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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) | |
Jiangxi Province, | ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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, 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. (Check One):
| 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of July 27, 2023, there
were
KENONGWO GROUP US, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENONGWO GROUP US, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Inventories | ||||||||
| Advances and prepayments to suppliers | ||||||||
| Total Current Assets | ||||||||
| Plant and equipment, net | ||||||||
| Construction in progress, net | ||||||||
| Intangible assets, net | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Taxes payable | ||||||||
| Advances from customers | ||||||||
| Amount due to shareholder | ||||||||
| Due to related parties | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Long-term loans | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Common Stock, $ | ||||||||
| Paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
KENONGWO GROUP US, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Stated in US Dollars)
| For the Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other income (expenses): | ||||||||
| Interest expenses | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Income before income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive income | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
KENONGWO GROUP US, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Stated in US Dollars)
| Number | Common | Paid-in | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||
| of Shares | Stock | Capital | Deficit | Loss | Total | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net income | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
KENONGWO GROUP US, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
| For the Three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepayment and deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued payables | ||||||||
| Advances from customers | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Investment in plant and equipment | ( | ) | ( | ) | ||||
| Intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from related party | ||||||||
| Repayment of director | ( | ) | ||||||
| Net cash (used in)/ provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Cash paid during the period for: | ||||||||
| Cash paid for interest expense, net of capitalized interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN
Kenongwo Group US, Inc. (“Kenongwo US” or the “Company”) is a holding company incorporated in the State of Nevada on October 17, 2018.
On
October 17, 2018, the Company issued
On
October 20, 2018, the Company issued
On May 15, 2017, Jiangxi Kenongwo Technology Co., Ltd. (“Jiangxi Kenongwo”) was formed in the PRC. It is engaged in researching, developing, manufacturing and selling bamboo charcoal biomass organic fertilizers, amino acid water-soluble fertilizers, selenium-rich foliage fertilizers and other types of fertilizers in the People’s Republic of China (the “PRC”).
On January 1, 2019, the Company acquired all the issued and outstanding capital stock of Jiangxi Kenongwo pursuant to certain share transfer agreements entered into with Xiaoming Zhang and Yuhua Zhang, the two former shareholders of Jiangxi Kenongwo. The share transfer was completed on January 9, 2019 as evidenced by a business license issued by Administrative Bureau in Yichun City Jiangxi Province reflecting the sole foreign ownership. As a result, Jiangxi Kenongwo became the Company’s wholly owned subsidiary. In accordance to a stock entrustment agreement (the “Stock Entrustment Agreement”), Xiaoming Zhang and Yuhua Zhang held Jiangxi Kenongwo on behalf of Mr. Jianjun Zhong. Under the Stock Entrustment Agreement, Mr. Jianjun Zhong was the controlling beneficial owner of Jiangxi Kenongwo prior to the acquisition on January 1, 2019. Accordingly, the Company and Jiangxi Kenongwo were under common control prior to the acquisition; therefore, the transaction has been accounted for as business combination under common control in accordance to ASC-805-50-30-5, in which the assets and liabilities of Jiangxi Kenongwo have been presented at their carrying values at the date at which the transfer occurred, which was January 1, 2019. However, the carrying values did not differ from their historical basis. No goodwill was recognized in this transaction.
On
September 6, 2019, the Company agreed to issue an aggregate of
On
October 16, 2019, the Company agreed to issue an aggregated of
On
October 5, 2021, the Company amended its articles of incorporation to reverse split its common stock at a rate of
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with the US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (the “PRC GAAP”). The differences between the US GAAP and the PRC GAAP have been adjusted in these financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying financial statements have been translated and presented in United States Dollars (“USD”).
5
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements 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 reported amounts 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 estimates.
Control by Principal Stockholders
The Company’s directors and executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of our common stock. Accordingly, if our directors and executive officers and their affiliates or related parties vote their shares uniformly, they would have the ability to control the approval of most corporate actions, including increasing our authorized capital stock and the dissolution or merger of our company or the sale of our assets.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful credit losses accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection.
