Longwen Group Corp. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 000-11596

LONGWEN GROUP CORP.

(Exact name of registrant as specified in its charter)

RM 219, No. 25, Caihe Rd

Shangcheng Dist., Hangzhou, Zhejiang Province, China310000

(Address of Principal Executive Office)

+86 0571 -85128985

(Registrant’s telephone number, including area code)

NA 

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 14, 2023, the registrant had 79,825,094 shares of common stock outstanding.

LONGWEN GROUP CORP.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section entitled “Risk Factors”, beginning on page 4 of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities & Exchange Commission (“SEC”) on March 29, 2023. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “Company,” “we,” “us,” and “our” in this document refer Longwen Group Corp., a Nevada corporation.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LONGWEN GROUP CORP.

INDEX TO FINANCIAL STATEMENTS

LONGWEN GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited consolidated financial statements.

LONGWEN GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

OTHER COMPREHENSIVE INCOME

(UNAUDITED) 

The accompanying notes are an integral part of these unaudited consolidated financial statements. 

LONGWEN GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

  LONGWEN GROUP CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

Longwen Group Corp. (the “Company”), was originally incorporated as Expertelligence, Inc in the State of California on March 31, 1980 and reincorporated in the State of Nevada on November 17, 2005.  On January 23, 2017, after a series of various name changes, the Company amended its Articles of Incorporation (“Charter Amendment”) to affect the current name change of Longwen Group Corp with trading symbol of “LWLW”.

On or about April 5, 2016, the Company affected a 1 for 750 share reverse split of its issued and outstanding common stocks and reduced to 127,061 shares outstanding. Effective November 29, 2016, 66,667 shares of common stock of the Company were transferred to Longwen Group Corp., a Cayman Island company (“Longwen Cayman”). All of the shares held by Longwen Cayman are restricted securities.  As a result of the transactions, Mr. Xizhen Ye, President of Longwen Cayman, was appointed as a sole Director of the Company, and President and Chief Executive Officer and Chief Financial Officer of the Company. On August 22, 2018, Mr. Lizhong Lu was appointed as a director of Board.

On June 9, 2021, Anthony Lombardo (“Lombardo”) filed an Application for Appointment of Custodian (“Application”) with the Eighth Judicial District Court in Nevada to request the custodianship of the Company due to the Company’s non-response and late filing with the State of Nevada. On June 24, 2021, a hearing was held on this Application, where Lombardo was named temporary custodian of the Company. Subsequently after Lombardo’s custodianship, Deanna Johnson was appointed as the CEO, CFO and Secretary of the Company. On September 1, 2021, Deanna Johnson appointed Joseph Passalaqua (“Joseph”) as CEO, CFO and Secretary and resigned from all positions in the Company.

On October 25, 2021, Mr. Xizhen Ye (“Ye”), the ex-officer and director of the Company prior to Lombardo’s custodianship, and Longwen Cayman, filed a motion to dissolve custodianship (“Motion”) with the Eighth Judicial District Court of Nevada State. Pursuant to the Settlement Agreement entered on January 12, 2022, by Longwen Cayman, Mr. Ye, Lombardo, Joseph and Deanna Johnson regarding Lombardo’s custodianship, Mr. Ye and Mr. Lizhong Lu were reinstated as the officer and directors of the Company, and 65,000,000 common stocks of the Company was transferred from Joseph to Mr. Ye on February 9, 2022. Further on February 17, 2022, the Eighth Judicial District Court officially terminated Lombardo’s custodianship over the Company.

On February 23, 2022, the Company entered into an Acquisition Agreement with a third-party individual to acquire the 100% ownership of Hangzhou Longwen Enterprise Management Co., Ltd. (“Hangzhou Longwen”), a wholly foreign-owned enterprise (“WOFE”) in Hangzhou, the People’s Republic of China (the “PRC”), for a total cash consideration of $1,000. As a result of the acquisition, Hangzhou Longwen became the Company’s wholly owned subsidiary in the PRC. Hangzhou Longwen was originally registered on January 4, 2012 and has minimum operations since its inception. The Company recognize goodwill of $993 upon consummated the acquisition. During 2022, Hangzhou Longwen entered consulting service agreements with various customers to assist in their various business, including but not limit to financial report preparation, business negotiation and business website maintenance and/or publicity, and etc.

