TANCHENG GROUP CO., LTD. - Quarter Report: 2023 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, 2023

☐ 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: 333-228803

TANCHENG GROUP CO., LTD.

(Exact name of registrant as specified in its charter)

No. 32, Huili Township, Jiaocheng County

Lvliang City, Shanxi Province, P.R. China 030500

(Address of principal executive offices, Zip Code)

(+86) 139-1097-2765

(Registrant’s telephone number, including area code)

N/A

(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 ☒

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,381,550 shares as of November 13, 2023.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TANCHENG GROUP CO., LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars, except share data or otherwise stated)

AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022 (UNAUDITED)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TANCHENG GROUP CO., LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(In U.S. Dollars, except share data or otherwise stated)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TANCHENG GROUP CO., LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In U.S. Dollars, except share data or otherwise stated)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

The accompanying notes are an integral part of the condensed consolidated financial statements.

TANCHENG GROUP CO., LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. Dollars, except share data or otherwise stated)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

The accompanying notes are an integral part of the condensed consolidated financial statements.

TANCHENG GROUP CO., LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 and 2022

TANCHENG GROUP CO., LTD. (“Company”), formerly named Bigeon Corp. (“Bigeon”) was incorporated on June 19, 2018 under the laws of Nevada. Prior to August 31, 2022, the Company was developing a new kind of messenger application. The product of the Company (“the App”) is intended to provide an entirely new way of sharing information. The App enables a user to draw a picture or a writing instead of typing the whole message. Our intended users will be the people whose jobs are connected with drawing and creating graphic animation. Bigeon’s product will be an appropriate tool to make short sketches on the go and share them with others.

On August 31, 2022, under a Stock Purchase Agreement, the former President of the Company, Olegas Tunevicius, sold all of his 3,500,000 common shares of Bigeon to Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Shanxi Qiansui Tancheng”), a privately-owned Chinese company, thus constituting a change of control of the Company. As part of the change of control, Olegas Tunevicius resigned as the Company’s sole officer and director, and Yu Yang became the Company’s sole officer and director.

On October 17, 2022, the Company filed a Certificate of Amendment to Articles of Incorporation of the Company with the Secretary of State of State of Nevada to change the Company’s name to Tancheng Group Co., Ltd.

On March 14, 2023, the Company entered into a definitive Contribution Agreement (the “Contribution Agreement”) with Zhan Jue Cheng Limited, a British Virgin Islands company, and Zhang Caixia Limited, a British Virgin Islands company (collectively, the “Contributors”), who together own 100% of the issued and outstanding ordinary shares of Qiansui International (the “Contributed Shares”). Pursuant to the Contribution Agreement, the Contributors agreed to contribute all of their right, title and interest in and to the Contributed Shares to Tancheng Group (the “Contribution”). On March 20, 2023, the Contribution was completed. As a result of the Contribution, Qiansui International became the wholly-owned subsidiary of Tangcheng Group. The assets and liabilities of the acquired entity, Qiansui International, have been brought forward at their book value and no goodwill has been recognized. A Form 8-K is filed on March 24, 2023 which contains the financial information of Qiansui International.

Qiansui International Group Limited (“Qiansui International”) was incorporated in the Cayman Islands on June 7, 2022. Qiansui (Hong Kong) Holdings Limited (“Qiansui HK”) was incorporated on July 21, 2022 in the Hong Kong SAR. Qiansui HK wholly owns Shanxi Qiansui Tanchend Culture Consulting Co., Ltd. (“Qiansui Consulting”) which was established on December 12, 2022 in the People’s Republic of China (the “PRC”). Qiansui Consulting is a wholly owned foreign entity under PRC law. Qiansui Consulting wholly owns Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Qiansui Media”), which was established on June 14, 2017 in the PRC. Qiansui Consulting acquired Qiansui Media on December 28, 2022. Qiansui HK and Qiansui Consulting are intermediary holding companies. Qiansui International conducts its operations through Qiansui Media.

The Company operates through its wholly-owned PRC subsidiary Qiansui Media and the principal activity is the sale of self-designed ornament and adornment products through its online store in the PRC.

(a) Basis of Presentation and going concern

The accompanying condensed consolidated financial statements include the balances and results of operations of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles in the U.S. (“US GAAP”).

The accompanying condensed consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company incurred loss of $225,530 for the nine months ended September 30, 2023 resulting in an accumulated deficit of $1,349,090 as of September 30, 2023, that raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern will require the Company to obtain additional financing to fund its operations. In assessing the going concern, the Board of Directors has considered:

The Board of Directors believes the Company has adequate financial resources to continue in operational existence for the foreseeable future, a period of at least 12 months from the date of this report. Accordingly, the going concern basis of accounting continues to be used in the preparation of the condensed consolidated financial statements for the nine months ended September 30, 2023.

