LITHIUM & BORON TECHNOLOGY, INC. Safe Harbor Declaration
The comments made throughout this Annual Report should be read in conjunction with our Financial Statements and the Notes thereto, and other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words, "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of factors beyond our control. We do not undertake to publicly update or revise any of our forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are also urged to carefully review and consider our discussions regarding the various factors that affect our business, which are described in this section and elsewhere in this report.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview The Company currently leases it facilities to produce boric acid inthe 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 inChina , subject to funding. OnDecember 31, 2018 (the "Closing Date"), we entered into a Share Exchange Agreement and Plan of Reorganization, as amendedJanuary 24, 2019 (the "Share Exchange Agreement") withMid-Heaven Sincerity International Resources Investment Co., Ltd (Mid-heaven BVI) and its shareholdersMao Zhang, Jian Zhang , andYing 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") andQinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd ("Salt-Lake ") owns 100% ofQing Hai Mid-Heaven Boron & Lithium Technology Company, Ltd. ("Technology"). OnNovember 4, 2021 , Mr.Jimin Zhang purchased a total of 106,001,971 shares of common stock of the Company at a purchase price of$.001 per share (80,625,099 shares fromMao Zhang , 22,165,012 shares fromJian Zhang , and 3,211,860 shares fromYing 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 onDecember 18, 2018 . The business of Technology was carved out of the business ofQinghai Zhongtian Boron & Lithium Mining Co., Ltd ("Qinghai Mining") onDecember 20, 2018 .Qinghai Mining was foundedMarch 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; inJuly 2021 ,Technology Company entered a processing contract to provide boric acid commissioned processing service at processing fee ofRMB 2,000 ($308 ) per ton with borax provided by the customer. OnAugust 31, 2021 , two parties signed the supplement agreement, the final settlement price increased toRMB 2450 ($375 ) per ton due to increased costs. InSeptember 2021 ,Technology Company entered a new agreement with the same customer, the Company would no longer provide the processing services and agreed to lease its boric acid manufacturing facility, equipment, auxiliary equipment, necessary utilities, and workers to produce the boric acid. The customer is required to payRMB 400,000 ($61,680 ) per month for facility usage fee to the Company, orRMB 500,000 ($77,090 ) per month if the customer wants to use the Company's low-grade abandoned slag. InDecember 2019 , a novel strain of coronavirus (COVID-19) was reported and theWorld 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 inChina were reopened inApril 2020 , the outbreak inChina is under the control, and the Company's production and sales has been gradually increasing sinceApril 2020 . SinceApril 2020 toJanuary 2022 , there were some new COVID-19 cases discovered in a few provinces ofChina , however, the number of new cases are not significant due to PRC government's strict control. SinceFebruary 2022 , the COVID-19 case bounced again in many cities ofChina ; however, there are only a few new cases inQinghai Province which does not impact the Company's operations. 33
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OnMarch 27, 2020 (PRC time), Technology entered into an Investment Cooperation Agreement, Memorandum of Cooperation and Licensing Agreement with Xi'anJinzang 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. OnApril 15, 2020 , the parties formed a JV companyQinghai 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 ofRMB 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 beforeJuly 31, 2020 , andRMB 32 million ($4,513,000 ) to be paid beforeOctober 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 ofRMB 5 million ($0.71 million ) inApril 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. Going Concern
