Safe Harbor Declaration





The comments made throughout this Annual Report should be read in conjunction
with our Financial Statements and the Notes thereto, and other financial
information appearing elsewhere in this document. In addition to historical
information, the following discussion and other parts of this document contain
certain forward-looking information. When used in this discussion, the
words, "believes," "anticipates," "expects" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially
from projected results, due to a number of factors beyond our control. We do not
undertake to publicly update or revise any of our forward-looking statements,
even if experience or future changes show that the indicated results or events
will not be realized. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Readers are
also urged to carefully review and consider our discussions regarding the
various factors that affect our business, which are described in this section
and elsewhere in this report.

Management's Discussion and Analysis of Financial Condition and Results of Operations.





Overview



The Company currently leases it facilities to produce boric acid in the Peoples
Republic of China ("PRC") and plans to expand its manufacturing facilities
through a Joint Venture ("JV") to produce up to 30,000 tonnes of lithium
carbonate annually for the electric vehicle battery market in China, subject to
funding.



On December 31, 2018 (the "Closing Date"), we entered into a Share Exchange
Agreement and Plan of Reorganization, as amended January 24, 2019 (the "Share
Exchange Agreement") with Mid-Heaven Sincerity International Resources
Investment Co., Ltd (Mid-heaven BVI) and its shareholders Mao Zhang, Jian Zhang,
and Ying Zhao, constituting all of the shareholders of Mid-heaven BVI (the
"Mid-heaven Shareholders"). Pursuant to the terms of the Share Exchange
Agreement, the shareholders of Mid-heaven BVI delivered all of the issued and
outstanding shares of capital stock of Mid-Heaven BVI to SmartHeat, for
106,001,971 shares of our Common Stock. Mid-heaven BVI, through two
subsidiaries, Qinghai Mid-Heaven Sincerity Technology Co., Ltd ("Sincerity") and
Qinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd ("Salt-Lake") owns 100% of
Qing Hai Mid-Heaven Boron & Lithium Technology Company, Ltd. ("Technology"). On
November 4, 2021, Mr. Jimin Zhang purchased a total of 106,001,971 shares of
common stock of the Company at a purchase price of $.001 per share (80,625,099
shares from Mao Zhang, 22,165,012 shares from Jian Zhang, and 3,211,860 shares
from Ying Zhao). After giving effect to the purchases, Mr. Jimin Zhang now
holds, directly or indirectly, a total of 152,769,779 shares of Common Stock
which represents approximately 82% of the Company's issued and outstanding
Common Stock.



The main operating entity, Technology was incorporated on December 18, 2018. The
business of Technology was carved out of the business of Qinghai Zhongtian Boron
& Lithium Mining Co., Ltd ("Qinghai Mining") on December 20, 2018. Qinghai
Mining was founded March 6, 2001, and manufactured and sold boric acid and
related compounds for industrial and consumer usage. Technology obtains its
brine exclusively from Qinghai Mining and currently leases its facilities to
third parties to produce boric acid and related compounds. . Technology
previously purchased ore from Qinghai Mining; however, Qinghai Mining ceased ore
production due to environmental protection restriction from the government. In
order to maintain the normal operation of the Company; in July 2021, Technology
Company entered a processing contract to provide boric acid commissioned
processing service at processing fee of RMB 2,000 ($308) per ton with borax
provided by the customer. On August 31, 2021, two parties signed the supplement
agreement, the final settlement price increased to RMB 2450 ($375) per ton due
to increased costs. In September 2021, Technology Company entered a new
agreement with the same customer, the Company would no longer provide the
processing services and agreed to lease its boric acid manufacturing facility,
equipment, auxiliary equipment, necessary utilities, and workers to produce the
boric acid. The customer is required to pay RMB 400,000 ($63,000) per month for
facility usage fee to the Company, or RMB 500,000 ($78,700) per month if the
customer wants to use the Company's low-grade abandoned slag. In April 2022,
Technology, together with Qinghai Mining entered a new Contact Cooperation
Agreement with a contractor (or lessee) for leasing out manufacturing facility,
equipment, auxiliary equipment and necessary utilities for a term of five years
from April 1, 2022 to March 31, 2027, monthly leasing fee of RMB 500,000
($78,700); of which, RMB 200,000 ($31,500) pays to Technology, and RMB 300,000
($47,200) pays to Qinghai Mining. Technology owns the equipment and machinery,
Qinghai Mining owns the land and plant and will provide the silicic acid and
slag to the contractor at no additional charge.



