UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

or

☐ TRANSITION REPORT UNDER 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)

Yangjia Group, Xiaobu Town

Yuanzhou District, Yichun City

Jiangxi Province, China 336000

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including the area code: +86-400-915-2178

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

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 report(s)), 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 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 or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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 the date of this report, the Company’s common stock is not listed any national securities exchange nor quoted on OTC Markets, and therefore the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter is not available or not applicable.

The number of outstanding shares of the registrant’s common stock on June 27, 2023, was 101,882,485.

Documents Incorporated by Reference: None.

FORM 10-K ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, 2022

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are “forward-looking statements”. Forward-looking statements can be identified by the use of forward-looking terminology, such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “seek”, “estimate”, “project”, “could”, “may” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors, some of which are described in this report including in “Risk Factors” in Item 1A and some of which are discussed in our other filings with the SEC. These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

ITEM 1. BUSINESS

Overview

Kenongwo Group US, Inc. is a Nevada holding company, operating through our wholly-owned subsidiary, Jiangxi Kenongwo Technology Co., Ltd. (“Jiangxi Kenongwo”), a company incorporated under the laws of the PRC. Through Jiangxi Kenongwo, We are primarily engage in studying, 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.

The main raw materials that are used in our organic fertilizers include bamboo charcoal, bamboo vinegar, rapeseed dregs and organic selenium. Bamboo charcoal is carbonized from bamboo and it is an excellent fertilizer carrier that can slowly release the fertilizer substance and at the same time reduce the pollution in the soil. Bamboo vinegar is a liquid obtained by condensing the water volatile organics in Moso bamboo, which is released during the high temperature pyrolysis through our patented technology. Fermented rapeseed dregs are the component of organic materials, which can significantly impact the quality of soil. Selenium is an essential trace mineral that is important for many bodily processes. By adding organic selenium into our fertilizers and applying them to the crops, selenium can be well absorbed and converted, making the final agricultural products rich of selenium. Our fertilizers also provide optimum levels of primary plant nutrients which including multi-minerals, proteins and carbohydrates that promote the healthiest soils capable of growing the healthy crops and vegetables. It can effectively reduce the use of chemical fertilizers and pesticides as well as reduce the penetration of large chemical fertilizers and pesticides into the soil and thus avoid water pollution. Therefore, our fertilizer can effectively improve fertility of soil, and the quality and safety of agricultural products.

We generate our revenue from the sales of our organic fertilizers, compound fertilizers, specific-function fertilizers and crop-specific 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, equipped with fully automatic production machines for our fertilizers, including fermentation machines, granulation machines, drying and cooling machines, labeling machines, packaging machines and loading and unloading machines. Specifically, we plan to establish four automated production lines, including (1) the powder fertilizer production line, (2) the granular fertilizer production line, (3) the liquid water soluble fertilizer production line and (4) the powder water soluble fertilizer production line. As of the date of this report, (3) and (4) have been completed. In addition, we also installed the liquid raw material automatic storage tank system, the palletizing robot system and the raw material weighing and batching system. The estimated cost of building this production line is approximately RMB12 million (approximately $1.7 million). we plan to finance this amount in equity or debt. There is no assurance that we could raise that amount on satisfying terms. As a result, the implementation of this expansion depends on whether and when we could secure the financing.

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.

China is the principal market for our products, which are primarily sold to farmers through distributors in over twenty-two provinces in China, including Jiangxi, Hunan, Hubei, Fujian, Jiangsu, Shanghai, Zhejiang, Sichuan, Chongqing, Guangdong, Hainan, Xinjiang, Guizhou, Guangxi, Liaoning, Shandong, Shanxi, Yunnan, Ningxia, Gansu, Henan, and Hebei provinces.

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.

Kenongwo Group US, Inc. is a holding company and we operate our business through Jiangxi Kenongwo. Jiangxi Kenongwo is formed and operating the Peoples Republic of China (“Material PRC Company”) has been duly established and is validly existing as a limited liability company under the laws of the Peoples Republic of China (“PRC Laws”),and has received all authorizations required by the Peoples Republic of China (the “Governmental Authorizations”) for its establishment to the extent such Governmental Authorizations are required under applicable PRC Laws, and its business license is in full force and effect. The Material PRC Company has the capacity and authority to own assets, to conduct business, and to sue and be sued in its own name under PRC Laws. The articles of association, business license and other constitutional documents (if any) of the Material PRC Company complies with the requirements of applicable PRC Laws and are in full force and effect. The Material PRC Company has not taken any corporate action, nor has any legal proceedings commenced against it, for its liquidation, winding up, dissolution, or bankruptcy, for the appointment of a liquidation committee, team of receivers or similar officers in respect of its assets or for any adverse suspension, withdrawal, revocation or cancellation of its business license.

All of the equity interests of the Material PRC Company are owned by Kenongwo Group US, Inc., and (ii) the Material PRC Company has obtained all Governmental Authorizations for the ownership interest owned by Kenongwo Group US, Inc. The equity interests of the Material PRC Company are owned by Kenongwo Group US, Inc. free and clear of any pledge or other encumbrance under PRC Laws, and there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the Material PRC Company under PRC Laws, except for such encumbrance that would not be reasonably expected to have a Material Adverse Effect. “Material Adverse Effect,” as used herein, means a material adverse effect on the assets, liabilities, properties or business of the Company.

All of our operations are conducted by our subsidiary, our wholly-foreign-owned entity (“WFOE”) based in China which involves unique risks to investors. Our WFOE structure is used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign investment in the operating companies. Investors may never hold equity interests in the Chinese operating company. The WFOE structure is not as stable as some have imagined. The senior management and the shareholders of the domestic company play a very important role in the WFOE structure. Once there are changes to such positions involving interests, potential risks of the WFOE structure will appear. Chinese regulatory authorities could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless.

The legal and operational risks associated with being based in or having the majority of the Company’s operations in China could result in a material change in the value of the securities we are registering for sale or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

Recently, Beijing revamped its rules for overseas listings after ride-hailing Didi Global launched its initial public offering despite warnings from regulators. That triggered a data security investigation led by the Cyberspace Administration of China (“CAC”), which recently culminated with the firm announcing plans to delist in the US in favor of Hong Kong. This shows how recent statements and regulatory actions by China’s government have or may impact the company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign exchange.

Trading securities may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect or fully investigate our auditor, and that as a result an exchange may determine to delist your securities.

The Company will settle amounts owed under the WFOE structure by transferring dividends, or distributions between the holding company and its subsidiaries, or to investors, which have not yet occurred. We rely primarily on dividends paid by the WFOE for our cash needs, including the funds necessary to pay dividends and other cash distributions, if any, to our shareholders, to service any debt we may incur and to pay our operating expenses. We have made no such distributions to date and we have no current cash management policies in place. We will look to implement one in the near future.

There are no legal, arbitral or governmental proceedings, regulatory investigations or other governmental decisions, rulings, orders, or actions before any Governmental Agencies in progress or pending in the PRC to which the Company or any Material PRC Company is a party or to which any assets of any Material PRC Company is a subject which, if determined adversely against any of the Company and the Material PRC Company, would be reasonably expected to have a material adverse effect.

All dividends declared and payable upon the equity interests in the WFOE may be converted into foreign currency and freely transferred out of the PRC free of any deductions in the PRC, provided that (i) the declaration and payment of such dividends complies with applicable PRC Laws and the constitutional documents of the WFOE, and (ii) the remittance of such dividends out of the PRC complies with the procedures required by the relevant PRC Laws relating to foreign exchange administration.

We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business. General macroeconomic conditions may materially and adversely affect our business, prospects, results of operations and financial position. The PRC government’s control over foreign currency conversion may adversely affect our business and results of operations and our ability to remit dividends. PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our operating subsidiary in China, which could materially and adversely affect our liquidity and our ability to fund and expand business.

Assuming no offer, issuance or sale of the shares of our common stock has been or will be made directly or indirectly within the PRC, a prior approval from the China Securities Regulatory Commission (“CSRC”) will not be required. However, there are substantial uncertainties regarding the interpretation and application of the M&A Rules, other PRC Laws and future PRC laws and regulations, and there can be no assurance that any Governmental Agency will not take a view that is contrary to or otherwise different from our opinions stated herein.

In accordance with the relevant articles 1, 2, 3, 4 and 5 of the “Notice of the State Administration of Taxation on the Exemption of Value-added Tax on Organic Fertilizer Products issued by the Ministry of Finance of the People’s Republic of China “Finance and Taxation [2008] No. 56 and Finance and Taxation [2009] No. 17”, and in accordance with Article 28 of Chapter IV Tax Preference of the Enterprise Income Tax Law of the People’s Republic of China, eligible small low-profit enterprises shall be subject to enterprise income tax at a reduced rate of 20%, high-tech enterprises that need to be supported by the state shall be subject to enterprise income tax at a reduced rate of 15%, and according to the Notice of the General Office of the People’s Government of Jiangxi Province on the “Three-year Action Plan for Accelerating the High-quality Development of Selenium-rich Functional Agriculture（2023-2025）” and the “Opinions of the General Office of the People’s Government of Jiangxi Province on Accelerating the High-quality Development of the Bamboo Industry” and other documents, it shows that governments at all levels support the industry in which the company operates.

