UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
For the transition period from _____________ to _____________
Commission File Number:
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| (State or other jurisdiction of incorporation or organization) |
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(+
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(Former name, former address and former fiscal year, if changed since last report)
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐
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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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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 by check mark whether the registrant
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The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares as of May 15, 2023.
TABLE OF CONTENTS
| Pages | ||
| PART I FINANCIAL INFORMATION |
||
| Item 1. | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 18 |
| Item 4. | Controls and Procedures. | 18 |
| PART II OTHER INFORMATION |
||
| Item 1. | Legal Proceedings. | 19 |
| Item 1A. | Risk Factors. | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 19 |
| Item 3. | Defaults Upon Senior Securities. | 19 |
| Item 4. | Mine Safety Disclosures. | 19 |
| Item 5. | Other Information. | 19 |
| Item 6. | Exhibits. | 19 |
| i |
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TANCHENG GROUP CO., LTD.
TABLE OF CONTENTS
| 1 |
TANCHENG GROUP CO., LTD.
CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars, except share data or otherwise stated)
AS OF MARCH 31, 2023 AND DECEMBER 31, 2022 (UNADUITED)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Advance to suppliers | ||||||||
| Amounts due from related parties | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Other payables and accruals | $ | $ | ||||||
| Amounts due to related parties | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| DEFICIT | ||||||||
| Share capital | $ | $ | ||||||
| Additional paid in capital | ||||||||
| Foreign currency translation reserves | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total deficit | ( | ) | ( | ) | ||||
| Total liabilities and deficit | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 2 |
TANCHENG GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES | $ | $ | ||||||
| COST OF REVENUES | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| Selling and marketing expenses | ( | ) | ( | ) | ||||
| General and administrative expense | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation differences | $ | ( | ) | $ | ( | ) | ||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the consolidated financial statements.
| 3 |
TANCHENG GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Additional Pain in Capital | Foreign Currency Translation Reserve | Accumulated Deficit | Total Equity | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss for the year | – | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance at January 1, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss for the year | – | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 4 |
TANCHENG GROUP CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars, except share data or otherwise stated)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Other payables and accruals | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Amounts due from related parties | ( | ) | ( | ) | ||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Amounts due to related parties | ||||||||
| Cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 5 |
TANCHENG GROUP CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022
| 1. | DESCRIPTION OF BUSINESS |
TANCHENG GROUP CO., LTD. (“Company”), formerly named Bigeon Corp. (“Bigeon”) was incorporated on June 19, 2018 under the laws of Nevada. Prior to August 31, 2022, the Company was developing a new kind of messenger application. The product of the Company (“the App”) is intended to provide an entirely new way of sharing information. The App enables a user to draw a picture or a writing instead of typing the whole message. Our intended users will be the people whose jobs are connected with drawing and creating graphic animation. Bigeon’s product will be an appropriate tool to make short sketches on the go and share them with others.
On August 31, 2022, under a Stock Purchase Agreement, the former President of the Company, Olegas Tunevicius, sold all of his 3,500,000 common shares of Bigeon to Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Shanxi Qiansui Tancheng”), a privately-owned Chinese company, thus constituting a change of control of the Company. As part of the change of control, Olegas Tunevicius resigned as the Company’s sole officer and director, and Yu Yang became the Company’s sole officer and director.
On October 17, 2022, the Company filed a Certificate of Amendment to Articles of Incorporation of the Company with the Secretary of State of State of Nevada to change the Company’s name to Tancheng Group Co., Ltd.
On March 14, 2023, the Company entered into a definitive Contribution Agreement (the “Contribution Agreement”) with Zhan Jue Cheng Limited, a British Virgin Islands company, and Zhang Caixia Limited, a British Virgin Islands company (collectively, the “Contributors”), who together own 100% of the issued and outstanding ordinary shares of Qiansui International (the “Contributed Shares”). Pursuant to the Contribution Agreement, the Contributors agreed to contribute all of their right, title and interest in and to the Contributed Shares to Tancheng Group (the “Contribution”). On March 20, 2023, the Contribution was completed. As a result of the Contribution, Qiansui International became the wholly-owned subsidiary of Tangcheng Group. The assets and liabilities of the acquired entity, Qiansui International, have been brought forward at their book value and no goodwill has been recognized. A Form 8-K is filed on March 24, 2023 which contains the financial information of Qiansui International.
