UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from_____________ to____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
Office:
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| None | None | Not Applicable |
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company | ||||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
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Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
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As of the date of filing of this report, there
were outstanding
TABLE OF CONTENTS
| Page | ||
| PART I—FINANCIAL INFORMATION | 1 | |
| Item 1 | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 6 |
| Item 4. | Controls and Procedures. | 7 |
| PART II—OTHER INFORMATION | 8 | |
| Item 1. | Legal Proceedings. | 8 |
| Item 1A. | Risk Factors | 8 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 8 |
| Item 3. | Defaults Upon Senior Securities. | 8 |
| Item 4. | Mine Safety Disclosure | 8 |
| Item 5. | Other Information. | 8 |
| Item 6. | Exhibits. | 9 |
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
1
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivables | ||||||||
| Prepayments | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Accrued expenses | ||||||||
| Due to related parties | ||||||||
| Loan from third party | - | |||||||
| Security deposits | ||||||||
| Other payables | ||||||||
| Operating lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Total liabilities | ||||||||
| Deficit: | ||||||||
| Preferred stock; $ | ||||||||
| Common stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total deficit | ( | ) | ( | ) | ||||
| Total liabilities and deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-1
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For the Three Months Ended March 31, | For the Nine Months Ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Service revenue | $ | $ | $ | $ | ||||||||||||
| Product revenue | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total revenue, net | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Cost of service | ||||||||||||||||
| Cost of product | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss attributable to the common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
(UNAUDITED)
| Common stock | Additional | Accumulated Other | Total | Non- | ||||||||||||||||||||||||||||
| Number of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Loss | Stockholder’ Deficit | controlling Interest | Total Deficit | |||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Shares issued for lease payment | - | |||||||||||||||||||||||||||||||
| Shares issued for the payment of purchasing furniture | - | |||||||||||||||||||||||||||||||
| Shares issued for cash | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued for lease payment | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued for the payment of purchasing furniture | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued for cash | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common stock | Additional | Accumulated Other | Total | Non- | ||||||||||||||||||||||||||||
| Number of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Loss | Stockholder’ Deficit | controlling Interest | Total Deficit | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-3
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Operating lease expense | ||||||||
| Stock compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Prepayments | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Due from related parties | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Deposits received | ||||||||
| Accrued expenses | ( | ) | - | |||||
| Due to related parties | ||||||||
| Security deposits | ||||||||
| Other payables | ||||||||
| Payment of operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible asset | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Shares issued for cash | ||||||||
| Repayment of short-term borrowing from third party | ( | ) | ||||||
| Net cash (used in) provided by Financing Activities | ( | ) | ||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Non-Cash Investing and Financing Activities | ||||||||
| Share issuance for lease payment | $ | $ | ||||||
| Share issuance in exchange for equipment | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest expense | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Longduoduo Company Limited (“Longduoduo”, together as a group with Longduoduo’s subsidiaries referred to as the “Company” or “we”) was incorporated in the State of Nevada on October 25, 2021. The Company provides comprehensive and high-quality preventive healthcare solutions including a wide range of preventive healthcare services, including disease screening healthcare treatment, healthcare products and other services through a network of third-party healthcare service providers.
Longduoduo’s subsidiaries include:
| ● | Longduoduo
Company Limited (Hong Kong) (“Longduoduo HK”), which was established on July 26, 2021 under the laws of Hong Kong.
On October 26, 2021, Longduoduo issued |
| ● | Longduoduo
Health Technology Company Limited (“Longduoduo Health Technology”), a privately held Limited Company registered
in Inner Mongolia, China on August 20, 2020. On August 16, 2021, Longduoduo HK acquired |
| ● | Inner
Mongolia Qingguo Health Consulting Company Limited (“Qingguo”), a privately held Limited Company registered in Inner
Mongolia, China on June 18, 2020. On September 8, 2020, Longduoduo Health Technology acquired |
| ● | Inner
Mongolia Rongbin Health Consulting Company Limited (“Rongbin”), a privately held Limited Company registered in Inner
Mongolia, China. On March 18, 2021. Longduoduo Health Technology controlled |
| ● | Inner
Mongolia Chengheng Health Consulting Company Limited (“Chengheng”), a privately held Limited Company registered
in Inner Mongolia, China on April 9, 2021. Longduoduo Health Technology controlled |
| ● | Inner
Mongolia Tianju Health Consulting Company Limited (“Tianju”), a privately held Limited Company registered in Inner
Mongolia, China on July 5, 2021. Longduoduo Health Technology has controlled |
The transactions summarized above are treated in the Company’s financial statements as a corporate restructuring (reorganization) of entities under common control, as each of the seven entities have at all times been under the control of Mr. Zhang Liang. Therefore, in accordance with ASC 805-50-45-5, the current capital structure has been retroactively presented in prior periods as if such structure existed at that time, and the entities under common control are presented on a combined basis for all periods. Since all of the subsidiaries were under common control for all periods presented, the results of these subsidiaries are included in the Company’s financial statements for all periods presented.