Jiangxi Kenongwo Technology Co., Ltd. obtained the National High-tech Enterprise Certificate on September 14, 2020. The approving authorities are: Jiangxi Provincial Department of Science and Technology, Jiangxi Provincial Department of Finance, Jiangxi Provincial Taxation Bureau of State Taxation Bureau.

On December 16, 2021, PCAOB issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC), because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCAA. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Determination, respectively. The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. In addition, under the HFCAA, our securities may be prohibited from trading on the U.S. stock exchanges or in the over-the-counter trading market in the U.S. if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our common stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which, if enacted, would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or in the over the counter trading market in the U.S. if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. In the future, if we do not engage an auditor that is subject to regular inspection by the PCAOB, our common stocks may be delisted. The audit report included in this registration statement for the year ended December 31, 2022, was issued by Assentsure PAC, an audit firm that is headquartered in Singapore, and was not identified in this report as a firm subject to PCAOB’s determination.

The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended that the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.

The enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, our stock will not be permitted for trading “over-the counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.

We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deem relevant, and subject to the restrictions contained in any future financing instruments. To date, our cash is used for the development and operation of the WFOE. Since the Company has just recently started to recognizing material revenue, it has not yet arranged to issue dividends or distribution and as the Company is trying to use the funds for the company’s development, the shareholders’ income will not be arranged for the time being. Because our funds are used for the development of domestic enterprises, there is no foreign exchange restriction for the time being.

U.S shareholders may face difficulties in effecting service of process against the Company and officers and director, as they are both based in China. Even with proper service of process, the enforcement of judgments obtained in U.S. courts or foreign courts based on the civil liability provisions of the U.S. federal securities laws would be extremely difficult. Furthermore, there would be added costs and issues with bringing an original action in foreign courts to enforce liabilities based on the U.S. federal securities laws against the Company.

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our Shares. As of the date of this prospectus, we do not have any PRC subsidiaries.

Cash dividends, if any, on our Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.

The registered capital of the Material PRC Company has been duly paid in accordance with applicable PRC Laws and their respective articles of association, to the extent that such registered capital is required to be paid prior to the date hereof.

All of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth of the general or specific market. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. As the PRC economy has become increasingly linked with the global economy, China is affected in various respects by downturns and recessions of major economies around the world. The various economic and policy measures enacted by the PRC government to forestall economic downturns or bolster China’s economic growth could materially affect our business. Any adverse change in the economic conditions in China, in policies of the PRC government or in laws and regulations in China could have a material adverse effect on the overall economic growth of China and market demand for our outsourcing services. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive position.

The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC government has been building a comprehensive system of laws and regulations governing economic matters in general. The overall effect has been to significantly enhance the protections afforded to various forms of foreign investments in China. We conduct our business primarily through our WFOE, the WFOE is established in China. These companies are generally subject to laws and regulations applicable to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract.

Corporate History and Structure

Kenongwo Group US, Inc. was incorporated in the State of Nevada on October 17, 2018. On January 1, 2019, we acquired all the issued and outstanding shares of Jiangxi Kenongwo pursuant to certain share transfer agreements with the two former shareholders of Jiangxi Kenongwo. The share transfer was completed on January 9, 2019. As a result, Jiangxi Kenongwo became our wholly-owned subsidiary.

The following diagram illustrates our current corporate structure: 

Any risks that any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder your ability to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

Subject to the requirements and public policy considerations as stipulated under applicable PRC Laws relating to the enforceability of foreign court judgments, submission to foreign jurisdiction for dispute resolution and choice of law, and also subject to the conditions described under the caption “Enforceability of Civil Liabilities” in the Registration Statement and Prospectus, (i) the irrevocable submission of the Company to the jurisdiction of any courts in the United States, the waiver by the Company of any objection to the venue of a proceeding in any such court, the waiver and agreement not to plead an inconvenient forum, the waiver of sovereign immunity

Under PRC Laws, neither the Material PRC Company, nor their respective properties, assets or revenues, are entitled to any right of immunity on the grounds of sovereignty or otherwise from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any court, from services of process, from attachment prior to or in aid of execution of any judgment, or from other legal processes or proceedings for the giving of any relief or for the enforcement of any judgment.

As a company incorporated under the laws of Nevada, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly-owned PRC subsidiary, SRAS, is a foreign-invested enterprise, or a FIE.

All of our revenue is denominated in Renminbi while our financial reporting is in U.S. dollars. As a result, any significant fluctuation in exchange rates may cause us to incur currency exchange translation and harm our financial condition and results of operations.

Movements in Renminbi exchange rates are affected by, among other things, changes in political and economic conditions and China’s foreign exchange regime and policy. The Renminbi has been unpegged from the U.S. dollar since July 2005 and, although the People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that the PRC authorities may lift restrictions on fluctuations in Renminbi exchange rates and lessen intervention in the foreign exchange market in the future.

To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all.

The M&A Rules and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions. Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment. The M&A Rules, among other things, purport to require CSRC approval prior to the listing and trading on an overseas stock exchange of the securities of an offshore special purpose vehicle established or controlled directly or indirectly by the Material PRC Company or individuals and formed for the purpose of overseas listing through the acquisition of PRC domestic interests held by such Material PRC Company or individuals.

Based on our understanding of the explicit provisions under PRC Laws, and assuming no offer, issuance or sale of the Common Shares has been or will be made directly or indirectly within the PRC, a prior approval from the CSRC is not required for the Offering. However, there are substantial uncertainties regarding the interpretation and application of the M&A Rules, other PRC Laws and future PRC laws and regulations, and there can be no assurance that any Governmental Agency will not take a view that is contrary to or otherwise different from our opinions stated herein. Subject to any applicable administrative procedures required by PRC Laws, and provided that all required Governmental Authorizations have been duly obtained, the due application of the net proceeds to be received by the Company from the issue Common Shares as disclosed in the Prospectus under the caption “Use of Proceeds” does not and immediately after the Offering will not contravene any applicable PRC Laws, the articles of association or the business licenses of the Material PRC Company, except for such contravention or default which would not be reasonably expected to have a Material Adverse Effect.

The Company is not subject to the requirements of Cyberspace Administration of China (“CAC”) and specifically the cybersecurity law, because our company is not an Internet company and does not have a large amount of customer data, so it is not subject to the Chinese cybersecurity law.

The Company or our subsidiary is required to obtain from Chinese authorities to operate our business. The Material PRC Company has obtained all material Governmental Authorizations necessary for its business operations and such Governmental Authorizations are in full force and effect and all required Governmental Authorizations have been duly obtained.

Enforceability of Civil Liabilities

All of our assets are located outside the United States. In addition, all of our directors and officers are nationals and/or residents of jurisdictions other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons, or to enforce against them or against us, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.

Industry Overview

Overview of the PRC Fertilizer Industry

According to Gulf Petrochemicals & Chemicals Association, China is the biggest fertilizer producer and consumer in the world. Total fertilizer consumption in China represents around a third of global fertilizer use. According to China Fertilizers Market - Growth, Trends, And Forecasts (2019–2024) (source: www.mordorintelligence.com), the China fertilizers market is projected to grow at a compound annual growth rate (CAGR) of 0.62% during the forecast period, 2019-2024. The market growth is restrained by the Chinese government’s zero-growth policy and environmental protection policy system for rural areas and the agricultural sector, in order to control the pollution and achieve green development. The national policies prohibit the use of pesticides, and require organic fertilizers to replace chemical fertilizers. In 2020, there was zero-growth in fertilizer and pesticide consumption. The policymakers are adjusting fertilizer consumption structure and promoting accurate fertilization, improved fertilization, and use of more micronutrients and secondary fertilizers, as compared to straight fertilizers, particularly nitrogenous fertilizers. This policy is expected to provide a fillip to the growth of the market for bio-fertilizers in China.

Increasing Demand for Organic and Bio-fertilizers

According to the Ministry of Agriculture of the People’s Republic of China (MOA), the use of organic fertilizers as a replacement for chemical fertilizers is one of the key points of agricultural supply-side structural reform in China, and it has a restraining influence on the growth of the chemical fertilizers market in China. The key crops used in the country for the trial fertilizer-replacement program are fruits, vegetables, tea, and others. In May 2016, the “Soil Pollution Prevention Action Plan” was issued to provide strong support for the promotion of organic fertilizer in the country. The government accords great importance to the production of organic fertilizers, and implements a tax exemption policy (implemented in 2016) for bio-organic fertilizer products, providing further support for the development of the organic fertilizer industry in China. The rising number of product innovations and activities in the organic fertilizer market in China act as a restraint to the chemical fertilizers market. All the products we currently sell qualify as the type of organic fertilizers discussed in this section.

Our Products

We are committed to ensuring the quality of our products and production is in compliance with GB/T19001-2016/ISO 9001: 2015 Standard Quality System, which is the standard system used by organizations to demonstrate their ability to consistently provide products and services that meet customer and regulatory requirements and to demonstrate continuous improvement. GB/T19001-2016 is the China national standard for quality management system requirements, including the examination standards and packaging standards. ISO 9001: 2015 is the international standard that specifies requirements for a quality management system, covering a broad range of activities, services and products, from the procurement of raw materials to the release of final products. We aim to provide high-quality and environmental friendly organic fertilizer to our customers. Our organic fertilizers are the products of natural decomposition and are easy for plants to absorb and digest. Our core products are bamboo charcoal biomass organic fertilizers, amino acid water-soluble fertilizers and selenium-rich foliar fertilizers. The main raw materials used in these products are bamboo charcoal, bamboo vinegar, rapeseed dregs and organic selenium, which are mainly obtained through calcination, distillation, extraction of moso bamboo and transformation of other plants. Our products can be divided into three categories based on their functions: general-function fertilizers, specific-function fertilizers and crop-specific fertilizers.