On October 11, 2022, the Company and its subsidiary, Hangzhou Longwen entered into an Acquisition Agreement with a third-party individual to acquire 100% ownership of Hangzhou Yusu Trading Co., Ltd. (“Hangzhou Yusu”), a limited liability company in Hangzhou, the People’s Republic of China (the “PRC”), for a total cash consideration of RMB 1,000 or about USD $141. Upon consummated Hangzhou Yushu became Hangzhou Longwen’s wholly owned subsidiary in the PRC. Hangzhou Yusu was originally registered on April 20, 2020 and has minimum operations since its inception. The Company recognize goodwill of $139 upon consummated the acquisition. Hangzhou Yusu generated revenues from online product sales and aquaculture product sales.

On March 3, 2023, Hangzhou Longwen established a new subsidiary, Huzhou Wohong Fishery Co., Ltd. (“HWF”), to operate the aquacultural breeding, wholesale and retail of aquaculture products and etc. 

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries as described in Note 1. All significant intercompany transactions and balances have been eliminated in the consolidation.

Basis of Presentation

The unaudited consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates and assumptions.

Foreign Currency Transactions

The Company’s consolidated financial statements are presented in U.S. dollars ($), which is the Company’s reporting and functional currency. The functional currencies of the Company’s subsidiaries including Hangzhou Longwen, Hangzhou Yushu and Huzhou Wohong, are RMB. The resulting translation adjustments are reported under other comprehensive loss in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 220 (“ASC 220”), “Reporting Comprehensive Income”. Gains and losses resulting from the translation of foreign currency transactions are reflected in the consolidated statements of operations and other comprehensive income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency using the rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the consolidated statements of operations and other comprehensive income.

The Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollars are recorded in shareholders’ equity as part of accumulated other comprehensive loss. The exchange rate used for financial statements are as follows:

LONGWEN GROUP CORP. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment

Depreciation on property and equipment is recognized on a straight-line basis over the estimated useful lives of the assets, for which the remaining term of the legal title for the office space and 3 years for office equipment.

Intangible Assets

Intangible assets with definite use life are amortized on a straight-line basis over the estimate useful lives of the assets.

Revenue Recognition

The Company recognizes revenue when a customer obtains control of promised products or services, in an amount that reflects the consideration expected to be received in exchange for those products or services. The Company follows the five-step model prescribed under Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies each performance obligation. Revenues are presented net of any sales or value added taxes collected from customers and remitted to the government.

The Company’s consulting service income consists of the delivery of focused insights and recommendations that assist customers with their challenges in developing and executing strategies around their trade business and financial reporting processes. The consulting services provided are fixed-fee arrangements that are generally in one-year term. The Company has concluded that each contract represents a single performance obligation as each is a single promise to deliver a customized engagement and deliverable. For the majority of these services, either practically or contractually, the work performed and delivered to the customer has no alternative use to the Company. Additionally, the Company maintains an enforceable right to payment at all times throughout the contract.

The Company’s online product sales consist of selling products to end customers through online channel, such as apps embedded in Wechat. Revenue is recognized at a point in time when the products are delivered to and accepted by end customers.

The Company’s aquaculture product sales consist of selling aquacultural products to customers through offline channel. Revenue is recognized at a point in time when the products are delivered to and accepted by end customers. The Company concludes the presentation of revenue generated from selling of aquaculture products is at a gross basis as the Company acts as a principal by controlling sales transactions provided to their customers.

Concentration

During the three months ended June 30, 2023, the Company generated 61%, 19% and 15% of revenues from the top 3 customers, respectively. During the six months ended June 30, 2023, the Company generated 62%, 20% and 12% of revenues from the top 3 customers, respectively. The Company’s cost of revenues consisted of 97% and 92% purchases from one top vendor for the three and six months ended June 30, 2023, respectively. The Company’s revenue and cost of revenues were not material during the three and six months ended June 30, 2022.

Share-based Compensation

The Company accounts for stock options and other equity-based compensation issued in accordance with ASC 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees’ requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. 

LONGWEN GROUP CORP. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

Income Taxes

The Company accounts for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. 

Related Parties

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. 

Fair Value Measurements

Fair value accounting establishes a framework for measuring fair value and expands disclosure about fair value measurements. Fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

As of June 30, 2023 and December 31, 2022, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis or on a non-recurring basis. The carrying value of the Company’s cash, accounts receivable, net, loans from third parties, shareholder loans and accounts payable and accrued liabilities approximates the fair value due to the short-term maturity.

