Form 10-Q Tengjun Biotechnology For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from ________ to ________
Commission
File Number:
(Exact name of small business issuer as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices and zip code)
(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. ☒ 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).
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 | ☐ |
| ☐ | 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
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The
number of shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of August 9, 2022, was
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 | $ | $ | ||||||
| Advance to suppliers | ||||||||
| Inventories, net | ||||||||
| Prepaid taxes | - | |||||||
| Due from related party | - | |||||||
| Prepaid expenses and other receivable | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Construction in progress | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Advances from customers | ||||||||
| Due to related parties | ||||||||
| Accrued liabilities and other payables | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Deficit | $ | $ | ||||||
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 | $ | $ | - | $ | $ | - | ||||||||||
| Cost of goods sold | - | - | ||||||||||||||
| Gross profit | - | - | ||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | - | |||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to Tengjun stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to Tengjun stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Common Share: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding: | ||||||||||||||||
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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Net loss | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Interests | Deficit | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
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 | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Changes in net assets and liabilities: | ||||||||
| Inventories | ||||||||
| Prepaid taxes | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Advance to suppliers | ( | ) | ||||||
| Accounts payable | ||||||||
| Taxes payable | ( | ) | ||||||
| Accrued liabilities and other payable | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payment for construction in progress | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of short-term bank loan | ( | ) | ||||||
| Repayment of short-term loan from third parties | ( | ) | ||||||
| (Repayment of) proceeds from loans from related parties | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING BALANCE | ||||||||
| CASH AND CASH EQUIVALENTS, ENDING BALANCE | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
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
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,
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 $
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
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 $
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 | ||
| Machinery and equipment | ||
| Office furniture and equipment | ||
| Vehicles |
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
$
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
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 $
Commission
expense primarily consists of commission costs made to independent sales force. The amount of commission expense incurred were $
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
The
Company generated total revenue of $
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 | $ | % | ||||||
| B | % | |||||||
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 | $ | % | ||||||
| B | % | |||||||
No
supplier accounted for over
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 | $ | $ | $ | $ | ||||||||||||
| Water purifier | ( | ) | ||||||||||||||
| Total revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Dandelion teas | $ | $ | $ | $ | ||||||||||||
| Water purifier | ( | ) | ||||||||||||||
| Total cost of goods sold | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Dandelion teas | $ | $ | $ | $ | ||||||||||||
| Water purifier | ( | ) | ||||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Dandelion teas | $ | $ | $ | $ | ||||||||||||
| Water purifier | ( | ) | ||||||||||||||
| Total operating expenses | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ||||||||||||||||
| Dandelion teas | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Water purifier | ( | ) | ( | ) | ||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
11
| As of June 30, | As of December 31, | |||||||
| Segment assets | 2022 | 2021 | ||||||
| Dandelion teas | $ | $ | ||||||
| Water purifier | ||||||||
| Total assets | $ | $ | ||||||
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 | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Less: allowance for obsolete inventories | ||||||||
| Inventories, net | $ | $ | ||||||
12
NOTE 5. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consisted of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Office equipment | ||||||||
| Vehicles | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended June 30, 2022 and 2021 were $
NOTE 6. PREPAID TAXES
Prepaid
taxes as of June 30 2022 and December 31, 2021, primarily consist of prepaid VAT in the amount of $
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
During
the three months ended June 30, 2022 and 2021, the Company recorded interest expense of $
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 | $ | $ | ||||||
| Advance from employees | ||||||||
| Payable for construction and improvements | ||||||||
| Payable for machinery and equipment | ||||||||
| Accrued payroll | ||||||||
| Accrued professional fees | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
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
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
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
Provision for income tax expense (benefit) consists of the following:
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current | ||||||||
| USA | $ | $ | ||||||
| China | ||||||||
| Deferred | ||||||||
| USA | ||||||||
| China | ||||||||
| Total provision for income tax expense (benefit) | $ | $ | ||||||
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) | ( | )% | ( | )% | ||||
| Foreign tax rate differential | ( | )% | ( | )% | ||||
| Change in valuation allowances | % | % | ||||||
| Effective income tax rate | % | - | % | |||||
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
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 | ||
| Liuhong Liu | ||
| Pan Shi | ||
| Jin Tian | ||
| Qiuping Lu |
Due from related party:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Pan Shi | ||||||||
| $ | $ | |||||||
Due to related parties:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Xianchang Ma | $ | $ | ||||||
| Qiuping Lu | ||||||||
| Liuhong Liu | - | |||||||
| Pan Shi | ||||||||
| Jin Tian | ||||||||
| $ | $ | |||||||
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
The following provides details of the Company’s lease expenses:
Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease expenses | $ | $ | ||||||
15
Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating lease expenses | $ | $ | ||||||
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 | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | | |||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
NOTE 12. EQUITY
Preferred Stock
The
total number of preferred shares authorized that may be issued by the Company is
As
of June 30, 2022 and December 31, 2021, the Company had
Common Stock
The
total number of common shares authorized that may be issued by the Company is
Common Stock Issued for Reverse Merger
On
December 23, 2021, the Company issued
NOTE 13. SUBSEQUENT EVENTS
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.
