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Kenongwo Group US, Inc. – ‘10-Q’ for 6/30/22

On:  Friday, 8/19/22, at 1:23pm ET   ·   For:  6/30/22   ·   Accession #:  1213900-22-49611   ·   File #:  333-239929

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/19/22  Kenongwo Group US, Inc.           10-Q        6/30/22   68:3.1M                                   EdgarAgents LLC/FA

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    467K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     24K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     24K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     20K 
10: R1          Document And Entity Information                     HTML     77K 
11: R2          Unaudited Condensed Consolidated Balance Sheets     HTML    118K 
12: R3          Unaudited Condensed Consolidated Balance Sheets     HTML     28K 
                (Parentheticals)                                                 
13: R4          Unaudited Condensed Consolidated Statements of      HTML    104K 
                Operations and Comprehensive Loss                                
14: R5          Unaudited Condensed Consolidated Statements of      HTML     29K 
                Operations and Comprehensive Loss (Parentheticals)               
15: R6          Unaudited Condensed Consolidated Statements of      HTML     42K 
                Changes in Stockholders? Equity                                  
16: R7          Unaudited Condensed Consolidated Statements of      HTML     79K 
                Cash Flows                                                       
17: R8          Organization, Nature of Operations and Going        HTML     29K 
                Concern                                                          
18: R9          Summary of Significant Accounting Policies          HTML     53K 
19: R10         Accounts Receivable, Net                            HTML     27K 
20: R11         Other Receivables                                   HTML     27K 
21: R12         Inventories                                         HTML     24K 
22: R13         Advances and Prepayments                            HTML     21K 
23: R14         Property, Plant and Equipment                       HTML     28K 
24: R15         Intangible Assets                                   HTML     25K 
25: R16         Long-Term Loans                                     HTML     22K 
26: R17         Related Party Transactions                          HTML     24K 
27: R18         Concentrations                                      HTML     34K 
28: R19         Income Taxes                                        HTML     33K 
29: R20         Subsequent Events                                   HTML     23K 
30: R21         Accounting Policies, by Policy (Policies)           HTML    101K 
31: R22         Summary of Significant Accounting Policies          HTML     30K 
                (Tables)                                                         
32: R23         Accounts Receivable, Net (Tables)                   HTML     28K 
33: R24         Other Receivables (Tables)                          HTML     24K 
34: R25         Inventories (Tables)                                HTML     25K 
35: R26         Property, Plant and Equipment (Tables)              HTML     26K 
36: R27         Intangible Assets (Tables)                          HTML     24K 
37: R28         Concentrations (Tables)                             HTML     37K 
38: R29         Income Taxes (Tables)                               HTML     31K 
39: R30         Organization, Nature of Operations and Going        HTML     63K 
                Concern (Details)                                                
40: R31         Summary of Significant Accounting Policies          HTML     40K 
                (Details)                                                        
41: R32         Summary of Significant Accounting Policies          HTML     34K 
                (Details) - Schedule of estimated useful lives                   
42: R33         Summary of Significant Accounting Policies          HTML     23K 
                (Details) - Schedule of estimated useful lives of                
                the Company?s intangible assets                                  
43: R34         Summary of Significant Accounting Policies          HTML     23K 
                (Details) - Schedule of average exchange rate                    
44: R35         Accounts Receivable, Net (Details) - Schedule of    HTML     27K 
                accounts receivable                                              
45: R36         Accounts Receivable, Net (Details) - Schedule of    HTML     25K 
                movement of allowance for doubtful accounts                      
46: R37         Other Receivables (Details)                         HTML     30K 
47: R38         Other Receivables (Details) - Schedule of other     HTML     30K 
                receivables                                                      
48: R39         Inventories (Details) - Schedule of inventories     HTML     30K 
49: R40         Advances and Prepayments (Details)                  HTML     22K 
50: R41         Property, Plant and Equipment (Details)             HTML     24K 
51: R42         Property, Plant and Equipment (Details) - Schedule  HTML     39K 
                of plant and equipment                                           
52: R43         Intangible Assets (Details)                         HTML     24K 
53: R44         Intangible Assets (Details) - Schedule of           HTML     26K 
                intangible assets                                                
54: R45         Long-Term Loans (Details)                           HTML     28K 
55: R46         Related Party Transactions (Details)                HTML     37K 
56: R47         Concentrations (Details)                            HTML     25K 
57: R48         Concentrations (Details) - Schedule of customer     HTML     36K 
                that accounted                                                   
58: R49         Concentrations (Details) - Schedule of supplier     HTML     27K 
                that accounted                                                   
59: R50         Concentrations (Details) - Schedule of cash         HTML     29K 
                balances by geographic area                                      
60: R51         Income Taxes (Details)                              HTML     23K 
61: R52         Income Taxes (Details) - Schedule of the            HTML     36K 
                reconciliation of the differences between the                    
                statutory and effective tax expenses                             
62: R53         Income Taxes (Details) - Schedule of the            HTML     23K 
                reconciliation of the differences between the                    
                statutory and effective tax expenses                             
                (Parentheticals)                                                 
63: R54         Income Taxes (Details) - Schedule of the provision  HTML     28K 
                for income taxes                                                 
66: XML         IDEA XML File -- Filing Summary                      XML    126K 
64: XML         XBRL Instance -- f10q0622_kenongwo_htm               XML    520K 
65: EXCEL       IDEA Workbook of Financial Reports                  XLSX     97K 
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67: JSON        XBRL Instance as JSON Data -- MetaLinks              260±   366K 
68: ZIP         XBRL Zipped Folder -- 0001213900-22-049611-xbrl      Zip    146K 