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In December 2019, a novel strain of coronavirus (COVID-19) was reported and the
World Health Organization declared the outbreak to constitute a "Public Health
Emergency of International Concern." This contagious disease outbreak, which
continues to spread to additional countries, and disrupts supply chains and
affecting production and sales across a range of industries as a result of
quarantines, facility closures, and travel and logistics restrictions in
connection with the outbreak. The COVID-19 outbreak impacted the Company's
operations for the first quarter of 2020. However, as a result of PRC
government's effort on disease control, most cities in China were reopened in
April 2020, the outbreak in China is under the control, and the Company's
production and sales has been gradually increasing since April 2020. Since April
2020 to January 2022, there were some new COVID-19 cases discovered in a few
provinces of China, however, the number of new cases are not significant due to
PRC government's strict control. Since February 2022, the COVID-19 case bounced
again in many cities of China; however, there are only a few new cases in
Qinghai Province which does not impact the Company's operations.



On March 27, 2020 (PRC time), Technology entered into an Investment Cooperation
Agreement, Memorandum of Cooperation and Licensing Agreement with Xi'an Jinzang
Membrane Environmental Protection Technology Co., Ltd. ("Xi'an Jinzang") to
produce up to 30,000 tonnes of battery grade lithium carbonate annually, subject
to funding. On April 15, 2020, the parties formed a JV company Qinghai
Zhonglixinmo Technology Co., Ltd ("Qinghai Zhongli" or JV) to process brine
supplied by Technology. Technology owns 51% of the JV and Xi' Jinzang owns the
remaining 49%. The JV cooperation agreement calls for a capital contribution of
RMB 140 million ($19,746,000), to be paid in three phases according to the
project construction progress: RMB 36 million ($5,077,000) to be paid within 10
days from the date of registration and establishment of the JV, RMB 72 million
($10,155,000) to be paid before July 31, 2020, and RMB 32 million ($4,513,000)
to be paid before October 31,2020. The JV's shareholders are required to
contribute capital in accordance with their respective shareholding ratio. The
capital contribution amount and timing can be adjusted upon both parties' mutual
consent. Each party made an initial capital contribution of RMB 5 million ($0.71
million) in April 2020. As of the date of this report, the parties have not made
all capital contributions on the dates due, pending financing by the Company, as
the capital contribution amount and timing can be adjusted anytime upon both
parties' mutual consent. During the construction and operation of the project,
all parties agree to actively raise construction funds by means of bank loans,
self-owned funds, etc. if the funds are not raised in time, the term of paid in
capital can be extended accordingly upon agreement of all parties. On May 9,
20222, JV changed its name to Qinghai Zhongli Technology Co., Ltd.



Going Concern

The accompanying consolidated financial statements ("CFS") were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.





As reflected in the accompanying CFS, the Company had net loss of $0.25 million
and $0.12 million for the three months ended March 31, 2022 and 2021,
respectively; the Company stopped produce and selling boron acid starting from
September 2021 due to decreased mine production resulting from rectifying the
mines in the area by the authority for environment protection, which raise
substantial doubt about the Company's ability to continue as a going concern.



Because the Company ceased obtaining ore for the production of boric acid from
its affiliate, the Company leased out the boric acid manufacturing facility,
equipment and auxiliary equipment for a monthly fee in order to provide interim
cash flow and maintain revenues from boric acid operations. The Company plans to
produce lithium carbonate that can be sold for the electric vehicle battery use
and is currently at test production stage. The Company expects to generate
additional revenues and cash flow once it receives government approval of the
official production process, and the Company will source all material that will
be used for both boric acid and lithium carbonate production from Qinghai Mining
once the brine processing process receives approval from the relevant
governmental authorities, the Company submitted application to Environment
Protection Department in the beginning of 2022 and is currently under the
review. Management also intends to raise additional funds by way of a private or
public offerings, by obtaining loans from banks or form other sources of debt or
equity capital. While the Company believes in the viability of its strategy to
generate sufficient revenue and in its ability to raise additional funds on
reasonable terms and conditions, there can be no assurances to that effect. The
ability of the Company to continue as a going concern is dependent upon the
Company's ability to further implement its business plan and generate sufficient
revenue and its ability to raise additional funds by way of a public or private
offering.



