UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended June 30, 2022

☐

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

Commission file number: 001-34246

LITHIUM & BORON TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

Nevada

98-0514768

(State or other jurisdiction of incorporation

or organization)

(IRS Employer Identification No.)

60 East Ren-Min Road
Dachaidan

(Da Qaidam Administrative Committee)
XaiXi, Qinghai Province 817000

(Address of principal executive offices)

+86 (24) 2519-7699

(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
Common Stock, par value $0.001		LBTI		Grey

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. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐

Non-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 ☐ NO ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

As of August 19, 2022, there were 185,986,370 shares of common stock outstanding.

Lithium & Boron Technology, Inc.

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		Page
Note about Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

	Exhibit Index	37

	Signatures	38

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.

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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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LITHIUM & BORON TECHNOLOGY, INC

CONSOLIDATED BALANCE SHEETS

	JUNE 30,			DECEMBER 31,
	2022 (Unaudited)			2021
ASSETS

CURRENT ASSETS
Cash and equivalents	$	634,901		$	1,253,661
Accounts receivable, net		27,171			-
Prepaid expenses		27,990			12,402
Advances to suppliers, net		87,255			15,858
Other receivables ,net		305,213			214,704
Notes receivable		-			78,423
Inventories		283,850			4,732

Total current assets		1,366,380			1,579,780

NONCURRENT ASSETS
Property and equipment, net		3,159,499			1,389,294
Intangible assets, net		47,428			50,640
Construction in progress		-			1,623,309

Total noncurrent assets		3,206,927			3,063,243

TOTAL ASSETS	$	4,573,307		$	4,643,023

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	268,959		$	312,532
Unearned revenue		66,077			69,557
Accrued liabilities and other payables		1,959,843			1,561,585
Taxes payable		135,377			203,443
Due to related parties		3,128,588			2,784,534

Total current liabilities		5,558,844			4,931,651

DEFERRED INCOME		924,099			1,075,960

TOTAL LIABILITIES		6,482,943			6,007,611

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 500,000,000 shares authorized, 185,968,370 shares issued and outstanding		185,968			185,968
Paid-in capital deficiency		(6,666,351	)		(6,666,351	)
Statutory reserves		287,267			246,845
Accumulated other comprehensive income		242,983			288,865
Retained earnings		3,508,393			3,966,532

TOTAL COMPANY STOCKHOLDERS' DEFICIT		(2,441,740	)		(1,978,141	)

Noncontrolling interest		532,104			613,553

TOTAL DEFICIT		(1,909,636	)		(1,364,588	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	4,573,307		$	4,643,023

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

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LITHIUM & BORON TECHNOLOGY, INC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	SIX MONTHS ENDED JUNE 30,						THREE MONTHS ENDED JUNE 30,
	2022			2021			2022			2021

Revenue
Boronic acid sales	$	-		$	4,007,849		$	-		$	2,179,469
Plant rental revenue		309,844			-			309,844			-
Total revenue		309,844			4,007,849			309,844			2,179,469

Cost of revenue
Boronic acid		-			3,292,926			-			1,596,808
Plant rental cost		349,342			-			349,342			-
Total cost of revenue		349,342			3,292,926			349,342			1,596,808

Gross profit (loss)		(39,498	)		714,923			(39,498	)		582,661

Operating expenses
Selling		-			46,057			-			23,002
General and administrative		514,659			531,953			206,011			257,582

Total operating expenses		514,659			578,010			206,011			280,584

(Loss) income from operations		(554,157	)		136,913			(245,509	)		302,077

Non-operating income (expenses)
Financial expense		(321	)		(391	)		(275	)		(202	)
Other income		13,565			675			13,565			735
Interest income		1,499			1,176			625			699
Subsidy income		101,488			101,672			49,680			50,935

Total non-operating income, net		116,231			103,132			63,595			52,167

(Loss) income before income tax		(437,926	)		240,045			(181,914	)		354,244

Income tax (benefit) expense		(17,666	)		91,947			(17,666	)		80,489

(Loss) income before noncontrolling interest		(420,260	)		148,098			(164,248	)		273,755

Less: loss attributable to noncontrolling interest		(52,543	)		(39,920	)		(44,554	)		(29,987	)

Net (loss) income to the Company		(367,717	)		188,018			(119,694	)		303,742

Other comprehensive items
Foreign currency translation gain (loss) attributable to the Company		(45,882	)		47,547			(50,224	)		80,904
Foreign currency translation gain (loss) attributable to noncontrolling interest		(28,906	)		7,461			(31,560	)		12,634

Comprehensive loss (income) attributable to the Company	$	(413,599	)	$	235,565		$	(169,918	)	$	384,646

Comprehensive loss attributable to noncontrolling interest	$	(81,449	)	$	(32,459	)	$	(76,114	)	$	(17,353	)

Basic and diluted weighted average shares outstanding		185,968,370			185,968,370			185,968,370			185,968,370

Basic and diluted net income (loss) per share	$	(0.00	)	$	0.00		$	(0.00	)	$	0.00

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

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LITHIUM & BORON TECHNOLOGY, INC

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' DEFICIT

SIX AND THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

										Accumulated other
	Common Stock				Paid-in capital			Statutory		comprehensive (loss)			Retained						Noncontrolling
	Shares		Amount		deficiency			reserves		income			earnings			Total			interest
Balance at January 1, 2022		185,968,370	$	185,968	$	(6,666,351	)	$	246,845	$	288,865		$	3,966,532		$	(1,978,141	)	$	613,553

