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Tengjun Biotechnology Corp. - Quarter Report: 2022 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2022

 

or

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 333-169397

 

Tengjun Biotechnology Corp.

(Exact name of small business issuer as specified in its charter)

 

Nevada   27-3042462
(State or other jurisdiction
of incorporation)
  (I.R.S. Employer
Identification Number)

 

East Jinze Road and South Huimin Road, Food Industry Economic and Technology Development District,
Jianxiang County, Jining City, Shandong Province, China 

(Address of principal executive offices and zip code)

 

(86) 0537-8711599

(Registrant’s telephone number, including area code)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

The number of shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of August 9, 2022, was 90,309,169.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page No.
  PART I. - FINANCIAL INFORMATION  
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 24
     
PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 25
Signatures 26

 

i

 

 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS  

 

TENGJUN BIOTECHNOLOGY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2022   2021 
   (Unaudited)     
Assets        
Current Assets        
Cash and cash equivalents  $6,759,713   $285,568 
Advance to suppliers   488,060    564,846 
Inventories, net   1,262,623    3,084,157 
Prepaid taxes   -    688,272 
Due from related party   1,493    - 
Prepaid expenses and other receivable   18,320    5,688 
Total Current Assets   8,530,209    4,628,531 
           
Property and equipment, net   485,477    675,556 
Construction in progress   8,506,821    8,726,299 
           
Total Assets  $17,522,507   $14,030,386 
           
Liabilities and Deficit          
           
Current Liabilities          
Accounts payable  $1,222,328   $263,891 
Advances from customers   13,437    14,123 
Due to related parties   14,055,113    15,531,258 
Accrued liabilities and other payables   7,522,206    506,844 
Total Current Liabilities   22,813,084    16,316,116 
           
Total Liabilities   22,813,084    16,316,116 
           
Deficit          
Preferred stock, $.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding   
-
    
-
 
Common stock, $.001 par value; 200,000,000 shares authorized;  65,309,169 and 65,309,169 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   65,309    65,309 
Additional paid-in capital   1,099,599    1,099,599 
Accumulated deficit   (6,228,711)   (3,187,804)
Accumulated other comprehensive loss   13,135    (168,535)
Total stockholders’ deficit   (5,050,668)   (2,191,431)
Noncontrolling interests   (239,909)   (94,299)
Total Deficit   (5,290,577)   (2,285,730)
           
Total Liabilities and Deficit  $17,522,507   $14,030,386 

 

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

 

1

 

 

TENGJUN BIOTECHNOLOGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Sales revenue, net  $51,290,462   $-   $55,574,576   $- 
Cost of goods sold   3,438,949    -    3,809,013    - 
Gross profit   47,851,513    -    51,765,563    - 
Selling and marketing expenses   51,072,254    13,419    54,430,227    16,878 
General and administrative expenses   268,934    206,001    499,273    363,668 
Total operating expenses   51,341,188    219,420    54,929,500    380,546 
Loss from operations   (3,489,675)   (219,420)   (3,163,937)   (380,546)
Interest income (expense)   7,397    (4)   7,421    (4,977)
Other income (expense), net   (74)   (2,657)   (74)   (2,657)
Loss before provision for income taxes   (3,482,352)   (222,081)   (3,156,590)   (388,180)
Provision for income taxes   (53,366)   
-
    39,589    - 
Net loss   (3,428,986)   (222,081)   (3,196,179)   (388,180)
Net loss attributable to noncontrolling interests   (169,256)   
-
    (155,272)   
-
 
Net loss attributable to Tengjun stockholders   (3,259,730)   (222,081)   (3,040,907)   (388,180)
                     
Net loss   (3,428,986)   (222,081)   (3,196,179)   (388,180)
Other comprehensive income (loss):                    
Foreign currency translation adjustment   200,770    (19,893)   191,332    (13,296)
Comprehensive loss   (3,228,216)   (241,974)   (3,004,847)   (401,476)
Comprehensive loss attributable to noncontrolling interests   (159,117)   
-
    (145,610)   
-
 
Comprehensive loss attributable to Tengjun stockholders  $(3,069,099)  $(241,974)  $(2,859,237)  $(401,476)
                     
Net Loss Per Common Share:                    
Net loss per common share - basic and diluted
  $(0.05)  $(0.01)  $(0.05)  $(0.02)
                     
Weighted average shares outstanding:                    
Basic and diluted
   65,309,169    19,285,714    65,309,169    19,285,714 

 

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

 

2

 

 

TENGJUN BIOTECHNOLOGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

(UNAUDITED)

 

                   Accumulated         
           Additional       Other         
   Common Stock   Paid-in   Accumulated   Comprehensive   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Interests   Deficit 
Balance at December 31, 2021   65,309,169   $65,309   $1,099,599   $(3,187,804)  $(168,535)  $(94,299)  $(2,285,730)
Net loss   -    
-
    
-
    218,823    
-
    13,984    232,807 
Foreign currency translation   -    
-
    
-
    
 
    (8,961)   (477)   (9,438)
Balance at March 31, 2022   65,309,169    65,309    1,099,599    (2,968,981)   (177,496)   (80,792)   (2,062,361)
Net loss   -    
-
    
-
    (3,259,730)   
-
    (169,256)   (3,428,986)
Foreign currency translation   -    
-
    
-
         190,631    10,139    200,770 
Balance at June 30, 2022   65,309,169   $65,309   $1,099,599   $(6,228,711)  $13,135   $(239,909)  $(5,290,577)

 

                   Accumulated         
           Additional       Other         
   Common Stock   Paid-in   Accumulated   Comprehensive   Noncontrolling   Total 
   Shares   Amount   Capital   Deficit   Loss   Interests   Deficit 
Balance at December 31, 2020   19,285,714   $19,286   $1,549,018   $(2,605,211)  $(141,208)  $
           -
   $(1,178,115)
Net loss   -    
-
    
-
    (166,099)   
-
    
-
    (166,099)
Foreign currency translation   -    
-
    
-
    
-
    6,597    
-
    6,597 
Balance at March 31, 2021   19,285,714    19,286    1,549,018    (2,771,310)   (134,611)   
-
    (1,337,617)
Net loss   -    
-
    
-
    (222,081)   
-
    
-
    (222,081)
Foreign currency translation   -    
-
    
-
    
-
    (19,893)   
-
    (19,893)
Balance at June 30, 2021   19,285,714   $19,286   $1,549,018   $(2,993,391)  $(154,504)  $
-
   $(1,579,591)