‘10-Q’   —   Quarterly Report

Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I Financial Information
"Financial Statements
"Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)
"Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2022 and 2021 (Unaudited)
"Condensed Consolidated Statements of Stockholders' Deficit for the Six Months Ended June 30, 2022 and 2021 (Unaudited)
"Condensed Consolidated Statements of Cash Flows for the Six Months June 30, 2022 and 2021 (Unaudited)
"Notes to Condensed Consolidated Financial Statements (Unaudited)
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures about Market Risk
"Controls and Procedures
"Part Ii Other Information
"Exhibits

This is an HTML Document rendered as filed.  [ Alternative Formats ]



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM  i 10-Q

 

(Mark One) 

 i  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended  i June 30,  i 2022 / 

 

 i  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from ____________ to ____________

 

Commission File Number  i 333-239929

 

 i KENONGWO GROUP US, INC.

(Exact name of registrant as specified in its charter)

 

 i Nevada    i 37-1914208
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)
     

 i Yangjia Group,  i Xiaobu Town

 i Yuanzhou District,  i Yichun City

Jiangxi Province,  i China

   i 336000
(Address of principal executive offices)   (Zip Code)

 

 i +86 -  i 400-915-2178

(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
 i N/A    i 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.  i Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, 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).  i Yes ☒ No ☐

 

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
 i Non-accelerated filer Smaller reporting company  i 
  Emerging growth company  i 

 

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.  i 

 

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

 

As of August 19, 2022, there were  i 1,882,482 shares of common stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 C: 

 

 

 

KENONGWO GROUP US, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION   1
       
Item 1. Financial Statements   1
       
  Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)   1
       
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2022 and 2021 (Unaudited)   2
       
  Condensed Consolidated Statements of Stockholders’ Deficit for the Six Months Ended June 30, 2022 and 2021 (Unaudited)   3
       
  Condensed Consolidated Statements of Cash Flows for the Six Months June 30, 2022 and 2021 (Unaudited)   4
       
  Notes to Condensed Consolidated Financial Statements (Unaudited)   5
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
       
Item 3. Quantitative and Qualitative Disclosures about Market Risk   23
       
Item 4. Controls and Procedures   24
       
PART II OTHER INFORMATION   25
     
Item 6. Exhibits   25

 

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Special Note Regarding Forward-Looking Statements

 

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 15, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

 C: 

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Stated in US Dollars)

 

   June 30,   December 31, 
   2022   2021 
         
ASSETS        
Current Assets:        
Cash and cash equivalents  $ i 9,749   $ i 9,533 
Accounts receivable, net    i 1,158,717     i 166,293 
Other receivables, net    i 222,406     i 164,354 
Inventories    i 296,538     i 271,674 
Advances and prepayments to suppliers    i 36,086     i 152,750 
Total Current Assets    i 1,723,496     i 764,604 
           
Plant and equipment, net    i 1,924,532     i 2,099,684 
Construction in progress, net    i 99,881     i 94,892 
Intangible assets, net    i 47,317     i 52,505 
Total Non-current Assets    i 2,071,730     i 2,247,081 
Total Assets  $ i 3,795,226   $ i 3,011,685 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities:          
Accounts payable and accrued payables  $ i 1,596,502   $ i 1,453,700 
Taxes payable    i 937     i 986 
Advances from customers    i 503     i 78 
Due to related parties    i 3,415,823     i 3,070,210 
Total Current Liabilities    i 5,013,765     i 4,524,974 
           
Non-Current Liabilities          
Long-term loans    i 447,001     i 470,537 
Total Liabilities    i 5,460,766     i 4,995,511 
           
Stockholders’ Deficit:          
Common Stock, $ i  i 0.0001 /  par value,  i  i 110,000,000 /  shares authorized;  i  i  i  i 1,882,482 /  /  /  shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively    i 188     i 188 
Paid in capital    i 494,058     i 494,058 
Accumulated deficit   ( i 2,189,466)   ( i 2,436,957)
Accumulated other comprehensive loss    i 29,680    ( i 41,115)
Total Stockholders’ Deficit   ( i 1,665,540)   ( i 1,983,826)
Total Liabilities and Stockholders’ Deficit  $ i 3,795,226   $ i 3,011,685 

 

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

 

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KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

 

(Stated in US Dollars)

 

