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 produces boric acid inthe Peoples Republic of China (PRC) and plans to expand its manufacturing facilities through a JV to produce up to 30,000 tonnes of lithium carbonate annually for the electric vehicle battery market inChina , subject to funding. We formerly sold plate heat exchangers and heat pumps and sold those operations onSeptember 30, 2019 . 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. ("Qinghai Technology"). The Acquisition was structured as a tax-free reorganization. As a result of the share exchange agreement, Mid-heaven BVI's shareholders own approximately 57% of the combined company. For accounting purposes, the transaction was accounted for as a reverse acquisition of the Company by Mid-heaven BVI. The main operating entity, Qinghai Technology was incorporated onDecember 18, 2018 . The business of Qinghai 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 is engaged in manufacture and wholesale of boric acid and related compounds for industrial and consumer usage. Qinghai Technology obtains its raw material minerals exclusively from Qinghai Mining and currently processes boric acid by crushing and processing ore. OnSeptember 30, 2019 ,Heat HP, Inc. andHeat PHE, Inc , our wholly owned subsidiaries, sold their respective equity interests in Jinhui,SmartHeat Investment , SmartHeat Trading, SmartHeat Pump and Heat Exchange for$353 . The equity interests were sold to individuals and businesses in the PRC. Each subsidiary was sold for nominal cash consideration as below and, as the transactions were structured as purchases of equity interests, the subsidiary companies retained all liabilities when sold.
SmartHeat Heat Exchange Equipment Co -
On
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Table of Contents
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. The Company had less production in the first quarter of 2020; the Company's factory was reopened one month later than originally planned, and it did not resume the production one week after the factory reopened due to the shortage of master liquid pool resulting from the longer period of shutdown of the machine. The cost of our coal increased during the first quarter of 2020 due to the overall lockdown inChina . The Company's sales also decreased for the first quarter of 2020 due to logistics restrictions put into place to curb travel. To facilitate sales, the Company reduced its selling price byRMB 50 ($7 ) per tonne to certain customers. The number of transportation vehicles has increased to meet the market's shipping needs sinceApril 2020 . In addition, the Company was able to procure sulfuric acid, a major raw material, from a local supplier at lower prices than usual due to excess supply in the market. The Company's production and sales has gradually increasing sinceApril 2020 . SinceApril 2020 , there were some new COVID-19 cases discovered in a few provinces ofChina . As of today we do not believe that the number of new cases are significant to our operations due to PRC government's strict control, except with respect to the increase in the average cost of sales as disclosed in Results of Operations - Cost of Sales below. OnMarch 27, 2020 (PRC time), Qinghai 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 Qinghai Technology. Qinghai 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 ), which shall 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 of making the capital contribution 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 of making the capital contribution can be adjusted anytime upon both parties' mutual consent. The Company will provide the JV with lithium bearing brine resources at no charge. 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 consensus of all parties. Related Party Transactions Due from related parties Qinghai Technology purchases raw material boron rock from Qinghai Mining (owned by three major shareholders of the Company); in addition, Qinghai Technology received no-interest short-term advances from Qinghai Mining from time to time for daily operational needs. As ofDecember 31, 2020 and 2019, due from Qinghai Mining was$3.11 million and$0.55 million , respectively (the net amount of intercompany transactions between Qinghai Technology and Qinghai Mining). Qinghai Technology purchased boron ore at a cost of$1.52 million and$1.42 million from Qinghai Mining during the years endedDecember 31, 2020 and 2019, respectively. OnJuly 1, 2019 , Qinghai Technology and Qinghai Mining entered a boron ore purchase contract for a term of one year. Qinghai Mining is to supply Qinghai Technology boron ore based on Qinghai Technology's monthly production plan at a price ofRMB 62 ($9.10 ) per tonne. The price is adjustable in the future if there is a significant fluctuation of the market price for the boron ore. In the fourth quarter of 2019, this price was adjusted toRMB 70.46 ($10.21 ) per tonne. In the first quarter of 2020, Qinghai Technology and Qinghai Mining entered a new purchase contract, the price for boron