 

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

 

3

 

 

TENGJUN BIOTECHNOLOGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended 
   June 30, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(3,196,179)  $(388,180)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation   163,941    155,348 
Changes in net assets and liabilities:          
Inventories   1,728,160    
-
 
Prepaid taxes   676,958    (15,839)
Prepaid expenses and other assets   (12,867)   
-
 
Advance to suppliers   51,004    (112,678)
Accounts payable   1,004,045    11,400 
Taxes payable   7,373,656    (695)
Accrued liabilities and other payable   (96,868)   208,677 
Net cash provided by (used in) operating activities   7,691,850    (141,967)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (4,967)   (36,724)
Payment for construction in progress   (207,908)   (234,607)
Net cash used in investing activities   (212,875)   (271,331)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayment of short-term bank loan   
-
    (463,666)
Repayment of short-term loan from third parties   
-
    (463,666)
(Repayment of) proceeds from loans from related parties   (776,804)   1,520,714 
Net cash (used in) provided by financing activities   (776,804)   593,382 
           
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS   (228,026)   445 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   6,474,145    180,529 
           
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE   285,568    6,238 
CASH AND CASH EQUIVALENTS, ENDING BALANCE  $6,759,713   $186,767 
           
SUPPLEMENTAL DISCLOSURES:          
Income tax paid  $
-
   $
-
 
Interest paid  $
-
   $4,977 

 

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

 

4

 

 

TENGJUN BIOTECHNOLOGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS

 

Tengjun Biotechnology Corp. (formerly known as China Herb Group Holdings Corporation, the “Company”) was incorporated under the name “Island Radio, Inc.” under the laws of the State of Nevada on June 28, 2010. On December 9, 2019, the Company changed its corporate name to Tengjun Biotechnology Corp. (“Tengjun”).

 

Tengjunxiang Biotechnology Ltd. (“Tengjunxiang”) is a holding company incorporated in the Cayman Islands on July 19, 2021. On August 5, 2021, Tengjunxiang formed a wholly-owned subsidiary, Tengjunxiang Biotechnology HK Limited (“Tengjunxiang HK”), under the laws of Hong Kong. Shandong Minfu Biology Science and Technology Co., Ltd. (“Shandong Minfu”) is a company incorporated under the laws of the People’s Republic of China (the “PRC”) on August 29, 2021. Tengjunxiang HK owns all of the equity interests in Shandong Minfu, a wholly-foreign owned entity formed (“WFOE”) under the laws of PRC. 

 

Shandong Tengjunxiang Biotechnology Co., Ltd (“Shandong Tengjunxiang”) was incorporated under the laws of PRC on June 27, 2014. Jinxiang County Kanglong Water Purification Equipment Co., Ltd (“Jinxiang Kanglong”), a wholly-owned subsidiary of Shandong Tengjunxiang, was formed under the laws of the PRC on January 6, 2015. Shangdong Tengjunxiang and Jinxiang Kanglong have been under common control. Shandong Tengjunxiang and its subsidiary, Jinxiang Kanglong are primarily engaged in processing, packaging, distribution and sale of dandelion teas, and producing and sale of water purifiers in China, and plans to increase its tea processing and water purifier production lines, and expand its sales channels in the next one to two years.

 

On December 15, 2021, all shareholders and the Board of Shandong Tengjunxiang agreed to increase its registered capital to RMB 100 million, of which RMB 94.95 million shall be contributed by Shandong Minfu and the remaining RMB 5.05 million shall be contributed by fourteen other shareholders. On December 16, 2021, Tengjunxiang completed its restructuring transaction (the “Restructuring Transaction”). As a result of the Restructuring Transaction, Tengjunxiang, through its subsidiaries, directly owns 94.95% of the ownership of Shandong Tengjunxiang and therefore became the controlling shareholder of Shandong Tengjunxiang.

 

All of the entities of the Restructuring Transaction are under common control of Mr. Xianchang Ma, the controlling shareholder of Tengjunxiang, before and after the Restructuring Transaction, which results in the consolidation of Tengjunxiang and its subsidiaries and has been accounted for as a reorganization of entities under common control at carrying value and for accounting purpose, the reorganization was accounted for as a recapitalization. The consolidated financial statements are prepared on the basis as if the Restructuring Transaction became effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

 

On December 23, 2021, the Company entered into a Share Purchase/Exchange Agreement (the “Share Exchange Agreement”) with Tenjunxiang, and eleven shareholders of Tengjunxiang (the “Selling Shareholders”). The Selling Shareholders collectively owned 100% of all issued and outstanding shares of Tengjunxiang (the “Tengjunxiang Shares”).  Pursuant to the Share Exchange Agreement, the Selling Shareholders jointly agreed to sell or transfer to the Company one hundred percent (100%) of the Tengjunxiang Shares in exchange for a total of 19,285,714 shares of the Company’s common stock. As a result of such exchange (the “Stock Exchange”), Tengjunxiang has become a wholly-owned subsidiary of the Company and the Selling Shareholders collectively have received 19,285,714 shares of the Company’s common stock, representing approximately 29.53% of the then issued and outstanding shares of the Company’s common stock.

 

In connection with the acquisition of Tengjunxiang pursuant to the Share Exchange Agreement, the Company with its subsidiaries commenced its business operations in processing, packaging, distribution and sale of dandelion teas, producing and sale of water purifiers in China through Tengjunxiang and its subsidiaries in the People’s Republic of China. The acquisition of Tengjunxiang is treated as a reverse acquisition (the “Reverse Acquisition”).

 

5

 

 

COVID-19

 

A novel strain of coronavirus, or COVID-19, was first identified in China in December 2019, and subsequently declared a pandemic on March 11, 2020 by the World Health Organization. As a result of the COVID-19 pandemic, all travels had been severely curtailed to protect the health of the Company’s employees and comply with local government guidelines. The COVID-19 pandemic has had an adverse effect on the Company’s business. Although China has already begun to recover from the outbreak of COVID-19 and the Company’s business has gone back to normal, the epidemic continues to spread on a global scale and there is a risk of the epidemic returning to China in the future, thereby causing further business interruption. The full impact of the pandemic on the Company’s business, operations and financial results depends on various factors that continue to evolve, which the Company may not be able to accurately predict for now.