The accompanying consolidated financial statements ("CFS") were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had net loss of$4.19 million and$0.23 million for the years endedDecember 31, 2021 and 2020, respectively; the Company stopped produce and selling boron acid starting fromSeptember 2021 due to decreased mine production resulting from rectifying the mines in the area by the authority for environment protection, which raise substantial doubt about the Company's ability to continue as a going concern. Because the Company ceased obtaining ore for the production of boric acid from its affiliate, the Company leased out the boric acid manufacturing facility, equipment and auxiliary equipment for a monthly fee in order to provide interim cash flow and maintain revenues from boric acid operations. The Company plans to produce lithium carbonate that can be sold for the electric vehicle battery use and is currently at test production stage. The Company expects to generate additional revenues and cash flow once it receives government approval of the official production process, and the Company will source all material that will be used for both boric acid and lithium carbonate production from Qinghai Mining once the brine processing process receives approval from the relevant governmental authorities, the Company submitted application toEnvironment Protection Department in the beginning of 2022 and is currently under the review. Management also intends to raise additional funds by way of a private or public offerings, by obtaining loans from banks or form other sources of debt or equity capital. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern. Related Party Transactions Due from related parties, net Technology purchased raw material boron rock from Qinghai Mining (owned by three former major shareholders of the Company); in addition, Technology received no-interest short-term advances from Qinghai Mining from time to time for daily operational needs. As ofDecember 31, 2021 and 2020, 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) and$3.11 million , respectively (the net amount of intercompany transactions between Technology and Qinghai Mining). Qinghai Technology purchased boron ore at a cost of$727,289 and$1,521,747 from Qinghai Mining during the years endedDecember 31, 2021 and 2020, respectively. 34
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Table of Contents Due to related parties Technology uses equipment that belongs toQinghai Province Dachaidan Zhongtian Resources Development Co., Ltd ("Zhongtian Resources") for production which is owned by our former Chairman and his brotherwho were two major shareholders of the Company in 2021. The depreciation of these fixed assets had an impact on the production costs of boric acid of the Company and was included in the Company's cost of sales. The depreciation of these fixed assets for the years endedDecember 31 , 2021and 2020 was$14,931 and$26,785 , respectively. Due to Zhongtian Resources resulting from using its equipment and payment of worker's compensation made by Zhongtian Resource for Technology was$96,274 and$79,309 atDecember 31, 2021 and 2020, respectively; however, Technology, Qinghai Mining and Zhongtian agreed to use the creditor's rights of Technology toQinghai Mining to offset the debts of Technology to Zhongtian, accordingly, due to Zhongtian Resource was$0 as ofDecember 31, 2021 . Technology sold boric acid toQinghai Dingjia Zhixin Trading Co., Ltd ("Dingjia") which is 90% owned by the son of the Company's major shareholder and Chairman. For the years endedDecember 31, 2021 and 2020, the Company's sales to Dingjia was$0 and$141,411 , respectively. AtDecember 31, 2021 and 2020, outstanding payable to Dingjia was$21,248 and$20,762 , 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 ofDecember 31, 2021 . During the first quarter of 2021, Qinghai Zhongli and Xi'an Jinzang entered three loan contracts for Qinghai Zhongli borrowingRMB 4 million ($627,382 ) with an annual interest of 6.8% from Xi'an Jinzang. The funds were used for the production and operation activities and construction ofAdsorption Station of Qinghai Zhongli. The Company was to repayRMB 2.5 million ($392,114 ) with accrued interest byJune 30, 2021 and repay the remainingRMB 1.5 million ($235,268 ) with accrued interest byDecember 31, 2021 . A late fee of 1/1000 of outstanding balance per day will be charged if the Company is not able to repay the loan on time. The Company did not repay theRMB 2.5 million ($392,114 ) atDecember 31, 2021 ; in addition, the Company borrowed additionalRMB 2 million ($313,691 ) with same terms during the second quarter of 2021 under the oral agreement. The Company borrowed additionalRMB 2 million ($313,691 ) with the same terms during the third quarter of 2021 under the oral agreement. The Company recorded$55,679 capitalized interest on CIP ofAdsorption Station Project as ofDecember 31, 2021 .
