China Longyi Group International (CGYG) 10-Q 2009 Q1 Quarterly report

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2009

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

Commission File No. 000-30183

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

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

8/F East Area
Century Golden Resources Business Center
69 Banjing Road
Haidian District
Beijing, People’s Republic of China, 100089
(Address of Principal Executive Offices)
+86-10-884-52568
(Registrant’s Telephone Number, Including Area Code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes Q             No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes £             No £

Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer £         Accelerated filer £        Non-accelerated filer £        Smaller reporting company Q

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £             No Q

The numbers of shares outstanding of each of the issuer’s classes of common equity, as of May 14, 2009 are as follows:

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

TABLE OF CONTENTS

		Page
	PART I Financial Information
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4	Controls and Procedures	17
	PART II Other Information
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

1

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

2

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS

		(UNAUDITED)			(AUDITED)
		March 31,			December 31,
		2009			2008
ASSETS
Current assets
Cash and cash equivalents	$	84,283		$	51,307
Inventories		436,927			456,766
Other receivables		80,565			77,280
Interest receivable		106,821			135,768
Short term investment		889,203			1,035,686
Deposits and prepayments		31,362			34,294
Total current assets		1,629,161			1,791,101
Due from shareholders		75,427			75,441
Property, plant and equipment (net)		580,638			618,022
	$	2,285,226		$	2,484,564
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	-		$	167,468
Accrued liabilities		304,300			179,525
Due to directors		132,320			120,592
Due from related parties		19,866			19,869
Other payables		203,088			181,077
Total current liabilities		659,574			668,531
Stockholders' equity
China Longyi stockholders' equity
Common stock: par value $.01; 200,000,000 sharesauthorized; 77,655,862 shares issued and outstanding		776,558			776,558
Additional paid-in capital		28,877,540			28,877,540
Deficit accumulated during the development stage		(28,433,400	)		(28,258,774	)
Accumulated other comprehensive income		236,098			235,985
Total China Longyi stockholders' equity		1,456,796			1,631,309
Noncontrolling interest		168,856			184,724
Total equity		1,625,652			1,816,033
	$	2,285,226		$	2,484,564

See notes to consolidated financial statements

3

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

		Three months ended						Period from
		March 31,						June 4,1997 (inception) to
		2009			2008			March 31, 2009
Revenues
Sales	$	23,713		$	82,738		$	652,780
Cost of sales		23,939			55,591			821,909
Gross margin		(226	)		27,147			(169,129	)
Operating expenses								-
General and administrative expenses		207,094			151,371			16,607,521
Goodwill impairment loss		-			-			5,408,584
Write-off inventory and bus licenses		-			-			3,322,712
Research and development costs		-			-			8,850,928
		207,094			151,371			34,189,745
Loss from operations		(207,320	)		(124,224	)		(34,358,874	)
Other income (expense)								-
Interest income		12,066			44,495			257,889
Other income		5,636			46			969,072
Transaction exchange loss		(876	)		(885	)		1,018,541
Gain on asset disposal		-			-			1,172
Gain on debt settlement		-			-			156,018
Gain on disposal subsidiary		-			-			4,093,455
Interest expense		-			-			(712,302	)
		16,826			43,656			5,783,845
Loss before income tax expense andnoncontrolling interest		(190,494	)		(80,568	)		(28,575,029	)
Income tax expense		-			-			-
Net loss		(190,494	)		(80,568	)		(28,575,029	)
Add: Net loss attributable to non-controllinginterest		15,868			6,912			141,629
Net loss attributable to China Longyi	$	(174,626	)	$	(73,656	)	$	(28,433,400	)
Basic and diluted loss per share attributable to China Longyi stockholders	$	(0.00	)	$	(0.00	)
Weighted average number of shares outstanding- basic and diluted		77,655,862			77,655,864
Comprehensive income(loss)
Net loss	$	(190,494	)	$	(80,568	)
Foreign currency translation adjustment		113			241,717
Comprehensive income (loss)		(190,381	)		161,149
Comprehensive income (loss) attributable tononcontrolling interest		15,889			(52,838	)
Comprehensive income (loss) attributable to
China Longyi	$	(174,492	)	$	108,311

