~~Town~~(Da Qaidam Administrative Committee)
~~Xai~~Xi ~~County~~~~, Qing~~ HaiXaiXi, Qinghai Province 817000

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YES ☒ NO ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of ~~November 13, 2019~~June 19, 2020 there were 185,986,370 shares of common stock outstanding.

On May 14, 2020 we filed a Current Report on Form 8-K in compliance with and in reliance upon the SEC Order issued pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules thereunder (SEC Release No. 34-88465 on March 25, 2020) (Relief Order). By way of filing the Current Report (as amended), we, among other things, extended the time of filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (“Quarterly Report”), until no later than June 29, 2020 in reliance on the Relief Order. The Current Report disclosed the reasons that our Quarterly Report could not be filed timely.

As required by the Relief Order, we hereby disclose we were unable to timely file our Quarterly Report and had to avail ourselves of the Relief Order because COVID-19 caused severe disruptions to our executives and staff who were located outside of our headquarters in Xai Xi during certain times of lock-down orders in China and to our professional advisors that were subject to stay at home orders in the United States. This has, in turn, delayed the Company’s ability to complete the Quarterly Report. In particular, the stay at home orders impacted certain of our management, employees and the staff or our professional advisors in assembling the financial and operational information required to be presented in the Quarterly Report.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which include, but are not limited to, statements concerning our projected revenues, expenses, gross profit and income, mix of revenue, demand for our products, the benefits and potential applications for our products, the need for additional capital, our ability to obtain and successfully perform additional new contract awards and the related funding and profitability of such awards, the competitive nature of our business and markets and product qualification requirements of our customers. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Such factors include, but are not limited to the following:

Additionally, this report contains statistical data ~~that~~ we obtained from various publicly available government publications and industry-specific third party reports. Statistical data in these publications also include projections based on a number of assumptions. The changing nature of our customers’ industries results in uncertainties in any projections or estimates relating to the growth prospects or future condition of our markets. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.

Unless otherwise indicated, information in this report concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable. None of the market data from independent industry publications cited in this report was prepared on our or our affiliates’ behalf.

Additional information on the various risks and uncertainties potentially affecting our operating results are discussed in this report and other documents we file with the Securities and Exchange Commission, or ~~the~~ SEC, or is available upon written request to our corporate secretary at: 60 East Ren-Min Road, Da-Chai Dan Town, Xai Xi County, Qing Hai Province 8100000. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements.

As used in this report, “LBTI,” “Company,” “we,” “our” and similar terms refer to Lithium & Boron Technology, Inc. and its subsidiaries, unless the context indicates otherwise.

Our functional currency is the US Dollar, or USD, while the functional currency of our subsidiaries in China ~~are denominated in~~is Chinese Yuan Renminbi, or RMB, the national currency of the People’s Republic of China, which we refer to as the PRC or ~~China, and the functional currency of our subsidiary in Germany is denominated in Euros, or EUR.~~China. The functional currencies of our foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the average exchange rate during the fiscal year. See Note 2 of the consolidated financial statements included herein.

Effective February 7, 2012, we implemented a one-for-ten reverse stock split of our common stock. Unless otherwise indicated, all share amounts and per share prices in this report were retroactively adjusted to reflect the effect of this reverse stock split. See Note 1 of the consolidated financial statements included herein.

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

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

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

Lithium & Boron Technology, Inc., (the “Company” or “Lithium Tech”), formerly known as SmartHeat, Inc. (“SmartHeat”), was incorporated August 4, 2006, in the State of Nevada. The Company currently produces boric acid in the People Republic of China (“PRC”) and plans to expand its manufacturing facilities through a joint venture to produce lithium carbonate for the electric vehicle battery market in China. The Company ~~has collaborated with a director~~also plans to ~~develop a prototype production line that can~~ produce ~~boric acid and lithium carbonate from local brines pool and may also initiate production~~ of lithium carbonate from existing ore deposits it purchases from an affiliated mining company.

The Company formerly sold plated heat exchangers and heat pumps and sold these operations on September 30, 2019 recording them as discontinued operations.

On December 31, 2018 (the “Closing Date”), the Company entered into and closed a Share Exchange Agreement and Plan of Reorganization, as amended on January 24, 2019 (the “Share Exchange Agreement”) with Mid-Heaven Sincerity International Resources Investment Co., Ltd (Mid-heaven BVI) and its shareholders Mao Zhang, Jian Zhang, and Ying Zhao, constituting all the shareholders of Mid-heaven BVI (the “Mid-heaven Shareholders”). Pursuant to the terms of the Share Exchange Agreement, the shareholders of Mid-Heaven BVI delivered all of the issued and outstanding shares of capital stock of Mid-Heaven BVI to the Company, for 106,001,971 shares of the Company’s Common Stock. Mid-heaven BVI, through two subsidiaries, Qinghai Mid-Heaven Sincerity Technology Co., Ltd (“Sincerity”) and Qinghai Mid-Heaven Sincerity Salt-Lake R&D Co., Ltd (“Salt-Lake”) owns 100% of Qing Hai Mid-Heaven Boron & Lithium Technology Company, Ltd. (“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 December 18, 2018. The business of Qinghai Technology was carved out of the business of Qinghai Zhongtian Boron ~~& Litium~~&Lithium Mining Co., Ltd (“Qinghai Mining”) on December 20, 2018. Qinghai Mining was founded March 6, 2001 and 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.

On September 30, 2019, Heat HP, Inc. and Heat PHE, Inc, wholly owned subsidiaries of the Company, sold all of 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 located 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 purchased. Heat HP, Inc. and Heat PHE, Inc. did not have any operations and mainly serve the purpose as holding companies.

On October 23, 2019, the Company filed a certificate of amendment to its certificate of incorporation to change its name from ~~“Smartheat,~~“SmartHeat, Inc.” to “Lithium & Boron Technology, Inc.” to better reflect the operations of the Company. The name change became effective October 23, 2019.

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. 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. 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 coal increased during the first quarter of 2020 due to the overall lockdown in China. The Company’s sales also decreased for the first quarter of 2020 due to logistics restrictions put into place to curb travel. To facilitate the sales, the Company reduced the selling price by RMB 50 ($7) per ton to certain customers. The number of transportation vehicles has increased to meet the market’s shipping needs since April 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 supplies on the market. The Company’s production and sales has been gradually increasing since April 2020. The impact of COVID-19 to the Company’s operation was mitigated as of this report date. Even though the Company was able to resume normal operations in HaiXi since its facilities are far removed from big cities which have more challenges with respect to monitoring and controlling the outbreak, but the Company’s executives, auditors and attorneys who are located in large cities in China and in the United States were subject to various travel and quarantine restrictions which delayed the compilation of information needed to timely file this report on Form 10-Q.