(b) Economic and Political Risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in government policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

(c) Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent liabilities at the balance sheet date, and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include economic lives and impairment of property, plant and equipment and allowance for doubtful accounts. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. All cash and cash equivalents relate to cash on hand and cash at bank at September 30, 2023 and December 31, 2022.

The Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business.

(e) Revenue Recognition

The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.

Contract liabilities consist of deferred revenue related to advances received from customers for future transfer of goods to customers. The balance of deferred revenue represents unfulfilled performance obligations in the sales agreement, i.e products that have not yet been delivered. Once the related products have been delivered, the amount in the deferred revenue account is shifted to a revenue account.

For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.

(f) Foreign Currency Translation

The Company’s reporting currency is the U.S. dollar and the functional currency is the Chinese Renminbi (“RMB”). All assets and liabilities are translated at exchange rates at the balance sheet date and revenue and expenses are translated at the average yearly exchange rates and equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustments to other comprehensive income, a component of equity.

Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the applicable rates of exchange prevailing at the dates of the transactions. Exchange gains and losses are recognized in the statements of operations.

The exchange rates utilized as follows:

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

(g) Foreign Currency Risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of the RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. All the Company’s cash and cash equivalents are in RMB.

(h) Fair Value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when valuing the asset or liability. Authoritative literature provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

(i) Fair Value of financial instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, other receivables, advances to suppliers, accounts payable, other payables and accruals, and advances from customers. The carrying amounts of these balances approximate their fair values due to the short-term maturities of these instruments. 

(j) Income Taxes

Income tax expense comprises current and deferred taxation and is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income or equity, in which case it is recognized directly in other comprehensive income or equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable with respect to previous periods.

The Company accounts for income taxes using the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities, net of operating loss carry forwards and credits, by applying enacted tax rates that will be in effect for the period in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in the statements of operations in the period of change.

The Company accounts for uncertain tax positions by reporting liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when the Company believes that it is more likely than not that the tax position will be sustained on examination by the tax authorities based on the technical merits of the position. The Company recognizes interest and penalties if any, related to unrecognized tax benefits in income tax expenses.

(k) Comprehensive income

Comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income is reported in the statements of comprehensive income.

(l) Concentration of credit risk

Financial instruments that potentially expose the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and other receivables. As of September 30, 2023 and December 31, 2022, substantially all of the Company’s cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. During the three and nine months ended September 30, 2023 and 2022, revenue amounting to $625,954, $, $5,704, $1,826,670 and $109,057 were generated from third parties, respectively; and $nil 0, $147,434, $nil 0 and $281,521 were generated from a related party (see Note 8), respectively.

Details of customers who accounted for 10% or more of the Company’s total revenue for the three and nine months ended September 30, 2023 and 2022 are as follows:

Details of suppliers who accounted for 10% or more of the Company’s total purchase for the three and nine months ended September 30, 2023 and 2022 are as follows:

(m) Recent accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The Company has adopted this standard on January 1, 2023  and the adoption did not have a material impact on the Company’s condensed consolidated financial statements. 

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832)” which enhances disclosure of transactions with governments that are accounted for by applying a grant or contribution model. The new pronouncement requires entities to provide information about the nature of the transaction, terms and conditions associated with the transaction and financial statement line items affected by the transaction. The Company adopted this standard on January 1, 2023  and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its condensed consolidated financial statements.

No impairment provision for obsolete inventories was recorded for the three and nine months ended September 30, 2023 and 2022.

Advance to suppliers mainly represents the amount that certain suppliers require the Company to pay in advance for the purchase of products or for the provision of services. Such advance is appropriated against future purchase orders or future services to be rendered. These advances are interest free, unsecured and short-term in nature.

Advance from customers represents payments received from customers before the products were delivered. Advance from customers is recognized as revenue when all revenue recognition criteria are met.

In April 2023, the Company purchased a motor vehicle for approximately $144,146 (RMB1,012,301). A motor vehicle is recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the period of disposal. All ordinary repair and maintenance costs are expensed as incurred.

Depreciation of a motor vehicle is computed using the straight-line method over the estimated useful lives of 5 years. Depreciation expense recorded for the nine months ended September 31, 2023 and 2022 was $11,412 and $ 0 nil, respectively.

As of September 30, 2023 and December 31, 2022, net book value of a motor vehicle was $128,123 and nil 0, respectively.

