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 Companys 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 Peoples
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 Companys 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 $440,643 in December 31, 2016.
8
CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
Notes to
consolidated financial statements
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
FOREIGN CURRENCY TRANSLATION
The financial records of the Groups
subsidiaries are maintained in their local currencies. Monetary assets and
liabilities denominated in currencies other than their local currencies are
translated into local currencies at the rates of exchange in effect at the
balance sheet dates. Transactions denominated in currencies other than their
local currencies during the year are converted into local currencies at the
applicable rates of exchange prevailing when the transactions occur. Transaction
gains and losses are recorded in other income/ (expense), net in the statements
of income.
The reporting currency of the Group is
the United States dollar (US dollar). When translating local financial reports
of the Groups subsidiaries into US dollar, assets and liabilities are
translated at the exchange rates at the balance sheet date, equity accounts are
translated at historical exchange rates and revenue, expenses, gains and losses
are translated at the average rate for the period. Translation adjustments are
reported as cumulative translation adjustments and are shown as a separate
component of other comprehensive income in the statements of operations and
comprehensive income.
The relevant exchange rates are listed
below:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
RMB
|
|
|
HK$
|
|
|
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 Companys 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 Companys 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 Companys 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 Companys 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
employees 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.
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. 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
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
Trade accounts receivable arise from the product sales in the
normal course of business. Based on managements assessment of the customers
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
|
|
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
Companys 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
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.
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 STOCKHOLDERS
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 STOCKHOLDERS 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.
|
|
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
|
|
|
-
|
|
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 Peoples 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 companys 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%
|
|
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
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 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.
|
|
|
|
|
|
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 Companys 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.