Net loss		-		-		-			-		-			(248,023	)		(248,023	)		(7,989	)

Dividend accrued		-		-		-			-		-			(25,000	)		(25,000	)		-

Statutory reserve		-		-		-			35,891		-			(35,891	)		-			-

Foreign currency translation gain		-		-		-			-		4,342			-			4,342			2,654

Balance at March 31, 2022		185,968,370		185,968		(6,666,351	)		282,736		293,207			3,657,618			(2,246,822	)		608,218

Net loss		-		-		-			-		-			(119,694	)		(119,694	)		(44,554	)

Dividend accrued		-		-		-			-		-			(25,000	)		(25,000	)		-

Statutory reserve		-		-		-			4,531		-			(4,531	)		-			-

Foreign currency translation loss		-		-		-			-		(50,224	)		-			(50,224	)		(31,560	)

Balance at June 30, 2022		185,968,370	$	185,968	$	(6,666,351	)	$	287,267	$	242,983		$	3,508,393		$	(2,441,740	)	$	532,104



Balance at January 1, 2021		185,968,370	$	185,968	$	(6,666,351	)	$	177,843	$	223,922		$	8,328,736		$	2,250,118		$	751,071

Net loss		-		-		-			-		-			(115,724	)		(115,724	)		(9,933	)

Dividend accrued		-		-		-			-		-			(25,000	)		(25,000	)		-

Statutory reserve		-		-		-			20,620		-			(20,620	)		-			-

Foreign currency translation loss		-		-		-			-		(33,357	)		-			(33,357	)		(5,173	)

Balance at March 31, 2021		185,968,370		185,968		(6,666,351	)		198,463		190,565			8,167,392			2,076,037			735,965

Net loss		-		-		-			-		-			303,742			303,742			(29,987	)

Dividend accrued		-		-		-			-		-			(25,000	)		(25,000	)		-

Statutory reserve		-		-		-			59,279		-			(59,279	)		-			-

Foreign currency translation gain		-		-		-			-		80,904			-			80,904			12,634

Balance at June 30, 2021		185,968,370	$	185,968	$	(6,666,351	)	$	257,742	$	271,469		$	8,386,855		$	2,435,683		$	718,612

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

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LITHIUM & BORON TECHNOLOGY, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	SIX MONTHS ENDED JUNE 30,
	2022			2021

CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income including noncontrolling interest	$	(420,260	)	$	148,098
Adjustments to reconcile (loss) income including noncontrolling interest to net cash provided by (used in) operating activities:
Depreciation and amortization		194,767			181,292
Changes in deferred income		(101,488	)		(101,672	)
(Increase) decrease in assets and liabilities:
Accounts receivable		(28,126	)		211,346
Prepaid expenses		(16,778	)		(1,960	)
Advances to suppliers		(74,728	)		95,939
Other receivables		(104,787	)		(133,001	)
Inventories		(289,174	)		843,603
Accounts payable		48,196			(131,038	)
Unearned revenue		-			575,912
Accrued liabilities and other payables		356,091			1,869
Taxes payable		(59,925	)		51,159

Net cash provided by (used in) operating activities		(496,212	)		1,741,547

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(502,107	)		(146,967	)
Purchase of intangible assets		-			(54,413	)
Construction in progress		-			(1,145,675	)

Net cash used in investing activities		(502,107	)		(1,347,055	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in due from related parties		-			(268,739	)
Changes in due to related parties		422,723			1,175,728

Net cash provided by financing activities		422,723			906,989

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS		(43,164	)		12,110

NET DECREASE IN CASH AND EQUIVALENTS		(618,760	)		1,313,591

CASH AND EQUIVALENTS, BEGINNING OF PERIOD		1,253,661			972,066

CASH AND EQUIVALENTS, END OF PERIOD	$	634,901		$	2,285,657

Supplemental cash flow data:
Income tax paid	$	6,444		$	-
Interest paid	$	-		$	-

Supplemental disclosure of non-cash investing activities
Transfer of construction in progress to fixed assets	$	1,596,314		$	-
Transfer of advance to suppliers to intangible assets	$	-		$	30,903

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

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LITHIUM & BORON TECHNOLOGY, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2022 AND DECEMBER 31, 2021 (AUDITED)

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 People’s 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”), 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 106,001,971 shares of common stock of the Company at $.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, 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 Technology 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 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 the Company expects 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. In January 2022, Qinghai Zhongli and Qinghai Mining submitted a series of applications to the authorities which are necessary for obtaining the official production license, these applications are currently under the review and process. In May 2022, Qinghai Zhongli began trial production of lithium phosphate and lithium carbonate products.

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 the 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. From 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. From February 2022 to date, COVID-19 case increased and fluctuated in many cities of China including a few new cases in Qinghai Province which we do not expect the material impact to the Company’s operations.

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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 ($710,000) 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, 2022, JV changed its name to Qinghai Zhongli Technology Co., Ltd.

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 $0.42 million and income before noncontrolling interest of $0.15 million for the six months ended June 30, 2022 and 2021, respectively; the Company had loss before noncontrolling interest of $0.16 million and net income before noncontrolling interest of $0.27 million for the three months ended June 30, 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. Currently, the Company is in the trial production of lithium carbonate. 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 June 30, 2022 and for the six and three-month periods ended June 30, 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 June 30, 2022, its consolidated results of operations and cash flows for the six months ended June 30, 2022, as applicable, were made.