Qiansui International Group Limited (“Qiansui International”) was incorporated in the British Virgin Islands on June 7, 2022. Qiansui (Hong Kong) Holdings Limited (“Qiansui HK”) was incorporated on July 21, 2022 in the Hong Kong SAR. Qiansui HK wholly owns Shanxi Qiansui Tanchend Culture Consulting Co., Ltd. (“Qiansui Consulting”) which was established on December 12, 2022 in the People’s Republic of China (the “PRC”). Qiansui Consulting is a wholly owned foreign entity under PRC law. Qiansui Consulting wholly owns Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Qiansui Media”), which was established on June 14, 2017 in the PRC. Qiansui Consulting acquired Qiansui Media on December 28, 2022. Qiansui HK and Qiansui Consulting are intermediary holding companies. Qiansui International conducts its operations through Qiansui Media.
The Company operates through its wholly owned PRC subsidiary Qiansui Media and the principal activities is the sale of self-designed ornament and adornment products through its online store in the PRC.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of Presentation |
The accompanying consolidated financial statements include the balances and results of operations of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles in the U.S. (“US GAAP”).
The accompanying consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
| 6 |
The Company incurred loss of $
| - | The Company will obtain financial support from the related parties. | |
| - | Based on the business plans of the Company, management expects to see a positive trend in the Company’s future results. Management expects the business will be recovered in the future when the PRC begins to ease tough Covid pandemic control and lockdown measures in 2023. |
The Board of Directors believes the Company has adequate financial resources to continue in operational existence for the foreseeable future, a period of at least 12 months from the date of this report. Accordingly, the going concern basis of accounting continues to be used in the preparation of the consolidated financial statements for the three months ended March 31, 2023.
| (b) | Economic and Political Risks |
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in government policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.
| (c) | Use of estimates |
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent liabilities at the balance sheet date, and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s consolidated financial statements include economic lives and impairment of property, plant and equipment and allowance for doubtful accounts. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.
| (d) | Cash and Cash Equivalents |
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. All cash and cash equivalents relate to cash on hand and cash at bank at March 31, 2023 and December 31, 2022.
The Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business.
| (e) | Revenue Recognition |
The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:
| (i) | identification of the goods and services in the contract; | |
| (ii) | determination of whether the goods and services are performance obligations, including whether they are distinct in the context of the contract; | |
| (iii) | measurement of the transaction price, including the constraint on variable consideration; | |
| (iv) | allocation of the transaction price to the performance obligations; and | |
| (v) | recognition of revenue when (or as) the Company satisfies each performance obligation. |
| 7 |
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.
Contract liabilities consist of deferred revenue related to advance received from customers for future transfer of goods to customers. The balance of deferred revenue represents unfulfilled performance obligations in the sales agreement, i.e products that have not yet been delivered. Once the related products have been delivered, the amount in deferred revenue account is shifted to a revenue account.
For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
| (f) | Foreign Currency Translation |
The Company’s reporting currency is the U.S. dollar and the functional currency is the Chinese Renminbi (“RMB”). All assets and liabilities are translated at exchange rates at the balance sheet date and revenue and expenses are translated at the average yearly exchange rates and equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of equity.
Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the applicable rates of exchange prevailing at the dates of the transactions. Exchange gains and losses are recognized in the statements of operations.
The exchange rates utilized as follows:
| March 2023 | March 2022 | |||||||
| Three months period-end RMB exchange rate | ||||||||
| Three months average RMB exchange rate | ||||||||
No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.
| (g) | Foreign Currency Risk |
The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of the RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. All the Company’s cash and cash equivalents are in RMB.
| (h) | Fair Value |
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when valuing the asset or liability. Authoritative literature provides a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
| 8 |
| (i) | Fair Value of financial instruments |
The Company’s financial instruments consist primarily of cash and cash equivalents, other receivables, advance to suppliers, accounts payable, other payables and accruals, and advance from customers. The carrying amounts of these balances approximate their fair values due to the short-term maturities of these instruments.
| (j) | Income Taxes |
Income tax expense comprises current and deferred taxation and is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income or equity, in which case it is recognized directly in other comprehensive income or equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable with respect to previous periods.
