UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended |
| OR | |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
Dachaidan
(Da Qaidam Administrative Committee)
(Address of principal executive offices)
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| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. ☒ 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). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| (do not check if a smaller reporting company) | Smaller reporting company |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 18, 2022, there were
Lithium & Boron Technology, Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
33 | |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
34 | |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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NOTE ABOUT FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which include, but are not limited to, statements concerning our projected revenues, expenses, gross profit and income, mix of revenue, demand for our products, the benefits and potential applications for our products, the need for additional capital, our ability to obtain and successfully perform additional new contract awards and the related funding and profitability of such awards, the competitive nature of our business and markets and product qualification requirements of our customers. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Such factors include, but are not limited to the following:
● our goals and strategies;
● our expansion plans;
● our future business development, financial conditions and results of operations;
● our expectations regarding demand for our products;
● our expectations regarding keeping and strengthening our relationships with key customers;
● our ability to stay abreast of market trends and technological advances;
● our ability to protect our intellectual property rights effectively and not infringe on the intellectual property rights of others;
● our ability to attract and retain quality employees;
● our ability to pursue strategic acquisitions and alliances;
● competition in our industry in China;
● general economic and business conditions in the regions in which we sell our products;
● relevant government policies and regulations relating to our industry; and
● market acceptance of our products.
Additionally, this report contains statistical data we obtained from various publicly available government publications and industry-specific third party reports. Statistical data in these publications also include projections based on a number of assumptions. The changing nature of our customers’ industries results in uncertainties in any projections or estimates relating to the growth prospects or future condition of our markets. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.
Unless otherwise indicated, information in this report concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable. None of the market data from independent industry publications cited in this report was prepared on our or our affiliates’ behalf.
Additional information on the various risks and uncertainties potentially affecting our operating results are discussed in this report and other documents we file with the Securities and Exchange Commission, or the SEC, or available upon written request to our corporate secretary at: 60 East Ren-Min Road, Da-Chai Dan Town, Xai Xi County, Qing Hai Province 8100000. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements.
As used in this report, “LBTI,” “Company,” “we,” “our” and similar terms refer to Lithium & Boron Technology, Inc. and its subsidiaries, unless the context indicates otherwise.
Our functional currency is the US Dollar, or USD, while the functional currency of our subsidiaries in China are denominated in Chinese Yuan Renminbi, or RMB, the national currency of the People’s Republic of China, which we refer to as the PRC or China, and the functional currency of our subsidiary in Germany is denominated in Euros, or EUR. The functional currencies of our foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the average exchange rate during the fiscal year. See Note 2 of the consolidated financial statements included herein.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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LITHIUM & BORON TECHNOLOGY, INC |
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CONSOLIDATED BALANCE SHEETS |
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MARCH 31, |
DECEMBER 31, |
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2022 (Unaudited) |
2021 |
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ASSETS |
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CURRENT ASSETS |
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Cash and equivalents |
$ | $ | ||||||
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Prepaid expenses |
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Advances to suppliers, net |
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Other receivables ,net |
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Notes receivable |
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Inventories |
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Total current assets |
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NONCURRENT ASSETS |
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Property and equipment, net |
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Intangible asset, net |
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Construction in progress |
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Total noncurrent assets |
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TOTAL ASSETS |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
$ | $ | ||||||
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Unearned revenue |
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Accrued liabilities and other payables |
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Taxes payable |
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Due to related parties |
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Total current liabilities |
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DEFERRED INCOME |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS' EQUITY (DEFICIT) |
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| Common stock, $ |
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Paid-in capital deficiency |
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Statutory reserves |
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Accumulated other comprehensive income |
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Retained earnings |
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TOTAL COMPANY STOCKHOLDERS' EQUITY (DEFICIT) |
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Noncontrolling interest |
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TOTAL EQUITY (DEFICIT) |
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TOTAL LIABILITIES AND EQUITY (DEFICIT) |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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LITHIUM & BORON TECHNOLOGY, INC |
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
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(UNAUDITED) |
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THREE MONTHS ENDED MARCH 31, |
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2022 |
2021 |
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Revenue |
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Boronic acid sales |
$ | $ | ||||||
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Total revenue |
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Cost of revenue |
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Boronic acid |
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Total cost of revenue |
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Gross profit |
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Operating expenses |
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Selling |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Non-operating income (expenses) |
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Financial expense |
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Other expense |
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Interest income |
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Subsidy income |
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Total non-operating income, net |
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Loss before income tax |
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Income tax expense |
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Loss before noncontrolling interest |
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Less: loss attributable to noncontrolling interest |
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Net loss to the Company |
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Other comprehensive items |
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Foreign currency translation gain (loss) attributable to the Company |
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Foreign currency translation gain (loss) attributable to noncontrolling interest |
( |
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Comprehensive loss attributable to the Company |
$ | ( |
) | $ | ( |
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Comprehensive loss attributable to noncontrolling interest |
$ | ( |
) | $ | ( |
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Basic and diluted weighted average shares outstanding |
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Basic and diluted net income (loss) per share |
$ | ( |
) | $ | ( |
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The accompanying notes are an integral part of these consolidated financial statements.
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LITHIUM & BORON TECHNOLOGY, INC |
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STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) |
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THREE MONTHS ENDED MARCH 31, 2022 AND 2021 |
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(UNAUDITED) |
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Common Stock |
Paid-in capital deficiency |
Statutory reserves |
Accumulated other comprehensive (loss) income |
Retained earnings |
Total |
Noncontrolling interest |
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Shares |
Amount |
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Balance at January 1, 2022 |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
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Net loss |
- | - | - | - | - | ( |
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Dividend accrued |
- | - | - | - | - | ( |
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Statutory reserve |
- | - | - | - | ( |
) | - | - | ||||||||||||||||||||||||
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Foreign currency translation gain |
- | - | - | - | - | |||||||||||||||||||||||||||
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Balance at March 31, 2022 |
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Balance at January 1, 2021 |
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Net loss |
- | - | - | - | - | ( |
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Dividend accrued |
- | - | - | - | - | ( |
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Statutory reserve |
- | - | - | - | ( |
) | - | - | ||||||||||||||||||||||||
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Foreign currency translation gain |
- | - | - | - | ( |
) | - | ( |
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Balance at March 31, 2021 |
$ | $ | ( |
) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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LITHIUM & BORON TECHNOLOGY, INC |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(UNAUDITED) |
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THREE MONTHS ENDED MARCH 31, |
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2022 |
2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Loss including noncontrolling interest |
$ | ( |
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Adjustments to reconcile loss including noncontrolling |
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interest to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Changes in deferred income |
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(Increase) decrease in assets and liabilities: |
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Accounts receivable |
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Prepaid expenses |
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Advances to suppliers |
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Other receivables |
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Inventories |
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Accounts payable |
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Unearned revenue |
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Accrued liabilities and other payables |
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Taxes payable |
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Net cash provided by (used in) operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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Construction in progress |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Capital contribution from noncontrolling interest |
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Changes in due from related parties |
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Changes in due to related parties |
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Net cash provided by financing activities |
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EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS |
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NET DECREASE IN CASH AND EQUIVALENTS |
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CASH AND EQUIVALENTS, BEGINNING OF PERIOD |
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CASH AND EQUIVALENTS, END OF PERIOD |
$ | $ | ||||||
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Supplemental cash flow data: |
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Income tax paid |
$ | $ | ||||||
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Interest paid |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
LITHIUM & BORON TECHNOLOGY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022 AND DECEMBER 31, 2021
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Lithium & Boron Technology, Inc., (the “Company” or “Lithium Tech”), formerly known as SmartHeat, Inc. (“SmartHeat”), was incorporated August 4, 2006, in the State of Nevada.
On December 31, 2018 (the “Closing Date”), the Company entered into and closed a Share Exchange Agreement and Plan of Reorganization, as amended on January 24, 2019 (the “Share Exchange Agreement”) with Mid-Heaven Sincerity International Resources Investment Co., Ltd (Mid-heaven BVI) and its shareholders Mao Zhang, Jian Zhang, and Ying Zhao, constituting all the shareholders of Mid-heaven BVI (the “Mid-heaven Shareholders”). Pursuant to the terms of the Share Exchange Agreement, the shareholders of Mid-Heaven BVI delivered all issued and outstanding shares of capital stock of Mid-Heaven BVI to the Company, for
The main operating entity, Technology was incorporated December 18, 2018. The business of Technology was carved out of the business of Qinghai Zhongtian Boron & Lithium Mining Co., Ltd (“Qinghai Mining”) on December 20, 2018. Qinghai Mining was founded March 6, 2001, and formerly manufactured and sold boric acid and related compounds for industrial and consumer use. Qinghai Mining has stopped the mining of boron rock and will only provide brine to Technology. In order to maintain the normal operation of the Company, in July 2021, Technology Company entered a processing contract to provide boric acid commissioned processing service for a processing fee of RMB
Management of Technology expects that it will source all material that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval and permits from the relevant governmental authorities. Technology and Qinghai Mining submitted an application to the Environment Protection Department in January of 2022 and is currently under the review. Technology expects a response in the second quarter of 2022, and will supply additional data if there are further comments on the application.
In December 2019, a novel strain of coronavirus (COVID-19) was reported, and the World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which continues to spread to additional countries, and disrupts supply chains and affecting production and sales across a range of industries as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak. The COVID-19 outbreak impacted the Company’s operations for the first quarter of 2020. However, as a result of PRC government’s effort on disease control, most cities in China were reopened in April 2020, the outbreak in China is under the control; and the Company’s production and sales started back to normal since April 2020. Since April 2020 to January 2022, there were some new COVID-19 cases discovered in a few provinces of China, however, the number of new cases are not significant due to PRC government’s strict control. Since February 2022 to date, COVID-19 case increased in many cities of China; however, there are only a few new cases in Qinghai Province which we do not expect impact the Company’s operations.
On March 27, 2020, Technology entered into an Investment Cooperation Agreement, Memorandum of Cooperation and Licensing Agreement with Xi'an Jinzang Membrane Environmental Protection Technology Co., Ltd. (“Xi’an Jinzang”) to produce up to 30,000 tonnes of battery grade lithium carbonate annually, subject to funding. On April 15, 2020, the parties formed a joint Venture (“JV”) Zhonglixinmo Technology Co., Ltd (“Qinghai Zhongli” or JV) to process brine supplied by Technology. Technology owns
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying consolidated financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had loss before noncontrolling interest of $
After Technology ceased sourcing ore for the production of boric acid from Qinghai Mining , Technology leased out the boric acid manufacturing facility, equipment and auxiliary equipment for a monthly fee in order to provide interim cash flow and maintain revenues from boric acid operations (see Note 1 above).
The Company plans to produce lithium carbonate that can be sold for the electric vehicle battery use and is currently at test production stage. The Company expects to generate additional revenues and cash flow once it receives government approval of the official production process which is expected by second quarter 2022. Management also intends to raise additional funds by way of a private or public offerings, by obtaining loans from banks or form other sources of debt or equity capital. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Basis of Presentation
The CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The interim consolidated financial information as of March 31, 2022 and for the three-month periods ended March 31, 2022 was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the CFS and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 31, 2022.
In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2022, its consolidated results of operations and cash flows for the three months ended March 31, 2022, as applicable, were made.
Principles of Consolidation
For the three months ended March 31, 2022 and 2021, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake, Technology and Qinghai Zhongli, which are collectively referred to as the “Company.” All significant intercompany accounts and transactions were eliminated in consolidation. Mid-heaven BVI, Sincerity and Salt-Lake had no operations as of today.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Equivalents
Cash includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Accounts Receivable, net
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, the Company had allowance of $
Advances to Suppliers, net
The Company makes advances to certain vendors to purchase raw material, tools and equipment for production. The advances are interest-free and unsecured. As of March 31, 2022 and December 31, 2021, the Company had gross advance to suppliers of $
Inventories, net
Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to market value, if lower.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; major additions, repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with a
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Buildings |
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Structures and improvements |
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Vehicles |
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Office equipment |
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Production equipment |
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Equipment upgrade |
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Depreciation of plant, property and equipment attributable to manufacturing is capitalized as part of inventories, and expensed to cost of sales when inventories are sold.
Impairment of Long-Lived Assets
Long-lived assets, which include tangible assets, such as property and equipment, goodwill and other intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized based on the excess of the carrying amount over the fair value of the assets. Fair value generally is determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of March 31, 2022 and December 31, 2021, there was no significant impairments of its long-lived assets.
Effective January 1, 2020, the Company adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Deferred Income
Deferred income consists primarily of government grants and subsidies for supporting the Company’s technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company uses most of the subsidies to purchase machinery and equipment. Deferred income is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project.
Unearned Revenue
The Company records payments received from customers in advance of their orders as unearned revenue. These orders normally are delivered (usually within one month) based upon contract terms and customer demand.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon receipts of the goods by customers. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday. The Company also temporarily provided boric acid commissioned processing service with boron material provided by the customer; the Company recognizes revenue when the final products are picked up by the customer at the Company’s warehouse, where the control transfers to the customer.
