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EX-32.2 - EXHIBIT 32.2 - CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LTDexhibit32-2.htm
EX-32.1 - EXHIBIT 32.1 - CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LTDexhibit32-1.htm
EX-31.2 - EXHIBIT 31.2 - CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LTDexhibit31-2.htm
EX-31.1 - EXHIBIT 31.1 - CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LTDexhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: June 30, 2017

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

Commission File No. 000-30183

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(Exact Name of Registrant as Specified in Its Charter)

NEW YORK 13-3874771
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)  

8/F East Area
Century Golden Resources Business Center
69 Banjing Road, Haidian District
Beijing, People’s Republic of China, 100089
(Address of Principal Executive Offices)

+86-10-884-52568
(Registrant’s Telephone Number, Including Area Code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X]           No [   ]

Indicate  by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 [X]    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 7(a)(2)(B) of the Securities Act. ___

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

The numbers of shares outstanding of each of the issuer’s classes of common equity, as of August 16, 2017 are as follows:

Class of Securities Shares Outstanding
Common Stock, $0.01 par value 77,655,862


TABLE OF CONTENTS

  PART I Financial Information Page
     
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4 Controls and Procedures 25
     
  PART II Other Information  
     
Item 1. Legal Proceedings 26
Item 1A. Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 26


Part I – FINANCIAL INFORMATION

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

June 30, 2017

2


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

    June 30,     December 31,  
ASSETS   2017(Unaudited)    2016(Audited)  
Current assets            
       Cash and cash equivalents $  43,986   $  33,976  
       Inventories   430,164     440,643  
       Account receivables   33,580     52,957  
       Other receivables   128,634     56,461  
       Deposits and prepayments   41,788     42,790  
Total current assets   678,152     626,827  
             
Investment   83,885     81,919  
Property, plant and equipment (net)   283,337     285,149  
  $  1,045,374   $  993,895  
             
LIABILITIES AND EQUITY            
Current liabilities            
       Short-term loan $  14,761   $  -  
       Accounts payable   -     1,413  
       Accrued liabilities   324,825     315,237  
       Due to directors   647,651     573,587  
       Due to related parties   893,265     813,665  
       Other payables   281,363     179,278  
       Current portion of long term debt   10,898        
Total current liabilities   2,172,763     1,883,180  
             
Long-term debt   21,155     -  
             
Equity            
       Common stock: par value $.01; 
       200,000,000 shares authorized; 77,655,862 
       shares issued and outstanding
  776,558     776,558  
       Additional paid-in capital   28,877,540     28,877,540  
       Accumulated deficit   (31,125,755 )   (30,839,409 )
       Accumulated other comprehensive income   298,180     248,955  
   Total China Longyi stockholders' equity   (1,173,477 )   (936,356 )
Noncontrolling interest   24,933     47,071  
Total Equity   (1,148,544 )   (889,285 )
  $  1,045,374   $  993,895  

See notes to consolidated financial statements

3


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)

 

  Three months ended     Six months ended  

 

  June 30,     June 30,  

 

  2017     2016     2017     2016  

Revenues

                       

   Sales

$  19,980   $  624,345   $  57,257   $  640,811  

   Cost of sales

  6,020     284,017     25,802     284,017  

   Gross margin

$  13,960   $  340,328   $  31,455   $  356,794  

Operating expenses

                       

   General and administrative expenses

$  142,719   $  173,452   $  275,382   $  276,938  

 

$  142,719   $  173,452   $  275,382   $  276,938  

Loss from operations

$  (128,759 ) $  166,876   $  (243,927 ) $  79,856  

Other income (expense)

                       

   Interest income

$  10   $  4   $  21   $  11  

   Other income (expense)

  1,929     (1 )   3,381     8,806  

   Transaction gain (loss)

  (42,783 )   (13,375 )   (62,812 )   (16,203 )

   Interest expense

  (2,430 )   (3,240 )   (2,430 )   (9,100 )

 

$  (43,274 ) $  (16,612 ) $  (61,840 ) $  (16,486 )

         Loss before income tax expense and noncontrolling interest

$  (172,033 ) $  150,264   $  (305,767 ) $  63,370  

Net loss

$  (172,033 ) $  150,264   $  (305,767 ) $  63,370  

         Net loss (income) attributable to noncontrolling interest

  10,992     (21,877 )   19,421     (14,360 )

Net loss attributable to China Longyi

$  (161,041 ) $  128,387   $  (286,346 ) $  49,010  

 

                       

Basic and diluted loss per share

$  (0 ) $  0   $  (0 ) $  0  

Weighted average number of shares outstanding-basic and diluted

$  77,655,862   $  77,655,862   $  77,655,862   $  77,655,862  

Comprehensive income (loss)

