UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

☐ 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 333-239929

KENONGWO GROUP US, INC.

(Exact name of registrant as specified in its charter)

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

Yangjia Group, Xiaobu Town Yuanzhou District, Yichun City Jiangxi Province, China		336000
(Address of principal executive offices)		(Zip Code)

+86 - 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
N/A		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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). 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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

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 September 30, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Nine Months Ended September 30, 2022 and 2021	2

	Condensed Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended September 30, 2022 and 2021	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months September 30, 2022 and 2021	4

	Notes to Condensed Consolidated Financial Statements	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	23

PART II OTHER INFORMATION		24

Item 6.	Exhibits	24

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.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

				December 31,
	September 30, 2022			2021 (Audited)

ASSETS
Current Assets:
Cash and cash equivalents	$	5,810		$	9,533
Accounts receivable, net		1,286,460			166,293
Other receivables, net		206,815			164,354
Inventories		337,771			271,674
Advances and prepayments to suppliers		39,819			152,750
Total Current Assets		1,876,675			764,604

Plant and equipment, net		1,828,798			2,099,684
Construction in progress, net		94,417			94,892
Intangible assets, net		42,629			52,505
Total Non-current Assets		1,965,844			2,247,081
Total Assets	$	3,842,519		$	3,011,685

LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)

Current Liabilities:
Accounts payable and accrued payables	$	1,490,635		$	1,453,700
Taxes payable		885			986
Advances from customers		475			78
Due to related parties		757,263			3,070,210
Total Current Liabilities		2,249,258			4,524,974

Non-Current Liability
Long-term loans		422,547			470,537
Total Liabilities		2,671,805			4,995,511

Commitments and Contingencies

Stockholders’ Equity / (Deficit):
Common Stock, $0.0001 par value, 110,000,000 shares authorized; 1,882,482 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively (note 1)		188			188
Paid in capital		3,036,612			494,058
Accumulated deficit		(1,976,445	)		(2,436,957	)
Accumulated other comprehensive gain (loss)		110,359			(41,115	)
Total Stockholders’ Equity/(Deficit)		1,170,714			(1,983,826	)
Total Liabilities and Stockholders’ Equity/(Deficit)	$	3,842,519		$	3,011,685

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

KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Stated in US Dollars)

	Three months ended September 30, 2022			Three months ended September 30, 2021			Nine months ended September 30, 2022			Nine months ended September 30, 2021
Revenue	$	1,662,135		$	69,565		$	5,210,549		$	349,259
Cost of revenues		1,233,295			54,022			3,965,173			517,826
Gross profit		428,840			15,543			1,245,376			(168,567	)
Operating expenses
Selling and marketing expenses		46,503			86,592			165,306			215,984
General and administrative expenses		151,561			139,884			495,378			263,670
Total operating expenses		198,064			226,476			660,684			479,654

Income (Loss) from operations		230,776			(210,933	)		584,692			(648,221	)

Other income (expenses):
Interest expenses		(7,815	)		(8,292	)		(24,177	)		(21,406	)
Other income		1,001			3,933			6,492			19,621
Other expenses		(10,941	)		(6,391	)		(106,495	)		(7,857	)
Total other income (expenses)		(17,755	)		(10,750	)		(124,180	)		(9,642	)

Income (Loss) before taxes		213,021			(221,683	)		460,512			(657,863	)
Provision for income taxes		-			-			-			-

Net income (loss)	$	213,021		$	(221,683	)	$	460,512		$	(657,863	)

Other comprehensive income (loss):
Foreign currency translation adjustment		80,679			(891	)		151,474			(6,517	)
Comprehensive income (loss)	$	293,700		$	(222,574	)	$	611,986		$	(664,380	)

Earnings (Loss) per share
- Basic and diluted	$	0.11		$	(0.12	)	$	0.24		$	(0.35	)
Basic and diluted weighted average shares outstanding		1,882,482			1,882,482			1,882,482			1,882,482

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

KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Stated in US Dollars)

