KENONGWO GROUP US, INC. 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,
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 inChina 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 inChina . 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 ofChina 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 inChina , includingJiangxi ,Hunan ,Hubei ,Fujian ,Jiangsu ,Shanghai ,Zhejiang ,Sichuan ,Chongqing ,Guangdong ,Hainan ,Xinjiang ,Guizhou ,Anhui ,Shandong ,Shanxi ,Shaanxi ,Liaoning ,Jilin ,Heilongjiang ,Yunnan andGuangxi 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 generally accepted accounting principles inthe United States , orU.S. 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
Going Concern As reflected in the accompanying financial statements, we had accumulated deficit of$2,436,957 and$1,035,549 as ofDecember 31, 2021 andDecember 31, 2020 , respectively. We had incurred a net loss of$1,401,408 and$834,774 for the years endedDecember 31, 2021 and 2020, respectively. Our cash balances as ofDecember 31, 2021 and 2020 were$9,533 and$6,041 , respectively. We had current liability of$4,524,974 and$2,114,609 atDecember 31, 2021 and 2020, respectively, which would be due within the next 12 months. In addition, we had a working capital deficit of$3,760,370 and$1,485,784 onDecember 31, 2021
and 2020, respectively.
The Company plans to continue its expansion and investments, which will require continued improvements in revenue, net income, and cash flows.
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Revenue Recognition
The Company adopted ASC 606 "Revenue Recognition", and recognizes revenue when
control of the promised goods or services is transferred to customers, in an
amount that reflects the consideration we expect to be entitled to in exchange
for those goods or services.
The Company derives its revenues from the sale of fertilizer products. The
Company applies the following five steps in order to determine the appropriate
amount of revenue to be recognized as it fulfils its obligations under each of
its agreements:
? identify the contract with a customer;
? identify the performance obligations in the contract;
? determine the transaction price;
? allocate the transaction price to performance obligations in the
contract; and
? recognize revenue as the performance obligation is satisfied.
Results of Operations
Comparison of the year ended
For the Year Ended
December 31, Variance
2021 2020 Amount %
$ $ $
Revenues 542,845 507,529 35,316 7.0 %
Cost of revenues 954,310 528,244 426,066 80.7 %
Gross profit (411,465 ) (20,715 ) (390,750 ) 1886.3 %
Operating expenses: - -
Selling expenses 302,156 247,230 54,926 22.2 %General and administrative expenses 672,340 587,913
84,427 14.4 %
Total operating expenses 974,496 835,143 139,353 16.7 %
Loss from operations (1,385,961 ) (855,858 ) (530,103 ) 61.9 %
Other income (expense): 21,853 57,299 (35,446 ) (61.90 )%
Interest expense (29,719 ) (3,333 ) (26,386 ) 791.7 %
Other expense: (7,563 ) (32,882 ) 25,319 (77.0 )%
Other income (expense), net (15,447 ) 21,804 (37,251 ) (170.8 )%
Total other income (expense) (15,447 ) 21,084 (36,531 ) (173.3 )%
Loss before income taxes (1,401,408 ) (834,774 ) (566,634 ) 67.9 %
Income taxes - - -
Net loss (1,401,408 ) (834,774 ) (566,634 ) 67.9 %
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Revenue
For the year ended December 31, 2021 , our total revenue was $542,845 ,
representing a increase of 6.96% compared to $507,529 for the same period in
2020. This increase was mainly due to an increase in demand of our products. The
Company's disaggregate revenue streams are summarized as follows:
For the Years Ended
December 31,
2021 2020
Revenues - Bamboo charcoal biomass organic fertilizers
78,712 62,689
Revenues - High concentration of foliar fertilizer 100ML 73,568
33,223
Revenues - Water-soluble fertilizers 2.5L 60,536
18,477
Revenues - Winter fertilizers 25KG 42,584
11,556
Revenues - Winter fertilizers 40KG 41,593
16,000
Revenues - Others 37,997 27,704
Total revenues $ 542,845 $ 507,529
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Cost of revenues
Cost of revenues for the fertilizers was
The Company's disaggregate cost of revenues streams are summarized as follows:
For the Years Ended
December 31,
2021 2020
Cost of revenues - Bamboo charcoal biomass organic
fertilizers $ 376,475
140,328 90,536
Cost of revenues - High concentration of foliar fertilizer 100ML 23,960
5,456
Cost of revenues - Water-soluble fertilizers 2.5L 27,679
6,933
Cost of revenues - Winter fertilizers 348,236
32,647
Cost of revenues - Others 37,631 21,875
Total cost of revenues $ 954,310 $ 528,244
Gross Profit
Our gross profit was negative $411,465 and $20,715 with gross margin of negative
75.8% and 4.1% for the years ended December 31, 2021 and 2020, respectively. The
decrease in gross profit was due to the Company lowering the retail price of its
products in order to capture more market shares and an increase in the cost of
raw materials in 2021 as stated above.
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Selling Expenses
Our selling expenses were $302,156 for the year ended December 31, 2021 ,
representing an increase of $54,926 or 22.2% compared to $247,230 for the year
ended December 31, 2020 . The increase in our selling expenses was mainly due to
the fact that we incurred more costs in promotion, salary and transportation
cost when compared with 2020.
General and Administrative Expenses
The general and administrative expenses increased by
Research and Development ("R&D") Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company's research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled$ 158,308 and$70,655 for the years endedDecember 31, 2021 and 2020 respectively. Net Income Our net loss was$1,401,408 and$834,774 for the years endedDecember 31, 2021 and 2020, respectively, representing an increase of$566,634 . The Company is at its developing stage and we incurred certain expenses in hiring qualified employees to support our production and research and development. We also incurred more promotion fee by introducing our products to more customers acrossChina during the fiscal year of 2021. 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
We have respectively financed our operations over the years endedDecember 31 , 2021and 2020 primarily through proceeds from advances from related parties, and net cash inflow from operation.
The components of cash flows are discussed below:
For the Year Ended
December 31,
2020 2019
Net cash used in operating activities
(7,461 ) 5,528
Net cash (outflow) inflow $ 3,492 $ (127,209 ) Cash used in Operating Activities
For the year endedDecember 31, 2021 , net cash used in operating activities was$260,828 , which consisted primarily of net loss of$1,401,408 , and was adjusted by depreciation and amortization of$75,023 . The Company had an increase of$1,197,844 in account payables and accrued payables, and that was due to it took the Company longer to pay off some major vendors, an decrease of$17,947 in accounts receivable because more customers are developed and longer payment terms were offered to loyal customers, an increase of$78,619 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, and an increase of$120,883 in inventories. For the year endedDecember 31, 2020 , net cash used in operating activities was$803,552 , which consisted primarily of net loss of$834,774 , and was adjusted by depreciation and amortization of$36,592 , bad debt expenses of$157,495 , conversion of convertible bond of$14,006 and loss from disposal of investment of$28,534 . The Company had an increase of$29,834 in account payables and accrued payables, and that was due to it took the Company longer to pay off some major vendors, an increase of$99,084 in accounts receivable because more customers are developed and longer payment terms were offered to loyal customers, a decrease of$623 in advanced from customers due to the Company receiving less purchasing orders from customers at the year end, which were offset by a decrease of$121,744 in inventories, an increase in advances and prepayments of$200,950 as Company involved more investments in plant and equipment. 36
Cash used in Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was$592,877 for the year endedDecember 31, 2020 . The activities consisted of our investments of$592,877 in purchasing plant and equipment.
Cash Provided by Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Off-balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholder's equity or that are not reflected in its consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
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