TENGJUN BIOTECHNOLOGY CORP. 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
OnJune 27, 2012 ,Eric R. Boyer andNina Edstrom (collectively, the "Sellers"), who were then the major shareholders of the Company, entered into a Share Purchase Agreement withChin Yung Kong ,Qiuping Lu andFumin 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 andFumin Feng became the controlling shareholders of the Company.
Acquisitions/Business Combinations
OnDecember 23, 2021 , the Company entered into a Share Purchase/Exchange Agreement (the "Share Exchange Agreement") withTengjunxiang Biotechnology Ltd. (the "Target"), aCayman 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. , andShengrui Biotechnology Co., Ltd. In accordance with the Share Exchange Agreement, onDecember 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 theTarget Company , which owns four corporate entities: (i)Tengjunxiang Biotechnology HK Limited ("Tengjun HK"), a company formed inHong Kong and wholly owned by the Target, (ii)Shandong Minfu Biotechnology Co., Ltd. ("WFOE"), a wholly foreign owned entity formed under the laws ofChina and wholly owned by Tengjun HK, (iii)Shandong Tengjunxiang Biotechnology Co., Ltd. ("Shangdong Tengjunxiang"), a company formed under the laws ofChina and 94.95% owned by WFOE, and (iv)Jinxiang County Kanglong Water Purification Equipment Co. Ltd. ("Kanglong"), a company formed under the laws ofChina and wholly-owned subsidiary ofShandong Tengjunxiang. The parties to this Agreement closed the transaction contemplated therein onDecember 23, 2021 . The Target was incorporated onJuly 19, 2021 under the laws of theCayman 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 onJune 27, 2014 , under the laws ofChina . 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
16
The diagram below illustrates our corporate structure following the Acquisition:
[[Image Removed]]
We had limited operations and generated limited revenues from our business operations before the quarter endedSeptember 30, 2022 . Our independent registered public accounting firm has issued a going concern opinion for the year endedDecember 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. 17 Results of Operations
Results of Operations - Three Months Ended
The following table sets forth information from our statements of comprehensive
income for the three months ended
Three Months Ended
September 30, Change
2022 2021 (Amount) (Percent)
Sales revenue $ 36,418,104 $ - $ 36,418,104 * %
Cost of Goods Sold (2,207,304 ) - (2,207,304 ) * %
Gross Profit 34,210,800 - 34,210,800 * %
Operating Expenses (29,329,707 ) (107,550 ) (29,222,157 ) 27,171 %
Operating Income (Loss) 4,881,093 (107,550 ) 4,988,643 (4,638 )%
Interest Income (Expense) 6,273 18 6,255 34,750 %
Other Income (Expense) (7,144 ) 230 (7,374 ) (3,206 )%
Income Tax Provision (1,265,644 ) - (1,265,644 ) * %
Net Income (Loss) 3,614,578 (107,302 )
3,721,880 (3,469 )%
Comprehensive Income (loss)
Revenues We generated$36,418,104 and$0 in revenues for the three months endedSeptember 30, 2022 and 2021, respectively. The Company did not generate any revenue during the three months endedSeptember 30, 2021 due to the impact of COVID-19. During the three months endedSeptember 30, 2022 , sales of dandelion teas, certain nutraceutical products, and water treatment accessories generated$36,431,512 in revenue, constituting approximately 100% of the total revenue for that quarter, and sales of water purifiers generated negative revenue of$13,408 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
For the three months ended
September 30,
2022 2021
Dandelion teas $ 36,431,512 100 % $ - - %
Water purifier (13,408 ) (0 )% - - %
Total $ 36,418,104 100 % $ - - %
Cost of Goods Sold
Our cost of goods sold was $2,207,304 and $0 for the three months ended
September 30, 2022 and 2021, respectively. During the three months ended
September 30, 2022 , cost of sales of dandelion teas, certain nutraceutical
products, and water treatment accessories was $2,208,809 , constituting
approximately 100% of the total cost of goods sold, and cost of sales of water
purifiers was $(1,505) , representing approximately negative 0% 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 September 30, 2021
because there were no sales during the third quarter of 2021.
18
The following is the cost of goods sold breakdown by segment during the three
months ended
For the three months ended
September 30,
2022 2021
Dandelion teas $ 2,208,809 100 % $ - - %
Water purifier (1,505 ) 0 % - - %
Total $ 2,207,304 100 % $ - - %
Gross Profit
Our gross profit was $34,210,800 and $0 for the three months ended September 30,
2022 and 2021, respectively. The gross profit as a percentage of net revenue for
the Dandelion teas was 94% for the three months ended September 30, 2022 . The
gross profit as a percentage of net revenue for the Water purifiers was
approximately 89% for the three months ended September 30, 2022 .