										Accumulated
	Number of Shares (note 1)		Common Stock		Paid-in Capital		Accumulated Deficit			Other Comprehensive Loss			Total
Balance, January 1, 2021		1,882,482	$	188	$	494,058	$	(1,035,549	)	$	(12,658	)	$	(553,961	)
Net loss		-		-		-		(657,863	)		-			(657,863	)
Foreign currency translation adjustment		-		-		-		-			(6,517	)		(6,517	)
Balance, September 30, 2021 (Unaudited)		1,882,482	$	188	$	494,058	$	(1,693,412	)	$	(19,175	)	$	(1,218,341	)

Balance, January 1, 2022		1,882,482	$	188	$	494,058	$	(2,436,957	)	$	(41,115	)	$	(1,983,826	)
Net income		-		-		-		460,512			-			460,512
Contribution by shareholder through waive of payables to shareholder		-		-		2,542,554		-			-			2,542,554
Foreign currency translation adjustment		-		-		-		-			151,474			151,474
Balance, September 30, 2022 (Unaudited)		1,882,482	$	188	$	3,036,612	$	(1,976,445	)	$	110,359		$	1,170,714

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

KENONGWO GROUP US, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

	For the nine months ended
	September 30,
	2022			2021

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	460,512		$	(657,863	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		103,869			40,899
Changes in operating assets and liabilities:
Accounts receivable		(1,120,167	)		(10,798	)
Inventories		(66,097	)		(306,913	)
Prepayment and deposits		112,931			(190,971	)
Other receivables		(42,461	)		(12,693	)
Accounts payable and accrued payables		36,834			370,068
Advances from customers		397			3,530
Net cash used in operating activities		(514,182	)		(764,741	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment and construction in progress		(38,806	)		(461,942	)
Proceeds from disposal of equipment		1,362			-
Intangible assets		(1,713	)		(1,066	)
Net cash used in investing activities		(39,157	)		(463,008	)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from amounts due from related parties		588,736			800,126
Long-term loans		-			432,807
Net cash provided by financing activities		588,736			1,232,933

EFFECT OF EXCHANGE RATE ON CASH		(39,120	)		(6,337	)

NET DECREASE IN CASH		(3,723	)		(1,153	)
CASH, BEGINNING OF PERIOD		9,533			6,041
CASH, END OF PERIOD		5,810			4,888

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Shareholders loan capitalised		2,542,554			-
Cash paid for interest expense, net of capitalized interest	$	24,177		$	21,406

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

KENONGWO GROUP US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN

Kenongwo Group US, Inc. (“Kenongwo US” or the “Company”) is a holding company incorporated in the State of Nevada on October 17, 2018.

On October 17, 2018, the Company issued 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.

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. 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 net cash used in operating activities for the nine months ended September 30, 2022 was $514,182.

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

Revenue Recognition

	●	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 September 30, 2022 and 2021

	For the Three months ended September 30,						Variance
	2022			2021			Amount			%
	$			$			$
Revenues		1,662,135			69,565			1,592,570			2289.33	%
Cost of revenues		1,233,295			54,022			1,179,273			2182.95	%
Gross profit		428,840			15,543			413,297			2659.06	%
Operating expenses:
Selling expenses		46,503			86,592			(40,089	)		(46.30	)%
General and administrative expenses		151,561			139,884			11,677			8.35	%
Total operating expenses		198,064			226,476			(28,412	)		(12.55	)%
Income (Loss) from operations		230,776			(210,933	)		441,709			(209.41	)%
Other income (expense):
Interest expense		(7,815	)		(8,292	)		477			(5.75	)%
Other income (expense), net		(9,940	)		(2,458	)		(7,482	)		304.39	%
Total other (expense) income		(17,755	)		(10,750	)		(7,005	)		65.16	%
Income (Loss) before income taxes		213,021			(221,683	)		434,704			(196.09	)%
Income taxes		-			-			-			-
Net income (loss)		213,021			(221,683	)		434,704			(196.09	)%