On March 27, 2020 (PRC time), Qinghai 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 20,000 tons of battery grade lithium hydroxide and 10,000 tons of lithium carbonate annually, subject to funding. On April 15, 2020, the parties formed a joint venture company Qinghai Zhonglixinmo Technology Co., Ltd (Qinghai Zhongli or JV) to process brine supplied by Qinghai Technology. Qinghai Technology owns 51% of the joint venture and Xi’ Jinzang owns the remaining 49%. The Joint Venture 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. All shareholders shall pay the capital in accordance with their respective shareholding ratio. The Company promises and guarantees that, during the existence of the project company, it will provide the JV with lithium bearing brine resources for free. 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. Each party made an initial capital contribution of RMB 5 million ($0.71 million) in April 2020.

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 $230,628 and $95,686 for the three months ended March 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 battery through a recently established joint venture. The Company also plans to produce lithium carbonate from existing ore deposits it purchases from an affiliated mining company. 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.

The consolidated financial statements (“CFS”) were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

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~~The CFS include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances were eliminated in consolidation.~~

The interim consolidated financial information as of ~~September 30, 2019~~March 31, 2020 and for the ~~nine and~~ three-month periods ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, previously filed with the SEC.

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of ~~September 30, 2019 and December~~March 31, ~~2018,~~2020, its consolidated results of operations and cash flows for ~~nine and~~the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ as applicable, were made.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology, which are collectively referred to as the “Company.” For the three months ended March 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;~~Exchange and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology, which are collectively referred to as the “Company.” For the nine months ended September 30, 2018, the accompanying CFS consist of the accounts of Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology as a result of reverse merger of SmartHeat with Mid-heaven BVI. All significant intercompany accounts and transactions were eliminated in consolidation.

~~The Company follows Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 810,~~ ~~“Consolidation,”~~ which established new standards 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, as was previously the case, 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 the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.

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.

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

The following table presents in US dollars (“USD”) the amount of cash and equivalents held by the Company as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, based on the jurisdiction of deposit. The Company’s US parent holds cash and equivalents in US bank accounts denominated in USD.

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, the Company had allowance of ~~nil and $1.78 million~~$0 at ~~September 30, 2019~~March 31, 2020 and December 31, 2018. At September 30, 2019, Qinghai Technology had $0.27 million accounts receivable with aging over one-year, the Mining company agreed to take the full responsibility of payment if these accounts receivable cannot be collected.

At September 30, 2019 and December 31, 2018, the Company had retentions receivable from customers for product quality assurance of nil and $0.14 million. The retention rate varied from 5% to 20% of the sales price with variable terms from three to 24 months depending on the shipping date, and for PHE Units, the customer acceptance date of the products and the number of heating seasons that the warranty period covers. The Company had allowance for these retentions of nil and $0.14 million at September 30, 2019 and December 31, 2018.2019.

The Company makes advances to certain vendors to purchase raw material, tools and equipment for production. The advances are interest-free and unsecured. As of ~~September 30, 2019~~March 31, 2020, and December 31, ~~2018,~~2019, the Company had allowance for advances to suppliers of ~~nil~~$2,529 and ~~$2.16 million.~~$0, respectively. In addition, as of March 31, 2020, the Company prepaid $28,000 to a third party company for purchasing the equipment and a land use right; total purchase price is $141,000, the remaining $113,000 will be paid within three days after the completion of the land certificate and related deed, or the prepayment will be returned to the Company it failure to obtain the land use certificate and related deed.

Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Management compares the cost of inventories with the net realizable value and an allowance is made to write down inventories to market value, if lower.

~~In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330) - Simplifying the Measurement~~

Table of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 effective January 1, 2017 and it did not have a material effect on the Company’s CFS.

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Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; major additions, repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with a 3% - 10% salvage value and estimated lives as follows:

Depreciation of plant, property and equipment attributable to manufacturing is capitalized as part of inventories, and expensed to cost of sales when inventories are sold.

Long-lived assets, which include tangible assets, such as property and equipment, goodwill and other intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, but at least annually.

Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized based on the excess of the carrying amount over the fair value (“FV”) of the assets. FV generally is determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there was no significant impairments of its long-lived assets.

Effective on January 1, 2020, the Company adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

Deferred income 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.

The Company records payments received from customers in advance of their orders as unearned revenue. These orders normally are delivered (usually within one month) based upon contract terms and customer demand.

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

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon receipts of the goods by customers. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not affected by the income tax holiday.

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Cost of sales (“COS”) consists primarily of material costs and direct labor and manufacturing overhead attributable to the production of the products. Write-down of inventory to lower of cost or net realizable value is also recorded in COS.

Research and development (“R&D”) costs are expensed as incurred and included in general and administrative (“G&A”) expenses. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department and fees paid to third parties. R&D costs for the ~~nine months ended September 30, 2019 and 2018 were $554 and $43,191, respectively. R&D costs for the~~ three months ended ~~September 30,~~March 31, 2020 and 2019 were immaterial.

The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and ~~2018 were $465~~recognized as compensation expense over the requisite service period.

The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and ~~$2,132, respectively.~~FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the fair value of the equity instrument issued or committed to be issued, as this is more reliable than the fair value of the services received. The fair value is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

Effective January 1, 2020, the Company adopted ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The adoption of ASU 2018-07 did not have an impact on the CFS.

Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under the provisions of ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company did not take any uncertain positions that would necessitate recording a tax related liability.

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

The new revenue standards became effective for the Company January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

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

Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs typically upon delivery to the 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~~

~~Cost of Sales~~

~~Unearned Revenue~~

Cash includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions within China are not covered by insurance. The Company has not experienced any losses in such accounts.

Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.

The operations of the Company are located primarily in China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.

~~In accordance with FASB ASC Topic 230,~~ ~~“Statement of Cash Flows,”~~ cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

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.”

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.

Certain of the Company’s financial instruments, including cash and equivalents, notes receivable, accrued liabilities and accounts payable, carrying amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.

ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:

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Effective January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet for all leases with terms longer than 12 months and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company concluded the adoption of this ASU did not have a material impact on the Company’s CFS since the Company does not have any lease that is longer than 12 months.

FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company currently operates in one business and industry segment: manufacture and sale of boric acid.

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,~~December 2019, the FASB issued ASU ~~No. 2017-04,~~2019-12, Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment. The guidance removes Step 2~~Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the ~~goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a~~current guidance to promote consistent application among reporting ~~unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.~~entities. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.