                       

   Net loss

$  (172,033 ) $  150,264   $  (305,767 ) $  63,370  

   Foreign currency translation adjustment

$  29,226   $  28,978   $  46,508   $  27,472  

Comprehensive income (loss)

$  (142,807 ) $  179,242   $  (259,259 ) $  90,842  

Comprehensive income (loss) attributable to noncontrolling interest

$  (2,178 ) $  25,065   $  (22,138 ) $  16,821  

Comprehensive income (loss) attributable to China Longyi

$  (140,629 ) $  154,177   $  (237,121 ) $  74,021  

See notes to consolidated financial statements

4


CHINALONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

  Six months ended June 30,  

 

  2017     2016  

Cash flows from operating activities:

           

   Net loss

$  (305,767 ) $  63,370  

   Adjustments to reconcile net loss to net cash used in operations:

       

      Depreciation and amortization

  8,849     11,545  

      Changes in operating assets and liabilities:

           

             Accounts receivables

  20,359     (159,181 )

             Other receivables

  (69,823 )   (3,751 )

             Deposits and prepayment

  2,000     (27,132 )

             Inventory

  20,760     1,695  

             Account payable and accrued liabilites

  (1,426 )   (3,340 )

             Other payables

  35,613     182,800  

             Due to related parties

  22,142     19,558  

             Net cash used in operations

  (267,293 )   85,564  

 

           

Cash flows from investing activities:

           

   Purchases of property and equipment

  (316 )   -  

             Net cash provided by (used in) investing activities

  (316 )   -  

 

           

Cash flows from financing activities:

           

   Addition of short term loans

  14,554     (30,624 )

   Proceeds (repayments) from temporary borrowing

  65,494     -  

   Proceeds (repayments) from loans from directors

  102,185     (11,901 )

   Addition of long term debt

  31,602     -  

             Net cash provided by financing activities

  213,835     (42,525 )

   Effect of foreign exchange rate fluctuation

  63,784     12,234  

   Increase(decrease) in cash and cash equivalents

  10,010     55,273  

   Cash and cash equivalents, beginning of period

  33,976     29,429  

   Cash and cash equivalents, end of period

$  43,986   $  84,702  

 

           

Supplemental disclosures of cash flow information:

           

   Cash paid for interest

$  -   $  -  

   Cash paid for income taxes

$  -   $  -  

See notes to consolidated financial statements

5


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of American (“US GAAP”) for financial information and with the instructions to Form 10Q and Item 310 of Regulation S. The accounts of China LongYi Group International Holdings Limited and all of its subsidiaries are included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation.

1.

BUSINESS DESCRIPTION AND ORGANIZATION

We are a holding company that only operates through our indirect Chinese subsidiaries Beijing SOD and Chongqing SOD. Through our Chinese subsidiaries, we develop, manufacture and market our SOD products in China. SOD is a naturally occurring enzyme which may act as a potent antioxidant defense in cells that are exposed to oxygen.

The following chart reflects our organizational structure as of the date of this report.


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

These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. During six months ended June 30, 2017, the Company incurred a net loss of $305,767. As at June 30, 2017, the Company has a working capital deficiency of $1,494,611 and accumulated deficit from recurring net losses of $31,125,755 incurred. As at June 30, 2017, the Company has cash and cash equivalents of $43,986. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholder, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

6


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

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 during consolidation.

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 year-end exchange rates for assets and liabilities, and 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.

These condensed consolidated financial statements include all of the adjustments, which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessary indicative of results for a full year. The condensed consolidated balance sheet information as of December 31, 2016 was derived from the audited consolidated financial statements include in the Form 10-K. These condensed consolidated financial statements should be read in conjunction with the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on April 17, 2017.

NONCONTROLLING INTEREST IN SUBSIDIARIES

The Company owns 90% of the equity interest in the Beijing LongYi Biology Technology Co. Ltd, and the remaining 10% is owned by Miss Ran Wang. Therefore, the Company records noncontrolling interest to allocate 10% of the results of the Beijing Longyi Biology Technology limited to Miss Ran Wang, its noncontrolling shareholder.

The Company owns 81% of the equity interest in the Chongqing JiuZhou Dismutase Biology Technology Co. Ltd, and remaining 9% is owned by Miss Ran Wang, and another 10% is owned by Mr. Guoqing Tan. Therefore, the Company records noncontrolling interest to allocate 19% of the results of the Chongqing JiuZhou Dismutase Biology Technology Co. Ltd to Miss Ran Wang and Mr. Guoqing Tan, its noncontrolling shareholder.

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 the valuation of acquired companies, inventories, allowance for doubtful accounts, equipment, patent rights, accrued liabilities and stock options, and the useful lives for amortization and depreciation.