 

NOTE 2. GOING CONCERN

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the Company’s accompanying consolidated financial statements, the Company had an accumulated deficit of $6,228,711 and working capital deficit of $14,282,875 as of June 30, 2022, and has just started to generate revenues since the last quarter. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. The Company can give no assurances that any additional capital that it is able to obtain, if any, will be sufficient to meet its needs.

 

If the Company is unable to successfully commence its business operations in a short period of time, or unable to raise additional capital or secure additional lending, the Company may need to curtail or cease its operations. The Company believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management plans to obtain such resources for the Company include obtaining capital from the sale of its equity, and short-term and long-term borrowings from banks, stockholders or other related parties. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Principles of consolidation

 

The consolidated financial statements include the financial statements of Tengjun Biotechnology Corp., Tengjunxiang and its 100% owned subsidiaries, Tengjunxiang HK and WOFE, and its 94.95% owned subsidiaries, Shandong Tengjunxiang and Jinxiang Kanglong. All inter-company transactions and balances are eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

 

6

 

 

Reclassification

 

Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.

 

Cash and Cash Equivalents

 

The Company considers all cash on hand and in banks, certificates of deposit with banks and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

 

Advance to suppliers

 

The Company makes advances to certain vendors for construction and purchase of equipment. The Company had advance to suppliers of $488,060 and $564,846 as of June 30, 2022 and December 31, 2021, respectively. Based on management’s evaluation, no allowance for advances to suppliers was recorded as of June 30, 2022 and December 31, 2021.

 

Inventories

 

The Company’s inventories primarily consist of dandelion teas and water purifiers. Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Inventories mainly consist of raw materials, goods in process, and finished goods. The Company reviews its inventories regularly for possible obsolete goods and establishes reserves when determined necessary. No reserve for inventory was established as of June 30, 2022 and December 31, 2021.

 

Property and Equipment

 

Property and equipment are 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 for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

 

   Estimated
Useful
Life
Buildings and improvements  3-5 years
Machinery and equipment  3-10 years
Office furniture and equipment  3 years
Vehicles  5 years

 

Costs incurred in constructing new facilities, including progress payments and other costs related to construction, are capitalized and transferred to property, plant and equipment on completion, at which time depreciation commences.

 

Construction in Progress

 

Construction in progress represents direct costs of construction, interest and design fees incurred. No interest was capitalized for the six months ended June 30, 2022 and 2021. Capitalization of these costs ceases and the construction in progress is transferred to property, plant, and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is recognized until it is completed and ready for intended use. Construction in progress as of June 30, 2022 and December 31, 2021 was $8,506,821 and $8,726,299, respectively.

  

Impairment of Long-lived Assets

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment for the six months ended June 30, 2022 and 2021 based on management’s evaluation. 

 

7

 

 

Value added tax (“VAT”)

 

All China-based enterprises are subject to a VAT imposed by the PRC government on their domestic product sales and services. The Company’s subsidiaries in the PRC are subject to VAT at rates ranged from 0% to 17% on proceeds received from customers, and are entitled to a deduction for VAT already paid or borne on the products purchased by them. The VAT payable will be presented on the balance sheets when input VAT is less than the output VAT. Receivable balance, prepaid VAT, will be presented on the balance sheets when input VAT is larger than the output VAT.

 

Advances from customers

 

Payments received before all the relevant criteria for revenue recognition are satisfied are recorded as advance from customers. When all revenue recognition criteria are met, the advances from customers are recognized as revenue.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. To determine the revenue to be recognized, the Company applies the following five-step model:

 

identify arrangements with customers;

 

identify performance obligations;

 

determine transaction price;

 

allocate transaction price to the separate performance obligations in the arrangement, if more than one exists; and

 

recognize revenue as performance obligations are satisfied.

 

The Company generates revenues mainly from sales of packaged dandelion teas and water purifiers. During the three and six months ended June 30, 2022, the Company also engaged in the sale of certain nutritional products and water treatment accessories. Revenue from the sales of goods is recognized when the control over the promised goods is transferred to customers.

 

Cash payments received or due from customers before revenue recognized are recorded as advances from customers. The advance from customers is recognized as revenue when the Company’s performance obligation is completed.

 

Cost of goods sold

 

Cost of goods sold consists primarily of cost of goods purchased, direct raw material cost, direct labor cost, and cost of manufacturing overheads including the depreciation of production equipment.

 

Selling and marketing expenses

 

Selling and marketing expenses primarily consist of advertising costs, agency fees, costs for promotional materials, and commission costs made to sales force.

 

Advertising expenses are charged to the consolidated statements of operations and comprehensive loss in the period incurred. The amounts of advertising expenses incurred were $2,927 and $13,187 for the three months ended June 30, 2022 and 2021, respectively. The amounts of advertising expenses incurred were $4,154 and $16,646 for the six months ended June 30, 2022 and 2021, respectively.

 

Commission expense primarily consists of commission costs made to independent sales force. The amount of commission expense incurred were $51,069,327 and $0 for the three months ended June 30, 2022 and 2021, respectively. The amount of commission expense incurred were $54,426,073 and $0 for the six months ended June 30, 2022 and 2021, respectively.

 

8

 

 

General and administrative expenses

 

General and administrative expenses primarily consist of payroll and benefit costs for corporate employees, legal, consulting, professional expenses, rental expenses and other corporate overhead costs.

 

Concentration of Credit Risk

 

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

 

The Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks is covered by insurance up to RMB 500,000 ($72,500) per bank. The Company has not experienced any losses in such accounts and believes they are not exposed to any risks on their cash in these bank accounts.

 

The Company generated total revenue of $51,290,462 and $55,574,576 during the three and six months ended June 30, 2022, respectively. No customer accounted for over 10% of total revenue during the three and six months ended June 30, 2022.

 

During the three months ended June 30, 2022, the Company had two major supplier that accounted for over 10% of its total purchases.

 

Supplier  Net purchase for the
three months ended
June 30,
2022
   % of total
purchase
 
A  $1,005,275    82%
B   227,376    18%

 

During the six months ended June 30, 2022, the Company had two major supplier that accounted for over 10% of its total purchases.

 

Supplier   Net purchase for the
six months ended
June 30,
2022
    % of total
purchase
 
A   $ 1,005,275       82 %
B     227,376       18 %

 

No supplier accounted for over 10% of total purchase during the three and six months ended June 30, 2021.

 

Income Taxes

 

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred.

 

9

 

 

Related parties

 

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, shareholder, or a related corporation.