Our general-function fertilizers can be applied to all kinds of crops to promote their growth. Bamboo charcoal biomass organic fertilizer is our flagship product under this category. Bamboo charcoal biomass organic fertilizer is developed on the basis of plant nutrition, soil biology and physical characteristics of the bamboo charcoal. Bamboo charcoal, one of the main components of bamboo charcoal biomass organic fertilizers, is carbonized from bamboo through our patented technology. We use bamboo charcoal, rapeseed dregs, bamboo vinegar liquid, amino acid, beneficial microbial flora and other metal ions (such as copper, iron, zinc and boron) as main raw materials and adopt international advanced production technology to compound them into the final product.

Growing in the natural environment, bamboo absorbs a large amount of water-soluble minerals such as potassium, sodium, calcium and magnesium. These minerals will be dissolved and condensed in the bamboo charcoal after the bamboo is smoldered under high temperature.

(Structure of bamboo charcoal)

Our bamboo charcoal biomass organic fertilizer can promote the reproduction of a large number of probiotic strains around the roots of farm crops, and meanwhile prevent the growth of harmful microorganisms, thus making the fertilizer to has functions of nitrogen fixation, phosphorus-dissolving and kalium-dissolving, among others. Our bamboo charcoal biomass organic fertilizer can also greatly improve the contents and effectiveness of the N, P, K, Ca, Fe and other elements in the soil. Bamboo charcoal itself can adsorb and passivate heavy metals and pesticide residues in the soil and therefore improve the quality of farm crops. In addition, bamboo charcoal can enhance the soil permeability, increase crop root activity, promote photosynthesis, maintain nutrient components in the soil, enhance crops’ resistance ability and prevent the occurrence of crop diseases and insect pests. When using our bamboo charcoal biomass organic fertilizer in acidic soil, the bamboo charcoal substance’s PH value can improve the acidity balance of the soil, making the soil more suitable for growing crops.

Our general-function fertilizer products also include bamboo compound fertilizer and water-soluble fertilizer with amino acid.

Our specific-function fertilizers are designed to provide specific benefits to crops. Our selenium-rich foliar fertilizers can promote the content of selenium in the final agricultural products. Selenium is an essential trace mineral that is important for many bodily processes. By adding organic selenium into our fertilizers and applying them to the crops, selenium can be well absorbed and converted. In addition, the major components in our amino acid water-soluble fertilizers are bamboo vinegar. We mixed bamboo vinegar and other microelements, making our fertilizers rich of nutrition while adding no sterols of any kind. Bamboo vinegar can enhance plants’ abilities to absorb nutrition from soil and degrade the fertilizer residues. These fertilizers can be applied to the soil or sprayed on crops aboveground directly or indirectly in order to supply nutrients, increasing crop yields and improving product quality.

We also provide fertilizers that are designed for specific crops based on soil tests. The use of soil tests can help determine the status of nutrients available to plants in soil, thus it develops fertilizer recommendations to achieve optimum crop production. For example, we have designed and manufactured special fertilizer products for blueberries, dragon fruits and jackfruits. The best soil for blueberries to grow is acidic with a PH scale of 4.3 to 5.3 and has an organic-material level of 8% to 12%. Our blueberry fertilizers can effectively resolve the imbalance between the PH scale and organic-material level.

China’s fertilizer market is highly commercialized and therefore we adopted a multi-level brand strategy to target different market segments with tailored products. At present, selenium-rich foliar fertilizer and bamboo charcoal biomass organic fertilizers are marketed as high-end products, compound fertilizers as intermediate products, and amino acid water-soluble fertilizers as low-end products. We have so far developed nearly 20 kinds of products. In general, we believe our fertilizers have the following characteristics and advantages:

The following table summarizes the 15 products we currently sell:

Our Technology and Manufacturing Process

The main raw materials that are used in our organic fertilizers include bamboo charcoal, bamboo vinegar, rapeseed dregs and organic selenium. Bamboo charcoal is carbonized from bamboo and it is an excellent fertilizer carrier that can slowly release the fertilizer substance and at the same time reduce the pollution in the soil. Bamboo vinegar is a liquid obtained by condensing the water volatile organics in Moso bamboo, which is released during the high temperature pyrolysis through our patented technology. Our production procedure is scientifically designed and its automated production line and quality control system ensures consistent high quality. Our automated production line for product processing is run by a central control system and only needs the input of control technicians. This central control system manages the process of producing products, including automatically feeding materials to machines, blending materials and controlling other manufacturing, packaging and stacking process. The machinery and vats for the line have been supplied by a local medical machinery manufacturer and the automated control systems were developed by us. Our access rights management system ensures that our proprietary ingredient mixes are protected at all times. Also, by linking the computer server with the electronic weights on each of the material input bins, the exact quantity of each element is delivered every time, thus maintaining quality and reducing waste. We also plan to establish an automatic production line controlled by a computer system to manage raw materials processing, which will control the process of fermenting and grinding raw materials, subject to our securing necessary financing to support this plan. Specifically, we plan to establish four automated production lines, including (1) the powder fertilizer production line, (2) the granular fertilizer production line, (3) the liquid water soluble fertilizer production line, and (4) the powder water soluble fertilizer production line). As of the date of this report, (3) and (4) have been completed. In addition, we also installed the liquid raw material automatic storage tank system, the palletizing robot system and the raw material weighing and batching system.

Sales and Marketing

We believe that our sales services, combined with the quality and reputation of our products will help us retain and attract new customers. Our salesmen are trained to work closely with distributors and customers to select suitable products and provide post-sales support. In addition, our salespersons share their knowledges in the fertilizer industry through organizing and opening agricultural technology training courses to the public.

China’s fertilizer market is highly commercialized and therefore we adopted a multi-level brand strategy to target different market segments with tailored products. At present, selenium-rich foliar fertilizer and bamboo charcoal biomass organic fertilizers are marketed as high-end products, compound fertilizers as intermediate products, and amino acid water-soluble fertilizers as low-end products.

We distribute and sell our products to our end-customers through several different channels, including professional markets, sales department of our company and distributors:

We currently sell our products through a carefully constructed network covering approximately 300 regional distributors in over 20 provinces across China. The distributors, in turn, sell the products to smaller local retail stores which then sell them to end users (typically farmers). We do not grant provincial or regional exclusive rights because there is currently no single distributor strong enough to warrant exclusive rights. We enter into non-exclusive written distribution agreements with selected distributors who demonstrate their local business experience and extensive regional sales network. The agreements do not specify the length of the engagement. The typical terms in a distribution agreement are regarding the sales amount of the products, the specification of the products, the means of transportation and the place of products’ delivery. Although our distributors and agents also work with other fertilizer manufacturers to sell their products, we have established our reputation in the market and approximately 30% of the products sold by our distributors and agents were supplied by us. We also plan to work with overseas distributors, such as the distributors in Malaysia, to sell our products, especially our high-purity bamboo vinegar and organic selenium products. 

By using various channels to sell and distribute our products to customers, we can directly serve our customers and end-customers by providing customer service and support.

Raw Materials and Suppliers

Moso bamboo is the crucial raw material for the production of bamboo charcoal, bamboo vinegar and organic selenium. The Moso bamboo resources are abundant in Yichun City, Jiangxi Province and they can regenerate fast. We plan to grow Moso bamboos by ourselves in the future We have been working with 8 suppliers, including Binjiang Yinglan Construction Service Department at Yuanzhou District, Ms. Xueping Li and others to procure Moso bamboos.

We have easy access to and we procure the packaging materials, including bags, bottles and cartons, and packaging labels for each type of fertilizers from local manufacturers and suppliers.

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchase for the years ended December 31, 2022 and December 31, 2021.

Our Suppliers

Our Customers

Our customers are mainly located in provinces of Xinjiang, Guizhou, Jiangxi, Hainan, Fujian, Chongqing and Jiangsu.

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the years ended December 31, 2022 and December 31, 2021.

Competition

The Chinese fertilizer industry is highly fragmented. Our major competitors include the below:

1. Agritech (China) Fertilizer Co., Ltd.

Agritech (China) Fertilizer Co., Ltd. is engaged in the research and development, manufacture, sales and technical support of hi-tech green agricultural resources with green organic high-effect liquid compound fertilizer as its core product.

2. Qiqihaer Fuer Agriculture Co., Ltd, Heilongjiang Province

Established in 1986, Qiqihaer Fuer Agriculture Co., Ltd. is engaged in research and development, manufacture and sales of high-tech foliar fertilizers, compound fertilizers, biological pesticide and improved seeds. Its annual production volume is approximately 1,500 metric tons for foliar fertilizers and 10,000 metric tons for compound fertilizers. We are competing with this company principally in the Heilongjiang province.

3. Heze Exploitation Region Caozhou Chamurgy Co., Ltd.

The Heze Exploitation Region Caozhou Chamurgy Co., Ltd. is an agricultural products company. Its principal products include foliar, water flush, compound, organic fertilizer and pesticides. Its products are sold in 30 provinces in China.

