The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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 30,000
shares of the common stock at the par value per share for a total purchase price of $3 to Mr. Erh-ping Pi.
On October 20, 2018, the Company issued 14,000,000
shares of the common stock at the par value per share for a total purchase price of $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 1,300,000 shares of common stock in a private placement to two investors for an aggregate purchase price of $130,000.
On February 26, 2020, March 2, 2020, March 4, 2020 and March 10, 2020, Jiangxi Kenongwo received the placement proceeds of $28,889 (RMB
200,000), $57,778 (RMB 400,000), $14,444 (RMB 100,000), and $28,889 (RMB 200,000), respectively, totaling $130,000 (RMB 900,000) from
its two investors.
On October 16, 2019, the Company agreed to issue
an aggregate of 606,925 shares of the common stock to a total of 41 investors for an aggregate purchase price of $60,693 in a private
placement. On January 16, 2020, Jiangxi Kenongwo, on behalf of the Company, received the proceeds of $60,693 (RMB 418,166) from the 41
investors.
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. The Company has reported a net
income of $460,512 for the nine months ended September 30, 2022. As of September 30, 2022, the Company had an accumulated deficit of $1,976,445,
working capital deficit of $372,583 and its net cash used in operating activities for the nine months ended September 30, 2022 was $514,182.
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”).
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 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.
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 | |
20 years |
Operating equipment | |
3-10 years |
Vehicle | |
3-5 years |
Office equipment | |
3-5 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.
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 |
|
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.
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 nine months ended September 30, 2022 and 2021.
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.
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
| |
9/30/2022 | | |
12/31/2021 | | |
9/30/2021 | |
Period/year end RMB: US$ exchange rate | |
| 7.0998 | | |
| 6.3757 | | |
| 6.4567 | |
Period/annual average RMB: US$ exchange rate | |
| 6.6068 | | |
| 6.4515 | | |
| 6.4694 | |
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 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 20%, i.e. 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).
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. |
● |
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.
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 10% of after-tax profit
until the aggregated appropriations reach 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 10% of after-tax profits until the
aggregated appropriations reach 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.
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.
NOTE 3 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
Accounts receivable | |
$ | 1,400,505 | | |
$ | 293,291 | |
Less: Allowance for doubtful accounts | |
| (114,045 | ) | |
| (126,998 | ) |
Total accounts receivable, net | |
$ | 1,286,460 | | |
$ | 166,293 | |
Movement of allowance for doubtful accounts is as follows:
| |
September 30, 2022 | | |
December 31, 2021 | |
Beginning balance | |
$ | (126,998 | ) | |
$ | (124,041 | ) |
Bad debt written back/(provided) | |
| 12,953 | | |
| (2,957 | ) |
Ending balance | |
$ | (114,045 | ) | |
$ | (126,998 | ) |
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 4 – OTHER RECEIVABLES
Other receivables consisted of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
Prepaid expenses | |
$ | 3,043 | | |
$ | 22,053 | |
Deposit | |
| 40,043 | | |
| 43,023 | |
Loan receivables | |
| 160,744 | | |
| 98,243 | |
Others | |
| 2,985 | | |
| 1,035 | |
| |
$ | 206,815 | | |
$ | 164,354 | |
As of September 30, 2022, the balance of loan receivables amounting
to $160,744, 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 $21,221 (RMB150,664)
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 $122,077 (RMB866,721) to the third party interest-free
from May 8, 2021 to May 8, 2022.
During the third quarter of 2022, the Company entered into a series
of interest free loan agreements with some individual debtors, borrowing $17,446. The repayment term is one year from the borrowing date.
As of December 31, 2021, the balance of loan
receivables amounting to $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 $23,631 (RMB155,664)
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 $74,612 (RMB475,701) to the third
party interest-free from May 8, 2021 to May 8, 2023.