   Three months
ended
June 30,
2022
   Three months
ended
June 30,
2021
   Six months
ended
June 30,
2022
   Six months
ended
June 30,
2021
 
Revenue  $ i 1,654,237   $ i 208,628   $ i 3,548,414   $ i 279,694 
Cost of revenues    i 1,303,451     i 329,522     i 2,731,878     i 463,804 
Gross profit    i 350,786    ( i 120,894)    i 816,536    ( i 184,110)
Operating expenses                    
Selling and marketing expenses    i 54,856     i 59,800     i 118,803     i 129,392 
General and administrative expenses    i 152,677     i 51,567     i 343,817     i 123,786 
Total operating expenses    i 207,533     i 111,367     i 462,620     i 253,178 
                     
Income (Loss) from operations    i 143,253    ( i 232,261)    i 353,916    ( i 437,288)
                     
Other income (expenses):                    
Interest expenses   ( i 8,007)   ( i 6,074)   ( i 16,362)   ( i 13,114)
Other income    i 5,332    ( i 879)    i 5,491     i 15,688 
Other expenses   ( i 707)   ( i 1,466)   ( i 95,554)   ( i 1,466)
Total other income (expenses)   ( i 3,382)   ( i 8,419)   ( i 106,425)    i 1,108 
                     
Income (Loss) before taxes    i 139,871    ( i 240,680)    i 247,491    ( i 436,180)
Provision for income taxes   
-
    
-
    -    - 
                     
Net income (loss)  $ i 139,871   $( i 240,680)  $ i 247,491   $( i 436,180)
                     
Other comprehensive income (loss):                    
Foreign currency translation adjustment    i 109,243    ( i 9,642)    i 70,795    ( i 5,626)
Comprehensive income (loss)  $ i 249,114   $( i 250,322)  $ i 318,286   $( i 441,806)
                     
Loss per share                    
- Basic and diluted
  $ i 0.07   $( i 0.13)  $ i 0.13   $( i 0.23)
Basic and diluted weighted average shares outstanding
    i 1,882,482    
1,882,4821
     i 1,882,482     i 1,882,482 

 

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

 

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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, 2021    i 1,882,482   $ i 188   $ i 494,058   $( i 1,035,549)  $( i 12,658)  $( i 553,961)
Net loss   -    
-
    
-
    ( i 436,180)   
-
    ( i 436,180)
Foreign currency translation adjustment   -    
-
    
-
    
-
    ( i 5,626)   ( i 5,626)
Balance, June 30, 2021    i 1,882,482   $ i 188   $ i 494,058   $( i 1,471,729)  $( i 18,284)  $( i 995,767)
                               
Balance, January 1, 2022    i 1,882,482   $ i 188   $ i 494,058   $( i 2,436,957)  $( i 41,115)  $( i 1,983,826)
Net income   -    
-
    
-
     i 247,491    
-
     i 247,491 
Foreign currency translation adjustment   -    
-
    
-
    
-
     i 70,795     i 70,795 
Balance, June 30, 2022    i 1,882,482   $ i 188   $ i 494,058   $( i 2,189,466)  $ i 29,680   $( i 1,665,540)

 

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

 

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KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Stated in US Dollars)

 

   For the six months ended 
   June 30, 
   2022   2021 
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income (loss)  $ i 247,491   $( i 436,180)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Depreciation and amortization    i 73,488     i 7,501 
Changes in operating assets and liabilities:          
Accounts receivable   ( i 992,424)    i 18,551 
Inventories   ( i 24,864)   ( i 155,540)
Prepayment and deposits    i 116,664    ( i 290,598)
Other receivables   ( i 58,052)   ( i 94,450)
Accounts payable and accrued payables    i 142,753     i 265,701 
Advances from customers    i 425     i 6,157 
Net cash used in operating activities   ( i 494,519)   ( i 678,858)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of plant and equipment and construction in progress   ( i 42,545)   ( i 298,906)
Intangible assets   ( i 1,746)   ( i 1,066)
Net cash used in investing activities   ( i 44,291)   ( i 299,972)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Proceeds from related party    i 512,401     i 547,158 
Long-term loans   
-
     i 432,780 
Net cash provided by financing activities    i 512,401     i 979,938 
           
EFFECT OF EXCHANGE RATE ON CASH    i 26,625    ( i 935)
           
NET INCREASE IN CASH    i 216     i 173 
CASH, BEGINNING OF PERIOD    i 9,533     i 6,041 
CASH, END OF PERIOD    i 9,749     i 6,214 
           
SUPPLEMENTAL DISCLOSURES:          
Cash paid during the period for:          
Cash paid for interest expense, net of capitalized interest  $ i 16,362   $ i 13,114 

 

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

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

 i 

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  i 30,000 shares of the common stock at the par value per share for a total purchase price of $ i 3 to Mr. Erh-ping Pi.

 

On October 20, 2018, the Company issued  i 14,000,000 shares of the common stock at the par value per share for a total purchase price of $ i 1,400 to its director and chief executive officer Mr. Jianjun Zhong.