In June 2018, the FASB issued ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for ~~SEC filers for fiscal years, and interim reporting periods within those~~ fiscal years beginning after December 15, ~~2019 (i.e., January 1,~~ 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 ~~calendar~~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 ~~entities). Early adoption is permitted.~~of adoption. The Company is evaluating the ~~effects of the adoption of~~impact this ~~guidance and currently believes it~~update will ~~impact the accounting of the share-based awards granted to non-employees.~~have on its CFS.

Inventories at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, were as follows:

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The Company sold goods to its customers and received notes (bank acceptances) from them in lieu of payments. These bank acceptances were issued by customers to the Company and would be honored by the applicable bank. The Company may hold a bank acceptance until the maturity for full payment, have the bank acceptance cashed out from the bank at a discount at an earlier date, or transfer the bank acceptance to its vendors in lieu of payment for their own obligations. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had notes receivable of ~~$270,162~~$126,844 and ~~$111,473,~~$79,478, respectively; and at ~~September 30, 2019,~~March 31, 2020, the Company had ~~$1.36~~$0.64 million notes receivable that were endorsed to its vendors, in lieu of payment. The Company was contingently liable for these notes receivable until ~~it is paid or matured.~~paid.

Other receivables ~~prepayments and deposits~~ consisted of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

~~Advances to unrelated third-party companies were short-term unsecured advances.~~

~~Advances to employees were short-term loans to employees and advances for business trips and related expenses, with no interest, payable upon demand.~~

Property and equipment consisted of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively:

~~Depreciation for the nine months ended September 30, 2019 and 2018 was $235,286 and $245,489, respectively.~~

Depreciation for the three months ended ~~September 30,~~March 31, 2020 and 2019 was $76,346 and ~~2018 was $76,141 and $78,024,~~$79,975, respectively.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had CIP of ~~$1,613,546~~$1,610,768 and ~~$1,662,847,~~$1,635,912, respectively. The CIP was mainly for Test and Experimental Plant I, which does not have any production currently; the Company intends to transform the plant as a pilot plant for pure boric acid and lithium carbonate production. However, in 2019, the existing coal-supported boiler in Plant I was determined failure to meet the environment protection standard, and the CIP was delayed due to the Company is waiting for the installation and connection of the natural gas pipeline by the authority as a result of implementing the Coal-to-Gas conversion project by the authority for environmental protection purpose. Due to various factors including the Coronavirus outbreak, the government-implemented project of installation and connection of the natural gas pipeline keeps delaying, the Company is planning to sell the Test and Experimental Plant I to Qinghai Mining at cost.

Taxes payable consisted of the following ~~September 30, 2019~~March 31, 2020 and December ~~31,2018,~~31, 2019, respectively:

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Accrued liabilities and other payables consisted of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively:

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

~~At September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, other mainly was dividend payable to Northtech of ~~$375,000~~$425,000 and ~~$300,000, respectively.~~$400,000, respectively; and payables for professional fees and other miscellaneous expenses of $89,141 and $134,275.

As of ~~September 30, 2019 and~~March 31, 2020, accrued expenses mainly consisted of accrued salary $635,475 for Qinghai Technology including $600,000 accrued salary for three senior officers. As of December 31, 2018, the Company had $0 and $291,410, respectively, for the government subsidy for Magnesium-rich waste liquid high value utilization project, and was recorded as other payable; during the three months ended September 30, 2019, the Company completed the project and passed the government’s inspection, the Company reclassified $65,000 equipment cost of this government subsidy payable to deferred income and amortizes it over 10 years, and reclassified $0.22 million subsidy payable as other income.

~~As of September 30,~~ 2019, accrued expenses mainly consisted of accrued payroll expense of ~~$62,410~~$560,374 for Qinghai ~~Technology. As of December 31, 2018,~~Technology including $480,000 accrued ~~expenses mainly consisted of accrued property and land rental fee of $2.38 million~~salary for ~~SmartHeat Pump and accrued payroll of $0.38 million.~~three senior officers.

Qinghai Technology purchased raw material boron rock from Qinghai Mining (owned by three major shareholders of the Company); in addition, Qinghai Technology sometimes received no-interest short-term advances from Qinghai Mining for daily operation needs. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, due from ~~(to)~~ Qinghai Mining (representing the net amount of intercompany transactions between Qinghai Technology and Qinghai ~~Mining due to carve out)~~Mining) was ~~$0.18~~$0.73 million and ~~$(3.88)~~$0.55 million, ~~respectively, which included $54,976 net due to Qinghai Mining after the Debt Offset Agreement disclosed below.~~respectively. Qinghai Technology purchased ~~of $1,113,250~~$113,528 and ~~$518,870~~$192,570 boron ore from Qinghai Mining during the ~~nine and~~ three months ended ~~September 30, 2019.~~March 31, 2020 and 2019, respectively.

On July 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 of RMB 62 ($8.77) per ton. 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 ton. In the first quarter of 2020, Qinghai Technology and Qinghai Mining entered a new purchase contract, the price for boron ore was adjusted to RMB 77.5 ($11.10) per ton, and the price for slag was RMB 30 ($4.23) per ton.

Qinghai Technology used equipment that belongs to Qinghai Province DaChaiDan ZhongTian Resources Development Co., Ltd (“Zhongtian Resources”, owned by 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 ~~nine months ended September 30, 2019 and 2018 was $25,658 and $26,533, respectively. The depreciation of these fixed assets for the~~ three months ended ~~September 30,~~March 31, 2020 and 2019 was $6,263 and ~~2018 was $8,059 and $7,434,~~$8,984, respectively. Due to Zhongtian Resources resulting from using its equipment ~~was $25,658~~ and ~~$0.11 million~~payment of worker’s compensation made by Zhongtian Resource for Qinghai Technology was$54,633 and $49,125 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Qinghai Technology previously purchased raw material from DaChaiDan SanXin Industrial Company Ltd (“SanXin”). The outstanding payable to SanXin at September 30, 2019 and December 31, 2018 was $0 and $0.13 million, respectively. SanXin is a non-related party company; however, Qinghai Mining assumed the payables as of December 31, 2018 that Qinghai Technology owed to SanXin under a Debt Offset Agreement between the Company, Qinghai Mining and SanXin entered into in June 2019.

Qinghai Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd (“Dingjia”, 90% owned by the son of the Company’s major shareholder). For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company’s sales to Dingjia was ~~$112,855~~$0 and ~~$955,087, respectively. For the three months ended September 30, 2019 and 2018, the Company’s sales to Dingjia was $17,300 and $513,973,~~$58,379, respectively. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, outstanding receivables from (payable to) Dingjia ~~was $(0.08)~~was$(0.06) million and ~~$4.06~~$(0.06) million, respectively.