Starting from September 2021, Technology stopped processing service and leased out its boric acid manufacturing facility, equipment and auxiliary equipment to a customer. The facility leasing revenue is recorded on monthly basis.
Cost of Sales
Cost of sales consists primarily of material costs and direct labor and manufacturing overhead attributable to the production of the products. Write-down of inventory to lower of cost or net realizable value is also recorded in cost of sales.
Research and Development Costs
Research and development (“R&D”) costs are expensed as incurred and included in general and administrative expenses. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department and fees paid to third parties. R&D costs for the three months ended March 31, 2022 and 2021 were $
Share-Based Compensation
The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period.
The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the fair value(“FV”) of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.
Effective January 1, 2020, the Company adopted ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of FASB ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that FASB ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The adoption of ASU 2018-07 did not have an impact on the Company’s CFS.
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of operations. At March 31, 2022 and December 31, 2021, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a NCIs interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCIs balance.
On April 15, 2020, Technology and Xi’an Jinzang formed a JV, Qinghai Zhongli, to process brine supplied by Technology. Technology owns
Concentration of Credit Risk
Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned banks within the PRC are covered by insurance up to RMB
Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.
The operations of the Company are primarily in China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.
Basic and Diluted Earnings (Loss) per Share (EPS)
Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the US parent company are maintained in USD. The functional currency of the Company’s China subsidiaries is the Chinese Yuan Renminbi (“RMB”). The accounts of the China subsidiaries were translated into USD in accordance with FASB ASC Topic 830, “Foreign Currency Matters.” According to FASB ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholders’ equity was translated at the historical rates and statement of operations items were translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220, “Comprehensive Income.”
Statement of Cash Flows
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.
Fair Value of Financial Instruments
Certain of the Company’s financial instruments, including cash and equivalents, notes receivable, accrued liabilities and accounts payable, carrying amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:
|
● |
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
● |
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
|
● |
Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement. |
Effective January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy.
As of March 31, 2022 and December 31, 2021, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.
Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases, and will keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions.
Segment Reporting
FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations constitute a single reportable segment in accordance with ASC 280. The Company currently operates in
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its CFS.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.
3. INVENTORIES, NET
Inventories at March 31, 2022 and December 31, 2021, respectively, were as follows:
|
2022 |
2021 |
|||||||
|
Raw materials |
$ | $ | ||||||
|
Finished goods |
||||||||
|
Total |
$ | $ | ||||||
4. NOTES RECEIVABLE – BANK ACCEPTANCES
The Company sold goods to its customers and received notes (bank acceptances) from them in lieu of payment. These bank acceptances were issued by customers to the Company and would be honored by the applicable bank. The Company may hold a bank acceptance until maturity for full payment or have the bank acceptance cashed by the bank at a discount at an earlier date, or transfer the bank acceptance to its vendors in lieu of payment for their own obligations. As of March 31, 2022 and December 31, 2021, the Company had notes receivable of $
5. OTHER RECEIVABLES
Other receivables consisted of the following at March 31, 2022 and December 31, 2021:
|
2022 |
2021 |
|||||||
|
VAT receivable |
$ | $ | ||||||
|
Security deposit |
||||||||
|
Other |
||||||||
|
Total |
||||||||
|
Less: bad debt allowance |
( |
) |
( |
) | ||||
|
Other receivables, net |
$ | $ | ||||||
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at March 31, 2022 and December 31, 2021, respectively:
|
2022 |
2021 |
|||||||
|
Building structures and improvements |
$ | $ | ||||||
|
Production equipment |
||||||||
|
Vehicle |
||||||||
|
Equipment |
||||||||
|
Total |
||||||||
|
Less: accumulated depreciation |
( |
) |
( |
) |
||||
|
Property and equipment, net |
$ | $ | ||||||
In May 2021, the Company acquired RMB
Depreciation for the three months ended March 31, 2022 and 2021 was $
7. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at March 31, 2022 and December 31, 2021:
|
2022 |
2021 |
|||||||
|
Land use right |
$ | $ | ||||||
|
Less: accumulated amortization |
( |
) | ( |
) |
||||
|
Intangible asset, net |
$ | $ | ||||||
The Company acquired land use right of $
Amortization of land use right for the three months ended March 31, 2022 and 2021 was $
8. CONSTRUCTION IN PROGRESS (“CIP”)
As of March 31, 2022 and December 31, 2021, the Company had CIP of $
9. TAXES PAYABLE
Taxes payable consisted of the following March 31, 2022 and December 31, 2021, respectively:
|
2022 |
2021 |
|||||||
|
Income tax payable |
$ | $ | ||||||
|
Other |
||||||||
|
VAT |
||||||||
|
Taxes payable |
$ | $ | ||||||
10. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at March 31, 2022 and December 31, 2021, respectively:
|
2022 |
2021 |
|||||||
|
Advances from third parties |
$ | $ | ||||||
|
Other |
||||||||
|
Accrued salary |
||||||||
|
Total |
$ | $ | ||||||
Advances from third parties were short term, non-interest-bearing and due on demand.
As of March 31, 2022 and December 31, 2021, other mainly consisted of 1) dividend payable to Northtech of $
As of March 31, 2022, accrued salary of $
11. RELATED PARTY TRANSACTIONS
Due from related parties, net
Technology purchased raw material boron rock from Qinghai Mining (owned by
Due to related parties
Technology used equipment for production that belongs to Qinghai Province Dachaidan Zhongtian Resources Development Co., Ltd (“Zhongtian Resources”, which is owned by the Chairman and his brother who were formerly two major shareholders of the Company). The depreciation of these fixed assets had an impact on the production costs of boric acid of the Company and was included in the Company’s cost of sales. The depreciation of these fixed assets for the three months ended March 31, 2022 and 2021 was $
Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd (“Dingjia”) which is
During the first quarter of 2021, Qinghai Zhongli and Xi’an Jinzang entered three loan contracts for Qinghai Zhongli borrowing RMB
In addition, at March 31, 2022 and December 31, 2021, the Company had $
At March 31, 2022 and December 31, 2021, the Company had $
The following table summarized the due from (to) related parties as of March 31, 2022 and December 31, 2021, respectively:
|
Related party name |
2022 |
2021 |
|||||||
|
Due from |
Qinghai Mining including $1.77 million sale of CIP (Test and Experimental Plant I) |
$ | $ | ||||||
|
Due to |
Qinghai Mining |
( |
) |
( |
) |
||||
|
Less: bad debt allowance for Qinghai Mining |
( |
) |
( |
) | |||||
|
Due from, net (current and noncurrent) |
$ | $ | |||||||
|
Due to |
Xi'an Jinzang (NCI of the JV) with 6.8% interest |
$ | $ | ||||||
|
Due to |
Senior officer |
||||||||
|
Due to |
A major shareholder |
||||||||
|
Due to, total |
$ | $ | |||||||
12. DEFERRED INCOME
Deferred income consisted mainly of the government subsidy to the Company’s special projects.
The detail of deferred income for the Company’s special projects at March 31, 2022 is:
|
Government subsidy amount |
Project completion date |
Useful life in years |
Accumulated amortization |
Net |
|||||||||||||
|
Technology upgrade for using lean ore to produce magnesium sulfate |
$ | |
$ | $ | |||||||||||||
|
Technical transformation for boric acid and magnesium sulfate produced from low grade ore |
|
||||||||||||||||
|
Project of comprehensive utilization of DaChaiDan Solid Boron Mine |
|
||||||||||||||||
|
Project of high value utilization of magnesium-rich waste liquid |
|
||||||||||||||||
|
Total |
$ | $ | $ | ||||||||||||||
The detail of deferred income for the Company’s special projects at December 31, 2021 is:
|
Government subsidy amount |
Project completion date |
Useful life in years |
Accumulated amortization |
Net |
|||||||||||||
|
Technology upgrade for using lean ore to produce magnesium sulfate |
$ | |
$ | $ | |||||||||||||
|
Technical transformation for boric acid and magnesium sulfate produced from low grade ore |
|
||||||||||||||||
|
Project of comprehensive utilization of DaChaiDan Solid Boron Mine |
|
||||||||||||||||
|
Project of high value utilization of magnesium-rich waste liquid |
|
||||||||||||||||
|
Total |
$ | $ | $ | ||||||||||||||
13. SUBSIDY INCOME
Subsidy income consisted of amortization of deferred income for declared special projects and government’s general incentive fund (recorded as income upon receipt) for the three months ended March 31, 2022 and 2021, respectively:
|
Three Months Ended March 31, |
||||||||
|
2022 |
2021 |
|||||||
|
Technology upgrade for using lean ore to produce magnesium sulfate |
$ | $ | ||||||
|
Technical transformation for boric acid and magnesium sulfate produced from low grade ore |
||||||||
|
Project of comprehensive utilization of DaChaiDan Solid Boron Mine |
||||||||
|
Project of high value utilization of magnesium-rich waste liquid |
||||||||
|
Total |
$ | $ | ||||||
14. DEFERRED TAX ASSETS
As of March 31, 2022 and December 31, 2021, respectively, deferred tax assets consisted of the following:
|
2022 |
2021 |
|||||||
|
Deferred tax asset –NOL of US parent company |
$ | $ | ||||||
|
Deferred tax asset –NOL of PRC subsidiaries |
||||||||
|
Less: valuation allowance |
( |
) |
( |
) |
||||
|
Deferred tax assets, net |
$ | $ | ||||||
The Company recorded a
15. INCOME TAXES
The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities.
The H.R. 1 (the “Tax Reform”), effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in changes to existing U.S. tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduced the federal corporate tax rate from
The U.S. parent company, was incorporated in the U.S. and has net operating losses (“NOLs”) for income tax purposes, under the 2018 Tax Reform, the NOLs arising in tax years beginning after 2017 may reduce
Mid-Heaven BVI is a BVI company, and there is no income tax for companies domiciled in the BVI. Sincerity and Salt-Lake are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at
The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income (loss) before income taxes for the three months ended March 31, 2022 and 2021, respectively:
|
2022 |
2021 |
|||||||
|
Tax (benefit) at U.S. federal statutory rates |
$ | ( |
) |
$ | ( |
) |
||
|
Foreign income taxed at different rates |
( |
) |
||||||
|
Tax holiday in PRC |
( |
) |
||||||
|
Permanent difference |
||||||||
|
Valuation allowance |
||||||||
|
Tax expense per financial statements |
$ | $ | ||||||
The income tax expense for the three months ended March 31, 2022 and 2021, respectively, consisted of the following:
|
2022 |
2021 |
|||||||
|
Income tax expense – current |
$ | - | $ | |||||
|
Income tax expense – deferred |
||||||||
|
Total income tax expense |
$ | - | $ | |||||
16. MAJOR CUSTOMERS AND VENDORS
For the three months ended March 31, 2022, there was no customer accounts more than 10% of the Company’s total sales.
The following table sets forth information as to the Company’s customers that accounted for 10% or more of the Company’s sales for the three months ended March 31, 2021.
|
Three Months Ended March 31, 2021 |
||||
|
Customer |
Percentage of Total Sales |
|||
|
A |
% |
|||
|
B |
% |
|||
|
C |
% |
|||
|
D |
% |
|||
The Company had no customer that accounted for 10% or more of the Company’s accounts receivable as of March 31, 2022 and December 31, 2021.
Technology purchased all of its boron ore raw material of $
Beginning in July 2021, Management of Technology began shifting suppliers to third parties in order to fulfill what management believes will be a short term reliance on ore for the production of boric acid. Management of Technology expects that it will source all material and compounds that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval from the relevant governmental authorities.
For the three months ended March 31, 2022, there was no supplier accounts more than 10% of the Company’s total purchases.
The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases for the three months ended March 31, 2021.
|
Three Months Ended March 31, 2021 |
||||
|
Supplier |
Percentage of Total Purchases |
|||
|
A – Qinghai Mining |
% |
|||
|
B |
% |
|||
|
C |
% |
|||
|
D |
% |
|||
The Company had no supplier that accounted for 10% or more of the Company’s accounts payable as of March 31, 2022. The Company had three suppliers that accounted for 10% or more of the Company’s accounts payable as of December 31, 2021. The accounts payable to these suppliers was $
17. STATUTORY RESERVES AND RESTRICTED NET ASSETS
The Company’s ability to pay dividends primarily depends on it receiving funds from its subsidiaries. PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit as reported in the FIE’s PRC statutory accounts.
