CHINA LONGYI GROUP INTERNATIONAL HOLDINGS
LIMITED
CONSOLIDATED BALANCE SHEETS
|
|
Unaudited
|
|
|
Audited
|
|
|
|
September 30,
|
|
|
December 31,
|
|
ASSETS
|
|
2016
|
|
|
2015
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
152,912
|
|
$
|
29,429
|
|
Inventories
|
|
333,210
|
|
|
359,194
|
|
Account
receivables
|
|
175,775
|
|
|
5,544
|
|
Due from directors
|
|
8,099
|
|
|
-
|
|
Other
receivables
|
|
77,815
|
|
|
26,508
|
|
Deposits and prepayments
|
|
103,523
|
|
|
14,447
|
|
Total current assets
|
|
851,334
|
|
|
435,122
|
|
|
|
|
|
|
|
|
Investment
|
|
85,099
|
|
|
87,512
|
|
Property, plant and equipment (net)
|
|
295,266
|
|
|
320,386
|
|
|
$
|
1,231,699
|
|
$
|
843,020
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term loan
|
$
|
-
|
|
$
|
58,519
|
|
Accounts payable
|
|
1,468
|
|
|
4,869
|
|
Accrued
liabilities
|
|
452,837
|
|
|
192,306
|
|
Due to directors
|
|
590,134
|
|
|
627,832
|
|
Due to related
parties
|
|
394,247
|
|
|
417,653
|
|
Other payables
|
|
580,377
|
|
|
660,868
|
|
Total current liabilities
|
|
2,019,063
|
|
|
1,962,047
|
|
|
|
|
|
|
|
|
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
|
|
Deficit
|
|
(30,731,204
|
)
|
|
(30,996,907
|
)
|
Other
comprehensive income
|
|
227,473
|
|
|
204,099
|
|
Stockholders' equity (deficit)
|
|
(849,633
|
)
|
|
(1,138,710
|
)
|
Noncontrolling interest
|
|
62,269
|
|
|
19,683
|
|
Total Equity
|
|
(787,364
|
)
|
|
(1,119,027
|
)
|
|
$
|
1,231,699
|
|
$
|
843,020
|
|
See notes to unaudited condensed consolidated interim financial
statements
3
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS
LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(UNAUDITED)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,034,223
|
|
$
|
153,976
|
|
$
|
1,675,034
|
|
$
|
163,119
|
|
Cost of sales
|
|
687,311
|
|
|
185,308
|
|
|
1,158,944
|
|
|
206,167
|
|
Gross margin
|
|
346,912
|
|
|
(31,332
|
)
|
|
516,090
|
|
|
(43,048
|
)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
301,162
|
|
|
121,637
|
|
|
578,100
|
|
|
363,965
|
|
|
|
301,162
|
|
|
121,637
|
|
|
578,100
|
|
|
363,965
|
|
Profit (Loss) from operations
|
|
45,750
|
|
|
(152,969
|
)
|
|
(62,010
|
)
|
|
(407,013
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
87
|
|
|
6
|
|
|
98
|
|
|
55
|
|
Other income (expense)
|
|
195,764
|
|
|
179,750
|
|
|
392,186
|
|
|
193,710
|
|
Foreign exchange gain (loss)
|
|
210
|
|
|
(10,089
|
)
|
|
(15,993
|
)
|
|
(4,786
|
)
|
Interest expense
|
|
154
|
|
|
-
|
|
|
(8,946
|
)
|
|
-
|
|
|
|
196,215
|
|
|
169,667
|
|
|
367,345
|
|
|
188,979
|
|
Income (Loss) before income tax and
noncontrolling interest
|
|
241,965
|
|
|
16,698
|
|
|
305,335
|
|
|
(218,034
|
)
|
Income tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net Income (loss)
|
|
241,965
|
|
|
16,698
|
|
|
305,335
|
|
|
(218,034
|
)
|
Less: Net income (loss) attributable to noncontrolling
interest
|
|
(25,272
|
)
|
|
(1,789
|
)
|
|
(39,632
|
)
|
|
13,485
|
|
Net income (loss) attributable to the
Company
|
$
|
216,693
|
|
$
|
14,909
|
|
$
|
265,703
|
|
$
|
(204,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
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 Income (loss)
|
$
|
241,965
|
|
$
|
16,698
|
|
$
|
305,335
|
|
$
|
(218,034
|
)
|
Foreign currency translation
|
|
(1,144
|
)
|
|
32,528
|
|
|
26,328
|
|
|
26,106
|
|
Comprehensive income (loss)
|
|
240,821
|
|
|
49,226
|
|
|
331,663
|
|
|
-191,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to noncontrolling
interest
|
|
493
|
|
|
6,352
|
|
|
42,586
|
|
|
-8,950
|
|
Comprehensive income (loss) attributable to
the Company
|
$
|
240,328
|
|
$
|
42,874
|
|
$
|
289,077
|
|
$
|
(182,978
|
)
|
See notes to unaudited condensed consolidated interim financial
statements
4
CHINALONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Nine