 

Foreign Currency Translation

 

The Company uses the United States dollar (“U.S. dollars”) for financial reporting purposes. The functional currency of the Company and its subsidiaries is the Chinese Yuan or Renminbi (“RMB”). The Company’s subsidiaries maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted. For the Company and its subsidiaries whose functional currencies are other than the U.S. dollar, all asset and liability accounts were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at the historical rates and items in the income statement and cash flow statements are translated at the average rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

Fair Values of Financial Instruments

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – quoted prices in active markets for identical assets or liabilities.

 

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable 

 

Level 3 – inputs that are unobservable

 

The Company’s financial instruments primarily consist of cash and cash equivalents, advances to suppliers, prepaid expenses, other receivable, accounts payable, accrued expenses, other payables, and related party borrowings. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is attributed to the short maturities of the instruments and that interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance sheet dates.

 

Lease

 

The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient that allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019.

 

10

 

 

The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

The adoption of ASC 842 had no material impact on the Company’s consolidated balance sheets, results of operations or cash flows. In addition, the adoption of ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained earnings (accumulated deficit). Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

 

Segment Reporting

 

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

 

The Company manages its business as two operating segments, dandelion teas and water purifier, all of which are located in the PRC. All of its revenues are derived in the PRC. All long-lived assets are located in PRC.

 

The following table shows the Company’s operations by business segment for the three and six months ended June 30, 2022 and 2021:

 

   For the   For the 
   Three Months Ended   Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
   2022   2021   2022   2021 
Net revenue                
Dandelion teas  $51,444,665   $
-
   $54,908,343   $
-
 
Water purifier   (154,203)   
-
    666,233    
-
 
Total revenues, net  $51,290,462   $
-
   $55,574,576   $
-
 
                     
Cost of goods sold                    
Dandelion teas  $3,456,644   $
-
   $3,730,491   $
-
 
Water purifier   (17,695)   
-
    78,522    
-
 
Total cost of goods sold  $3,438,949   $
-
   $3,809,013   $
-
 
                     
Gross profit                    
Dandelion teas  $47,988,021   $
-
   $51,177,852   $
-
 
Water purifier   (136,508)   
-
    587,711    
-
 
Gross profit  $47,851,513   $
-
   $51,765,563   $
-
 
                     
Operating expenses                    
Dandelion teas  $51,407,716   $202,106   $54,378,525   $343,376 
Water purifier   (143,925)   17,314    429,482    37,170 
Total operating expenses  $51,263,791   $219,420   $54,808,007   $380,546 
                     
Loss from operations                    
Dandelion teas  $(3,419,695)  $(202,106)  $(3,200,673)  $(343,376)
Water purifier   7,417    (17,314)   158,229    (37,170)
Loss from operations  $(3,412,278)  $(219,420)  $(3,042,444)  $(380,546)

 

11

 

 

   As of
June 30,
   As of
December 31,
 
Segment assets  2022   2021 
Dandelion teas  $16,627,202   $12,817,675 
Water purifier   851,208    958,530 
Total assets  $17,478,410   $13,776,205 

 

Income (Loss) per Share Calculation 

 

Basic net income (loss) per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per shares is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.

 

NOTE 4. INVENTORIES, NET

 

Inventories consisted of the following:

 

   June 30,   December 31, 
   2022   2021 
Raw materials  $283,095   $300,918 
Work in process   347,837    300,711 
Finished goods   631,691    2,482,528 
    1,262,623    3,084,157 
Less: allowance for obsolete inventories   
-
    
-
 
Inventories, net  $1,262,623   $3,084,157 

 

12

 

 

NOTE 5. PROPERTY, PLANT, AND EQUIPMENT, NET

 

Property, plant, and equipment consisted of the following:

 

   June 30,   December 31, 
   2022   2021 
         
Buildings  $15,005   $15,771 
Machinery and equipment   639,867    675,878 
Office equipment   140,698    144,072 
Vehicles   837,169    879,016 
    1,632,739    1,714,737 
Less: Accumulated depreciation   (1,147,262)   (1,039,181)
Property and equipment, net  $485,477   $675,556 

 

Depreciation expense for the three months ended June 30, 2022 and 2021 were $79,830 and $78,210, respectively. Depreciation expense for the six months ended June 30, 2022 and 2021 were $163,941 and $155,348, respectively.

 

NOTE 6. PREPAID TAXES

 

Prepaid taxes as of June 30 2022 and December 31, 2021, primarily consist of prepaid VAT in the amount of $0 and $688,272, respectively, which can be used to offset VAT payable when the Company incurs sales.

 

NOTE 7. SHORT-TERM LOAN

 

On March 17, 2020, Shandong Tengjunxiang and China Construction Bank entered into a one-year bank loan agreement in an amount of RMB 3,000,000, equivalent to $459,770. The term started March 17, 2020 with the maturity date on March 17, 2021. The loan balance bore an interest rate of 4.025% per annum. The Company repaid the loan together with the accrued interest in full on March 17, 2021.

 

During the three months ended June 30, 2022 and 2021, the Company recorded interest expense of $0. During the six months ended June 30, 2022 and 2021, the Company recorded interest expense of $0 and $4,973, respectively.

 

NOTE 8. ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consisted of the following at June 30, 2022 and December 31, 2021:

 

   June 30,
2022
   December 31,
2021
 
Accrued local taxes  $7,189,385   $59,719 
Advance from employees   7,464    45,787 
Payable for construction and improvements   139,807    150,102 
Payable for machinery and equipment   95,866    58,327 
Accrued payroll   18,836    10,220 
Accrued professional fees   14,000    42,000 
Other   56,848    140,689 
Total  $7,522,206   $506,844 

   

NOTE 9. INCOME TAX

 

United States

 

The Company was incorporated in the United States of America and is subject to United States federal taxation. The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%.

 

13

 

 

Cayman Islands

 

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

 

Hong Kong

 

Tengjunxiang HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% on its taxable income generated from operations in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Additionally, payments of dividends by the subsidiary incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax.

 

PRC

 

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules impose an unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in PRC, unless they qualify under certain limited exceptions. As such, starting from January 1, 2008, the Company’s subsidiaries in PRC are subject to an enterprise income tax rate of 25%. The Company had recorded income tax provision of $39,589 and $0 for the six months ended June 30, 2022 and 2021.