Revenue

For the three months ended September 30, 2022, our total revenue was $1.66 million, representing an increase of 2289.33% compared to $0.07 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 Three months ended September 30,
	2022		2021
Revenues – Solid organic fertilizers	$	1,662,135	$	35,404
Revenues – Liquid organic fertilizers		-		34,161
Total revenues	$	1,662,135	$	69,565

Cost of revenues

Cost of revenues for the fertilizers was $1.23 million and $0.05 million for the three months ended September 30, 2022 and 2021, respectively, representing an increase of 2182.95%. 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 September 30,
	2022		2021
Cost of revenues – Bamboo charcoal biomass organic fertilizers	$	1,233,295	$	25,818
Cost of revenues – Others		-		28,204
Total cost of revenues	$	1,233,295	$	54,022

Gross Profit

Our gross profit was $0.43 million and $0.02 million with gross margin of 25.80% and 22.34%, for the three months ended September 30, 2022 and 2021, respectively. The gross margin increased because the revenue increased 2289.33% while the cost of revenue increased 2182.95% for the three months ended September 30, 2022 compared to the same period in 2021.

Selling Expenses

Our selling expenses were $46,503 for the three months ended September 30, 2022, representing a decrease of $40,089 or 46.30% compared to $86,592 for the three months ended September 30, 2021. It was mainly the Company controls costs, reduces travel expenses, advertising expenses, etc.

General and Administrative Expenses

General and administrative expenses increased by $11,677, or 8.35% from $139,884 for the three months ended September 30, 2021 to $151,561 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 $75,387 and $42,538 for the three months ended September 30, 2022 and 2021, respectively.

Net Income/(Loss)

Our net income (loss) was $213,021 and ($221,683) for the three months ended September 30, 2022 and 2021, respectively, representing an increase of $434,704. The Company is at its developing stage and we have incurred more promotion fee by introducing our products to more customers across China during the three months ended September 31, 2021 resulting in significant increase in revenue for the three months ended September 30, 2022. The Company also incurred more material cost by developing 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 Nine months ended September 30, 2022 and 2021

	For the Nine months ended September 30,						Variance
	2022			2021			Amount			%
	$			$			$
Revenues		5,210,549			349,259			4,861,290			1391.89	%
Cost of revenues		3,965,173			517,826			3,447,347			665.73	%
Gross profit (loss)		1,245,376			(168,567	)		1,413,943			(838.80	)%
Operating expenses:
Selling expenses		165,306			215,984			(50,678	)		(23.46	)%
General and administrative expenses		495,378			263,670			231,708			87.88	%
Total operating expenses		660,684			479,654			181,030			37.74	%
Loss from operations		584,692			(648,221	)		1,232,913			(190.20	)%
Other income (expense):
Interest expense		(24,177	)		(21,406	)		(2,771	)		12.94	%
Other (expense) income, net		(100,003	)		11,764			(111,767	)		(950.08	)%
Total other income		(124,180	)		(9,642	)		(114,538	)		1187.91	%
Loss before income taxes		460,512			(657,863	)		1,118,375			(170.00	)%
Income taxes		-			-			-			-
Net income (loss)		460,512			(657,863	)		1,118,375			(170.00	)%

Revenue

For the nine months ended September 30, 2022, our total revenue was $5.21 million, representing an increase of 1391.89% compared to $0.35 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 Nine months ended September 30,
	2022		2021
Revenues – Solid organic fertilizers	$	5,210,549	$	278,251
Revenues – Liquid organic fertilizers		-		71,008
Total revenues	$	5,210,549	$	349,259

Cost of revenues

Cost of revenues for the fertilizers was $3.97 million and $0.52 million for the nine months ended September 30, 2022 and 2021, respectively, representing an increase of 665.73%. 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 Nine months ended September 30,
	2022		2021
Cost of revenues – Solid organic fertilizers	$	3,965,173	$	415,749
Cost of revenues – Liquid organic fertilizers		-		102,077
Total cost of revenues	$	3,965,173	$	517,826

Gross Profit (Loss)

Our gross profit (loss) was $1.25 million and negative ($0.17) million with gross margin of 23.90% and (48.26%), for the nine months ended September 30, 2022 and 2021, respectively. The negative gross margin improved because the revenue increased 1391.89% while the cost of revenue increased 665.73% for the nine months ended September 30, 2022 compared to the same period in 2021.