4. Guangxi Beihai Penshibao Co., Ltd.

Founded in 1985, Guangxi Beihai Penshibao Co., Ltd. is a wholly foreign owned enterprise engaged in research, production, and promotion of foliar fertilizer.

Our Strategies and Competitive Strength

We intend to build upon our proven ability to produce high-quality organic fertilizer and increase our presence and market share in the agriculture industry. The summary of our competitive strength is as follows:

Products with Selenium

Selenium is an essential trace mineral that is important for many bodily processes. Our factory is located in an area that has high level of selenium in soil and water which provides us the advantage of manufacturing selenium-rich fertilizer products. By adding organic selenium into our fertilizers and applying them to the crops, selenium can be well absorbed and converted, making the final agricultural products rich of selenium.

Nationwide Distribution Network

We have established our own distribution channels with approximately 300 distributors in over 20 provinces in China, enabling our products to be sold to retail stores across the country. We are continuing expanding our distribution network through developing more distributors and we plan to sell our fertilizers to more provinces in China.

Powerful Research & Development (“R&D”) Strength

It typically takes us three to six months from designing a product to putting it into production. Our R&D department is based on our intelligent greenhouse facilities which simulate the natural environment and soil conditions in different seasons. Our laboratory work, therefore, can accelerate the product development cycle. We are now able to design and provide customized fertilizers products based the specific crop, type of soil and weather conditions, allowing us to diversify our fertilizers to offer more options to our customers.

Automatic Production Line

Our automated production line for product processing is run by a central control system and only needs the input of control technicians. This central control system manages the process of producing products, including automatically feeding materials to machines, blending materials and controlling other manufacturing, packaging and stacking process. We also plan to establish an automatic production line controlled by a computer system to manage raw materials processing, including fermenting and grinding raw materials, subject to our securing of a future financing. Specifically, we plan to establish four automated production line, including (1) the powder fertilizer production line, (2) the granular fertilizer production line, (3) the liquid water-soluble fertilizer production line, and (4) the powder water soluble fertilizer production line). As of the date of this report, (3) and (4) have been completed. Also, our specialized bamboo charcoal production line is patented (patent number: ZL 2017 2 1264881.3).

After-sales Service

Our sales personnel speak local dialects and are familiar with local farmers’ needs. We have one district manager responsible for all the marketing personnel and services in each region. We believe our strong on-site marketing team with emphasis on after-sale services separates us from our competitors.

Intellectual Property

We develop and protect our intellectual property portfolio by registering our trademarks, copyrights and domain names. As of the date of this report, we have four registered trademarks with the Trademark Office of the PRC State Administration for Industry & Commerce with an effective period from July 7, 2018 to July 6, 2028 and one domain name (www.jxknw.com) with Ministry of Industry and Information Technology with effective periods from February 28, 2018 to February 28, 2028. Six trademarks and two trademarks pending application.

In addition, we own the below patents (including four pending patents):

We also protect our intellectual property rights contractually through entering into confidentiality agreement. All of our R&D and execution personnel has entered into confidentiality agreements with us. Furthermore, it is contractually agreed that any work product is owned by the Company. We have further taken steps to restrict the number of persons involving in production. Instead of providing production personnel with the list of fertilizer ingredients, we give them the digit codes representing the ingredients to better protect the formula of our fertilizers.

Seasonality

We experience seasonality in our business, reflecting seasonal fluctuations in food productions and storages. For example, we generally experience higher transaction volumes during spring and fall. Our water-soluble fertilizers have a steady sale volume throughout the year, but our selenium-rich foliar fertilizers usually become more popular one month before the crops are ready to be harvested as that is the best time to apply the selenium-rich foliar fertilizers.

Employees

As of the date of this report, we have 54 full-time employees and 6 part-time employees. The departments cover, sales and marketing, administration, customer service, accounting, design, research and development and human resources. We are required under PRC law to make contributions to employee benefit plans for our PRC-based full-time employees at specified percentages of the salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by the local governments in China and we also are required to make contributions to the work-related injury insurance for the part-time employees. We maintain a good working relationship with our employees, and as of the date of this report, we have not experienced any material labor disputes in the past. None of our employees are represented by labor unions.

Environmental Law Compliance

We believe that our manufacturing facilities are currently operating under compliance with provincial and central environmental laws in the PRC. We plan to continue acquiring environmental-oriented equipment and incurring the expenditures we deem necessary for compliance with applicable laws. Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected our capital expenditures, earnings or competitive position.

Insurance

We provide social security insurance including medical insurance, maternity insurance, workplace injury insurance, unemployment insurance and pension benefits for our employees. Consistent with customary industry practice in China, we do not maintain business interruption insurance, nor do we maintain product liability insurance or key-man life insurance.

Regulations on Fertilizer License 

The examination and approval of fertilizer license is based on Article 25 of the Agricultural Law of the People’s Republic of China, the Management for the Administration of Fertilizer Registration (Order No. 32 and No. 38 by the Ministry of Agriculture), and the Requirements for Fertilizer Registration Materials (Publication No. 161 from the Ministry of Agriculture). Organic fertilizers are required to be registered with provincial agricultural department.

There are four examination and approval requirements for obtaining a fertilizer license: (1) a valid business license issued by Administration for Industry and Commerce, of which the business scope shall cover the industry of fertilizer; (2) products must comply with relevant requirements of laws, regulations and relevant national policies (such as safety and environmental protection); (3) product quality must comply with national standards, industry standards, local standards or enterprise standards approved by the quality supervision department; and (4) application materials must be true, legal, complete and effective.

Our products and services are subject to the regulation of the government agencies of China and Jiangxi Province.

All of our fertilizer products currently have valid five-year fertilizer licenses that are renewable upon the expiration date.

Reverse Split

On November 1, 2021, FINRA announced a 1-for-10 reverse split of our then issued and outstanding common shares.

ITEM 1A. RISK FACTORS

Risk Factor Summary

The following are some material risks, any of which could have an adverse effect on our business financial condition, operating results, or prospects.

Risks Relating to Our Business and Industry

Our fertilizer business is seasonal and affected by factors beyond our control, which may cause our sales and operating results to fluctuate significantly.

The sale of fertilizer products is partially dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both seasonal patterns and substantial fluctuations in quarterly sales and profitability. Weather conditions and natural disasters, such as heavy rains, hail, floods, freezing conditions, windstorms or fire, also affect decisions by our distributors, direct customers and end users about the types and amounts of products to use and the timing of harvesting and planting. As we increase our sales in our current markets and expand into new markets in different geographies, it is possible that we may experience different seasonality patterns in our business.

Disruptions may lead to delays in harvesting or planting by growers which can result in pushing orders to a future quarter, which could negatively affect results for the quarter in question and cause fluctuations in our operating results. Seasonal variations may be especially pronounced because our product lines are mainly sold in China. Planting and growing seasons, climatic conditions and other variables on which sales of our products are dependent vary from year to year and quarter to quarter. As a result, we may experience substantial fluctuations in quarterly sales.

The overall level of seasonality in our business is difficult to evaluate as a result of our relatively early stage of development, our limited number of commercialized products, our expansion into new geographical territories, the introduction of new products and the timing of introductions of new products. It is possible that our business may be more seasonal or experience seasonality in different periods than anticipated. Other factors may also contribute to the unpredictability of our operating results, including the size and timing of significant distributor transactions, the delay or deferral of use of our commercial technology or products and the fiscal or quarterly budget cycles of our direct customers, distributors, licensees and end users. Customers may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year.

Competition in fertilizer and agricultural industrial products is intense and requires continuous technological development.

We currently face significant direct and indirect competition in the markets in which we operate. The markets for fertilizers are intensely competitive and rapidly changing. Many companies engage in the development of fertilizers, and speed in commercializing a new product can be a significant competitive advantage.

In most segments of the fertilizer markets, the number of products available to end customers is steadily increasing as new products are introduced. We may be unable to compete successfully against our current and future competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance for products containing our seed traits and technology. In addition, many of our competitors have substantially greater financial, marketing, sales, distribution and technical resources than us and some of our competitors have more experience in R&D, regulatory matters, manufacturing and marketing. We anticipate increased competition in the future as new companies enter the market and new technologies become available. Programs to improve genetics and crop protection chemicals are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with broader set of companies. Mergers and acquisitions in the plant science, specialty food ingredient and agricultural biotechnology seed and chemical industries may result in even more resources being concentrated among a smaller number of our competitors.

Although we believe we have strong competence in the current market, our technology may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors in the future, which will prevent or limit our ability to generate revenues from the commercialization of our technology. Our ability to compete effectively and to achieve commercial success depends, in part, on our ability to control manufacturing and marketing costs; effectively price and market our products, successfully develop an effective marketing program and an efficient supply chain, develop new products with properties attractive to food manufacturers or growers and commercialize our products quickly without incurring major regulatory costs. We may not be successful in achieving these factors and any such failure may adversely affect our business, results of operations and financial condition.

If we are unable to compete successfully with our competitors, our financial condition and results of operations may be harmed.