As a result of these PRC laws and regulations that require annual appropriations of
According to Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds issued by the PRC Ministry of Finance and the State Administration of Work Safety, for the companies with dangerous goods production or storage, the company is required to make a special reserve for the use of enhancing and improving its safe production conditions. Under PRC GAAP, the reserve is recorded as cost of sales; however, under US GAAP, since the expense has not been incurred and the Company already recorded cost of sales for safety related expenses when incurred, this special reserve was recorded as an appropriation of its after-tax income. At March 31, 2022, the Company had $
|
Annual revenue amount |
Reserve ratio |
|
|
Less than RMB 10 million ($1.41 million) |
|
|
|
Over RMB 10 million ($1.41 million), but less than RMB 100 million ($14.13 million) |
|
|
|
Over RMB 100 million ($14.13 million), but less than RMB 1 billion ($141.25 million) |
|
|
|
Over RMB 1 billion ($141.25 million) |
|
18. COMMITMENTS
Capital Contribution
Both Sincerity and Salt-Lake were incorporated in China in 2018 with registered capital of $
19. CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions in China are denominated in RMB and all of the Company’s assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
20. SUBSEQUENT EVENTS
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent event other than as disclosed in Notes 1 and 2 above.
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Declaration
The comments made throughout this Annual Report should be read in conjunction with our Financial Statements and the Notes thereto, and other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words, “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of factors beyond our control. We do not undertake to publicly update or revise any of our forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are also urged to carefully review and consider our discussions regarding the various factors that affect our business, which are described in this section and elsewhere in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company currently leases it facilities to produce boric acid in the Peoples Republic of China (“PRC”) and plans to expand its manufacturing facilities through a Joint Venture (“JV”) to produce up to 30,000 tonnes of lithium carbonate annually for the electric vehicle battery market in China, subject to funding.
On December 31, 2018 (the "Closing Date"), we entered into a Share Exchange Agreement and Plan of Reorganization, as amended January 24, 2019 (the “Share Exchange Agreement”) with Mid-Heaven Sincerity International Resources Investment Co., Ltd (Mid-heaven BVI) and its shareholders Mao Zhang, Jian Zhang, and Ying Zhao, constituting all of the shareholders of Mid-heaven BVI (the “Mid-heaven Shareholders”). Pursuant to the terms of the Share Exchange Agreement, the shareholders of Mid-heaven BVI delivered all of the issued and outstanding shares of capital stock of Mid-Heaven BVI to SmartHeat, for 106,001,971 shares of our Common Stock. Mid-heaven BVI, through two subsidiaries, Qinghai Mid-Heaven Sincerity Technology Co., Ltd (“Sincerity”) and Qinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd (“Salt-Lake”) owns 100% of Qing Hai Mid-Heaven Boron & Lithium Technology Company, Ltd. (“Technology”). On November 4, 2021, Mr. Jimin Zhang purchased a total of 106,001,971 shares of common stock of the Company at a purchase price of $.001 per share (80,625,099 shares from Mao Zhang, 22,165,012 shares from Jian Zhang, and 3,211,860 shares from Ying Zhao). After giving effect to the purchases, Mr. Jimin Zhang now holds, directly or indirectly, a total of 152,769,779 shares of Common Stock which represents approximately 82% of the Company’s issued and outstanding Common Stock.
The main operating entity, Technology was incorporated on December 18, 2018. The business of Technology was carved out of the business of Qinghai Zhongtian Boron & Lithium Mining Co., Ltd (“Qinghai Mining”) on December 20, 2018. Qinghai Mining was founded March 6, 2001, and manufactured and sold boric acid and related compounds for industrial and consumer usage. Technology obtains its brine exclusively from Qinghai Mining and currently leases its facilities to third parties to produce boric acid and related compounds. . Technology previously purchased ore from Qinghai Mining; however, Qinghai Mining ceased ore production due to environmental protection restriction from the government. In order to maintain the normal operation of the Company; in July 2021, Technology Company entered a processing contract to provide boric acid commissioned processing service at processing fee of RMB 2,000 ($308) per ton with borax provided by the customer. On August 31, 2021, two parties signed the supplement agreement, the final settlement price increased to RMB 2450 ($375) per ton due to increased costs. In September 2021, Technology Company entered a new agreement with the same customer, the Company would no longer provide the processing services and agreed to lease its boric acid manufacturing facility, equipment, auxiliary equipment, necessary utilities, and workers to produce the boric acid. The customer is required to pay RMB 400,000 ($63,000) per month for facility usage fee to the Company, or RMB 500,000 ($78,700) per month if the customer wants to use the Company’s low-grade abandoned slag. In April 2022, Technology, together with Qinghai Mining entered a new Contact Cooperation Agreement with a contractor (or lessee) for leasing out manufacturing facility, equipment, auxiliary equipment and necessary utilities for a term of five years from April 1, 2022 to March 31, 2027, monthly leasing fee of RMB 500,000 ($78,700); of which, RMB 200,000 ($31,500) pays to Technology, and RMB 300,000 ($47,200) pays to Qinghai Mining. Technology owns the equipment and machinery, Qinghai Mining owns the land and plant and will provide the silicic acid and slag to the contractor at no additional charge.
In December 2019, a novel strain of coronavirus (COVID-19) was reported and the World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which continues to spread to additional countries, and disrupts supply chains and affecting production and sales across a range of industries as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak. The COVID-19 outbreak impacted the Company’s operations for the first quarter of 2020. However, as a result of PRC government’s effort on disease control, most cities in China were reopened in April 2020, the outbreak in China is under the control, and the Company’s production and sales has been gradually increasing since April 2020. Since April 2020 to January 2022, there were some new COVID-19 cases discovered in a few provinces of China, however, the number of new cases are not significant due to PRC government’s strict control. Since February 2022, the COVID-19 case bounced again in many cities of China; however, there are only a few new cases in Qinghai Province which does not impact the Company’s operations.
On March 27, 2020 (PRC time), Technology entered into an Investment Cooperation Agreement, Memorandum of Cooperation and Licensing Agreement with Xi'an Jinzang Membrane Environmental Protection Technology Co., Ltd. (“Xi’an Jinzang”) to produce up to 30,000 tonnes of battery grade lithium carbonate annually, subject to funding. On April 15, 2020, the parties formed a JV company Qinghai Zhonglixinmo Technology Co., Ltd (“Qinghai Zhongli” or JV) to process brine supplied by Technology. Technology owns 51% of the JV and Xi’ Jinzang owns the remaining 49%. The JV cooperation agreement calls for a capital contribution of RMB 140 million ($19,746,000), to be paid in three phases according to the project construction progress: RMB 36 million ($5,077,000) to be paid within 10 days from the date of registration and establishment of the JV, RMB 72 million ($10,155,000) to be paid before July 31, 2020, and RMB 32 million ($4,513,000) to be paid before October 31,2020. The JV’s shareholders are required to contribute capital in accordance with their respective shareholding ratio. The capital contribution amount and timing can be adjusted upon both parties’ mutual consent. Each party made an initial capital contribution of RMB 5 million ($0.71 million) in April 2020. As of the date of this report, the parties have not made all capital contributions on the dates due, pending financing by the Company, as the capital contribution amount and timing can be adjusted anytime upon both parties’ mutual consent. During the construction and operation of the project, all parties agree to actively raise construction funds by means of bank loans, self-owned funds, etc. if the funds are not raised in time, the term of paid in capital can be extended accordingly upon agreement of all parties. On May 9, 20222, JV changed its name to Qinghai Zhongli Technology Co., Ltd.
Going Concern
The accompanying consolidated financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had net loss of $0.25 million and $0.12 million for the three months ended March 31, 2022 and 2021, respectively; the Company stopped produce and selling boron acid starting from September 2021 due to decreased mine production resulting from rectifying the mines in the area by the authority for environment protection, which raise substantial doubt about the Company’s ability to continue as a going concern.
Because the Company ceased obtaining ore for the production of boric acid from its affiliate, the Company leased out the boric acid manufacturing facility, equipment and auxiliary equipment for a monthly fee in order to provide interim cash flow and maintain revenues from boric acid operations. The Company plans to produce lithium carbonate that can be sold for the electric vehicle battery use and is currently at test production stage. The Company expects to generate additional revenues and cash flow once it receives government approval of the official production process, and the Company will source all material that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval from the relevant governmental authorities, the Company submitted application to Environment Protection Department in the beginning of 2022 and is currently under the review. Management also intends to raise additional funds by way of a private or public offerings, by obtaining loans from banks or form other sources of debt or equity capital. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Related Party Transactions
Due from related parties, net
Technology purchased raw material boron rock from Qinghai Mining (owned by three former major shareholders of the Company); in addition, Technology received no-interest short-term advances from Qinghai Mining from time to time for daily operational needs. As of March 31, 2022 and December 31, 2021, due from Qinghai Mining was $0 (a 100% bad debt allowance was recorded for due from Qinghai Mining of $4.5 million due to the concern of its ability to repay the debt because it ceased production of boron ore sold to us). Qinghai Technology purchased boron ore at a cost of $0 and $261,258 from Qinghai Mining during the three months ended March 31, 2022 and 2021, respectively.
Due to related parties
Technology uses equipment that belongs to Qinghai Province Dachaidan Zhongtian Resources Development Co., Ltd (“Zhongtian Resources”) for production which is owned by our former Chairman and his brother who were two major shareholders of the Company in 2021. The depreciation of these fixed assets had an impact on the production costs of boric acid of the Company and was included in the Company’s cost of sales. The depreciation of these fixed assets for the three months ended March 31, 2022 and 2021 was $2,427 and $5,586, respectively. Amount of due to Zhongtian Resources resulting from using its equipment and payment of worker’s compensation made by Zhongtian Resource for Technology was $96,691 and $96,274 at March 31, 2022 and December 31, 2021, respectively; however, Technology, Qinghai Mining and Zhongtian agreed to use the creditor’s rights of Technology to Qinghai Mining to offset the debts of Technology to Zhongtian, accordingly, due to Zhongtian Resource was $0 as of March 31, 2022 and December 31, 2021.
Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd (“Dingjia”) which is 90% owned by the son of the Company’s major shareholder and Chairman. For the three months ended March 31, 2022 and 2021, the Company’s sales to Dingjia was $0 and $0, respectively. At March 31, 2022 and December 31, 2021, outstanding payable to Dingjia was $21,340 and $21,248, respectively; however, Technology, Qinghai Mining and Dingjia agreed to use the creditor’s rights of Technology to Qinghai Mining to offset the debts of Technology to Dingjia, accordingly, due to Dingjia was $0 as of March 31, 2022 and December 31, 2021.
During the first quarter of 2021, Qinghai Zhongli and Xi’an Jinzang entered three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($630,100) with an annual interest of 6.8% from Xi’an Jinzang. The funds were used for the production and operation activities and construction of Adsorption Station of Qinghai Zhongli. The Company was to repay RMB 2.5 million ($393,812) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($236,287) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if the Company is not able to repay the loan on time. The Company did not repay the RMB 4.0 million ($630,100) at March 31, 2022; in addition, the Company borrowed additional RMB 2 million ($315,050) with same terms during the second quarter of 2021 under the oral agreement. The Company borrowed additional RMB 2 million ($315,050) with the same terms during the third quarter of 2021 under the oral agreement. In January and February 2022, the Company entered two borrowing agreements with same lender for RMB 1 million ($157,500) with maturity date on July 30, 2022 and RMB 2 million ($315,000) with maturity date on December 31, 2022, respectively, both loans have a 10% annual interest rate. The Company only received RMB 2 million ($315,000) during the first quarter of 2022. The Company recorded $80,935 and $55,679 capitalized interest on CIP of Adsorption Station Project as of March 31, 2022 and December 31, 2021.
In addition, at March 31, 2022 and December 31, 2021, the Company had $1,510,591 and $1,473,591 due to a major shareholder and Chief Executive Officer of the Company, resulting from certain of the Company’s operating expenses such as legal and audit fees that were paid by him on behalf of the Company. This short-term advance bore no interest, and payable upon demand.
At March 31, 2022 and December 31, 2021, the Company had $1,431 and $499 due to a senior officer of the Company, resulting from the Company’s expenses paid by him. This short-term advance bore no interest, and was payable upon demand.
The following table summarized the due from (to) related parties as of March 31, 2022 and December 31, 2021, respectively:
|
Related party name |
2022 |
2021 |
|||||||
|
Due from |
Qinghai Mining including $1.77 million sale of CIP (Test and Experimental Plant I) |
$ | 5,610,394 | $ | 5,567,440 | ||||
|
Due to |
Qinghai Mining |
(1,071,196 |
) |
(1,047,820 |
) |
||||
|
Less: bad debt allowance |
(4,539,198 |
) |
(4,519,619 |
) |
|||||
|
Due from, net (current and noncurrent) |
$ | - | $ | - | |||||
|
Due to |
Xi'an Jinzang (NCI of the JV) with 6.8% interest |
$ | 1,656,185 | $ | 1,310,444 | ||||
|
Due to |
Senior officer |
1,431 | 499 | ||||||
|
Due to |
A major shareholder (CEO) |
1,510,591 | 1,473,591 | ||||||
|
Due to, total |
$ | 3,168,207 | $ | 2,758,534 | |||||
Significant Accounting Policies
While our significant accounting policies are more fully described in Note 2 to our CFS, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
Our CFS are prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP.