months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (
loss)
|
$
|
305,335
|
|
$
|
(218,034
|
)
|
Adjustments to reconcile net
income (loss) to net cash used in operations:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
22,869
|
|
|
17,855
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivables
|
|
(173,029
|
)
|
|
-
|
|
Other receivables
|
|
(52,846
|
)
|
|
(55,496
|
)
|
Due
from directors
|
|
(8,225
|
)
|
|
-
|
|
Deposits and
prepayment
|
|
(90,864
|
)
|
|
(9,099
|
)
|
Inventory
|
|
16,326
|
|
|
6,064
|
|
Other payables
|
|
203,929
|
|
|
278,867
|
|
Due
to related parties
|
|
(17,375
|
)
|
|
32,130
|
|
Accounts payable
and accrued liabilities
|
|
(3,318
|
)
|
|
-
|
|
Net cash provided by operations
|
|
202,802
|
|
|
52,287
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Purchase of investment
|
|
-
|
|
|
(61,551
|
)
|
Purchases of
property and equipment
|
|
(6,335
|
)
|
|
(5,668
|
)
|
Net cash (used in) investing activities
|
|
(6,335
|
)
|
|
(67,219
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds
(repayments) of short term loans
|
|
(57,788
|
)
|
|
-
|
|
Proceeds (repayments) loans from
directors
|
|
(23,886
|
)
|
|
(6,479
|
)
|
Net cash (used in) financing activities
|
|
(81,674
|
)
|
|
(6,479
|
)
|
Effect of foreign exchange rate
fluctuation
|
|
8,690
|
|
|
2,535
|
|
Increase(decrease) in cash and cash equivalents
|
|
123,483
|
|
|
(18,876
|
)
|
Cash and cash equivalents,
beginning of period
|
|
29,429
|
|
|
46,366
|
|
Cash and cash
equivalents, end of period
|
$
|
152,912
|
|
$
|
27,490
|
|
|
|
|
|
|
|
|
Supplemental disclosures of
cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
-
|
|
$
|
-
|
|
Cash paid for
income taxes
|
$
|
-
|
|
$
|
-
|
|
See notes to unaudited condensed consolidated interim financial
statements
5
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
unaudited condensed consolidated interim financial statements
September 30,
2016
The accompanying unaudited consolidated interim financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) for financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by US GAAP for annual financial statements. These unaudited consolidated interim
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2015. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The unaudited condensed consolidated
interim financial statements of China Longyi Group International Holdings
Limited (the Company or China Longyi) include the accounts of China Longyi
and its wholly-owned and majority-owned subsidiaries. All material 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.
6
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
unaudited condensed consolidated interim financial statements
September 30,
2016
1.
|
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 September 30, 2016, the Company has a working capital
deficiency of $1,167,729 and accumulated deficit from recurring net losses
of $30,731,204 incurred for the current and prior years as of September
30, 2016. As at September 30, 2016, the Company has cash and cash
equivalents of $152,912.
|
|
|
|
The Companys ability to continue as a going concern
ultimately is dependent on the managements ability to obtain equity or
debt financing, attain further operating efficiencies, and achieve
profitable operations. The unaudited condensed consolidated interim
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.
|
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
|
|
PRINCIPLES OF CONSOLIDATION AND BASIS OF
PRESENTATION
|
|
|
|
The unaudited condensed consolidated interim 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 condensed consolidated interim financial statements have been
prepared in accordance with US GAAP. All significant intercompany accounts
and transactions have been eliminated.