Segment Reporting

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” requires public companies to report financial and descriptive information about their reportable operating segments. We identify our operating segments based on how our chief operating decision maker internally evaluates separate financial information, business activities and management responsibility. During the three and six months ended June 30, 2023 and 2022, the Company determined that we have one reportable segment as we manage the business from the geography location.

Accounting Standards Recently Adopted

In June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts, rather than the “incurred loss” model. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. The Company adopted ASU No. 2016-13 on January 1, 2023, which had no impact on the beginning balance of the Company’s balance as there was no receivable balances as of January 1, 2023.     

Accounting Standards Issued but Not Yet Adopted

There were updates recently issued. The management does not believe that accounting pronouncements recently issued but not yet adopted will have a material impact on its financial position results of operations or cash flows. 

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – GOING CONCERN

The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.  During the six months ended June 30, 2023, the Company incurred a net loss of $742,999. The Company had an accumulated deficit of $19,770,834 as of June 30, 2023. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s future success is dependent upon its ability to acquire and achieve business with profitable operations, generate cash from operating activities and obtain additional financing. The Company intends to raise funds from the issuance of equity and/or debt securities, but there is no assurance that additional funds from the issuance of equity will be available for the Company to finance its operations on acceptable terms, or at all.  These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

NOTE 4 – EQUIPMENT, NET

As of June 30, 2023 and December 31, 2022, equipment consisted of the following:

On September 28, 2022, the Company consummated an office suite purchase agreement with a third party. Pursuant to the agreement, the Company issued 2,651,780 common stocks of the Company to purchase a 118-square-meter office suite located in Hangzhou City, Zhejiang Province, China. The cost of the office suite was measured at the fair value of the issued common stocks on the closing date of $265,178 less value-added tax of $2,108. The difference of $5,000 between the addition of $263,070 and the cost as of June 30, 2023 is due to the fluctuation of foreign exchange rate. The office space is intended for internal use.

Depreciation expenses were $3,222 and $587 for the three months ended June 30, 2023 and 2022, respectively, which was included in selling, general and administrative expenses. Depreciation expenses were $6,527 and $730 for the six months ended June 30, 2023 and 2022, respectively. The difference with the change in accumulated depreciation was due to exchange difference.

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – LOANS FROM THIRD PARTIES

The Company’s loans from third parties consisted of the following as of June 30, 2023 and December 31, 2022:

On December 31, 2019, the Company entered into a loan agreement of $12,250 with a third-party individual with three-year term. The borrowing bears interest of $300 at the effective date of the contract and fixed rate at $500 per annum, which matured on December 31, 2022 and immediately became due on demand. The loan will be paid off in a single payment of the outstanding balance of principal and accrued interest on or before the expiration date of the loan agreement. As of December 31, 2022, the outstanding balance of the borrowing was $12,250, and the interest payable was $1,800, respectively.  During the three months ended March 31, 2023, the loan and interest payable in the total amount of $14,050 was repaid by the wife of the President, on behalf of the Company (Note 8). Total interest expenses for the loan were $nil and $125, respectively, for the three months ended June 30, 2023 and 2022. Total interest expenses for the loan were $nil and $250, respectively, for the six months ended June 30, 2023 and 2022. 

During the three months ended March 31, 2023, the Company borrowed $46,776 (RMB 320,000) from two third-party individuals. The loans are unsecure, non-interest-bearing, and due on December 30, 2023. During the three months ended June 30, 2023, the Company made repayment of $12,990 (RMB 90,000) to one individual. As of June 30, 2023, the total amount owed to the two third parties is $31,718, with a difference of $2,068 due to foreign exchange fluctuation.

During the three months ended March 31, 2023, the Company borrowed $87,705 (RMB 600,000) from a third-party individual. The loans are unsecure, bearing an interest rate of 0.5% per annum, and due in one year. As of June 30, 2023, the total amount owed to the third parties is $82,744, with a difference of $4,961 due to foreign exchange fluctuation. During the three and six months ended June 30, 2023, the Company accrued interest expense of $107 and $485, respectively.

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – INCOME TAX

As of June 30, 2023 and December 31, 2022, the Company has incurred an accumulated net loss of approximately $19.8 million and $19.0 million which resulted in a net operating loss for income tax purposes. NOLs can carry forward indefinitely up to offset 80 percent of taxable income after CARES Act effect on December 31, 2017. The deferred tax asset has been fully reserved for valuation allowance as the Company believes they will most-likely-than-not realize the benefits. 

