BUSINESS DESCRIPTION AND ORGANIZATION

BUSINESS DESCRIPTION AND ORGANIZATION (Continued)

CONTROL BY PRINCIPAL STOCKHOLDERS

The directors, executive officers, affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, if they voted their shares uniformly, directors, executive officers and affiliates would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of China Longyi and the dissolution, merger or sale of the Company's assets.

GOING CONCERN

The Company has earned only insignificant revenues since its inception. As at March 31, 2016, the Company has a working capital deficiency of $1,611,534 and accumulated deficit from recurring net losses of $31,076,284 incurred for the current and prior years as of March 31, 2016. As at March 31, 2016, the Company has cash and cash equivalents of $22,000.

The Company’s ability to continue as a going concern ultimately is dependent on the management’s ability to obtain equity or debt financing, attain further operating efficiencies, and achieve profitable operations. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The unaudited consolidated financial statements for all periods presented include the financial statements of China Longyi Group International Holdings Limited, and its subsidiaries: Top Team Holdings Limited, Full Ample Group Limited (Daykeen Group, BVI), Top Time International Limited (HK), Beijing SOD, and Chongqing SOD. The unaudited consolidated financial statements have been prepared in accordance with US GAAP. All significant intercompany accounts and transactions have been eliminated.

The Company has determined the People’s Republic of China Chinese Yuan Renminbi (“RMB”) to be its functional currency. The accompanying unaudited consolidated financial statements are presented in United States (US) dollars. The unaudited consolidated financial statements are translated into US dollars from RMB at quarter-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.

NONCONTROLLING INTEREST IN SUBSIDIARIES

The Company owns 90% of the equity interests in Beijing SOD, and the remaining 10% is owned by Miss Ran Wang. Therefore, the Company records non-controlling interest expense to allocate 10% of the loss of the Beijing SOD to Miss Ran Wang, its non-controlling shareholder.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company owns 81% of the equity interest in Chongqing SOD of which 9% is owned by Miss Ran Wang, and the remaining 10% by Mr. Guoqing Tan. Therefore, the Company records non-controlling interest charge in the statement of operations to allocate 19% of the results of operations of Chongqing SOD to its non-controlling shareholders.

USE OF ESTIMATES

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

SIGNIFICANT ESTIMATES

Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates related to determination of net realizable value of inventory, allowance for doubtful accounts, property and equipment, accrued liabilities, and the useful lives for depreciation.

REVENUE RECOGNITION

Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, delivery has occurred and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price and considers delivery to have occurred when the customer takes title of the products.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expenses as incurred. Equipment purchased for specific research and development projects with no alternative uses are expensed. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses from the disposal of property, plant and equipment are recorded in loss on disposal and impairment of property, plant and equipment included in the consolidated statements of comprehensive income (loss).

Depreciation and amortization are provided for financial reporting purposes primarily on the straight-line method over the estimated useful lives of the respective assets as follows:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with maturities of three months or less when purchased.

INVENTORY

Prior to January 1, 2015, inventories are stated at the lower of cost or replacement cost with respect to raw materials and the lower of cost or market with respect to finished goods and work in progress. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11 (“ASU 2015-11”), Simplifying the Measurement of Inventory, which the Company adopted on January 1, 2015. Subsequent to January 1, 2015, inventories are stated at the lower of cost or replacement cost with respect to raw materials and the lower of cost or net realizable value with respect to finished goods and work in progress. The cost of work in progress and finished goods is determined on a weighted average cost basis and includes direct material, direct labor and overhead costs. Net realizable value represents the anticipated selling price, net of distribution cost, less estimated costs to completion for work in progress.

Inventories as of March 31, 2016were $362,914 and $359,194 in December 31, 2015.

INCOME TAXES

Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with ASC Topic 740 (formerly SFAS No. 109, “Accounting for income taxes”) these deferred taxes are measured by applying currently enacted tax laws.

The Company did not provide any current or deferred income tax provision or benefit for any period presented to date because it has experienced operating losses since inception. The benefit of any tax income (loss) carry forwards is fully offset by a valuation allowance, as there is a more than fifty percent chance that the Company will not realize those benefits.