Qinghai Technology, Qinghai Mining, Zhongtian Resources and Dingjia entered a Debt Offset Agreement, in which, Qinghai Mining assumed the outstanding payable balance of Qinghai Technology as of December 31, 2018 to Zhongtian, and Qinghai Technology transferred the outstanding receivable balance as of December 31, 2018 from Dingjia to Qinghai Mining. With execution of the Debt Offset Agreement entered in June 2019, the Company had $54,976 net due to Qinghai Mining at December 31, 2018.

In addition, at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~$456,263~~$679,891 and ~~$255,233~~$573,263 due to another major shareholder of the Company, resulting from ~~the~~ certain Company operating expenses of the ~~Company’s operating expenses~~US parent company such as legal and audit fees that were paid by this major shareholder on behalf of the Company. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively:

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

The detail of deferred income for the Company’s special projects at ~~September 30, 2019~~March 31, 2020 is:

The detail of deferred income for the Company’s special projects at December 31, ~~2018 is as following:~~2019 is:

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Subsidy income consisted of amortization of deferred income for declared special projects and government’s general incentive fund (recorded as income upon receipt) for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

~~On June 14, 2018, the Company entered into the Sixth Amendment to the Credit and Security Agreement dated July 27, 2012, as amended, between the Company and Northtech, as described below:~~

In October 2017, The Company entered into negotiations with Northtech to restructure the Credit Agreement. On October 31, 2017 the Credit Line was not extended, and the parties continued negotiations. The parties agreed that Northtech will convert all outstanding interest and principal due under the Credit Agreement into the Company's common stock at a $.065 per share, a premium of $.0649 to the 30 average closing price of the Company's common stock of $.0001 per share. In addition, the parties agreed to reduce the maximum credit line under the Credit Agreement to $1,000,000 and extended the maturity date to December 31, 2018. Further conversion of any outstanding principal and interest under the Credit Agreement will be based on conversion price subject to a minimum of $.065 per share and a maximum of $.50 per share.

As a result of the entering into the Sixth Amendment, the Company issued Northtech 71,283,000 restricted shares of common stock (66,316,601 shares on December 28, 2018 due to the maximum limit of 75,000,000 authorized for issuance at December 31, 2018, and 4,966,399 shares on March 20, 2019). Upon the issuance of the common stock to Northtech, the total interest and principal of $4,633,395 due to Northtech was reduced to zero.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, deferred tax assets ~~(liabilities)~~ consisted of the following:

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

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities.

The ~~President of the United States signed~~ H.R. 1 (the “Tax Reform”)~~. The Tax Reform Law,~~, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018 for the ~~Company. The Company will continue to analyze the provisions~~US entity of the ~~Tax Reform Law to assess the impact on the Company’s CFS.~~Company.

The US parent company, was incorporated in the US and has net operating losses (“NOL”) for income tax purposes, under the 2018 Tax Reform, the NOL arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be carried forward indefinitely. The US parent Company has NOL carry forwards for income taxes of approximately ~~$2.22 million~~$972,955 at ~~September 30, 2019.~~March 31, 2020. Management believes the realization of benefits from these losses remains uncertain due to the SU parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

The recently issued Coronavirus Aid, Relief and Economic Security Act (the CARES Act or the Act), provides four relief provisions for corporate taxpayers as follows:

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The disposed entities - SanDeKe, Jinhui, SmartHeat Investment, SmartHeat Pump, SmartHeat Trading and Heat Exchange are subject to the regular 25% PRC income tax rate.

Mid-Heaven BVI is a BVI company, and there is no income tax for companies domiciled in the BVI. Sincerity and Salt-Lake are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Mid-Heaven BVI, Sincerity and Salt-Lake do not have any operations, and are not expected to have any operations in the future.

Qinghai Technology ~~was carved out of Qinghai Mining on December 20, 2018. However, for the nine and three months ended September 30, 2019 and 2018, Qinghai Technology and Qinghai Mining still filed a combined~~enjoys 15% preferential PRC income tax ~~return in PRC, which had $0 income tax due to combined taxable loss.~~rate.

As a result of carving out from Qinghai Mining and operating as an independent corporation, Qinghai Technology as a standalone entity had taxable income of $707,514 and $490,704 for the nine and three months ended September 30, 2019, and taxable income $384,398 and $67,113 for the nine and three months ended September 30, 2018. Qinghai Technology used the Separate Return Method under ASC 740-10-30-27 to allocate its income tax expenses. Under the Separate Return Method, Qinghai Technology calculated its tax provision as if it were filing its own tax return based on the pre-tax accounts. For the nine and three months ended September 30, 2019, Qinghai Technology calculated its income tax expense of $106,127 and $73,605, respectively; for the nine and three months ended September 30, 2018, Qinghai Technology calculated its income tax expense of $57,660 and $10,067, under the Separate Return Method, and credited it to due to related party – Qinghai Mining. As a qualified business under the China Government’s strategy of Develop-the-West, from January 1, 2011 through December 31, 2012, all the qualified business including Qinghai Technology is subject to a reduced income tax rate of 15% compared to a national customary rate of 25%.

The following ~~table reconciles the US statutory rates to the Company’s effective tax rate for the nine months ended September 30, 2019 and 2018, respectively:~~

~~The income tax expense for the nine months ended September 30, 2019 and 2018, respectively, consisted~~is a reconciliation of the ~~following:~~

~~The following table reconciles~~difference between the USactual provision for income taxes and the (benefit) provision computed by applying the federal statutory ~~rates to the Company’s effective tax~~ rate on income before income taxes for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

For the three months ended March 31, 2020, four customers accounted for 16%, 14%, 13% and 12% of Company’s total sales. Accounts receivable from those major customers was $110,758 and $243,975 as of March 31, 2020 and December 31, 2019, respectively. Three customers accounted for 22%, 14% and 13%, respectively, of the Company’s sales for the three months ended ~~September 30, 2019 and 2018, respectively, consisted of the following:~~March 31, 2019.

Qinghai Technology purchased $113,528 and $192,570 boron ore (the main raw material) from Qinghai Mining during the three months ended March 31, 2020 and 2019, respectively.

The Company’s ability to pay dividends primarily depends on the Company receiving funds from its subsidiaries. PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with US GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.