(a)  Enterprise Income Tax (“EIT”)

Tancheng Group Co., Ltd. was incorporated in the State of Nevada. Tancheng Group Co., Ltd. is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as Tancheng Group Co., Ltd. had no United States taxable income for the three and nine months ended September 30, 2023 and 2022.

Qiansui International was incorporated in the Cayman Islands. Under the current tax laws of Cayman Islands, Qiansui International is not subject to taxation.

Qiansui HK was incorporated in Hong Kong and is subject to an income tax rate of 16.5% for taxable income generated from operations in Hong Kong.

Qiansui Consulting and Qiansui Media were incorporated in the PRC and they are subject to profits tax rate at 25% for income generated and operation in the country.

The full realization of the tax benefit associated with the losses carried forward depends predominantly upon the Company’s ability to generate taxable income during the carry-forward period.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or that future deductibility is uncertain.

The Company did not recognize deferred tax assets for unused tax losses as of September 30, 2023 and December 31, 2022 as management of the Company believes that it is more likely than not that the benefit from the loss carry forwards will not be realized.

The Company operates its business through a subsidiary incorporated in the PRC which is subject to a corporate income tax rate of 25%. A reconciliation of the effective tax rates from 25% statutory tax rates for the three and nine months ended September 30, 2023 and 2022 is as follows:

(b)  Value Added Tax (“VAT”)

In accordance with the relevant taxation laws in the PRC, the normal VAT rate for small-scale VAT payers on domestic sales is 3%. In response to COVID-19, there are various VAT incentives, the Company was eligible for a reduced VAT rate of 1% for the three and nine months ended September 30, 2023 and 2022.

The table below sets forth the related parties and their relationships with the Company as of September 30, 2023 and December 31, 2022:

The related party balances as of September 30, 2023 and December 31, 2022 and transactions for the three and nine months ended September 30, 2023 and 2022 are as follows:

Amounts due from related parties:

Amounts due to related parties:

Related party transactions:

Nature of transactions:

No related party transactions incurred during the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2022, the Company sold products to Jiaocheng Xinmu amounting to $147,434 and $281,521, respectively, representing 96% and 72% of the Company’s revenue, respectively.

On August 18, 2022, the former President of the Company, Olegas Tunevicius signed an Assignment, Assumption, and Indemnity Agreement to assume all liabilities and debts and obligations of Bigeon as of the Closing date of the Stock Purchase Agreement (Note 1). As of the Closing date, total liabilities amounting to $146,114 was assigned to Mr. Tunevicius and the Company account for this transaction as a capital contribution and an increase of additional paid-in capital under shareholders’ equity from $16,750 at December 31, 2021 to $162,864 at September 30, 2023 and December 31, 2022.

(a) Legal reserve

Pursuant to the laws applicable to the PRC’s Foreign Investment Enterprises, the Company must make appropriations from after-tax profit to non-distributable reserve funds. Subject to certain cumulative limits, the general reserve requires annual appropriations of 10% of after-tax profits as determined under the PRC laws and regulations at each year-end until the balance reaches 50% of the PRC entity registered capital; the other reserve appropriations are at the Company’s discretion. These reserves can only be used for specific purposes of enterprise expansion and are not distributable as cash dividends. As of September 30, 2023 and December 31, 2022, the paid-up statutory reserve was $nil.

(b) Currency translation reserve

The currency translation reserve represents translation differences arising from the translation of foreign currency financial statements into the Company’s reporting currency.

As of September 30, 2023, the Company did not make any contractual obligations or arrangements that required a provision or disclosure in these condensed consolidated financial statements.

The Company has evaluated subsequent events from September 30, 2023 to the date the financial statements were issued and has determined that there are no items to disclose.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “pursue,” “expect,” “predict,” “project,” “goals,” “strategy,” “future,” “likely,” “forecast,” “potential,” “continue,” negatives thereof or similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding business strategies, macro-economic and sector-specific trends, future cash flows, financing plans, plans and objectives of management and any other statements which are not statements of historical facts.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual future results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not put undue reliance on any of these forward-looking statements. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Unless otherwise indicated by the context, references to the “Company, “we,” “us,” “our” in this report are to Tancheng Group Co., Ltd., a Nevada corporation, and its consolidated subsidiaries.