 

Provision for income tax expense (benefit) consists of the following:

 

   For the Six Months Ended
June 30,
 
   2022   2021 
Current        
USA  $
-
   $
        -
 
China   39,589    
-
 
Deferred          
USA   
-
    
-
 
China   
-
    
-
 
Total provision for income tax expense (benefit)  $39,589   $
-
 

 

The following is a reconciliation of the statutory tax rate to the effective tax rate:

 

   For the Six Months Ended 
   June 30, 
    2022     2021 
U.S. federal statutory income tax (benefit)   (21.0)%   (21.0)%
Foreign tax rate differential   (3.8)%   (4.0)%
Change in valuation allowances   26.1%   25.0%
Effective income tax rate   1.3%   -%

  

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent that the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors.

 

14

 

 

As of June 30, 2022 and December 31, 2021, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets would not be realized and have a 100% valuation allowance associated with its deferred tax assets. 

 

NOTE 10. RELATED PARTY TRANSACTIONS AND BALANCES

 

The related party of the company with whom transactions are reported in these financial statements are as follows:

 

Name of Individual   Relationship with the Company
Xianchang Ma   Major shareholder, CEO, director of the Company
Liuhong Liu   Beneficial owner of the Company’s common stock
Pan Shi   Beneficial owner of the Company’s common stock
Jin Tian   Beneficial owner of the Company’s common stock
Qiuping Lu   Shareholder, former director and CEO

 

 

Due from related party:

   June 30,   December 31, 
   2022   2021 
          
Pan Shi   1,493    
                   -
 
   $1,493   $
-
 

 

Due to related parties:

 

   June 30,   December 31, 
   2022   2021 
         
Xianchang Ma  $13,996,198   $15,193,647 
Qiuping Lu   58,531    328,869 
Liuhong Liu   -    5,619 
Pan Shi   319    3,055 
Jin Tian   65    68 
   $14,055,113   $15,531,258 

 

Due to related parties represent advances from its related parties for the Company’s payment for construction, purchase of equipment, and daily operating expenses. The balances are unsecured, non-interest bearing, and payable on demand.

 

NOTE 11. LEASE

 

The Company leased a facility under an operating lease arrangement. The lease has initial lease term of 2 years. The lease agreement expired in August 2021.

  

The following provides details of the Company’s lease expenses:

 

  

Three Months Ended

June 30,

 
   2022   2021 
Operating lease expenses  $
           -
   $1,239 

 

15

 

 

  

Six Months Ended

June 30,

 
   2022   2021 
Operating lease expenses  $
              -
   $2,473 

 

Other information related to leases is presented below:

 

   Six Months Ended
June 30,
 
   2022   2021 
Cash Paid For Amounts Included In Measurement of Liabilities:        
Operating cash flows from operating leases  $
         -
   $2,473 
           
Weighted Average Remaining Lease Term:          
Operating leases   
-
      0.17 years 
           
Weighted Average Discount Rate:          
Operating leases   
-
%   4.75%

 

NOTE 12. EQUITY

 

Preferred Stock

 

The total number of preferred shares authorized that may be issued by the Company is 5,000,000 shares with a par value of $0.001 per share.

 

As of June 30, 2022 and December 31, 2021, the Company had no shares of its preferred stock issued and outstanding.

 

Common Stock

 

The total number of common shares authorized that may be issued by the Company is 70,000,000 shares with a par value of $0.001 per share. On March 30, 2022, the board of directors of the Company adopted a resolution to increase its authorized capital from 70,000,000 to 200,000,000 shares of its common stock by amending and restating the Company’s articles of incorporation.

 

Common Stock Issued for Reverse Merger

 

On December 23, 2021, the Company issued 19,285,714 shares of Company’s common stock to eleven Selling Shareholders pursuant to the Share Exchange Agreement with Tenjunxiang (see Note 1).

 

NOTE 13. SUBSEQUENT EVENTS

 

In July 2022, the Company sold an aggregate of 25,000,000 shares of its common stock at a price of $0.10 per share, to nine investors pursuant to the stock purchase agreements dated.

 

Management has evaluated subsequent events through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of June 30, 2022 have been incorporated into these financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

 

16

 

 

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

 

The following discussion of the results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Item 1 of this part. This report, including the information incorporated by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any of the words “believe,” “expect,” “anticipate,” “plan,” “estimate,” and similar expressions are intended to identify such statements. Forward-looking statements include statements concerning our possible or assumed future results. The actual results that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Risk Factors section of this report, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake no obligation to update any forward-looking statements.

  

Overview

 

Corporate History and Structure

 

We were incorporated on June 28, 2010 in the State of Nevada under the name “Island Radio, Inc.” and changed our name to “China Herb Group Holdings Corporation” effective July 17, 2012. On December 9, 2019, the Company changed its corporate name to “Tengjun Biotechnology Corp.”

 

On June 27, 2012, Eric R. Boyer and Nina Edstrom (collectively, the “Sellers”), who were then the major shareholders of the Company, entered into a Share Purchase Agreement with Chin Yung Kong, Qiuping Lu and Fumin Feng (collectively, the “Purchasers”), pursuant to which the Sellers sold to the Purchasers an aggregate 4,000,000 shares of the common stock of the Company, which represented approximately 93% of the then total issued and outstanding stock of the Company, for a total purchase price of $159,970 (the “Change in Control”). As result of this share purchase transaction, Chin Yung Kong, Qiuping Lu and Fumin Feng became the controlling shareholders of the Company.

 

Acquisitions/Business Combinations

 

On December 23, 2021, the Company entered into a Share Purchase/Exchange Agreement (the “Share Exchange Agreement”) with Tengjunxiang Biotechnology Ltd. (the “Target”), a Cayman Islands corporation, and the Target’s eleven shareholders (the “Selling Shareholders”): Min Xing Biotechnolgy Ltd, Pastoral Technology Co., Ltd., Shu Zhilin Trading Co., Ltd., Teng Rui Xiang Bio-Tech Ltd., Aihua Trading Co., Ltd, Rock Climbing Technology, Langtaosha Trading Co., Ltd., Min Cheng Biotechnology Ltd, Kangfan Technology Co., Ltd., Chaorong Technology Co., Ltd., and Shengrui Biotechnology Co., Ltd. In accordance with the Share Exchange Agreement, on December 23, 2021, the Selling Shareholders collectively sold and transferred 500,000,000 ordinary shares of the Target, constituting one hundred percent (100%) of the issued and outstanding share capital of the Target, to the Company in exchange for 19,285,714 shares of Company’s common stock, par value $0.001 per share (the “Tengjun Shares”), at an agreed price of $0.19 per share of the Company’s common stock (the “Common Stock”) for a total valuation of $3,675,000 of the Target.