In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide certain statutory reserves, which are appropriated from net profit as reported in the FIE’s PRC statutory accounts. An FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve has reached 50% of its respective registered capital based on the FIE’s PRC statutory accounts. Appropriations to other funds are at the discretion of the BOD for all FIEs. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Additionally, shareholders of an FIE are required to contribute capital to satisfy the registered capital requirement of the FIE. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its shareholders, unless otherwise approved by the State Administration of Foreign Exchange. Sincerity, incorporated on July 9, 2018 in China as a wholly foreign-owned enterprise (“WFOE”) with registered capital of $1.00 million, has 10 years from the incorporation date to fulfill the registered capital requirement.

Additionally, in accordance with the Company Laws of the PRC, a domestic enterprise is required to provide surplus reserve at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the BOD, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Qinghai Technology was established as domestic enterprises and therefore are subject to the above-mentioned restrictions on distributable profits.

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As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend.

Sincerity with registered capital of $1.00 million and Salt-Lake incorporated in China on September 6, 2018 with registered capital of RMB 6 million ($0.88 million) have 10 years from the incorporation date to fulfill the registered capital requirement. Under PRC company law, registered capital must be used in the operations of the domestic company within its approved business scope.

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things.

The Company’s sales, purchases and expense transactions in China are denominated in RMB and all of the Company’s assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.

On December 31, 2018 (the "Closing Date"), the Company entered into a Share Exchange Agreement and Plan of Reorganization with 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 Agreement, the shareholders of Mid-heaven BVI delivered all of the issued and outstanding shares of capital stock of Mid-heaven BVI to the Company, for 106,001,971 shares of the Company’s Common Stock. Mid-heaven, through two subsidiaries, owns 100% of 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 following unaudited pro forma consolidated results of operations for the Company and Mid-heaven BVI for the nine and three months ended September 30, 2018 presents the Company and Mid-heaven BVI’s operations as if the acquisitions occurred January 1, 2018. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

On September 30, 2019, Heat HP, Inc. and Heat PHE, Inc, wholly owned subsidiaries of the Company, sold all of their respective equity interests in Jinhui, SmartHeat Investment, SmartHeat Trading, SmartHeat Pump, SanDeKe and SmartHeat Exchange for $353. The transactions were structured as purchases of equity interests, the subsidiary companies retained all liabilities when purchased.

The following table summarizes the carrying value of the assets and liabilities disposed at the closing date. The excess of the selling price over the carrying value of the net assets disposed was recorded as gain from disposal of subsidiaries of $5,666,187.

The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated ~~all~~subsequent events ~~that occurred subsequent to September 30, 2019~~ through the date the ~~CFS~~financial statements were issued and determined the Company has no material subsequent ~~event was identified.~~

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

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The comments made throughout this Quarterly 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.

We currently produce boric acid in the Peoples Republic of China (PRC) and ~~plans~~plan to expand our existing manufacturing facilities through a joint venture to produce lithium carbonate and lithium hydroxide for electric vehicle battery market in China. The Company ~~has collaborated with its director~~also plans to ~~develop a prototype production line that is capable of producing boric acid and lithium carbonate from local brines pool and may also initiate production~~produce of lithium carbonate from existing ore deposits it purchases from an affiliated mining company. We formerly sold ~~plated~~plate heat exchangers and heat pumps and sold ~~these remaining~~those operations on September 30, ~~2019 as discontinued operations.~~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. (“Qinghai Technology”).

The main operating entity, Qinghai Technology was incorporated December 18, 2018. The business of Qinghai 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 manufactures and wholesales 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.

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 ~~located~~ 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.

On October 23, 2019, we filed a certificate of amendment to its certificate of incorporation to change its name from ~~“Smartheat,~~“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 in Wuhan, China. 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. 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 in China. The Company’s sales also decreased for the first quarter of 2020 due to logistics restrictions put into place to curb travel. To facilitate the sales, the Company reduced the selling price by RMB 50 ($7) per ton to certain customers. The number of transportation vehicles has increased to meet the market’s shipping needs since April 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 supplies on the market. The Company’s production and sales has been gradually increasing since April 2020. The impact of COVID-19 to the Company’s operation was mitigated as of this report date. Even though the Company was able to resume normal operations in HaiXi since its facilities are far removed from big cities which have more challenges with respect to monitoring and controlling the outbreak, but the Company’s executives, auditors and attorneys who are located in large cities in China and in the United States were subject to various travel and quarantine restrictions which delayed the compilation of information needed to timely file this report on Form 10-Q.

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Qinghai Technology purchased raw material boron rock from Qinghai Mining (owned by three major shareholders of the Company); in addition, Qinghai Technology sometimes received no-interest short-term advances from Qinghai Mining for daily operation needs. As of ~~September 30, 2019,~~March 31, 2020 and December 31, ~~2018,~~2019, , due from ~~(to)~~ Qinghai Mining (was the net amount of intercompany transactions between Qinghai Technology and Qinghai Mining due to carve out) was ~~$0.18~~$0.73 million and ~~$(3.88)~~$0.55 million, ~~respectively, which included $54,976 net due to Qinghai Mining after the Debt Offset Agreement disclosed below.~~respectively. Qinghai Technology purchased ~~of $1,113,250~~$113,528 and ~~$518,870~~$192,570 boron ore from Qinghai Mining during the ~~nine and~~ three months ended ~~September 30, 2019.~~March 31, 2020 and 2019, respectively.

Qinghai Technology used equipment that belongs to Qinghai Province DaChaiDan ZhongTian Resources Development Co., Ltd (“Zhongtian Resources”, owned by 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 ~~nine months ended September 30, 2019 and 2018 was $25,658 and $26,563, respectively. The depreciation of these fixed assets for the~~ three months ended ~~September 30,~~March 31, 2020 and 2019 was $6,263 and ~~2018 was $8,059 and $7,434,~~$8,984, respectively. Due to Zhongtian Resources resulting from using its equipment and payment of worker’s compensation made by Zhongtian Resource for Qinghai Technology was ~~$25,658~~$54,633 and ~~$0.11 million~~$49,125 at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Qinghai Technology purchased raw material from DaChaiDan SanXin Industrial Company Ltd (“SanXin”). Outstanding payable to SanXin at September 30, 2019 and December 31, 2018 was $0 and $0.13 million, respectively. SanXin is a non-related party company; however, Qinghai Mining assumed the payables as of December 31, 2018 that Qinghai Technology owed to SanXin under a Debt Offset Agreement between the Company, Qinghai Mining and SanXin entered into in June 2019.

Qinghai Technology sold boric acid to Qinghai Dingjia Zhixin Trading Co., Ltd (“Dingjia”, 90% owned by the son of the Company’s major shareholder). For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company’s sales to Dingjia was ~~$112,855~~$0 and ~~$955,087, respectively. For the three months ended September 30, 2019 and 2018, the Company’s sales to Dingjia was $17,300 and $513,973,~~$58,379, respectively. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, outstanding receivables from (payable to) Dingjia was ~~$(0.08)~~$(0.06) million and ~~$4.06~~$(0.06) million, respectively.