In addition, at
At
The following table summarized the due from (to) related parties as of
Related party name 2021 2020
Qinghai Mining including
$1.77 million sale of
CIP (Test and
Due from Experimental Plant I) $ 5,567,440 $ 3,457,488
Due to Qinghai Mining (1,047,820 ) (350,438 )
Due from Xi'an Jinzang (NCI of the JV) - 76,630
Bad debt allowance (4,519,619 )
-
Due from, net (current and noncurrent) $ -$ 3,183,680 Due to Dingjia $ -$ 20,762 Xi'an Jinzang (NCI of the JV) with 6.8% Due to interest 1,310,444 - Due to Zhongtian Resources - 79,309 Due to Senior officer 499 - A major shareholder Due to (CEO) 1,473,591 1,014,591 Due to, total$ 2,758,534 $ 1,114,662 35
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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
Principles of Consolidation For the years endedDecember 31, 2021 and 2020, the accompanying CFS include the accounts of the Company's US parent, and Mid-heaven BVI and its subsidiaries, Sincerity,Salt-Lake , Technology and Qinghai Zhongli, which are collectively referred to as the "Company." All significant intercompany accounts and transactions were eliminated in consolidation. Use of Estimates In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates. Accounts Receivable We maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, we had bad debt allowance for accounts receivable of$20,233 and$19,770 atDecember 31, 2021 and 2020, respectively. Revenue Recognition The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Revenues from product sales are recognized when the customer obtains control of the Company's product, which occurs at a point in time, typically upon receipts of the goods by customer. 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. 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. 36
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Foreign Currency Translation and Comprehensive Income (Loss)
The accounts of the US parent company are maintained in USD. The functional currency of the Company'sChina subsidiaries is the Chinese Yuan Renminbi ("RMB"). The accounts of theChina 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. OnApril 15, 2020 , Technology and Xi'an Jinzang formed a JV companyQinghai Zhongli to process brine supplied by Technology. Technology owns 51% of the JV and Xi'an Jinzang owns the remaining 49%. During the years endedDecember 31, 2021 and 2020, the Company had loss of$153,271 and$14,402 that were attributable to the NCI.
Recent Accounting Pronouncements
InJune 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 afterDecember 15, 2022 . Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2018 . The Company is currently evaluating the impact that the standard will have on its CFS. InJanuary 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 afterDecember 15, 2022 , with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS. InAugust 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. ForSEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning afterDecember 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning afterDecember 15, 2020 . For all other entities, ASU 2020-06 is effective for fiscal years beginning afterDecember 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. 37
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Table of Contents Results of Operations
Year Ended
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.
2021 % of Sales 2020 % of Sales
Boronic acid sales $ 4,779,386 77.5 % $ 7,565,802 100.0 %
Processing revenue 546,245 8.9 % - - %
Plant rental revenue 219,473 3.5 % - - %
Material sales 621,214 10.1 % - - %
Total revenue 6,166,318 100.0 % 7,565,802 100.0 %
Boronic acid costs 3,719,603 60.3 % 6,669,324 88.2 %
Processing costs 384,109 6.2 % - - %
Plant rental costs 103,307 1.7 % - - %
Material sale costs 601,946 9.8 % - - %
Total cost of revenue 4,808,965 78.0 % 6,669,324 88.2 %
Gross profit 1,357,353 22.0 % 896,478 11.8 %
Selling expenses 53,585 0.9 % 186,316 2.5 %
Bad debts expense 4,477,915 72.6 % - - %
General and administrative expenses 1,220,467 19.8 % 1,094,269 14.4 %
Total operating expenses 5,751,965 93.3 % 1,280,585 16.9 %
Income (loss) from operations (4,394,612 ) (71.3 )% (384,107 ) (5.1 )%
Other income 230,829 3.7 % 234,113 3.1 %
Income (loss) before income taxes (4,163,783 ) (67.5 )% (149,994 ) (2.0 )%
Income tax expense 182,690 3.0 % 94,306 1.2 %
Income (loss) before noncontrolling
interest (4,346,473 ) (70.5 )% (244,300 ) (3.2 )%
Less: loss attributable to
noncontrolling interest (153,271 ) (2.5 )% (14,402 ) (0.2 )%
Net loss to the Company $ (4,193,202 ) (68.0 )% $ (229,898 ) (3.0 )%
Revenue
Revenue for the years ended December 31, 2021 and 2020 was $6,166,318 and
$7,565,802 , respectively, a decrease of $1,399,484 or 18.5%. Boronic acid sales
for the years ended December 31, 2021 and 2020 was $4,779,386 and $7,565,802 ,
respectively, a decrease of $2,786,416 or 36.8%. The decrease in boron acid
sales was mainly due to a 43.4% decrease in sales quantity resulting from 1)
less boric acid inventory carried over from prior periods; in July and August
2021 , the remaining stock of boric acid was sold out, which resulting no boric
acid available for sale in fourth quarter of 2021, and 2) our only ore supplier
Qinghai mining ceased mine production resulting from rectifying the mines in the
area by the authority for environment protection. However, the decrease in sales
quantity was partly offset by a 3.2% increase in average unit selling price and
a 3.4% increase due to change in exchange rate. Starting from the third quarter
2021, we were no longer produce the boron acid but only providing the processing
service; starting the fourth quarter 2021, we stopped the ore processing due to
increased cost but only leasing our facilities out to a third party who imports
boron ore and process it for sale by themselves. We had $546,245 processing
revenue and $219,473 plant rental revenue for the year ending December 31, 2021 ,
we also had $621,214 revenue from material sales in 2021.