We encounter intense competition in each of our business segments on a national, regional and local level. Competition in the industry is primarily based on quality of services, brand name recognition, geographic coverage and range of services. New and existing competitors may offer competitive rates, greater convenience or superior services, which could attract customers away from us, resulting in lower revenues for our operations. Competition among fertilizer companies may cause a decrease in price of sales to attract or retain talented employees.

We do not have multinational competitors. Due to the high price of organic fertilizers from other countries, China has little organic fertilizer imports. The fertilizers produced by international fertilizer companies entering the Chinese organic fertilizer market are mainly special functional fertilizers such as foliar fertilizers. These functional fertilizers are not sold well in the domestic market due to high price.

Some of our competitors may have a broader national presence than us and may have a more established branding recognition than us in major markets, and also may have more financial or other resources than us. Others may have smaller aggregate businesses than us, but may be more established and have greater market presence and brand name recognition on a local or regional basis. We are also subject to competition from other large national and international companies. These companies may have more financial or other resources than us. If we fail to compete effectively, our business operations and financial condition will suffer.

The loss of any of our key suppliers and/or customers could have a materially adverse effect on our results of operations.

We consider our major suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the year ended December 31, 2022, two key suppliers accounted for a total of over 35.75% and 10.82% of our purchases.  

In addition, for the year ended December 31, 2022, two key customers accounted for a total of over 15% of our revenues. As the majority of our revenues are driven by individual orders for fertilizer products, there can be no assurance that we will maintain or improve the relationships with customers. There can be no assurance that we will maintain or improve the relationships with customers. If we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition and results of operations.

Our product development cycle is lengthy and uncertain and we may never generate revenues or earn revenues on the sale of our products currently in development.

The research and development in the crop productivity and agriculture biotech industries is expensive, complex, prolonged and uncertain. We may spend many years and dedicate significant financial and other resources developing products that may never generate revenues or come to market. Our process of developing and commercializing technologies involves several phases and can take several years from discovery to commercialization of a product.

Development of new or improved agricultural products involves risks of failure inherent in the development of products based on innovative and complex technologies. These risks include the possibility that:

We intend to continue to invest in research and development including additional and expanded field testing to validate potential products in real world conditions. Because of the long product development cycle and the complexities and uncertainties associated with biotech and agricultural industrial technologies, there can be no assurance that we will ever generate significant revenues from the technologies or products that we are currently developing without significant delay, without the incurrence of unanticipated costs or at all.

We depend on our key personnel and research employees and we may be adversely affected if we are unable to attract and retain qualified scientific and business personnel.

Our business is dependent on our ability to recruit and maintain highly skilled and educated individuals through direct employment or collaboration arrangements, with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, mathematics programming and other subjects relevant to our business. Our ability to recruit such a work force depends in part on our ability to maintain our market leadership in agricultural biotech industry in China. Maintaining our ability to attract highly-skilled workers and leading scientific institutions depends in part on our ability to maintain a strong technology platform and state-of-the-art facilities, as well as our ability to consistently and successfully commercialize our technology. There can be no assurance that we will be able to maintain leading scientific capabilities or continue to successfully maintain advanced technology in the market.

We have a limited operating history in our market, which makes it difficult to evaluate our future prospects.

We started engaging in our business in the last few years and have limited revenues to date. As our business develops or in response to competition, we may continue to introduce new products and services or make adjustments to our existing offerings and business model. In connection with the introduction of new products or in response to general economic conditions, we may impose more stringent borrower qualifications to ensure the quality of loans facilitated by our companies, which may negatively affect the growth of our business. Any significant change to our business model may not achieve expected results and may have a material and adverse impact on our financial conditions and results of operations. It is therefore difficult to effectively assess our future prospects. The risks and challenges we encounter or may encounter in this developing and rapidly evolving market may have impacts on our business and prospects. These risks and challenges include our ability to, among other things:

If we fail to educate potential borrowers and lenders about the value of our services, if the market for our services does not develop as we expect, or if we fail to address the needs of our target market, or other risks and challenges, our business and results of operations will be harmed.

Any failure of any of our key suppliers to deliver necessary materials could result in delays in our products development or marketing schedules.

For the year ended December 31, 2022, 2 major suppliers accounted for more than 10% of our purchases. We are dependent on our suppliers for our products. Our suppliers may fail to meet timelines or contractual obligations or provide us with sufficient products, which may adversely affect our business. Failure to appropriately structure or adequately manage our agreements with third parties may adversely affect our supply of products. We may not be able to replace a service provider within a reasonable period of time, on as favorable terms or without disruption to our operations. Any adverse changes to our relationships with third-party suppliers could have a material adverse effect on our image, brand and reputation, as well as on our business, financial condition and results of operations.

If we do not compete effectively, our results of operations could be harmed.

Our industry in China is intensely competitive and evolving. Our competitors operate with different business models, have different cost structures or participate selectively in different market segments. They may ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their services. Our competitors may also have longer operating histories, more extensive borrower or lender bases, greater brand recognition and brand loyalty and broader partner relationships than us. Additionally, a current or potential competitor may acquire one or more of our existing competitors or form a strategic alliance with one or more of our competitors. If we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our services could stagnate or substantially decline, we could experience reduced revenues or our services could fail to achieve or maintain more widespread market acceptance, any of which could harm our business and results of operations. 

If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations may be harmed.

The continued development and success of our business rely on the recognition of our brands. We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing borrowers and lenders to our services. Successful promotion of our brand and our ability to attract qualified borrowers and sufficient lenders depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our services. Our efforts to build our brand have caused us to incur significant expenses, and it is likely that our future marketing efforts will require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business. 

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.

If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information.

Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we are required to prepare assessments regarding internal controls over financial reporting. In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected. We determined that our disclosure controls and procedures over financial reporting are not effective and were not effective as of December 31, 2022 and 2021.

The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that we will implement and maintain adequate controls over our financial process and reporting in the future or that the measures we will take will remediate any material weaknesses that we may identify in the future.

Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.

Our business operations depend on the continued services of our senior management, particularly the executive officers named in this report. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. Although we maintained certain accident insurance policies for our officers, we currently do not carry a “key man” life insurance on the officers. Therefore, if one or more of our key executives were unable or unwilling to continue in their present positions, we may incur substantial cost or may not be able to replace them at all. Consequently, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. If that’s the case, we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.

We believe our success depends on the efforts and talent of our employees. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled technical, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve borrowers and lenders could diminish, resulting in a material adverse effect to our business.

We do not have any business insurance coverage. 

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology service failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide products and services on our service.

Our business could also be adversely affected by the effects of virus, such as the novel (new) coronavirus that caused outbreak of respiratory illness in China (“Covid-19”), flu and other diseases. Our business operations could be disrupted if any of our employees is suspected of having virus, flu and other diseases, since it could require our employees to be quarantined and/or our offices to be disinfected. Our results of operations could be adversely affected to the extent that the any virus, flu or disease harms our suppliers and customers and harms the Chinese economy in general. For example, at the beginning of 2020, Covid-19 broke out in China, and has greatly affected the social life and work across the country. Our business was suspended, and all employees had been working from home as required by the national policies before the Chinese government successfully controlled and curbed the spread of the pandemic.

We may be subject to the general risks underlying the agriculture industry in PRC market.

The agriculture industry in the PRC market has been mature. Particularly, we are principally engaged in the fertilizer processing and distribution business in the PRC. Therefore, we need to be cautious in selecting our business focus and expansion strategy, and we should be constantly aware of the innovation risk, technology risk and market risk in the industries. If we fail to make an accurate judgment of the current market, our performance can be severely impacted.

We may be adversely affected by global economic conditions.

Our ability to continue to develop and grow our business, build proprietary distribution channels and generate revenues from product sales and royalty payments may be adversely affected by global economic conditions in the future, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates and other challenges that could affect the global economy such as the changing financial regulatory environment. For example, our customers and licensees may experience deterioration of their businesses, cash flow shortages or difficulties obtaining financing, which could adversely affect the demand for our technologies, products and services. In addition, our earnings may be adversely affected by fluctuations in the price of certain commodities, such as grains, milk, meat, biofuels and biomaterials. If commodity prices are negatively impacted, the value of our products could be directly and negatively impacted. Additionally, growers’ incomes have historically been negatively affected by commodity prices. As a result, fluctuations in commodity prices could have an impact on growers’ purchasing decisions and negatively affect their ability and decisions to purchase our seeds or products that incorporate our proprietary technology. We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation, decrease our operating revenues and disrupt our business.

Laws and regulatory standards and procedures that impact our business are continuously changing. Responding to these changes and meeting existing and new requirements may be costly and burdensome. Changes in laws and regulations may occur that could:

Any of these events could have a material adverse effect on our business, results of operations and financial condition. Legislation and jurisprudence on intellectual property in the key markets where we seek protection, primarily in China, is evolving and changes in laws could affect our ability to obtain or maintain intellectual property protection for our products. Any changes to these existing laws and regulations may materially increase our costs, decrease our revenues and disrupt our business.

The overall agricultural industry is susceptible to commodity price changes and we, along with our customers and grower customers, are exposed to market risks from changes in commodity prices.

Changes in the prices of certain commodity products could result in higher overall cost along the agricultural supply chain, which may negatively affect our ability to commercialize our products. We will be susceptible to changes in costs in the agricultural industry as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, and government regulations. As a result, we may not be able to anticipate or react to changing costs by adjusting our practices, which could cause our operating results to deteriorate.