The Company accounts for income taxes using the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities, net of operating loss carry forwards and credits, by applying enacted tax rates that will be in effect for the period in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in the statements of operations in the period of change.
The Company accounts for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when the Company believes that it is more likely than not that the tax position will be sustained on examination by the tax authorities based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.
| (k) | Comprehensive income |
Comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income is reported in the statements of comprehensive income.
| (l) | Concentration of credit risk |
Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and other receivables. As of March 31, 2023 and December 31, 2022, substantially all of the Company’s cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. There was no single customer who constituting 10% or more of the Company’s net revenue for the three months ended March 31, 2022.
Details of customers which accounted for 10% or more of the Company’s total revenue for the three months ended March 31, 2023 are as follows:
| Amount | % of total revenue | |||||||
| Customer A | $ | |||||||
| Customer B | ||||||||
| Customer C | ||||||||
| Customer D | ||||||||
| $ | ||||||||
| 9 |
| (m) | Recent accounting pronouncements |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The Company has adopted this standard on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832)” which enhances disclosure of transactions with governments that are accounted for by applying a grant or contribution model. The new pronouncement requires entities to provide information about the nature of the transaction, terms and conditions associated with the transaction and financial statement line items affected by the transaction. The Company adopted this standard on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
| 3. | INVENTORIES |
| March 31, 2023 | December 31, 2021 | |||||||
| Ornament and adornment products | $ | $ | ||||||
| 4. | OTHER RECEIVABLES |
| March 31, 2023 | December 31, 2021 | |||||||
| Prepayments | ||||||||
| Short-term loan | (a) | |||||||
| Ornament and adornment products | $ | $ | ||||||
| (a) |
| 5. | ADVANCE TO SUPPLIERS |
Advance to suppliers mainly represents the amount that certain suppliers require the Company to pay in advance for the purchase of products or for the provision of services. Such advance is appropriated against future purchase orders or future services to be rendered. These advances are interest free, unsecured and short-term in nature.
| 6. | INCOME TAXES |
(a) Enterprise Income Tax (“EIT”)
Tancheng Group Co., Ltd. was incorporated in the
State of Nevada. Tancheng Group Co., Ltd. is an U.S. entity and is subject to the United States federal income tax.
Qiansui International was incorporated in the British Virgin Islands. Under the current tax laws of British Virgin Islands, Qiansui International is not subject to taxation.
| 10 |
Qiansui HK was incorporated in Hong Kong and is
subject to an income tax rate of
Qiansui Consulting and Qiansui Media were incorporated
in the PRC and they are subject to profits tax rate at
The full realization of the tax benefit associated with the losses carried forward depends predominantly upon the Company’s ability to generate taxable income during the carry forward period.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
The Company did
The Company operates its business through a subsidiary
incorporated in PRC which is subject to a corporate income tax rate of
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss before tax | $ | ( | ) | $ | ( | ) | ||
| Tax benefit calculated at statutory tax rate | ||||||||
| Computed expected benefits | ( | ) | ( | ) | ||||
| Unrecognized deferred tax asset | ||||||||
| Total income tax | $ | $ | ||||||
(b) Value Added Tax (“VAT”)
In accordance with the relevant taxation laws
in the PRC, the normal VAT rate for small-scale VAT payers on domestic sales is
| 7. | RELATED PARTIES TRANSACTIONS |
The table below sets forth the related parties and their relationships with the Company as of March 31, 2023 and December 31, 2022:
| Name of related parties | Relationship with the Company | |
| Yu Yang (“Mr. Yang”) | ||
| Jiaocheng Xinmu Trade Co., Ltd | ||
| Shanxi Qiansui Automobile Trading Co., Ltd | ||
| Taiyuan Tuohang Logistics Co., Ltd | ||
| Shanxi Xiliu Catering Management Co., Ltd | ||
| Xiao Yang |
| 11 |
The related party balances as of March 31, 2023 and December 31, 2022 and transactions for the three months ended March 31, 2023 and 2022 are as follows:
Amounts due from related parties:
| March 31, 2023 | December 31, 2022 | |||||||||||