See notes to consolidated financial statements

4

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Three months ended March 31,						Period from Jun 4, 1997 (inception) to
		2009			2008			March 31, 2009
Cash flows from operating activities:
Net loss	$	(190,494	)	$	(80,568	)	$	(28,264,544	)
Adjustments to reconcile net loss tonet cash used in operations:
Depreciation and amortization		10,789			11,708			1,088,065
Impairment loss for fixed assets		26,477			-			1,052,930
Write-off goodwill and inventory		-			-			7,101,506
Stock issued for services and debt		-			-			1,869,100
(Gain) loss on disposition in subsidiary		-						(3,882,796	)
Research and development expenses recorded in organization		-			-			8,612,730
Reorganization expenses recorded in organization		-			-			455,830
Changes in operating assets and liabilities:
Other receivables		(3,293	)		(495,489	)		5,302,011
Interest receivable		28,922			(46,986	)		(102,663	)
Deposits and prepyment		764			89,017			677,064
Inventory		19,752			(41,788	)		(906,322	)
Other payables		(8,458	)		-			(415,247	)
Accounts payable and accrued liabilities		1,746			123,000			(3,370,913	)
Net cash used in operating activities		(113,795	)		(441,106	)		(10,783,250	)
Cash flows from investing activities:
Reorganization - net of cash acquired		-			-			(320,579	)
Purchase of subsidiaries		-			-			(1,690,474	)
Redemption (purchase) of short term investment		146,284			-			(250,626	)
Purchases of intangible assets		-			-			(833,357	)
Purchases of property and equipment					(21,322	)		(556,247	)
Purchases of construction in progress					(86,179	)		(169,081	)
Sales of property and equipment		-			-			697,502
Deposit on subsidiary		-						(10,922	)
Net cash provided by (used in) investing activities		146,284			(107,501	)		(3,133,784	)
Cash flows from financing activities:
Addition of short term loans		-			-			1,612
Collecttion from shareholders					235,375			427,691
Collection (payments) to/from stockholders		-			31,102			(1,634,763	)
Proceeds from issuance of stock		-			-			13,149,845
Proceeds from convertible promissory note		-			-			3,128,225
Dividends paid		-			-			(1,000,000	)
Proceeds from notes payable		-			-			649,492
Payments on notes payable		-			-			(612,582	)
Net cash provided by financing activities					266,477			14,109,520
Effect of foreign exchange rate fluctuation		487			241,717			(108,203	)
Increase(decrease) in cash and cash equivalents		32,976			(40,413	)		84,283
Cash and cash equivalents, beginning of period		51,307			64,547			(0	)
Cash and cash equivalents, end of period	$	84,283		$	24,134		$	84,283
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
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

The accompanying 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The 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.

1.	BUSINESS DESCRIPTION AND ORGANIZATION
	BUSINESS
	The Company was incorporated under the laws of the state of New York on February 29, 1996. We amended our certificate of incorporation on October 16, 2007 and changed our name from Minghua Group International Holdings Limited to China Longyi Group International Holdings Limited. At the same time, we implemented a 1-for-20 reverse stock split of issued and outstanding shares of our common stock which reduced the number of our issued and outstanding share from 198,509,866 to 9,925,493. We also issued 4,349,307 shares that were previously subscribed. These financial statements have been adjusted retrospectively to show all stock transactions using post-split amounts.
	On November 12, 2007, the Company entered into a share purchase agreement, or the Share Purchase Agreement, with Daykeen Group Limited (“Daykeen”), a BVI company, or Daykeen, pursuant to which it acquired 100% ownership of Top Time International Limited (“Top Time”), a Hong Kong company. Daykeen is the sole shareholder of Top Time. Top Time owns 90% equity interest of Beijing Longyi Biology Technology Co. Ltd. (“Beijing SOD”), which is a holding company that owns 90.05% equity interest of Chongqing JiuZhou Dismutase Biology Technology Co. Ltd (“Chongqing SOD”), a corporation incorporated in China. Chongqing SOD is a manufacturer of superoxide dismutase, or SOD products. As a result of this acquisition transaction, Top Time became our wholly owned subsidiary and Daykeen became our controlling stockholder upon our issuance to Daykeen of the equity portion of the purchase price in accordance with the Share Purchase Agreement. Top Time was incorporated in Hong Kong in December 2006 and currently has two subsidiaries: Beijing SOD and Chongqing SOD. Beijing SOD is 90% owned by Top Time and was incorporated in China in March 2005. Chongqing SOD was incorporated in China in March 2007 and is 90.05% owned by Beijing SOD.
	Through acquisition of Top Time, we changed our business to develop and manufacture SOD in China. As a result, on November 28, 2007, one of our subsidiaries, Top Team Holdings Limited (BVI), disposed five subsidiaries including Euromax International Investments Limited, Beijing China Cardinal Real Estate Consulting Co., Ltd, Eagle Bus Development Limited (HK), Good View Bus Manufacturing Company Limited (HK), and Guangzhou City View Bus Installation Company Limited (PRC).

