See notes to unaudited consolidated interim financial statements

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See notes to unaudited consolidated interim financial statements

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See notes to unaudited consolidated interim financial statements

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CHINA LONGYI GROUP INTERNATIONL HOLDINGS LIMITED
Notes to unaudited condensed consolidated interim financial statements (Unaudited)
June 30, 2016

The accompanying unaudited consolidated 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 financial statements should be read in conjunction with the audited consolidation financial statements and notes thereto included in the Company's 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 consolidated 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.

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.

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CHINA LONGYI GROUP INTERNATIONL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

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 June 30, 2016, the Company has a working capital deficiency of $1,416,249 and accumulated deficit from recurring net losses of $30,947,897 incurred for the current and prior years as of June 30, 2016. As at June 30, 2016, the Company has cash and cash equivalents of $84,702.

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

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

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

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

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

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

NONCONTROLLING INTEREST IN SUBSIDIARIES

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

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:

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CASH AND CASH EQUIVALENTS

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

INVENTORY

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

Inventories as of June 30, 2016 were $350,071 and $359,194 in December 31, 2015.

INCOME TAXES

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

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

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

RESEARCH AND DEVELOPMENT COSTS

Company sponsored research and development costs, related to both present and future products, are charged to operations when incurred and are included in operating expenses. Expenditures for research and development for the six months period ended June 30, 2016 and 2015 were both $0 and a cumulative amount of $8,880,206 for the period from June 4, 1997 (inception) to June 30, 2016.

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

SHIPPING AND HANDLING

Costs relating to shipping and handling are part of general and administrative expenses in the unaudited consolidated statements of operations and comprehensive loss. Insignificant amount of shipping and handling costs incurred during the six months ended June 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 June 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 six months ended June 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 Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments.

RECENTLY ADOPTED ACCOUNTING STANDARDS

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

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

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

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

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

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

The Company's capital structure as of June 30, 2016 and December 31, 2015 was as follows:

As of June 30, 2015, the Company had accumulated deficit of $30,947,897.

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

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

In May of 2015, we signed an investment agreement with Guizhou Biology Technology Ltd. (“Guizhou”). According to the investment agreement, the Company invested RMB 500,000 to acquire 20% equity interest in of Guizhou. Although we own 20% equity of Guizhou, we do not have significant influence over Guizhou’s operating and financing policies. As of June 30, 2016, the company has invested RMB 500,000 in Guizhou.

The amount of investment as of June 30, 2016 and December 31, 2015 was $85,697 and $87,512, respectively.

Depreciation expense as of June 30, 2016 was $5,062. Accumulate impairment as of June 30, 2016 and December 31, 2015 was $46,577 and $47,563.

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CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to condensed consolidated financial statements (Unaudited)
June 30, 2016

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 principal amount for six months ended June 30, 2016 was $27,144 and for the year ended of 2015 was $58,519, respectively, and were recorded on the balance sheet as short-term loan.

Due to 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.

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.

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Second Quarter of 2016 Financial Performance Highlights

The following are some financial highlights for the three months ended June 30, 2016:

Provision for Income Taxes

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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% .

We incurred no income taxes in either the three months ended June 30, 2016 or the three months ended June 30, 2015.

Revenues. Our revenues are derived primarily from sales of our SOD products. Our revenues increased $618,762, to $624,345 for the three months ended June 30, 2016, from $5,583 for the same period in 2015. The increase in revenues was due to more SOD products being sold for the three months ended June 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 $448,635, to $455,167 for the three months ended June 30, 2016, from $6,532 during the same period in 2015 because more SOD products being produced and sold for the three months ended June 30, 2016 compared with the same period of 2015.

Gross Profit. Our gross profit increased by $170,127, to $169,178 for the three months ended June 30, 2016 from $(949) during the same period in 2015. The gross profit increased mainly due to more SOD products being sold for the three months ended June 30, 2016 compared with the same period of 2015.

Operating Expenses . Our total operating expenses for the three months ended June 30, 2016 increased $70,267, or 68.10%, to $173,452, from $103,185 for the same period in 2015. We paid a part of annual audit fee of 2015 during the second quarter of 2016; however we paid all of annual audit fee of 2014 in the first quarter of 2015.