Principles of Consolidation
For the three months ended March 31, 2022 and 2021, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake, Technology and Qinghai Zhongli, which are collectively referred to as the “Company.” All significant intercompany accounts and transactions were eliminated in consolidation.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Accounts Receivable
We maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, we had bad debt allowance for accounts receivable of $20,321 and $20,233 at March 31, 2022 and December 31, 2021, respectively.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon receipts of the goods by customers. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday. The Company also temporarily provided boric acid commissioned processing service with boron material provided by the customer; the Company recognizes revenue when the final products are picked up by the customer at the Company’s warehouse, where the control transfers to the customer.
Starting from September 2021, Technology stopped processing service and leased out its boric acid manufacturing facility, equipment and auxiliary equipment to a customer. The facility leasing revenue is recorded on monthly basis.
Deferred Income
Deferred income consists primarily of government grants and subsidies for supporting the Company’s technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company used most of the subsidies to purchase machinery and equipment. Deferred income is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used for. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project.
Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the US parent company are maintained in USD. The functional currency of the Company’s China subsidiaries is the Chinese Yuan Renminbi (“RMB”). The accounts of the China subsidiaries were translated into USD in accordance with FASB ASC Topic 830, “Foreign Currency Matters.” According to FASB ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity was translated at the historical rates and statement of operations items were translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220, “Comprehensive Income.”
Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to NCI even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCIs was separately designated in the accompanying statements of operation and comprehensive income (loss). Losses attributable to NCIs in a subsidiary may exceed an NCIs interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCIs balance.
On April 15, 2020, Technology and Xi’an Jinzang formed a JV company Qinghai Zhongli to process brine supplied by Technology. Technology owns 51% of the JV and Xi’an Jinzang owns the remaining 49%. During the three months ended March 31, 2022 and 2021, the Company had loss of $7,989 and $9,933 that were attributable to the NCI.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its CFS.
Results of Operations
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
The following table sets forth the consolidated results of our operations for the periods indicated as a percentage of net sales, certain columns may not add due to rounding.
|
2022 |
% of Sales |
2021 |
% of Sales |
|||||||||||||
|
Boronic acid sales |
$ | - | - |
% |
$ | 1,828,380 | 100.0 |
% |
||||||||
|
Boronic acid costs |
- | - |
% |
1,696,118 | 92.8 |
% |
||||||||||
|
Gross profit |
- | - |
% |
132,262 | 7.2 |
% |
||||||||||
|
Selling expenses |
- | - |
% |
23,055 | 1.3 |
% |
||||||||||
|
General and administrative expenses |
308,648 | - |
% |
274,371 | 15.0 |
% |
||||||||||
|
Total operating expenses |
308,648 | - |
% |
297,426 | 16.3 |
% |
||||||||||
|
Income (loss) from operations |
(308,648 |
) |
- |
% |
(165,164 |
) |
(9.1 |
)% |
||||||||
|
Other income |
52,636 | - |
% |
50,965 | 2.8 |
% |
||||||||||
|
Income (loss) before income taxes |
(256,012 |
) |
- |
% |
(114,199 |
) |
(6.3 |
)% |
||||||||
|
Income tax expense |
- | - |
% |
11,458 | 0.6 |
% |
||||||||||
|
Income (loss) before noncontrolling interest |
(256,012 |
) |
- |
% |
(125,657 |
) |
(6.9 |
)% |
||||||||
|
Less: loss attributable to noncontrolling interest |
(7,989 |
) |
- |
% |
(9,933 |
) |
(0.6 |
)% |
||||||||
|
Net loss to the Company |
$ | (248,023 |
) |
- |
% |
$ | (115,724 |
) |
(6.3 |
)% |
||||||
Revenue
Revenue for the three months ended March 31, 2022 and 2021 was $0 and $1,828,380, respectively, a decrease of $1,828,380 or 100%. Starting from the third quarter 2021, we were no longer produce the boron acid but only providing the processing service; starting the fourth quarter 2021, we stopped the ore processing due to increased cost but only leasing our facilities out to a third party who imports boron ore and process it for sale by themselves. However, due to the Chinese New Year holiday and the lessee did not actually use the Company’s facility to produce, the Company did not charge any leasing revenue for the three months ended March 31, 2022. In April 2022, Technology, together with Qinghai Mining entered a new Contact Cooperation Agreement with a contractor (or lessee) for leasing out manufacturing facility, equipment, auxiliary equipment and necessary utilities for a term of five years from April 1, 2022 to March 31, 2027, monthly leasing fee of RMB 500,000 ($78,700); of which, RMB 200,000 ($31,500) pays to Technology, and RMB 300,000 ($47,200) pays to Qinghai Mining. Technology owns the equipment and machinery, Qinghai Mining owns the land and plant and will provide the silicic acid and slag to the contractor at no additional charge.
Cost of revenue
Cost of revenue (“COR”) for the three months ended March31, 2022 and 2021 was $0 and $1,696,118, respectively, a decrease of $1,696,118 or 100.0%. The decrease was mainly due to decreased sales and production. The overall COR as a percentage of revenue was 0% for the three months ended March 31, 2022 compared with 92.8% for 2021.
Gross profit
Gross profit for the three months ended March 31, 2022 and 2021 was $0 and $132,262, respectively, an decrease of $132,262 or 100.0%. The blended profit margin was 0% for the three months ended March 31, 2022 compared to 7.2% for the three months ended March 31, 2021.
Operating expenses
Selling expenses consist mainly of salespersons’ salaries and freight out. Selling expense were $0 for the three months ended March 31, 2022, compared to $23,055 for the three months ended March 31, 2021, a decrease of $23,055 or 100.0%, mainly due to no sales incurred during the three months ended Mach 31, 2022.
General and administrative expenses consist mainly of salary, R&D, office, welfare, business meeting, maintenance, bad debt expense and utilities. General and administrative expenses were $308,648 for the three months ended March 31, 2022, compared to $274,371 for the three months ended March 31, 2021, an increase of $34,277 or 12.5%, mainly resulting from increased maintenance expense by $54,170 which was partly offset by decreased vehicle expense by $6,630, decreased business management expense by $5,100 and other G&A expenses by $8,150.
Other income
Other income was $52,636 for the three months ended March 31, 2022, compared to $50,965 for the three months ended March 31, 2021, an increase of $1,671 or 3.3%. For the three months ended March 31, 2022, other income mainly consisted of subsidy income of $51,808, interest income of $874, but offset with financial expense of $46. For the three months ended March 31, 2021, other income mainly consisted of subsidy income of $50,737, interest income of $477, but offset with other expenses of $249.
Government provides grants and subsidies to support the Company’s technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company uses most of the subsidies to purchase machinery and equipment, which is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used for. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project.
Net loss
We had net loss of $248,023 for the three months ended March 31, 2022, compared to net loss of $115,724 for the three months ended March 31, 2021, an increase in net loss by $132,299 or 114.3%. The increase in our net loss mainly resulted from increased G&A expense and decreased gross profit as described above.
Liquidity and Capital Resources
As of March 31, 2022, we had cash and equivalents of $1,110,036. Working capital deficit was $3,816,563 at March 31, 2022. The ratio of current assets to current liabilities was 0.27:1 at March 31, 2022.
The following is a summary of cash provided by or used in each of the indicated types of activities during three months ended March 31, 2022 and 2021:
|
2022 |
2021 |
|||||||
|
Cash provided by (used in): |
||||||||
|
Operating activities |
$ | (311,775 |
) |
$ | 514,130 | |||
|
Investing activities |
(215,106 |
) |
(684,507 |
) |
||||
|
Financing activities |
377,877 | 126,738 | ||||||
Net cash used in operating activities was $311,775 for the three months ended March 31, 2022, compared to net cash provided by operating activities of $514,130 for the three months ended March 31, 2021. The increase of $825,905 cash outflow from operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was principally attributable to increased cash outflow from inventory by $657,614, increased cash outflow form taxes payable by $143,468, and decreased cash inflow from unearned revenue by $127,027, which was partly offset by decreased cash outflow from advances to suppliers by $83,584, and decreased cash outflow on other receivable by $23,631.
Net cash used in investing activities was $215,106 for the three months ended March 31, 2022, compared to $684,507 for the three months ended March 31, 2021. Net cash used in investing activities in 2022 mainly consisted of purchase of property and equipment of $2,463 and $212,643 payment for constructing the adsorption station. Net cash used in investing activities in 2021 mainly consisted of purchase of property and equipment of $33,606, and $650,901 payment for constructing the absorption station for preliminarily extract lithium ion from brine for further concentration and purification.
Net cash provided by financing activities was $377,877 for the three months ended March 31, 2022, compared to $126,738 for the three months ended March 31, 2021. The net cash provided by financing activities in 2022 consisted of amount due to other related parties of $377,877, include loans from Xi’an Jinzang described below. The net cash provided by financing activities in 2021 consisted of amount owing to other related parties of $747,140 include loans from Xi’an Jinzang described below, but partly offset by increase in due from Qinghai Mining of $620,402.
During the first quarter of 2021, Qinghai Zhongli and Xi’an Jinzang entered three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($630,100) with an annual interest of 6.8% from Xi’an Jinzang. The fund was used for the production and operation activities and construction of Adsorption Station Project of Qinghai Zhongli. The Company was to repay RMB 2.5 million ($393,812) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($236,287) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if the Company is not able to repay the loan on time. The Company did not repay the RMB 4.0 million ($630,100) at March 31, 2022; in addition, the Company borrowed additional RMB 2 million ($315,050) with the same terms during the second quarter of 2021 under the oral agreement. The Company borrowed additional RMB 2 million ($315,050) with the same terms during the third quarter of 2021 under the oral agreement. The Company borrowed additional RMB 3 million ($472,575) with the same terms during the first quarter of 2022 under the oral agreement, but the Company only received RMB 2 million ($315,050). The Company recorded $80,935 and $55,679 capitalized interest on CIP of Adsorption Station as of March 31, 2022 and December 31, 2021.
Dividend Distribution
We are a US holding company that conducts substantially all of our business through our wholly owned and other consolidated operating entities in China. We rely in part on dividends paid by our subsidiaries in China for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to limitations. In particular, PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Our PRC subsidiaries also are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to a statutory surplus reserve fund until the accumulative amount of such reserve reaches 50% of registered capital. Appropriation to such reserve by the Company is based on profit arrived at under PRC accounting standards for business enterprises for each year. The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. These reserves are not distributable as cash dividends. In addition, our PRC subsidiaries, at their discretion, may allocate a portion of their after-tax profit to their staff welfare and bonus fund, which may not be distributed to equity owners except in the event of liquidation. Moreover, if any of our subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict such subsidiary’s ability to pay dividends or make other distributions to us. Any limitation on the ability of one of our subsidiaries to distribute dividends and other distributions to us could materially and adversely limit our ability to make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties other than as described following under “Contractual Obligations.” We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our 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 engages in leasing, hedging or research and development services with us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information requested by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective as of such date because of a material weakness identified in our internal control over financial reporting related to our internal level of US GAAP expertise. We lack sufficient personnel with the appropriate level of knowledge, experience and training in US GAAP for the preparation of financial statements in accordance with US GAAP. None of our internal accounting staff, including our Chief Financial Officer, that are primarily responsible for the preparation of our books and records and financial statements in compliance with US GAAP holds a license such as Certified Public Accountant in the US, nor have any attended US institutions or extended educational programs that would provide enough of the relevant education relating to US GAAP.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may become involved in various lawsuits and legal proceedings arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial conditions or operating results. Other than the proceedings we have disclosed below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Item 1A. Risk Factors
You should consider carefully the factors discussed in the “Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2021, as amended, which could materially affect our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information
None.
Item 6. Exhibits
See the Exhibit Index preceding the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
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Exhibit No. |
Document Description |
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31.1 † |
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31.2 † |
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32.1 † |
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101.INS† |
Inline XBRL Instance Document |
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101.SCH† |
Inline XBRL Schema Document |
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101.CAL† |
Inline XBRL Calculation Linkbase Document |
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101.DEF† |
Inline XBRL Definition Linkbase Document |
|
|
101.LAB† |
Inline XBRL Label Linkbase Document |
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101.PRE† |
Inline XBRL Presentation Linkbase Document |
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|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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LITHIUM & BORON TECHNOLOGY, INC. |
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(Registrant) |
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Date: May 20, 2022 |
By: |
/s/ Jimin Zhang |
|
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Mr. Jimin Zhang Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory) |
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Jimin Zhang, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2022, of Lithium & Boron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 20, 2022 |
By: |
/s/ Jimin Zhang |
|
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Mr. Jimin Zhang Chief Executive Officer (Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002
I, Xudong Wang, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2022, of Lithium & Boron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 20, 2022 |
By: |
/s/ Xudong Wang |
|
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Xudong Wang Chief Financial Officer (Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jimin Zhang, hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of Lithium & Boron Technology, Inc. for the quarterly period ended March 31, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Lithium & Boron Technology, Inc.