ore was adjusted toRMB 77.5 ($11.10 ) per tonne, and the price for slag wasRMB 30 ($4.41 ) per tonne. The new purchase contract will be in effect until a replacement contact with new purchase price is entered. InSeptember 2020 , Qinghai Technology sold the Test and Experimental PlantI to Qinghai Mining at cost ofRMB 11.41 million ($1.75 million ) (see Note 7). The payment term is five years with annual interest of 4.75%. The first payment of$337,170 is dueSeptember 30, 2021 . Qinghai Mining guarantees payment with its accounts receivable , and has the right to repay the purchase price in full any time before the maturity date. During the fourth quarter 2020, the Company made a short-term cash advance ofRMB 500,000 ($76,630 ) to Xi'an Jinzang with no interest and payable upon demand. Xi'an Jinzang repaid the amount in full inJanuary 2021 . 32
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Table of Contents Due to related parties Qinghai Technology uses equipment that belongs toQinghai Province Dachaidan Zhongtian Resources Development Co., Ltd ("Zhongtian Resources" which is owned by our Chairman and his brotherwho are two major shareholders of the Company) for production. 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, 2020 and 2019 was$26,785 and$34,650 , respectively. Due to Zhongtian Resources resulting from using its equipment and payment of worker's compensation made by Zhongtian Resource for Qinghai Technology was$79,309 and$49,125 atDecember 31, 2020 and 2019, respectively. Qinghai 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, 2020 and 2019, the Company's sales to Dingjia was$141,411 and$149,142 , respectively. AtDecember 31, 2020 and 2019, outstanding payable to Dingjia was$20,762 and$56,144 , respectively.
In addition, at
The following table summarized the due from (to) related parties as of
2020 2019
Related party name
Qinghai Mining including $1.75
Due from million sale of CIP $ 3,457,488 $ 1,173,881
Due to Qinghai Mining (350,438 ) (619,354 )
Due from Xi'an Jinzang (NCI of the JV) 76,630 -
Due from, net (current and noncurrent)$ 3,183,680 $ 554,527 Due to Dingjia$ 20,762 $ 56,144 Due to Zhongtian Resources 79,309 49,125 Due to A major shareholder 1,014,591 573,264 Due to, total$ 1,114,662 $ 678,533 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 from continuing operations of$244,300 and$184,110 for the years endedDecember 31, 2020 and 2019, respectively, which raise substantial doubt about the Company's ability to continue as a going concern. In addition to current boric acid production business, the Company plans to produce lithium carbonate for the electric vehicle batteries through a recently established JV from brine that is provided by Qinghai Technology for free. The Company will absorb the cost for removing the brine from theSalt Lake which will be transferred to the JV without charge.. Management also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. 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.
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.
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Table of Contents Basis of Presentation
Our CFS are prepared in accordance with accounting principles generally accepted
in
Principles of Consolidation For the year endedDecember 31, 2020 , the accompanying CFS include the accounts of the Company's US parent, and Mid-heaven BVI and its subsidiaries, Sincerity,Salt-Lake , Qinghai Technology and Qinghai Zhongli, which are collectively referred to as the "Company." For the year endedDecember 31, 2019 , the accompanying CFS include the accounts of the Company's US parent, and its subsidiaries Heat HP and Heat PHE, and their subsidiaries SanDeKe, Jinhui,SmartHeat Investment , SmartHeat Trading, SmartHeat Pump, and Heat Exchange, and Mid-heaven BVI and its subsidiaries, Sincerity,Salt-Lake and Qinghai Technology, which are collectively referred to as the "Company." All significant intercompany accounts and transactions were eliminated in consolidation. Use of Estimates In preparing the 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$19,770 and$0 atDecember 31, 2020 and 2019. 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 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 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'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." 34
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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 non-controlling
interests (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 non-controlling interests was separately
designated in the accompanying statements of operation and comprehensive income
(loss). Losses attributable to non-controlling interests in a subsidiary may
exceed an non-controlling interest's interests in the subsidiary's equity. The
excess attributable to non-controlling interests is attributed to those
interests. Non-controlling interests shall continue to be attributed their share
of losses even if that attribution results in a deficit non-controlling
interests balance.