 

In connection with the acquisition of the Target pursuant to the Share Exchange Agreement, the Company is entering into the Chinese tea and water purifier business through its newly acquired subsidiary the Target Company, which owns four corporate entities: (i) Tengjunxiang Biotechnology HK Limited (“Tengjun HK”), a company formed in Hong Kong and wholly owned by the Target, (ii) Shandong Minfu Biotechnology Co., Ltd. (“WFOE”), a wholly foreign owned entity formed under the laws of China and wholly owned by Tengjun HK, (iii) Shandong Tengjunxiang Biotechnology Co., Ltd. (“Shangdong Tengjunxiang”), a company formed under the laws of China and 94.95% owned by WFOE, and (iv) Jinxiang County Kanglong Water Purification Equipment Co. Ltd. (“Kanglong”), a company formed under the laws of China and wholly-owned subsidiary of Shandong Tengjunxiang. The parties to this Agreement closed the transaction contemplated therein on December 23, 2021.

 

The Target was incorporated on July 19, 2021 under the laws of the Cayman Islands. The authorized capital stock of the Target is 500,000,000 ordinary shares, all of which were issued and outstanding prior to the closing of the Acquisition. Shangdong Tengjunxiang, our operating company, was formed on June 27, 2014, under the laws of China. Promptly after the Closing, the Target shall update the shareholder registration of the Target to effect the Share Exchange Agreement. The Share Exchange Agreement was signed and agreed by and among all of the shareholders and/or beneficial owners of the Target, the Target and the Company.

 

As a result of the consummation of the Acquisition on December 23, 2021 as discussed above, the Target became a wholly-owned subsidiary of the Company and the business of the Target became the business of the Company.

 

17

 

 

The diagram below illustrates our corporate structure following the Acquisition:

 

 

 

We had limited operations and generated limited revenues from our business operations before the quarter ended June 30, 2022. Our independent registered public accounting firm has issued a going concern opinion for the year ended December 31, 2021. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Accordingly, we may have to raise additional cash from various sources, including operations, controlling shareholders’ investments and debt and equity financing from third party investors.

 

Results of Operations

 

Results of Operations – Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021.

 

The following table sets forth information from our statements of comprehensive income for the three months ended June 30, 2022 and 2021:

 

   Three Months Ended     
   June 30,   Change 
   2022   2021   (Amount)    (Percent)   
Sales revenue  $51,290,462   $-   $51,290,462    *%
Cost of Goods Sold   (3,438,949)   -    (3,438,949)     *%
Gross Profit   47,851,513    -    47,851,513                 *%
Operating Expenses   (51,341,188)   (219,420)   (51,121,768)   23,299%
Operating Income (Loss)   (3,489,675)   (219,420)   (3,270,255)   1,490%
Interest Income (Expense)   7,397    (4)   7,401    (185,025)%
Other Income (Expense)   (74)   (2,657)   2,583    (97)%
Income Tax Provision (Benefit)   (53,366)   -    (53,366)      *%
Net Income (Loss)   (3,428,986)   (222,081)   (3,206,905)   1,444%
Comprehensive Income (loss)  $(3,228,216)  $(241,974)  $(2,986,242)   1,234%

 

18

 

 

Revenues 

 

We generated $51,290,462 and $0 in revenues for the three months ended June 30, 2022 and 2021, respectively. The Company did not generate any revenue during the three months ended June 30, 2021 due to the impact of COVID-19.

 

During the three months ended June 30, 2022, sales of dandelion teas, certain nutritional products, and water treatment accessories generated $51,444,665 in revenue, constituting approximately 100% of the total revenue for that quarter, and sales of water purifiers generated negative revenue of $154,203 due to sales returns, representing approximately 0% of the total revenue for such quarter.

 

The following is the sales breakdown by segment during the three months ended June 30, 2022 and 2021:

 

   For the three months ended 
   June 30, 
   2022   2021 
Dandelion teas  $51,444,665    100%  $-    -% 
Water purifier   (154,203)   (0)%   -  -% 
Total  $51,290,462    100%  $-    -% 

 

Cost of Goods Sold 

 

Our cost of goods sold was $3,438,949 and $0 for the three months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022, cost of sales of dandelion teas, certain nutritional products, and water treatment accessories was $3,456,644, constituting approximately 101% of the total cost of goods sold, and cost of sales of water purifiers was $(17,695), representing approximately negative 1% of the total cost of goods sold due to the cost adjustment in connection with the sales returns. The Company did not incur any cost in the three months ended June 30, 2021 because there were no sales during the second quarter of 2021. 

 

The following is the cost of goods sold breakdown by segment during the three months ended June 30, 2022 and 2021:

 

   For the three months ended 
   June 30, 
   2022   2021 
Dandelion teas  $3,456,644   101%  $-   -%
Water purifier   (17,695)  (1)%   -   -%
Total  $3,438,949   100%  $-   -%

 

Gross Margin

 

Our gross margin was $47,851,513 and $0 for the three months ended June 30, 2022 and 2021, respectively. The gross profit as a percentage of net revenue for the Dandelion teas was 100% for the three months ended June 30, 2022. The gross profit as a percentage of net revenue for water purifiers was approximately 0% for the three months ended June 30, 2022. 

 

The following table presents gross margin by segment for three months ended June 30, 2022 and 2021: 

 

   For the three months ended 
   June 30, 
   2022   2021 
Dandelion teas  $47,988,021   100%  $-   -%
Water purifier   (136,508)  (0)%   -   -%
Total  $47,851,513   100%  $-   -%

 

Selling and Marketing Expenses

 

Our selling and marketing expenses primarily consist of sales commission, advertising and product promotion expenses.

 

Our selling and marketing expenses were $51,072,254 for the three months ended June 30, 2022 as compared to $13,419 for the three months ended June 30, 2021. Our total selling and marketing expenses increased by $51,058,835 or 380,497% during the three months ended June 30, 2022, compared to the same period in 2021. Such increase in selling and marketing expenses was mainly due to the significant increase in sales commission.

 

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General and administrative expenses

 

Our general and administrative expenses primarily consist of payroll and benefit costs for corporate employees, legal, consulting, professional expenses, rental expenses and other corporate overhead costs.