7


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

Cash and Cash Equivalents as of June 30, 2017 and December 31, 2016 were $43,986 and 33,976.

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:

  Estimated
  Useful Life
   
Transportation equipment 5 years
Furniture and fixtures 5 years
Production equipment 10 years
Building and improvements 20 years

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. 201511 (“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 June 30, 2017 were $430,164 and $440,643 in December 31, 2016.

8


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FOREIGN CURRENCY TRANSLATION

The financial records of the Group’s subsidiaries are maintained in their local currencies. Monetary assets and liabilities denominated in currencies other than their local currencies are translated into local currencies at the rates of exchange in effect at the balance sheet dates. Transactions denominated in currencies other than their local currencies during the year are converted into local currencies at the applicable rates of exchange prevailing when the transactions occur. Transaction gains and losses are recorded in other income/ (expense), net in the statements of income.

The reporting currency of the Group is the United States dollar (“US dollar”). When translating local financial reports of the Group’s subsidiaries into US dollar, assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of operations and comprehensive income.

The relevant exchange rates are listed below:

 

  June 30,  

 

  2017     2016  

 

  RMB     HK$     RMB     HK$  

Balance sheet items, except for equity accounts

  6.7744     7.8053     6.6312     7.7542  

 

                       

Items in the statements of income and comprehensive income, and the statements of cash flows

  6.8709     7.7732     6.5309     7.7738  

FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts receivable, other receivable, other payable, short term loan, and long term debt. For certain of the Company’s financial instruments, the carrying amounts approximate their fair values due to their short maturities. The long term loan is initially recognized as fair value and subsequently measured at amortized cost adjusted by transaction cost, which are amortized over the expected life of the instrument.

ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Level 1 input to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

9


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

   
Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. As of June 30, 2017 and 2016, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when a different tax rate is enacted.

Pursuant to the provisions of ASC No. 740, Income Taxes, the Group provides valuation allowances for deferred tax assets for which it does not consider realization of such assets to be more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the historical taxable income generation, projected future taxable income, the reversal of existing deferred tax liabilities and tax planning strategies in making this assessment.

The corporate income tax rate applicable to the company is from 15% to 35%. As of June 30, 2017, the Company had a Net Operating Loss of $1,141,441 to be applied against future taxable income within 5 years after the loss was incurred. A full valuation allowance is established against all deferred tax assets relating to NOL carry forwards based on estimates of recoverability. While the Company has optimistic plans for its business, it is determined that such a valuation allowance was necessary given the uncertainty with respect to its ability to generate sufficient profits from its new business model.

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per common share ("EPS") 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.

10


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The numerator and denominator used in the basic and diluted LPS of common stock computations are presented in the following table:

       Six months ended June 30,

2017
(Unaudited)
2016
(Unaudited)
NUMBERATOR FOR BASIC AND DILUTED EPS    
         Net income (loss) attributable to common stockholders $ (286,346) $ 49,010
DENOMINATOR FOR BASIC AND DILUTED EPS    
Weighted average shares of common stock outstanding 77,655,862 77,655,862
EPS – Basic and diluted $ (0.0037) $ 0.0006

There were no potentially dilutive securities outstanding at June 30, 2017 and 2016 as the result would be anti-dilutive.

COMPARATIVE FIGURES

Certain comparative figures have been reclassified in order to conform to 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.

RECENTLY ADOPTED ACCOUNTING STANDARDS

There were no new accounting pronouncements that may have material impacts on the Company’s consolidated financial statements, in addition to those disclosed in our audited consolidated financial statements for the year ended December 31, 2016, except for the following:

In July 2015, the FASB amended its guidance related to the measurement of inventory. The amended guidance requires inventory to be measured at the lower of cost and net realizable value and thereby simplifies the current guidance of measuring inventory at the lower of cost or market. The amended guidance is effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance during the second quarter of 2017 and it did not have a material impact on its Consolidated Financial Statements.

11


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In March 2016, the FASB amended its guidance related to the accounting for certain aspects of share-based payments to employees. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits are no longer separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted the guidance during the Second quarter of 2017 and it did not have a material impact on its Consolidated Financial Statements.

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 audited consolidated financial statements upon adoption.

3.

STOCKHOLDERS' EQUITY DEFICIT

The Company's capital structure as of June 30, 2017and December 31, 2016 was as follows:

  Common stock – par value $0.01 Authorized Issued and outstanding
  June 30, 2017 200,000,000 77,655,862
  December 31, 2016 200,000,000 77,655,862

As of June 30, 2017, the Company had accumulated deficit of $31,125,755.

4.