19
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 | % | $ | - | -% | |||||
20
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.
21
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) | ||
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Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”) is dated as of July ______, 2022 by and among Tengjun Biotechnology Corp., a Nevada company (the “Company”), and individuals listed in Exhibit B hereto and each affixes its signature on the signature page of this Agreement (each, a “Purchaser”; collectively, the “Purchasers”).
RECITALS
WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933 (the “Securities Act”) and/or Regulation S (“Regulation S”) as promulgated under the Securities Act;
WHEREAS, the Company is offering (the “Offering”) up to 20,000,000 shares of its common stock, par value $0.001 per share (the “Common Stock”), at a price of $0.10 per share to the Purchasers listed in Exhibit B, each of whom severally but not jointly enters into this Agreement and makes representations and warranties hereunder;
WHEREAS, each Purchaser is a “non-US person” as defined in Regulation S, acquiring the Shares solely for its own account for the purpose of investment;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser hereby agree as follows:
ARTICLE I
Purchase and Sale of the Shares
Section 1.1 Purchase Price and Closing.
(a) Subject to the terms and conditions hereof, the Company agrees to issue and sell to the Purchaser and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchaser agrees to purchase for $0.10 per share payable in the legal currency of the United States or China based on the currency exchange ratio set forth on the signature page, such number of shares of common stock (each a “Share” and collectively the “Shares”) for an aggregate price of listed on the signature page hereto (the “Purchase Price”).
(b) Subject to all conditions to closing being satisfied or waived, the closing of the purchase and sale of the Shares (the “Closing”) shall take place at the offices of Sichenzia Ross Ference LLP, on the date of the occurrence of completion of and receipt by the Company of the Purchase Price (the “Closing Date”).
(c) Subject to the terms and conditions of this Agreement, at the Closing, the Company shall deliver or cause to be delivered to the Purchaser (i) a statement report issued by its transfer agent or stock certificate(s) evidencing such number of Shares issued to the Purchaser, and (ii) any other documents required to be delivered pursuant to this Agreement. At the time of the Closing, the Purchaser shall have delivered its Purchase Price by wire transfer pursuant to the wire information contained in Exhibit C to this Agreement.
(d) The Company may conduct the Closing on a rolling basis and the Offering shall commence from July 15, 2022 and terminate on August 15, 2022 unless the Company extends such offering period at its sole discretion.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company and its Subsidiaries. The Company hereby represents and warrants to the Purchaser on behalf of itself, its Subsidiaries (the “Subsidiaries”), as of the date hereof (except as set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding to the section number herein), as follows:
(a) Organization, Good Standing and Power. The Company is a corporation duly incorporated or otherwise organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization (as applicable) and respectively, has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.
(b) Corporate Power; Authority and Enforcement. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, and to issue and sell the Shares in accordance with the terms hereof. The execution, delivery and performance of this Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company or stockholders is required. This Agreement constitutes, or shall constitute when executed and delivered, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.
(c) Issuance of Shares. The Shares to be issued at the Closing shall have been duly authorized by all necessary corporate action and when paid for and issued in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable.
(d) Commission Documents. Except as set forth in Schedule 2.1 (e), the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the U.S. Securities and Exchange Commission (the “Commission” or “SEC”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) within the past two (2) years, including filings incorporated by reference therein (the “Commission Documents”). The Company has not provided to the Purchaser any material non-public information or other information which, according to applicable law, rule or regulation, was required to have been disclosed publicly by the Company but which has not been so disclosed, other than the transactions contemplated by this Agreement. At the time of the respective filings, each Commission Document complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents.