Cost of revenue
Cost of revenue ("COR") for the years ended December 31, 2021 and 2020 was
$4,808,965 and $6,669,324 , respectively, a decrease of $1,860,359 or 27.9%.
Boronic acid cost for the years ended December 31 2021 and 2020 was $3,719,603
and $6,669,324 , respectively, a decrease of $2,949,721 or 44.2%. The decrease
was mainly due to decreased sales and production. The overall COR as a
percentage of revenue was 78.0% for the year ended December 31, 2021 compared
with 88.2% for 2020. The decrease in COR as a percentage of revenue was mainly
due to decreased average cost of production of boron acid as we ceased boron
acid production and ore processing during the 2nd half of 2021. In addition, in
the comparable period of 2020, we had abnormal high COS as a percentage of
sales; due to COVID19 outbreak, our factory was reopened one month later than
originally planned, and we did not resume the production one week after the
factory reopened due to the drought of master liquid pool resulting from the
longer period of shutdown of the machine, we spent additional days and had extra
acid and mineral consumption to cultivate the concentration level of master
liquid pool. The cost for processing revenue as a percentage of revenue was
70.3% in 2021, the cost for plant rental revenue as a percentage of revenue was
47.1% in 2021, and the cost for material sale revenue as a percentage of revenue
was 96.9% in 2021.
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Table of Contents Gross profit Gross profit for the years endedDecember 31, 2021 and 2020 was$1,357,353 and$896,478 , respectively, an increase of$460,875 or 51.4%. The blended profit margin was 22.0% for the year endedDecember 31, 2021 compared to 11.8% for the year endedDecember 31, 2020 , the increase in profit margin was mainly due to decreased production cost of boron acid, increased revenue from processing service, plant rental revenue and revenue from sale of material in 2021, as described above. Operating expenses Selling expenses consist mainly of salespersons' salaries and freight out. Selling expense were$53,583 for the year endedDecember 31, 2021 , compared to$186,316 for the year endedDecember 31, 2020 , a decrease of$132,733 or 71.2%, mainly due to decreased salespersons' salaries by$74,130 and decreased freights expense by$59,740 resulting from decreased sales caused by ceased boron acid production. 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$5,698,382 for the year endedDecember 31, 2021 , compared to$1,094,269 for the year endedDecember 31, 2020 , an increase of$4,604,113 or 420.7%, mainly resulting from increased bad debt expense by$4,477,915 and increased R&D expense by$162,210 , which was partly offset by decreased maintenance fee by$45,410 . Other income Other income was$230,829 for the year endedDecember 31, 2021 , compared to$234,113 for the year endedDecember 31, 2020 , a decrease of$3,284 or 1.4%. For the year endedDecember 31, 2021 , other income mainly consisted of subsidy income of$235,432 , interest income of$4,047 , but offset with financial expense of$4,016 and other expenses of$4,661 . For the year endedDecember 31, 2020 , other income mainly consisted of subsidy income of$192,992 , interest income of$2,713 and other income of$41,879 , but offset with financial expense of$3,471 . Government provides grants and subsidies to support the Company's technology innovation and transformation of boric acid, lithium and magnesium sulfate projects. The Company uses most of the subsidies to purchase machinery and equipment, which is amortized to revenue (other income) over the life of the assets for which the grant and subsidy was used for. Subsidies for declared project fund require government inspection to ensure proper use of the funds for the designated project. Net loss We had net loss of$4,193,202 for the year endedDecember 31, 2021 , compared to net loss of$229,898 for the year endedDecember 31, 2020 , an increase in net loss by$3,963,304 or 1,723.9%. The increase in our net loss mainly resulted from increased bad debt expense which was partly offset by increased gross profit and increased subsidy income as described above.