The CFS do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary if the Company is unable to continue as a
going concern.



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Related Party Transactions



Due from related parties, net



Technology purchased raw material boron rock from Qinghai Mining (owned by three
former major shareholders of the Company); in addition, Technology received
no-interest short-term advances from Qinghai Mining from time to time for daily
operational needs. As of March 31, 2022 and December 31, 2021, due from Qinghai
Mining was $0 (a 100% bad debt allowance was recorded for due from Qinghai
Mining of $4.5 million due to the concern of its ability to repay the debt
because it ceased production of boron ore sold to us). Qinghai Technology
purchased boron ore at a cost of $0 and $261,258 from Qinghai Mining during the
three months ended March 31, 2022 and 2021, respectively.



Due to related parties



Technology uses equipment that belongs to Qinghai Province Dachaidan Zhongtian
Resources Development Co., Ltd ("Zhongtian Resources") for production which is
owned by our former Chairman and his brother who were two major shareholders of
the Company in 2021. The depreciation of these fixed assets had an impact on the
production costs of boric acid of the Company and was included in the Company's
cost of sales. The depreciation of these fixed assets for the three months ended
March 31, 2022 and 2021 was $2,427 and $5,586, respectively. Amount of due to
Zhongtian Resources resulting from using its equipment and payment of worker's
compensation made by Zhongtian Resource for Technology was $96,691 and $96,274
at March 31, 2022 and December 31, 2021, respectively; however, Technology,
Qinghai Mining and Zhongtian agreed to use the creditor's rights of Technology
to Qinghai Mining to offset the debts of Technology to Zhongtian, accordingly,
due to Zhongtian Resource was $0 as of March 31, 2022 and December 31, 2021.



Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd
("Dingjia") which is 90% owned by the son of the Company's major shareholder and
Chairman. For the three months ended March 31, 2022 and 2021, the Company's
sales to Dingjia was $0 and $0, respectively. At March 31, 2022 and December 31,
2021, outstanding payable to Dingjia was $21,340 and $21,248, respectively;
however, Technology, Qinghai Mining and Dingjia agreed to use the creditor's
rights of Technology to Qinghai Mining to offset the debts of Technology to
Dingjia, accordingly, due to Dingjia was $0 as of March 31, 2022 and December
31, 2021.



During the first quarter of 2021, Qinghai Zhongli and Xi'an Jinzang entered
three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($630,100) with
an annual interest of 6.8% from Xi'an Jinzang. The funds were used for the
production and operation activities and construction of Adsorption Station of
Qinghai Zhongli. The Company was to repay RMB 2.5 million ($393,812) with
accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million
($236,287) with accrued interest by December 31, 2021. A late fee of 1/1000 of
outstanding balance per day will be charged if the Company is not able to repay
the loan on time. The Company did not repay the RMB 4.0 million ($630,100) at
March 31, 2022; in addition, the Company borrowed additional RMB 2 million
($315,050) with same terms during the second quarter of 2021 under the oral
agreement. The Company borrowed additional RMB 2 million ($315,050) with the
same terms during the third quarter of 2021 under the oral agreement. In January
and February 2022, the Company entered two borrowing agreements with same lender
for RMB 1 million ($157,500) with maturity date on July 30, 2022 and RMB 2
million ($315,000) with maturity date on December 31, 2022, respectively, both
loans have a 10% annual interest rate. The Company only received RMB 2 million
($315,000) during the first quarter of 2022.  The Company recorded $80,935 and
$55,679 capitalized interest on CIP of Adsorption Station Project as of March
31, 2022 and December 31, 2021.



In addition, at March 31, 2022 and December 31, 2021, the Company had $1,510,591
and $1,473,591 due to a major shareholder and Chief Executive Officer of the
Company, resulting from certain of the Company's operating expenses such as
legal and audit fees that were paid by him on behalf of the Company. This
short-term advance bore no interest, and payable upon demand.