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Principles of Consolidation

For the six and three months ended June 30, 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 $19,221 and $20,233 at June 30, 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 June 30, 2022 and December 31, 2021, the Company had gross advance to suppliers of $89,926 and $18,668 respectively, and the Company had allowance for advances to suppliers of $2,670 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:

Buildings	20 years
Structures and improvements	4-20 years
Vehicles	4-8 years
Office equipment	5 years
Production equipment	3-10 years
Equipment upgrade	5 years

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 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 (“FV”)of the assets. FV 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 June 30, 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 six months ended June 30, 2022 and 2021 were $28,127 and $25,276, respectively. R&D costs for the three months ended June 30, 2022 and 2021 were $23,496 and $25,276, respectively.

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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 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 June 30, 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.

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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 six months ended June 30, 2022 and 2021, the Company had loss of $52,543 and $39,920 attributable to the NCI. During the three months ended June 30, 2022 and 2021, the Company had loss of $44,554 and $29,987 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.

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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 June 30, 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 June 30, 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.

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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.

3. INVENTORIES, NET

Inventories at June 30, 2022 and December 31, 2021, respectively, were as follows:

	2022		2021
Raw materials	$	2,989	$	4,000
Finished goods		280,861		732
Total	$	283,850	$	4,732

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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 June 30, 2022 and December 31, 2021, the Company had notes receivable of $0 and $78,423 , respectively; and at June 30, 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.

5. OTHER RECEIVABLES

Other receivables consisted of the following at June 30, 2022 and December 31, 2021:

	2022			2021
VAT receivable	$	251,241		$	204,883
Security deposit		3,129			3,294
Other		61,802			18,064
Total		316,172			226,241
Less: bad debt allowance		(10,959	)		(11,537	)
Other receivables, net	$	305,213		$	214,704

6. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at June 30, 2022 and December 31, 2021, respectively:

	2022			2021
Building structures and improvements	$	608,455		$	640,492
Production facility and equipment		4,808,868			2,995,779
Vehicle		163,115			107,294
Equipment		262,856			273,488
Total		5,843,294			4,017,053
Less: accumulated depreciation		(2,683,795	)		(2,627,759	)
Property and equipment, net	$	3,159,499		$	1,389,294

In May 2021, Technology 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). Technology 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 six months ended June 30, 2022 and 2021 was $194,064 and $181,059, respectively. Depreciation for the three months ended June 30, 2022 and 2021 was $109,486 and $90,525, respectively.

7. INTANGIBLE ASSETS, NET

Intangible assets consisted of the following at June 30, 2022 and December 31, 2021:

	2022			2021
Land use right	$	48,944		$	51,521
Less: accumulated amortization		(1,516	)		(881	)
Intangible asset, net	$	47,428		$	50,640

Technology 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. Technology 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 six months ended June 30, 2022 and 2021 was $703 and $233. Amortization of land use right for the three months ended June 30, 2022 and 2021 was $371 and $233. Annual amortization for the next five years from June 30, 2022, is expected to be $1,345 for each year.

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8. CONSTRUCTION IN PROGRESS (“CIP”)

As of June 30, 2022 and December 31, 2021, the Company had CIP of $0 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 June 30, 2022, Qinghai Zhongli completed the construction of two adsorption station and started trial operation.

9. TAXES PAYABLE

Taxes payable consisted of the following June 30, 2022 and December 31, 2021, respectively:

	2022		2021
Income tax payable	$	29,665	$	55,658
Other		12,439		18,604
VAT		93,273		129,181
Taxes payable	$	135,377	$	203,443

10. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following at June 30, 2022 and December 31, 2021, respectively:

	2022		2021
Advances from third parties	$	118,307	$	26,003
Other		940,813		675,000
Accrued salary		900,723		860,582
Total	$	1,959,843	$	1,561,585

Advances from third parties were short term, non-interest-bearing and due on demand.

As of June 30, 2022 and December 31, 2021, other mainly consisted of 1) dividend payable to Northtech of $650,000 and $600,000, respectively; and 2) payables for professional fees and other miscellaneous expenses of $290,813 and $75,000, respectively.

As of June 30, 2022, accrued salary of $900,723 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.

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 June 30, 2022 and December 31, 2021, due from Qinghai Mining was $0. However, Technology purchased boron ore of $0 and $648,840 from Qinghai Mining during the six months ended June 30, 2022 and 2021, respectively. Technology purchased boron ore of $0 and $387,582 from Qinghai Mining during the three months ended June 30, 2022 and 2021, respectively. During the year ended December 31, 2021, Technology wrote off the receivable of $4.5 million from Qinghai Mining, because Qinghai mining ceased production of boron rock sold to Technology. This halt in production has impaired the Mining Company’s ability to repay the receivable to Technology. Qinghai Mining was no longer of the Company’s related party since November 2021 as a result of all of the Qinghai Mining’s shareholders disposed all of their shares in the Company to Mr. Jimin Zhang (see Note 1).