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(e) No Integration. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 2.2, neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any securities or solicited any offers to buy any securities, under circumstances that would cause this Offering of the Shares to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any trading market on which any of the securities of the Company are listed or designated.
Section 2.2 Representations and Warranties of the Purchaser. Each Purchaser, severally but not jointly, hereby makes the following representations and warranties to the Company as of the date hereof:
(a) No Conflicts. The execution, delivery and performance of this Agreement and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which such Purchaser is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser). Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, provided, that for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.
(b) Status of Purchaser. The Purchaser is a “non-US person” as defined in Regulation S. The Purchaser further makes the representations and warranties to the Company set forth on Exhibit A. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate of a broker-dealer.
(c) Reliance on Exemptions. The Purchaser understands that the Shares are being offered and sold to the Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Shares.
(d) Governmental Review. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Shares.
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(e) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Shares and, at the present time, is able to afford a complete loss of such investment.
(f) General Solicitation. Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.
(g) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review the transaction documents (including this Agreement, all exhibits and schedules thereto) and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
Section 3.1 Transfer Restrictions.
| (a) | The Shares may only be disposed of in compliance with state and federal securities laws. |
| (b) | The Purchasers agree to the imprinting, so long as is required by this Section 3.1, of a legend on any of the Shares in form substantially the same as the following: |
“THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.”
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(c) The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Shares to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Shares to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares may reasonably request in connection with a pledge or transfer of the Shares.
(d) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Shares pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Shares are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend the applicable Shares as set forth in this Section 3.1 is predicated upon the Company’s reliance upon this understanding.
ARTICLE IV
Miscellaneous
Section 4.1 Fees and Expenses. Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.
Section 4.2 Entire Agreement; Amendment. This Agreement contains the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein, neither the Company nor any of the Purchaser makes any representations, warranty, covenant or undertaking with respect to such matters and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein. No provision of this Agreement may be waived or amended other than by a written instrument signed by the Company and the Purchaser, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought.
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Section 4.3 Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable:
If to the Company:
Tengjun Biotechnology Corp.
Address: East Jinze Road and South Huimin Road, Food Industry Economic and Technology
Development District,Jinxiang County, Jining City, Shandong Province, China
Attn: Xianchang Ma (Chief Executive Officer)
Email: [email protected]
with copies (which shall not constitute notice) to:
Sichenzia Ross Ference LLP
Address: 1185 Avenue of the Americas, 31st Floor
Attn: Huan Lou, Esq.
Email: [email protected]
If to Purchaser:
The address listed on Exhibit B.
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
Section 4.4 Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.
Section 4.5 Successors and Assigns. This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Purchaser, as applicable, provided, however, that, subject to federal and state securities laws, a Purchaser may assign its rights and delegate its duties hereunder in whole or in part to an affiliate or to a third party acquiring all or substantially all of its Shares in a private transaction without the prior written consent of the Company or the other Purchaser, after notice duly given by such Purchaser to the Company provided, that no such assignment or obligation shall affect the obligations of such Purchaser hereunder and that such assignee agrees in writing to be bound, with respect to the transferred securities, by the provisions hereof that apply to the Purchaser. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
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Section 4.6 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.
Section 4.7 Survival. The representations and warranties of the Company and the Purchaser shall survive the execution and delivery hereof and the Closing hereunder for a period of three (3) years following the Closing Date.
Section 4.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
Section 4.9 Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and such provision shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.
Section 4.10 Individual Capacity. Each Purchaser enters into this Agreement on its own capacity, and not as a group with other Purchasers. Each Purchaser, severally but not jointly, makes representations and warranties contained under this Agreement.
Section 4.11 Termination. This Agreement may be terminated prior to Closing by mutual written agreement of the Purchaser and the Company.
Section 4.12 Language. The Agreement is in both English and Chinese, which both have binding effects. If there is any conflict between the English and Chinese language, English language prevails.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
[Signature Page of the Company]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
| The Company: | ||
| Tengjun Biotechnology Corp. | ||
| By: | ||
| Name: | Xianchang Ma | |
| Title: | Chief Executive Officer | |
[Signature Page of the Purchaser]
8
IN WITNESS WHEREOF, the Purchaser has caused this Agreement to be duly executed individually or by its authorized officer or member as of the date first above written.