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Date: May 20, 2022 |
By: |
/s/ Jimin Zhang |
|
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Mr. Jimin Zhang Chief Executive Officer |
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I, Xudong Wang, hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of Lithium & Boron Technology, Inc. for the quarterly period ended March 31, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Lithium & Boron Technology, Inc.
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Date: May 20, 2022 |
By: |
/s/ Xudong Wang |
|
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Xudong Wang Chief Financial Officer |
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The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not to be incorporated by reference into any filing of Lithium & Boron Technology, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 185,968,370 | 185,968,370 |
| Common stock, shares outstanding | 185,968,370 | 185,968,370 |
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings, Appropriated [Member] |
AOCI Attributable to Parent [Member] |
Retained Earnings [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 185,968 | $ (6,666,351) | $ 177,843 | $ 223,922 | $ 8,328,736 | $ 751,071 | $ 2,250,118 |
| Balance (in Shares) at Dec. 31, 2020 | 185,968,370 | ||||||
| Net income (loss) | (115,724) | (9,933) | (115,724) | ||||
| Dividend accrued | (25,000) | (25,000) | |||||
| Statutory reserve | 20,620 | (20,620) | |||||
| Foreign currency translation loss | (33,357) | (5,173) | (33,357) | ||||
| Balance at Mar. 31, 2021 | $ 185,968 | (6,666,351) | 198,463 | 190,565 | 8,167,392 | 735,965 | 2,076,037 |
| Balance (in Shares) at Mar. 31, 2021 | 185,968,370 | ||||||
| Balance at Dec. 31, 2021 | $ 185,968 | (6,666,351) | 246,845 | 288,865 | 3,966,532 | 613,553 | $ (1,978,141) |
| Balance (in Shares) at Dec. 31, 2021 | 185,968,370 | 185,968,370 | |||||
| Net income (loss) | (248,023) | (7,989) | $ (248,023) | ||||
| Dividend accrued | (25,000) | (25,000) | |||||
| Statutory reserve | 35,891 | (35,891) | |||||
| Foreign currency translation loss | 4,342 | 2,654 | 4,342 | ||||
| Balance at Mar. 31, 2022 | $ 185,968 | $ (6,666,351) | $ 282,736 | $ 293,207 | $ 3,657,618 | $ 608,218 | $ (2,246,822) |
| Balance (in Shares) at Mar. 31, 2022 | 185,968,370 | 185,968,370 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Accounting Policies [Abstract] | |
| Nature of Operations [Text Block] | 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Lithium & Boron Technology, Inc., (the “Company” or “Lithium Tech”), formerly known as SmartHeat, Inc. (“SmartHeat”), was incorporated August 4, 2006, in the State of Nevada. The Company currently produces boric acid in the PRC and plans to expand its manufacturing facilities through a joint venture (“JV”) to produce up to 30,000 tonnes of lithium carbonate annually for the electric vehicle battery market in China, subject to funding.
On December 31, 2018 (the “Closing Date”), the Company entered into and closed a Share Exchange Agreement and Plan of Reorganization, as amended on January 24, 2019 (the “Share Exchange Agreement”) with Mid-Heaven Sincerity International Resources Investment Co., Ltd (Mid-heaven BVI) and its shareholders Mao Zhang, Jian Zhang, and Ying Zhao, constituting all the shareholders of Mid-heaven BVI (the “Mid-heaven Shareholders”). Pursuant to the terms of the Share Exchange Agreement, the shareholders of Mid-Heaven BVI delivered all issued and outstanding shares of capital stock of Mid-Heaven BVI to the Company, for 106,001,971 shares of the Company’s Common Stock. Mid-heaven BVI, through two subsidiaries, Qinghai Mid-Heaven Sincerity Technology Co., Ltd (“Sincerity”) and Qinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd (“Salt-Lake”) owns 100% of Qing Hai Mid-Heaven Boron & Lithium Technology Company, Ltd. (“Technology”). On November 4, 2021, Mr. Jimin Zhang purchased a total of 106,001,971 shares of common stock of the Company at a purchase price of $.001 per share (80,625,099 shares from Mao Zhang, 22,165,012 shares from Jian Zhang, and 3,211,860 shares from Ying Zhao). After giving effect to the purchases, Mr. Jimin Zhang now holds, directly or indirectly, a total of 152,769,779 shares of Common Stock which represents approximately 82% of the Company’s issued and outstanding Common Stock.
The main operating entity, Technology was incorporated December 18, 2018. The business of Technology was carved out of the business of Qinghai Zhongtian Boron & Lithium Mining Co., Ltd (“Qinghai Mining”) on December 20, 2018. Qinghai Mining was founded March 6, 2001, and formerly manufactured and sold boric acid and related compounds for industrial and consumer use. Qinghai Mining has stopped the mining of boron rock and will only provide brine to Technology. In order to maintain the normal operation of the Company, in July 2021, Technology Company entered a processing contract to provide boric acid commissioned processing service for a processing fee of RMB 2,000 ($308) per ton with borax provided by the customer. On August 31, 2021, two parties signed the supplement agreement, the final settlement price increased to RMB 2450 ($375) per ton due to increased costs. In September 2021, Technology Company entered a new agreement with the same customer, where Technology Company would no longer provide the processing service but only provided boric acid manufacturing facility, equipment, auxiliary equipment, necessary utilities, and workers to the customer for them to produce the boric acid by themselves. The customer was required to pay RMB 400,000 ($63,000) per month for facility usage fee to the Company, or RMB 500,000 ($78,700) per month if the customer wants to use the Company’s low-grade abandoned slag. In April 2022, Technology, together with Qinghai Mining entered a new Contact Cooperation Agreement with a contractor (or lessee) for leasing out manufacturing facility, equipment, auxiliary equipment and necessary utilities for a term of five years from April 1, 2022 to March 31, 2027, monthly leasing fee of RMB 500,000 ($78,700); of which, RMB 200,000 ($31,500) pays to Technology, and RMB 300,000 ($47,200) pays to Qinghai Mining. Technology owns the equipment and machinery, Qinghai Mining owns the land and plant and will provide the silicic acid and slag to the contractor at no additional charge.
Management of Technology expects that it will source all material that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval and permits from the relevant governmental authorities. Technology and Qinghai Mining submitted an application to the Environment Protection Department in January of 2022 and is currently under the review. Technology expects a response in the second quarter of 2022, and will supply additional data if there are further comments on the application.
In December 2019, a novel strain of coronavirus (COVID-19) was reported, and the World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern.” This contagious disease outbreak, which continues to spread to additional countries, and disrupts supply chains and affecting production and sales across a range of industries as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak. The COVID-19 outbreak impacted the Company’s operations for the first quarter of 2020. However, as a result of PRC government’s effort on disease control, most cities in China were reopened in April 2020, the outbreak in China is under the control; and the Company’s production and sales started back to normal since April 2020. Since April 2020 to January 2022, there were some new COVID-19 cases discovered in a few provinces of China, however, the number of new cases are not significant due to PRC government’s strict control. Since February 2022 to date, COVID-19 case increased in many cities of China; however, there are only a few new cases in Qinghai Province which we do not expect impact the Company’s operations.
On March 27, 2020, Technology entered into an Investment Cooperation Agreement, Memorandum of Cooperation and Licensing Agreement with Xi'an Jinzang Membrane Environmental Protection Technology Co., Ltd. (“Xi’an Jinzang”) to produce up to 30,000 tonnes of battery grade lithium carbonate annually, subject to funding. On April 15, 2020, the parties formed a joint Venture (“JV”) Zhonglixinmo Technology Co., Ltd (“Qinghai Zhongli” or JV) to process brine supplied by Technology. Technology owns 51% of the JV and Xi’ Jinzang owns the remaining 49%. The JV cooperation agreement calls for a capital contribution of RMB 140 million ($19,746,000), to be paid in three phases according to the project construction progress: RMB 36 million ($5,077,000) to be paid within 10 days from the date of registration and establishment of the JV, RMB 72 million ($10,155,000) to be paid before July 31, 2020, and RMB 32 million ($4,513,000) to be paid before October 31, 2020. The JV’s shareholders are required to contribute capital in accordance with their respective shareholding ratio. Each party made an initial capital contribution of RMB 5 million ($0.71 million) in April 2020. As of the date of this report, the parties have not made all capital contributions on the dates due, pending financing by the Company and obtaining required licenses and approvals. The capital contributions and timing can be adjusted anytime upon the parties’ mutual consent. During the construction and operation of the project, all parties agree to raise construction funds by means of bank loans and self-funding in the event additional equity financing is not available. On May 9, 20222, JV changed its name to Qinghai Zhongli Technology Co., Ltd. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||
| Significant Accounting Policies [Text Block] | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying consolidated financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had loss before noncontrolling interest of $0.26 million and $0.13 million for the three months ended March 31, 2022 and 2021, respectively; the net loss to the Company was $0.25 million and $0.12 million for the three months ended March 31, 2022 and 2021, respectively.
After Technology ceased sourcing ore for the production of boric acid from Qinghai Mining , Technology leased out the boric acid manufacturing facility, equipment and auxiliary equipment for a monthly fee in order to provide interim cash flow and maintain revenues from boric acid operations (see Note 1 above).
The Company plans to produce lithium carbonate that can be sold for the electric vehicle battery use and is currently at test production stage. The Company expects to generate additional revenues and cash flow once it receives government approval of the official production process which is expected by second quarter 2022. Management also intends to raise additional funds by way of a private or public offerings, by obtaining loans from banks or form other sources of debt or equity capital. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Basis of Presentation
The CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The interim consolidated financial information as of March 31, 2022 and for the three-month periods ended March 31, 2022 was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the CFS and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 31, 2022.
In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2022, its consolidated results of operations and cash flows for the three months ended March 31, 2022, as applicable, were made.
Principles of Consolidation
For the three months ended March 31, 2022 and 2021, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake, Technology and Qinghai Zhongli, which are collectively referred to as the “Company.” All significant intercompany accounts and transactions were eliminated in consolidation. Mid-heaven BVI, Sincerity and Salt-Lake had no operations as of today.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Equivalents
Cash includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Accounts Receivable, net
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, the Company had allowance of $20,321 and $20,233 at March 31, 2022 and December 31, 2021, respectively.
Advances to Suppliers, net
The Company makes advances to certain vendors to purchase raw material, tools and equipment for production. The advances are interest-free and unsecured. As of March 31, 2022 and December 31, 2021, the Company had gross advance to suppliers of $55,564 and $18,668 respectively, and the Company had allowance for advances to suppliers of $2,823 and $2,810 , respectively.
Inventories, net
Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to market value, if lower.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; major additions, repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with a 3% - 10% salvage value and estimated lives as follows:
Depreciation of plant, property and equipment attributable to manufacturing is capitalized as part of inventories, and expensed to cost of sales when inventories are sold.
Impairment of Long-Lived Assets
Long-lived assets, which include tangible assets, such as property and equipment, goodwill and other intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized based on the excess of the carrying amount over the fair value of the assets. Fair value generally is determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of March 31, 2022 and December 31, 2021, there was no significant impairments of its long-lived assets.
Effective January 1, 2020, the Company adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Deferred Income
Deferred income consists primarily of government grants and subsidies for supporting the Company’s technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company uses most of the subsidies to purchase machinery and equipment. Deferred income is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project.
Unearned Revenue
The Company records payments received from customers in advance of their orders as unearned revenue. These orders normally are delivered (usually within one month) based upon contract terms and customer demand.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon receipts of the goods by customers. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday. The Company also temporarily provided boric acid commissioned processing service with boron material provided by the customer; the Company recognizes revenue when the final products are picked up by the customer at the Company’s warehouse, where the control transfers to the customer.
Starting from September 2021, Technology stopped processing service and leased out its boric acid manufacturing facility, equipment and auxiliary equipment to a customer. The facility leasing revenue is recorded on monthly basis.
Cost of Sales
Cost of sales consists primarily of material costs and direct labor and manufacturing overhead attributable to the production of the products. Write-down of inventory to lower of cost or net realizable value is also recorded in cost of sales.
Research and Development Costs
Research and development (“R&D”) costs are expensed as incurred and included in general and administrative expenses. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department and fees paid to third parties. R&D costs for the three months ended March 31, 2022 and 2021 were $4,631 and $0, respectively.
Share-Based Compensation
The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period.
The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the fair value(“FV”) of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.
Effective January 1, 2020, the Company adopted ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of FASB ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that FASB ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The adoption of ASU 2018-07 did not have an impact on the Company’s CFS.
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of operations. At March 31, 2022 and December 31, 2021, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a NCIs interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCIs balance.
On April 15, 2020, Technology and Xi’an Jinzang formed a JV, Qinghai Zhongli, to process brine supplied by Technology. Technology owns 51% of the JV and Xi’an Jinzang owns the remaining 49%. During the three months ended March 31, 2022 and 2021, the Company had loss of $7,989 and $9,933 attributable to the NCI.