|
|
|
|
The Company has determined the Peoples Republic of China
Chinese Yuan Renminbi (RMB) to be its functional currency. The
accompanying unaudited condensed consolidated interim financial statements
are presented in United States (US) dollars. The unaudited condensed
consolidated interim 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.
|
7
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
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 charge in the statement of
operations to allocate 10% of the results of operations of the Beijing SOD
to Miss Ran Wang, its non-controlling shareholder.
|
|
|
|
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:
|
|
Estimated
|
|
Useful Life
|
Transportation equipment
|
5 years
|
Furniture and office equipment
|
5 years
|
Production equipment
|
10 years
|
Building and improvements
|
20 years
|
8
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
Cash and Cash Equivalents as of September 30, 2016 were
$152,912 and $29,429 in December 31, 2015.
|
|
|
|
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 September 30, 2016 were $333,210 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.
|
9
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
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 nine months ended
September 30, 2016 and 2015.
|
|
|
|
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 September 30, 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 nine
months ended September 30, 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 Companys comprehensive income (loss) consists of net
income (loss) and foreign currency translation adjustments.
|
|
|
|
RECENTLY ADOPTED ACCOUNTING STANDDARDS
|
|
|
|
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:
|
10
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
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 unaudited condensed
consolidated financial statements and disclosures.
|
|
|
|
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 unaudited condensed 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 unaudited condensed consolidated financial statements upon
adoption.
|
|
|
3.
|
STOCKHOLDERS' EQUITY
|
|
|
|
The Company's capital structure as of September 30, 2016
and December 31, 2015 was as follows:
|
Common stock par value $0.01
|
Authorized
|
Issued and outstanding
|
|
|
|
September 30, 2016
|
200,000,000
|
77,655,862
|
|
|
|
December 31, 2015
|
200,000,000
|
77,655,862
|
As of September 30, 2016, the Company
had accumulated deficit of $30,731,204.
11
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
4.
|
INVESTMENT
|
|
|
|
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 Duohas
shareholders. According to the investment agreement, although we own 20%
equity interest of Duoha, we do not have significant influence over
Duohas 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 Guizhous operating and financing
activities.
|
|
|
|
The amount of investment as of September 30, 2016 and
December 31, 2015 was $85,099 and $87,512, respectively.
|
|
|
5.
|
INVENTORIES
|
|
|
|
Inventories at September 30, 2016 and December 31, 2015
consisted of:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw Materials
|
$
|
48,558
|
|
$
|
12,639
|
|
Low value consumables
|
|
13,113
|
|
|
13,485
|
|
Work in progress
|
|
228,802
|
|
|
266,717
|
|
Finished goods
|
|
42,737
|
|
|
66,353
|
|
|
$
|
333,210
|
|
$
|
359,194
|
|
6.
|
PROPERTY AND EQUIPMENT
|
|
|
|
Property and equipment at cost consisted
of:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Transportation equipment
|
$
|
51,434
|
|
$
|
52,892
|
|
Furniture and office equipment
|
|
61,707
|
|
|
57,043
|
|
Production equipment, buildings and
improvements
|
|
365,950
|
|
|
376,331
|
|
Subtotal
|
|
479,091
|
|
|
486,266
|
|
Less: impairment provision
|
|
(46,252
|
)
|
|
(47,563
|
)
|
accumulated depreciation
|
|
(318,149
|
)
|
|
(304,015
|
)
|
|
|
114,690
|
|
|
134,688
|
|
Construction in progress
|
|
180,576
|
|
|
185,698
|
|
|
$
|
295,266
|
|
$
|
320,386
|
|
Depreciation expense for the nine months ended September 30, 2016 was $22,869. Accumulated impairment as of September 30, 2016 and
December 31, 2015 was $46,252 and $47,563.