Qinghai Technology, Qinghai Mining, Zhongtian Resources and Dingjia entered a Debt Offset Agreement, in which, Qinghai Mining assumed the outstanding payable balance of Qinghai Technology as of December 31, 2018 to Zhongtian, and Qinghai Technology transferred the outstanding receivable balance as of December 31, 2018 from Dingjia to Qinghai Mining. With execution of the Debt Offset Agreement entered June 2019, the Company had $54,976 net due to Qinghai Mining at December 31, 2018.

In addition, at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~$456,263~~$679,891 and ~~$255,233~~$573,263 due to another major shareholder of the Company, resulting from the certain of the Company’s operating expenses such as legal and audit fees that were paid by this major shareholder on behalf of the Company. This short term advance bore no interest, and payable upon demand.

The following table summarized the due from (to) related parties as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively:

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

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

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the accompanying CFS include the accounts of the Company’s US parent, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology, which are collectively referred to as the “Company.” For the three months ended March 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;~~Exchange, and Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology, which are collectively referred to as the “Company.” For the nine months ended September 30, 2018, the accompanying CFS consist of the accounts of Mid-heaven BVI and its subsidiaries, Sincerity, Salt-Lake and Qinghai Technology as a result of reverse merger of SmartHeat with Mid-heaven BVI. All significant intercompany accounts and transactions were eliminated in consolidation.

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.

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 ~~nil and $1.78 million~~$0 at ~~September 30, 2019~~March 31, 2020 and December ~~31, 2018, respectively.~~31,2019.

In May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

~~Under the new revenue standards, 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 ~~delivery to~~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.

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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.”

~~Nine~~Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared to ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2019

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.

	2019			% of Sales			2018		% of Sales			2020			% of Sales			2019			% of Sales
Sales	$	5,092,082					$	4,024,384				$	1,010,498					$	1,385,751
Cost of goods sold		4,233,772			83.1	%		3,413,678		84.8	%
Cost of sales													930,744			92.1	%		1,224,059			88.3	%
Gross profit		858,310			16.9	%		610,706		15.2	%		79,754			7.9	%		161,692			11.7	%
Selling expenses		279,755			5.5	%		203,628		5.1	%		56,205			5.6	%		100,402			7.3	%
General and administrative expenses		550,506			10.8	%		214,794		5.3	%		287,002			28.4	%		202,473			14.6	%
Total operating expenses		830,261			16.3	%		418,422		10.4	%		343,207			34.0	%		302,875			21.9	%
Income from operations		28,049			0.6	%		192,284		4.8	%
Loss from operations													(263,453	)		(26.1	)%		(141,183	)		(10.2	)%
Other income		361,434			7.1	%		192,114		4.8	%		32,825			3.2	%		48,304			3.5	%
Income before income taxes		389,483			7.6	%		384,398		9.6	%
Loss before income taxes													(230,628	)		(22.9	)%		(92,879	)		(6.7	)%
Income tax expense		106,127			2.1	%		57,660		1.4	%		-			-	%		-			-	%
Income from continuing operations		283,356			5.6	%		326,738		8.2	%
Gain on disposal of discontinued operations, net of tax		5,666,187			111.3	%		-		-	%
Loss from continuing operations													(230,628	)		(22.9	)%		(92,879	)		(6.7	)%
Loss from operations of discontinued entities, net of tax		(215,835	)		(4.2	)%		-		-	%		-			-	%		(2,807	)		(0.2	)%
Net income	$	5,733,708			112.6	%	$	326,738		8.2	%	$	(230,628	)		(22.9	)%	$	(95,686	)		(6.9	)%

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Sales for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 was $1,010,498 and ~~2018 was $5,092,082 and $4,024,384,~~$1,385,751, respectively, ~~an increase~~a decrease of ~~$1,067,698~~$375,253 or ~~26.5%~~27.1%. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company’s sales to Dingjia, a related party company 90% owned by the son of the major shareholder of the Company, was ~~$112,855~~$0 and ~~$955,087,~~$58,379, respectively. The ~~increase of overall~~decrease in sales for the three months ended March 31, 2020 was mainly due to ~~decrease~~the logistic restriction as a result of ~~the VAT rate from 16%~~COVID19 outbreak; facilitate sales, we reduced our selling price by RMB 50 ($7) per ton to 13% starting April 1, 2019, which resulted in increased sales orders. In addition, we enhanced our sales force and sales channels to increase the sales to third party customers in 2019. Moreover, during the 3^rd ~~quarter of 2019, we promoted boric acid products by taking preferential pricing method for some of our long-term customers, which resulted in an average discount of $7.3 to $14.6 for each ton.~~certain customers.

Cost of sales (“COS”) for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 was $930,744 and ~~2018 was $4,233,772 and $3,413,678,~~$1,224,059, respectively, ~~an increase~~a decrease of ~~$820,094~~$293,315 or 24.0%. The ~~increase~~decrease was mainly due to ~~the increase of~~decreased sales. The COS as a percentage of sales was ~~83.1%~~92.1% for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared with ~~84.8%~~88.3% for ~~2018.~~2019. The ~~decrease~~increase in COS as a percentage of sales was mainly due to 1) ~~increased~~decreased sales, 2) ~~decreased freight-in costs for~~increased average cost of production. Due to COVID19 outbreak, our factory was reopened one month later than originally planned, and we did not resume the ~~raw materials as a result~~production one week after the factory reopened due to the drought of ~~outsourcing~~master liquid pool resulting from the ~~freight service instead~~longer period of ~~having own transportation team~~shutdown of the machine, we spent additional days and ~~trucks,~~had extra acid and ~~3) improved~~mineral consumption to cultivate the concentration level of master liquid pool. In addition, the coal cost increased during the three months ended March 31, 2020 due to the overall ~~budget and cost control.~~lockdown in China. Our production was back to normal in April 2020.

The gross profit for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 was $79,754 and ~~2018 was $858,310 and $610,706,~~$161,692, respectively, ~~an increase~~a decrease of ~~$247,604~~$81,938 or ~~40.5%~~50.7%. The profit margin was ~~16.9%~~7.9% for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~15.2%~~11.7% for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the ~~increase~~decrease in profit margin was mainly due to the reasons described above.