On April 15, 2020 , Qinghai Technology and Xi'an Jinzang formed a joint venture
company Qinghai Zhongli to process brine supplied by Qinghai Technology. Qinghai
Technology owns 51% of the JV and Xi'an Jinzang owns the remaining 49%. During
the year ended December 31, 2020 , the Company had loss of $14,402 that were
attributable to the noncontrolling interest.
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. InDecember 2019 , the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within FASB ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning afterDecember 15, 2020 , and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its CFS. 35
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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.
2020 % of Sales 2019 % of Sales
Sales $ 7,565,802 $ 6,742,474
Cost of sales 6,669,324 88.2 % 5,647,314 83.8 %
Gross profit 896,478 11.8 % 1,095,160 16.2 %
Selling expenses 186,316 2.5 % 363,282 5.4 %
General and administrative expenses 1,094,269 14.4 % 1,192,066 17.7 %
Total operating expenses 1,280,585 16.9 % 1,555,348 23.1 %
Loss from operations (384,107 ) (5.1 %) (460,188 ) (6.8 %)
Other income 234,113 3.1 % 403,233 6.0 %
Loss before income taxes (149,994 ) (2.0 %) (56,955 ) (0.8 %)
Income tax expense 94,306 1.2 % 127,155 1.9 %
Loss from continuing operations (244,300 ) (3.2 %) (184,110 ) (2.7 %)
Gain on disposal of discontinued
operation, net of tax - - % 5,666,187 84.0 %
Gain from operations of discontinued
entities, net of tax - - % 1,625,683 24.1 %
Income (loss) before noncontrolling
interest (244,300 ) (3.2 %) 7,107,760 105.4 %
Less: loss attributable to
noncontrolling interest from continuing
operation (14,402 ) (0.2 %) - - %
Net income (loss) $ (229,898 ) (3.0 %) $ 7,107,760 105.4 %
Sales
Sales for the years ended December 31, 2020 and 2019 was $7,565,802 and
$6,742,474 , respectively, an increase of $823,328 or 12.2%. For the years ended
December 31, 2020 and 2019, the Company's sales to Dingjia, a related party
company 90% owned by the son of the major shareholder and Chairman of the
Company, was $141,411 and $149,142 , respectively. Due to the outbreak of
COVID-19 and related logistic restriction, our sales was decreased during the
first quarter of 2020; to facilitate sales, we reduced our selling price by RMB
50 ($7 ) per tonne to certain customers, and we developed new customers during
the second and third quarter of 2020, which mitigated the decreased sales from
the first quarter, and resulted an overall increased sales by 12.2% for the year
ended December 31, 2020 compared to the year ended December 31, 2019 .
Cost of sales
Cost of sales for the years ended December 31, 2020 and 2019 was $6,669,324 and
$5,647,314 , respectively, an increase of $1,022,010 or 18.1%. The increase was
mainly due to increased sales. The cost of sales as a percentage of sales was
88.2% for the year ended December 31, 2020 compared with 83.8% for 2019. The
increase in cost of sales as a percentage of sales was mainly due to increased
average cost of production. Due to COVID-19 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. In addition, from July to September 2020 , we tested
to acquire boron rock from Tibet to produce boric acid to increase our
productivity. The Tibet boron rock has higher grade of the mineral deposit and
thus the high unit cost, which resulted the increased raw material cost of boric
acid production, we stopped acquiring Tibet boron rock in October due to its
higher cost.
Gross profit
Gross profit for the years ended December 31, 2020 and 2019 was $896,478 and
$1,095,160 , respectively, a decrease of $198,682 or 18.1%. The profit margin was
11.8% for the year ended December 31, 2020 compared to 16.2% for the year ended
December 31, 2019 , the decrease in profit margin was mainly due to increase
production cost as described above.