NOTE 5 – INVENTORIES
Inventories consisted of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
Raw materials | |
$ | 171,433 | | |
$ | 119,196 | |
Work in Progress | |
| 12,962 | | |
| - | |
Packing materials | |
| - | | |
| 14,303 | |
Finished goods | |
| 153,376 | | |
| 138,175 | |
Total, net | |
$ | 337,771 | | |
$ | 271,674 | |
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 – ADVANCES AND PREPAYMENTS
The prepayment balance of $39,819 and $152,750 as of September 30,
2022 and December 31, 2021 mainly represents the advanced payment to the suppliers for business purpose.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
Plant and equipment at September 30, 2022 and December 31, 2021 consisted
of:
| |
September 30, 2022 | | |
December 31, 2021 | |
Building | |
$ | 1,288,544 | | |
$ | 1,431,968 | |
Operating equipment | |
| 636,098 | | |
| 677,518 | |
Vehicle | |
| 20,198 | | |
| 20,590 | |
Office equipment | |
| 96,843 | | |
| 105,847 | |
| |
| 2,041,683 | | |
| 2,235,923 | |
Less: Accumulated depreciation | |
| (212,885 | ) | |
| (136,239 | ) |
| |
| 1,828,798 | | |
| 2,099,684 | |
Construction in progress | |
| 94,417 | | |
| 94,892 | |
| |
$ | 1,923,215 | | |
$ | 2,194,576 | |
As of September 30, 2022 and September 30, 2021,
depreciation expense amounted to $97,298 and $34,725, 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 $94,417 and $94,892
as of September 30, 2022 and December 31, 2021 represents the investment in building a processing plant and warehouse.
NOTE 8 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Non-patented technology | |
$ | 73,664 | | |
$ | 80,255 | |
Less: Accumulated amortization | |
| (31,035 | ) | |
| (27,750 | ) |
| |
$ | 42,629 | | |
$ | 52,505 | |
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 which, detect and defend against counterfeit products. The Company’s original cost was $73,664 and $80,255 as of
September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022 and September 30, 2021,
amortization expenses of intangible assets were $6,571 and $6,174, respectively.
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 $464,389, with a due date of February 4, 2024. The
loan carried an annualized interest rate of 7%. As of September 30, 2022 and December 31,2021, the outstanding amount of the loan payable
was $422,547 and $470,537 respectively. As of September 30, 2022 and September 30, 2021, the Company recognized interest expenses of $24,177
and $21,406 respectively.
NOTE 10 – RELATED PARTY TRANSACTIONS
As of September 30, 2022 and December 31, 2021,
the outstanding balance due to related parties was $757,263 and $3,070,210, respectively.
As of September 30, 2022 and December 31, 2021,
the outstanding balances of $450,437 and $2,738,029 respectively 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 September 30, 2022 and December 31, 2021,
the outstanding balances of $83,580 and $85,574 respectively 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 September 30, 2022 and December 31, 2021,
the outstanding balance due to Kaituo Real Estate Development Co., Ltd was $223,246 and $246,607 respectively.
NOTE 11 – CONCENTRATIONS
Customers Concentrations
The following table sets forth information as
to each customer that accounted for 10% or more of the Company’s revenues as of September 30, 2022 and 2021.
Customers |
|
September 30,
2022 |
|
|
September 30,
2021 |
|
|
|
Amount
$ |
|
|
% |
|
|
Amount
$ |
|
|
% |
|
A |
|
|
1,471,954 |
|
|
|
28.25 |
|
|
|
48,209 |
|
|
|
13.80 |
|
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 10% or more of the Company’s purchase as of September 30, 2022 and 2021.
Suppliers |
|
September 30,
2022 |
|
|
September 30,
2021 |
|
|
|
Amount
$ |
|
|
% |
|
|
Amount
$ |
|
|
% |
|
A |
|
|
1,474,083 |
|
|
|
37.18 |
|
|
|
- |
|
|
|
- |
|
B |
|
|
428,973 |
|
|
|
10.82 |
|
|
|
- |
|
|
|
- |
|
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 September 30, 2022 and
December 31, 2021, the Company’s cash balances by geographic area were as follows:
| |
September 30, 2022 | | |
December 31, 2021 | |
United States | |
$ | 4,821 | | |
| 83 | % | |
$ | 4,821 | | |
| 51 | % |
China | |
| 989 | | |
| 17 | % | |
| 4,712 | | |
| 49 | % |
Total cash and cash equivalents | |
$ | 5,810 | | |
| 100 | % | |
$ | 9,533 | | |
| 100 | % |
KENONGWO GROUP US, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 20%, i.e. 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 nine months ended September 30, 2022 and 2021:
| |
September 30, 2022 | | |
September 30, 2021 | |
Income (Loss) attributed to PRC operations | |
$ | 460,554 | | |
$ | (657,821 | ) |
Loss attributed to State of Nevada | |
| (42 | ) | |
| (42 | ) |
Income (Loss) before tax | |
| 460,512 | | |
| (657,863 | ) |
| |
| | | |
| | |
PRC Statutory Tax at 20% /10% | |
| 92,102 | | |
| (65,786 | ) |
Deferred tax assets losses not recognized | |
| - | | |
| 65,786 | |
Valuation allowance | |
| (92,102 | ) | |
| - | |
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 nine months ended September 30, 2022 and 2021.
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 September 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.