6

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

1.	BUSINESS DESCRIPTION AND ORGANIZATION (Continued)
	CAPITAL RESOURCES AND BUSINESS RISKS
	The Company remains in the development stage and all future business operations are subject to all of the risks inherent in the establishment of a new business enterprise. The Company has no proven revenue stream from the sales of its products. Additional capital resources through current and future offerings of securities will be needed in order to accomplish the Company's present marketing, development and manufacturing plans. The manufacturing facility and other operations in China, as well as the business financial conditions and results of operations are, to a significant degree, subject to economic, political and social events in China.
	The Company had incurred losses since inception and had little working capital until June 29, 2007. However, the substantial doubt about its ability to continue as a going concern, which contemplated the realization of assets and the payment of liabilities in the ordinary course of business, was alleviated on July 27, 2007, when management obtained $28,113,294 in funding through the issuance of additional stock to one of the Company’s shareholders. On November 12, 2007, the Company completed an acquisition transaction with Top Time whereby it paid Daykeen, Top Time’s sole shareholder, a total consideration of $54.9 million, in exchange for 100% ownership of Top Time, consisting of $30 million in cash and $24.9 million in shares of our common stock issuable within 90 days of the closing. The equity portion of the purchase price amounts to a total of 62,250,000 post reverse split shares of the Company’s common stock.
	On July 27, 2007, the Company instructed the prior Transfer Agent to issue the 2,500,000 post reverse split shares of common stock deliverable to Qiang Long in the name of Jolly Concept Management Limited, in accordance with Qiang Long’s instructions. On December 14, 2007, the Company instructed present Transfer Agent to issue the replacement certificate showing the new name of the company and the correct number of shares, post reverse-split, and the remaining 4,349,307 shares of common stock issuable to Qiang Long, to Jolly Concept Management Limited and to Zhang, Lifang. The Company also agreed to issue 1,131,026 shares of common stock post-reverse-split to Luck Pond Enterprises Limited or its designee, for its services as finder in connection with the Qiang Long investment. On December 14, 2007, the Company instructed present Transfer Agent to issue the total amount of 62,250,000 shares of the Company’s common stock, post-reverse-split, issuable to Daykeen, to Daykeen Investment Limited.
	RESTRICTIONS ON TRANSFER OF ASSETS OUT OF CHINA
	Dividend payments by the Company’s operating subsidiaries are limited by certain statutory regulations in China. No dividends may be paid by these subsidiaries without first receiving prior approval from the State Administration of Foreign Exchange. Dividend payments are restricted to 85% of profits, after tax. Repayments of loans or advances from subsidiaries to China Longyi, unless certain conditions are met, will be restricted by the Chinese government.
	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.

7

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
	The 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 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 consolidated financial statements are presented in United States (US) dollars. The 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 transactions occurred.
	RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.
	NONCONTROLLING INTEREST IN SUBSIDIARIES
	The Company owns 90% of the equity interests in Beijing SOD, and the remaining 10% is owned by Miss Ran Wang. Therefore, the Company records noncontrolling interest expense to allocate 10% of the loss of the Beijing SOD to its minority shareholder.
	The Company owns 81% of the equity interest in Chongqing SOD 9% is owned by Miss Ran Wang, and the remaining 10% by Mr. Guoqing Tan. Therefore, the Company records noncontrolling interest charge in the statement of operations to allocate 19% of the results of operations of Chongqing SOD to its minority 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 property and equipment, accrued liabilities, and the useful lives for depreciation.

8

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
	REVENUE RECOGNITION
	Revenues are recognized as earned when the following four criteria are met: (1) a customer issues a purchase order 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.
	CASH AND CASH EQUIVALENTS
	The Company invests idle cash primarily in money market accounts, certificates of deposits and short-term commercial paper. Money market funds and all highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents.
	PROPERTY AND EQUIPMENT
	Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable. Under the provisions of SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, the Company recognizes an “impairment charge” when the expected net undiscounted future cash flows from an asset's use and eventual disposition are less than the asset's carrying value and the asset's carrying value exceeds its fair value. Measurement of fair value for an asset or group of assets may be based on appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset or assets.
	Expenditures for maintenance, repairs and betterments, which do not materially extend the normal useful life of an asset, are charged to operations as incurred. Upon sale or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or income (loss) is reflected in income.
	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
Office, computer software and equipment	5 years
Furniture and fixtures	5 years
Production equipment	10 years
Building and improvements	20 years