Significant components of the deferred tax assets and liabilities for income taxes as of June 30, 2023 and December 31, 2022 consisted of the following: 

Reconciliation of income tax provision and the accounting profit multiplied by U.S. federal income tax rate for the three and six months ended June 30, 2023 and 2022: 

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – STOCKHOLDERS’ EQUITY

Common Stock

As of June 30, 2023 and December 31, 2022, the Company had 79,825,094 and 74,108,926 shares of common stock issued and outstanding, respectively.

During the year ended December 31, 2022, the Company issued 2,080,085 shares of common stocks for $334,913 in cash to certain non-U.S. investors. Issuance price ranged from $0.10 to $0.30 per share. The Company relied upon Regulation S of the Securities Act of 1933, as amended, for the sale of these securities. No commissions were paid regarding the share issuance and the share certificates were issued with a Rule 144 restrictive legend.

On September 28, 2022, the Company and its subsidiary, Hangzhou Longwen closed an assets sale and purchase agreement with a third-party seller to acquire an office suite located in Hangzhou, China by issuing 2,651,780 shares of common stock of the Company, $0.10 per share with a total value of $265,178. Also see Note 4.

In May and June 2023, the Company sold a total of 336,168 shares of common stock to Forty-nine (49) non-U.S. investors at $0.20 per share for cash consideration received during the three months ended June 30, 2023. The Company relied upon Regulation S of the Securities Act of 1933, as amended, for the sale of these securities. No commissions were paid regarding the share issuance and the share certificates were issued with a Rule 144 restrictive legend.

2022 Equity Incentive Plan

On November 7, 2022, the Board adopted an equity incentive plan to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, certain key consultants and directors of the Company (the “2022 Equity Incentive Plan”). Under the 2022 Equity Incentive Plan, the Company can issue up to 10,000,000 shares of common stock of the Company. Incentives may be granted in any one or a combination of: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights; (c) stock awards; (d) restricted stock; and (e) performance shares. Such incentives may be subject to vesting conditions determined by the Board of Directors at grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.

On November 10, 2022, the Company granted total 4,250,000 shares of common stock of the Company to four individual consultants, under the 2022 Equity Incentive Plan, vesting immediately upon grant. The fair value of the shares granted totaled $425,000.

On January 19, 2023, the Company granted total 5,000,000 shares of common stock of the Company to six employees and one consultant, pursuant to the Company’s 2022 Equity Incentive Plan. . The fair value of the shares totaled of $500,000 on the grant dates.

On June 29, 2023, the Company granted a total of 750,000 shares of common stock of the Company to six employees pursuant to the Company’s 2022 Equity Incentive Plan, of which 200,000 shares of common stock were vested immediately and the fair value of the 200,000 shares totaled of $40,000 on June 29, 2023. The rest 550,000 shares of common stock were subject to vesting condition in three tranches within six months. During the three months ended June 30, 2023, 180,000 common stocks out of the 550,000 shares have been issued, and $36,000 share-based compensation was recorded in the statement of operations. 370,000 shares of common stocks are issuable, and the fair value of $74,000 was recorded as deferred compensation on the balance sheet.

As of June 30, 2023, the Company’s common shares issuable under the 2022 Equity Incentive Plan totaled 370,000. The following table   represents the restricted stock award activities during the six months ended June 30, 2023.

LONGWEN GROUP CORP. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 7 – STOCKHOLDERS’ EQUITY (continued)

2023 Equity Incentive Plan

On June 6, 2023, the Board adopted an equity incentive plan to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, certain key consultants and directors of the Company (the “2023 Equity Incentive Plan”). Under the 2023 Equity Incentive Plan, the Company can issue up to 5,000,000 shares of common stock of the Company. Incentives may be granted in any one or a combination of: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights; (c) stock awards; (d) restricted stock; and (e) performance shares. Such incentives may be subject to vesting conditions determined by the Board of Directors at grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.

As of June 30, 2023, no share has been issued pursuant to our 2023 Equity Incentive Plan.

NOTE 8 – RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2022, the Company borrowed total $82,107 from the President of the Company for its normal business operations and the acquisition of Hangzhou Longwen. From July 2022 to December 2022, the Company borrowed additional $9,676 from the President of the Company. As of December 31, 2022, the total amount owed to the President was $90,494, with a difference of $1,289 due to the foreign exchange fluctuation. During the three months ended March 31 and June 30, 2023, the Company repaid $14,618 (RMB 100,000) and $3,135 to the President, respectively. As of June 30, 2023, the balance of the loan due to our President was $69,777. The difference of $2,964 is due to the fluctuation in foreign exchange. The borrowing is unsecured, non-interest-bearing and due on demand.