6
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories, consisting of raw materials, work in process, and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method.
Advances and Prepayments
The Company makes advance payment to suppliers and vendors for the procurement of raw materials. Upon physical receipt and inspection of the raw materials from suppliers the applicable amount is reclassified from advances and prepayments to suppliers to inventory.
Plant and Equipment
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Estimated useful lives of the Company’s assets are as follows:
| Useful Life | ||
| Building | ||
| Operating equipment | ||
| Vehicle | ||
| Electronic equipment | ||
| Office equipment |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss are included in the Company’s results of operations. The costs of maintenance and repairs are recognized to expenses as incurred; significant renewals and betterments are capitalized.
Construction in progress represents direct and indirect acquisition and construction costs for plants, and costs of acquisition and installation of related equipment. Amounts classified as construction in progress and prepayments for equipment are transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. Depreciation is not provided for assets classified in this account.
The Company both owns and leases manufacturing facilities. The Company leases a manufacturing facility to produce fertilizer products. In order to expand the Company’s production capacity, the Company invested in an additional manufacturing plant that it owns.
The plant that is owned by the Company is accounted for using the significant accounting policies set forth above.
The Company has adopted ASC 842 and ASC 840. Management determines that leased manufacturing facility is not required to be capitalized as a right of use asset under both ASC 842 and ASC 840 because the lease for that facility is entered into on a year to year basis. Additionally, management is not certain that it will renew its lease for that facility each year.
7
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Included in the intangible assets is non-patented technology. Useful life for non-patented technology refers to the period during which economic benefits can be generated. Intangible assets are being amortized using the straight-line method over their lease terms or estimated useful life.
Estimated useful lives of the Company’s intangible assets are as follows:
| Useful Life | ||
| Non-patented technology |
The Company carries intangible assets at cost less accumulated amortization. In accordance with the US GAAP, the Company examines the possibility of decreases in the value of intangible assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the three months ended March 31, 2023 and 2022.
Advances from Customers
Advances from customers consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.
Foreign currency translation
The accompanying financial statements are presented in United States dollars. The functional currencies of the Company are in Renminbi (RMB). The Company’s assets and liabilities are translated into United States dollars from RMB at year-end exchange rates, and its revenues and expenses are translated at the average exchange rate during the year. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
8
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| 3/31/2023 | 12/31/2022 | 3/31/2022 | |||||||
| Period/year end RMB: US$ exchange rate | |||||||||
| Period/annual average RMB: US$ exchange rate |
The RMB is not freely convertible into foreign currencies and all foreign exchange transactions must be conducted through authorized financial institutions.
Revenue Recognition
The Company adopted ASC 606 “Revenue Recognition”, and recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company derives its revenues from the sale of fertilizer products. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfils its obligations under each of its agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
Cost of Revenues
Cost of revenues consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.
Income Taxes
The Company accounts for income taxes under the provisions of Section 740-10-30 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns.
The
Company is subject to the Enterprise Income Tax (“EIT”) law of the People’s Republic of China. The Company’s
primary operations are located in the PRC. The Company is high tech enterprises are subject to corporate income tax at a reduced rate
of
9
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) comprised of net income (loss) and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. The Company’s comprehensive income (loss) consist of net income (loss) and unrealized gains from foreign currency translation adjustments.
Fair Value of Financial Instruments
The Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, have carrying amounts that approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 - inputs to the valuation methodology used quoted prices for identical assets or liabilities in active markets. |
10
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| ● | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
Government Contribution Plan
Pursuant to the applicable PRC laws and regulations, the Company is required to participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.
Statutory Reserve
Pursuant
to the applicable PRC laws and regulations, the Company must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations
of
Recent accounting pronouncements
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The amendments are effective for all entities within their scope, which excludes not-for-profit entities and employee benefit plans, for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendment is permitted. The Company will adopt ASU No. 2021-10 effective January 1, 2022.The Company’s adoption of this guidance does not have a material impact on its financial statements.