Our operations are subject to various health and environmental risks

We are subject to numerous state, local and foreign environmental, health and safety laws and regulations, including those governing the handling, use, storage, treatment, manufacture and disposal of wastes, discharge of pollutants into the environment and human health and safety matters.

Although there are no hazardous substances in the raw materials used by us that will affect and damage the Company’s employees, factory, other property and the environment, the safety of raw materials is also one of the requirements when applying for the fertilizer registration certificate. We cannot completely eliminate the risk of contamination or discharge and any resultant injury from these materials. If these risks were to materialize, we could be subject to fines, liability, reputational harm or otherwise adverse effects on our business. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, or may otherwise be required to remedy the contamination, and our liability may exceed any insurance coverage and our total assets. Furthermore, compliance with environmental, health and safety laws and regulations may be expensive and may impair our research & development efforts. If we fail to comply with these requirements, we could incur substantial costs and liabilities, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental, health and safety laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced. These current or future laws and regulations may impair our research, development or production efforts.

Failure to maintain or enhance our brands or image could have a material and adverse effect on our business and results of operations.

We believe our brands are associated with a well-recognized, integrated fertilizers company in the local markets that it operates, with consistent high-quality products end customers in China. Our brands are integral to our sales and marketing efforts. Our continued success in maintaining and enhancing our brand and image depends to a large extent on our ability to satisfy customer needs by further developing and maintaining quality of services across our operations, as well as our ability to respond to competitive pressures. If we are unable to satisfy customer needs or if our public image or reputation were otherwise diminished, our business transactions with our customers may decline, which could in turn adversely affect our results of operations.

Any failure to protect our trademarks and other intellectual property rights could have a negative impact on our business.

We have one patent over our production device and four trademarks. Any unauthorized use of our intellectual property rights could harm our competitive advantages and business. Historically, China has not protected intellectual property rights to the same extent as the United States, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Monitoring and preventing unauthorized use are difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.

In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

We lease our factory and the land where it locates and may experience risks relating to lease termination and increase of lease expenses.

We currently lease our factory and the land on which the factory locates on a year-to-year basis. Our lease agreement does not provide for automatic renewal or extension options. Although we do not expect the landlord will stop renewing the lease upon expiration of the current leasing term, there can be no assurance that we will be able to obtain the renewal or extension at the lease end. If we are not able to renew or extend our leases at or prior to the end of the existing lease terms, or if the terms of such options are unfavorable or unacceptable to us, such as significant increase of lease expenses, our business, financial condition and results of operation could be adversely affected.

Contractual arrangements WFOE has entered into may be subject to scrutiny by the PRC tax authorities and a finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements of the WFOE do not represent arm’s-length prices and consequently adjust WFOE’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by the WFOE, which could in turn increase its tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties on WFOE for any unpaid taxes. Our consolidated net income may be materially and adversely affected if WFOE’s tax liabilities increase or if they are subject to late payment fees or other penalties.

We may be affected by adverse changes in taxation law, tax treaties and in the practice of tax authorities.

Changes in taxation legislation, tax treaties and in the practice of tax authorities can affect investment behavior which can have the effect of making specific kinds of investment products either more or less attractive to existing or potential clients.

We cannot predict the impact of future changes to tax legislation, tax treaties and the practice of tax authorities on our business or on the attractiveness of our investment products. Amendments to existing tax legislation (in particular if there is a withdrawal of any available tax relief or an increase in tax rates) and tax treaties or the introduction of new rules and new tax treaties or changes in the practice of tax authorities may affect the investment decisions of either existing or potential clients. Changes from time to time in the interpretation of existing tax laws, amendments to existing tax rates, the introduction of new tax legislation and tax treaties, a change in the interpretation of tax legislation, any change in the practice of enforcement of such legislation or any particular change in our tax treatment or our funds could have a material adverse effect on our business, growth prospects, net inflows of AUM, fee income, results of operations and/or financial condition.

Risks Relating to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our products and adversely affect our competitive position. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.

Uncertainties with respect to the PRC legal system could adversely affect us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation since then has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

U.S. Investors face added risks from the Company’s classification as a foreign private issuer.

Subject to the requirements and public policy considerations as stipulated under applicable PRC Laws relating to the enforceability of foreign court judgments, submission to foreign jurisdiction for dispute resolution and choice of law, and also subject to the conditions described under the caption “Enforceability of Civil Liabilities” in the Registration Statement and Prospectus, (i) the irrevocable submission of the Company to the jurisdiction of any courts in the United States, the waiver by the Company of any objection to the venue of a proceeding in any such court, the waiver and agreement not to plead an inconvenient forum, the waiver of sovereign immunity

Under PRC Laws, neither the Material PRC Company, nor their respective properties, assets or revenues, are entitled to any right of immunity on the grounds of sovereignty or otherwise from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any court, from services of process, from attachment prior to or in aid of execution of any judgment, or from other legal processes or proceedings for the giving of any relief or for the enforcement of any judgment.

The Company’s principal executive offices and our officers and directors are located outside of the United States. This could make the enforcement and/or service of process of a shareholder claim or judgment difficult.

U.S shareholders may face difficulties in effecting service of process against the Company and our officers and director. Even with proper service of process, the enforcement of judgments obtained in U.S. courts or foreign courts based on the civil liability provisions of the U.S. federal securities laws would be extremely difficult. Furthermore, there would be added costs and issues with bringing an original action in foreign courts to enforce liabilities based on the U.S. federal securities laws against the Company or its officers and directors, and they still may be fruitless.

Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) published a discussion draft of the proposed Foreign Investment law (“Draft Foreign Investment Law”) in January 2015 aiming to, upon enactment, replace the existing laws regulating foreign investment in China, namely, the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law, and the Wholly Foreign-Invested Enterprise Law, together with their implementation rules and ancillary regulations. The MOFCOM is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The Draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance, and business operation.

Among other things, the Draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a FIE. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,” which is classified into the “catalogue of prohibitions” and “catalogue of restrictions,” to be separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. If the FIE is engaged in the industry listed in the catalogue of restrictions, it needs market entry clearance by the MOFCOM. Otherwise, prior approval from governmental authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this report based on foreign laws.

We conduct substantially all of our operations in China, and substantially all of our assets are located in China. In addition, all our directors and executive officers reside within China for a significant portion of the time and are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside China. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States of America and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a Nevada holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including for services of any debt we may incur.

Our PRC subsidiary’s ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries are required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of our PRC subsidiaries as a Foreign Invested Enterprise, or FIE, is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at its discretion. These reserves are not distributable as cash dividends. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiary to distribute dividends or other payments to its shareholder could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.

Our employment practices may be adversely impacted under the labor contract law of the PRC.

The PRC National People’s Congress promulgated the Labor Contract Law which became effective on January 1, 2008 and was amended on December 28, 2012, and the State Council promulgated implementing rules for the Labor Contract Law on September 18, 2008. The labor contract law and the implementing rules impose requirements concerning, among others, the execution of written contracts between employers and employees, the time limits for probationary periods, and the length of employment contracts. The interpretation and implementation of these regulations are still evolving, our employment practices may violate the labor contract law and related regulations and we could be subject to penalties, fines or legal fees as a result. If we are subject to severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results of operations may be adversely affected.

We may be subject to additional contributions of social insurance and housing fund and late payments and fines imposed by relevant governmental authorities.

In accordance with the PRC Social Insurance Law and the Regulations on the Administration of Housing Fund and other relevant laws and regulations, China establishes a social insurance system and other employee benefits including basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance, maternity insurance, housing fund, and a handicapped employment security fund, or collectively the Employee Benefits. An employer shall pay the Employee Benefits for its employees in accordance with the rates provided under relevant regulations and shall withhold the social insurance and other Employee Benefits that should be assumed by the employees. For example, an employer that has not made social insurance contributions at a rate and based on an amount prescribed by the law, or at all, may be ordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case may be. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times of the amount overdue.

Under the Social Insurance Law and the Regulations on the Administration of Housing Fund, PRC subsidiaries shall register with local social insurance agencies and register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC subsidiaries and their employees are required to contribute to the Employee Benefits.

As of the date of this report, our PRC subsidiary is in the process of completing the social insurance registration and the housing fund registration, and we have made adequate contributions to Employee Benefits for our employees. We have recorded accruals for the estimated underpaid amounts of Employee Benefits in our financial statements. As of the date of this report, we have not received any notice from the relevant government authorities or any claim or request from these employees in this regard. However, we cannot assure you that the relevant government authorities will not require us to pay the outstanding amount and impose late fees or fines on us. If we fail to make the outstanding Employee Benefit contributions within the prescribed time frame, we may be subject to a fine of up to three times the amount of the overdue payment. If we are otherwise subject to investigations related to non-compliance with labor laws and are imposed severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results of operations may be adversely affected.

Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.

We have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and was amended in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. We believe our current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may take a different view and impose fines on us.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.

Under PRC law, legal documents for corporate transactions, including agreements and contracts are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with relevant PRC industry and commerce authorities.

In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will submit the application through our office automation system and the application will be verified and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of our subsidiaries. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations, and we may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how long such depreciation of RMB against the U.S. dollar may last and when and how the relationship between the RMB and the U.S. dollar may change again. All of our revenues and substantially all of our costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value of, and any dividends payable on, the common stock in U.S. dollars. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common stock or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount.

Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our holding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the common stock.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

Some of our shareholders that we are aware of are subject to SAFE regulations, and we expect all of these shareholders will have completed all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however, that all of these individuals may continue to make required filings or updates in a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in our company. Any failure or inability by such individuals to comply with SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options will be subject to these regulations when our company becomes an overseas-listed company upon effectiveness of this Registration Statement. Failure to complete the SAFE registrations may subject them to fines and legal sanctions, there may be additional restrictions on the ability of them to exercise their stock options or remit proceeds gained from the sale of their stock into the PRC. We also face regulatory uncertainties that could restrict our ability to adopt incentive plans for our directors, executive officers and employees under PRC law.

If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders and the common stock holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe our company is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we would be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders (including the common stock holders) may be subject to PRC tax on gains realized on the sale or other disposition of the common stock, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including the common stock holders) and any gain realized on the transfer of the common stock or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our common stock.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets, as such persons need to determine whether their transactions are subject to these rules and whether any withholding obligation applies.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an “Indirect Transfer”, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who pays for the transfer is obligated to withhold the applicable taxes currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

Our Corporate Structure may be affected by the new PRC Foreign Investment Law.

Pursuant to the new Foreign Investment Law that was approved by the PRC National People’s Congress on March 15, 2019 and became effective from January 1, 2020, foreign investment refers to any investment activity directly or indirectly carried out by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign funded enterprise or increase of investment, merger and acquisition, and investment in any other way stipulated under laws, administrative regulations, or provisions of the State Council. Once an entity is considered to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in the “Negative List (as defined below)”. On June 30, 2019, Catalogue of Encouraging Foreign Investment Industries (2019 Edition) (the “2019 Encouraged Catalogue”) and Special Administrative Measures for Foreign Investment Access (Negative List) (2019 Edition) (the “2019 Negative List”) were jointly released by China’s Ministry of Commerce and the National Development and Reform Commission and became effective on July 30, 2019. Industries listed in the 2019 Encouraged Catalogue are the encouraged industries. On the other hand, industries listed in the 2019 Negative List are subject to special management measures.

If an FIE proposes to conduct business in an industry subject to foreign investment “restrictions” in the Negative List, the FIE must go through certain clearance procedures first. If an FIE proposes to conduct business in an industry subject to foreign investment “prohibitions” in the Negative List, it must not engage in the business. Although the Company’s wholly-owned subsidiary, Jiangxi Kenongwo is an FIE, the management believes that none the its business falls under the Negative List and therefore we are not subject to the foreign investment “restrictions” contained therein. However, we cannot predict how the Negative List will develop and there can be no assurance that our business will continue to be excluded from the Negative List. If our business becomes subject to foreign investment “restrictions” in the Negative List in the future, it may cause change of our corporate ownership structure from owning Jiangxi Kenongwo as a direct wholly owned subsidiary to a variable interest entity, which has a less degree of control and we may incur additional compliance cost.

Risks Relating to Ownership of Our Common Stock

The market price of our common stock may be volatile or may decline regardless of our operating performance.

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding common stock in the public marketplace could reduce the price of our common stock.

The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our common stock.

There is no ticker symbol or market for our common stock, which may make it difficult for holders of our common stock to sell their stock.

There is no ticker symbol nor established public trading marketing for our common stock and there can be no assurance that we will obtain the symbol, or the market will ever develop. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result holders of our securities may not find purchasers for our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.

Our principal stockholder and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Our Chief Executive Officer, Mr. Jianjun Zhong, beneficially owns approximately 55.8% of our issued and outstanding shares of common stock (based on the number of shares of common stock outstanding as of the date of this report). Mr. Zhong alone will be able to impact matters requiring stockholder approval. For example, he may be able to impact elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of Mr. Zhong and our management may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.

We may be subject to the penny stock rules which will make shares of our common stock more difficult to sell.

We may be subject in the future to the SEC’s “penny stock” rules if our shares of common stock are eligible to be quoted on a trading platform such as OTCQB but sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

If a trading market for our common stock develops, the market price of our common stock is likely to be highly volatile and subject to wide fluctuations, and holders of our common stock may be unable to sell their shares at or above the price at which they were acquired.

If our common stock is approved to be quoted and traded on the OTC markets, the market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Smaller reporting companies are not required to provide the information required by this item.

ITEM 2. PROPERTIES.

Our Property, Plant and Equipment

We currently have one integrated factory with 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. This factory is composed of our fertilizers production lines, bamboo charcoal kiln, fermentation tank, office area, warehouse and laboratory. Both the land and the factory over the land are leased by us from Yichun City Sunshine Manor Disabled Planting, Breeding and Development Co., Ltd., a non-affiliate entity on an annual basis. The current annual rent is RMB24,000 (approximately $3,720). However, we own the fertilizers production lines, bamboo charcoal kiln, fermentation tank, warehouse and laboratory on the land.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we are subject to legal proceedings and claims arising in the ordinary course of our business. As of the date of this report, we were not involved in any litigation, arbitration or administrative proceedings pending or, to our knowledge, threatened against us that could have a material and adverse effect on our business, financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

As of the date of this report, the Company’s common stock is quoted on OTC Markets, symbol KNGW. Trading is very sporadic; the most recent trade was for 100 shares at $1.00 per share, on June 27, 2023.

Holders

As of June 27, 2023, we have record 105 record holders of our common stock.

Transfer Agent and Registrar

The Transfer Agent for our common stock is Empire Stock Transfer Inc., located at 1859 Whitney Mesa Dr., Henderson, NV 89014.

Dividend Policy

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors has the discretion to declare and pay dividends in the future.

Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our Board of Directors deems relevant.

ITEM 6. [RESERVED]

As a “smaller reporting company” as defined in Item 10 of Regulation S-K, we are not required to provide the information required by this item.

ITEM 7. 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 generally accepted accounting principles in the United States, or U.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 U.S. GAAP.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern as the  Company’s net income is positive in 2022 and the Company is able to obtain financial support from shareholder to meet its short term liquidity shortage.

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:

Results of Operations

Comparison of the year ended December 31, 2022 and December 31, 2021.

Revenue

For the year ended December 31, 2022, our total revenue was $7,639,624, representing an increase of 1307.33% compared to $542,845 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:

Cost of revenues

Cost of revenues for the fertilizers was $5,460,592 and $954,310 for the years ended December 31, 2022 and 2021, respectively, representing an increase of 472.20%. 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:

Gross Profit

Our gross profit was $2,179,032 and negative $411,465 with gross margin of 28.52% and negative 75.80% for the years ended December 31, 2022 and 2021, respectively. The gross margin improved because the revenue increased 1307.33% while the cost of revenue increased 472.20% for the year ended December 31, 2022 compared to the same period in 2021. 

Selling Expenses

Our selling expenses were $207,232 for the year ended December 31, 2022, representing a decrease of $94,924 or 31.42% compared to $302,156 for the year ended December 31, 2021. It was mainly the Company controls costs, reduces travel expenses, advertising expenses, etc.

General and Administrative Expenses

The general and administrative expenses increased by $340,613, or 50.66% from $672,340 for the year ended December 31, 2021 to $1,012,953 for the year of 2022 due to the increase in professional fees, allowance for credit losses and operational costs associated with the increase in business operations.

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 $125,027 and $158,308 for the years ended December 31, 2022 and 2021 respectively.

Net Income (loss)

Our net income (loss) was $935,154 and $(1,401,408) for the years ended December 31, 2022 and 2021, respectively, representing an increase of $2,336,562. It was due to the increase in revenues, as discussed above.

Liquidity and Capital Resources

Our working capital profit (deficit) was $229,703 and $(3,760,370) for the years ended December 31, 2022 and 2021, respectively.

We have respectively financed our operations over the years ended December 31, 2022 and 2021 primarily through proceeds from advances from related parties, and net cash inflow from operation.

The components of cash flows are discussed below:

Cash used in Operating Activities

For the year ended December 31, 2022, net cash provided by operating activities was $142,903, which consisted primarily of net income of $935,154, and was adjusted by depreciation and amortization of $223,218, allowance for credit losses expenses of $257,906 and gain on disposal of PPE of $1,083. The Company had an increase of $623,305  in account payables and accrued payables, as the Company negotiated with its major vendors for credit term extension, a decrease of $1,642,060 in accounts receivable because the Company extended the credit term to existing and new customers, an increase of $109,096 in prepayments to the suppliers for procurement of raw materials and deposit for the building materials and equipment, and a decrease of $334,408 in inventories, and an increase $6,919 in deferred tax assets, and an increase $34,624 in advances from customers. 

For the year ended December 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 increase 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 a decrease of $120,883 in inventories.

Cash used in Investing Activities

Net cash used in investing activities was $66,645 for the year ended December 31, 2022. The activities consisted of our investments of $53,423 in purchasing plant and equipment.

Net cash used in investing activities was $1,318,700 for the year ended December 31, 2021. The activities consisted of our investments of $1,319,101 in purchasing plant and equipment.

Cash Provided by Financing Activities

Net cash used in financing activities was $161,779 for the year ended December 31, 2022. During this year, cash provided by financing activities mainly includes advances from related party of $56,497, advances from director of $105,282.