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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 Technology and was included in the Company’s cost of sales. The depreciation of these fixed assets for the six months ended June 30, 2022 and 2021 was $2,427 and $10,122, respectively. The depreciation of these fixed assets for the three months ended June 30, 2022 and 2021 was $0 and $4,536, 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 $91,459 and $96,274 at June 30, 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 June 30, 2022 and December 31, 2021. Starting from April 2022, Technology was no longer bear the depreciation cost due to it leased all the production facility and equipment to a third party processing company under a new Cooperation Agreement that was entered together with Qinghai Mining.

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. At June 30, 2022 and December 31, 2021, payable to Dingjia was $20,185 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 June 30, 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 ($596,000) with 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. Qinghai Zhongli was to repay RMB 2.5 million ($372,500) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($223,500) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if Qinghai Zhongli is not able to repay the loan on time. Qinghai Zhongli did not repay the RMB 4.0 million ($596,000) at June 30, 2022; in addition, Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with the same terms during the second quarter of 2021 under the oral agreement. Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with the same terms during the third quarter of 2021 under the oral agreement. In January and February 2022, Qinghai Zhongli entered two borrowing agreements with same lender for RMB 1 million ($149,000) with maturity date on July 30, 2022 and RMB 2 million ($298,000) with maturity date on December 31, 2022, respectively, both loans have a 10% annual interest rate. Qinghai Zhongli only received RMB 2 million ($298,000) during the first quarter of 2022. Qinghai Zhongli recorded $104,077 and $55,679 capitalized interest on CIP of Adsorption Station as of June 30, 2022 and December 31, 2021.

In addition, at June 30, 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 June 30, 2022 and December 31, 2021, Qinghai Zhongli had $2,813 and $499 due to a senior officer of Qinghai Zhongli, resulting from Qinghai Zhongli’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 June 30, 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)	$	5,306,777		$	5,567,440
Due to	Qinghai Mining		(1,013,226	)		(1,047,820	)
Less: bad debt allowance for Qinghai Mining			(4,293,551	)		(4,519,619	)
Due from, net (current and noncurrent)		$	-		$	-

Due to	Xi'an Jinzang (NCI of the JV)	$	1,615,184		$	1,310,444
Due to	Senior officer		2,813			499
Due to	A major shareholder		1,510,591			1,473,591
Due to, total		$	3,128,588		$	2,758,534

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12. DEFERRED INCOME

Deferred income consisted mainly of the government subsidy to Technology’s special projects.

The detail of deferred income for the Company’s special projects at June 30, 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	$	327,801	8/1/2013		10	$	292,289	$	35,512
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		74,500	5/1/2015		10		53,392		21,108
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		1,490,002	1/1/2018		10		670,501		819,501
Project of high value utilization of magnesium-rich waste liquid		298,000	7/9/2019		10		250,022		47,978
Total	$	2,190,303				$	1,266,204	$	924,099

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	$	345,060	8/1/2013		10	$	290,426	$	54,634
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		78,423	5/1/2015		10		52,282		26,141
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		1,568,455	1/1/2018		10		627,382		941,073
Project of high value utilization of magnesium-rich waste liquid		313,691	7/9/2019		10		259,579		54,112
Total	$	2,305,629				$	1,229,669	$	1,075,960

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 six months ended June 30, 2022 and 2021, respectively:

	2022		2021
Technology upgrade for using lean ore to produce magnesium sulfate	$	16,966	$	16,997
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		3,856		3,863
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		77,119		77,258
Project of high value utilization of magnesium-rich waste liquid		3,547		3,554
Total	$	101,488	$	101,672

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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 June 30, 2022 and 2021, respectively:

	2022		2021
Technology upgrade for using lean ore to produce magnesium sulfate	$	8,305	$	8,515
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		1,888		1,935
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		37,751		38,704
Project of high value utilization of magnesium-rich waste liquid		1,736		1,781
Total	$	49,680	$	50,935

14. DEFERRED TAX ASSETS

As of June 30, 2022 and December 31, 2021, respectively, deferred tax assets consisted of the following:

	2022			2021
Deferred tax asset –NOL of US parent company	$	195,300		$	146,790
Deferred tax asset –NOL of PRC subsidiaries		784,634			759,517
Less: valuation allowance		(979,934	)		(906,307	)
Deferred tax assets, net	$	-		$	-

The Company recorded a 100% valuation allowance for deferred tax assets due to the uncertainty of its realization.

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 $0.93 million at June 30, 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 six months ended June 30, 2022 and 2021, respectively:

	2022			2021
Tax (benefit) at U.S. federal statutory rates	$	(91,964	)	$	50,410
Foreign income taxed at different rates		(8,277	)		18,642
Tax holiday in PRC		20,692			(46,605	)
Permanent difference		8,701			9,820
Valuation allowance		53,182			59,680
Tax expense (benefit) per financial statements	$	(17,666	)	$	91,947

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The income tax expense for the six months ended June 30, 2022 and 2021, respectively, consisted of the following:

	2022			2021
Income tax (benefit) expense – current	$	(17,666	)	$	91,947
Income tax expense – deferred		-			-
Total income tax (benefit) expense	$	(17,666	)	$	91,947

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 June 30, 2022 and 2021, respectively:

	2022			2021
Tax (benefit) at U.S. federal statutory rates	$	(38,202	)	$	74,393
Foreign income taxed at different rates		(4,117	)		17,326
Tax holiday in PRC		10,291			(43,315	)
Permanent difference		1,915			6,338
Valuation allowance		12,447			25,747
Tax expense (benefit) per financial statements	$	(17,666	)	$	80,489

The income tax expense for the three months ended June 30, 2022 and 2021, respectively, consisted of the following:

	2022			2021
Income tax (benefit) expense – current	$	(17,666	)	$	80,489
Income tax expense – deferred		-			-
Total income tax (benefit) expense	$	(17,666	)	$	80,489

16. MAJOR CUSTOMERS AND VENDORS

For the six and three months ended June 30, 2022, there was no customer accounts more than 10% of the Company’s total sales. The Company had no customer that accounted for 10% or more of the Company’s accounts receivable as of June 30, 2022 and December 31, 2021.