The following table presents gross profit by segment for three months ended
For the three months ended
September 30,
2022 2021
Dandelion teas $ 34,222,703 100 % $ - - %
Water purifier (11,903 ) (0 )% - - %
Total $ 34,210,800 100 % $ - - %
Selling and Marketing Expenses
Our selling and marketing expenses primarily consist of sales commission, advertising and product promotional expenses.
Our selling and marketing expenses were$28,990,991 for the three months endedSeptember 30, 2022 as compared to$9,188 for the three months endedSeptember 30, 2021 . Our total selling and marketing expenses increased by$28,981,803 or 315,431% during the three months endedSeptember 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$338,716 for the three months endedSeptember 30, 2022 as compared to$98,362 for the three months endedSeptember 30, 2021 . Our general and administrative expenses increased by$240,354 or 244% during the three months endedSeptember 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 andSEC public disclosures. Interest income (expense) Interest income (expense) was$6,273 for the three months endedSeptember 30, 2022 as compared to$18 for the three months endedSeptember 30, 2021 . Our total interest income increased by$6,255 or 34,750% during the three months endedSeptember 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 income was$3,614,578 for the three months endedSeptember 30, 2022 as compared to net loss of$107,302 for the three months endedSeptember 30, 2021 , increased by$3,721,880 or 3,469% as a result of the above factors. 19
Foreign Currency Translation Loss
We had$(446,051) in foreign currency translation loss during the three months endedSeptember 30, 2022 as compared to$(3,676) in foreign currency translation loss during the three months endedSeptember 30, 2021 , reflecting a change of$442,375 or 12,034%. Such increase in foreign currency translation gain was primarily caused by the currency exchange rate fluctuation.
Results of Operations - Nine Months Ended
The following table sets forth information from our statements of comprehensive
income for the nine months ended
Nine Months Ended
September 30, Change
2022 2021 (Amount) (Percent)
Sales revenue $ 91,992,680 $ - $ 91,992,680 * %
Cost of Goods Sold (6,016,317 ) - (6,016,317 ) * %
Gross Profit 85,976,363 - 85,976,363 * %
Operating Expenses (76,139,816 ) (488,233 ) (75,651,583 ) 15,495 %
Operating Income (Loss) 9,836,547 (488,233 ) 10,324,780 (2,115 )%
Interest Income (Expense) 13,694 (4,959 ) 18,653 (376 )%
Other Income (Expense) (7,218 ) (2,290 ) (4,928 ) 215 %
Income Tax Provision (1,861,830 ) - (1,861,830 ) * %
Net Income (Loss) 7,981,193 (495,482 )
8,476,675 (1,711 )%
Comprehensive Income (loss)
Revenue We generated$91,992,680 and$0 in revenues for the nine months endedSeptember 30, 2022 and 2021, respectively. The Company did not generate any revenue during the nine months endedSeptember 30, 2021 due to the impact of COVID-19.
During the nine months ended
The following is the sales breakdown by segment during the nine months ended
For the nine months ended
September 30,
2022 2021
Dandelion teas $ 91,339,855 99 % $ - - %
Water purifier 652,825 1 % - - %
Total $ 91,992,680 100 % $ - - %
Cost of Goods Sold
Our cost of goods sold was $6,016,317 and $0 for the nine months ended September
30, 2022 and 2021, respectively. During the nine months ended September 30,
2022 , cost of sales of dandelion teas, certain nutraceutical products, and water
treatment accessories was $5,939,300 , constituting approximately 99% of the
total cost of goods sold, and cost of sales of water purifiers was $77,017 ,
representing approximately 1% of the total cost of goods sold. The Company did
not incur any cost in the nine months ended September 30, 2021 because there
were no sales during the same period of 2021.
20
The following is the cost of goods sold breakdown by segment during the nine
months ended
For the nine months ended
September 30,
2022 2021
Dandelion teas $ 5,939,300 99 % $ - - %
Water purifier 77,017 1 % - - %
Total $ 6,016,317 100 % $ - - %
Gross Profit
Our gross profit was$85,976,363 and$0 for the nine months endedSeptember 30, 2022 and 2021, respectively. The gross profit as a percentage of net revenue for the Dandelion teas was 93% for the nine months endedSeptember 30, 2022 . The gross profit as a percentage of net revenue for the Water purifiers was approximately 88% for the nine months endedSeptember 30, 2022 .
