Overview





The Company currently produces 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. We sold plate heat
exchangers and heat pumps and sold those operations on September 30, 2019.



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").



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, 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 is engaged in manufacture and wholesale of
boric acid and related compounds for industrial and consumer usage. Technology
obtains its raw material minerals exclusively from Qinghai Mining and currently
processes boric acid by crushing and processing ore.



On September 30, 2019, Heat HP, Inc. and Heat 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 Jinhui (Beijing) Energy Technology Ltd - 100 RMB

SmartHeat (China) Investment Ltd - 400 RMB

SmartHeat (Shanghai) Trading Co., Ltd - 400 RMB

SmartHeat (Shenyang) Heat Pump Technology Co., Ltd - 400 RMB

SanDeKe Co., Ltd - 600 RMB

SmartHeat Heat Exchange Equipment Co - 600 RMB

On October 23, 2019, we filed a certificate of amendment to its certificate of incorporation to change its name from "SmartHeat, Inc." to "Lithium & Boron Technology, Inc." to better reflect the operations of the Company.





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 gradually increasing since April 2020.  Since April
2020 and to date, there were some new COVID-19 cases discovered in a few
provinces of China, and we do not believe that the number of new cases are
significant to our operations due to PRC government's strict control.



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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), 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 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 of making the capital
contribution 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 of making the capital contribution 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 consensus of
all parties.



Related Party Transactions



Due from related parties



Technology purchases raw material boron rock from Qinghai Mining (owned by three
major shareholders of the Company); in addition, Technology received no-interest
short-term advances from Qinghai Mining from time to time for daily operational
needs. As of March 31, 2021 and December 31, 2020, due from Qinghai Mining was
$3.77 million 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 $261,258 and $113,528 from Qinghai Mining
during the three months ended March 31, 2021 and 2020, respectively.



On July 1, 2019, 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 of
RMB 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 to RMB 70.46 ($10.21) per tonne.
In the first quarter of 2020, Technology and Qinghai Mining entered a new
purchase contract, the price for boron ore was adjusted to RMB 77.5 ($11.10) per
tonne, and the price for slag was RMB 30 ($4.41) per tonne. The new purchase
contract will be in effect until a replacement contact with new purchase price
is entered.



In September 2020, Technology sold the Test and Experimental Plant I to Qinghai
Mining at cost of RMB 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 $334,789
is due September 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.



Due to related parties



Technology uses equipment that belongs to Qinghai Province Dachaidan Zhongtian
Resources Development Co., Ltd ("Zhongtian Resources" which is owned by our
Chairman and his brother who 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 three months ended
March 31, 2021and 2020 was $5,586 and $6,263, respectively. Due to Zhongtian
Resources resulting from using its equipment and payment of worker's
compensation made by Zhongtian Resource for Technology was $84,261 and $79,309
at March 31, 2021 and December 31, 2020, respectively.



Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd
("Dingjia") which is 90% owned by the son of the Company's major shareholder and
Chairman. For the three months ended March 31, 2021 and 2020, the Company's
sales to Dingjia was $0, respectively. At March 31, 2021 and December 31, 2020,
outstanding payable to Dingjia was $20,615 and $20,762, respectively.



During the three months ended March 31, 2021, Qinghai Zhongli and Xi'an Jinzang
entered three loan contracts for Qinghai Zhongli borrowing RMB 4 million
($608,708) with an annual interest 6.8% from Xi'an Jinzang. The fund was used
for the production and operation activities of Qinghai Zhongli. The Company
shall repay RMB 2.5 million ($380,442) with accrued interest by June 30, 2021
and repay the remaining RMB 1.5 million ($228,266) with accrued interest by
December 31, 2021. A late fee of 1/1000 of outstanding balance per day will be
charged if the Company is not able to repay the loan on time.



In addition, at March 31, 2021 and December 31, 2020, the Company had $1,135,591
and $1,014,591 due to another 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.