The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
11
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | $ | ||||||
Movement of allowance for doubtful accounts is as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | ||
| Write-off/(Addition) | ( | ) | ||||||
| Currency re-alignment | ( | ) | ||||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
NOTE 4 – OTHER RECIVABLES
Other receivable consist of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Loan receivable | $ | $ | ||||||
| Deposit | ||||||||
| Others | ||||||||
| Ending balance | $ | $ | ||||||
Amount
due from third parties are unsecured, non-interest bearing and repayable on demand.
12
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – INVENTORIES
Inventories consisted of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Goods in process | ||||||||
| Finished goods | ||||||||
| Total, net | $ | $ | ||||||
NOTE 6 – PREPAYMENTS
The
prepayment balance of $
NOTE 7 – PLANT AND EQUIPMENT
Plant and equipment at March 31, 2023 and December 31, 2022 consisted of:
| March 31, 2023 | December 31, 2022 | |||||||
| Building | $ | $ | ||||||
| Operating equipment | ||||||||
| Vehicle | ||||||||
| Office equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| $ | $ | |||||||
13
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – PLANT AND EQUIPMENT (CONTINUED)
As
of March 31, 2023 and March 31, 2022, depreciation expense amounted to $
The
construction in progress of $
NOTE 8 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Non-patented technology | $ | $ | ||||||
| System and software | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
Company invested in the development of a product tracking system design, detect and defend against counterfeit products. The Company’s
original cost was $
As
of March 31, 2023 and March 31, 2022, amortization expenses of intangible assets were $
NOTE 9 – LONG-TERM LOANS
On
February 5, 2021, the Company entered into a new unsecured loan agreement with Yichun Village Commercial Bank in the amount of $
NOTE 10 ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Rental payable | $ | $ | ||||||
| Other payable | ||||||||
| Amount due to third parties | ||||||||
| Salary and related payables | ||||||||
| Accrued expenses | ||||||||
| Total | $ | $ | ||||||
Amount due to third parties are obtained for working capital purposes.
Amount due to third parties are unsecured, non-interest bearing and repayable on demand.
Other payables relate to amount due to vendors for purchase of machineries and equipment not settled as of March 31, 2023 and December 31, 2022.
14
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – RELATED PARTY TRANSACTIONS
As
of March 31, 2023 and December 31, 2022, the outstanding balances of $
As
of March 31, 2023 and December 31, 2022, the outstanding balance due to shareholders was $
NOTE 12 – CONCENTRATIONS
Customers Concentrations
The
following table sets forth information as to each customer that accounted for
| March 31, 2023 | March 31, 2022 | |||||||||||||||
| Customers | Amount $ | % | Amount $ | % | ||||||||||||
| Jiangxi Zhensen Agricultural Technology Co., Ltd | ||||||||||||||||
| Jiangxi Yebao Technology Co., Ltd | ||||||||||||||||
| Hainan Yijing Agricultural Development Co., Ltd | ||||||||||||||||
| Ganzhou Jinruisheng Ecological Agriculture Development Co., Ltd | ||||||||||||||||
| Tonggu Sibo Agricultural Development Co., Ltd | ||||||||||||||||
| Jiangxi Menglai Agricultural Development Co., Ltd | ||||||||||||||||
15
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – CONCENTRATIONS (CONTINUED)
Suppliers Concentrations
The
following table sets forth information as to each supplier that accounted for
| March 31, 2023 | March 31, 2022 | |||||||||||||||
| Suppliers | Amount $ | % | Amount $ | % | ||||||||||||
| Bozhou Lifeng Manure Technology Co., Ltd | ||||||||||||||||
| Yifeng Ronghua Carbon Industry Co., Ltd | ||||||||||||||||
| Jiangxi Shanghe Ecological Agriculture Co., Ltd | ||||||||||||||||
| Nanchang Mingrui Chemical Co., Ltd | ||||||||||||||||
| Nanchang Fuying Plastic Industry Co., Ltd | ||||||||||||||||
| Yuanzhou District Sanyi Chemical Products Sales Department | ||||||||||||||||
Credit Risks
The Company’s operations are carried out 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’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. As of March 31, 2023 and December 31, 2022, the Company’s cash balances by geographic area were as follows:
| March 31, | December 31, | |||||||||||||||
| 2023 | 2022 | |||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| China | % | % | ||||||||||||||
| Total cash and cash equivalents | $ | % | $ | % | ||||||||||||
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KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – INCOME TAXES
The
Company’s primary operations are located in the PRC. The Company is high tech enterprises are subject to corporate income tax at
a reduced rate of
The following tables provide the reconciliation of the differences between the statutory and effective tax expenses for the three months ended March 31, 2023 and 2022:
| March 31, 2023 | March 31, 2022 | |||||||
| Income (Loss) before tax | $ | $ | ||||||
| PRC Statutory Tax at | ||||||||
| Utilization of deferred tax benefits previously not recognized | ( | ) | ( | ) | ||||
| Income tax | $ | $ | ||||||
Accounting for Uncertainty in Income Taxes
The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary for the three months ended March 31, 2023 and 2022.
NOTE 14 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of the issuance of the consolidated financial statements and no subsequent event is identified.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Business Overview
We primarily engage in researching, developing, manufacturing and selling bamboo charcoal biomass organic fertilizers, amino acid water-soluble fertilizers, selenium-rich foliage fertilizers and other types of fertilizers in the PRC through our subsidiary, Jiangxi Kenongwo Technology Co., Ltd. (“Jiangxi Kenongwo”), a company incorporated under the laws of the PRC.
We generated our revenue from the sales of our organic fertilizers. We currently have one integrated factory covering a land area of 143,590 square feet in Yichun City, Jiangxi Province, PRC to produce our organic fertilizers, which has been in operations since 2017. We plan to expand our production capacity and build an automatic and standardized production line.
We believe that our brand reputation and ability to tailor our products to meet the requirements of various regions of the PRC affords us a competitive advantage. We purchase the majority of our raw materials from suppliers located in the PRC and use suppliers that are located in close proximity to our manufacturing facilities, which helps us to control our cost of revenue.
Amidst the COVID-19 outbreak in 2020, our business operations were adversely impacted. In particular, the lockdown policy in China has caused delays in the logistics industry and consequently, the supply of our raw materials was impacted. In addition, the restrictions of face-to-face interactions have slowed down the process of our marketing, client meeting and new products launching activities. The spread of COVID-19 has been effectively controlled in China. People’s daily life and businesses’ operations started going to normalcy. As a result, we believe these negative impacts are temporary. However, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the economy of China and the rest of the world and, as such, the extent of the business disruption and the related financial impact cannot be reasonably estimated at this time.
China is the principal market for our products, which are primarily sold to our customers through distributors in over twenty provinces in China, including Jiangxi, Hunan, Hubei, Fujian, Jiangsu, Shanghai, Zhejiang, Sichuan, Chongqing, Guangdong, Hainan, Xinjiang, Guizhou, Anhui, Shandong, Shanxi, Shaanxi, Liaoning, Jilin, Heilongjiang, Yunnan and Guangxi provinces.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. Our financial statements reflect the selection and application of accounting policies that require management to make significant estimates and judgments. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our financial statements included elsewhere in this report.
Basis of Presentation
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern as the Company’s net income is positive on March 31, 2023 and the Company is able to obtain financial support from shareholder to meet its short term liquidity shortage.
The Company plans to continue its expansion and investments, which will require continued improvements in revenue, net income, and cash flows.