Concentration of Credit Risk
Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned banks within the PRC are covered by insurance up to RMB 500,000 ($77,000) per bank. Any balance over RMB 500,000 ($77,000) per PRC bank will not be covered. The Company has not experienced any losses in such accounts.
Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.
The operations of the Company are primarily in China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.
Basic and Diluted Earnings (Loss) per Share (EPS)
Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the US parent company are maintained in USD. The functional currency of the Company’s China subsidiaries is the Chinese Yuan Renminbi (“RMB”). The accounts of the China subsidiaries were translated into USD in accordance with FASB ASC Topic 830, “Foreign Currency Matters.” According to FASB ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholders’ equity was translated at the historical rates and statement of operations items were translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220, “Comprehensive Income.”
Statement of Cash Flows
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.
Fair Value of Financial Instruments
Certain of the Company’s financial instruments, including cash and equivalents, notes receivable, accrued liabilities and accounts payable, carrying amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:
Effective January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy.
As of March 31, 2022 and December 31, 2021, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.
Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases, and will keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
Operating leases are included in operating lease ROU assets and operating lease liabilities (current and non-current), on the consolidated balance sheets. The Company did not have any leases as of March 31, 2022 and December 31, 2021.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions.
Segment Reporting
FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations constitute a single reportable segment in accordance with ASC 280. The Company currently operates in one business and industry segment: manufacture and sale of boric acid. The Company plans to expand its manufacturing facilities through a newly formed JV with Qinghai Zhongli in which the Company owns 51% to produce lithium carbonate for the electric vehicle battery market in China. Qinghai Zhongli is currently constructing the production workshop but has no production yet.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its CFS.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS. |
INVENTORIES, NET |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Text Block] | 3. INVENTORIES, NET
Inventories at March 31, 2022 and December 31, 2021, respectively, were as follows:
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NOTES RECEIVABLE - BANK ACCEPTANCES |
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| Receivables [Abstract] | |
| Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | 4. NOTES RECEIVABLE – BANK ACCEPTANCES
The Company sold goods to its customers and received notes (bank acceptances) from them in lieu of payment. These bank acceptances were issued by customers to the Company and would be honored by the applicable bank. The Company may hold a bank acceptance until maturity for full payment or have the bank acceptance cashed by the bank at a discount at an earlier date, or transfer the bank acceptance to its vendors in lieu of payment for their own obligations. As of March 31, 2022 and December 31, 2021, the Company had notes receivable of $0 and $78,423 , respectively; and at March 31, 2022, the Company had $0 notes receivable endorsed and transferred to its vendors, in lieu of payment. The Company was contingently liable for these endorsed and transferred notes receivable until they are paid by the bank. |
OTHER RECEIVABLES |
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| Other Current Assets [Text Block] | 5. OTHER RECEIVABLES
Other receivables consisted of the following at March 31, 2022 and December 31, 2021:
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PROPERTY AND EQUIPMENT, NET |
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| Property, Plant and Equipment Disclosure [Text Block] | 6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at March 31, 2022 and December 31, 2021, respectively:
In May 2021, the Company acquired RMB 1.1 million ($172,500) of land and building structures from a bankrupt company, of which, $121,000 was for building structures including workshop and office, $51,500 was for the land use right (see Note 7). The Company prepaid RMB 200,000 ($30,960) in March 2020, and paid remaining balance of RMB 900,000 ($139,310) in May 2021.
Depreciation for the three months ended March 31, 2022 and 2021 was $84,578 and $90,534, respectively. |
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INTANGIBLE ASSET, NET |
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| Intangible Assets Disclosure [Text Block] | 7. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at March 31, 2022 and December 31, 2021:
The Company acquired land use right of $51,521 from a bankrupt company in May 2021, the transfer of Land Use Right Certificate was in process as of this report date. The Company has the right to use the land for 37 years and eight months and is amortizing such rights on a straight-line basis.
Amortization of land use right for the three months ended March 31, 2022 and 2021 was $332 and $0. Annual amortization for the next five years from March 31, 2022, is expected to be $1,374 for each year. |
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CONSTRUCTION IN PROGRESS ("CIP") |
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| Disclosure Text Block Supplement [Abstract] | |
| Other Assets Disclosure [Text Block] | 8. CONSTRUCTION IN PROGRESS (“CIP”)
As of March 31, 2022 and December 31, 2021, the Company had CIP of $1,843,057 and $1,623,309 , respectively. The CIP was mainly for Qinghai Zhongli’s Adsorption Station Project, which is the early stage of an integrated lithium carbonate production system. The adsorption station is equipped with a liquid storage tank for the adsorption material to be placed inside, and its function is to preliminarily extract lithium mother solution from brine for initial purification; the lithium mother solution will go into evaporation shed for refining and concentration; and the concentrated mother solution (also called lithium water saturated solution) is then sent to the production workshop for precipitation and drying to form the finished product of lithium carbonate. As of March 31, 2022, the Company spent $1.84 million for constructing the adsorption station; as of this report date, the Company completed the construction of No. 1 adsorption stations, and is currently doing the technological transformation for No. 2 refining station for strengthening the exterior wall insulation. The Company was committed to pay $0.18 million based on the various construction - related contracts entered as of March 31, 2022. |
TAXES PAYABLE |
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| Tax Disclosure [Text Block] | 9. TAXES PAYABLE
Taxes payable consisted of the following March 31, 2022 and December 31, 2021, respectively:
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ACCRUED LIABILITIES AND OTHER PAYABLES |
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| Accounts Payable and Accrued Liabilities Disclosure [Text Block] | 10. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at March 31, 2022 and December 31, 2021, respectively:
Advances from third parties were short term, non-interest-bearing and due on demand.
As of March 31, 2022 and December 31, 2021, other mainly consisted of 1) dividend payable to Northtech of $625,000 and $600,000, respectively; and 2) payables for professional fees and other miscellaneous expenses of $190,000 and $75,000, respectively.
As of March 31, 2022, accrued salary of $861,224 included $840,000 accrued salary for three senior officers. As of December 31, 2021, accrued salary of $860,582 included $840,000 accrued salary for the three senior officers. |
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions Disclosure [Text Block] | 11. RELATED PARTY TRANSACTIONS
Due from related parties, net
Technology purchased raw material boron rock from Qinghai Mining (owned by three former major shareholders of the Company); in addition, Technology received no-interest short-term advances from Qinghai Mining for daily operational needs. As of March 31, 2022 and December 31, 2021, due from Qinghai Mining was $0 and $0 million, respectively. Technology purchased boron ore of $0 and $261,258 from Qinghai Mining during the three months ended March 31, 2022 and 2021, respectively. During the year ended December 31, 2021, the Company wrote off the receivable of $4.5 million from Qinghai Mining, because Qinghai mining ceased production of boron rock sold to the Company. This halt in production has impaired the Mining Company’s ability to repay the receivable to the Company.
Due to related parties
Technology used equipment for production that belongs to Qinghai Province Dachaidan Zhongtian Resources Development Co., Ltd (“Zhongtian Resources”, which is owned by the Chairman and his brother who were formerly two major shareholders of the Company). The depreciation of these fixed assets had an impact on the production costs of boric acid of the Company and was included in the Company’s cost of sales. The depreciation of these fixed assets for the three months ended March 31, 2022 and 2021 was $2,427 and $5,586, respectively. Amount of due to Zhongtian Resources resulting from using its equipment and payment of worker’s compensation made by Zhongtian Resource for Technology was $96,691 and $96,274 at March 31, 2022 and December 31, 2021 , respectively; however, Technology, Qinghai Mining and Zhongtian agreed to use the creditor’s rights of Technology to Qinghai Mining to offset the debts of Technology to Zhongtian, accordingly, due to Zhongtian Resource was $0 as of March 31, 2022 and December 31, 2021.
Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd (“Dingjia”) which is 90% owned by the son of the Company’s former major shareholder and Chairman. For the three months ended March 31, 2022 and 2021, the Company’s sales to Dingjia was $0 and $0. At March 31, 2022 and December 31, 2021, payable to Dingjia was $21,340 and $21,248, respectively; however, Technology, Qinghai Mining and Dingjia agreed to use the creditor’s rights of Technology to Qinghai Mining to offset the debts of Technology to Dingjia, accordingly, due to Dingjia was $0 as of March 31, 2022 and December 31, 2021.
During the first quarter of 2021, Qinghai Zhongli and Xi’an Jinzang entered three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($630,100) with an annual interest of 6.8% from Xi’an Jinzang. The funds were used for the production and operation activities and construction of Adsorption Station Project of Qinghai Zhongli. The Company was to repay RMB 2.5 million ($393,812) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($236,287) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if the Company is not able to repay the loan on time. The Company did not repay the RMB 4.0 million ($630,100) at March 31, 2022; in addition, the Company borrowed additional RMB 2 million ($315,050) with the same terms during the second quarter of 2021 under the oral agreement. The Company borrowed additional RMB 2 million ($315,050) with the same terms during the third quarter of 2021 under the oral agreement. In January and February 2022, the Company entered two borrowing agreements with same lender for RMB 1 million ($157,500) with maturity date on July 30, 2022 and RMB 2 million ($315,000) with maturity date on December 31, 2022, respectively, both loans have a 10% annual interest rate. The Company only received RMB 2 million ($315,000) during the first quarter of 2022. The Company recorded $80,935 and $55,679 capitalized interest on CIP of Adsorption Station as of March 31, 2022 and December 31, 2021.
In addition, at March 31, 2022 and December 31, 2021, the Company had $1,510,591 and $1,473,591 due to a major shareholder of the Company and Chief Executive Officer, resulting from certain Company operating expenses of the US parent company such as legal and audit fees that were paid by him on behalf of the Company. This short-term advance bore no interest, and was payable upon demand.
At March 31, 2022 and December 31, 2021, the Company had $1,431 and $499 due to a senior officer of the Company, resulting from the Company’s expenses paid by him. This short-term advance bore no interest, and was payable upon demand.
The following table summarized the due from (to) related parties as of March 31, 2022 and December 31, 2021, respectively:
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DEFERRED INCOME |
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| Deferred Income [Text Block] | 12. DEFERRED INCOME
Deferred income consisted mainly of the government subsidy to the Company’s special projects.
The detail of deferred income for the Company’s special projects at March 31, 2022 is:
The detail of deferred income for the Company’s special projects at December 31, 2021 is:
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SUBSIDY INCOME |
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| Other Income and Other Expense Disclosure [Text Block] | 13. SUBSIDY INCOME
Subsidy income consisted of amortization of deferred income for declared special projects and government’s general incentive fund (recorded as income upon receipt) for the three months ended March 31, 2022 and 2021, respectively:
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DEFERRED TAX ASSETS |
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| Deferred Tax Assets (Liabilities), Net Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Tax Assets (Liabilities), Net Disclosure [Text Block] | 14. DEFERRED TAX ASSETS
As of March 31, 2022 and December 31, 2021, respectively, deferred tax assets consisted of the following:
The Company recorded a 100% valuation allowance for deferred tax assets due to the uncertainty of its realization. |
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INCOME TAXES |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Text Block] | 15. INCOME TAXES
The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities.
The H.R. 1 (the “Tax Reform”), effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in changes to existing U.S. tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018 for the U.S. entity of the Company.
The U.S. parent company, was incorporated in the U.S. and has net operating losses (“NOLs”) for income tax purposes, under the 2018 Tax Reform, the NOLs arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be carried forward indefinitely. However, the coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. The U.S. parent Company has NOLs carry forwards for income taxes of approximately $0.90 million at March 31, 2022. Management believes the realization of benefits from these losses remains uncertain due to the parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.
Mid-Heaven BVI is a BVI company, and there is no income tax for companies domiciled in the BVI. Sincerity and Salt-Lake are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Mid-Heaven BVI, Sincerity and Salt-Lake do not have any operations, and are not expected to have any operations in the future. Technology and Qinghai Zhongli have a 15% preferential PRC income tax rate.
The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income (loss) before income taxes for the three months ended March 31, 2022 and 2021, respectively:
The income tax expense for the three months ended March 31, 2022 and 2021, respectively, consisted of the following:
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MAJOR CUSTOMERS AND VENDORS |
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| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration Risk Disclosure [Text Block] | 16. MAJOR CUSTOMERS AND VENDORS
For the three months ended March 31, 2022, there was no customer accounts more than 10% of the Company’s total sales.
The following table sets forth information as to the Company’s customers that accounted for 10% or more of the Company’s sales for the three months ended March 31, 2021.
The Company had no customer that accounted for 10% or more of the Company’s accounts receivable as of March 31, 2022 and December 31, 2021.
Technology purchased all of its boron ore raw material of $0 and $261,258 from Qinghai Mining during the three months ended March 31, 2022 and 2021, respectively.