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The following table summarized the due from (to) related parties as of March 31, 2021 and December 31, 2020, respectively:





                         Related party name                    2021            2020
                         Qinghai Mining including $1.75
Due from                 million sale of CIP                $ 4,635,533     $ 3,457,488
Due to                   Qinghai Mining                        (862,132 )      (350,438 )
Due from Xi'an Jinzang (NCI of the JV)                                -

76,630


Due from, net (current and noncurrent)                      $ 3,773,401     $ 3,183,680

Due to                   Dingjia                            $    20,615     $    20,762
                         Xi'an Jinzang (NCI of the JV)
Due to                   with 6.8% interest                     612,351               -
Due to                   Zhongtian Resources                     84,261          79,309
Due to                   A major shareholder                  1,135,591       1,014,591
Due to, total                                               $ 1,852,818     $ 1,114,662




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 of $115,724 and $230,628 for the three months ended March 31, 2021 and 2020, 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 Technology. 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.



Basis of Presentation

Our CFS are prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP.





Principles of Consolidation



For the three months ended March 31, 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 $19,631 and $19,770 at March 31, 2021
and December 31, 2020.



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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'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 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. NCIs
shall continue to be attributed their share of losses even if that attribution
results in a deficit NCIs balance.



On April 15, 2020, Technology and Xi'an Jinzang formed a JV company Qinghai
Zhongli to process brine supplied by Technology. Technology owns 51% of the JV
and Xi'an Jinzang owns the remaining 49%. During the three months ended March
31, 2021, the Company had loss of $9,933 that were attributable to the NCI.

Recent Accounting Pronouncements





In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit
Losses (Topic 326), which requires entities to measure all expected credit
losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. This
replaces the existing incurred loss model and is applicable to the measurement
of credit losses on financial assets measured at amortized cost. This guidance
is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2022. Early application will be permitted for all
entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. The Company is currently evaluating the
impact that the standard will have on its CFS.



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In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for
Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment
test, which requires a hypothetical purchase price allocation. A goodwill
impairment will now be the amount by which a reporting unit's carrying value
exceeds its fair value, not to exceed the carrying amount of goodwill. The
guidance should be adopted on a prospective basis. As a smaller reporting
company, the standard will be effective for the Company for interim and annual
reporting periods beginning after December 15, 2022, with early adoption
permitted. The Company is currently evaluating the impact of adopting this
standard on its CFS.



In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic
848) ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference
rate reform related activities that impact debt, leases, derivatives and other
contracts. The guidance in ASU 2020-04 is optional and may be elected over time
as reference rate reform activities occur. The Company continues to evaluate the
impact of the guidance and may apply the elections as applicable as changes in
the market occur.



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 and related disclosures.



Results of Operations

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020





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
Sales                                      $ 1,828,380                      $ 1,010,498
Cost of sales                                1,696,118            92.8 %        930,744             92.1 %
Gross profit                                   132,262             7.2 %         79,754              7.9 %
Selling expenses                                23,055             1.3 %         56,205              5.6 %
General and administrative expenses            274,371            15.0 %        287,002             28.4 %
Total operating expenses                       297,426            16.3 %        343,207             34.0 %
Loss from operations                          (165,164 )          (9.1 %)      (263,453 )          (26.1 %)
Other income                                    50,965             2.8 %         32,825              3.2 %
Loss before income taxes                      (114,199 )          (6.3 %)      (230,628 )          (22.9 %)
Income tax expense                              11,458             0.6 %              -                - %
Income (loss) before noncontrolling
interest                                      (125,657 )          (6.9 %)      (230,628 )          (22.9 %)
Less: loss attributable to
noncontrolling interest from continuing
operation                                       (9,933 )          (0.6 %)             -                - %
Net income (loss)                          $  (115,724 )          (6.3 %)   $  (230,628 )          (22.9 %)




Sales for the three months ended March 31, 2021 and 2020 was $1,828,380 and
$1,010,498, respectively, an increase of $817,882 or 80.9%. The increase in
sales was mainly due to 66% increase in sales quantity and 1% increase in
average unit selling price resulting from increased demand, and 14% increase due
to change in exchange rate. In the comparable period of 2020, due to the
outbreak of COVID-19 and related logistic restriction, our sales was decreased
significantly.



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Cost of sales



Cost of sales ("COS") for the three months ended March 31, 2021 and 2020 was
$1,696,118 and $930,774, respectively, an increase of $765,374 or 82.2%. The
increase was mainly due to increased sales and production. The COS as a
percentage of sales was 92.8% for the three months ended March 31, 2021 compared
with 92.1% for 2020. The increase in COS as a percentage of sales was mainly due
to increased average cost of production resulting from consumption of remaining
Tibet boron rock which was carried over from 2020. 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. All the Tibet rock which was purchased previously was consumed
during the first quarter of 2021



Gross profit



Gross profit for the three months ended March 31, 2021 and 2020 was $132,262 and
$79,754, respectively, an increase of $52,508 or 65.8%. The profit margin was
7.2% for the three months ended March 31, 2021 compared to 7.9% for the three
months ended March 31, 2020, the decrease in profit margin was mainly due to
increased production cost as described above.