Selling Expenses

Our selling expenses were $165,306 for the nine months ended September 30, 2022, representing a decrease of $50,678 or 23.46% compared to $215,984 for the nine months ended September 30, 2021. It was mainly the Company controls costs, reduces travel expenses, advertising expenses, etc.

General and Administrative Expenses

General and administrative expenses increased by $231,708, or 87.88% from $263,670 for the nine months ended September 30, 2021 to $495,378 for the same period in 2022 due to increased 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 $116,342 and $52,856 for the nine months ended September 30, 2022 and 2021, respectively.

Net Income (Loss)

Our net income (loss) was $460,512 and ($657,863) for the nine months ended September 30, 2022 and 2021, respectively, representing an increase of $1,118,375. The Company is at its developing stage and we have incurred more promotion fee by introducing our products to more customers across China during the nine months ended September 30, 2021 resulting in significant increase in revenue for the nine months ended September 30, 2022. The Company also incurred more material cost by developing 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 $372,583 and $3,760,370 as of September 30, 2022 and December 31, 2021, respectively.

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

The components of cash flows are discussed below:

	For the Nine months ended September 30,
	2022			2021
Net cash used in operating activities	$	(514,182	)	$	(764,741	)
Net cash used in investing activities		(39,157	)		(463,008	)
Net cash provided by financing activities		588,736			1,232,933
Exchange rate effect on cash		(39,120	)		(6,337	)
Net cash inflow	$	(3,723	)	$	(1,153	)

Cash used in Operating Activities

For the nine months ended September 30, 2022, net cash used in operating activities was $514,182, which consisted primarily of net income of $460,512, which was adjusted by depreciation and amortization of $103,869. The Company had an increase of $36,834 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, an increase of $1,120,167 in accounts receivable which was due to the Company increase of revenue, a decrease of $112,931 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 $66,097 in inventories and an increase in other receivable of $42,461 in which it was due to an increase loan receivables.

For the nine months ended September 30, 2021, net cash used in operating activities was $764,741, which consisted primarily of net loss of $657,863, which was adjusted by depreciation and amortization of $40,899. The Company had an increase of $370,068 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, an increase of $10,798 in accounts receivable which was due to longer payment terms were offered to loyal customers , an increase of $190,971 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, and an increase of $306,913 in inventories and an increase in other receivable of $12,693 in which it was due to an increase loan receivables.

Cash used in Investing Activities

Net cash used in investing activities was $39,157 for the nine months ended September 30, 2022. The activities consisted of our investments of $38,806 in purchasing plant and equipment and an adjustment of $1,713 of intangible assets due to currency exchange effect, and an increase in disposal of equipment of $1,362.

Net cash used in investing activities was $463,008 for the nine months ended September 30, 2021. The activities consisted of our investments of $461,942 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 $588,736 for the nine months ended September 30, 2022. During this period, cash provided by financing activities mainly included proceeds from related parties of $588,736.

Net cash provided by financing activities was $1,232,933 for the nine months ended September 30, 2021. During this period, cash provided by financing activities mainly included proceeds from related parties of $800,126 and proceeds from long-term loan of $432,807 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.

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

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

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

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: November 21, 2022	By:	/s/ Jianjun Zhong
		Name:	Jianjun Zhong
		Title:	President and Chief Executive Officer
			(principal executive officer)

Date: November 21, 2022	By:	/s/ Jianjun Zhong
		Name:	Jianjun Zhong
		Title:	Chief Financial Officer
			(principal financial officer and principal accounting officer)

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).

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Kenongwo Group US, Inc. 10-Q