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Revenue Recognition
The Company adopted ASC 606 “Revenue Recognition”, and recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company derives its revenues from the sale of fertilizer products. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfils its obligations under each of its agreements:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
Results of Operations
Comparison of the Three months ended March 31, 2023 and 2022
| For the Three months ended March 31, | Variance | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| $ | $ | $ | ||||||||||||||
| Revenues | 2,118,522 | 1,894,177 | 224,345 | 11.84 | ||||||||||||
| Cost of revenues | 1,428,443 | 1,428,427 | 16 | - | ||||||||||||
| Gross profit | 690,079 | 465,750 | 224,329 | 48.17 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 62,521 | 63,947 | (1,426 | ) | (2.23 | ) | ||||||||||
| General and administrative expenses | 172,114 | 285,199 | (113,085 | ) | (39.65 | ) | ||||||||||
| Total operating expenses | 234,635 | 349,146 | (114,511 | ) | (32.80 | ) | ||||||||||
| Income from operations | 455,444 | 116,604 | 338,840 | 290.59 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (6,858 | ) | (8,355 | ) | 1,497 | (17.92 | ) | |||||||||
| Other income, net | 3,175 | 159 | 3,016 | 1896.86 | ||||||||||||
| Other expenses | (2,040 | ) | (788 | ) | (1,252 | ) | 158.88 | |||||||||
| Total other income | (5,723 | ) | (8,984 | ) | 3,261 | (36.30 | ) | |||||||||
| Income before income taxes | 449,721 | 107,620 | 342,101 | 317.88 | ||||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net income | 449,721 | 107,620 | 342,101 | 317.88 | ||||||||||||
Revenue
For the three months ended March 31, 2023, our total revenue was $2,118,522, representing an increase of 11.84% compared to $1,894,177 for the same period in 2022. This increase was mainly due to an increase in demand of our products after the Company developed and obtained more customers.
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The Company’s disaggregate revenue streams are summarized as follows:
| For the Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues – Solid organic fertilizers | $ | 2,118,522 | $ | 1,894,177 | ||||
| Total revenues | $ | 2,118,522 | $ | 1,894,177 | ||||
Cost of revenues
Cost of revenues for the fertilizers was $1,428,443and $1,428,427 for the three months ended March 31, 2023 and 2022, respectively, an increase $16. The small increase in cost of sales was due to the liberalization of the logistics industry the Company’s raw material costs have also been reduced.
The Company’s disaggregate cost of revenues streams are summarized as follows:
| For the Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost of revenues – Bamboo charcoal biomass organic fertilizers | $ | 1,428,443 | $ | 1,428,427 | ||||
| Total cost of revenues | $ | 1,428,443 | $ | 1,428,427 | ||||
Gross Profit
Our gross profit was $690,079 and $465,750 with gross margin of 32.57% and 24.59%, for the three months ended March 31, 2023 and 2022, respectively. The increase in gross profit was due to cost of sales was reduced.
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Selling Expenses
Our selling expenses were $62,521 for the three months ended March 31, 2023, representing a decrease of $1,426 or 2.23% compared to $63,947 for the three months ended March 31, 2022. Selling expenses are not much different compared to the same period of last fiscal year.
General and Administrative Expenses
General and administrative expenses decreased by $113,085, or 39.65% from $285,199 for the three months ended March 31, 2022 to $172,114 for the same period in 2023. This decrease was mainly due to gift, meal, and conference expenses was reduced.
Research and Development (“R&D”) Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled $36,632 and $42,529 for the three months ended March 31, 2023 and 2022, respectively.
Net Income
Our net income was $449,721 and $107,620 for the three months ended March 31, 2023 and 2022, respectively, representing an increase of $342,101. It was due to the increase in revenues, as discussed above.
Liquidity and Capital Resources
Our working capital deficit was $728,632 and $229,703 for the three months ended March 31, 2023 and December 31, 2022, respectively.
We have respectively financed our operations over the three months ended March 31, 2023 and 2022 primarily through proceeds from advances from related parties and the long-term loans.