Selling expenses consist mainly of salespersons’ salaries and freight out. Selling expense were ~~$279,755~~$56,205 for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$203,628~~$100,402 for the ~~nine~~three months ended ~~September 30, 2018, an increase~~March 31, 2019, a decrease of ~~$76,127~~$44,197 or ~~37.4%~~44.0%, mainly resulting from ~~increased~~decreased freight out expense of ~~$45,596~~$24,935 and ~~increased~~decreased salespersons’ salaries of ~~$40,471.~~$4,396.

General and administrative expenses consist mainly of bad debt expense, R&D, office, welfare, business meeting, maintenance, and utilities. General and administrative expenses were ~~$550,506~~$287,002 (including $2,568 bad debts) for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$214,794~~$202,473 (including $(91,888) bad debts reversal) for the ~~nine~~three months ended ~~September 30, 2018,~~March 31 2019, an increase of ~~$335,712~~$84,529 or ~~156.3%~~41.7%, mainly resulting from increased maintenance expenses of $50,500, increased director fee of $10,000, increased audit fee of $110,000, increased legal and professional fee of $183,030, and increased registration fee of $15,000,decreased bad debts reversal by $(94,456), which was partly offset by decreased ~~R&D expense~~other G&A expenses of ~~$40,500.~~$9,927.

Other income was ~~$361,434~~$32,825 for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$192,114~~$48,304 for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, an ~~increase~~decrease of ~~$169,320~~$15,479 or ~~88.1%~~32.0%. For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, other income mainly consisted of subsidy income of $47,141 but offset with a charitable donation of $14,349. For the three months ended March 31, 2019, other income mainly consisted of subsidy income of ~~$365,327. For the nine months ended September 30, 2018, other income mainly consisted of subsidy income of $192,114.~~$47,060.

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.

~~Income~~Loss from continuing operations was ~~$283,356~~$230,628 loss for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$326,738~~$92,879 for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The ~~$43,382~~$137,749 or ~~13.3% decrease~~148.3% increase in ~~income~~loss from continuing operations was mainly due to increased G&A expense as ~~describe~~described above.

Gain from disposal of subsidiaries was $5,666,187 for the nine months ended September 30, 2019. 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.

Loss from operations of discontinued entities was ~~$215,835 for the nine months ended September 30, 2019.~~

We had a net income of $5,733,708 for the nine months ended September 30, 2019, compared to $326,738 for the nine months ended September 30, 2018, an increase of net income by $5,406,970 or 1,654.8%. The increase in our net income mainly resulted from gain from disposal of discontinued operations as describe above.

~~Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018~~

~~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.~~

~~Sales~~$2,807 for the three months ended ~~September 30,~~March 31, 2019, and 2018 was $1,883,327 and $1,516,650, respectively, an increase of $366,677 or 24.2%. For the three months ended September 30, 2019 and 2018, the Company’s sales to Dingjia, a related party company 90% owned by the son of the major shareholder of the Company, was $17,300 and $513,973, respectively. The increase in the sales was due to our promotion of boric acids product by taking preferential pricing method for some of our long-term customers, which resulted an average discount of $7.3 to $14.6 for each ton.

COS for the three months ended September 30, 2019 and 2018 was $1,533,599 and $1,390,412, respectively, an increase of $143,187 or 10.3%. The increase was mainly due to the increase of sales. The COS as a percentage of sales was 81.4% for the three months ended September 30, 2019 compared to 91.7% for the three months ended September 30, 2018, the decrease in COS as a percentage of sales was mainly due to 1) increased sales, 2) decreased freight-in costs for the raw materials as a result of outsourcing the freight service instead of having own transportation team and trucks, and 3) improved the overall budget and cost control.

The gross profit for the three months ended September 30, 2019 and 2018 was $349,728 and $126,238, respectively, an increase of $223,490 or 177.0%. The profit margin was 19.0% for the three months ended September 30, 2019 compared to 8.3% for the three months ended September 30, 2018. The increase of profit margin was due to the reasons described above.

Selling expenses consist mainly of salaries and freight out. Selling expense were $85,568 for the three months ended September 30, 2019, compared to $72,367 for the three months ended September 30, 2018, an increase of $13,201 or 18.2%, mainly resulting from increased freight out expense of $6,557 and increase salary expenses of $9,410.

General and administrative expenses consist mainly of R&D, office, welfare, business meeting, maintenance, and utilities. General and administrative expenses were $ 159,339 for the three months ended September 30, 2019, compared to $32,116 for the three months ended September 30, 2018, an increase of $127,223 or 396.1%, mainly resulting from increased legal expenses of $30,000, increased audit expense of $40,000, increased professional fee of $47,000, increased consulting fee of $8,700.

Other income was $268,880 for the three months ended September 30, 2019, compared to $45,358 for the three months ended September 30, 2018, an increase of $223,522 or 492.8%. For the three months ended September 30, 2019, other income mainly consisted of subsidy income of $271,680. For the three months ended September 30, 2018, other income mainly consisted of subsidy income of $45,358.

Income from continuing operations was $300,096 for the three months ended September 30, 2019, compared to $57,046 for the three months ended September 30, 2018. The $243,050 or 426.1% increase in income from continuing operations was mainly due to increased sales and increased Subsidy income, which was ~~partly offset by increased G&A expense as describe above.~~

~~Gain~~ from ~~disposal of subsidiaries was $5,666,187 for the three months ended September 30, 2019, resulting from the disposal of equity interests in~~ Jinhui, SmartHeat Investment, SmartHeat Trading, SmartHeat Pump and Heat ~~Exchange.~~Exchange, the Company sold these entities on September 30, 2019.

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~~Loss from operations~~We had a net loss of ~~discontinued entities was $93,299~~$230,628 for the three months ended ~~September 30, 2019.~~

~~We had net income of $5,872,984~~March 31, 2020, compared to $95,686 for the three months ended ~~September 30,~~March 31, 2019, ~~compared to $57,046 for the three months ended September 30, 2018,~~ an increase of net ~~income~~loss by ~~$5,815,938~~$134,942 or ~~10,195.2%~~141%. The increase in our net ~~income~~loss mainly resulted from increased G&A expense and decreased sales ~~and disposal of discontinued operations~~ as ~~describe~~described above.

As of ~~September 30, 2019,~~March 31, 2020, we had cash and equivalents of ~~$0.33~~$0.35 million. Working capital ~~deficit~~ was ~~$0.75~~$0.39 million at ~~September 30, 2019.~~March 31, 2020. The ratio of current assets to current liabilities was ~~0.79:~~1.15:1 at ~~September 30, 2019.~~March 31, 2020.