At March 31, 2022 and December 31, 2021, the Company had $1,431 and $499 due to
a senior officer of the Company, resulting from the Company's expenses paid by
him. This short-term advance bore no interest, and was payable upon demand.



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The following table summarized the due from (to) related parties as of March 31, 2022 and December 31, 2021, respectively:





                       Related party name                      2022             2021
                       Qinghai Mining including $1.77
                       million sale of CIP (Test and
Due from               Experimental Plant I)               $  5,610,394     $  5,567,440
Due to                 Qinghai Mining                        (1,071,196 )     (1,047,820 )
Less: bad debt allowance                                     (4,539,198 )     (4,519,619 )
Due from, net (current and noncurrent)                     $          -     $          -

                       Xi'an Jinzang (NCI of the JV)
Due to                 with 6.8% interest                  $  1,656,185     $  1,310,444
Due to                 Senior officer                             1,431              499
Due to                 A major shareholder (CEO)              1,510,591        1,473,591
Due to, total                                              $  3,168,207     $  2,758,534

Significant Accounting Policies





While our significant accounting policies are more fully described in Note 2 to
our CFS, we believe the following accounting policies are the most critical to
aid you in fully understanding and evaluating this management discussion and
analysis.



Basis of Presentation

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





Principles of Consolidation



For the three months ended March 31, 2022 and 2021, the accompanying CFS include
the accounts of the Company's US parent, and Mid-heaven BVI and its
subsidiaries, Sincerity, Salt-Lake, Technology and Qinghai Zhongli, which are
collectively referred to as the "Company." All significant intercompany accounts
and transactions were eliminated in consolidation.



Use of Estimates



In preparing financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Significant estimates, required by
management, include the recoverability of long-lived assets, allowance for
doubtful accounts, and the reserve for obsolete and slow-moving inventories.
Actual results could differ from those estimates.



Accounts Receivable



We maintain reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Based on historical collection activity, we had bad
debt allowance for accounts receivable of $20,321 and $20,233 at March 31, 2022
and December 31, 2021, respectively.



Revenue Recognition



The Company recognizes revenues when its customer obtains control of promised
goods or services, in an amount that reflects the consideration which it expects
to receive in exchange for those goods. The Company recognizes revenues
following the five step model prescribed under ASU No. 2014-09: (i) identify
contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenues
when (or as) we satisfy the performance obligation.



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Revenues from product sales are recognized when the customer obtains control of
the Company's product, which occurs typically upon receipts of the goods by
customers. Sales and purchases are recorded net of VAT collected and paid as the
Company acts as an agent for the government. VAT taxes are not affected by the
income tax holiday. The Company also temporarily provided boric acid
commissioned processing service with boron material provided by the customer;
the Company recognizes revenue when the final products are picked up by the
customer at the Company's warehouse, where the control transfers to the
customer.



Starting from September 2021, Technology stopped processing service and leased
out its boric acid manufacturing facility, equipment and auxiliary equipment to
a customer. The facility leasing revenue is recorded on monthly basis.



Deferred Income



Deferred income consists primarily of government grants and subsidies for
supporting the Company's technology innovation and transformation of boric acid,
lithium and magnesium sulfate projects. The Company used most of the subsidies
to purchase machinery and equipment. Deferred income is amortized to revenue
(other income) over the life of the assets for which the grant and subsidy was
used for. Subsidies for declared project fund require government inspection to
ensure proper use of the funds for the designated project.

Foreign Currency Translation and Comprehensive Income (Loss)





The accounts of the US parent company are maintained in USD. The functional
currency of the Company's China subsidiaries is the Chinese Yuan Renminbi
("RMB"). The accounts of the China subsidiaries were translated into USD in
accordance with FASB ASC Topic 830, "Foreign Currency Matters." According to
FASB ASC Topic 830, all assets and liabilities were translated at the exchange
rate on the balance sheet date; stockholders' equity was translated at the
historical rates and statement of operations items were translated at the
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with FASB ASC Topic 220,
"Comprehensive Income."