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Table of Contents Operating expenses Selling expenses consist mainly of salespersons' salaries and freight out. Selling expense were$186,316 for the year endedDecember 31, 2020 , compared to$363,282 for the year endedDecember 31, 2019 , a decrease of$176,966 or 48.7%, mainly resulting from 1) decreased freight out expense of$46,000 , which was due to the decrease of diesel price and reduction and exemption of road toll, and 2) decreased salespersons' salaries of$131,550 resulting from restructure of our sales department for improving its efficiency and cost-saving. General and administrative expenses consist mainly of salary, R&D, office, welfare, business meeting, maintenance, and utilities. General and administrative expenses were$1,094,269 for the year endedDecember 31, 2020 , compared to$1,192,066 for the year endedDecember 31 2019 , an decrease of$97,797 or 8.2%, mainly resulting from decreased officers' salary by$120,000 , which was partly offset by increased financial advisory expense of$30,400 . Other income Other income was$234,113 for the year endedDecember 31, 2020 , compared to$403,233 for the year endedDecember 31, 2019 , a decrease of$169,120 or 41.9%. For the year endedDecember 31, 2020 , other income mainly consisted of subsidy income of$192,992 and other income of$41,879 . For the year endedDecember 31, 2019 , other income mainly consisted of subsidy income of$410,672 . 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.
Loss from continuing operations
Loss from continuing operations was$244,300 for the year endedDecember 31, 2020 , compared to$184,110 for the year endedDecember 31, 2019 . The$60,190 or 32.7% increase in loss from continuing operations was mainly due to decreased gross profit by$198,682 and decreased total other income by$169,120 , but was partly offset by decreased operating expenses by$274,763 and decreased income tax expense by$32,849 .
Gain on disposal of discontinued entities
Gain from disposal of subsidiaries was$5,666,187 for the year endedDecember 31, 2019 . OnSeptember 30, 2019 ,Heat HP, Inc. andHeat PHE, Inc , our wholly owned subsidiaries, sold their respective equity interests in Sandeke Jinhui,SmartHeat Investment , SmartHeat Trading, SmartHeat Pump and Heat Exchange for$353 .
Gain from operations of discontinued entities
Gain from operations of discontinued entities was$1,625,683 for the year endedDecember 31, 2019 , which was the operations from Sandeke, Jinhui,SmartHeat Investment , SmartHeat Trading, SmartHeat Pump and Heat Exchange, the Company sold these entities onSeptember 30, 2019 . Net loss We had a net loss of$229,898 for the year endedDecember 31, 2020 , compared to net income$7,107,760 for the year endedDecember 31, 2019 , an increase of net loss by$7,337,658 or 103.2%. The increase in our net loss mainly resulted from the$5.6 million gain from the disposal of discontinued intities in 2019 as described above.
Liquidity and Capital Resources
As of
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Table of Contents
The following is a summary of cash provided by or used in each of the indicated
types of activities during years ended
2020 2019
Cash provided by (used in):
Operating activities $ 846,714 $ 344,170
Investing activities (447,180 ) (149,928 )
Financing activities $ 358,158 $ (190,985 )
Net cash provided by operating activities was $846,714 for the year ended
December 31, 2020 , compared to $344,170 for the year ended December 31, 2019 .
The increase of cash inflow from operating activities for 2020 was principally
attributable to increased cash inflow from inventory by $847,468 , which was
partly offset by decreased cash inflow from advances to suppliers by $279,225
and decreased cash inflow from other receivables by $66,891 .
Net cash used in investing activities was $447,180 for the year ended December
31, 2020 , compared to $149,928 for the year ended December 31, 2019 . Net cash
used in investing activities in 2020 was mainly consist of purchase of property
and equipment of $312,999 and $134,181 payment for constructing the absorption
station for preliminarily extract lithium ion from brine for further
concentration and purification. Net cash used in investing activities in 2019
was mainly consist of cash disposed at disposal of subsidiaries.
Net cash provided by financing activities was $358,158 for the year ended
December 31, 2020 , compared to net cash used in financing activities of $190,985
for the year ended December 31, 2019 . 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 . The net cash used in financing activities in 2019 consisted
of increase in due from Qinghai Mining of $560,777 , but partly offset by
increased amount owing to other related parties of $369,792 .
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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