F-5
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Going concern
Management has determined there is substantial doubt about the Company’s ability to continue as a going concern as a result of lack of significant revenues and recurring losses. If the Company is unable to generate significant revenue or secure additional financing, it may be required to cease or curtail its operations. The accompanying consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.
The Company’s operations have been financed primarily by advances and loans from related parties. Zhang Liang, the president, chairman of the board, director and a shareholder of Longduoduo, will provide support in the future if needed.
Management intends to expand product offerings and increase the Company’s customers, so as to have a stable base for competition. In this manner, Management hopes to generate sufficient operating cash inflow to support its future operations and development of the Company in addition to capital raised from shareholders’ support.
B. Basis of presentation
The accompanying consolidated financial statements are expressed in U.S. Dollars and have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
C. Principles of consolidation
The consolidated financial statements include
the accounts of Longduoduo and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. The consolidated
financial statements include
Longduoduo’s subsidiaries as of March 31, 2023 are listed as follows:
| Name | Place of Incorporation | Attributable equity interest % | Authorized capital | |||||||||
| Longduoduo Company Limited | Hong Kong | HK$ | ||||||||||
| Longduoduo Health Technology Company Limited | China | |||||||||||
| Inner Mongolia Qingguo Health Consulting Company Limited | China | |||||||||||
| Inner Mongolia Rongbin Health Consulting Company Limited | China | |||||||||||
| Inner Mongolia Chengheng Health Consulting Company Limited | China | |||||||||||
| Inner Mongolia Tianju Health Consulting Company Limited | China | |||||||||||
D. Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the inventory valuation allowance and the treatment of the shares issued. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
F-6
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. Functional currency and foreign currency translation
An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the Company is the Chinese Renminbi (“RMB’), except the functional currency of Longduoduo HK is the Hong Kong Dollar and the functional currency of Longduoduo is the United States dollar (“US Dollars” or “$”). The reporting currency of these consolidated financial statements is in US Dollars.
The financial statements of Longduoduo’s subsidiaries, which are prepared using the RMB, are translated into the Company’s reporting currency, the US Dollar. Assets and liabilities are translated using the exchange rate at each reporting period end date. Revenue and expenses are translated using weighted average rates prevailing during each reporting period, and stockholders’ equity (deficit) is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income or expense.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
The exchange rates used for foreign currency translation are as follows:
| For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (USD to RMB/ USD to HKD) |
(USD to RMB/ USD to HKD) | |||||||
| Assets and liabilities | period end exchange rate | |||||||
| Revenue and expenses | period weighted average | |||||||
F. Concentration of credit risk
The Company maintains cash in state-owned banks
in China. In China, the insurance coverage of each bank is RMB
During the nine months ended March 31, 2023 and
2022, no customer generated more than
During the nine months ended March 31, 2023 and
2022, the Company had four and three major suppliers that accounted for over
| For the Nine Months Ended March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Cost of revenue | Percentage of Cost of revenue | Cost of revenue | Percentage of Cost of revenue | |||||||||||||
| A | $ | % | $ | % | ||||||||||||
| B | % | % | ||||||||||||||
| C | % | % | ||||||||||||||
| D | % | % | ||||||||||||||
G. Cash and cash equivalents
Cash consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. All highly liquid investments with original stated maturity of three months or less are classified as cash and cash equivalents. Cash equivalents approximate or equal fair value due to their short-term nature. The Company’s cash and cash equivalents consist of cash on hand and cash in bank as of March 31, 2023 and June 30, 2022.