Beginning in July 2021, Management of Technology began shifting suppliers to third parties in order to fulfill what management believes will be a short term reliance on ore for the production of boric acid. Management of Technology expects that it will source all material and compounds that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval from the relevant governmental authorities.
For the three months ended March 31, 2022, there was no supplier accounts more than 10% of the Company’s total purchases.
The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases for the three months ended March 31, 2021.
The Company had no supplier that accounted for 10% or more of the Company’s accounts payable as of March 31, 2022. The Company had three suppliers that accounted for 10% or more of the Company’s accounts payable as of December 31, 2021. The accounts payable to these suppliers was $78,480, $25,471 and $18,821 as of December 31, 2021, respectively. |
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STATUTORY RESERVES AND RESTRICTED NET ASSETS |
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Mar. 31, 2022 | ||||||||||||||||
| Statutory Reserves Disclosure [Abstract] | ||||||||||||||||
| Statutory Reserves Disclosure [Text Block] | 17. STATUTORY RESERVES AND RESTRICTED NET ASSETS
The Company’s ability to pay dividends primarily depends on it receiving funds from its subsidiaries. PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit as reported in the FIE’s PRC statutory accounts. An FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve reaches 50% of its respective registered capital based on the FIE’s PRC statutory accounts. Appropriations to other funds are at the discretion of the BOD for all FIEs. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Additionally, shareholders of an FIE are required to contribute capital to satisfy the registered capital requirement of the FIE. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its shareholders, unless otherwise approved by the State Administration of Foreign Exchange. Sincerity, incorporated on July 9, 2018 in China as a wholly foreign-owned enterprise (“WFOE”) with registered capital of $1.00 million, has 10 years from the incorporation date to fulfill the registered capital requirement.
Additionally, in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to have a discretionary surplus reserve, at the discretion of the BOD, from the profits determined in accordance with the enterprise’s PRC statutory accounts. Appropriation to such reserve by the Company is based on profit arrived at under PRC accounting standards for business enterprises for each year. The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Technology was established as domestic enterprises and therefore are subject to the above-mentioned restrictions on distributable profits.
As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend.
According to Administrative Measures for the Collection and Utilization of Enterprise Work Safety Funds issued by the PRC Ministry of Finance and the State Administration of Work Safety, for the companies with dangerous goods production or storage, the company is required to make a special reserve for the use of enhancing and improving its safe production conditions. Under PRC GAAP, the reserve is recorded as cost of sales; however, under US GAAP, since the expense has not been incurred and the Company already recorded cost of sales for safety related expenses when incurred, this special reserve was recorded as an appropriation of its after-tax income. At March 31, 2022, the Company had $179,804 production safety related reserve, which was included in $282,736 statutory reserve in the balance sheet. The reserve is calculated at regressive rates levied on revenue in excess of specific amounts as follows:
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COMMITMENTS |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Disclosure Text Block Supplement [Abstract] | |
| Commitments Disclosure [Text Block] | 18. COMMITMENTS
Capital Contribution
Both Sincerity and Salt-Lake were incorporated in China in 2018 with registered capital of $1.00 million and $0.88 million, respectively, they have 10 years from the incorporation date to fulfill the registered capital requirement. Under PRC company law, registered capital must be used in the operations of the domestic company within its approved business scope. |
CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2022 | |
| Loss Contingency [Abstract] | |
| Contingencies Disclosure [Text Block] | 19. CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions in China are denominated in RMB and all of the Company’s assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance. |
SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events [Text Block] | 20. SUBSEQUENT EVENTS
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent event other than as disclosed in Notes 1 and 2 above. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||
| Going Concern, Policy [Policy Textblock} | Going Concern
The accompanying consolidated financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had loss before noncontrolling interest of $0.26 million and $0.13 million for the three months ended March 31, 2022 and 2021, respectively; the net loss to the Company was $0.25 million and $0.12 million for the three months ended March 31, 2022 and 2021, respectively.
After Technology ceased sourcing ore for the production of boric acid from Qinghai Mining , Technology leased out the boric acid manufacturing facility, equipment and auxiliary equipment for a monthly fee in order to provide interim cash flow and maintain revenues from boric acid operations (see Note 1 above).
The Company plans to produce lithium carbonate that can be sold for the electric vehicle battery use and is currently at test production stage. The Company expects to generate additional revenues and cash flow once it receives government approval of the official production process which is expected by second quarter 2022. Management also intends to raise additional funds by way of a private or public offerings, by obtaining loans from banks or form other sources of debt or equity capital. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
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| Basis of Accounting, Policy [Policy Text Block] | Basis of Presentation
The CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The interim consolidated financial information as of March 31, 2022 and for the three-month periods ended March 31, 2022 was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the CFS and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 31, 2022.
In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2022, its consolidated results of operations and cash flows for the three months ended March 31, 2022, as applicable, were made.
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| Consolidation, Policy [Policy Text Block] | Principles of Consolidation
For the three months ended March 31, 2022 and 2021, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake, Technology and Qinghai Zhongli, which are collectively referred to as the “Company.” All significant intercompany accounts and transactions were eliminated in consolidation. Mid-heaven BVI, Sincerity and Salt-Lake had no operations as of today.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
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| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Equivalents
Cash includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
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| Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block] | Accounts Receivable, net
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, the Company had allowance of $20,321 and $20,233 at March 31, 2022 and December 31, 2021, respectively.
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| Advances to Suppliers [Policy Text Block] | Advances to Suppliers, net
The Company makes advances to certain vendors to purchase raw material, tools and equipment for production. The advances are interest-free and unsecured. As of March 31, 2022 and December 31, 2021, the Company had gross advance to suppliers of $55,564 and $18,668 respectively, and the Company had allowance for advances to suppliers of $2,823 and $2,810 , respectively.
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| Inventory, Policy [Policy Text Block] | Inventories, net
Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to market value, if lower.
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| Property, Plant and Equipment, Policy [Policy Text Block] | Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; major additions, repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with a 3% - 10% salvage value and estimated lives as follows:
Depreciation of plant, property and equipment attributable to manufacturing is capitalized as part of inventories, and expensed to cost of sales when inventories are sold.
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| Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | Impairment of Long-Lived Assets
Long-lived assets, which include tangible assets, such as property and equipment, goodwill and other intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized based on the excess of the carrying amount over the fair value of the assets. Fair value generally is determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of March 31, 2022 and December 31, 2021, there was no significant impairments of its long-lived assets.
Effective January 1, 2020, the Company adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
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| Deferred Charges, Policy [Policy Text Block] | Deferred Income
Deferred income consists primarily of government grants and subsidies for supporting the Company’s technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company uses most of the subsidies to purchase machinery and equipment. Deferred income is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project.
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| Long-Duration Contracts Revenue Recognition, Policy [Policy Text Block] | Unearned Revenue
The Company records payments received from customers in advance of their orders as unearned revenue. These orders normally are delivered (usually within one month) based upon contract terms and customer demand.
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| Revenue [Policy Text Block] | Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon receipts of the goods by customers. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday. The Company also temporarily provided boric acid commissioned processing service with boron material provided by the customer; the Company recognizes revenue when the final products are picked up by the customer at the Company’s warehouse, where the control transfers to the customer.
Starting from September 2021, Technology stopped processing service and leased out its boric acid manufacturing facility, equipment and auxiliary equipment to a customer. The facility leasing revenue is recorded on monthly basis.
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| Cost of Goods and Service [Policy Text Block] | Cost of Sales
Cost of sales consists primarily of material costs and direct labor and manufacturing overhead attributable to the production of the products. Write-down of inventory to lower of cost or net realizable value is also recorded in cost of sales.
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| Research and Development Expense, Policy [Policy Text Block] | Research and Development Costs
Research and development (“R&D”) costs are expensed as incurred and included in general and administrative expenses. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department and fees paid to third parties. R&D costs for the three months ended March 31, 2022 and 2021 were $4,631 and $0, respectively.
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| Share-Based Payment Arrangement [Policy Text Block] | Share-Based Compensation
The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period.
The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the fair value(“FV”) of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.
Effective January 1, 2020, the Company adopted ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of FASB ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that FASB ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The adoption of ASU 2018-07 did not have an impact on the Company’s CFS.
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| Income Tax, Policy [Policy Text Block] | Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of operations. At March 31, 2022 and December 31, 2021, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
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| Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block] | Noncontrolling Interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a NCIs interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCIs balance.
On April 15, 2020, Technology and Xi’an Jinzang formed a JV, Qinghai Zhongli, to process brine supplied by Technology. Technology owns 51% of the JV and Xi’an Jinzang owns the remaining 49%. During the three months ended March 31, 2022 and 2021, the Company had loss of $7,989 and $9,933 attributable to the NCI.
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | Concentration of Credit Risk
Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned banks within the PRC are covered by insurance up to RMB 500,000 ($77,000) per bank. Any balance over RMB 500,000 ($77,000) per PRC bank will not be covered. The Company has not experienced any losses in such accounts.
Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.
The operations of the Company are primarily in China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.
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| Earnings Per Share, Policy [Policy Text Block] | Basic and Diluted Earnings (Loss) per Share (EPS)
Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
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| Foreign Currency Transactions and Translations Policy [Policy Text Block] | Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the US parent company are maintained in USD. The functional currency of the Company’s China subsidiaries is the Chinese Yuan Renminbi (“RMB”). The accounts of the China subsidiaries were translated into USD in accordance with FASB ASC Topic 830, “Foreign Currency Matters.” According to FASB ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholders’ equity was translated at the historical rates and statement of operations items were translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220, “Comprehensive Income.”
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| Statement of Cash Flows [Policy Text Block] | Statement of Cash Flows
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | Fair Value of Financial Instruments
Certain of the Company’s financial instruments, including cash and equivalents, notes receivable, accrued liabilities and accounts payable, carrying amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
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| Fair Value Measurement, Policy [Policy Text Block] | Fair Value Measurements and Disclosures
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:
Effective January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy.
As of March 31, 2022 and December 31, 2021, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.
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| Lessee, Leases [Policy Text Block] | Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases, and will keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Operating leases are included in operating lease ROU assets and operating lease liabilities (current and non-current), on the consolidated balance sheets. |
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| Related Parties, Policy [Policy Text Block] | Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions.
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| Segment Reporting, Policy [Policy Text Block] | Segment Reporting
FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations constitute a single reportable segment in accordance with ASC 280. The Company currently operates in one business and industry segment: manufacture and sale of boric acid. The Company plans to expand its manufacturing facilities through a newly formed JV with Qinghai Zhongli in which the Company owns 51% to produce lithium carbonate for the electric vehicle battery market in China. Qinghai Zhongli is currently constructing the production workshop but has no production yet.
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| New Accounting Pronouncements, Policy [Policy Text Block] | New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its CFS.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Property, Plant and Equipment [Table Text Block] | Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; major additions, repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with a 3% - 10% salvage value and estimated lives as follows:
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INVENTORIES, NET (Tables) |
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| Schedule of Inventory, Current [Table Text Block] | Inventories at March 31, 2022 and December 31, 2021, respectively, were as follows:
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OTHER RECEIVABLES (Tables) |
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| Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block] | Other receivables consisted of the following at March 31, 2022 and December 31, 2021:
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PROPERTY AND EQUIPMENT, NET (Tables) |
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| Property, Plant and Equipment [Table Text Block] | Property and equipment consisted of the following at March 31, 2022 and December 31, 2021, respectively:
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INTANGIBLE ASSET, NET (Tables) |
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| Schedule of Finite-Lived Intangible Assets [Table Text Block] | Intangible asset consisted of the following at March 31, 2022 and December 31, 2021:
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TAXES PAYABLE (Tables) |
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| Schedule of Taxes Payable [Table Text Block] | Taxes payable consisted of the following March 31, 2022 and December 31, 2021, respectively:
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ACCRUED LIABILITIES AND OTHER PAYABLES (Tables) |
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| Schedule of Accounts Payable and Accrued Liabilities [Table Text Block] | Accrued liabilities and other payables consisted of the following at March 31, 2022 and December 31, 2021, respectively:
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RELATED PARTY TRANSACTIONS (Tables) |
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| Schedule of Related Party Transactions [Table Text Block] | The following table summarized the due from (to) related parties as of March 31, 2022 and December 31, 2021, respectively:
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DEFERRED INCOME (Tables) |
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| Deferred Income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Other Nonoperating Income, by Component [Table Text Block] | The detail of deferred income for the Company’s special projects at March 31, 2022 is:
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SUBSIDY INCOME (Tables) |
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| Schedule of Other Nonoperating Income (Expense) [Table Text Block] | Subsidy income consisted of amortization of deferred income for declared special projects and government’s general incentive fund (recorded as income upon receipt) for the three months ended March 31, 2022 and 2021, respectively:
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DEFERRED TAX ASSETS (Tables) |
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| Summary of Deferred Tax Liability Not Recognized [Table Text Block] | As of March 31, 2022 and December 31, 2021, respectively, deferred tax assets consisted of the following:
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INCOME TAXES (Tables) |
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| Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] | The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income (loss) before income taxes for the three months ended March 31, 2022 and 2021, respectively:
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| Schedule of Components of Income Tax Expense (Benefit) [Table Text Block] |
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MAJOR CUSTOMERS AND VENDORS (Tables) |
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| Customer Concentration Risk [Member] | Revenue Benchmark [Member] | |||||||||||||||||||||||||||||||
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| Schedules of Concentration of Risk, by Risk Factor [Table Text Block] | The following table sets forth information as to the Company’s customers that accounted for 10% or more of the Company’s sales for the three months ended March 31, 2021.