| Shanxi Qiansui Automobile Trading Co., Ltd | (a) | $ | $ | |||||||||
| Shanxi Xiliu Catering Management Co., Ltd | (b) | |||||||||||
| $ | $ | |||||||||||
| (a) |
| (b) |
Amounts due to related parties:
| March 31, 2023 | December 31, 2022 | |||||||||||
| Yu Yang | (a) | $ | $ | |||||||||
| Jiaocheng Xinmu Trade Co., Ltd | (b) | |||||||||||
| Taiyuan Tuohang Logistics Co., Ltd | (a) | |||||||||||
| Xiao Yang | (a) | |||||||||||
| $ | $ | |||||||||||
| (a) |
| (b) |
As of December 31, 2022, amounts due to Jiaocheng
Xinmu Trade Co., Ltd (“Jiaocheng Xinmu”) comprised of accounts receivables $ |
| 12 |
| 8. | ADDITIONAL PAID IN CAPITAL |
On August 18, 2022, the former President of the
Company, Olegas Tunevicius signed an Assignment, Assumption, and Indemnity Agreement to assume all liabilities and debts and obligations
of Bigeon as of the the Closing date of the Stock Purchase Agreement (Note 1). As of the Closing date, total liabilities amounting to
$
| 9. | RESERVES |
| (a) | Legal reserve |
Pursuant to the laws applicable to the PRC’s
Foreign Investment Enterprises, the Company must make appropriations from after-tax profit to non-distributable reserve funds. Subject
to certain cumulative limits, the general reserve requires annual appropriations of
| (b) | Currency translation reserve |
The currency translation reserve represents translation differences arising from translation of foreign currency financial statements into the Company’s reporting currency.
| 10. | COMMITMENTS AND CONTINGENCIES |
As of March 31, 2023, the Company did
| 11. | SUBSEQUENT EVENTS |
Company has evaluated subsequent events through the date of the issuance of these consolidated financial statements. Numerous subsequent events disclosures are being made elsewhere in these consolidated financial statements except the following.
On April 11, 2023, the holder of Tancheng Group Co., Ltd., representing approximately 97% voting power of the total issued and outstanding capital stock of Tancheng Group Co., Ltd., acting by written consent, approved a Certificate of Amendment to Articles of Incorporation (the “Certificate of Amendment”) to increase the number of shares of common stock that Tancheng Group Co., Ltd. is authorized to issue from 75,000,000 shares to 1,000,000,000 shares. The Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada on April 11, 2023.
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “pursue,” “expect,” “predict,” “project,” “goals,” “strategy,” “future,” “likely,” “forecast,” “potential,” “continue,” negatives thereof or similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding business strategies, macro-economic and sector-specific trends, future cash flows, financing plans, plans and objectives of management and any other statements which are not statements of historical facts.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual future results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not put undue reliance on any of these forward-looking statements. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Unless otherwise indicated by the context, references to the “Company, “we,” “us,” “our” in this report are to Tancheng Group Co., Ltd., a Nevada corporation, and its consolidated subsidiaries.
Overview
Tancheng Group Co., Ltd. (formerly Bigeon), or Tancheng Group, was incorporated under the laws of Nevada on June 19, 2018. It remained a shell company until the completion of acquiring Qiansui International Group Limited, a Cayman Islands exempted company (“Qiansui International”), and Qiansui International’s subsidiaries on March 20, 2023, pursuant to a contribution agreement (the “Contribution Agreement”) entered into by and among Tancheng Group, and holders of 100% of the outstanding ordinary shares of Qiansui International who also held 79.9% of Tancheng Group’s outstanding common stock then (the “Contributors”). In accordance with the Contribution Agreement, the Contributors contributed all of their interests in Qiansui International to Tancheng Group (the “Contribution”).
Qiansui International was incorporated in the British Virgin Islands on June 7, 2022. Qiansui (Hong Kong) Holdings Limited (“Qiansui HK”) was incorporated on July 21, 2022 in the Hong Kong SAR. Qiansui HK wholly owns Shanxi Qiansui Tancheng Culture Consulting Co., Ltd. (“Qiansui Consulting”) which was established on December 12, 2022 in the PRC. Qiansui Consulting is a wholly owned foreign entity under PRC law. Qiansui Consulting wholly owns Shanxi Qiansui Tancheng Culture Media Co., Ltd. (“Qiansui Media”), which was established on June 14, 2017 in the PRC. Qiansui Consulting acquired Qiansui Media on December 28, 2022. Qiansui HK and Qiansui Consulting are intermediary holding companies. Qiansui International conducts its operations through Qiansui Media.