F-7
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
H. Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations when incurred, while additions and betterments are capitalized. Depreciation is recorded on a straight-line basis over the useful lives of the assets. When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated from those accounts and any gain or loss is reflected in income.
The Company capitalizes certain costs associated with the acquisition of software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life.
The estimated useful lives for property and equipment categories are as follows:
| Office equipment and furniture | ||
| Leasehold Improvements |
I. Intangible Assets
Intangible assets consist of software. Intangible assets are initially recognized at their respective acquisition costs. All of the Company’s intangible assets have been determined to have finite useful lives and are, therefore, amortized using the straight-line method over their estimated useful lives:
| Software |
J. Fair value measurements
The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 820, Fair Value Measurements (“ASC 820”), for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value for the assets and liabilities required or permitted to be recorded, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2: | Quoted prices, other than those in Level 1, in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability, |
| Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
There were no transfers between level 1, level 2 or level 3 measurements for the three months ended March 31, 2023 and 2022.
Financial assets and liabilities of the Company are primarily comprised of cash and cash equivalents, prepayments, other receivables, inventories, due from related parties, accounts payable, deferred revenue, accrued expenses, due to related parties, loan from third party, security deposits, other current liabilities, operating lease liabilities and other payables. As of March 31, 2023 and June 30, 2022, the carrying values of these financial instruments approximated their fair values due to the short-term maturity of these instruments.
F-8
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
K. Segment information and geographic data
The Company is operating in one segment in accordance with the accounting guidance in FASB ASC Topic 280, Segment Reporting. The company’s revenues are from customers in People’s Republic of China (“PRC”). All assets of the Company are located in the PRC.
L. Revenue recognition
The Company adopted FASB ASC Section 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that economic benefits will flow to the entity, and specific criteria have been met for each of the Company’s activities as described below.
Service and Product Revenue
The Company sells healthcare package, including healthcare consulting services and healthcare products. Customers may purchase healthcare services packages, or healthcare services combined with nutritional products. Currently all sales of products are bundled with healthcare services. The combination of services and products are generally capable of being distinct and accounted for as separate performance obligations. For the sale of healthcare package that includes services and products, the Company allocates revenues based on their relative selling prices.
The Company sells a healthcare service package to a customer which represents the rights to services purchased by the Company. The delivery of healthcare service package to a customer represents a separate performance obligation. The Company’s policy is to recognize the service revenue when service is provided. At that time of the sale of healthcare service package, ownership and risk of loss have been transferred to the customer. Accordingly, revenue is recognized at the point in time when the service is provided. Service revenue is recognized when the healthcare service package has been delivered to the customer as no performance obligation remaining after the delivery of healthcare service package.
Management regularly reviews the sales return
and allowance based on historical experience. Any subsequent sales return and cancellations are recognized upon notification from the
customers. The amount of sales return allowance for the sale of healthcare service package amounted to $
Product revenue mainly resulted from the sale
of healthcare and nutritional products, including Collagen peptide, Calcium tablet and other products. The Company recognized revenue
when the product has been delivered, ownership and risk of loss have been transferred to the customer. The Company accepts returns if
the products are well packaged and can be resold. Management regularly reviews the sales return and allowance based on historical experience.
The amount of sales return allowance for the sale of healthcare products amounted to $
The Company typically collects fees before delivery of healthcare packages. Amounts received from a customer before the delivery of healthcare package are recorded as deferred revenue on the Consolidated Balance Sheets.
F-9
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Cost of Revenues
Cost of service consists primarily of the cost of healthcare service packages purchased from third party healthcare service providers to fulfil a contract with a customer. No asset was recognized from the costs incurred to obtain or fulfil a contract with a customer.
Cost of products consists primarily of the cost of healthcare products purchased from suppliers. Cost of products is recognized when the product has been delivered to the customer.
M. Income taxes
The Company follows FASB ASC Section 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740-10-30 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-30, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance.
As a result of the implementation of ASC 740-10, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by ASC 740-10. The Company recognized no material adjustments to liabilities or shareholder’s equity as a result of the implementation.