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 six and three months ended June 30, 2021.

Six Months Ended June 30, 2021				Three Months Ended June 30, 2021
Customer	Percentage of Total Sales			Customer	Percentage of Total Sales
A		13	%	A		15	%
B		11	%	B		12	%
C		-	%	C		11	%

Technology purchased all of its boron ore raw material of $0 and $648,840 from Qinghai Mining during the six months ended June 30, 2022 and 2021, respectively. Technology purchased all of its boron ore raw material of $0 and $387,582 from Qinghai Mining during the three months ended June 30, 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 six and three months ended June 30, 2022, there was no supplier accounts more than 10% of the Company’s total purchases.

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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 six and three months ended June 30, 2021.

Six Months Ended June 30, 2021				Three Months Ended June 30, 2021
Supplier	Percentage of Total Purchases			Supplier	Percentage of Total Purchases
A – Qinghai Mining		42	%	A – Qinghai Mining		46	%
B		18	%	B		14	%
C		15	%	C		11	%
D		-	%	D		16	%

The Company had no supplier that accounted for 10% or more of the Company’s accounts payable as of June 30, 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.

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.

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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 June 30, 2022, the Company had $175,162 production safety related reserve, which was included in $287,267 statutory reserve in the balance sheet. The reserve is calculated at regressive rates levied on revenue in excess of specific amounts as follows:

Annual revenue amount		Reserve ratio
Less than RMB 10 million ($1.41 million)		4.0% of annual revenue
Over RMB 10 million ($1.41 million), but less than RMB 100 million ($14.13 million)		2.0% of annual revenue
Over RMB 100 million ($14.13 million), but less than RMB 1 billion ($141.25 million)		0.5% of annual revenue
Over RMB 1 billion ($141.25 million)		0.2% of annual revenue

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.

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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company currently leases its 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 106,001,971 shares of common stock of the Company at $.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, Technology 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 Technology, 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 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 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. From 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 is not significant due to the PRC government’s strict control. Since February 2022, the COVID-19 case bounced again in many cities of China including a few new cases in Qinghai Province which does not have material impact on the Company’s operations.

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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.

While we have commenced limited lithium production and had revenue through our JV, we have not established a mechanism where we can withdraw funds from the JV to support our operations.

While our JV has commenced limited production, our JV partner, while a minority owner, has substantial influence on the ability of the JV to declare cash dividends. Until we establish a services agreement with the JV or some other agreement where we can receive funds from the operations of the JV, we will not receive funds in order to support our operations. While we expect to make suitable arrangements, there can be no guaranty that such arrangement will provide sufficient amounts of cash to support our operations. Even though our financial statements indicate that we are receiving revenues due to GAAP accounting, we do are not at this time able to use these funds for our operations.

While our JV has produced lithium and we are commencing sales, we have not received final approval to sell our product from the local Chinese authorities.

We are able to sell limited amounts of lithium prior to receiving final authorization by local and provincial authorities because we are producing lithium through the testing process of the JV’s manufacturing process. While we believe we will be able to produce lithium commercially upon receipt of final approval and the payment of fees and taxes required to commence production, there can be no assurance that we will receive this approval and commence commercial production of lithium.

Going Concern

As reflected in the accompanying CFS, the Company had net loss of $0.37 million and net income of $ 0.19 million for the six months ended June 30, 2022 and 2021, respectively; the Company had net loss of $0.20 million and net income of $0.30 million for the three months ended June 30, 2022 and 2021, respectively; the Company stopped producing and selling boron acid starting in 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 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. Since May 2022, the Company began to trial producing lithium phosphate and lithium carbonate products. 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.

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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 June 30, 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 $648,840 from Qinghai Mining during the six months ended June 30, 2022 and 2021, respectively. Qinghai Technology purchased boron ore at a cost of $0 and $387,582 from Qinghai Mining during the three months ended June 30, 2022 and 2021, respectively. Qinghai Mining was no longer of the Company’s related party since November 2021 as a result of all of the Qinghai Mining’s shareholders disposed all of their shares in the Company to Mr. Jimin Zhang (see Note 1).

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 Technology and was included in the Company’s cost of sales. The depreciation of these fixed assets for the six months ended June 30, 2022 and 2021 was $2,427 and $10,122, respectively. The depreciation of these fixed assets for the three months ended June 30, 2022 and 2021 was $0 and $4,536, respectively. Due to Zhongtian Resources resulting from using its equipment and payment of worker’s compensation made by Zhongtian Resource for Technology was $91,459 and $96,274 at June 30, 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 June 30, 2022 and December 31, 2021. Starting in April 2022, technology was no longer bear the depreciation cost due to it leased all the production facility and equipment to a third party processing company under a new Cooperation Agreement that was entered together with Qinghai Mining.