The components of cash flows are discussed below:
| For the Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (4,653 | ) | $ | (335,858 | ) | ||
| Net cash used in investing activities | (525 | ) | (10,206 | ) | ||||
| Net cash (used in)/provided by financing activities | (238,281 | ) | 356,854 | |||||
| Exchange rate effect on cash | 16,156 | (11,819 | ) | |||||
| Net cash outflow | $ | (227,303 | ) | $ | (1,029 | ) | ||
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Cash used in Operating Activities
For the three months ended March 31, 2023, net cash used in operating activities was $4,653, which consisted primarily of net income of $449,721, which was adjusted by depreciation and amortization of $61,887. The Company had an increase of $60,933 in account payables and accrued payables, a decrease of $462,970 in accounts receivable, a decrease of $63,031 in prepayments to the suppliers. The Company incurred a decrease in inventories of $46,377 and a decrease in other receivable of $52,166.
For the three months ended March 31, 2022, net cash used in operating activities was $335,858, which consisted primarily of net income of $107,620, which was adjusted by depreciation and amortization of $37,167. The Company had an increase of $303,998 in account payables and accrued payables which was due to the fact that the Company purchased raw materials and paid off the bills in longer terms, a decrease of $635,196 in accounts receivable which was due to longer payment terms offered to loyal customers, a decrease of $26,599 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment. The Company incurred a decrease in inventories of $81,194 and a decrease in other receivable of $41,654.
Cash used in Investing Activities
Net cash used in investing activities was $525 for the three months ended March 31, 2023. The activities consisted of $525 in purchasing plant and equipment.
Net cash used in investing activities was $10,206 for the three months ended March 31, 2022. The activities consisted of $10,206 in purchasing plant and equipment and Intangible assets in progress.
Cash Provided by Financing Activities
Net cash used in financing activities was $238,281 for the three months ended March 31, 2023. During this period, Repayment to director of $238,281.
Net cash provided by financing activities was $356,854 for the three months ended March 31, 2022. During this period, cash provided by financing activities mainly included proceeds from related parties of $356,854.
Off-balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Liquidity Risk
We are also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and third parties to obtain short-term funding to meet the liquidity shortage.
Inflation Risk
We are also exposed to inflation risk and inflationary factors, such as increases in raw material and overhead costs, which could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of revenue if the selling prices of our products do not increase with such increased costs.
Foreign Currency Risk
All of our operating activities and a significant portion of our assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of 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.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective due to the continuing material weakness in our internal control over financial reporting.
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The material weakness and significant deficiency identified by our management as of March 31, 2023 relates to the ability of the Company to record transactions and provide disclosures in accordance with GAAP. We did not have sufficient and skilled accounting personnel with an appropriate level of experience in the application of GAAP commensurate with our financial reporting requirements. For example, our staff members do not hold licenses such as Certified Public Accountant or Certified Management Accountant in the United States, have not attended United States institutions for training as accountants, and have not attended extended educational programs that would provide sufficient relevant education relating to GAAP. Our staff will require substantial training to meet the demands of a U.S. public company and our staff’s understanding of the requirements of GAAP-based reporting is inadequate.
We plan to provide GAAP training sessions to our accounting team. The training sessions will be organized to help our corporate accounting team gain experience in GAAP reporting and to enhance their awareness of new and emerging pronouncements with potential impact over our financial reporting. We plan to continue to recruit experienced and professional accounting and financial personnel and participate in educational seminars, tutorials, and conferences and employ more qualified accounting staff in future.
Changes in Internal Controls over Financial Reporting.
During the three months ended March 31, 2023, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations over Internal Controls.
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; | |
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
| 31.1 | Certification of Principal Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a). | |
| 31.2 | Certification of Principal Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a). | |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted 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). |
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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.
| KENONGWO GROUP US, INC. | |||
| Date: July 27, 2023 | By: | /s/ Jianjun Zhong | |
| Name: | Jianjun Zhong | ||
| Title: | President and Chief Executive Officer | ||
| (principal executive officer) | |||
| Date: July 27, 2023 | By: | /s/ Jianjun Zhong | |
| Name: | Jianjun Zhong | ||
| Title: | Chief Financial Officer | ||
| (principal financial officer
and principal accounting officer) | |||
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