N. Earnings (loss) per share
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, Earnings Per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding during the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of contracts to issue common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. The computation of diluted EPS includes the estimated impact of the exercise of contracts to purchase common stock using the treasury stock method and the potential shares of converted common stock associated with the convertible debt using the if-converted method. Potential common shares that have an anti-dilutive effect (i.e., those that increase earnings per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of March 31, 2023 and June 30, 2022, the Company was not party to any contract to issue shares.
O. Risks and uncertainties
In March 2020, the World Health Organization (“WHO”) declared the coronavirus (COVID 19), a global pandemic and public health emergency. The WHO has recommended containment and mitigation measures worldwide and domestically, self-isolation and shelter-in-place requirements have been or are being put in place. At this point, the Company cannot reasonably estimate the length or severity of this pandemic, or the extent to which this disruption may impact its financial statements and future results of operations. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 outbreak and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition.
P. Recently adopted accounting pronouncements
We do not believe that any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of operations and cash flows.
F-10
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. PREPAYMENTS
Prepayments primarily include prepayments for
services, equipment, rent and property management fees. As of March 31, 2023 and June 30, 2022, prepayments were $
NOTE 4. PROPERTY AND EQUIPMENT
At March 31, 2023 and June 30, 2022, property and equipment, at cost, consisted of:
| March 31, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Office equipment and furniture | $ | $ | ||||||
| Leasehold improvement | ||||||||
| Total | ||||||||
| Accumulated depreciation | ||||||||
| Total property and equipment, net | $ | $ | ||||||
The Company recorded depreciation expense of $
The Company recorded depreciation expense of $
NOTE 5. LOAN FROM THIRD PARTY
The Company had advances from a third party, Jinrong
Health Technology (Hainan) Co., Ltd. for working capital purpose. The loans are non-interest bearing and due on demand. As of June 30,
2022, the outstanding loan balance was $
NOTE 6. RELATED PARTY TRANSACTIONS
Due to related parties
Due to related parties consists of the following:
| Name of related parties | March 31, 2023 | June 30, 2022 | ||||||
| Zhang Liang | $ | $ | ||||||
| Zhou Hongxiao | ||||||||
| Kang Liping | ||||||||
| Wu Zhaoyong | ||||||||
| $ | $ | |||||||
Zhang Liang is the President, Chairman of the Board, director and a shareholder of Longduoduo, Zhou Hongxiao is the CEO of Longduoduo, Kang Liping is the CFO of Longduoduo and Wu Zhaoyon is a shareholder of Longduoduo. These due to related parties were unsecured, repayable on demand, and bear no interest.
NOTE 7. INCOME TAXES
United States
Longduoduo is subject to the U.S. corporation
tax rate of
Hong Kong
Longduoduo HK was incorporated in Hong Kong
and is subject to Hong Kong profits tax. Longduoduo HK is subject to Hong Kong taxation on its activities conducted in Hong Kong and income
arising in or derived from Hong Kong. The applicable statutory tax rate is
F-11
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
China
Longduoduo Health Technology and subsidiaries
are subject to a
A reconciliation of income before income taxes for domestic and foreign locations for the three and nine months ended March 31, 2023, and 2022 is as follows:
For
the Three Months Ended | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Foreign | ||||||||
| Loss before income taxes | $ | $ | ||||||
For
the Nine Months Ended | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Foreign | ||||||||
| Loss before income taxes | $ | $ | ||||||
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows:
| For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Income tax (benefit) at USA statutory rate | ( | )% | ( | )% | ||||
| U.S. valuation allowance | % | % | ||||||
| Income tax (benefit) at PRC statutory rate | ( | )% | ( | )% | ||||
| PRC valuation allowance | % | % | ||||||
| Effective combined tax rate | ( | )% | ( | )% | ||||
F-12
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company did not recognize deferred tax assets since it is not likely to realize such deferred taxes. The deferred tax would apply to Longduoduo in the U.S. and Longduoduo Health Technology and subsidiaries in China.