9

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
	INTANGIBLE ASSETS
	The Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002. Under SFAS 142, goodwill and indefinite lived intangible assets are not amortized, but are reviewed annually for impairment, or more frequently, if indications of possible impairment exist. The Company has performed the requisite annual transitional impairment tests on intangible assets and made the impairment adjustments as necessary.
	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 Statement of Financial Accounting Standard (“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 incomes (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 years ended March 31, 2009 and 2008 were both $0 and a cumulative amount of $8,850,928 for the period from June 4, 1997 (inception) to March 31, 2009.
	EARNING (LOSS) PER SHARE
	Basic earning (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 earning 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 at March 31, 2009.

10

CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
(A DEVELOPMENT STAGE COMPANY)
Notes to consolidated financial statements
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
	EQUITY BASED COMPENSATION
	The Company accounts for employee stock options in accordance with SFAS 123(R), “Share-Based Payment.” Under SFAS 123(R) the Company is required to recognize share-based compensation expense at fair valued. The Company had no such compensation expense for the three months ended March 31, 2009.
	COMPREHENSIVE INCOME (LOSS)
	The accompanying financial statements are presented in U.S. dollars. The functional currency is the RMB. The financial statements are translated into U.S. 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 transactions occurred. Currency translation adjustments are presented as other comprehensive income.
	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.
3.	INVESTMENT
	The Company has a one year deposit certificate with an investment company in the PRC. The certificate earns interest at 5.5% to 8% per annum. The principal amount for the three months ended March 31, 2009 and for the year ended December 31, 2008 was $889,203and $1,035,686, and was recorded on the balance sheet as a short term investment.
4.	INCOME TAXES
	Net operating loss carry forwards are allowed under the Hong Kong and Chinese governments’ tax systems. In China, the previous five years’ net operating losses are allowed to be carried forward to offset future taxable income. In Hong Kong, net operating losses can be carried forward indefinitely to offset future taxable income. No deferred tax asset has been recognized due to the uncertainty of the Company having future taxable profits.
5.	COMMITMENTS AND CONTINGENCIES
	From time to time, the Company has disputes that arise in the ordinary course of its business. Currently, according to management, there are no material legal proceedings to which the Company is a party to or to which any of their property is subject that will have a material adverse effect on the Company’s financial condition.
6.	FAIR VALUE OF FINANCIAL INSTRUMENTS
	Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”) requires entities to disclose the fair values of financial instruments except when it is not practicable to do so. Under SFAS No. 107, it is not practicable to make this disclosure when the costs of formulating the estimated values exceed the benefit when considering how meaningful the information would be to financial statement users.
	As a result of the difficulties presented in the valuation of the loans payable to related entities/parties because of their related party nature, estimating the fair value of these financial instruments is not considered practical. The fair values of all other assets and liabilities approximate their carrying amounts. None of the financial instruments held are derivative financial instruments and none were acquired or held for trading purposes in 2008.

11

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” relating to the business of China Longyi Group International Holdings Limited and its subsidiary companies. The forward-looking statements include, among others, statements concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. These statements are based on assumptions and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Risks and uncertainties include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; and any of the factors mentioned in the “Risk Factors” section of the Company’s annual report on Form 10-K filed on April 14, 2009. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Certain Defined Terms

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

• “China Longyi,” “we,” “us,” “our,” or the “Company” are references to the combined business of China Longyi Group International Holdings Limited (formerly known as Minghua Group International Holdings Limited) and its wholly- and partially-owned subsidiaries: Minghua Acquisition Corp., a Delaware corporation; Top Team Holdings Limited, a British Virgin Islands company; and Top Time International Limited, or Top Time, a Hong Kong company, and Top Time’s 90% majority owned PRC subsidiary, Beijing Longyi Biology Technology Co. Ltd., or Beijing SOD, and its 81% majority owned PRC subsidiary, Chongqing JiuZhou Dismutase Biology Technology Co., Ltd., or Chongqing SOD; “China” and “PRC” are references to the People’s Republic of China;

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

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

• “Securities Act” means the Securities Act of 1933, as amended, and “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Overview of our Business

We are a New York corporation that was formed on February 29, 1996. Prior to November 12, 2007, we had limited operations and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation. On November 12, 2007, we entered into a share purchase agreement with Daykeen Group Limited, a British Virgin Islands company, pursuant to which we acquired 100% ownership of Top Time and its 90% majority owned subsidiary Beijing SOD, and Beijing SOD’s 81% majority owned PRC subsidiary, Chongqing SOD.