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. At June 30, 2022 and December 31, 2021, payable to Dingjia was $20,185 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 June 30, 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 ($596,000) 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. Qinghai Zhongli was to repay RMB 2.5 million ($372,500) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($223,500) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if Qinghai Zhongli is not able to repay the loan on time. Qinghai Zhongli did not repay the RMB 4.0 million ($596,000) at June 30, 2022; in addition, Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with same terms during the second quarter of 2021 under the oral agreement. Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with the same terms during the third quarter of 2021 under the oral agreement. In January and February 2022, Qinghai Zhongli entered two borrowing agreements with same lender for RMB 1 million ($149,000) with maturity date on July 30, 2022 and RMB 2 million ($298,000) with maturity date on December 31, 2022, respectively, both loans have 10% annual interest. Qinghai Zhongli only received RMB 2 million ($298,000) during the first quarter of 2022. Qinghai Zhongli recorded $104,077 and $55,679 capitalized interest on CIP of Adsorption Station Project as of June 30, 2022 and December 31, 2021.

In addition, at June 30, 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 June 30, 2022 and December 31, 2021, Qinghai Zhongli had $2,813 and $499 due a senior officer of Qinghai Zhongli, resulting from Qinghai Zhongli’s expenses paid by him. This short-term advance bore no interest, and was payable upon demand.

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The following table summarized the due from (to) related parties as of June 30, 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)	$	5,306,777		$	5,567,440
Due to	Qinghai Mining		(1,013,226	)		(1,047,820	)
Less: bad debt allowance			(4,293,551	)		(4,519,619	)
Due from, net (current and noncurrent)		$	-		$	-

Due to	Xi'an Jinzang (NCI of the JV) with 6.8% interest	$	1,615,184		$	1,310,444
Due to	Senior officer		2,813			499
Due to	A major shareholder (CEO)		1,510,591			1,473,591
Due to, total		$	3,128,588		$	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

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 $19,221 and $20,233 at June 30, 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.

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Starting in 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 six months ended June 30, 2022 and 2021, the Company had loss of $52,543 and $39,920 that were attributable to the NCI. During the three months ended June 30, 2022 and 2021, the Company had loss of $44,554 and $29,987 that was attributable to the NCI.

Recent Accounting Pronouncements

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.

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Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 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	$	-			-	%	$	4,007,849			100.0	%
Plant rental revenue		309,844			100.0	%		-			-	%
Total revenue		309,844			100.0	%		4,007,849			100.0	%
Boronic acid costs		-			-	%		3,292,926			82.2	%
Plant rental costs		349,342			112.7	%		-			-	%
Total cost of revenue		349,342			112.7	%		3,292,926			82.2	%
Gross profit (loss)		(39,498	)		(12.7	)%		714,923			17.8	%
Selling expenses		-			-	%		46,057			1.1	%
General and administrative expenses		514,659			166.1	%		531,953			13.3	%
Total operating expenses		514,659			166.1	%		578,010			14.4	%
Income (loss) from operations		(554,157	)		(178.9	)%		136,913			3.4	%
Other income		116,231			37.5	%		103,132			2.6	%
Income (loss) before income taxes		(437,926	)		(141.3	)%		240,045			6.0	%
Income tax (benefit) expense		(17,666	)		(5.7	)%		91,947			2.3	%
Income (loss) before noncontrolling interest		(420,260	)		(135.6	)%		148,098			3.7	%
Less: loss attributable to noncontrolling interest		(52,543	)		(17.0	)%		(39,920	)		(1.0	)%
Net loss to the Company	$	(367,717	)		(118.6	)%	$	188,018			4.7	%

Revenue

Revenue for the six months ended June 30, 2022 and 2021 was $309,844 and $4,007,849, respectively, a decrease of $3,698,005 or 92.3% from 2021. Starting in the third quarter 2021, we no longer produce boronic acid but only provide the processing service; starting in the fourth quarter 2021, we stopped ore processing due to increased cost but only leased our facilities to a third party who imports boron ore and process it for sale by themselves. In April 2022, Technology, together with Qinghai Mining entered a new 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.

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Cost of revenue

Cost of revenue (“COR”) for the six months ended June 30, 2022 and 2021 was $349,342 and $3,292,926, respectively, a decrease of $2,943,584 or 89.4% from 2021. The decrease was mainly due to decreased sales and production. The overall COR as a percentage of revenue was 112.7% for the six months ended June 30, 2022 compared with 82.2% for 2021.

Gross profit (loss)

Gross loss for the six months ended June 30, 2022 was $39,498 compared to gross profit of $714,923 for the six months ended June 30, 2021, respectively, a decrease of gross profit of $754,421 or 105.5%. The blended loss margin was 12.7 % for the six months ended June 30, 2022 compared to profit margin of 17.8% for the six months ended June 30, 2021.

Operating expenses

Selling expenses consist mainly of salespersons’ salaries and freight out. Selling expense was $0 for the six months ended June 30, 2022, compared to $46,057 for the six months ended June 30, 2021, a decrease of $46,057 or 100.0%, mainly due to no boronic acid sales incurred during the six months ended June 30, 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 $514,659 for the six months ended June 30, 2022, compared to $531,953 for the six months ended June 30, 2021, a decrease of $17,294 or 3.3%, mainly resulting from decreased business entertainment expense by $64,724 and decreased maintenance expense by $5,332, which was partly offset by increased workshop shut-down cost by $53,100.