12
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
condensed consolidated financial statements (Unaudited)
September 30, 2016
7.
|
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 Companys financial condition.
|
|
|
|
The Company rents office space from the related company
on a month to month basis.
|
|
|
8.
|
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 September 30, 2016, the
Company has repaid loan in full.
|
|
|
|
The principal amount as of September 30, 2016 was $0 and
as of December 31, 2015 was $58,519, respectively, and were recorded on
the balance sheet as short-term loan.
|
|
|
9.
|
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 September 30, 2016 and December 31,
2015 consist of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Due to Tailong Zhongrui
International Corporation
|
$
|
13,178
|
|
$
|
35,419
|
|
Due to Beijing De Qiuhong Investment Ltd.
|
|
382,857
|
|
|
486,116
|
|
Due to Xinxiang Tianjieshan
Biotechnology Co., Ltd.
|
|
58,457
|
|
|
-
|
|
Educational funds
|
|
7,729
|
|
|
9,754
|
|
Wage payable
|
|
85,880
|
|
|
86,740
|
|
Project payment
|
|
22, 462
|
|
|
23,100
|
|
Other payable
|
|
9,814
|
|
|
19,739
|
|
Total
|
$
|
580,377
|
|
$
|
660,868
|
|
10.
|
RELATED PARTY TRANSACTIONS AND STOCKHOLDERS
LOAN
|
|
|
|
Due to directors, Due from directors and Due to Related
Companies 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
on a month to month basis.
|
|
|
|
The amount of Due from directors as of September 30, 2016 and December 31,
2015 was $8,099 and $0, respectively. The amount of $8,099, due from
directors was advanced to the Companys CEO for business related travel
and was applied against travel expenses incurred by the Companys CEO
during October 2016.
|
|
|
|
The amount of Due to directors as of September 30, 2016 and December 31,
2015 was $590,134 and $627,832, respectively.
|
|
|
|
The amount of Due to related parties as of September 30, 2016 and
December 31, 2015 was $394,247 and $417,653, respectively.
|
|
|
11.
|
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.
|
13
Third Quarter of 2016 Financial Performance
Highlights
The following are some financial highlights for the three
months ended September 30, 2016:
-
Revenue
: Revenue increase $880,247, to $1,034,223 for the three
months ended September 30, 2016, from $153,976 for the same period in 2015.
-
Expense from operations
: Expense from operations increased $179,525,
or 147.59%, to $301,162 for the three months ended September 30, 2016, from
$121,637 for the same period in 2015.
-
Net profit
: Net profit increased $225,267, or 1349.06%, to $241,965
for the three months ended September 30, 2016, from $16,698 for the same
period in 2015.
-
Fully diluted net income per share
: Fully diluted net income per
share was $0 for the three months ended September 30, 2016, as compared to $0
for the same period in 2015.
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 third
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 Peoples
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 organizations business, fiscal condition and current
operations in China.
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 a 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% .
15
We incurred no income taxes in either the three months ended
September 30, 2016 or the three months ended September 30, 2015.
Results of Operations
Three Months Ended September 30, 2016 Compared to Three
Months ended September 30, 2015
The following table summarizes the results of our operations
for the three months ended September 30, 2016 and 2015 and provides information
regarding the dollar and percentage increase or (decrease) from the three months
ended September 30, 2015 to the same period of 2016.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Increase
|
|
|
% Increase
|
|
Item
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(%
Decrease)
|
|
Revenue
|
$
|
1,034,223
|
|
$
|
153,976
|
|
$
|
880,247
|
|
|
571.68%
|
|
Cost of Revenue
|
|
687,311
|
|
|
185,308
|
|
|
502,003
|
|
|
270.90%
|
|
Gross Profit
|
|
346,912
|
|
|
(31,332
|
)
|
|
378,244
|
|
|
1207.21%
|
|
Operating Expenses
|
|
301,162
|
|
|
121,637
|
|
|
179,525
|
|
|
147.59%
|
|
Other Income (expense)
|
|
196,214
|
|
|
169,667
|
|
|
26,547
|
|
|
15.65%
|
|
Provision for Taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net income attributable to China
|
$
|
216,693
|
|
$
|
14,909
|
|
$
|
201,784
|
|
|
1353.44%
|
|
Revenues.
Our revenues are derived primarily from sales
of our SOD products. Our revenues increased $880,247, to $1,034,223 for the
three months ended September 30, 2016, from $153,976 for the same period in
2015. The increase in revenues was due to more SOD products being sold for the
three months ended September 30, 2016 compared with the same period of 2015.
Cost of Revenues.
Our cost of revenues is primarily
comprised of the costs of our raw materials, labor and overhead. Our cost of
revenues increased $502,003, to $687,311 for the three months ended September
30, 2016, from $185,308 during the same period in 2015 because more SOD products
being produced and sold for the three months ended September 30, 2016 compared
with the same period of 2015.
Gross Profit.