 

On May 15, 2017, Jiangxi Kenongwo Technology Co., Ltd. (“Jiangxi Kenongwo”) was formed in the People’s Republic of China (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 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  i 1,300,000 shares of common stock in a private placement to two investors for an aggregate purchase price of $ i 130,000. On February 26, 2020, March 2, 2020, March 4, 2020 and March 10, 2020, Jiangxi Kenongwo received the placement proceeds of $ i 28,889 (RMB  i 200,000), $ i 57,778 (RMB  i 400,000), $ i 14,444 (RMB  i 100,000), and $ i 28,889 (RMB  i 200,000), respectively, totaling $ i 130,000 (RMB  i 900,000) from its two investors.

 

On October 16, 2019, the Company agreed to issue an aggregated of  i 606,925 shares of the common stock to a total of 41 investors for an aggregate purchase price of $ i 60,693 in a private placement. On January 16, 2020, Jiangxi Kenongwo, on behalf of the Company, received the proceeds of $ i 60,693 (RMB  i 418,166) from the 41 investors.

 

 i On October 5, 2021, the Company amended its articles of incorporation to reverse split its common stock at a rate of 1 for 10 (the “Reverse Split”). On November 1, 2021, FINRA announced the Reverse Split, which took effect at the opening of business on November 2, 2021.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the Company has incurred a net income of $ i 247,491 for the six months ended June 30, 2022. As of June 30, 2022, the Company had an accumulated deficit of $ i 2,189,466, working capital deficit of $ i 3,290,269; its net cash used in operating activities for the six months ended June 30, 2022 was negative $ i 494,519.

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN (CONTINUED)

 

These factors raise substantial doubt on the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management’s plan for the Company’s continued existence is dependent upon management’s ability to execute the business plan, develop the plan to generate profit; additionally, Management may need to continue to rely on certain related parties to provide funding for investment, for working capital and general corporate purposes. If management is unable to execute its plan, the Company may become insolvent.

 

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”).

 

 i 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 i 

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.

 

 i 

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.

 

 i 

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.

 

 i 

Accounts Receivable

 

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful 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.

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 i 

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.

 

 i 

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.

 

 i 

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: 

 

 i 
   Useful Life
Building   i 20 years
Operating equipment   i 3- i 10 years
Vehicle   i 3- i 5 years
Office equipment   i 3- i 5 years

 

 / 

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. 

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 i 

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: 

 

 i 
    Useful Life
Non-patented technology    i 10 years

 

 / 

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. 

 

 i 

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 six months ended June 30, 2022 and 2021

 

 i 

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.

 

 i 

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.

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 i 
   6/30/2022   12/31/2021   6/30/2021 
Period/year end RMB: US$ exchange rate    i 6.7114     i 6.3757     i 6.4601 
Period/annual average RMB: US$ exchange rate    i 6.4835     i 6.4515     i 6.4698 

 

 / 

The RMB is not freely convertible into foreign currencies and all foreign exchange transactions must be conducted through authorized financial institutions.

 

 i 

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.

 

 i 

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.

 

 i 

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 is subject to Small Low-profit Enterprises Tax in which the Company is subject to Half-reduced Enterprise Income Tax and enterprise income tax at the reduced rate of  i 20%, i.e. for the net profit below RMB  i 1,000,001 (USD  i 151,181), the taxable income is  i 50% of the net profit multiplied by the  i 20% enterprise income tax rate, which result in an effective income tax rate of  i 10% from the full net profit, if such net profit is below RMB 1,000,001 (USD 151,181).

 

 C: 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 i 

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.

 

 i 

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.

 

 i 

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.

 

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.

 

 i 

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.

 

 C: 

10 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 i 

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  i 10% of after-tax profit until the aggregated appropriations reach  i 50% of the registered capital (as determined under the PRC GAAP at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than  i 10% of after-tax profits until the aggregated appropriations reach  i 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.

 

 i 

Recently accounting pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As small business filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.

 

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

 i 

NOTE 3 – ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consist of the following:

 

 i 
   June 30,
2022
   December 31,
2021
 
Accounts receivable  $ i 1,279,362   $ i 293,291 
Less: Allowance for doubtful accounts   ( i 120,645)   ( i 126,998)
Total accounts receivable, net  $ i 1,158,717   $ i 166,293 

 

 / 

Movement of allowance for doubtful accounts is as follows:

 

 i 
   June 30,
2022
   December 31,
2021
 
Beginning balance  $( i 126,998)  $( i 124,041)
Bad debt written-off    i 6,353    ( i 2,957)
Ending balance  $( i 120,645)  $( i 126,998)
 / 

 

 C: 

11 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 i 

NOTE 4 – OTHER RECEIVABLES

 

Other receivables consisted of the following:

 

 i 
    June 30,
2022
    December 31,
2021
 
Prepaid expenses   $  i 46,036     $  i 22,053  
Deposit      i 42,361        i 43,023  
Loan receivables      i 134,009        i 98,243  
Others     -        i 1,035  
    $  i 222,406     $  i 164,354  

 

 / 

As of June 30, 2022, the balance of loan receivables amounting to $ i 134,009, which was from third parties.