Liquidity and Capital Resources
As of
The following is a summary of cash provided by or used in each of the indicated
types of activities during years ended
2021 2020
Cash provided by (used in):
Operating activities $ 1,558,061 $ 846,714
Investing activities (1,708,970 ) (447,180 )
Financing activities 406,715 358,158
Net cash provided by operating activities was $1,558,061 for the year ended
December 31, 2021 , compared to $846,714 for the year ended December 31, 2020 .
The increase of cash inflow from operating activities the year ended December
31, 2021 compared to the year ended December 31, 2020 was principally
attributable to decreased cash outflow from advance to suppliers by $420,038 ,
decreased cash outflow form taxes payable by $290,918 , increased cash inflow
from inventory sale by $480,604 , which was partly offset by decreased cash
inflow from accounts receivable by $117,619 , increased cash outflow on accounts
payable by $363,799 .
Net cash used in investing activities was $1,708,970 for the year ended December
31, 2021 , compared to $447,180 for the year ended December 31, 2020 . Net cash
used in investing activities in 2021 mainly consisted of purchase of property
and equipment of $228,279 , purchase of intangible asset of $19,915 , and
$1,460,776 payment for constructing the adsorption station. Net cash used in
investing activities in 2020 was mainly consisted of purchase of property and
equipment of $312,999 and construction in progress of $134,181 .
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Net cash provided by financing activities was$406,715 for the year endedDecember 31, 2021 , compared to$358,158 for the year endedDecember 31, 2020 . The net cash provided by financing activities in 2021 consisted of amount due to other related parties of$1,653,330 , include loans from Xi'an Jinzang described below, but partly offset by increase in due from Qinghai Mining of$1,246,615 . The net cash provided by financing activities in 2020 consisted of capital contribution from noncontrolling interest of Qinghai Zhongli by$724,887 , and increase in amount owing to other related parties of$429,523 , but partly offset by increase in due from Qinghai Mining of$796,252 . During the first quarter of 2021, Qinghai Zhongli and Xi'an Jinzang entered three loan contracts for Qinghai Zhongli borrowingRMB 4 million ($627,382 ) with an annual interest of 6.8% from Xi'an Jinzang. The fund was used for the production and operation activities and construction ofAdsorption Station Project of Qinghai Zhongli. The Company was to repayRMB 2.5 million ($392,114 ) with accrued interest byJune 30, 2021 and repay the remainingRMB 1.5 million ($235,268 ) with accrued interest byDecember 31, 2021 . A late fee of 1/1000 of outstanding balance per day will be charged if the Company is not able to repay the loan on time. The Company did not repay theRMB 2.5 million ($392,114 ) atDecember 31, 2021 ; in addition, the Company borrowed additionalRMB 2 million ($313,691 ) with the same terms during the second quarter of 2021 under the oral agreement. The Company borrowed additionalRMB 2 million ($313,691 ) with the same terms during the third quarter of 2021 under the oral agreement. The Company recorded$55,679 capitalized interest on CIP of Adsorption Station as ofDecember 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 inChina . We rely in part on dividends paid by our subsidiaries inChina 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 inChina 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 inChina . 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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