As a result of our acquisition of Top Time, our business is now manufacturing, developing and marketing superoxide dismutase, or SOD, products in China. Superoxide Dismutase is an antioxidant enzyme that catalyzes the reduction of superoxide and plays a critical role in the defense of cells against the toxic effect of oxygen radicals. Our SOD products have a wide range of applications, especially as additive to foods, medicines and cosmetic products. In recent years, more and more people are choosing to eat or drink healthier foods and beverages, which are supplemented with our SOD products as an additive. We plan to market, sell and service our products nationally through a combination of company-owned offices and independent sales agents. Currently we have two sales offices, one located in Chengdu, and the other located in Chongqing, and we plan to establish agents in additional offices across China. We have targeted our approach to meet local market conditions which we believe provides the best possible products for our customers throughout China.

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First Quarter of 2009 Financial Performance Highlights

Due to the overall economic slowdown in the global economy, consumer demand for health supplementary products, including our SOD wine, decreased significantly. In order to reduce our cost of sales, the management made the decision to change the package of our products. As a result, we only sold products with current package to reduce the level of inventory without producing new products during the first quarter of 2009. In addition, we sold our products at lower prices to increase market share. Therefore, our revenue decreased during the three months ended March 31, 2009. The following are some financial highlights for the three months ended March 31, 2009:

• Revenue: Revenue decreased $59,025, to $23,713 for the three months ended March 31, 2009, from $82,738 for the same period of 2008.

• Operating expenses: Operating expenses increased $55,723, or 37%, to $207,094 for the three months ended March 31, 2009, from $151,371 for the same period of 2008.

• Net loss attributable to China Longyi: Net loss increased $100,970, or 137%, to $174,626 for the three months ended March 31, 2009, from $73,656 for the same period in 2008.

• Fully diluted net loss per share attributable to China Longyi: Fully diluted net loss per share was $0.00 for the three months ended March 31, 2009 and 2008.

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 first quarter of 2009.

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

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

The Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization’s business, fiscal condition and current operations in China.

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 the Company should be classified as a resident enterprise, then the organization’s global income will be subject to PRC income tax of 25.0%.

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Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months ended March 31, 2008

The following table summarizes the results of our operations during the fiscal quarter ended March 31, 2009 and provides information regarding the dollar and percentage increase or (decrease) from the three months ended March 31, 2008 to the same period of 2009.

		Three Months Ended
		March 31,						Increase		% Increase
Item		2009			2008			(Decrease)		(% Decrease)
Revenue	$	23,713		$	82,738		$	(59,025	)	(71%	)
Cost of Revenue		23,939			55,591			(31,652	)	(57%	)
Gross Profit		(226	)		27,147			(27,373	)	(101%	)
Operating Expenses		207,094			151,371			55,723		37%
Other Income		16,826			43,656			(26,830	)	(61%	)
Provision for Taxes		-			-			-		-
Net loss before noncontrollinginterest	$	(190,494	)	$	(80,568	)	$	(109,926	)	136%

Revenues. Our revenues are derived primarily from sales of our SOD products. Revenues decreased $59,025, or 71%, to $23,713 for the three months ended March 31, 2009, from $82,738 for the same period in 2008. Our sales of SOD products decreased during the first quarter of 2009 because our management decided to change our products’ package in order to reduce the cost of products. As a result, we only sold products with current package to reduce the level of inventory without producing new products during the first quarter of 2009. In addition, in order to increase of the market awareness of our products, we sold our products at lower prices which also contributed to the decline of our revenues.

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 $31,652, or 57%, to $23,939 for the three months ended March 31, 2009, from $55,591 during the same period in 2008. This decrease was mainly due to the decrease in our raw materials and labor costs, which was generally in line with the decrease in our sales. As a percentage of revenues, the cost of revenues increased to 100.95% during the three moths ended March 31, 2009 from 67.19% in the same period in 2008. Such decrease of gross margin was mainly attributable to the fact that we sold our products with the current package at lower prices which are equivalent to the cost of goods sold.

Gross Profit.Our gross profit decreased by $27,373, or 101%, to $(226) for the three months ended March 31, 2009 from $27,147 during the same period in 2008. Gross profit as a percentage of revenues was (0.95%) for the three months ended March 31, 2009, a decrease of 33.76% from 32.81% during the same period of 2008.