 

On September 8, 2021, the Company entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, the Company loaned the amount of US$ i 22,449 (RMB i 155,664) to the third party interest-free from September 8, 2021 to September 7, 2023.

 

On May 18, 2022, the Company entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, the Company loaned the amount of US$ i 111,560 (RMB i 748,721) to the third party interest-free from May 8, 2022 to May 8, 2023.

 

As of December 31, 2021, the balance of loan receivables amounting to $ i 98,243, which was from third parties.

 

On September 8, 2021, the Company entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, the Company loaned the amount of US$ i 23,631 (RMB i 155,664) to the third party interest-free from September 8, 2021 to September 7, 2023.

 

On May 8, 2021, the Company entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, the Company loaned the amount of US$ i 74,612 (RMB i 475,701) to the third party interest-free from May 8, 2021 to May 8, 2022. As of May 8, 2022, the Company has received repayment of US$ i 74,612 from third party.

 

 i 

NOTE 5 – INVENTORIES

 

Inventories consisted of the following:

 

 i 
   June 30,
2022
   December 31,
2021
 
Raw materials  $ i 96,422   $ i 119,196 
Work in Progress    i 12,176      
Packing materials   -     i 14,303 
Finished goods    i 187,940     i 138,175 
Total, net  $ i 296,538   $ i 271,674 
 / 

 

 C: 

12 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 i 

NOTE 6 – ADVANCES AND PREPAYMENTS

 

The prepayment balance of $ i 36,086 and $ i 152,750 as of June 30, 2022 and December 31, 2021 mainly represents the advanced payment to the suppliers for business purpose.

 

 i 

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

 

Plant and equipment at June 30, 2022 and December 31, 2021 consisted of:

 

 i 
   June 30,
2022
   December 31,
2021
 
Building  $ i 1,326,364   $ i 1,431,968 
Operating equipment    i 676,541     i 677,518 
Vehicle    i 19,560     i 20,590 
Office equipment    i 98,236     i 105,847 
     i 2,120,701     i 2,235,923 
Less: Accumulated depreciation   ( i 196,169)   ( i 136,239)
     i 1,924,532     i 2,099,684 
Construction in progress    i 99,881     i 94,892 
   $ i 2,024,413   $ i 2,194,576 

 

 / 

As of June 30, 2022 and June 30, 2021, depreciation expense amounted to $ i 69,091 and $ i 3,430, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.

 

The construction in progress of $ i 99,881 and $ i 94,892 as of June 30, 2022 and December 31, 2021 represents the investment in building a processing plant and warehouse.

 

 i 

NOTE 8 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

 i 
   June 30,   December 31, 
   2022   2021 
         
Non-patented technology  $ i 77,927   $ i 80,255 
Less: Accumulated amortization   ( i 30,610)   ( i 27,750)
   $ i 47,317   $ i 52,505 

 

 / 

 C: 

13 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – INTANGIBLE ASSETS (CONTINUED)

 

The Company invested in the development of a product tracking system design, detect and defend against counterfeit products. The Company’s original cost was $ i 77,927 and $ i 80,255 as of June 30, 2022 and December 31, 2021, respectively.

 

As of June 30, 2022 and June 30, 2021, amortization expenses of intangible assets were $ i 4,071 and $ i 4,397, respectively.  

 

 i 

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 $ i 464,389, with a due date of  i February 4, 2024. The loan carried an annualized interest rate of  i 7%. As of June 30, 2022 and December 31,2021, the outstanding amount of the loan payable was $ i 447,001 and $ i 470,537. As of June 31, 2022 and December 31,2021, the Company recognized interest expenses of $ i 16,362 and $ i 29,719.

 

 i 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

As of June 30, 2022 and December 31, 2021, the outstanding balance due to related parties was $ i 3,415,823 and $ i 3,070,210, respectively.

 

As of June 30, 2022 and December 31, 2021, the outstanding balances of $ i 3,096,077 and $ i 2,738,029 were due to Ms. Yuhua Zhang, a shareholder of the Company. The balances were advances made to the Company for general working capital purposes. The amounts are due on demand, non-interest bearing, and unsecured.

 

As of June 30, 2022 and December 31, 2021, the outstanding balances of nil and $ i 85,574 were due to Mr. Jianjun Zhong, the controlling shareholder, President, Treasurer and Secretary of the Company. These balances were advances made to the Company for general working capital purposes. The amounts are due on demand, non-interest bearing, and unsecured. As of June 30, 2022, the Company repaid $ i 85,574 to Mr. Jianjun Zhong.

 

As of June 30, 2022 and December 31, 2021, the outstanding balance due to Kaituo Real Estate Development Co.,Ltd was $ i 236,165 and $ i 246,607, respectively.