Our gross profit increased by $378,244, to
$346,912 for the three months ended September 30, 2016 from $(31,332) during the
same period in 2015. The gross profit increased mainly due to more SOD products
being sold for the three months ended September 30, 2016 compared with the same
period of 2015.
Operating Expenses
. Our total operating expenses for the
three months ended September 30, 2016 increased $179,525, or 147.59%, to
$301,162, from $121,637 for the same period in 2015. This increase was mainly
because we paid more office fees, rental, sales taxes and advertising expenses
for three months ended September 30, 2016 compared with the same period of 2015.
Other Income (expense).
Other income was $196,214 during
the three months ended September 30, 2016, an increase of $26,547 from $169,667
during the same period in 2015. Such increase was mainly due to the fact that
non-operating income increased $16,014, to $195,764 for the three months ended
September 30, 2016, from $179,750 for the same period in 2015.
16
Net profit attributable to China Longyi.
As a result of
above facts, our net profit increased by $201,784, or 1353.44%, to $216,693 for
the three months ended September 30, 2016, from $14,909 for the same period in
2015.
Nine Months Ended September 30, 2016 Compared to Nine
Months ended September 30, 2015
The following table summarizes the results of our operations
for the nine months ended September 30, 2016 and 2015 and provides information
regarding the dollar and percentage increase or (decrease) from the nine months
ended September 30, 2015 to the same period of 2016.
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Increase
|
|
|
% Increase
|
|
Item
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(%
Decrease)
|
|
Revenue
|
$
|
1,675,034
|
|
$
|
163,119
|
|
$
|
1,511,915
|
|
|
926.88%
|
|
Cost of Revenue
|
|
1,158,944
|
|
|
206,167
|
|
|
952,777
|
|
|
462.14%
|
|
Gross Profit
|
|
516,090
|
|
|
(43,048
|
)
|
|
559,138
|
|
|
1298.87%
|
|
Operating Expenses
|
|
578,100
|
|
|
363,965
|
|
|
214,135
|
|
|
58.83%
|
|
Other Income (expense)
|
|
367,344
|
|
|
188,979
|
|
|
178,365
|
|
|
94.38%
|
|
Provision for Taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net profit (loss) attributable to China
|
$
|
265,703
|
|
$
|
(204,549
|
)
|
$
|
470,252
|
|
|
229.90%
|
|
Revenues.
Revenues increased $1,511,915, to $1,675,034
for the nine months ended September 30, 2016, from $163,119 for the same period
in 2015. The increase in revenues was due to more SOD products being sold for
the nine months ended September 30, 2016 compared with the same period of 2015.
Cost of Revenues
. Our cost of revenues increased
$952,777, to $1,158,944 for the nine months ended September 30, 2016, from
$206,167 during the same period in 2015 because more SOD products being produced
and sold for the nine months ended September 30, 2016 compared with the same
period of 2015.
Gross Profit.
Our gross profit increased by $559,138, to
$516,090 for the nine months ended September 30, 2016 from $(43,048) during the
same period in 2015. The gross profit increased mainly due to more SOD products
being sold for the nine months ended September 30, 2016 compared with the same
period of 2015.
Operating Expenses
. Our total operating expenses for the
nine months ended September 30, 2016 increased $214,135, or 58.83%, to $578,100,
from $363,965 for the same period in 2015. This increase was mainly because we
paid more office fees, rental, sales taxes and advertising expenses for the nine
months ended September 30, 2016 compared with the same period of 2015.
Other Income (expense).
Other income was $367,344 during
the nine months ended September 30, 2016, an increase of $178,365 from $188,979
during a same period in 2015. Such increase was mainly due to the fact that our
non-operating income increased $198,476, to $392,186 for the nine months ended
September 30, 2016, from $193,710 for the same period in 2015.
Net profit attributable to China Longyi.
As a result of
above facts, our net profit increased by $470,252, or 229.90%, to $265,703 for
the nine months ended September 30, 2016, from $(204,549) for the same period in
2015.
17
Liquidity and Capital Resources
We had $152,912 in cash and cash equivalents as of September
30, 2016. As of such date, we also had total current assets of $851,334 and
total assets of $1,231,699. We had total current liabilities (consisting of
accounts payable, accrued liabilities, due to directors and other payables) in
the amount of $2,019,063. Our stockholders equity as of September 30, 2016 was
$(787,364). Since inception, we have accumulated a net loss of $30,731,204.