The following table presents gross profit by segment for nine months ended
For the nine months ended
September 30,
2022 2021
Dandelion teas $ 85,400,555 99 % $ - - %
Water purifier 575,808 1 % - - %
Total $ 85,976,363 100 % $ - - %
Selling and Marketing Expenses
Our selling and marketing expenses primarily consist of sales commission, advertising and product promotional expenses.
Our selling and marketing expenses were$75,301,827 for the nine months endedSeptember 30, 2022 as compared to$26,066 for the nine months endedSeptember 30, 2021 . Our total selling and marketing expenses increased by$75,275,761 or 288,789% during the nine months endedSeptember 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 were$837,989 for the nine months endedSeptember 30, 2022 as compared to$462,167 for the nine months endedSeptember 30, 2021 . Our general and administrative expenses increased by$375,822 or 81% during the nine months endedSeptember 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 andSEC public disclosures. Interest income (expense) Interest income (expense) was$13,694 for the nine months endedSeptember 30, 2022 as compared to$(4,959) for the nine months endedSeptember 30, 2021 , representing an increase from interest expense to interest income by$18,653 , or 376% during the nine months endedSeptember 30, 2022 , compared to the same period in 2021, primarily due to the repayment of a short-term bank loan onMarch 17, 2021 and the interest earned from Company's bank savings accounts. 21 Net Income (Loss)
Our net income was$7,981,193 for the nine months endedSeptember 30, 2022 as compared to net loss of$495,482 for the nine months endedSeptember 30, 2021 , increased by$8,476,675 or 1,711% as a result of the above factors.
Foreign Currency Translation Loss
We had$(501,990) in foreign currency translation loss during the nine months endedSeptember 30, 2022 as compared to$(16,972) in foreign currency translation loss during the nine months endedSeptember 30, 2021 , reflecting a change of$485,018 or 2,858%. Such increase in foreign currency translation gain was primarily caused by the currency exchange rate fluctuation.
Liquidity and Capital Resources
Working Capital
September 30, December 31, Change
2022 2021 (Amount) (Percent)
Current Assets$ 27,222,418 $ 4,628,531 22,593,887 488 % Current Liabilities$ 27,663,574 $ 16,316,116 11,347,458 70 % Working Capital (deficit)$ (441,156 ) $ (11,687,585 ) 11,246,429 (96 )% Our working capital deficit was$441,156 as ofSeptember 30, 2022 as compared to$11,687,585 as ofDecember 31, 2021 , a decrease of$11,246,429 or 96%. The decrease in working capital deficiency is primarily due to the increase in cash inflow from revenue and the increase in the loans to third parties that are related to our operating activities during the nine months ended September
30, 2022.
Cash Flow from Operating Activities
Our net cash provided by operating activities were$4,024,609 for the nine months endedSeptember 30, 2022 as compared to$319,710 of net cash used in operating activities for the nine months endedSeptember 30, 2021 , reflecting an increase of$4,344,319 or 1,359%. The increase was primarily due to the increase in net income, the decrease in inventories, prepaid taxes, and increase in accounts payable and taxes payable, partially offset by the increase in loan to third parties during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 .
Cash Flow from Investing Activities
Our net cash used in investing activities was$250,689 for the nine months endedSeptember 30, 2022 as compared to that of$279,705 for the nine months endedSeptember 30, 2021 , reflecting a decrease of$29,016 or 10%. The decrease in net cash used in investing activities was primarily due to the decrease in payment for acquisition of equipment during the nine months endedSeptember 30, 2022 as compared to those items in the nine months endedSeptember 30, 2021 . 22
Cash Flow from Financing Activities
Our net cash provided by financing activities were$125,330 for the nine months endedSeptember 30, 2022 as compared to$612,003 of net cash provided by financing activities for the nine months endedSeptember 30, 2021 , representing a decrease of$486,673 or 80%. The decrease was primarily due to the repayment of loans from related parties during the nine months endedSeptember 30, 2022 .
Off-Balance Sheet Arrangements
As ofSeptember 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.
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 ofSeptember 30, 2022 andDecember 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 and nine months endedSeptember 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 ofSeptember 30, 2022 andDecember 31, 2021 was$8,044,587 and$8,726,299 , respectively. 23 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 nine months endedSeptember 30, 2022 , the Company also engaged in the sale of certain nutraceutical 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
nine months ending
24
© Edgar Online, source