Other Income (expense). Other income was $154,538 during the three months ended June 30, 2016, an increase of $136,567 from $17,971 during a same period in 2015. Such increase was mainly due to the written off the inventory in investment which was sold for the six months ended June 30, 2016.

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Net Profit attributable to China Longyi. As a result of above facts, our net profit increased by $206,691, or 263.96%, to $128,387 for the three months ended June 30, 2016, from $(78,304) for the same period in 2015.

Revenues. Revenues increased $631,668, to $640,811 for the six months ended June 30, 2016, from $9,143 for the same period in 2015. The increase in revenues was due to more SOD products being sold for the six months ended June 30, 2016 compared with the same period of 2015.

Cost of Revenues. Our cost of revenues increased $460,936, to $471,633 for the six months ended June 30, 2016, from $10,697 during the same period in 2015 because more SOD products being produced and sold for the six months ended June 30, 2016 compared with the same period of 2015.

Gross Profit. Our gross profit increased by $170,732, to $169,178 for the six months ended June 30, 2016 from $(1,554) during the same period in 2015. The gross profit increased mainly due to more SOD products being sold for the six months ended June 30, 2016 compared with the same period of 2015.

Operating Expenses . Our total operating expenses for the six months ended June 30, 2016 increased $34,610, or 14.28%, to $276,938, from $242,328 for the same period in 2015. This increase was mainly because we paid less professional and financial consultation fees for the six months ended June 30, 2016 compared with the same period of 2015.

Other Income (expense). Other income was $171,130 during the six months ended June 30, 2016, an increase of $151,818 from $19,312 during a same period in 2015. Such increase was mainly due to the written off the inventory in investment which sold for the six months ended June 30, 2016.

Net Profit attributable to China Longyi. As a result of above facts, our net profit increased by $258,306, or 123.42%, to $49,010 for the six months ended June 30, 2016, from $(209,296) for the same period in 2015.

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Liquidity and Capital Resources

We had $84,702 in cash and cash equivalents as of June 30, 2016. As of such date, we also had total current assets of $667,496 and total assets of $1,055,560. We had total current liabilities (consisting of accounts payable, accrued liabilities, due to directors and other payables) in the amount of $2,083,745. Our stockholders’ equity as of June 30, 2016 was $(1,028,185). Since inception, we have accumulated a net loss of $30,947,897.

The following table summarizes the statements of cash flows from the financial statements for the six months ended June 30, 2016 compared to the six months ended June 30, 2015:

Operating Activities

Net cash provided by operating activities was $85,564 for the six-month period ended June 30, 2016 representing an increase of $22,597 from $62,967 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 the number of account of Net Loss, Account receivables, Deposits and prepayment, and other payables changed. Cash flows provided by Net Loss increased $287,940 to $63,370 for the six months ended June 30, 2016, from ($224,570) for the same period in 2015. Cash flow used in Account receivables decreased $9,739, to $3,751 for the six months ended June 30, 2016, from $13,490 for the same period in 2015. Cash flows used in Deposits and prepayment increased $27,132, to $27,132 for the six months ended June 30, 2016, from $0 for the same period in 2015. Cash flow provided by other payables decreased $93,599, to $182,800 for the six months ended June 30, 2016, from $276,399 for the same period in 2015.

Investing Activities

Net cash provided by investing activities for the six-month period ended June 30, 2016 was $0 as compared with $66,137 of net cash used in investing activities for the same period of 2015. Such change was mainly because we didn’t have any investing activities for the six months ended June 30, 2016 compared with the same period of 2015.

Financing Activities

Net cash provided by financing activities for the six-month period ended June 30, 2016 was $(42,525) as compared to $(1,632) used in financing activities for the same period in 2015. We repaid certain short term loans and loans from directors in an amount of $30,624 and $11,901, respectively, for the six months ended June 30, 2016.

The Company did not have any bank loans as of June 30, 2016.

We expect to generate approximately $1 million to $1.5 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.

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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.

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.

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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.