INVESTMENTS

On January 5, 2010, the Company acquired 20% equity interest in Cangshan Duoha Vegetable Food Company (“Duoha”) by issuing 50,000 shares of common stock of the Company at $0.2 per share to Duoha’s shareholders. According to the investment agreement, although we own 20% equity interest of Duoha, we do not have significant influence over Duoha’s operating and financing activities. Therefore, the Company used cost method to record the 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 ($74,875) to acquire 20% equity interest in of Guizhou. Although we own 20% equity of Guizhou, we do not have significant influence over Guizhou’s operating and financing activities. Therefore, cost method was used to account for this investment.

The amount of investment as of June 30, 2017 and December 31, 2016 was $83,885 and $81,919, respectively.

12


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

5.

INVENTORIES

Inventories at June 30, 2017 and December 31, 2016 consisted of:

      June 30,     December 31,  
      2017     2016  
      (Unaudited)     (Audited)  
  Raw Materials $  47,807   $  46,254  
  Low value consumables   12,985     12,623  
  Work in progress   213,292     208,292  
  Finished goods   34,259     83,908  
  Processing materials   176,110     142,582  
        Subtotal   484,453     493,659  
  Less: reserve for obsolescence   54,289     53,016  
    $  430,164   $  440,643  

The amount of inventory expensed for the six months ended June 30, 2017 and 2016 were $10,479 and $9,123, respectively.

The amount of inventory expense for three months ended June 30, 2017 and 2016 were $3,472 and $12,843, respectively

6.

ACCOUNT RECEIVABLES

Trade accounts receivable arise from the product sales in the normal course of business. Based on management’s assessment of the customer’s credit history and current relationships with them, management makes conclusions whether any balances outstanding at the end of the period will be deemed uncollectible on an individual basis and aging analysis basis. The Company reserves 5% of accounts receivable balances that have been outstanding between 1 year and 2 years, reserves 20% of accounts receivable balances that have been outstanding between 2 years and 3 years, reserves 40% of receivable balances that have been outstanding between 3 years to 5 years, and reserves 100% of receivable balances that have been outstanding more than 5 years.

The allowance for doubtful accounts recognized as of June 30, 2017 and December 31, 2016 was Nil and Nil, respectively.

Account receivables at June 30, 2017 and December 31, 2016 consisted of:

    June 30,     December 31,  
    2017     2016  
    (Unaudited)     (Audited)  
Chongqinwuji Limited. $  19,781   $  36,327  
RuipuRuisen Limited.   7,322     11,503  
Tang sanbao   190     186  
Bai dachun   2,849     4,844  
Others   3,438     97  
Total $  33,580   $  52,957  

13


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

7.

OTHER RECEIVABLES


    June 30, 2017     December 31, 2016  
    (Unaudited)     (Audited)  
Deposit $  12,099   $  11,814  
Petty cash   7,161     16,728  
Others   109,374     27,919  
  $  128,634   $  56,461  

Included in others is a payment of $103,359 for repaying a shareholder for returning her shares to the Company. As of the report date, the shares were still registered under the name of the shareholder. The company has not decided whether to transfer the stocks back to the company or re-sell them to other shareholders. Therefore, such payment was recorded in other receivables.

8.

PROPERTY AND EQUIPMENT

Property and equipment at cost consisted of:

    June 30,     December 31,  
    2017     2016  
    (Unaudited)     (Audited)  
Transportation equipment $  54,597   $  53,317  
Furniture and office equipment   63,029     61,239  
Production equipment, buildings and improvements   360,732     352,277  
     Subtotal   478,358     466,833  
Less: impairment provision   (45,592 )   (44,523 )
accumulated depreciation   (327,430 )   (310,990 )
    105,336     111,320  
Construction in progress   178,001     173,829  
  $  283,337   $  285,149  

Depreciation expense for six months ended June 30, 2017 and 2016 were $16,440 and $5,062, respectively. The amounts of impairment as of June 30, 2017and December 31, 2016 were $45,592 and $44,523, respectively. There was nil impairment, respectively during the 3months ended June 30, 2017 and 2016.

9.

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.

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

14


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

10.

SHORT-TERM LOAN

During the year of 2015, Shiling Wang provided the company an unsecured loan in an amount of RMB 380,000 ($56,905), and the interest rate of the loan is 25% per annum. As of December 31, 2016, the Company has repaid loan in full.

During the year of 2017, Ran Wang provided the company an unsecured loan in an amount of RMB 100,000 ($14,761), and the interest rate of the loan is 25% per annum.

The principal amount for six months ended June 30, 2017 and the year ended 2016 were $14,761 and $0 respectively, and was recorded on the balance sheet as short-term loan.

11.