Noncontrolling Interests



The Company follows FASB ASC Topic 810, "Consolidation," governing the
accounting for and reporting of noncontrolling interests ("NCIs") in partially
owned consolidated subsidiaries and the loss of control of subsidiaries. Certain
provisions of this standard indicate, among other things, that NCIs (previously
referred to as minority interests) be treated as a separate component of equity,
not as a liability, that increases and decreases in the parent's ownership
interest that leave control intact be treated as equity transactions rather than
as step acquisitions or dilution gains or losses, and that losses of a
partially-owned consolidated subsidiary be allocated to NCI even when such
allocation might result in a deficit balance.



The net income (loss) attributed to NCIs was separately designated in the
accompanying statements of operation and comprehensive income (loss). Losses
attributable to NCIs in a subsidiary may exceed an NCIs interests in the
subsidiary's equity. The excess attributable to NCIs is attributed to those
interests. NCIs shall continue to be attributed their share of losses even if
that attribution results in a deficit NCIs balance.



On April 15, 2020, Technology and Xi'an Jinzang formed a JV company Qinghai
Zhongli to process brine supplied by Technology. Technology owns 51% of the JV
and Xi'an Jinzang owns the remaining 49%. During the three months ended March
31, 2022 and 2021, the Company had loss of $7,989 and $9,933 that were
attributable to the NCI.

Recent Accounting Pronouncements





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



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



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In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies the
accounting for certain financial instruments with characteristics of liabilities
and equity. This ASU (1) simplifies the accounting for convertible debt
instruments and convertible preferred stock by removing the existing guidance in
ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities
to account for beneficial conversion features and cash conversion features in
equity, separately from the host convertible debt or preferred stock; (2)
revises the scope exception from derivative accounting in ASC 815-40 for
freestanding financial instruments and embedded features that are both indexed
to the issuer's own stock and classified in stockholders' equity, by removing
certain criteria required for equity classification; and (3) revises the
guidance in ASC 260, Earnings Per Share, to require entities to calculate
diluted earnings per share (EPS) for convertible instruments by using the
if-converted method. In addition, entities must presume share settlement for
purposes of calculating diluted EPS when an instrument may be settled in cash or
shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is
effective for fiscal years beginning after December 15, 2021 including interim
periods within those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020. For all other entities, ASU
2020-06 is effective for fiscal years beginning after December 15, 2023,
including interim periods within those fiscal years. Entities should adopt the
guidance as of the beginning of the fiscal year of adoption and cannot adopt the
guidance in an interim reporting period. The Company is currently evaluating the
impact that ASU 2020-06 may have on its CFS.



Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021





The following table sets forth the consolidated results of our operations for
the periods indicated as a percentage of net sales, certain columns may not add
due to rounding.



                                              2022         % of Sales          2021          % of Sales
Boronic acid sales                         $        -                 - %   $ 1,828,380            100.0 %
Boronic acid costs                                  -                 - %     1,696,118             92.8 %
Gross profit                                        -                 - %       132,262              7.2 %
Selling expenses                                    -                 - %        23,055              1.3 %
General and administrative expenses           308,648                 - %       274,371             15.0 %
Total operating expenses                      308,648                 - %       297,426             16.3 %
Income (loss) from operations                (308,648 )               - %      (165,164 )           (9.1 )%
Other income                                   52,636                 - %        50,965              2.8 %
Income (loss) before income taxes            (256,012 )               - %      (114,199 )           (6.3 )%
Income tax expense                                  -                 - %        11,458              0.6 %
Income (loss) before noncontrolling
interest                                     (256,012 )               - %      (125,657 )           (6.9 )%
Less: loss attributable to
noncontrolling interest                        (7,989 )               - %        (9,933 )           (0.6 )%
Net loss to the Company                    $ (248,023 )               - %   $  (115,724 )           (6.3 )%