The following table summarizes the statements of cash flows
from the unaudited condensed consolidated interim financial statements for the
nine months ended September 30, 2016 compared to the nine months ended September
30, 2015:
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net Cash Provided By (Used In) Operating
Activities
|
$
|
202,802
|
|
$
|
52,287
|
|
Net Cash Provided By (Used In) Investing Activities
|
|
(6,335
|
)
|
|
(67,219
|
)
|
Net Cash Provided By (Used In) Financing
Activities
|
|
(81,674
|
)
|
|
(6,479
|
)
|
Effect of foreign exchange rate fluctuation
|
|
8,690
|
|
|
2,535
|
|
Net increase (decrease) in Cash and Cash
Equivalents
|
|
123,483
|
|
|
(18,876
|
)
|
Cash and Cash Equivalents - Beginning of Period
|
|
29,429
|
|
|
46,366
|
|
Cash and Cash Equivalents End of Period
|
|
152,912
|
|
|
27,490
|
|
Operating Activities
Net cash provided by operating activities was $202,802 for the
nine-month period ended September 30, 2016 representing an increase of $150,515
from $52,287 of net cash provided by the operating activities for the same
period of 2015. The increase in the cash provided by operating activities was
mainly attributable to changes in Net income, Account receivables, Deposits and
prepayment, and other payables. Cash flows provided by Net Income increased
$523,369 to $305,335 for the nine months ended September 30, 2016, from
($218,034) for the same period in 2015. Cash flow used in Account receivables
increased $173,029 to $173,029 for the nine months ended September 30, 2016,
from $0 for the same period in 2015. Cash flows used in Deposits and prepayment
increased $81,765, to $90,864 for nine months ended September 30, 2016, from
$9,099 for the same period in 2015. Cash flow provided by other payables
decreased $74,938, to $203,929 for nine months ended September 30, 2016, from
$278,867 for the same period in 2015.
Investing Activities
Net cash used in investing activities for the nine-month period
ended September 30, 2016 was $6,335 as compared with $67,219 of net cash used in
investing activities for the same period of 2015. We did not have any investing
activities for the nine months ended September 30, 2016 as compared with the
same period of 2015.
Financing Activities
Net cash used in financing activities for the nine-month period
ended September 30, 2016 was $81,674 as compared to $6,479 used in financing
activities for the same period in 2015. We repaid certain short term loans and
loans from directors in an amount of $57,788 and $23,886, respectively, for the
nine months ended September 30, 2016.
The Company did not have any bank loans as of September 30,
2016.
18
We expect to generate approximately $2 million to $2.5 million
of revenues from the sale of our products during the next 12 months. If our cash on hand and cash flow from
operations do not meet our expected capital expenditure and working capital
requirements for the next 12 months, we expect that our directors will provide
more cash as loans to the company. However, we may in the future require
additional cash resources due to changed business conditions, implementation of
our strategy to expand our production capacity or other investments or
acquisitions we may decide to pursue. If our own financial resources are
insufficient to satisfy our capital requirements, we may seek to sell additional
equity or debt securities or obtain additional credit facilities. The sale of
additional equity securities could result in dilution to our stockholders. The
incurrence of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms
acceptable to us, if at all. Any failure by us to raise additional funds on
terms favorable to us, or at all, could limit our ability to expand our business
operations and could harm our overall business prospects.
Critical Accounting Policies
Foreign Currencies
The company has determined that
RMB to be its functional currency. The accompanying unaudited consolidated
interim financial statements are presented in U.S. dollars. The unaudited
condensed consolidated interim financial statements are translated into US
dollars from RMB at period-end exchange rates for assets and liabilities, and
weighted average exchange rates for revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2015
|
|
|
RMB
|
HK$
|
|
RMB
|
HK$
|
|
RMB
|
HK$
|
|
Balance sheet items, except for equity
accounts
|
6.6778
|
7.7561
|
|
6.3613
|
7.7500
|
|
6.4936
|
7.7510
|
|
|
|
|
|
|
|
|
|
|
|
Items in the statements of income and
comprehensive income, and the statements of cash flows
|
6.5757
|
7.7636
|
|
6.1738
|
7.7528
|
|
6.2272
|
7.7522
|
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.
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
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.
19
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.
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.