OTHER PAYABLES

Other payables as of June 30, 2017and December 31, 2016 consist of the following:

    June 30,     December 31,  
    2017     2016  
    (Unaudited)     (Audited)  
Xinxiang Tianjieshan Biotechnology Co., Ltd. $  49,963   $  56,281  
Qingdao Cooperation Win - Win Trading Company   -     15,396  
Educational funds   8,092     7,903  
Wage payable   119,527     70,069  
Project payment   22,142     21,623  
Temporary borrowing   66,427     -  
Other payable   15,212     8,006  
Total $ 281,363   $ 179,278  

During the year of 2017, the Company obtained temporary financing from two unrelated individuals for a total of $66,427 to assist the operation of the business. Such temporary borrowing is non-interest bearing, unsecured and has no specified repayment terms.

12.

RELATED PARTY TRANSACTIONS AND STOCKHOLDER’S LOAN

The caption “Due to Related Company” are loans 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.

The related party transactions list:

Related Party Transactions Due from related
parties
Due to related
parties
 
Due to directors
Related parties
2017.6.30 (Unaudited)      
Chen Jie     141,418
Li Changde     272,616
Wang Wei     9,146
Li, Hongliang     224,471
Beijing De Reng Sheng Limited     199,243  
Shandong Cangshan Duoha Vegetables company   469
SiChuan Longyi Limited   20,046  
Liu, Guizhi   238,285  
Beijing De Qiu HongLimited   392,159  
Wang,jishu   43,064  
Total    893,265 647,651
2016.12.31      
Chen Jie     128,418
Li Changde     216,755
Wang Wei     9,205
Li, Hongliang     219,209
Beijing De Reng Sheng Limited   194,573  
Shandong Cangshan Duoha Vegetables      
company   458  
SiChuan Longyi Limited   19,576  
Liu, Guizhi   216,092  
Beijing De QiuHong Limited   382,966  
Total - 813,665 573,587

15


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements


12.

RELATED PARTY TRANSACTIONS AND STOCKHOLDER’S LOAN (Continued)


Related Party Transactions Rental

Inventories
Purchase from
related party

Due to
directors
Due to
related
party
Payment for
related
party
Related parties
2017.1-2017.6 (Unaudited)          
Chen Jie     13,000    
Li Changde     55,862    
Liu, Guizhi 22,142        
Wang,jishu       43,064   
Total 22,142   68,862 43,064    
2016.1-2016.6 (Unaudited)          
Li Changde     7,075    
Liu, Guizhi 22,620        
Wang,jishu          
Total 22,620   7,075    

16


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

13.

MAJOR SUPPLIERS AND CUSTOMERS

The Company purchases the majority of its SOD material from two suppliers which accounted for 100% of our total purchases in 2017. One of the suppliers is Xinxiang Tianjie Mountain Biological Technology Co., Ltd. Another is Guizhou Shengxin Biological Technology Co., Ltd. As of June 30, 2017, other payables due to Xinxiang Tianjie Mountain Biological Technology Co., Ltd. was $ 49,963, which accounts for15% of the total other payables.

The Company had one major customer for six months ended June 30, 2017: Qingdao cooperation win-win Trading Company. The company accounted for 34% ($19,505) of revenue for six months ended June 30, 2017.

14.

LONG-TERM DEBT


    June 30,     December 31,  
    2017(Unaudited)   2016(Audited)  
Loan bearing interest at 23% effective interest rate per annum (stated interest is 12%), repayable in blended monthly instalments of $1,431 and matures on December 18, 2019. The loan is unsecured. $  32,053     -  
             
Current portion of long term debt   (10,898 )   -  
Long-term debt $  21,155     -  

15.

INCOME TAX

At June 30, 2017 and 2016, based on the weight of available evidence, management determined that it was unlikely that the Company's deferred tax assets would be realized and have provided for a full valuation allowance associated with the net deferred tax assets.

15.

INCOME TAX (Continued)

The Company periodically analyzes its tax positions taken and expected to be taken and has determined that since inception there has been no need to record a liability for uncertain tax positions. The Company classifies income tax penalties and interest, if any, as part of selling, general and administrative expenses in the accompanying statements of operations. There was no accrued interest or penalties as of June 30, 2017 and 2016.

The Company is neither under examination by any taxing authority, nor has it been notified of any impending examination. The Company's tax years for its Federal and State jurisdictions which are currently open for examination are the years of 2012 - 2017.

China

Under the Law of People’s Republic of China on Enterprise Income Tax (“EIT Law”), which was effective from January 1, 2008, domestically-owned enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%. As of June 30, 2017, the PRC entities had a Net Operating Loss of $1,141,441 to be applied against future taxable income within 5 years after the loss was incurred. The potential benefit of the company’s net operating losses has not been recognized in these financial statements because it is more likely-than-not it will not utilize the net operating losses carried forward as it does not expect to generate sufficient taxable income in future or the amount involved is not significant.