During the three months ended March 31, 2023, the wife of President of the Company, repaid commercial loan and accrued interest in the total amount of $14,050 on behalf of the Company. During the three months ended June 30, 2023, the Company received advances of $30,378 in cash from and repaid $11,546 to the wife of President of the Company. As of June 30, 2023, the amount due to the related party was $31,025, with difference of $1,857 due to the fluctuation in foreign exchange.

NOTE 9 – COMMITMENTS

During the year ended December 31, 2022, the Company entered into leases with third parties for office spaces and a parking spot in Hangzhou, PRC, all with a lease term of 12 months. The remaining minimum lease payments under the three leases as of June 30, 2023 was approximately $7,789.

NOTE 10 – SUBSEQUENT EVENTS

The Company has evaluated all other subsequent events through the date these consolidated financial statements were issued and determine that there were no other subsequent events or transactions that require recognition or disclosures in the consolidated financial statements. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Quarterly Report on Form 10-Q. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guarantee, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

Overview

Longwen Group Corp. (the “Company”), was originally incorporated as Expertelligence, Inc in the State of California on March 31, 1980 and reincorporated in the State of Nevada on November 17, 2005.  On January 23, 2017, after a series of various name changes, the Company amended its Articles of Incorporation (“Charter Amendment”) to affect the current name change of Longwen Group Corp with trading symbol of “LWLW”.

The Company underwent a change of control on January 21, 2016, at which time Harold Minsky resigned in all officer positions. G. Reed Petersen and White Rim Cattle Company LLC each purchased 25,000,000 shares of common stock of the Company from Harold Minsky. Mr. Petersen is the Member Manager of White Rim Cattle Company, LLC and thus can be considered a control person of all 50,000,000 shares of stock of the Company. Pursuant to a Board of Directors meeting, Mr. Petersen was elected to and accepted all the officer positions previously held by Harold Minsky.

On or about April 5, 2016, the Company affected a 1 for 750 share reverse split of its issued and outstanding common stock. On such date, the Company’s common stock was reduced from 95,164,140 to 127,061 shares outstanding.

Effective November 29, 2016, G. Reed Peterson sold 66,667 shares of common stock of the Company to Longwen Group Corporation (Cayman Island), a Cayman Island company (“Longwen Cayman”). All of the shares held by Longwen Cayman are restricted securities.  As a result of the transactions, Mr. Petersen no longer owns any of the Company’s capital stock or securities and he and his affiliates waived all loans and other amounts due to the Company. In addition, on such date, Mr. Petersen resigned in all officer capacities from the Company, and Mr. Xizhen Ye, President of Longwen Cayman, was appointed as a sole Director of the Company and President and Chief Executive Officer and Chief Financial Officer of the Company. On August 22, 2018, Mr. Lizhong Lu was appointed as a director of Board.

From August 2018 to June 2021, the Company continued to seek for new business opportunities in order to increase its value of the common stock. However, due to the impact of the Covid-19 pandemic, the progress was delayed and the business goal was not successfully achieved.

On June 9, 2021, Anthony Lombardo (“Lombardo”) filed an Application for Appointment of Custodian (“Application”) with the Eighth Judicial District Court in Nevada to request the custodianship of the Company due to the Company’s non-response and late filing with the State of Nevada. On June 24, 2021, a hearing was held on this Application, where Lombardo was named temporary custodian of the Company. Subsequently after Lombardo’s custodianship, Deanna Johnson was appointed as the CEO, CFO and Secretary of the Company. On September 1, 2021, Deanna Johnson appointed Joseph Passalaqua (“Joseph”) as CEO, CFO and Secretary and resigned from all positions in the Company, On October 25, 2021, Mr. Xizhen Ye (“Ye”), who was the officer and director of the Company prior to Lombardo’s custodianship, and Longwen Group Corporation, a Cayman Island corporation, filed a Motion to Dissolve Custodianship (“Motion”) with the Eighth Judicial District Court of Nevada State. On January 12, 2022, in accordance with a Settlement Agreement regarding Lombardo’s custodianship, Mr. Ye was reinstated his positions as the officer and director of the Company, along with the reinstatement of the other Company’s director, Lizhong Lu, who was also in place prior to Lombardo’s custodianship. On February 9, 2022, pursuant to the Settlement Agreement, Joseph transferred 65,000,000 common stocks of the Company owned by him to Mr. Ye. On February 17, 2022, the Eighth Judicial District Court formally dismissed Lombardo’s custodianship for the Company. 

