20,327 to 22,631 which represented an increase by 11% and foreign currency exchange rate increased 2% and resulted in more revenue in U.S dollars. In addition, average younger age of the milk cows slightly increased the production capacity of each milk cow.

The sales commissions from local farmers decreased by $58,811 or 1% to $8,274,518 for the six months ended December 31, 2017 from $8,333,329 for the six months ended December 31, 2016. The average quantity of milk cows we now earn commission on increased by 35% or 5,757, to 21,981 for the six months ended December 31, 2017 from 16,224 for the six months ended December 31, 2016 due to the new disposal of total 10,958 adult cows in May 2017, November 2016 and December 2016. However, per the new contract term, the sales commission was only deducted from 20% milk sales less principle payment but not 30% milk sales like before and the original pay rate of 30% reduced to 20% as well since September 1, 2017. In conclusion, the sales commission decreased by 1% only for the six months ended December 31, 2017 by comparing with prior period.

Gross profit 

Our cost of goods sold consists of feeding food, feeding expenses and other direct production overhead which includes labor costs, depreciation, lease, water & electricity, etc. Because we started to use the two new farms in Shuangcheng district and Xiangfang District in Harbin, more direct production overhead was allocated to our costs of goods sold. In addition, the direct feeding expenses and food costs paid to local farmers increased from $256 per cow before September 2017 to $307 per cow since September 2017. As a result, we saw a decrease in our margins compared with the same period in 2016. 

	For the six months ended September 30,
					Change
	2017		2016		Amount		%
Cost of goods sold	$	47,826,902	$	37,560,775	$	10,266,127		27	%
Average number of milk cows		22,631		20,327		2,304		11	%
Cost per milk cow	$	2,113	$	1,848	$	266		14	%

The cost per milk cow increased to $2,113 for the six months ended December 31, 2017 which represented an increase of $266 or 14% compared to $1,848 for the six months ended December 31, 2016. As we explained above, the direct feeding expenses and food costs paid to local farmers increased from $256 per cow before September 2017 to $307 per cow since September 2017. The average number of milk cows also increased by 2,304 or 11% from 20,327 for the six months ended December 31, 2016 to 22,631 for the six months ended December 31, 2017. These two reasons primarily caused the increase in cost of goods sold.

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Gross profit margin 

Our gross profit margin was 28.7% for the six months ended December 31, 2017 which decreased by 22% from 37.0% for the six months ended December 31, 2016. The main reason for such a decrease was primarily due to the increase in feeding and food cost.

Operating expenses

Our operating expenses increased to $7,602,458 for the six months ended December 31, 2017 from $2,832,652 for the six months ended December 31, 2016, an increase of $4,769,806 or 168%. Our operating expenses primarily consist of human resource costs, depreciation, professional fees associated with filings required by the securities laws of the United States, consulting fees for a Chinese financial advisory company and VAT surcharges, etc. The primary reason for the increase in our operating expenses because of the increase in R&D expenses due to 500 adult cows fed by Yulong was used for R&D purpose since September 2017 and the reimbursement to farmers because the omasum disease had an impact on the 4,000 milk cows we disposed to the 13 local farmers. In addition, G&A expenses also increased primarily due to the increase in professional fees incurred by our 53.07% owned Australian subsidiary.

Operating income (loss)

As a result of the foregoing, we had operating income of $11,655,798 for the six months ended December 31, 2017, representing a decrease of $7,567,309, as compared to operating income of $19,223,107 for the six months ended December 31, 2016.

Non-operating income (expenses)

For the six months ended December 31, 2017, non-operating expenses consists primarily of interest income of $619,370 earned on the outstanding notes receivable from the farmers and other non-operating income of $50,783 which mainly consists of bank interest earned. We also had a net gain from disposal of biological properties of $4,852,845 and a loss from disposal of PP&E of $3,755, respectively, for the six months ended December 31, 2017.For the six months ended December 31, 2016, non-operating income consists primarily of interest income of $367,033 earned on the outstanding notes receivable from the farmers and other non-operating income of $66,006 which mainly consists of bank interest earned. We also had a net gain from disposal of biological properties of $1,590,261 for the six months ended December 31, 2016.

Net Income 

Xinhua Cattle and Yulong Cattle are entitled to a tax exemption for the full Enterprise Income Tax in China due to a government tax preference policy for the dairy farming industry. Zhongxian Information is subject to an Enterprise Income Tax of 25% and files its own tax returns before January 16, 2015. On January 16, 2015, Zhongxian Information received a tax exemption notice from Harbin National Tax Bureau on its investment income from its subsidiaries. Jiasheng Consulting (the “WFOE”) is subject to an Enterprise Income Tax at 25% and files its own tax return before September 16, 2015. On September 16, 2015, Jiasheng Consulting purchased all of the registered equity of Zhongxian Information and the VIE structure was terminated. Under China tax law, Jiasheng Consulting is exempt from income tax on its investment income since September 16, 2015. There was no any provision for income taxes for the three and six months ended December 31, 2017 and 2016, respectively. We had a net income before non-controlling interests of $11,023,870 and $11,724,878, respectively, $17,175,041 and $21,246,407, respectively, which represented a decrease by $701,008 or 6% and $4,071,366 or 19%, respectively, for the three and six months ended December 31, 2017 and 2016. We initially owned 99% of Xinhua Cattle’s shares and our non-controlling interest was only 1% of Xinhua’s net income. On July 16, 2015, as we transferred 100% of the issued and outstanding shares of Value Development to China Dairy, which we own 60% through our wholly owned subsidiary, Hope Diary. This transaction resulted a reduction of our interest in our operating company by 40%. In addition, on April 8, 2016, our 60% owned subsidiary, China Dairy Corporation Limited issued 84,906,541 CDI shares at AUD $0.2 per share on ASX and after the IPO, our ownership was diluted to 53.07%. As a result, net income attributed to the non-controlling shareholders increased from 1% to 46.93%. We attributed $5,239,932 and $5,562,910, respectively, $8,157,614 and $10,087,105, respectively, to non-controlling interest for the three and six months ended December 31, 2017 and 2016. We had net income attributable to the common stockholders of the Company of $5,783,938 and $6,161,968, respectively, $9,017,427 and $11,159,302, respectively, representing $0.11 per share and $0.12 per share, respectively, $0.17 per share and $0.21 per share, respectively, for the six months ended December 31, 2017 and 2016.