As of March 31, 2023, Longduoduo Health Technology
and its subsidiaries has total net operating loss carry forwards of approximately $
The Company has incurred losses from its United
States operations during the nine months ended March 31, 2023 of approximately $
The Company is subject to examination by the Internal Revenue Service (IRS) in the United States as well as by the taxing authorities in China, where the Company has significant business operations. The tax years under examination vary by jurisdiction. The table below presents the earliest tax year that remain subject to examination by major jurisdiction.
| The year as of | |
| U.S. Federal | |
| China |
F-13
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. LEASE
Operating Lease Agreements – On March 31,
2021 the Company leased office space (approximately
Operating Lease Agreements - On August 25, 2021
the Company leased a car under a non-cancellable operating lease agreement with a third party, Zhengzhou Zhengdong New District Yijiu
Rental Car. Under the terms of the agreement, the Company was committed to make total lease payments of $
Operating Lease Agreements - On July 2, 2022 the
Company leased an office space under a non-cancellable operating lease agreement with a third party, Xi Ling. Under the terms of the agreement,
the Company is committed to make total lease payments of $
In April 2021, Qingguo entered into an operating
cooperation agreement with Hohhot Aihua Traditional Chinese Medicine Hospital. Under the terms Qingguo is able to use its office space
(approximately
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did not combine lease and non-lease components.
Most leases do not include options to renew. The
exercise of lease renewal options has to be agreed by the lessors. The depreciable life of assets and leasehold improvements are limited
by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized
on a straight-line basis over the term of the lease. Lease expense related to these noncancelable operating leases was $
F-14
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Balance sheet information related to the Company’s leases is presented below:
| March 31, 2023 | June 30, 2022 | |||||||
| Assets | ||||||||
| Operating lease right of use assets | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total Operating lease liabilities | $ | $ | ||||||
The following provides details of the Company’s lease expenses:
For
the Three Months Ended | ||||||||
| 2023 | 2022 | |||||||
| Operating lease expenses | $ | $ | ||||||
For
the Nine Months Ended | ||||||||
| 2023 | 2022 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
| For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Paid for Amounts Included in Measurement of Liabilities: | ||||||||
| Operating cash flows used in operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
As most of the Company’s leases do not provide
an implicit rate, the Company uses
Maturities of lease liabilities were as follows:
| For the year ending June 30: | ||||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Total lease liabilities | $ | |||
Under the terms of the agreement, the Company
was required to satisfy the lease payment obligation of $
F-15
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9. CONTINGENCIES
Contingencies
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
The Company was not subject to any material loss contingency as of March 31, 2023 and June 30, 2022.
NOTE 10. STOCKHOLDERS’ DEFICIT
On July 26, 2021, Longduoduo HK issued a total
of
On July 26, 2021, Longduoduo HK issued a total
of
On July 26, 2021, Longduoduo HK issued a total
of
F-16
LONGDUODUO COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11. BASIC AND DILUTED EARNINGS PER SHARE
Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares comprise shares issuable upon the exercise of share-based awards, using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations is shown as follows:
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Net loss per share: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Net loss per share: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
NOTE 12. NON-CONTROLLING INTERESTS
Qingguo, Chengheng, Rongbin and Tianju are the
Company’s majority-owned subsidiaries which are consolidated in the Company’s financial statements with non-controlling interests
recognized. The Company holds
As of March 31, 2023 and June 30, 2022, the non-controlling
interests in the consolidated balance sheet was ($
For the three months ended March 31, 2023, the
comprehensive loss attributable to common stockholders and non-controlling interests were $
For three months ended March 31, 2022, the comprehensive
income (loss) attributable to common stockholders and non-controlling interests were $(
NOTE 13. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of March 31, 2023 have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
F-17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
Application of Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.
In connection with the preparation of our financial statements for the three months ended March 31, 2023, there was no accounting estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results.