On February 23, 2022, the Company entered into an Acquisition Agreement with a third-party individual to acquire the 100% ownership of Hangzhou Longwen Enterprise Management Co., Ltd. (“Hangzhou Longwen”), a wholly Foreign-Owned Enterprise (“WOFE”) in Hangzhou, the People’s Republic of China (the “PRC”), for a total cash consideration of $1,000. As a result of the acquisition, Hangzhou Longwen became the Company’s wholly owned subsidiary in the PRC. Hangzhou Longwen was originally registered on January 4, 2012 and has minimum operations since its inception and the Company recognize $993 goodwill as a result of the business acquisition.

On October 11, 2022, the Company and its subsidiary, Hangzhou Longwen entered into an Acquisition Agreement with a third-party individual to acquire the 100% ownership of Hangzhou Yusu Trading Co., Ltd. (“Hangzhou Yushu”), a limited liability company in Hangzhou, the People’s Republic of China (the “PRC”), for a total cash consideration of RMB 1,000 or about USD $141. Upon consummated HZYS became Hangzhou Longwen’s wholly owned subsidiary in the PRC. Hangzhou Yushu was originally registered on April 20, 2020 and has minimum operations since its inception.

On March 3, 2023, Hangzhou Longwen established a new subsidiary, Huzhou Wohong Fishery Co., Ltd. (“Huzhou Wohong”), to operate the aquacultural breeding, wholesale and retail of aquaculture products and etc.

Results of operation for the three months ended June 30, 2023 and 2022

Revenue

During the three months ended on June 30, 2023, the Company generated $1,978 of revenue from its consulting services compared to $6,808 for the period of the same quarter of year 2022.

On March 3, 2023, Hangzhou Longwen established a new subsidiary, Huzhou Wohong Fishery Co., Ltd. (“HWF”), to operate the aquacultural breeding, wholesale and retail of aquaculture products and etc. During the three months ended on June 30, 2023, the Company generated $1,201,675 of revenue from its aquaculture product sales through HWF compared to $nil revenue for the three months ended June 30, 2022. We expect our newly added aquaculture product sales segment will become an important source of revenue for the Company in the year 2023.

During the three months ended on June 30, 2023, the Company has terminated the consulting agreements Linhai Dingji Auto Service Co., Ltd (China) (“Linhai Dingji”) and Yunnan Yusu Import and Export Trading Co., Ltd (China) (“Yunnan Yusu”) due to the Company’s business strategy adjustment. The managements of the Company have decided to be more focus on the aquaculture product sales segment from the year 2023.  

Cost of Revenues

For the three months ended June 30, 2023, our cost of revenues amounted to $1,087,240 as compared to $nil for the three months ended June 30, 2022, an increase of $1,087,240 or 100%. The increase was mainly due to the increased sales of the aquaculture product which was added to our sales segments recently. 

 Operating Expense

For the three months ended June 30, 2023, our operating expense amounts to $236,456, as compared to $119,617 for the three months ended June 30, 2022, an increase of $116,839. The increase was mainly due to $76,000 stock-based compensation incurred on June 29, 2023 resulted from the issuance of 380,000 common shares of the Company grant, and the increased office expenses as two subsidiaries were set up after the second quarter of 2022.

During the three months ended June 30, 2023 and 2022, the Company incurred other general and administrative and professional expenses of $160,456 and $119,617, respectively. The increase was mainly due to the increased normal business activities in the Company’s subsidiaries for the three months ended June 30, 2023. 

Net Loss

The net loss was $123,910 and $113,020 for the three months ended on June 30, 2023 and 2022, respectively. The increase in net loss in the current quarter was mainly due to the increase expenses of selling, general and administrative, professional expenses and share issuance for employee compensation as a result of the Company’s sustained operations. 

Results of operation for the six months ended June 30, 2023 and 2022

Revenue

During the six months ended on June 30, 2023, the Company generated $15,004 of revenue from its consulting services compared to $7,979 of revenue for the period of the same quarter of year 2022. During the six months ended on June 30, 2023, the Company generated $6,082 of revenue from its online product sales through HZYS compared to $nil revenue for the six months ended June 30, 2022. In December 2022, the Company’ subsidiary, HZYS, worked with a third-party platform developer, formally launched our online store, Huanyumeiyuan Mall (the “HYMY”), through Tencent’s Wechat platform.