Net cash provided by financing activities was $1,590,481 for the year ended December 31, 2021. During this year, cash provided by financing activities mainly includes proceeds from related parties of $1,210,725, proceeds from long-term loans of $465,008.

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.

Quantitative and Qualitative Disclosures about Market Risks

Liquidity Risk

We are also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and third parties to obtain short-term funding to meet the liquidity shortage.

Inflation Risk

We are also exposed to inflation risk and inflationary factors, such as increases in raw material and overhead costs, which could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of revenue if the selling prices of our products do not increase with such increased costs.

Foreign Currency Risk

A majority of our operating activities and a significant portion of our assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide the information required by this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated balance sheets, as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022 and 2021, together with the related notes and the report of our independent registered public accounting firm, are set forth on the “F” pages of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) that are designed to ensure that information that would be required to be disclosed in the Exchange Act reports is recorded, processed, summarized and reported within the time period 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 December 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2022, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended due to the material weakness in our internal control over financial reporting discussed below.

The material weakness identified by our management as of December 31, 2022 relates to the ability of the Company to record transactions and provide disclosures in accordance with U.S. GAAP. We did not have sufficient and skilled accounting personnel with an appropriate level of experience in the application of U.S. 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 U.S. 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 U.S. GAAP-based reporting is inadequate. The cumulative effects of the above identified weaknesses resulted in the inability to file the financial reports on a timely basis.

We plan to provide U.S. 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.

Internal Control over Financial Reporting and Attestation Report of Registered Public Accounting Firm

This annual report does not include a report of management’s assessment regarding internal control over financial reporting (“ICFR”) or an attestation report of the Company’s independent registered public accounting firm on ICFR due to a transition period established by rules of the Securities and Exchange Commission (the “SEC”) for newly public companies. The SEC has adopted a transition period permitting a newly public company to wait until its second annual report to comply with Section 404(a) of Sarbanes-Oxley Act of 2002 (“SOX”). After that point, issuers that are emerging growth companies, or are not large accelerated filers or accelerated filers are exempt from the requirements of SOX 404(b). As such, if the Company continues to satisfy as being an emerging growth company or other exemption standards as listed above, it will continue to be exempted from filing attestation report of the Company’s independent registered public accounting firm regarding ICFR.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable. 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

General

The following table sets forth certain information with respect to our directors and executive officer:

Biography -

Mr. Jianjun Zhong has been appointed as a director, President, Treasurer and Secretary of the Company since October 17, 2018. Mr. Zhong is the founder of Jiangxi Kenongwo, bringing extensive executive experience in the bio-chemical industry. Mr. Zhong has been devoting himself into the fertilizer industry since 2007, when he started his own business and since then has been successfully developing non-toxic and environment-friendly selenium-rich bamboo charcoal organic fertilizers. Since August 2004, Mr. Zhong has also been engaging in the inbound investment planning for Zhuting Merchants’ Association at Yuanzhou District, where Jiangxi Kenongwo is located. In 2017, Mr. Zhong founded Jiangxi Kenongwo to further develop, upgrade, produce and sell selenium-rich bamboo charcoal organic fertilizers. Before 2004, Mr. Zhong was in the education industry and taught chemistry at high schools in Jiangxi province and Guangdong province. Mr. Zhong graduated from Jiangxi Normal School in 1991, majoring in chemistry.

Mr. Zhenggen Zhang has been appointed as a director of the Company since October 18, 2018. Mr. Zhang is an executive director of Xihai Liangpin (Hainan) Information Technology Co., Ltd since June 2019, a marketing director of Jiangxi Chun Zhi Du Environmental Protection Technology Co., Ltd from 2015 to May 2019, deputy general manager and training manager of Jiangxi Li Biotechnology Co., Ltd. from 2012 to 2014. Prior to that, he was engaged in various positions ranging from a village commission chair, an investor and founder of a garment factory and marketing chief of a daily commodity company at different periods since 1986.

Term of Office

Our directors are appointed to hold office until the next meeting of our shareholders or until removed from office in accordance with our bylaws.

Family Relationships

There are no family relationships between any of our directors or executive officers.

Our directors do not hold any directorships in other reporting companies and does not qualify as an “independent director” under the Rules of NASDAQ, Marketplace Rule 4200(a)(15).

To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) have:

(a) had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

(b) been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.

(c) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

(d) been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Director or Officer Involvement in Certain Legal Proceedings

To our knowledge, our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company is subject to Section 15(d) of the Securities Exchange Act Exchange Act. Therefore unlike Sections 12(b) and 12(g) of the Exchange Act, Section 15 does not subject an issuer (and its directors, officers and large shareholders) to Sections 16, 13(d) and 13(f) beneficial ownership reporting. As a result, this section is not applicable to the Company’s directors, executive officers and persons who own more than 10% a registered class of our equity securities.

Code of Ethics

A code of business conduct and ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) the prompt reporting violation of the code and (e) accountability for adherence to the code. We are not currently subject to any law, rule or regulation requiring that we adopt a code of ethics; however, we intend to adopt one in the near future.

Corporate Governance

The business and affairs of the Company are managed under the direction of our board. In addition to the contact information in this report, each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation at our annual stockholders meetings. All communications from stockholders are relayed to the members of the Board of Directors.

Board Committees

We presently do not have an audit committee, compensation committee or nominating committee or committee performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form an audit, compensation or nominating committee. Until these committees are established, these decisions will continue to be made by our Board of Directors.

Board Leadership Structure and Role in Risk Oversight

Our Board is primarily responsible for overseeing our risk management processes. The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.  

ITEM 11. EXECUTIVE COMPENSATION

The following summary compensation table sets forth the compensation earned by our named executive officer for the years ended December 31, 2022 and 2021.

Summary Compensation Table

Compensation of Directors

Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity. 

Employment Agreements

Currently, we do not have any written employment agreement in place with our officers and directors.

Option Grants

We had no outstanding equity awards as of the end of fiscal years ended December 31, 2022 and 2021.

Option Exercises and Fiscal Year-End Option Value Table

There were no stock options exercised during fiscal years ended December 31, 2022 and 2021 by the executive officer.

Outstanding Equity Awards at Fiscal Year-End Table

We had no outstanding equity awards as of the end of fiscal years ended December 31, 2022 and 2021.

Long-Term Incentive Plans and Awards

There were no awards made to a named executive officer in fiscal 2022 and 2021 under any long-term incentive plan.

Director Compensation

Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors.

Our directors have agreed not to and did not receive any compensation for their services as directors for the years ended December 31, 2022 and 2021.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As noted in Item 1, on November 1, 2021, FINRA announced a 1-for-10 reverse split of our then-outstanding common shares, which took effect of November 2, 2021. The following table provides information as to shares of common stock beneficially owned as of June 27, 2023, by:

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

During the year ended December 31, 2022, the Company issued 100,000,000 post-reverse split restricted shares to our CEO, Jianjun Zhong for a consideration of $100,000. Shortly thereafter, Mr. Zhong transferred 44,509,325 of those shares to 82 non-US persons.

“During the year ended December 31, 2022, the shareholder, Mr. Jianjun Zhong waived off a shareholder’s loan balance of US$2,542,554 (RMB 18,000,000) due to him.

As of December 31, 2022 and 2021, the outstanding balances of $54,562 and nil were due to Mr. Keqi Li, the supervisor 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 December 31, 2022 and 2021, the outstanding balance due to shareholders was $234,848 and $3,070,210, respectively.

Other than the transaction described above, for the past two fiscal years there have not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded or will exceed $80,000, and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

Independence of the Board of Directors

For a director to be “independent” under these standards, the Board must affirmatively determine that the director has no material relationship with us, either directly or as a partner, shareholder, or officer of an organization that has a relationship with us. Applying corporate governance standards, and all other applicable laws, rules and regulations, the Board of Directors has determined that none of our directors are independent. This does not constitute an independent board of directors. 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

We were billed by Assentsure PAC, our independent public accountants for the following professional services it performed for us during the fiscal year ended December 31, 2022 and 2021, as set forth in the table below:

Audit Fees — This category includes the audit of our annual financial statements and services that are normally provided by the independent auditors in connection with engagements for those fiscal years.

Audit-Related Fees — This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.

Tax Fees — This category consists of professional services rendered by the Company’s independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

Pre-Approval Policies and Procedures 

All of the services rendered to us by our independent registered public accountants were pre-approved by the Board.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

Financial Statements

The following financial statements of Kenongwo Group US, Inc. and Report of Independent Registered Public Accounting Firm are presented in the “F” pages of this report:

(b) Exhibits

See the Exhibit Index following the signature page of this report, which Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KENONGWO GROUP US, INC.

Exhibit Index to Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2022

KENONGWO GROUP US, INC.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

(Stated in US Dollars) 

Report of Independent Registered Public Accounting Firm

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Kenongwo Group US, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had incurred substantial losses during the year, and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plan in regards to these matters are described in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Assentsure PAC

Assentsure PAC (6783)

Singapore

June 27, 2023

We have served as the Company’s auditor since 2022.

KENONGWO GROUP US, INC.

AUDITED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2022 AND 2021
(Stated in US Dollars)

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

KENONGWO GROUP US, INC.

AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

(Stated in US Dollars)

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

KENONGWO GROUP US, INC.

AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 

(Stated in US Dollars)

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

KENONGWO GROUP US, INC.

AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 

(Stated in US Dollars)