 

The general and administrative expenses was $268,934 for the three months ended June 30, 2022 as compared to $206,001 for the three months ended June 30, 2021. Our general and administrative expenses increased by $62,933 or 31% during the three months ended June 30, 2022, compared to the same period in 2021. Such increase in general and administrative expenses was mainly due to the increase in legal, accounting, printing, and stock transfer agent fees that were associated with the Company’s merger and acquisition activities and SEC filings.

  

Interest income (expense)

 

Interest income (expense) was $7,397 for the three months ended June 30, 2022 as compared to $(4) for the three months ended June 30, 2021. Our total interest income increased by $7,401 or 185,025% during the three months ended June 30, 2022, compared to the same period in 2021. The increase in interest income was primarily due to the interest earned from the Company’s bank savings accounts.

 

 Net Income (Loss) 

Our net loss was $3,428,986 for the three months ended June 30, 2022 as compared to net loss of $222,081 for the three months ended June 30, 2021, increased by $3,206,905 or 1,444 % as a result of the above factors.

 

Foreign Currency Translation Loss

 

We had $200,770 in foreign currency translation gain during the three months ended June 30, 2022 as compared to $(19,893) in foreign currency translation loss during the three months ended June 30, 2021, reflecting a change of $220,663 or 1,109%. Such increase in foreign currency translation gain was primarily caused by the currency exchange rate fluctuation.

 

Results of Operations – Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021.

 

The following table sets forth information from our statements of comprehensive income for the six months ended June 30, 2022 and 2021:

 

   Six Months Ended         
   June 30,   Change 
   2022   2021   (Amount)   (Percent) 
Sales revenue  $55,574,576   $-   $55,574,576    * %
Cost of Goods Sold   (3,809,013)   -    (3,809,013)   * %
Gross Profit   51,765,563    -    51,765,563    * %
Operating Expenses   (54,929,500)   (380,546)   (54,548,954)   14,334%
Operating Income (Loss)   (3,163,937)   (380,546)   (2,783,391)   731%
Interest Income (Expense)   7,421    (4,977)   12,398    (249)%
Other Income (Expense)   (74)   (2,657)   2,583    (97)%
Income Tax Provision   39,589    -    39,589    *%
Net Income (Loss)   (3,196,179)   (388,180)   (2,807,999)   723%
Comprehensive Income (loss)  $(3,004,847)  $(401,476)  $(2,603,371)   648%

 

Revenue

 

We generated $55,574,576 and $0 in revenues for the six months ended June 30, 2022 and 2021, respectively. The Company did not generate any revenue during the six months ended June 30, 2021 due to the impact of COVID-19.

 

During the six months ended June 30, 2022, sales of dandelion teas, certain nutritional products, and water treatment accessories generated $54,908,343 in revenue, constituting approximately 99% of the total revenue for that period, and sales of water purifiers generated $666,233 in revenue, representing approximately 1% of the total revenue for such period. 

 

The following is the sales breakdown by segment during the six months ended June 30, 2022 and 2021:

 

   For the six months ended 
   June 30, 
   2022    2021 
Dandelion teas  $54,908,343  99%  $                 -           -% 
Water purifier   666,233  1%   -  -% 
Total  $55,574,576  100%  $-  -% 

  

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Cost of Goods Sold 

 

Our cost of goods sold was $3,809,013 and $0 for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, cost of sales of dandelion teas, certain nutritional products, and water treatment accessories was $3,730,491, constituting approximately 98% of the total cost of goods sold, and cost of sales of water purifiers was $78,522, representing approximately 2% of the total cost of goods sold. The Company did not incur any cost in the six months ended June 30, 2021 because there were no sales during the same period of 2021.

 

The following is the cost of goods sold breakdown by segment during the six months ended June 30, 2022 and 2021:

 

   For the six months ended 
   June 30, 
   2022   2021 
Dandelion teas  $3,730,491   98%  $-   -%
Water purifier   78,522   2%   -   -%
Total  $3,809,013   100%  $-   -%

 

Gross Margin

 

Our gross margin was $51,765,563 and $0 for the six months ended June 30, 2022 and 2021, respectively. The gross profit as a percentage of net revenue for the Dandelion teas was 99% for the six months ended June 30, 2022. The gross profit as a percentage of net revenue for water purifiers was approximately 1% for the six months ended June 30, 2022. 

 

The following table presents gross margin by segment for six months ended June 30, 2022 and 2021:

 

   For the six months ended 
   June 30, 
   2022   2021 
Dandelion teas  $51,177,852   99%  $-   -%
Water purifier   587,711   1%   -   -%
Total  $51,765,563   100%  $-   -%

 

Selling and Marketing Expenses

 

Our selling and marketing expenses primarily consist of sales commission, advertising and product promotion expenses.

 

Our selling and marketing expenses were $54,430,227 for the six months ended June 30, 2022 as compared to $16,878 for the six months ended June 30, 2021. Our total selling and marketing expenses increased by $54,413,349 or 322,392% during the six months ended June 30, 2022, compared to the same period in 2021. Such increase in selling and marketing expenses was mainly due to the significant increase in sales commission.

 

General and administrative expenses

 

Our general and administrative expenses primarily consist of payroll and benefit costs for corporate employees, legal, consulting, professional expenses, rental expenses and other corporate overhead costs.

 

The general and administrative expenses was $499,273 for the six months ended June 30, 2022 as compared to $363,668 for the six months ended June 30, 2021. Our general and administrative expenses increased by $135,605 or 37% during the six months ended June 30, 2022, compared to the same period in 2021. Such increase in general and administrative expenses was mainly due to the increase in legal, accounting, printing, and stock transfer agent fees that were associated with the Company’s merger and acquisition activities and SEC filings.

 

Interest income (expense)

 

Interest income (expense) was $7,421 for the six months ended June 30, 2022 as compared to $(4,977) for the six months ended June 30, 2021, representing an increase from interest expense to interest income by $12,398, or 249% during the six months ended June 30, 2022, compared to the same period in 2021, primarily due to the repayment of a short-term bank loan on March 17, 2021 and the interest earned from Company’s bank savings accounts.

 

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Net Income (Loss) 

 

Our net loss was $3,196,179 for the six months ended June 30, 2022 as compared to net loss of $388,180 for the six months ended June 30, 2021, increased by $2,807,999 or 723 % as a result of the above factors.

 

Foreign Currency Translation Loss

 

We had $191,332 in foreign currency translation gain during the six months ended June 30, 2022 as compared to $(13,296) in foreign currency translation loss during the six months ended June 30, 2021, reflecting a change of $204,628 or 1,539%. Such increase in foreign currency translation gain was primarily caused by the currency exchange rate fluctuation.