During the six months ended on June 30, 2023, the Company generated $1,423,276 of revenue from its aquaculture product sales through HWF compared to $nil revenue for the six months ended June 30, 2022.

 Cost of Revenues

For the six months ended June 30, 2023, our cost of revenues amounted to $1,288,595 as compared to $nil for the six months ended June 30, 2022, an increase of $1,288,595 or 100%. The increase was mainly due to the increased sales of our online product sales and the aquaculture product sales which added to our sales segments recently.

Cost of revenue totaled $1,286,396 for aquaculture product sales for the six months ended June 30, 2023 comparing to $nil for the same quarter in 2022. Our cost for online product sales was $2,199 for the six months ended on June 30, 2023 compared to $nil for the same quarter in 2022.

 Operating Expense

For the six months ended June 30, 2023, operating expense amounts to $893,516, as compared to $164,137 for the six months ended June 30, 2022, an increase of $729,379. The increase was mainly due to $576,000 stock-based compensation expense which is resulted from the issuance of 5,380,000 common shares of the Company grant.

During the six months ended June 30, 2023 and 2022, the Company incurred other general and administrative and professional expenses of $317,516 and $164,137 respectively. The increase was mainly due to the increased normal business activities in the Company’s subsidiaries for the six months ended June 30, 2023.

Net Loss

The net loss was $742,999 and $156,270 for the six months ended on June 30, 2023 and 2022, respectively. The increase in net loss in the current quarter was mainly due to the increase expenses of selling, general and administrative, professional expenses and share issuance for employee compensation as a result of the Company’s sustained operations.  

Liquidity and Capital Resources

As of June 30, 2023 and December 31, 2022, we had an accumulated deficit of $19,770,834 and $19,027,835, respectively. As of June 30, 2023, we had cash of $8,539 and a working capital deficit of $95,906. As of December 31, 2022, we had cash of $68,121 and a working capital deficit of $8,172. The increase in the working capital deficit was primarily due to cash used in operating activities.

Going Concern Assessment

The Company demonstrates adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern. These adverse conditions are negative financial trends, specifically cash outflow from operating activities, operating losses, accumulated deficit and other adverse key financial ratios.

Management’s plan to alleviate the substantial doubt about the Company’s ability to continue as a going concern include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds from the majority shareholder and the President of the Company to eliminate inefficiencies in order to meet its anticipated cash requirements. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures and other requirements.

The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.

Off-Balance Sheet Arrangements

We have no 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 is material to stockholders.

Critical Accounting Policies

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires making estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies are discussed in further detail in the notes to the unaudited financial statements appearing elsewhere in this 10-Q report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” we are not required to provide this information under this item pursuant to Regulation S-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report on Form 10-Q, our President (principal executive officer) and our Chief Financial Officer performed an evaluation of the effectiveness of and the operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our President and Chief Financial Officer each concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures were not effective in timely alerting them to material information relating to Longwen Group Corp. required to be included in our Exchange Act filings.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide this information under this item pursuant to Regulation S-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May and June 2023, the Company sold a total of 336,168 shares of common stock to Forty-nine (49) non-U.S. investors at $0.20 per share for cash consideration received during the three months ended June 30, 2023. The Company relied upon Regulation S of the Securities Act of 1933, as amended, for the sale of these securities. No commissions were paid regarding the share issuance and the share certificates were issued with a Rule 144 restrictive legend.

On June 29, 2023, the Company granted a total of 750,000 shares of common stock of the Company to six employees pursuant to the Company’s 2022 Equity Incentive Plan, of which 200,000 shares of common stock were vested immediately and the fair value of the 200,000 shares totaled of $40,000 on June 29, 2023. The rest 550,000 shares of common stock were subject to vesting condition in three tranches within six months. During the three months ended June 30, 2023, 180,000 common stocks out of the 550,000 shares have been issued, and $36,000 share-based compensation was recorded in the statement of operations. 370,000 shares of common stocks are issuable, and the fair value of $74,000 was recorded as deferred compensation on the balance sheet.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

* Filed herewith.

SIGNATURES

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

EXHIBIT INDEX

* Filed herewith.