17


CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to consolidated financial statements

    Period Ended June 30,    
    2017     2016  
Income tax at U.S. statutory rate (34%)   (34% )   (34% )
Tax rate difference   8%     8%  
Valuation allowance   26%     26%  
    0%     0%  
   
16.

SUBSEQUENT EVENT

The management assessed there were no events occurring after balance date as of June 30, 2017 and prior to the time of annual report completion which might affect the financial report.

18


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited condensed consolidated interim financial statements and the notes thereto.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” relating to the business of China Longyi Group International Holdings Limited and its subsidiary companies. The forward-looking statements include, among others, statements concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. These statements are based on assumptions and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Risks and uncertainties include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; and any of the factors mentioned in the “Risk Factors” section of the Company’s annual report on Form 10-K filed on April 17, 2017. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future..

Use of Certain Defined Terms

Except as otherwise indicated by the context, references in this report to:

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

 

“China” and “PRC” are references to the People’s Republic of China;

“China Longyi,” “we,” “us,” “our,” or the “Company” are references to the combined business of China Longyi 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;

 

“Exchange Act” mean the Securities Exchange Act of 1934, as amended;

 

“RMB” refer to Renminbi, the legal currency of China;

 

“Securities Act” mean the Securities Act of 1933, as amended;

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

 

“U.S. dollar,” “$” and “US$” are to the legal currency of the United States.

Overview of our Business

We are a holding company that only operates through our indirect Chinese subsidiaries Beijing SOD and Chongqing SOD. Through our Chinese subsidiaries, we develop, manufacture and market our SOD products in China. SOD is a naturally occurring enzyme which may act as a potent antioxidant defense in cells that are exposed to oxygen. Certain research has shown that under certain biological conditions, SOD revitalizes cells and reduces the rate of cell destruction. It neutralizes the most common free radical—superoxide radical—by converting it into hydrogen peroxide and water. Because superoxide is harmful to human cells, and certain forms of SOD exist naturally in most humans, many studies show that SOD is valuable in protecting human cells from the harmful effects of superoxide.

19


SOD is thought to be more powerful than antioxidant vitamins as it activates the body's productions of its own antioxidants. As a result, SOD is referred to as the “enzyme of life.” Commercially, SOD has a wide range of applications and is widely applied in foods, drinks, skin care productions, pharmaceuticals, to combat ailments ranging from sunburn to rheumatoid arthritis.

Second Quarter of 2017 Financial Performance Highlights

The following are some financial highlights for the three months ended June 30, 2017:

Revenue: Revenue decrease by $604,365, to $19,980 for the three months ended June 30, 2017, from $624,345 for the same period in 2016.

   

Expense from operations: Expense from operations decreased by $30,733, or 18%, to $142,719 for the three months ended June 30, 2017, from $ 173,452 for the same period in 2016.

   

Net profit: Net profit decreased by $322,297, or 214%, to $(172,033) for the three months ended June 30, 2017, from net profit of $150,264 for the same period in 2016.

   

Fully diluted net income per share: Fully diluted net income per share was $0 for the three months ended June 30, 2017, as compared to $0 for the same period in 2016.

Provision for Income Taxes

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 second quarter of 2017.

   

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.

   

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25.0% on its global income. The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our consolidated global income will be subject to PRC income tax of 25.0%.

We incurred no income taxes in either the three months ended June 30, 2017 and 2016.

20


Results of Operations

Three Months Ended June 30, 2017 Compared to Three Months ended June 30, 2016

The following table summarizes the results of our operations for the three months ended June 30, 2017 and 2016 and provides information regarding the dollar and percentage increase or (decrease) from the three months ended June 30, 2016 to the same period of 2017.

    Three Months Ended              
    June 30,     Increase     % Increase  
Item   2017     2016     (Decrease)     (% Decrease)  
Revenue $  19,980   $  624,345   $  (604,365 )   (97% )
Cost of Revenue   6,020     284,017     (277,997 )   (98% )
Gross Profit   13,960     340,328     (326,368 )   (96% )
Operating Expenses   142,719     173,452     (30,733 )   (18% )
Other Income (expense)   (43,274 )   (16,612 )   (26,662 )   (160% )
Provision for Taxes   -     -     -     -  
Net profit (loss) attributable to China Longyi $  (161,041 ) $  128,387   $  (289,428 )   (225% )

Revenues. Our revenues are derived primarily from sales of our SOD products. Our revenues decreased $604,365, to $19,980 for the three months ended June 30, 2017, from $624,345 for the same period in 2016. The decrease in revenues was due to fewer SOD products being sold for the three months ended June 30, 2017 compared with the same period of 2016. We sold limited amount of our SOD products during the three months ended June 30, 2017 to our existing customers due to the change of our sales platform. We expect that our sales will increase in September 2017.