Revenue



Revenue for the three months ended March 31, 2022 and 2021 was $0 and
$1,828,380, respectively, a decrease of $1,828,380 or 100%. Starting from the
third quarter 2021, we were no longer produce the boron acid but only providing
the processing service; starting the fourth quarter 2021, we stopped the ore
processing due to increased cost but only leasing our facilities out to a third
party who imports boron ore and process it for sale by themselves. However, due
to the Chinese New Year holiday and the lessee did not actually use the
Company's facility to produce, the Company did not charge any leasing revenue
for the three months ended March 31, 2022. In April 2022, Technology, together
with Qinghai Mining entered a new Contact Cooperation Agreement with a
contractor (or lessee) for leasing out manufacturing facility, equipment,
auxiliary equipment and necessary utilities for a term of five years from April
1, 2022 to March 31, 2027, monthly leasing fee of RMB 500,000 ($78,700); of
which, RMB 200,000 ($31,500) pays to Technology, and RMB 300,000 ($47,200) pays
to Qinghai Mining. Technology owns the equipment and machinery, Qinghai Mining
owns the land and plant and will provide the silicic acid and slag to the
contractor at no additional charge.



Cost of revenue



Cost of revenue ("COR") for the three months ended March31, 2022 and 2021 was $0
and $1,696,118, respectively, a decrease of $1,696,118 or 100.0%. The decrease
was mainly due to decreased sales and production. The overall COR as a
percentage of revenue was 0% for the three months ended March 31, 2022 compared
with 92.8% for 2021.



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Gross profit



Gross profit for the three months ended March 31, 2022 and 2021 was $0 and
$132,262, respectively, an decrease of $132,262 or 100.0%. The blended profit
margin was 0% for the three months ended March 31, 2022 compared to 7.2% for the
three months ended March 31, 2021.



Operating expenses



Selling expenses consist mainly of salespersons' salaries and freight out.
Selling expense were $0 for the three months ended March 31, 2022, compared to
$23,055 for the three months ended March 31, 2021, a decrease of $23,055 or
100.0%, mainly due to no sales incurred during the three months ended Mach 31,
2022.



General and administrative expenses consist mainly of salary, R&D, office,
welfare, business meeting, maintenance, bad debt expense and utilities. General
and administrative expenses were $308,648 for the three months ended March 31,
2022, compared to $274,371 for the three months ended March 31, 2021, an
increase of $34,277 or 12.5%, mainly resulting from increased maintenance
expense by $54,170 which was partly offset by decreased vehicle expense by
$6,630, decreased business management expense by $5,100 and other G&A expenses
by $8,150.



Other income



Other income was $52,636 for the three months ended March 31, 2022, compared to
$50,965 for the three months ended March 31, 2021, an increase of $1,671 or
3.3%. For the three months ended March 31, 2022, other income mainly consisted
of subsidy income of $51,808, interest income of $874, but offset with financial
expense of $46. For the three months ended March 31, 2021, other income mainly
consisted of subsidy income of $50,737, interest income of $477, but offset with
other expenses of $249.



Government provides grants and subsidies to support the Company's technology
innovation and transformation of boric acid, lithium and magnesium sulfate
projects. The Company uses most of the subsidies to purchase machinery and
equipment, which is amortized to revenue (other income) over the life of the
assets for which the grant and subsidy was used for. Subsidies for declared
project fund require government inspection to ensure proper use of the funds for
the designated project.



Net loss



We had net loss of $248,023 for the three months ended March 31, 2022, compared
to net loss of $115,724 for the three months ended March 31, 2021, an increase
in net loss by $132,299 or 114.3%. The increase in our net loss mainly resulted
from increased G&A expense and decreased gross profit as described above.

Liquidity and Capital Resources





As of March 31, 2022, we had cash and equivalents of $1,110,036. Working capital
deficit was $3,816,563 at March 31, 2022. The ratio of current assets to current
liabilities was 0.27:1 at March 31, 2022.

The following is a summary of cash provided by or used in each of the indicated types of activities during three months ended March 31, 2022 and 2021:





                                 2022           2021
Cash provided by (used in):
Operating activities          $ (311,775 )   $  514,130
Investing activities            (215,106 )     (684,507 )
Financing activities             377,877        126,738




Net cash used in operating activities was $311,775 for the three months ended
March 31, 2022, compared to net cash provided by operating activities of
$514,130 for the three months ended March 31, 2021. The increase of $825,905
cash outflow from operating activities for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was principally attributable
to increased cash outflow from inventory by $657,614, increased cash outflow
form taxes payable by $143,468, and decreased cash inflow from unearned revenue
by $127,027, which was partly offset by decreased cash outflow from advances to
suppliers by $83,584, and decreased cash outflow on other receivable by $23,631.