Overview

Tancheng Group Co., Ltd. (formerly Bigeon), or Tancheng Group, was incorporated under the laws of Nevada on June 19, 2018. It remained a shell company until the completion of acquiring Qiansui International Group Limited, a Cayman Islands exempted company (“Qiansui International”), and Qiansui International’s subsidiaries on March 20, 2023, pursuant to a contribution agreement (the “Contribution Agreement”) entered into by and among Tancheng Group, and holders of 100% of the outstanding ordinary shares of Qiansui International who also held 79.9% of Tancheng Group’s outstanding common stock then (the “Contributors”). In accordance with the Contribution Agreement, the Contributors contributed all of their interests in Qiansui International to Tancheng Group (the “Contribution”).

Qiansui International was incorporated in the Cayman Islands on June 7, 2022. Qiansui (Hong Kong) Holdings Limited (“Qiansui HK”) was incorporated on July 21, 2022 in the Hong Kong SAR. Qiansui HK wholly owns Shanxi Qiansui Tancheng Culture Consulting Co., Ltd. (“Qiansui Consulting”) which was established on December 12, 2022 in the PRC. Qiansui Consulting is a wholly owned foreign entity, or WFOE, under PRC law. Qiansui Consulting wholly owns Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Qiansui Media”), which was established on June 14, 2017 in the PRC. Qiansui Consulting acquired Qiansui Media on December 28, 2022. Qiansui HK and Qiansui Consulting are intermediary holding companies. Qiansui International conducts its operations through Qiansui Media.

Following the consummation of the Contribution, our company, through its wholly owned PRC subsidiary Qiansui Media, has been engaged in the business of selling ornament and adornment products related to “Jue Cheng” culture and creating cultural tourism programs. Located in close proximity to PangQuanGou National Nature Reserve in Jiaocheng County, Shanxi Province, China, Qiansui Media has leveraged the rich heritage of “Jue Cheng” culture to develop innovative peripheral cultural products and large-scale recreational tourism projects.

On April 11, 2023, the holder of Tancheng Group, representing approximately 97% voting power of the total issued and outstanding capital stock of Tancheng Group, acting by written consent, approved a Certificate of Amendment to Articles of Incorporation (the “Certificate of Amendment”) to increase the number of shares of common stock that Tancheng Group is authorized to issue from 75,000,000 shares to 1,000,000,000 shares. The Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada on April 11, 2023.

Results of Operation

Comparison for The Three Months Ended September 30, 2023 and 2022

The following table sets forth key components of our results of operations during the three months ended September 30, 2023 and 2022.

Revenue

We generated $625,954 in revenue for the three months ended September 30, 2023 compared to $153,138 for the three months ended September 30, 2022, representing an increase in revenues of $472,816 or 308.8% compared to the same period of year 2022.

Our business is steadily regaining its footing as the COVID-19 pandemic ceased to affect our operations. Our third quarter of 2023 saw a significant recovery compared to the same period in 2022. Businesses have returned to normal and our market has regained confidence. In addition, during 2022, we spent efforts on advertising and promoting our products which started to attract a greater number of customers since late 2022.

Cost of Revenue

Cost of revenue was $458,364 for the three months ended September 30, 2023 compared to $133,892 for the three months ended September 30, 2022. Cost of revenue mainly consists of cost of products sold and labor cost. The increase in cost of revenue by $324,472 or 242.3% was mainly due to more products sold, as reflected in the increase in revenue.

Gross profit

Gross profit for the three months ended September 30, 2023 was $167,590 compared with $19,246 for the three months ended September 30, 2022. As a percentage of revenue, our gross margin increased from 12.7% for the three months ended September 30, 2022 to 26.8%   for the three months ended September 30, 2023, primarily because of the increase in revenue while labor cost included in cost of revenue is fixed cost in nature that did not increase as much.

Operating Expenses

General and administrative expense

By far the most significant component of our operating expenses for both the three-month periods ended September 30, 2023 and 2022 was general and administrative expenses in the amount of $138,035 and $51,967, respectively. The increase of $86,068 or 165.6% was mainly due to the increase in legal and professional fees related to the regular SEC reporting services needed as a public company after the completion of the contribution transaction on March 20, 2023, as a result of which we ceased being a shell company.

Net Income (Loss)

We reported a net income of $23,031 for the three months ended September 30, 2023 compared to a net loss of $34,311 for the three months ended September 30, 2022. We started to see a positive trend in our results after the COVID-19 pandemic.

Comparison for The Nine Months Ended September 30, 2023 and 2022

The following table sets forth key components of our results of operations during the nine months ended September 30, 2023 and 2022.

Revenue

We generated $1,826,670 in revenue for the nine months ended September 30, 2023 compared to $390,578 for the nine months ended September 30, 2022, representing an increase in revenues of $1,436,092 or 367.7% compared to the same period of year 2022.