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Foreign Currency Translation Adjustment 

Our reporting currency is the U.S. dollar. Our local currency, Renminbi, is our functional currency. All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income and other comprehensive income and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of our consolidated financial statements are recorded as other comprehensive income (loss). Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency is included in the results of operations as incurred. For the three and six months ended December 31, 2017 and 2016, we incurred foreign currency translation adjustments income (loss) of $4,694,762 and $(7,239,656), respectively, $8,525,470 and $(7,488,645), respectively. They are reported as other comprehensive income (loss) in the consolidated statements of income and other comprehensive income (loss), respectively. 

Liquidity and Capital Resources 

As of December 31, 2017, and June 30, 2017, we had no bank debt but amounts owed to shareholders of $2,112,268 and $1,918,341, respectively. The amounts due to our stockholders were principally for the professional fees incurred for being a reporting company in the United States and in Australia because of the restriction of official bank transfers abroad. At the same time, we had $46,139,284 and $53,241,856 in cash at December 31, 2017 and June 30, 2017 as well as working capital of $ 113,110,933 and $84,708,423, respectively.

Operating activities 

During the six months ended December 31, 2017, our operating activities used $16,768,286 in net cash, compared to cash provided of $23,841,873 during the six months ended December 31, 2016.The net cash used in the six months ended September 30, 2017 was primarily due to the increase in accounts receivable from the seller of the 4,000 sick milk cows and the disposal of 5,110 adult cows in the end of December 2017 and increase in prepaid expenses for the new R&D project, which reduced our cash provided by operating activities by $16,312,905 and $16,667,854, respectively, for the six months ended December 31, 2017.The net cash provided in the six months ended December 31, 2016 was slightly higher than our net income primarily due to the depreciation on fixed assets and biological properties of $3,688,868 and amortization on lease of $853,284. The gain of disposal from biological properties reduced our cash provided by operating activities by $1,613,232 for the six months ended December 31, 2016.

Investing activities

During the six months ended December 31, 2017, our investing activities provided a cash inflow of $7,828,515 compared with a cash outflow of $25,978,637 for the six months ended December 31, 2016. The food costs and feeding expenses for biological properties used cash of $6,873,290 and $9,679,209 for the six months ended December 31, 2017 and 2016, respectively. For the six months ended December 31, 2017 and 2016, we received cash of $2,339,883 and $1,143,912, respectively, from the collection of notes receivable from the disposal of biological properties in calendar year 2011, 2014 and 2016. For the six months ended December 31, 2017 and 2016, we also received $13,902,263 and $4,551,970 in cash from our disposal of biological properties, respectively. For the six months ended December 31, 2017 and 2016, we spent $1,540,341 and $4,211,310, respectively, for the addition of PP&E for daily operations. The material additions during the six months ended December 31, 2016 were the production facilities and forage plant. During the six months ended December 31, 2017, we also spent $17,784,000 for the purchase of biological properties.

Financing activities 

Our financing activities for the six months ended December 31, 2017 and 2016 mainly included proceeds from shareholders and dividends payment for our subsidiary. For the six months ended December 31, 2017 and 2016, we received $72,456 and $56,679 from shareholders, respectively. For the six months ended December 31, 2016, we paid total dividends of $1,460,347 to our subsidiary’s shareholders.

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

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Critical Accounting Policies and Estimates 

Basis of Accounting and Presentation 

The consolidated financial statements of the Company as of December 31, 2017 and June 30, 2017 and for the six months ended December 31, 2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC.

Revenue Recognition 

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

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

Estimates 

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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officers as appropriate, to allow timely decisions regarding required disclosures. Management conducted an assessment as of December 31, 2017 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). 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. 

Our management has identified the following steps to address the above material weakness:

(1) We have been working with a financial accountant to assist us in preparing our financial statements in accordance with US GAAP standards and SEC rules and regulations.

(2) We intend to hire, as needed, key accounting personnel with technical accounting expertise and reorganize the finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions.

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. 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Not applicable because we are a smaller reporting company.

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

There were no unregistered sales of the Company’s equity securities during the quarter ended December 31, 2017, that were not otherwise disclosed in a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company during the quarter ended December 31, 2017.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information. 

Except as disclosed below, there is no other information required to be disclosed under this item which was not previously disclosed.

Our majority-owned subsidiary, China Diary Corporation Limited, was suspended from official quotation, and will continue to remain suspended, in accordance with Australian Securities Exchange (“ASX”) Listing Rule 17.3 pending enquiries by ASX. The suspension is related to the corporate governance issue of China Diary Corporation Limited and we have been and will fully cooperate with the enquiries by ASX.

Item 6. Exhibits.

Exhibit Number	Description
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2+	Certification of the Chief Financial Officer 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.

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SIGNATURES

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

	CHINA MODERN AGRICULTURAL INFORMATION, INC.
Date: February 14, 2018	By:	/s/ Youliang Wang
	Name:	Youliang Wang
	Title:	Chief Executive Officer
		(Principal Executive Officer)
Date: February 14, 2018	By:	/s/ Yanyan Liu
	Name:	Yanyan Liu
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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