Following the consummation of the Contribution, our company, through its wholly owned PRC subsidiary Qiansui Media, has been engaged in the business of selling ornament and adornment products related to “Jue Cheng” culture and creating cultural tourism programs. Located in close proximity to PangQuanGou National Nature Reserve in Jiaocheng County, Shanxi Province, China, Qiansui Media has leveraged the rich heritage of “Jue Cheng” culture to develop innovative peripheral cultural products and large-scale recreational tourism projects.
Our revenues were $346,619 and $42,422 for the three months ended March 31, 2023 and 2022, respectively. Our net loss was $279,915 and $14,675 for the respective periods. These conditions raise substantial doubt about our ability to continue as a going concern.
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Recent Development
On April 11, 2023, the holder of Tancheng Group, representing approximately 97% voting power of the total issued and outstanding capital stock of Tancheng Group, acting by written consent, approved a Certificate of Amendment to Articles of Incorporation (the “Certificate of Amendment”) to increase the number of shares of common stock that Tancheng Group is authorized to issue from 75,000,000 shares to 1,000,000,000 shares. The Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada on April 11, 2023.
Results of Operation
Comparison for The Three Months Ended March 31, 2023 and 2022
The following table sets forth key components of our results of operations during the three months ended March 31, 2023 and 2022.
| 2022 | 2021 | Change | ||||||||||
| Revenue | $ | 346,619 | $ | 42,422 | $ | 304,197 | ||||||
| Cost of revenue | (310,206 | ) | (38,595 | ) | (271,611 | ) | ||||||
| Gross profit | 36,413 | 3,827 | 32,586 | |||||||||
| Selling and marketing expenses | (7,072 | ) | (1,118 | ) | (5,954 | ) | ||||||
| General and administrative expense | (266,705 | ) | (17,717 | ) | (248,988 | ) | ||||||
| Loss from operations | (237,364 | ) | (15,008 | ) | (222,356 | ) | ||||||
| Other income | 78 | 333 | (255 | ) | ||||||||
| Net loss | $ | (237,286 | ) | $ | (14,675 | ) | $ | (222,611 | ) | |||
Revenue
We generated $346,619 in revenue for the three months ended March 31, 2023 compared to $42,422 for the three months ended March 31, 2022. There was an increase in total revenues of $304,197 or 717.1% compared to the same period of year 2022.
Our business is gradually recovering from the COVID-19 pandemic, which was less severe in the three-month period of 2023 as compared to the three-month period of 2022. The measures taken by the Chinese government to contain the virus have been effective, business has returned to normal and the market has substantially regained confidence. The recovery of the economy has positively affected our results. During fiscal year 2022, we spent efforts on advertising and promoting our products which eventually attracted a greater amount of customers began in late 2022. In addition, we began raising our prices on certain popular products in late 2022, which led to the increase in our revenue and profit margin.
Cost of Revenue
Cost of revenue was $310,206 for the three months ended March 31, 2023 compared to $38,595 for the three months ended March 31, 2022. The increase of cost of revenue by $271,611 or 703.7% was relatively in line with the increase in revenue. The cost of revenue mainly consists of the cost of the products sold.
Gross profit
Gross profit for the three months ended March 31, 2023 was $36,413 compared with $3,827 for the three months ended March 31, 2022. As a percentage of revenue, our gross profit increased from 9.0% for the three months ended March 31, 2022 to 10.5% for the three months ended March 31, 2023, primarily due to the fact that we raised our prices on certain popular products.
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Operating Expenses
General and administrative expense
By far the most significant component of our operating expenses for both the three-month periods ended March 31, 2023 and 2022 was general and administrative expenses of $266,705 and $17,717, respectively. The increase of $248,988 or 1,405.4% was mainly due to the increase in legal and professional fees related to the services needed as a public company after the completion of the contribution transaction on March 20, 2023, as a result of which we ceased being a shell company.
Net Profit
We reported a net loss of $237,286 for the three months ended March 31, 2023 compared to a net loss of $15,008 for the three months ended March 31, 2022, an increase in net loss of $222,611 or 1,516.9%. This was mainly due to an increase in administrative expenses.
Although we incurred a significant net loss for the three months ended March 31, 2023, we expect to see a positive trend in our future results.