Cost of Revenues. Our cost of revenues is primarily comprised of the costs of our raw materials, labor and overhead. Our cost of revenues decreased $277,997, to $6,020 for the three months ended June 30, 2017, from $284,017 during the same period in 2016 because fewer SOD products were sold for the three months ended June 30, 2017 compared with the same period of 2016.

Gross Profit. Our gross profit decreased by $326,368, to $13,960 for the three months ended June 30, 2017 from $340,328 during the same period in 2016. The gross profit decreased mainly due to fewer SOD products being sold for the three months ended June 30, 2017 compared with the same period of 2016.

Operating Expenses. Our total operating expenses for the three months ended June 30, 2017 decreased $30,733, or 18%, to $142,719, from $173,452 for the same period in 2016. This decrease was mainly because we paid less professional fees compared with same period of 2016.

Other Income (expense). Other income was $(43,274) during the three months ended June 30, 2017, a decrease of $26,662 from $(16,612) during the same period in 2016. Such decrease was mainly due to the exchange rate change. As the parent company, we have several subsidiaries which located in Hong Kang and mainland China. There were trade transactions between these subsidiaries. Therefore, the transaction gain (loss) appeared. The change of transaction gain (loss) was effected by the exchange fluctuation. There was exchange gain arise from internal account eliminating between China Longyi and subsidiaries located in Hong Kong.

Net profit attributable to China Longyi. As a result of above facts, our net profit decreased by $289,428, or 225%, to $(161,041) for the three months ended June 30, 2017, from $128,387 of net loss for the same period in 2016.

 

21


Six Months Ended June 30, 2017 Compared to Six Months ended June 30, 2016

The following table summarizes the results of our operations for the six months ended June 30, 2017 and 2016 and provides information regarding the dollar and percentage increase or (decrease) from the six months ended June 30, 2016 to the same period of 2017.

   

Six Months Ended

             
    June 30,     Increase     % Increase  
Item   2017     2016     (Decrease)     (% Decrease)  
Revenue $  57,257   $  640,811   $  (583,554 )   (91% )
Cost of Revenue   25,802     284,017     (258,215 )   (91% )
Gross Profit   31,455     356,794     (325,339 )   (91% )
Operating Expenses   275,382     276,938     (1,556 )   (1% )
Other Income (expense)   (61,840 )   (16,486 )   (45,354 )   (275% )
Provision for Taxes   -     -     -     -  
Net profit (loss) attributable to China Longyi $  (286,346 ) $  49,010   $  (335,356 )   (684% )

Revenues. Our revenues decreased $583,554, to $57,257 for the six months ended June 30, 2017, from $640,811 for the same period in 2016. The decrease in revenues was due to fewer SOD products being sold for the six months ended June 30, 2017 compared with the same period of 2016.

Cost of Revenues. Our cost of revenues decreased $258,215, to $25,802 for the six months ended June 30, 2017, from $ 284,017 during the same period in 2016 because fewer SOD products were sold for the six months ended June 30, 2017 compared with the same period of 2016.

Gross Profit. Our gross profit decreased by $325,339, to $31,455 for the six months ended June 30, 2017 from $356,794 during the same period in 2016. The gross profit decreased mainly due to fewer SOD products being sold for the six months ended June 30, 2017 compared with the same period of 2016.

Operating Expenses. Our total operating expenses for the six months ended June 30, 2017 decreased $1,556, or 1%, to $275,382, from $276,938 for the same period in 2016.

Other Income (expense). Other income (expense) was $(61,840) during the six months ended June 30, 2017, a decrease of $45,354 from $ (16,486) during the same period in 2016. Such decrease was mainly due to the exchange rate change.

Net profit attributable to China Longyi. As a result of above facts, our net profit decreased by $335,356, or 684%, to $(286,346) for the six months ended June 30, 2017, from $49,010 of net profit for the same period in 2016.

Liquidity and Capital Resources

We had $43,986 in cash and cash equivalents as of June 30, 2017. As of such date, we also had total current assets of $678,152 and total assets of $1,045,374. We had total current liabilities (consisting of accounts payable, accrued liabilities, due to directors, other payables, short-term loan and due to related parties) in the amount of $2,161,866. Long-term loan was $32,052. Our stockholders’ deficit as of June 30, 2017 was $(1,148,544). Since inception, we have accumulated a net loss of $31,125,755.