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| Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member] | |||||||||||||||||||||||||||||||
| MAJOR CUSTOMERS AND VENDORS (Tables) [Line Items] | |||||||||||||||||||||||||||||||
| Schedules of Concentration of Risk, by Risk Factor [Table Text Block] | The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases for the three months ended March 31, 2021.
|
||||||||||||||||||||||||||||||
STATUTORY RESERVES AND RESTRICTED NET ASSETS (Tables) |
3 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||
| Statutory Reserves Disclosure [Abstract] | ||||||||||||||||
| Reserve [Table Text Block] | The reserve is calculated at regressive rates levied on revenue in excess of specific amounts as follows:
|
INVENTORIES, NET (Details) - Schedule of Inventories - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Inventories [Abstract] | ||
| Raw materials | $ 4,017 | $ 4,000 |
| Finished goods | 735 | 732 |
| Total | $ 4,752 | $ 4,732 |
NOTES RECEIVABLE - BANK ACCEPTANCES (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Receivables [Abstract] | ||
| Financing Receivable, after Allowance for Credit Loss, Current | $ 0 | $ 78,423 |
| Bank Acceptances Executed and Outstanding | $ 0 |
OTHER RECEIVABLES (Details) - Schedule of Receivables, Prepayments and Deposits - USD ($) |
Mar. 31, 2022 |
Mar. 31, 2021 |
|---|---|---|
| Schedule of Receivables, Prepayments and Deposits [Abstract] | ||
| VAT receivable | $ 219,173 | $ 204,883 |
| Security deposit | 3,308 | 3,294 |
| Other | 37,559 | 18,064 |
| Total | 260,040 | 226,241 |
| Less: bad debt allowance | (11,586) | (11,537) |
| Other receivables, net | $ 248,454 | $ 214,704 |
PROPERTY AND EQUIPMENT, NET (Details) |
1 Months Ended | 3 Months Ended | ||||
|---|---|---|---|---|---|---|
|
May 31, 2021
USD ($)
|
May 31, 2021
CNY (¥)
|
Mar. 31, 2021
USD ($)
|
Mar. 31, 2021
CNY (¥)
|
Mar. 31, 2022
USD ($)
|
Mar. 31, 2021
USD ($)
|
|
| PROPERTY AND EQUIPMENT, NET (Details) [Line Items] | ||||||
| Payments to Acquire Property, Plant, and Equipment | $ 139,310 | ¥ 900,000 | $ 30,960 | ¥ 200,000 | $ 2,463 | $ 33,606 |
| Depreciation | $ 84,578 | $ 90,534 | ||||
| Land and Building [Member] | ||||||
| PROPERTY AND EQUIPMENT, NET (Details) [Line Items] | ||||||
| Property, Plant and Equipment, Additions | 172,500 | ¥ 1,100,000 | ||||
| Building [Member] | ||||||
| PROPERTY AND EQUIPMENT, NET (Details) [Line Items] | ||||||
| Payments to Acquire Property, Plant, and Equipment | 121,000 | |||||
| Land [Member] | ||||||
| PROPERTY AND EQUIPMENT, NET (Details) [Line Items] | ||||||
| Payments to Acquire Property, Plant, and Equipment | $ 51,500 | |||||
PROPERTY AND EQUIPMENT, NET (Details) - Schedule of Property, Plant and Equipment - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property & equipment, gross | $ 4,036,919 | $ 4,017,053 |
| Less: accumulated depreciation | (2,723,749) | (2,627,759) |
| Property and equipment, net | 1,313,170 | 1,389,294 |
| Building and Building Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property & equipment, gross | 643,266 | 640,492 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property & equipment, gross | 3,008,757 | 2,995,779 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property & equipment, gross | 107,759 | 107,294 |
| Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property & equipment, gross | $ 277,137 | $ 273,488 |
INTANGIBLE ASSET, NET (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |
|---|---|---|---|
May 31, 2021 |
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||
| Payments to Acquire Land Held-for-use | $ 51,521 | ||
| Property, Plant and Equipment, Useful Life | 37 years | ||
| Amortization of Intangible Assets | $ 332 | $ 0 | |
| Finite-Lived Intangible Asset, Expected Amortization, Year One | $ 1,374 | ||
INTANGIBLE ASSET, NET (Details) - Schedule of Finite-Lived Intangible Assets - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Finite-Lived Intangible Assets [Abstract] | ||
| Land use right | $ 51,744 | $ 51,521 |
| Less: accumulated amortization | (1,216) | (881) |
| Intangible asset, net | $ 50,528 | $ 50,640 |
CONSTRUCTION IN PROGRESS ("CIP") (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Disclosure Text Block Supplement [Abstract] | ||
| Construction in Progress, Gross | $ 1,843,057 | $ 1,623,309 |
| Construction in Progress Expenditures Incurred but Not yet Paid | $ 0.18 |
TAXES PAYABLE (Details) - Schedule of Taxes Payable - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Taxes Payable [Abstract] | ||
| Income tax payable | $ 49,291 | $ 55,658 |
| Other | 7,488 | 18,604 |
| VAT | 90,265 | 129,181 |
| Taxes payable | $ 147,044 | $ 203,443 |
ACCRUED LIABILITIES AND OTHER PAYABLES (Details) |
3 Months Ended | 12 Months Ended |
|---|---|---|
|
Mar. 31, 2022
USD ($)
|
Dec. 31, 2021
USD ($)
|
|
| ACCRUED LIABILITIES AND OTHER PAYABLES (Details) [Line Items] | ||
| Accrued Salaries, Current | $ 861,224 | $ 860,582 |
| Northtech [Member] | ||
| ACCRUED LIABILITIES AND OTHER PAYABLES (Details) [Line Items] | ||
| Dividends Payable | 625,000 | 600,000 |
| Accounts Payable, Other | 190,000 | 75,000 |
| Qinghai Technology [Member] | ||
| ACCRUED LIABILITIES AND OTHER PAYABLES (Details) [Line Items] | ||
| Accrued Salaries, Current | $ 840,000 | $ 840,000 |
| Number of Officers | 3 | 3 |
ACCRUED LIABILITIES AND OTHER PAYABLES (Details) - Schedule of Accrued Liabilities and Other Payables - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Accrued Liabilities and Other Payables [Abstract] | ||
| Advances from third parties | $ 24,919 | $ 26,003 |
| Other | 815,000 | 675,000 |
| Accrued salary | 861,224 | 860,582 |
| Total | $ 1,701,143 | $ 1,561,585 |
RELATED PARTY TRANSACTIONS (Details) - Schedule of Related Party Transactions - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
Mar. 31, 2021 |
|---|---|---|---|
| Related Party Transaction [Line Items] | |||
| Due from | $ 0 | $ 0 | |
| Due to | 3,168,207 | 2,758,534 | |
| Due to | (3,168,207) | (2,758,534) | |
| Less: bad debt allowance for Qinghai Mining | (11,586) | $ (11,537) | |
| Qinghai Mining [Member] | |||
| Related Party Transaction [Line Items] | |||
| Due from | 5,610,394 | 5,567,440 | |
| Due to | 1,071,196 | 1,047,820 | |
| Due to | (1,071,196) | (1,047,820) | |
| Less: bad debt allowance for Qinghai Mining | (4,539,198) | (4,519,619) | |
| Xi'an Jinzang Membrane Environmental Protection Technology Co., Ltd. (Xi'an Jinzang) [Member] | |||
| Related Party Transaction [Line Items] | |||
| Due to | 1,656,185 | 1,310,444 | |
| Due to | (1,656,185) | (1,310,444) | |
| Officer [Member] | |||
| Related Party Transaction [Line Items] | |||
| Due to | 1,431 | 499 | |
| Due to | (1,431) | (499) | |
| Majority Shareholder [Member] | |||
| Related Party Transaction [Line Items] | |||
| Due to | 1,510,591 | 1,473,591 | |
| Due to | $ (1,510,591) | $ (1,473,591) |
DEFERRED TAX ASSETS (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Deferred Tax Assets (Liabilities), Net Disclosure [Abstract] | |
| Deferred Tax Assets Valuation Allowance, Percentage | 100.00% |
DEFERRED TAX ASSETS (Details) - Schedule of Deferred Tax Liability - USD ($) |
Mar. 31, 2022 |
Mar. 31, 2021 |
|---|---|---|
| DEFERRED TAX ASSETS (Details) - Schedule of Deferred Tax Liability [Line Items] | ||
| Less: valuation allowance | $ (963,179) | $ (906,307) |
| Deferred tax assets, net | 0 | 0 |
| Domestic Tax Authority [Member] | ||
| DEFERRED TAX ASSETS (Details) - Schedule of Deferred Tax Liability [Line Items] | ||
| Deferred tax asset –NOL | 178,710 | 146,790 |
| Foreign Tax Authority [Member] | ||
| DEFERRED TAX ASSETS (Details) - Schedule of Deferred Tax Liability [Line Items] | ||
| Deferred tax asset –NOL | $ 784,469 | $ 759,517 |
INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||
| Tax benefit at U.S. federal statutory rates | $ (53,763) | $ (23,983) |
| Foreign income taxed at different rates | (4,161) | 1,317 |
| Tax holiday in PRC | 10,401 | (3,290) |
| Permanent difference | 6,786 | 3,482 |
| Valuation allowance | 40,737 | 33,932 |
| Tax expense per financial statements | $ 0 | $ 11,458 |
INCOME TAXES (Details) - Schedule of Components of Income Tax Expense - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Schedule of Components of Income Tax Expense [Abstract] | ||
| Income tax expense – current | $ 11,458 | |
| Income tax expense – deferred | $ 0 | 0 |
| Total income tax expense | $ 0 | $ 11,458 |
MAJOR CUSTOMERS AND VENDORS (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| MAJOR CUSTOMERS AND VENDORS (Details) [Line Items] | |||
| Payments to Suppliers | $ 0 | $ 261,258 | |
| Supplier #1 [Member] | |||
| MAJOR CUSTOMERS AND VENDORS (Details) [Line Items] | |||
| Accounts Payable | $ 78,480 | ||
| Supplier #2 [Member] | |||
| MAJOR CUSTOMERS AND VENDORS (Details) [Line Items] | |||
| Accounts Payable | 25,471 | ||
| Supplier #3 [Member] | |||
| MAJOR CUSTOMERS AND VENDORS (Details) [Line Items] | |||
| Accounts Payable | $ 18,821 | ||
MAJOR CUSTOMERS AND VENDORS (Details) - Schedules of Concentration of Risk, by Risk Factor - Revenue Benchmark [Member] - Customer Concentration Risk [Member] |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Customer A [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 11.00% |
| Customer B [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 11.00% |
| Customer C [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 11.00% |
| Customer D [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 10.00% |
MAJOR CUSTOMERS AND VENDORS (Details) - Schedules of Concentration of Risk, by Risk Factor - Cost of Goods and Service Benchmark [Member] - Supplier Concentration Risk [Member] |
3 Months Ended |
|---|---|
Mar. 31, 2021 | |
| Supplier A [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 24.00% |
| Supplier B [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 13.00% |
| Supplier C [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 12.00% |
| Supplier D [Member] | |
| Concentration Risk [Line Items] | |
| Concentration Risk, Percentage | 11.00% |
STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) [Line Items] | ||
| After-Tax Income, Percentage, Appropriations | 10.00% | |
| Retained Earnings, Appropriated | $ 282,736 | $ 246,845 |
| Foreign Invested Enterprise [Member] | ||
| STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) [Line Items] | ||
| Statutory Reserves, Description | An FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve reaches 50% of its respective registered capital based on the FIE’s PRC statutory accounts. | |
| Domestic Enterprise [Member] | ||
| STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) [Line Items] | ||
| Statutory Reserves, Description | Additionally, in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. | |
| Production Safety [Member] | ||
| STATUTORY RESERVES AND RESTRICTED NET ASSETS (Details) [Line Items] | ||
| Retained Earnings, Appropriated | $ 179,804 |
COMMITMENTS (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| Qinghai Mid-Heaven Sincerity Technology Co., Ltd (“Sincerity”) [Member] | |
| COMMITMENTS (Details) [Line Items] | |
| Registered Capital | $ 1,000 |
| Qinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd (“Salt-Lake”) [Member] | |
| COMMITMENTS (Details) [Line Items] | |
| Registered Capital | $ 880 |