Results of Operations
The following table shows key components of the unaudited results of operations during the three and nine months ended March 31, 2023 and 2022:
| For the Three Months Ended | ||||||||||||||||
| March 31, | Change | |||||||||||||||
| 2023 (Unaudited) | 2022 (Unaudited) | $ | % | |||||||||||||
| Total revenue | $ | 280,138 | $ | 724,278 | $ | (444,140 | ) | (61 | )% | |||||||
| Cost of revenue | 118,516 | 204,886 | (86,370 | ) | (42 | )% | ||||||||||
| Gross Profit | 161,622 | 519,392 | (357,770 | ) | (69 | )% | ||||||||||
| Total operating expenses | 634,143 | 620,300 | 13,843 | 2 | % | |||||||||||
| Loss from operations | (472,521 | ) | (100,908 | ) | (371,613 | ) | 368 | % | ||||||||
| Other income (expense), net | 1,213 | (552 | ) | 1,765 | (320 | )% | ||||||||||
| Loss before income taxes | (471,308 | ) | (101,460 | ) | (369,848 | ) | 365 | % | ||||||||
| Income tax expense | - | 1 | (1 | ) | (100 | )% | ||||||||||
| Net Loss | $ | (471,308 | ) | $ | (101,461 | ) | $ | (369,847 | ) | 365 | % | |||||
During the three months ended March 31, 2023, our revenue was $280,138, and was attributable to the sale of healthcare services and healthcare products, primarily derived from sales of “Immunological Ozonated Autohemotherapy”, “Meridian-regulating and Consciousness-restoring Iatrotechnics”, “Assay”, “PRP” and other healthcare services. As of March 31, 2023, we operated through five entities: Longduoduo Health Technology, Tianju, Qingguo, Rongbin and Chengheng, which are established in Ordos, Ulanqab, Huhhot, Baotou and Ordos, respectively, the four largest cities in Inner Mongolia of China. During the three months ended March 31, 2023, our revenue decreased $444,140 (or 61%) compared to the same period of last year, The primary reason for the decline was that the operations of our five operating entities were almost completely stagnant, due to the spread of COVID-19 in October and November of 2022. Since the beginning of 2023, the effect of COVID-19 on our business operations has been reduced. Nevertheless we are still in the process of recovery.
2
Cost of revenue mainly consists of our cost for third-party healthcare service providers who perform healthcare services for our customers, as well as the cost of purchasing products. During the three months ended March 31, 2023, our cost of revenue was $118,516, with the result that our gross profit was $161,622, a gross margin of 58%. Gross margin at that level was sufficient to operate profitably. However, we incurred a substantial net loss because the Company incurred significant marketing expense in connection with establishing its brand as a new company. The Company will continue to invest heavily in advertising and promotion expenses in the near future as it continues to establish and expand its brand and products and services.
Operating expenses consist primarily of advertising and promotion expenses, salaries and benefits, office expenses, professional fees and depreciation and amortization. Our operating expenses during the three months ended March 31, 2023 increased by $13,843, primarily attributable to:
| ● | $308,990 in advertising and promotion expenses incurred during the three months ended March 31, 2023, compared to $251,071 recorded during the three months ended March 31, 2022. The increase was primarily attributable to the increase of marketing service fee, which is calculated by customer's payment paid from the company. |
| ● | $190,952 in salaries and benefits expenses in the three months ended March 31, 2023, compared to $167,680 during the three months ended March 31, 2022. The increase in our labor costs was primarily caused by an increase in our employee count. |
| ● | $77,501 in office expenses in the three months ended March 31, 2023, compared to $141,048 during the three months ended March 31, 2022, the decrease was mainly relative to a decrease in revenue described above. |
As described above, our net loss for the three months ended March 31, 2023 were $471,308, compared to a net loss of $101,461 for the three months ended March 31, 2022.
Our reporting currency is the U.S. dollar. Our local currency, the Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period being reported upon, and assets and liabilities are translated at the unified exchange rate as quoted by OANDA on the balance sheet date. Translation adjustments resulting from this process are included in other comprehensive income (loss). For the three months ended March 31, 2022 and 2021, we recorded foreign currency translation adjustments of $(7,394) and $(922), respectively,
| For the Nine Months Ended | ||||||||||||||||
| March 31, | Change | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
| Total revenue | $ | 759,895 | $ | 2,402,557 | $ | (1,642,662 | ) | (68 | )% | |||||||
| Cost of revenue | 299,780 | 730,576 | (430,796 | ) | (59 | )% | ||||||||||
| Gross Profit | 460,115 | 1,671,981 | (1,211,866 | ) | (72 | )% | ||||||||||
| Total operating expenses | 1,424,759 | 9,034,484 | (7,609,725 | ) | (84 | )% | ||||||||||
| Loss from operations | (964,644 | ) | (7,362,503 | ) | 6,397,859 | (87 | )% | |||||||||
| Other income (expense), net | 1,744 | (3,386 | ) | 5,130 | (152 | )% | ||||||||||
| Loss before income taxes | (962,900 | ) | (7,365,889 | ) | 6,402,989 | (87 | )% | |||||||||
| Income tax expense | - | 229 | (229 | ) | (100 | )% | ||||||||||
| Net Loss | $ | (962,900 | ) | $ | (7,366,118 | ) | $ | 6,403,218 | (93 | )% | ||||||
During the nine months ended March 31, 2023, our revenue was $ $759,895, and was attributable to the sale of healthcare services and healthcare products, primarily derived from sales of “Immunological Ozonated Autohemotherapy”, “Meridian-regulating and Consciousness-restoring Iatrotechnics”, “Assay”, “PRP” and other healthcare services. As of March 31, 2023, we operate through five entities: Longduoduo Health Technology, Tianju, Qingguo, Rongbin and Chengheng, which are established in Ordos, Ulanqab, Huhhot, Baotou and Ordos, respectively, the four of largest cities in Inner Mongolia of China. During the nine months ended March 31, 2023, our revenue decreased by $1,642,662 (or 68%) compared to same period of last year. The decrease in revenue was mainly the result of the operations of our five operating entities becoming almost stagnant, due to COVID-19 in October and November of 2022.