Operating expenses



Selling expenses consist mainly of salespersons' salaries and freight out.
Selling expense were $23,055 for the three months ended March 31, 2021, compared
to $56,205 for the three months ended March 31, 2020, a decrease of $33,150 or
59.0%, mainly resulting from decreased salespersons' salaries by $41,700
resulting from restructure of our sales department for improving its efficiency
and cost-saving which was partly offset by increased freights expense by $8,000.



General and administrative expenses consist mainly of salary, R&D, office,
welfare, business meeting, maintenance, and utilities. General and
administrative expenses were $274,371 for the three months ended March 31, 2021,
compared to $287,002 for the three months ended March 31 2020, a decrease of
$12,631 or 4.4%, mainly resulting from decreased maintenance expense by $15,050
and decreased bad debt expense by $2,568, which was partly offset by increased
business entertainment expense by $5,600.



Other income



Other income was $50,965 for the three months ended March 31, 2021, compared to
$32,825 for the three months ended March 31, 2020, an increase of $18,140 or
55.3%. For the three months ended March 31, 2021, other income mainly consisted
of subsidy income of $50,737. For the three months ended March 31, 2020, other
income mainly consisted of subsidy income of $47,141 and non-operating expenses
of $14,349.



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 a net loss of $115,724 for the three months ended March 31, 2021,
compared to $230,628 for the three months ended March 31, 2020, a decrease of by
$114,904 or 49.8%. The decrease in our net loss mainly resulted from increased
sales and decreased operating expenses as described above.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and equivalents of $922,140. Working capital was $398,976 at March 31, 2021. The ratio of current assets to current liabilities was 1.09:1 at March 31, 2021.

The following is a summary of cash provided by or used in each of the indicated types of activities during three months ended March 31, 2021 and 2020:





                                 2021          2020
Cash provided by (used in):
Operating activities          $  514,130     $ 274,672
Investing activities            (684,507 )           -
Financing activities             126,738       (78,758 )




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Net cash provided by operating activities was $514,130 for the three months
ended March 31, 2021, compared to $274,672 for the three months ended March 31,
2020. The increase of cash inflow from operating activities for 2021 was
principally attributable to decreased cash outflow from accounts payable by
$114,486 and increased cash inflow from unearned revenue by $137,129, increased
cash inflow form taxes payable by $54,324, and decreased net loss by $104,971,
despite we had decreased cash form accounts receivable by $96,638 and increased
cash outflow from advance to suppliers by $76,118.



Net cash used in investing activities was $684,507 for the three months ended
March 31, 2021, compared to $0 for the three months ended March 31, 2020. Net
cash used in investing activities in 2021 mainly consisted of purchase of
property and equipment of $33,606, and $650,901 payment for constructing the
absorption station for preliminarily extract lithium ion from brine for further
concentration and purification.



Net cash provided by financing activities was $126,738 for the three months
ended March 31, 2021, compared to net cash used in financing activities of
$78,758 for the three months ended March 31, 2020. The net cash provided by
financing activities in 2021 consisted of amount owing to other related parties
of $747,140 include loans from Xi'an Jinzang described below, but partly offset
by increase in due from Qinghai Mining of $620,402. The net cash used in
financing activities in 2020 consisted of increase in due from Qinghai Mining of
$191,744 and increase in due to other related parties of $112,986.



During the three months ended March 31, 2021, Qinghai Zhongli and Xi'an Jinzang
(who is the noncontrolling interest shareholder of Qinghai Zhongli) entered
three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($608,708) with
an annual interest of 6.8% from Xi'an Jinzang. The fund was used for the
production and operation activities of Qinghai Zhongli. The Company shall repay
RMB 2.5 million ($380,442) with accrued interest by June 30, 2021 and repay the
remaining RMB 1.5 million ($228,266) with accrued interest by December 31, 2021.
A late fee of 1/1000 of outstanding balance per day will be charged if the
Company is not able to repay the loan on time.



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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