 

 i 

NOTE 11 – CONCENTRATIONS

 

Customers Concentrations

 

The following table sets forth information as to each customer that accounted for  i  i 10 / % or more of the Company’s revenues as of June 30, 2022 and 2021

 

 i 
Customers  June 30,
2022
   June 30,
2021
 
   Amount
$
   %   Amount
$
   % 
A    i 1,082,824     i 30.52     i 48,206     i 17.24 
B    i 828,254     i 23.34     i 31,748     i 11.35 
C    i 796,430     i 22.44     i 25,441     i 9.10 

 / 

 

 C: 

14 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – CONCENTRATIONS (CONTINUED)

 

Suppliers Concentrations

 

The following table sets forth information as to each supplier that accounted for  i  i 10 / % or more of the Company’s purchase as of June 30, 2022 and 2021.

 

 i 
Suppliers  June 30,
2022
   June 30,
2021
 
   Amount
$
   %   Amount
$
   % 
A    i 1,126,360     i 41.23         -    - 
B    i 437,130     i 16.00    -    - 

 

 / 

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 June 30, 2022 and December 31, 2021, the Company’s cash balances by geographic area were as follows:

 

 i 
   June 30,
2022
   December 31,
2021
 
United States  $ i 4,821     i 49%  $ i 4,821     i 51%
China    i 4,928     i 51%    i 4,712     i 49%
Total cash and cash equivalents  $ i 9,749     i 100%  $ i 9,533     i 100%
 / 

 

 C: 

15 

 

 

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 i 

NOTE 12 – INCOME TAXES

 

The Company’s primary operations are located in the PRC. The Company is subject to Small Low-profit Enterprises Tax in which the Company is subject to Half-reduced Enterprise Income Tax and enterprise income tax at the reduced rate of  i 20%, i.e.  i for the net profit below RMB 1,000,001 (USD 151,181), the taxable income is 50% of the net profit, multiplied by the 20% enterprise income tax rate, which result in an effective income tax rate of 10% from the full net profit, if such net profit is below RMB 1,000,001 (USD 151,181).

 

The following tables provide the reconciliation of the differences between the statutory and effective tax expenses for the six months ended June 30, 2022 and 2021:

 

 i 
   June 30,
2022
   June 30,
2021
 
Income (Loss) attributed to PRC operations  $ i 247,533   $( i 436,138)
Income (Loss) attributed to State of Nevada   ( i 42)   ( i 42)
Income (Loss) before tax    i 247,491    ( i 436,180)
           
PRC Statutory Tax at  i  i 20 / %    i 49,498    ( i 43,618)
Valuation allowance   ( i 49,498)    i 43,618 
Income tax  $
-
   $
-
 

 

 / 

The provision for income taxes consists of the following:

 

 i 
    June 30,
2022
    June 30,
2021
 
Current  $
-
   $
-
 
Deferred   
-
    
-
 
Total  $
-
   $
-
 

 

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 June 30, 2022 and 2021.

 

 i 

NOTE 13 – SUBSEQUENT EVENTS

 

The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the dates of the balance sheets, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has analyzed its operations subsequent to June 30, 2022 to the date these unaudited condensed consolidated financial statements were issued, and has determined that it does not have any material events to disclose.

 

 C: 

16 

 

 

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 unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the Company has incurred a net income of $247,491 for the six months ended June 30, 2022. As of June 30, 2022, the Company had an accumulated deficit of $2,189,466, working capital deficit of $3,290,269; its net cash used in operating activities for the six months ended June 30, 2022 was negative $494,519.

 

The Company plans to continue its expansion and investments, which will require continued improvements in revenue, net income, and cash flows.

 

 C: 

17 

 

 

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 June 30, 2022 and 2021

 

   For the Three months ended
June 30,
   Variance 
   2022   2021   Amount   % 
   $   $   $     
Revenues   1,654,237    208,628    1,445,609    692.91%
Cost of revenues   1,303,451    329,522    973,929    295.56%
Gross profit   350,786    (120,894)   471,680    (390.16)%
Operating expenses:                    
Selling expenses   54,856    59,800    (4,944)   (8.27)%
General and administrative expenses   152,677    51,567    101,110    196.08%
Total operating expenses   207,533    111,367    96,166    86.35%
Income (Loss) from operations   143,253    (232,261)   375,514    (161.68)%
Other income (expense):                    
Interest expense   (8,007)   (6,074)   (1,933)   31.82%
Other income (expense), net   4,625    (2,345)   6,970    (297.23)%
Total other (expense) income   (3,382)   (8,419)   5,037    (59.83)%
Income (Loss) before income taxes   139,871    (240,680)   380,551    (158.11)%
Income taxes   -    -    -    - 
Net loss   139,871    (240,680)   380,551    (158.11)%

 

Revenue

 

For the three months ended June 30, 2022, our total revenue was $1.65 million, representing a increase of 692.91% compared to $0.21 million for the same period in 2021. This increase was mainly due to an increase in demand of our products after the Company developed and obtained more customers. 