Operating Expenses. Our total operating expenses for the three months ended March 31, 2009 increased $55,723, or 37%, to $207,094, from $151,371 for the same period in 2008. This increase was attributable to the impairment loss on fixed assets due to the out of service of the WeiBo brewage facility of one of our subsidiaries.

Other Income. Other income was $16,826 during the three months ended March 31, 2009, which represents a decrease of $26,830 from the $43,656 during the same period in 2008. This decrease was attributable to the lower interest income we received as a result of the decrease in the amount of principal of short term investment during the first quarter of 2009.

Net Loss attributable to China Longyi. As a result of the increase in operating expenses and the decrease in the sales of our products, our net loss increased by $100,970, or 137%, to $174,626 for the three months ended March 31, 2009, from $73,656 for the same period in 2008.

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Liquidity and Capital Resources

We had $84,283 in cash and cash equivalents as of March 31, 2009, and a one year cash investment of $889,203. As of such date, we also had total current assets of $1,629,161 and total assets of $2,285,226. We had total current liabilities (consisting of accounts payable, accrued liabilities, due to directors and other payables) in the amount of $659,574. Our stockholders’ equity as of March 31, 2009 was $1,456,796. Since inception, we have accumulated a net loss of $28,433,400.

The following table summarizes the statements of cash flows from the financial statements for the three months ended March 31, 2009 compared to the three months ended March 31, 2008:

		Three months Ended March 31,
		2009			2008
Net Cash (Used In) Operating Activities	$	(113,795	)	$	(441,106	)
Net Cash Provided by (Used in) Investing Activities		146,284			(107,501	)
Net Cash Provided By Financing Activities		0			266,477
Net increase (decrease) in Cash and Cash Equivalents		32,976			(40,413	)
Cash and Cash Equivalents - Beginning of Period		51,307			64,547
Cash and Cash Equivalents – End of Period		84,283			24,134

Operating Activities

Net cash used in operating activities was $113,795 for the three-month period ended March 31, 2009, which is a decrease of $327,311 from $441,106 of net cash used in the operating activities for the same period of 2008. The decrease of the cash used in operating activities was mainly attributed to the significant decrease in other receivables and interest receivable and deposits and prepayment accounts.

Investing Activities

Net cash provided by investing activities for the three-month period ended March 31, 2009 was $146,284, which is an increase of $253,785 from net cash used in investing activities of $107,501 for the same period of 2008. The increase in the net cash provided by investing activities was mainly due to the short term investment redemption. Our main use of cash in investing activities was to make a short term investment by holding a one-year certificate of deposit with a financial investment company in the PRC.

Financing Activities

Net cash provided by financing activities for the three-month period ended March 31, 2009 was $0 as compared to $266,477 provided by financing activities for the same period in 2008. We did not have any financing activities during the three months ended March 31, 2009.

The Company did not have any bank loans as of March 31, 2009.

We believe that our currently available working capital should be adequate to sustain our operations at our current levels through at least the next twelve months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional equity or debt financing in the private or public markets.

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.

15

Foreign Currencies

The company has determined that RMB to be its functional currency. The accompanying consolidated financial statements are presented in U.S. dollars. The consolidation 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 transactions occurred.

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.

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.

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 property and equipment, accrued liabilities and, the useful lives for depreciation.

Revenue Recognition

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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

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ITEMS 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures’

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Jie Chen, our Chief Executive Officer, and Xinmin Pan, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2009. Based on that evaluation, Ms. Chen and Mr. Pan concluded that as of March 31, 2009, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.

Internal Controls Over Financial Reporting

During the quarter ended March 31, 2009, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

Not applicable.

ITEM 2.

UNREGISTERED SHARES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have not sold any equity securities during the fiscal quarter ended March 31, 2009 that were not previously disclosed in a current report on Form 8-K that was filed during that period.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our security holders during the first fiscal quarter of 2009.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit
Number	Description
31.1*	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CHINA LONGYI GROUP INTERNATIONAL HOLDINGS LIMITED
DATED: May 15, 2009
	By: /s/ Jie Chen
	-------------------------------------
	Jie Chen
	Chief Executive Officer
	(Principal Executive Officer)
DATED: May 15, 2009	By: /s/ Xinmin Pan
	-------------------------------------
	Xinmin Pan
	Chief Financial Officer
	(Principal Financial Officer and Accounting Officer)

EXHIBIT INDEX

Exhibit
Number	Description
31.1*	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.