3
Cost of revenue mainly consists of our cost for third-party healthcare service providers who perform healthcare services for our customers and the cost of purchasing products. During the nine months ended March 31, 2023, our cost of revenue was $299,780, with the result that our gross profit was $460,115, a gross margin of 60%. Gross margin at that level was sufficient to operate profitably. However, we incurred a substantial net loss because the Company incurred significant marketing expense to in connection with establishing its brand as a new company. The Company will continue to invest heavily in advertising and promotion expenses in the near future as it continues to establish and expand its brand and products and services.
Operating expenses consist primarily of advertising and promotion expenses, salaries and benefits, office expenses, professional fees and depreciation and amortization. Our operating expenses during the nine months ended March 31, 2023 decreased by $7,609,725, primarily attributable to:
| ● | $539,836 in advertising and promotion expenses incurred during the nine months ended March 31, 2023, compared to $6,893,588 recorded during the nine months ended March 31, 2022. The decrease was primarily attributable to the fact that on July 26, 2021, Longduoduo HK issued a total of 3,822 shares, which were exchanged for 114,579,853 common shares of Longduoduo upon the Share Exchange. Since the shares were issued to 32 sales agents, the Company recorded service compensation expense of $5,824,728. |
| ● | $476,436 in salaries and benefits expenses in the nine months ended March 31, 2023, compared to $481,778 during the nine months ended March 31, 2022. The decrease in our labor costs was primarily caused by the COVID-19 described above. |
| ● | $228,133 in office expenses during the nine months ended March 31, 2023, compared to $1,473,720 during the nine months ended March 31, 2022. The decrease was mainly attributable to the fact that on July 26, 2021, Longduoduo HK issued a total of 600 shares, which were exchanged for 18,000,000 common shares of Longduoduo upon the Share Exchange. Since the shares were issued to Eden Hall Global Capital Co., Ltd., which provides administrative services to the Company, we recorded service compensation expense of $914,400. |
As described above, our net loss for the nine months ended March 31, 2023 were $962,900, compared to a net loss of $7,366,118 for the nine months ended March 31, 2022.
Our reporting currency is the U.S. dollar. Our local currency, the Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period being reported upon, and assets and liabilities are translated at the unified exchange rate as quoted by OANDA on the balance sheet date. Translation adjustments resulting from this process are included in other comprehensive income (loss). For the nine months ended March 31, 2023 and 2022, foreign currency translation adjustments of $14,963 and $(10,536), respectively, have been reported as other comprehensive income (loss) in the consolidated statement of operations and comprehensive income (loss).
Liquidity and Capital Resources
As of March 31, 2023, the Company had $644,622 in cash and cash equivalents. On the same date, we had a working capital deficit of $2,105,719, primarily because we had received $1,359,742 from customers as prepayment for future services and products but used the majority of the deposited sums to pay ongoing expenses and had only $114,691 in prepayments on our March 31, 2023 balance sheet. Going forward, we will strive to achieve a better balance of customer deposits and prepayments; but we will achieve that better balance only when profits from operations and funds from financing are adequate to support the expansion effort that will be necessary for successful operations.
4
We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from a public offering and/or debt financing. We expect Zhang Liang, our President, to continue to provide support in the future, if needed. However, we can provide no assurances that we will be able to generate sufficient cash flows from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern.