The following table summarizes the statements of cash flows from the unaudited condensed consolidated interim financial statements for the six months ended June 30, 2017 compared to the six months ended June 30, 2016:

22  



    Six Months Ended  
    June 30,  
    2017     2016  
Net Cash Provided By (Used In) Operating Activities $  (267,293 ) $  85,564  
Net Cash Provided By (Used In) Investing Activities   (316 )   -  
Net Cash Provided By (Used In) Financing Activities   213,834     (42,525 )
Effect of foreign exchange rate fluctuation   63,785     12,234  
Net increase (decrease) in Cash and Cash Equivalents   10,010     55,273  
Cash and Cash Equivalents - Beginning of Period   33,976     29,429  
Cash and Cash Equivalents – End of Period   43,986     84,702  

Operating Activities

Net cash used in operating activities was $(267,293) for the six-month period ended June 30, 2017 representing a decrease of $352,857 from $ 85,564 of net cash provided by the operating activities for the same period of 2016. The decrease in the cash provided by operating activities was mainly attributable to the change of the amount of net income. We sold less SOD products for the six months ended June 30, 2017compared with the same period of 2016 and the revenue accordingly decreased.

Investing Activities

Net cash used in investing activities for the six-month period ended June 30, 2017 was $316 as compared with $0 of net cash used in investing activities for the same period of 2016.

Financing Activities

Net cash provided by financing activities for the six-month period ended June 30, 2017 was $213,834 as compared to $(42,525) provided by financing activities for the same period in 2016. Such change was mainly due to new of short term loan from directors, long term loans and loans without interest, which were $14,554, $31,602 and $107,952, respectively and proceeds loans from directors in an amount of $59,726.

The Company did not have any bank loans as of June 30, 2017.

We expect to generate approximately $0.5 million to $1 million of revenues from the sale of our products during the next 12 months. If our cash on hand and cash flow from operations do not meet our expected capital expenditure and working capital requirements for the next 12 months, we expect that our directors will provide more cash as loans to the company. However, we may in the future require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Critical Accounting Policies

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

23


Foreign Currencies

The company has determined that RMB to be its functional currency. The accompanying unaudited consolidated financial statements are presented in U.S. dollars. The unaudited consolidated financial statements are translated into US dollars from RMB at year-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

 

  June 30,     December 31,  

 

  2017     2016     2016  

 

  RMB     HK$       RMB     HK$     RMB     HK$  

Balance sheet items, except for equity accounts

  6.7744     7.8053     6.6312     7.7542     6.9370     7.7551  

 

                                   

Items in the statements of income and comprehensive income, and the statements of cash flows

  6.8709     7.7732     6.5309     7.7738     6.6401     7.7621  

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 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.

Restrictions on Transfer of Assets Out of the PRC

Dividend payments by Beijing SOD are limited by certain statutory regulations in the PRC. No dividends may be paid by Beijing SOD without first receiving prior approval from the Foreign Currency Exchange Management Bureau. Dividend payments are restricted to 85% of profits, after tax.

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin No.104 “Revenue recognition” (“ASC Topic 605”). Revenues are recognized as earned when the following four criteria are met: (1) a customer issues purchase orders or otherwise agrees to purchase products; (2) products are delivered to the customer; (3) pricing is fixed or determined in accordance with the purchase order or agreement; and (4) collectability is reasonably assured.

Inflation

Inflation does not materially affect our business or the results of our operations.

Seasonality

We may experience seasonal variations in our future revenues and our operating costs, however, we do not believe that these variations will be material.

24


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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEMS 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures’

Our management, with the participation of our chief executive officer and chief financial officer, Ms. Jie Chen and Mr. Xinmin Pan, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Ms. Jie Chen and Mr. Xinmin Pan concluded that as of June 30, 2017, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Controls Over Financial Reporting

During the quarter ended June 30, 2017, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SHARES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have not sold any equity securities during the fiscal quarter ended June 30, 2017 that were not previously disclosed in a current report on Form 8-K that was filed during that period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit  
Number Description
   
31.1 Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer furnished 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 Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101  Interactive data files pursuant to Rule 405 of Regulation S-T

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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 LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
DATED: August 18, 2017  
  By: /s/ Jie Chen                           
  Jie Chen
  Chief Executive Officer
  (Principal Executive Officer)
   
DATED: August 18, 2017 By: /s/ Xinmin Pan                      
  Xinmin Pan
  Chief Financial Officer
  (Principal Financial Officer and Accounting Officer)

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EXHIBIT INDEX

Exhibit  
Number Description
   
31.1 Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer furnished 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 Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101  Interactive data files pursuant to Rule 405 of Regulation S-T

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