 

Liquidity and Capital Resources

 

Working Capital

 

   June 30,   December 31,   Change 
   2022   2021   (Amount)   (Percent) 
Current Assets  $8,530,209   $4,628,531    3,901,678    84%
Current Liabilities  $22,813,084   $16,316,116    6,496,968    40%
Working Capital (deficit)  $(14,282,875)  $(11,687,585)   (2,595,290)   22%

 

Our working capital deficit was $14,282,875 as of June 30, 2022 as compared to $11,687,585 as of December 31, 2021, an increase of $2,595,290 or 22%. The increase in working capital deficiency is primarily due to the increase in the liabilities related to our operating activities during the six months ended June 30, 2022.

 

Cash Flow from Operating Activities

 

Our net cash provided by operating activities were $7,691,850 for the six months ended June 30, 2022 as compared to $141,967 of net cash used in operating activities for the six months ended June 30, 2021, reflecting an increase of $7,833,817 or 5518%. The increase was primarily due to the decrease in inventories, prepaid taxes, and increase in accounts payable and taxes payable during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

 

Cash Flow from Investing Activities

 

Our net cash used in investing activities was $212,875 for the six months ended June 30, 2022 as compared to that of $271,331 for the six months ended June 30, 2021, reflecting a decrease of $58,456 or 22%. The decrease in net cash used in investing activities was primarily due to the decrease in payment for construction in progress and acquisition of equipment during the six months ended June 30, 2022 as compared to those items in the six months ended June 30, 2021. 

 

Cash Flow from Financing Activities

 

Our net cash used in financing activities were $776,804 for the six months ended June 30, 2022 as compared to $593,382 of net cash provided by financing activities for the six months ended June 30, 2021, representing a decrease of $1,370,186 or 231%. The decrease was primarily due to the decreased cash inflow from loans from related parties during the six months ended June 30, 2022.

  

Off-Balance Sheet Arrangements

 

As of June 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

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Critical Accounting Policies and Estimates

 

We prepare our financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) of the United States, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.

    

While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

 

Inventories

 

Our inventories primarily consist of dandelion teas and water purifiers. Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Inventories consist of raw materials, goods in process, and finished goods. We review our inventories regularly for possible obsolete goods and establishes reserves when determined necessary. As of June 30, 2022 and December 31, 2021, the allowance for obsolete inventories was $0 and $0, respectively.

 

Construction in Progress

 

Construction in progress represents direct costs of construction, interest and design fees incurred. No interest was capitalized for the three months ended June 30, 2022 and 2021. Capitalization of these costs ceases and the construction in progress is transferred to property, plant, and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is recognized until it is completed and ready for intended use. Construction in progress as of June 30, 2022 and December 31, 2021 was $8,506,821 and $8,726,299, respectively.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. To determine the revenue to be recognized, the Company applies the following five-step model:

 

  identify arrangements with customers;
     
  identify performance obligations;
     
  determine transaction price;
     
  allocate transaction price to the separate performance obligations in the arrangement, if more than one exists; and
     
  recognize revenue as performance obligations are satisfied.

 

The Company generates revenues mainly from sales of packaged dandelion teas and water purifiers. During the three and six months ended June 30, 2022, the Company also engaged in the sale of certain nutritional products and water treatment accessories. Revenue from the sales of goods is recognized when the control over the promised goods is transferred to customers.

 

Cash payments received or due from customers before revenue recognized are recorded as advances from customers. The advance from customers is recognized as revenue when the Company’s performance obligation is completed.

 

Related parties

 

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, shareholder, or a related corporation.

 

Recent Accounting Pronouncements

 

See Note 3 to our unaudited consolidated financial statements for the three and six months ending June 30, 2022 and 2021. 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our chief (principal) executive officer and chief (principal) accounting officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act).

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be presented or detected on a timely basis.

 

Based on management’s assessment, we have concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our annual and interim filings with the SEC.

 

Our chief executive officer and principal financial officer have concluded that our disclosure controls and procedures had the following material weaknesses:

 

  We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our 2021 interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;

 

  We lack sufficient resources to perform the internal audit function and does not have an Audit Committee;

 

  Documentation of all proper accounting procedures is not yet complete; and

 

  We have no formal control process related to the identification and approval of related party transactions.

 

These weaknesses were identified in our Annual Report on Form 10-K for the year ended December 31, 2021. These weaknesses have existed since our inception on June 28, 2010 and, as of June 30, 2022, have not been remediated.

 

To the extent reasonably possible given our limited financial and personnel resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:

 

  Consider the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;

 

  Hire additional qualified financial personnel, including a Chief Financial Officer, on a full-time basis;

 

  Expand our board of directors to include additional independent individuals willing to perform directorial functions; and

 

  Increase our workforce in preparation for commencing revenue producing operations.

 

Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.

 

Changes in Controls and Procedures

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us or our business.

 

ITEM 1A. RISK FACTORS

 

Not applicable for smaller reporting companies.

 

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

 

On July 7, 2022, the Company and nine non-U.S. investors entered into the securities purchase agreements (the “Securities Purchase Agreements”), pursuant to which the Company issued and sold an aggregate of 25,000,000 shares of its common stock (the “Private Offering”), par value $0.001 per share, at a price of $0.10 per share, to such nine investors. The shares of common stock were sold to such non-U.S. investors in reliance upon the exemption pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Act”) and Regulation S promulgated under the Act. The Company did not engage any placement agent with respect to the Private Offering. As of July 31, 2022, the Company received the gross proceeds of $2,500,000 as a result of the Private Offering.

 

The foregoing description of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the entire Agreement, which is filed as Exhibit 10.1 hereto, and incorporated herein by reference. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit
Number
  Description
10.1   Form of Securities Purchase Agreement dated July 7, 2022
     
31.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
     
32.1**   Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS*   INLINE XBRL INSTANCE DOCUMENT
     
101.SCH*   INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
     
101.CAL*   INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
     
101.DEF*   INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
     
101.LAB*   INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
     
101.PRE*   INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed along with this document
**

The certification attached as Exhibit 32.1 accompanying this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

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SIGNATURES

 

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

 

  Tengjun Biotechnology Corp.
     
Date: August 15, 2022 By: /s/ Xianchang Ma
  Name:  Xianchang Ma
  Title: Chief Executive Officer and Chief Financial Officer
    (Principal Executive Officer, Principal Financial and Accounting Officer)

 

 

26