Our business is steadily regaining its footing as the COVID-19 pandemic ceased to affect our operations. Our first nine months of 2023 saw a significant recovery compared to the same period in 2022. Businesses have returned to normal and our market has regained confidence. In addition, in 2022, we spent efforts on advertising and promoting our products which started to attract a greater number of customers since late 2022.

Cost of Revenue

Cost of revenue was $1,506,068 for the nine months ended September 30, 2023 compared to $338,199 for the nine months ended September 30, 2022. The increase in cost of revenue by $1,167,869 or 345.3% was mainly due to more products sold, as reflected in the increase in revenue. The increase in cost of revenue was relatively in line with the increase in revenue. The cost of revenue mainly consists of the cost of the products sold.

Gross profit

Gross profit for the nine months ended September 30, 2023 was $320,602 compared with $52,379 for the nine months ended September 30, 2022. As a percentage of revenue, our gross margin increased from 13.4% for the nine months ended September 30, 2022 to 17.6% for the nine months ended September 30, 2023, primarily because of the increase in revenue while labor cost included in cost of revenue is fixed cost in nature that did not increase as much.

Operating Expenses

General and administrative expense

By far the most significant component of our operating expenses for both the nine-month periods ended September 30, 2023 and 2022 was general and administrative expenses in the amount of $526,075 and $111,675, respectively. The increase of $414,400 or 371.1% was mainly due to the significant increase in legal and professional fees related to the contribution transaction that was completed on March 20, 2023, as a result of which we ceased being a shell company, as well as our SEC filings.

Net Loss

We reported a net loss of $225,530 for the nine months ended September 30, 2023 compared to a net loss of $76,227 for the nine months ended September 30, 2022, an increase in net loss of $149,303 or 195.9%. This was mainly due to the significant increase in administrative expenses.

Although we incurred a significant net loss for the nine months ended September 30, 2023, we started generating net income during the third quarter of 2023, and we expect to see a continuous positive trend in our future results.

Liquidity and Capital Resources

Our principal sources of liquidity and capital resources have been, and are expected to continue to be, cash flow from operations and cash advances from related parties. Our principal uses of cash have been, and we expect will continue to be, for working capital to support a reasonable increase in our scale of operations.

Management has estimated our cash flow from future operations and available support from related parties and has concluded that we have, or will have access to, sufficient financial resources to meet our financial obligations as and when they fall due in the coming twelve months. There can be no assurances, however, that any of the financial resources we may be contemplating as being available to us in the future will, in fact, be available to us on acceptable terms, if at all. We believe there will be sufficient funds to run our operations for the next 12 months.

As of September 30, 2023, we had cash and cash equivalents of $463,014. The following table provides detailed information about our net cash flows for the nine months ended September 30, 2023 and 2022:

Operating Activities

Net cash used in operating activities was $(539,198) for the nine months ended September 30, 2023. The difference between our net loss of $(225,530) and net cash outflows from operating activities was due to the adjustment of non-cash depreciation and amortization in the amount of $11,412 and the cash used in operating assets and liabilities in an aggregate amount of $(325,080).

The cash used in operating assets and liabilities was generally attributable to (i) increase in inventories of $(577,555) due to more purchases made to keep up with the increasing demand from customers on our products; (ii) increase in accounts payables of $157,864 due to more purchases from our vendors; and (iii) increase in advance from customers of $175,145 due to more sales order received near the period end, which the ordered products had yet to be delivered to customers.

Investing Activities

Net cash used in investing activities of $144,146 for the nine months ended September 30, 2023 was attributable to the purchase of a motor vehicle.

Financing Activities

Net cash generated from financing activities was $1,092,970 for the nine months ended September 30, 2023, which was attributable to the funds from related parties to support our business operations.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Revenue Recognition

The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.

Contract liabilities consist of deferred revenue related to advance received from customers for future transfer of goods to customers. The balance of deferred revenue represents unfulfilled performance obligations in the sales agreement, i.e products that have not yet been delivered. Once the related products have been delivered, the amount in deferred revenue account is shifted to a revenue account.

For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.

Recent accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The Company has adopted this standard  on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements. 

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832)” which enhances disclosure of transactions with governments that are accounted for by applying a grant or contribution model. The new pronouncement requires entities to provide information about the nature of the transaction, terms and conditions associated with the transaction and financial statement line items affected by the transaction. The Company adopted this standard on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s chief executive officer (“CEO”) and the Company’s chief financial officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2023. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2023 due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review.

Management is in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.

Changes in Internal Control over Financial Reporting

Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

ITEM 1A. RISK FACTORS.

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

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.