Liquidity and Capital Resources
| March 31, 2023 | December 31, 2022 | |||||||
| Working capital: | ||||||||
| Total current assets | $ | 3,266,529 | $ | 2,463,174 | ||||
| Total current liabilities | (4,438,695 | ) | (3,393,083 | ) | ||||
| Working capital deficiency | $ | (1,172,166 | ) | $ | (929,909 | ) | ||
Our principal sources of liquidity and capital resources have been, and are expected to continue to be, cash flow from operations and cash advance from related parties. Our principal uses of cash have been, and we expect will continue to be, for working capital to support a reasonable increase in our scale of operations.
Management has estimated our cash flow from future operations and available support from related parties and have concluded that we have, or will have access to, sufficient financial resources to meet our financial obligations as and when they fall due in the coming twelve months. There can be no assurances, however, that any of the borrowing facilities we may be contemplating as being available to us in the future will, in fact, be available to us on acceptable terms, if at all. We believe there will be sufficient funds to run our operations for the next 12 months.
As of March 31, 2023, we had cash and cash equivalents of $274,387. The following table provides detailed information about our net cash flows for the three months ended March 31, 2023 and 2022:
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows: | ||||||||
| Net cash used in operating activities | $ | (837,028 | ) | $ | (1,625,560 | ) | ||
| Net cash provided by financing activities | 1,040,586 | 1,324,442 | ||||||
| Net cash used in investing activities | – | – | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (378 | ) | 686 | |||||
| Net increase (decrease) in cash and cash equivalents | 203,180 | (300,432 | ) | |||||
| Cash and cash equivalents at the beginning of year | 71,207 | 466,315 | ||||||
| Cash and cash equivalents at the end of the year | $ | 274,387 | $ | 165,883 | ||||
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Operating Activities
Net cash used in operating activities was $837,028 for the three months ended March 31, 2023. The difference between our net loss of $237,286 and net cash used in operating activities was mainly attributable to the cash used in increasing our operating assets and decreasing our liabilities in aggregate amount of $599,742 which was primarily due to the increase in other receivables representing a short term loan of $436,752 (RMB3,000,000) loaned to a third party, increase in inventories and the decrease in other payables and accruals and decrease in amounts due from related parties.
Financing Activities
Net cash generated from financing activities was $1,040,586 for the three months ended March 31, 2023 was attributable to the funds from related parties.
Investing Activities
There is no movement of cash for investing activities for the three months ended March 31, 2023 and 2022.
Inflation
Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Critical Accounting Policies and Estimates
Revenue Recognition
The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:
| (i) | identification of the goods and services in the contract; | |
| (ii) | determination of whether the goods and services are performance obligations, including whether they are distinct in the context of the contract; | |
| (iii) | measurement of the transaction price, including the constraint on variable consideration; | |
| (iv) | allocation of the transaction price to the performance obligations; and | |
| (v) | recognition of revenue when (or as) the Company satisfies each performance obligation. |
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.
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Contract liabilities consist of deferred revenue related to advance received from customers for future transfer of goods to customers. The balance of deferred revenue represents unfulfilled performance obligations in the sales agreement, i.e products that have not yet been delivered. Once the related products have been delivered, the amount in deferred revenue account is shifted to a revenue account.
For all reporting periods, the Company has not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Recent accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The Company has adopted this standard on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832)” which enhances disclosure of transactions with governments that are accounted for by applying a grant or contribution model. The new pronouncement requires entities to provide information about the nature of the transaction, terms and conditions associated with the transaction and financial statement line items affected by the transaction. The Company adopted this standard on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s chief executive officer (“CEO”) and the Company’s chief financial officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of March 31, 2023. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2023 due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review.
Management is in the process of determining how best to change our current system and implement a more effective system to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Changes in Internal Control over Financial Reporting
Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended March 31, 2023 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.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of this report or incorporated by reference:
| Exhibit No. | Description | |
| 31.1 | Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 (the cover page XBRL tags are embedded within the iXBRL document). |
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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 thereunto duly authorized.
| TANCHENG GROUP CO., LTD. | ||
| (Registrant) | ||
| Dated: May 15, 2023 | By: | /s/ Yu Yang |
| Yu Yang | ||
| Chief Executive Officer and Chief Financial Officer | ||
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