R&D costs for the six months ended June 30, 2022 and 2021 were $28,127 and $25,276, respectively.

Other income

Other income was $116,231 for the six months ended June 30, 2022, compared to $103,132 for the six months ended June 30, 2021, an increase of $13,099 or 12.7%. For the six months ended June 30, 2022, other income mainly consisted of subsidy income of $101,488, interest income of $1,499 and other income of $13,565 offset with financial expense of $321. For the six months ended June 30, 2021, other income mainly consisted of subsidy income of $101,672, interest income $1,176 and other income of $675, but offset with financial expense of $391.

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 income (loss)

We had net loss of $367,717 for the six months ended June 30, 2022, compared to net income of $188,018 for the six months ended June 30, 2021, an increase in net loss by $555,735 or 295.6%. The increase in our net loss mainly resulted from decreased gross profit which was partly offset by decreased operating expense and increased other income as described above.

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Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 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	$	-			-	%	$	2,179,469			100.0	%
Plant rental revenue		309,844			100.0	%		-			-	%
Total revenue		309,844			100.0	%		2,179,469			100.0	%
Boronic acid costs		-			-	%		1,596,808			73.3	%
Plant rental costs		349,342			112.7	%		-			-	%
Total cost of revenue		349,342			112.7	%		1,596,808			73.3	%
Gross profit		(39,498	)		(12.7	)%		582,661			26.7	%
Selling expenses		-			-	%		23,002			1.1	%
General and administrative expenses		206,011			66.5	%		257,582			11.8	%
Total operating expenses		206,011			66.5	%		280,584			12.9	%
Income (loss) from operations		(245,509	)		(79.2	)%		302,077			13.9	%
Other income		63,595			20.5	%		52,167			2.4	%
Income (loss) before income taxes		(181,914	)		(58.7	)%		354,244			16.3	%
Income tax (benefit) expense		(17,666	)		(5.7	)%		80,489			3.7	%
Income (loss) before noncontrolling interest		(164,248	)		(53.0	)%		273,755			12.6	%
Less: loss attributable to noncontrolling interest		(44,554	)		(14.4	)%		(29,987	)		(1.3	)%
Net loss to the Company	$	(119,694	)		(38.6	)%	$	303,742			13.9	%

Revenue

Revenue for the three months ended June 30, 2022 and 2021 was $309,844 and $2,179,469, respectively, a decrease of $1,869,625 or 85.8% from 2021. Starting in the third quarter 2021, we no longer produce boron acid but only provide the processing service; starting in the fourth quarter 2021, we stopped ore processing due to increased cost but only lease our facilities to a third party which imports boron ore and process it for sale by themselves. In April 2022, Technology, together with Qinghai Mining entered a new 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, with a 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 June 30, 2022 and 2021 was $349,342 and $1,596,808, respectively, a decrease of $1,247,466 or 78.1% from 2021. The decrease was mainly due to decreased sales and production. The overall COR as a percentage of revenue was 112.7% for the three months ended June 30, 2022 compared with 73.3% for 2021. The cost for processing revenue as a percentage of revenue was 95.1% in 2022, the cost for plant rental revenue as a percentage of revenue was 148.2% in 2022, and the cost for material sale revenue as a percentage of revenue was 101.3% in 2022.

Gross profit (loss)

Gross loss for the three months ended June 30, 2022 was $39,498 compared to gross profit of $582,661 for the three months ended June 30, 2021, a decrease of gross profit of $622,519 or 106.8%. The blended loss margin was 12.7% for the three months ended June 30, 2022 compared to profit margin of 26.7% for the three months ended June 30, 2021.

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Operating expenses

Selling expenses consist mainly of salespersons’ salaries and freight out. Selling expense were $0 for the three months ended June 30, 2022, compared to $23,002 for the three months ended June 30, 2021, a decrease of $23,002 or 100.0%, mainly due to no boronic acid sales incurred during the three months ended June 30, 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 $206,011 for the three months ended June 30, 2022, compared to $257,582 for the three months ended June 30, 2021, a decrease of $51,571 or 20.0%, mainly resulting from decreased business entertainment expense by $59,620, which was partly offset by increased welfare expense by $9,173.

R&D costs for the three months ended June 30, 2022 and 2021 were $23,496 and $25,276, respectively.

Other income

Other income was $63,595 for the three months ended June 30, 2022, compared to $52,167 for the three months ended June 30, 2021, an increase of $11,428 or 21.9% from 2021. For the three months ended June 30, 2022, other income mainly consisted of subsidy income of $49,680, interest income of $625 and other income of $13,565, but offset with financial expense of $275. For the three months ended June 30, 2021, other income mainly consisted of subsidy income of $50,935, interest income of $699 and other income of $735, offset by financial expense of $202.

Net income (loss)

We had net loss of $119,694 for the three months ended June 30, 2022, compared to net income of $303,742 for the three months ended June 30, 2021, an increase in net loss by $423,436 or 139.4% from 2021. The increase in our net loss mainly resulted from decreased gross profit which was partly offset by decreased operating expense and increased other income as described above.

Liquidity and Capital Resources

As of June 30, 2022, we had cash and equivalents of $634,901. Working capital deficit was $4,192,464 at June 30, 2022. The ratio of current assets to current liabilities was 0.25:1 at June 30, 2022.