 

 C: 

18 

 

 

The Company’s disaggregate revenue streams are summarized as follows:

 

   For the Three months ended
June 30,
 
   2022   2021 
Revenues – Solid organic fertilizers  $1,654,237   $174,164 
Revenues – Liquid organic fertilizers   -    34,464 
Total revenues  $1,654,237   $208,628 

 

Cost of revenues

 

Cost of revenues for the fertilizers was $1.30 million and $0.33 million for the three months ended June 30, 2022 and 2021, respectively, representing an increase of 295.56%. The increase in cost of revenues was in line with an increase in revenue.

 

The Company’s disaggregate cost of revenues streams are summarized as follows:

 

   For the Three months ended
June 30,
 
   2022   2021 
Cost of revenues – Bamboo charcoal biomass organic fertilizers  $1,303,451   $287,131 
Cost of revenues – Others   -    42,391 
Total cost of revenues  $1,303,451   $329,522 

 

Gross Profit

 

Our gross profit was $0.35 million and negative $0.12 million with gross margin of 21.21% and negative 57.95%, for the three months ended June 30, 2022 and 2021, respectively. The negative gross margin increased because the revenue increased 692.91% while the cost of revenue increased 295.56% for the three months ended June 30, 2022 compared to the same period in 2021.

 

 C: 

19 

 

 

Selling Expenses

 

Our selling expenses were $54,856 for the three months ended June 30, 2022, representing an decrease of $4,944 or 8.27% compared to $59,800 for the three months ended June 30, 2021.

 

General and Administrative Expenses

 

General and administrative expenses increased by $101,110 million, or 196.08% from $51,567 for the three months ended June 30, 2021 to $152,677 for the same period in 2022 due to the fact that salary increased.

 

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 $40,955 and $4,147 for the three months ended June 30, 2022 and 2021, respectively.

 

Net Income/(Loss)

 

Our net income (loss) was $139,871 and $(240,680) for the three months ended June 30, 2022 and 2021, respectively, representing an increase of $380,551. The Company is at its developing stage and we incurred more promotion fee by introducing our products to more customers across China during the second quarter of 2022. The Company also incurred more material cost by developing more new product lines. The Company expects that more time is needed to achieve a better balance between our operating expenses and revenues.

 

Comparison of the Six months ended June 30, 2022 and 2021

 

   For the Six months ended
June 30,
   Variance 
   2022   2021   Amount   % 
   $   $   $     
Revenues   3,548,414    279,694    3,268,720    1168.68%
Cost of revenues   2,731,878    463,804    2,268,074    489.02%
Gross profit   816,536    (184,110)   1,000,646    (543.50)%
Operating expenses:                    
Selling expenses   118,803    129,392    (10,589)   (8.18)%
General and administrative expenses   343,817    123,786    220,031    177.75%
Total operating expenses   462,620    253,178    209,442    82.73%
Loss from operations   353,916    (437,288)   791,204    (180.93)%
Other income (expense):                    
Interest expense   (16,362)   (13,114)   (3,248)   24.77%
Other (expense) income, net   (90,063)   14,222    (104,285)   (733.27)%
Total other income   (106,425)   1,108    (107,533)   (9705.14)%
Loss before income taxes   247,491    (436,180)   683,671    (156.74)%
Income taxes   -    -    -    - 
Net loss   247,491    (436,180)   683,671    (156.74)%

 

 C: 

20 

 

 

Revenue

 

For the six months ended June 30, 2022, our total revenue was $3.55 million, representing an increase of 1168.68% compared to $0.28 million for the same period in 2021. This increase was mainly due to an increase in demand of our products after the Company developed and obtained more customers.

 

The Company’s disaggregate revenue streams are summarized as follows:

 

   For the Six months ended
June 30,
 
   2022   2021 
Revenues – Solid organic fertilizers  $3,547,374   $242,847 
Revenues – Liquid organic fertilizers   1,040    36,847 
Total revenues  $3,548,414   $279,694 

 

Cost of revenues

 

Cost of revenues for the fertilizers was $2.73 million and $0.46 million for the six months ended June 30, 2022 and 2021, respectively, representing an increase of 489.02%. The increase in cost of revenues was in line with an increase in revenue.

 

The Company’s disaggregate cost of revenues streams are summarized as follows:

 

   For the Six months ended
June 30,
 
   2022   2021 
Cost of revenues – Solid organic fertilizers  $2,730,872   $389,931 
Cost of revenues – Liquid organic fertilizers   1,006    73,873 
Total cost of revenues  $2,731,878   $463,804 

 

Gross Profit 

 

Our gross profit was $0.82 million and negative $0.18 million with gross margin of 23.01% and negative 65.83%, for the six months ended June 30, 2022 and 2021, respectively. The negative gross margin increased because the revenue increased 1168.68% while the cost of revenue increased 489.02% for the six months ended June 30, 2022 compared to the same period in 2021.

 

Selling Expenses

 

Our selling expenses were $118,803 for the six months ended June 30, 2022, representing a decrease of $10,589 or 8.18% compared to $129,392 for the six months ended June 30, 2021.