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Net cash used in investing activities was $215,106 for the three months ended
March 31, 2022, compared to $684,507 for the three months ended March 31, 2021.
Net cash used in investing activities in 2022 mainly consisted of purchase of
property and equipment of $2,463 and $212,643 payment for constructing the
adsorption station. Net cash used in investing activities in 2021 mainly
consisted of purchase of property and equipment of $33,606, and $650,901 payment
for constructing the absorption station for preliminarily extract lithium ion
from brine for further concentration and purification.



Net cash provided by financing activities was $377,877 for the three months
ended March 31, 2022, compared to $126,738 for the three months ended March 31,
2021. The net cash provided by financing activities in 2022 consisted of amount
due to other related parties of $377,877, include loans from Xi'an Jinzang
described below. The net cash provided by financing activities in 2021 consisted
of amount owing to other related parties of $747,140 include loans from Xi'an
Jinzang described below, but partly offset by increase in due from Qinghai
Mining of $620,402.



During the first quarter of 2021, Qinghai Zhongli and Xi'an Jinzang entered
three loan contracts for Qinghai Zhongli borrowing RMB 4 million ($630,100) with
an annual interest of 6.8% from Xi'an Jinzang. The fund was used for the
production and operation activities and construction of Adsorption Station
Project of Qinghai Zhongli. The Company was to repay RMB 2.5 million ($393,812)
with accrued interest by June 30, 2021 and repay the remaining RMB 1.5 million
($236,287) with accrued interest by December 31, 2021. A late fee of 1/1000 of
outstanding balance per day will be charged if the Company is not able to repay
the loan on time. The Company did not repay the RMB 4.0 million ($630,100) at
March 31, 2022; in addition, the Company borrowed additional RMB 2 million
($315,050) with the same terms during the second quarter of 2021 under the oral
agreement. The Company borrowed additional RMB 2 million ($315,050) with the
same terms during the third quarter of 2021 under the oral agreement. The
Company borrowed additional RMB 3 million ($472,575) with the same terms during
the first quarter of 2022 under the oral agreement, but the Company only
received RMB 2 million ($315,050). The Company recorded $80,935 and $55,679
capitalized interest on CIP of Adsorption Station as of March 31, 2022 and
December 31, 2021.



Dividend Distribution



We are a US holding company that conducts substantially all of our business
through our wholly owned and other consolidated operating entities in China. We
rely in part on dividends paid by our subsidiaries in China for our cash needs,
including the funds necessary to pay dividends and other cash distributions to
our shareholders, to service any debt we may incur and to pay our operating
expenses. The payment of dividends by entities organized in China is subject to
limitations. In particular, PRC regulations currently permit payment of
dividends only out of accumulated profits as determined in accordance with
accounting standards and regulations in China. Our PRC subsidiaries also are
required to set aside at least 10% of their after-tax profit based on PRC
accounting standards each year to a statutory surplus reserve fund until the
accumulative amount of such reserve reaches 50% of registered capital.
Appropriation to such reserve by the Company is based on profit arrived at under
PRC accounting standards for business enterprises for each year. The profit
arrived at must be set off against any accumulated losses sustained by the
Company in prior years, before allocation is made to the statutory reserve.
These reserves are not distributable as cash dividends. In addition, our PRC
subsidiaries, at their discretion, may allocate a portion of their after-tax
profit to their staff welfare and bonus fund, which may not be distributed to
equity owners except in the event of liquidation. Moreover, if any of our
subsidiaries incur debt on its own behalf in the future, the instruments
governing the debt may restrict such subsidiary's ability to pay dividends or
make other distributions to us. Any limitation on the ability of one of our
subsidiaries to distribute dividends and other distributions to us could
materially and adversely limit our ability to make investments or acquisitions
that could be beneficial to our businesses, pay dividends or otherwise fund and
conduct our business.

Off-Balance Sheet Arrangements





We have not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties other than as described
following under "Contractual Obligations." We have not entered into any
derivative contracts that are indexed to our shares and classified as
stockholders' equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.





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