The following is a summary of cash provided by or used in each of the indicated types of activities during six months ended June 30, 2022 and 2021:

	2022			2021
Cash provided by (used in):
Operating activities	$	(496,212	)	$	1,741,547
Investing activities		(502,107	)		(1,347,055	)
Financing activities		422,723			906,989

Net cash used in operating activities was $496,212 for the six months ended June 30, 2022, compared to net cash provided by operating activities of $1,741,547 for the six months ended June 30, 2021. The increase of $2,237,759 cash outflow from operating activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was principally attributable to increased cash outflow from inventory by $1,132,777, increased cash outflow from taxes payable by $111,084, decreased cash inflow from unearned revenue by $575,912, decreased cash inflow from advances to suppliers by $170,667, decreased cash inflow from accounts receivable by $239,472 and decreased net income by $568,358, which was partly offset by decreased cash outflow from accounts payable by $179,234, and increased cash inflow on accrued liability and other payables by $354,222.

Net cash used in investing activities was $502,107 for the six months ended June 30, 2022, compared to $1,347,055 for the six months ended June 30, 2021. Net cash used in investing activities in 2022 mainly consisted of purchase of property and equipment of $502,107. Net cash used in investing activities in 2021 mainly consisted of purchase of property and equipment of $146,967, purchase of intangible asset of $54,413, and $1,145,675 payment for constructing the absorption station.

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Net cash provided by financing activities was $422,723 for the six months ended June 30, 2022, compared to $906,989 for the six months ended June 30, 2021. The net cash provided by financing activities in 2022 consisted of amount due to other related parties of $422,723, include loans from Xi’an Jinzang described below. The net cash provided by financing activities in 2021 consisted of amount due to other related parties of $1,175,728 include loans from Xi’an Jinzang described below, but partly offset by increase in due from Qinghai Mining of $268,739.

During the first quarter of 2021, Qinghai Zhongli and Xi’an Jinzang entered three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($596,000) 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. Qinghai Zhongli was to repay RMB 2.5 million ($372,500) with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million ($223,500) with accrued interest by December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be charged if Qinghai Zhongli is not able to repay the loan on time. Qinghai Zhongli did not repay the RMB 4.0 million ($596,000) at June 30, 2022; in addition, Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with the same terms during the second quarter of 2021 under the oral agreement. Qinghai Zhongli borrowed additional RMB 2 million ($298,000) with the same terms during the third quarter of 2021 under the oral agreement. Qinghai Zhongli borrowed additional RMB 3 million ($472,575) with the same terms during the first quarter of 2022 under the oral agreement, but Qinghai Zhongli only received RMB 2 million ($298,000). Qinghai Zhongli recorded $104,077 and $55,679 capitalized interest on CIP of Adsorption Station as of June 30, 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.

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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 June 30, 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 June 30, 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Board of Directors of the Company (the “Board”) received a demand letter requesting the investigation of sales of the Company’s Common Stock by the Company’s Chief Executive Officer. Upon discussion with the Board, it was determined based on information obtained from Mr. Zhang that no sale had occurred as of the date it was initially reported on the Form 4 filed with the Securities and Exchange Commission. Mr. Zhang filed an amended Form 4 explaining that sale had not occurred and will file another Form 4 following the actual transfers of the securities. The Board responded to the demand letter and, based on review with litigation counsel, believe that this matter is baseless and without merit as the sale of his stock did not occurred withing the prohibited 180 day period in Section 16. The Board will make the appropriate response if any further action is taken in this matter.

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. In addition to the forgoing, please see the additional risk factors below:

While We Have Commenced Limited Lithium Production and Book Revenue Through our Joint Venture, We Have not Established A Mechanism Where We can Withdraw Funds From The Joint Venture to Support our Operations.

While our joint venture has commenced limited production, our joint venture partner, while a minority owner, has substantial influence on the ability of the joint venture to declare cash dividends. Until we establish a services agreement with the Joint Venture or some other agreement where we can receive funds from the operations of the Joint Venture, we will not receive funds in order to support our operations. While we expect to make suitable arrangements, there can be no guaranty that such arrangement will provide sufficient amounts of cash to support our operations. Even though our financial statements indicate that we are receiving revenues due to GAAP accounting, we do are not at this time able to use these funds for our operations.

While Our Joint Venture Has Produced Lithium And We Are Commencing Sales, We Have Not Received Final Approval To Sell Our Product From The Local Chinese Authorities.

We are able to sell limited amounts of lithium prior to receiving final authorization by local and provincial authorities because we are producing lithium through the testing process of the joint venture’s manufacturing process. While we believe we will be able to produce lithium commercially upon receipt of final approval and the payment of fees and taxes required to commence production, there can be no assurance that we will receive this approval and commence commercial production of lithium.

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.

Table of Contents

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

Exhibit No.		Document Description
31.1 †		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 †		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
101.INS†		Inline XBRL Instance Document
101.SCH†		Inline XBRL Schema Document
101.CAL†		Inline XBRL Calculation Linkbase Document
101.DEF†		Inline XBRL Definition Linkbase Document
101.LAB†		Inline XBRL Label Linkbase Document
101.PRE†		Inline XBRL Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

† Filed herewith

Table of Contents

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.

	LITHIUM & BORON TECHNOLOGY, INC.
	(Registrant)

Date: August 22, 2022	By:	/s/ Jimin Zhang
		Mr. Jimin Zhang Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory)

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Lithium & Boron Technology, Inc. 10-Q