Cash Flows
The following unaudited table summarizes our cash flows for the nine months ended March 31, 2023 and 2022.
| For the Nine Months Ended March 31, | Change | |||||||||||
| 2023 | 2022 | |||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 507,942 | $ | (92,588 | ) | $ | 600,530 | |||||
| Net cash used in investing activities | (75,353 | ) | (108,130 | ) | 32,777 | |||||||
| Net cash (used in) provided by financing activities | (138,450 | ) | 85,876 | (224,326 | ) | |||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | (6,189 | ) | 3,539 | (9,728 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | 287,950 | (111.303 | ) | 399,253 | ||||||||
| Cash and cash equivalents, beginning of period | 356,672 | 273,116 | 83,556 | |||||||||
| Cash and cash equivalents, ending of period | $ | 644,622 | $ | 161,813 | $ | 482,809 | ||||||
Net Cash Provided by (Used in) Operating Activities
For the nine months ended March 31, 2023 we had cash provided by operating activities of $507,942, compared to $92,588 used in operating activities for the nine months ended March 31, 2022. Cash was provided by operations during the nine months ended March 31, 2023, despite the net loss that we recorded, primarily due to the $585,035 in additional deposits that we received during that period, as well as an increase in our accounts payable and other payables totaling $485,801.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended March 31, 2023 was $75,353, compared to $108,130 for the nine months ended March 31, 2022. The cash was used for the purchase of fixed assets and office decoration.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities for the nine months ended March 31, 2023 was $138,450, compared to $85,876 provided by financing activities for the nine months ended March 31, 2022 was due to the repayment of loan from third parties.
Trends, Events and Uncertainties
There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations.
5
The COVID-19 pandemic has had a significant adverse impact and created many uncertainties related to our business, and we expect that it will continue to do so. The Company is experiencing challenges in sales, which have increased the Company’s financial uncertainty. Our future business outlook and expectations are very uncertain due to the impact of the COVID-19 pandemic and are very difficult to quantify. It is difficult to assess or predict the impact of this unprecedented event on our business, financial results or financial condition. Factors that will impact the extent to which the COVID-19 pandemic affects our business, financial results and financial condition include: the duration, spread and severity of the pandemic; the actions taken to contain the virus or treat its impact, including government actions to mitigate the economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future outbreaks interrupt the economic recovery.
The U.S. government, including the SEC, has made statements and taken actions that have led to changes in relations between the U.S. and China, and will impact companies with connections to the United States or China. Those actions by the U.S. government included imposing several rounds of tariffs affecting certain products manufactured in China and imposing sanctions and restrictions in relation to China. Actions by the SEC included issuing statements indicating that it would make enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on U.S.-domiciled companies with significant connections to China, our industry or on us. Any unfavorable government policies on cross-border relations, including increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital and the market price of our shares. If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tensions, such changes could have an adverse effect on our business, financial condition and results of operations, our ability to raise capital and the market price of our shares. Changes in United States and China relations and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.
Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that we expect to have a material effect on the Company’s financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of March 31, 2023. Based on this evaluation, we concluded that our disclosure controls and procedures have the following material weaknesses:
| ● | The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. |
| ● | Our internal financial staff lack expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles. |
| ● | Our Chief Financial Officer is not familiar with the accounting and reporting requirements of a U.S. public company. |
| ● | We have not developed sufficient documentation concerning our existing financial processes, risk assessment and internal controls. |
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of March 31, 2023 for the purposes described in this paragraph.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there has been no change in our internal control over financial reporting 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, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Item 1A. Risk Factors.
There have been no material changes from the risk factors included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC on October 13, 2022.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2023, the Company did not complete any unregistered sales of equity securities.
The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the nine months ended March 31, 2023.
Item 3. Defaults upon Senior Securities.
Not applicable
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
INDEX TO EXHIBITS
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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.
LONGDUODUO COMPANY LIMITED
| Signature | Title | Date | ||
| /s/ Zhou Hongxiao | Chief Executive Officer | May 22, 2023 | ||
| Zhou Hongxiao | (Principal Executive Officer) | |||
| /s/ Kang Liping | Chief Financial Officer | May 22, 2023 | ||
| Kang Liping | (Principal Financial and Accounting Officer) |
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