The Purchaser:
| By: |
Name:
| Number of Shares Purchase: |
| Total Purchase Price: ($) |
| Purchase Price Per Share: $0.10 |
| Currency exchange ratio used for the purposes of this Agreement: 1 USD= 6.80 RMB |
Address and Contacts of Purchaser:
Telephone:
Email:
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EXHIBIT A
NON U.S. PERSON REPRESENTATIONS
The Purchaser indicating that it is not a U.S. person, severally and not jointly, further represents and warrants to the Company as follows:
| 1. | At the time of (a) the offer by the Company and (b) the acceptance of the offer by such person or entity, of the Shares, such person or entity was outside the United States. |
| 2. | Such person or entity is acquiring the Shares for such Shareholder’s own account, for investment and not for distribution or resale to others and is not purchasing the Shares for the account or benefit of any U.S. person, or with a view towards distribution to any U.S. person, in violation of the registration requirements of the Securities Act. |
| 3. | Such person or entity will make all subsequent offers and sales of the Shares either (x) outside of the United States in compliance with Regulation S; (y) pursuant to a registration under the Securities Act; or (z) pursuant to an available exemption from registration under the Securities Act. Specifically, such person or entity will not resell the Shares to any U.S. person or within the United States prior to the expiration of a period commencing on the Closing Date and ending on the date that is one year thereafter (the “Distribution Compliance Period”), except pursuant to registration under the Securities Act or an exemption from registration under the Securities Act. |
| 4. | Such person or entity has no present plan or intention to sell the Shares in the United States or to a U.S. person at any predetermined time, has made no predetermined arrangements to sell the Shares and is not acting as a Distributor of such securities. |
| 5. | Neither such person or entity, its Affiliates nor any Person acting on behalf of such person or entity, has entered into, has the intention of entering into, or will enter into any put option, short position or other similar instrument or position in the U.S. with respect to the Shares at any time after the Closing Date through the Distribution Compliance Period except in compliance with the Securities Act. |
| 6. | Such person or entity consents to the placement of a legend on any certificate or other document evidencing the Shares. |
| 7. | Such person or entity is not acquiring the Shares in a transaction (or an element of a series of transactions) that is part of any plan or scheme to evade the registration provisions of the Securities Act. |
| 8. | Such person or entity has sufficient knowledge and experience in finance, securities, investments and other business matters to be able to protect such person’s or entity’s interests in connection with the transactions contemplated by this Agreement. |
| 9. | Such person or entity has consulted, to the extent that it has deemed necessary, with its tax, legal, accounting and financial advisors concerning its investment in the Shares. |
10
| 10. | Such person or entity understands the various risks of an investment in the Shares and can afford to bear such risks for an indefinite period of time, including, without limitation, the risk of losing its entire investment in the Shares. |
| 11. | Such person or entity has had access to the Company’s publicly filed reports with the SEC and has been furnished during the course of the transactions contemplated by this Agreement with all other public information regarding the Company that such person or entity has requested and all such public information is sufficient for such person or entity to evaluate the risks of investing in the Shares. |
| 12. | Such person or entity has been afforded the opportunity to ask questions of and receive answers concerning the Company and the terms and conditions of the issuance of the Shares. | |
| 13. | Such person or entity is not relying on any representations and warranties concerning the Company made by the Company or any officer, employee or agent of the Company, other than those contained in this Agreement. |
| 14. | Such person or entity will not sell or otherwise transfer the Shares unless either (A) the transfer of such securities is registered under the Securities Act or (B) an exemption from registration of such securities is available. |
| 15. | Such person or entity represents that the address furnished on its signature page to this Agreement is the principal residence if he is an individual or its principal business address if it is a corporation or other entity. |
| 16. | Such person or entity understands and acknowledges that the Shares have not been recommended by any federal or state securities commission or regulatory authority, that the foregoing authorities have not confirmed the accuracy or determined the adequacy of any information concerning the Company that has been supplied to such person or entity and that any representation to the contrary is a criminal offense. |
11
EXHIBIT B
LIST OF PURCHASERS
|
No. |
Shares |
Name |
Address (in China) | |||
| 1 | ||||||
| 2 | ||||||
| Total: | ||||||
12
EXHIBIT C
Wire instruction
13
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Xianchang Ma, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Tengjun Biotechnology Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 15, 2022 | ||
| By: | /s/ Xianchang Ma | |
| Name: | Xianchang Ma | |
| Title: | Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
In connection with the quarterly report of Tengjun Biotechnology Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Xianchang Ma, Chief Executive Officer and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
| Date: August 15, 2022 | ||
| By: | /s/ Xianchang Ma | |
| Name: | Xianchang Ma | |
| Title: | Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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