There are net operating loss carry forwards allowed under the Hong Kong and China Governments’ tax system.

RESEARCH AND DEVELOPMENT COSTS

Company sponsored research and development costs, related to both present and future products, are charged to operations when incurred and are included in operating expenses. Expenditures for research and development for the three months period ended March 31, 2016 and 2015 were both $0 and a cumulative amount of $8,880,206 for the period from June 4, 1997 (inception) to March 31, 2016.

SHIPPING AND HANDLING

Costs relating to shipping and handling are part of general and administrative expenses in the unaudited consolidated statements of operations and comprehensive loss. Insignificant amount of shipping and handling costs incurred during the three months ended March 31, 2016 and 2015.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

EARNING (LOSS) PER SHARE

Basic earnings (loss) per common share ("LPS") is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive stock options.

There were no stock options and potentially dilutive securities outstanding as at March 31, 2016.

STOCK - BASED COMPENSATION

Compensation expense for costs related to all share-based payments, including grants of stock options, is recognized through a fair-value based method. The Company uses the Black-Scholes option-pricing model to determine the grant date fair value for stock options. The Company uses the grant date stock price to determine the grant date fair value of restricted shares. The Company has elected to recognize share-based compensation costs using the straight-line method over the requisite service period with a graded vesting schedule, provided that the amount of compensation costs recognized at any date is at least equal to the portion of the grant date value of the awards that are vested at that date. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share based compensation costs are recorded net of estimated forfeitures such that expense is recorded only for those awards that are expected to vest.

The Company had no such compensation expense for the three months ended March 31, 2016 and 2015.

COMPARATIVE FIGURES

Certain comparative figures have been reclassified in order to conform with the presentation adopted in the current period.

COMPREHENSIVE INCOME (LOSS)

The Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments.

RECENTLY ADOPTED ACCOUNTING STANDARDS

There were no changes to the new accounting pronouncements as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 except for the following:

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance which amends the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize right-of-use assets and lease liabilities on the balance sheet. The new guidance is effective for us from November 1, 2020, and interim periods in the following year. Early adoption of this guidance is permitted and we will be required to adopt using a modified retrospective approach. We are evaluating the timing and the impact of adopting this guidance on our consolidated financial statements and disclosures.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In January 2016, FASB issued amendments to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The provisions under this amendment are effective for us from November 1, 2018, and for interim periods in the following year and early adoption is not permitted. We are evaluating the impact of adopting this guidance to our consolidated financial statements.

In November 2015, FASB issued guidance intended to simplify accounting for deferred taxes. Beginning on November 1, 2017 and including the interim periods following that date, we will be required to present all deferred tax balances as non-current. Existing GAAP guidance requires us to record deferred tax balances as either current or non-current in accordance with the classification of the underlying attributes. Early adoption of this guidance is permitted and may be applied either prospectively or retrospectively to all periods presented. We expect to early adopt this guidance prospectively at the end of the second quarter of fiscal year 2016, but we are still evaluating how significant the impact of the adoption will be on our consolidated balance sheet.

Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

STOCKHOLDERS' EQUITY

The Company's capital structure as of March 31, 2016 and December 31, 2015 was as follows:

INVESTMENT

On January 5, 2010, the Company invested in Cangshan Duoha Vegetable Food Company (“Duoha”) with 50,000 shares of the Company’s common stock worth $10,000 as $0.2 per share to acquire 20% equity interest in of Duoha. According to the investment agreement, although we own 20% equity of Duoha, we do not have significant influence over Duoha’s operating and financing policies. Therefore, the management of the Company implemented the cost method to account above investment.

In May of 2015, we signed an investment agreement with Guizhou Biology Technology Ltd. (“Guizhou”). According to the investment agreement, the Company invested RMB 500,000 to acquire 20% equity interest in Guizhou. Although we own 20% equity of Guizhou, we do not have significant influence over Guizhou’s operating and financing policies. As of March 31, 2016, the company has invested RMB 500,000 in Guizhou. The amount of investment as of March 31, 2016 and December 31, 2015 was $87,951 and $87,512 respectively.