 

 C: 

21 

 

 

General and Administrative Expenses

 

General and administrative expenses increased by $220,031, or 177.75% from $123,786 for the six months ended June 30, 2021 to $343,817 for the same period in 2022 due to increase salaries.

 

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 $82,610 and $10,318 for the six months ended June 30, 2022 and 2021, respectively.

 

Net Income/(Loss)

 

Our net income (loss) was $247,491 and $ (436,180) for the six months ended June 30, 2022 and 2021, respectively, representing an increase of $ 683,671. The Company is at its developing stage and we incurred more promotion fee by introducing our products to more customers across China during the first and second quarter of 2022. The Company also incurred more material cost by developing more new product lines. The Company expects that more time is needed to achieve a better balance between our operating expenses and revenues.

 

Liquidity and Capital Resources

 

Our working capital deficit was $3,290,269 and $3,760,370 as of June 30, 2022 and December 31, 2021, respectively.

 

We have financed our operations over the six months ended June 30, 2022 and 2021 primarily through proceeds from advances from related parties.

 

The components of cash flows are discussed below:

 

   For the Six months ended
June 30,
 
   2022   2021 
Net cash used in operating activities  $(494,519)  $(678,858)
Net cash used in investing activities   (44,291)   (299,972)
Net cash provided by financing activities   512,401    979,938 
Exchange rate effect on cash   26,625    (935)
Net cash inflow   $216   $173 

 

 C: 

22 

 

 

Cash used in Operating Activities

 

For the six months ended June 30, 2022, net cash used in operating activities was $494,519, which consisted primarily of net income of $247,491, which was adjusted by depreciation and amortization of $73,488. The Company had an increase of $142,753 in account payables and accrued payables in which it was due to the Company purchased more raw materials and pay off the bills in longer terms, a increase of $992,424 in accounts receivable which was due to the Company collected the accounts receivable faster, an decrease of $116,664 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, which were offset by an increase of $24,864 in inventories and an increase in other receivable of $58,052 in which it was due to an increase in the borrowing from our employees.

 

For the six months ended June 30, 2021, net cash used in operating activities was $678,858, which consisted primarily of net loss of $436,180, which was adjusted by depreciation and amortization of $7,501. The Company had an increase of $265,701 in account payables and accrued payables in which it was due to the Company purchased more raw materials and pay off the bills in longer terms, a decrease of $18,551 in accounts receivable which was due to the Company collected the accounts receivable faster, an increase of $290,598 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, which were offset by an increase of $155,540 in inventories and an increase in other receivable of $94,450 in which it was due to an increase in the borrowing from our employees.

 

Cash used in Investing Activities

 

Net cash used in investing activities was $44,291 for the six months ended June 30, 2022. The activities consisted of our investments of $42,525 in purchasing plant and equipment and an adjustment of $1,746 of intangible assets due to currency exchange effect.

 

Net cash used in investing activities was $299,972 for the six months ended June 30, 2021. The activities consisted of our investments of $298,906 in purchasing plant and equipment and an adjustment of $1,066 of intangible assets due to currency exchange effect.

 

Cash Provided by Financing Activities

 

Net cash provided by financing activities was $512,401 for the six months ended June 30, 2022. During this period, cash provided by financing activities mainly included proceeds from related parties of $512,401.

 

Net cash provided by financing activities was $979,938 for the six months ended June 30, 2021. During this period, cash provided by financing activities mainly included proceeds from related parties of $547,158 and proceeds from long-term loan of $432,780 for operating expenses.

 

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.

 

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

Not applicable.

 

 C: 

23 

 

 

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 June 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, 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.

 

The material weakness and significant deficiency identified by our management as of June 30, 2022 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.

 

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.

 

 C: 

24 

 

 

PART II. OTHER INFORMATION

 

ITEM 6. EXHIBITS

 

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

 

 C: 

25 

 

 

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: August 19, 2022 By: /s/ Jianjun Zhong
    Name: Jianjun Zhong
    Title: President and Chief Executive Officer
      (principal executive officer)
   
 Date: August 19, 2022 By: /s/ Jianjun Zhong
    Name:   Jianjun Zhong
    Title: Chief Financial Officer
     

(principal financial officer and

principal accounting officer)

 

 C: 

26 

 

 

EXHIBIT INDEX

 

No.   Description
     
31.1 -   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2 -   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1 -   Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   

Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embeddec 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 (formatted as Inline XBRL and contained in Exhibit 101).

 

 

27

 

 

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
2/4/24
9/7/23
5/8/23
12/31/22
12/15/22
Filed on:8/19/22
For Period end:6/30/22NT 10-Q
5/18/22
5/8/22
4/15/2210-K,  8-K
1/1/22
12/31/2110-K,  NT 10-K
11/2/218-K
11/1/21
10/5/21
9/8/21
6/30/2110-Q
5/8/21
2/5/21
1/1/21
3/10/20
3/4/20
3/2/20
2/26/20
1/16/20
10/16/19
9/6/19
1/9/19
1/1/19
10/20/18
10/17/18
5/15/17
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