INVENTORIES

Inventories at March 31, 2016and December 31, 2015 consisted of:

PROPERTY AND EQUIPMENT

Property and equipment at cost consisted of:

COMMITMENTS AND CONTINGENCIES

From time to time, the Company has disputes that arise in the ordinary course of its business. Currently, according to management, there are no material legal proceedings to which the Company is a party to or to which any of their property is subject that will have a material adverse effect on the Company’s financial condition.

SHORT-TERM LOAN

During the year of 2015, Shiling Wang provided the Company an unsecured loan for an amount of RMB 380,000 in PRC, and the interest rate of the loan is 25% per annum.

The principal amount for three months ended March 31, 2016 was $58,813 and for the year ended of 2015 was $58,519 respectively, and was recorded on the balance sheet as a short-term loan.

OTHER PAYABLES

Other payables are carrying value as of the balance sheet date of obligations incurred and payable, which are not elsewhere specified in the taxonomy.

Other payables as of March 31, 2016 and December 31, 2015 consist of the following:

RELATED PARTY TRANSACTIONS AND STOCKHOLDER’S LOAN

Due to directors and due to related companies are loans to the Company that are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand.

The Company rents office space from the related company on a month to month basis.

SUBSEQUENT EVENTS

Management has considered all events occurring through the date the financial statements have been issued, and has determined that there are no such events that are material to the financial statement.

“Beijing SOD” are references to Beijing Longyi Biology Technology Co. Ltd., our indirect, 90% owned subsidiary, a PRC company;

“China Longyi,” “we,” “us,” “our,” or the “Company” are references to the combined business of China Longyi Group International Holdings Limited (formerly known as Minghua Group International Holdings Limited) and/or its consolidated subsidiaries, as the case may be;

“Chongqing SOD” are references to Chongqing JiuZhou Dismutase Biology Technology Co., Ltd., our indirect, majority-owned subsidiary, a PRC company;

“Top Time” are references to Top Time International Limited, our indirect wholly-owned subsidiary, a Hong Kong company; and

Revenue: Revenue increased $12,906, to $16,466 for the three months ended March 31, 2016, from $3,560 for the same period in 2015.

Expense from operations: Expense from operations decreased $35,657, or 25.63%, to $103,486 for the three months ended March 31, 2016, from $139,143 for the same period in 2015.

Net loss: Net loss decreased $51,513, or 37.22%, to $86,894 for the three months ended March 31, 2016, from $138,407 for the same period in 2015.

Fully diluted net income per share: Fully diluted net loss per share was $0 for the three months ended March 31, 2016, as compared to $0 for the same period in 2015.

United States: China Longyi Group International Holding Limited is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as China Longyi Group International Holding Limited had no income subject to United States taxation in the first quarter of 2016.

British Virgin Islands: Our wholly owned subsidiary Top Team Holdings Limited was incorporated in the British Virgin Islands, or the BVI, and, under the current laws of the BVI, is not subject to income taxes.

China: Before the implementation of the enterprise income tax, or EIT, Foreign Invested Enterprises or FIEs, established in the PRC were generally subject to an EIT rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local income tax. On March 16, 2007, the National People’s Congress of China passed the new Corporate Income Tax Law, or EIT Law, and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law, or Implementing Rules, which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the old tax laws applicable to FIEs, and its associated preferential tax treatments, beginning January 1, 2008.

Despite these pending changes, the EIT Law gives the FIEs established before March 16, 2007, or Old FIEs, such as our subsidiaries Beijing SOD and Chongqing SOD, a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT Law shall gradually increase their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization’s business, fiscal condition and current operations in China.

The following financial information from The China Longyi Group International Holdings Limited's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations and Comprehensive Loss for the three ended March 31, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and 2015, and (iv) the Notes to Consolidated Financial Statements.

The following financial information from The China Longyi Group International Holdings Limited's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations and Comprehensive Loss for the three ended March 31, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and 2015, and (iv) the Notes to Consolidated Financial Statements.