The following is a summary of cash provided by or used in each of the indicated types of activities during ~~the nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Net cash provided by operating activities was ~~$269,320~~$274,672 for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$2,445,280~~$76,628 for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The increase of cash inflow from operating activities for ~~2019~~2020 was principally attributable to ~~decreased~~increased cash ~~outflow~~inflow from inventory by ~~$1,203,943,~~$252,973, and increased cash inflow from accounts ~~payable~~receivable by ~~$1,438,607.~~$286,378, which was partly offset by increased net loss by $134,942, decreased cash inflow of unearned revenue by $162,178 and decreased cash inflow from advances to suppliers by $62,090.

Net cash used in ~~investing~~financing activities was ~~$149,928~~$78,758 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, compared to ~~$2,945~~$21,485 net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The net cash used in ~~investing~~financing activities in ~~2019~~2020 consisted of ~~cash disposed at disposal~~increase in due from Qinghai Mining of ~~subsidiaries~~$191,744 and increase in due to other related parties of ~~$149,928.~~$112,986. The net cash used in ~~investing activities in 2018 consisted of acquisition of equipment of $2,945.~~

~~Net cash provided by financing activities was $62,933 for the nine months ended September 30, 2019, compared to $2,448,225 for the nine months ended September 30, 2018. The net cash provided by~~ financing activities in 2019 consisted of ~~increase~~decrease in due from Qinghai Mining of $3,975,343 and decrease in due to other related ~~party~~parties of ~~$62,933. The net cash provide in financing activities in 2018 consisted of increase in due to related party of $2,448,225.~~$3,996,828.

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. 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.

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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~~Contingencies~~

The Company’s former operations were conducted in the PRC and were subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2019,~~March 31, 2020, our disclosure controls and procedures were not effective as of such date because of a material weakness identified in our internal control over financial reporting related to our internal level of US GAAP expertise. We lack sufficient personnel with the appropriate level of knowledge, experience and training in US GAAP for the preparation of financial statements in accordance with US GAAP. None of our internal accounting staff, including our Chief Financial Officer, that are primarily responsible for the preparation of our books and records and financial statements in compliance with US GAAP holds a license such as Certified Public Accountant in the US, nor have any attended US institutions or extended educational programs that would provide enough of the relevant education relating to US GAAP.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended ~~September 30, 2019,~~March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

32
28

Table of Contents

We may become involved in various lawsuits and legal proceedings arising in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial conditions or operating results. Other than the proceedings we have disclosed below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

You should consider carefully the factors discussed in the “Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended December 31, ~~2018,~~2019, as amended, which could materially affect our business.

See the Exhibit Index preceding the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

33
29

Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		HEAT		Grey

		Page
Note about Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3228
Item 4.	Controls and Procedures	3228

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3329
Item 1A.	Risk Factors	3329
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3329
Item 3.	Defaults Upon Senior Securities	3329
Item 4.	Mine Safety Disclosures	3329
Item 5.	Other Information	3329
Item 6.	Exhibits	3329

	Exhibit Index	3329

	Signatures	3430

	SEPTEMBER 30, 2019			DECEMBER 31, 2018
ASSETS	(UNAUDITED)

CURRENT ASSETS
Cash and equivalents	$	329,498		$	163,145
Accounts receivable, net		363,395			512,380
Notes receivable		270,162			111,473
Other receivables		1,212			154,719
Advances to suppliers		10,541			113,705
Inventories, net		1,851,338			1,735,374

Total current assets		2,826,146			2,790,796

NONCURRENT ASSETS
Property and equipment, net		1,459,858			1,749,060
Construction in progress		1,613,546			1,662,847

Total noncurrent assets		3,073,404			3,411,907

TOTAL ASSETS	$	5,899,550		$	6,202,703

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	380,340		$	1,172,001
Unearned revenue		64,360			1,151,253
Accrued liabilities and other payables		2,471,893			6,698,604
Taxes payable		280,733			228,547
Advance from related parties, net		375,782			310,209

Total current liabilities		3,573,108			9,560,614

DEFERRED INCOME		1,388,539			1,504,400

TOTAL LIABILITIES		4,961,647			11,065,014

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 500,000,000 shares authorized, 185,968,370 shares issued and outstanding		185,968			185,968
Paid-in capital		(6,666,351	)		(7,645,727	)
Statutory reserve		-			780,682
Accumulated other comprehensive loss		(69,139	)		(11,951	)
Retained earnings		7,487,425			1,828,717

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		937,903			(4,862,311	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	5,899,550		$	6,202,703

	NINE MONTHS ENDED SEPTEMBER 30
	2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,733,708		$	326,738
Adjustments to reconcile loss to net cash provided by (used in) operating activities:
Depreciation and amortization		235,286			245,489
Provision for bad debts		30,113			-
Gain on sale of subsidiaries		(5,666,187	)		-
Changes in deferred income		(73,532	)		(146,099	)
(Increase) decrease in assets and liabilities:
Accounts receivable		52,587			(124,603	)
Other receivables		10,255			-
Advances to suppliers		54,710			10,407
Inventories		(216,528	)		(1,420,471	)
Accounts payable		166,955			(1,271,652	)
Unearned revenue		66,269			(150,481	)
Accrued liabilities and other payables		(209,794	)		10,815
Taxes payable		85,478			74,577

Net cash provided by (used in) operating activities		269,320			(2,445,280	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		-			(2,945	)
Cash disposed at disposal of subsidiaries		(149,928	)		-

Net cash used in investing activities		(149,928	)		(2,945	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related parties		62,933			2,448,225

Net cash provided by financing activities		62,933			2,448,225

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND EQUIVALENTS		(15,972	)		-

NET INCREASE IN CASH AND EQUIVALENTS		166,353			-

CASH AND EQUIVALENTS, BEGINNING OF PERIOD		163,145			-

CASH AND EQUIVALENTS, END OF PERIOD	$	329,498		$	-

Supplemental cash flow data:
Income tax paid	$	-		$	-
Interest paid	$	-		$	-

	Common Stock										Accumulated other
	Shares		Amount		Paid-in capital			Statutory reserves			comprehensive loss			Retained earnings			Total
Balance at January 1, 2019		185,968,370	$	185,968	$	(7,645,727	)	$	780,682		$	(11,951	)	$	1,828,717		$	(4,862,311	)

Net loss for the quarter		-		-		-			-			-			(95,686	)		(95,686	)

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

Foreign currency translation loss		-		-		-			-			(44,874	)		-			(44,874	)

Balance at March 31, 2019		185,968,370		185,968		(7,645,727	)		780,682			(56,825	)		1,708,031			(5,027,871	)

Net loss for the quarter		-		-		-			-			-			(43,590	)		(43,590	)

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

Foreign currency translation gain		-		-		-			-			41,990			-			41,990
									��
Balance at June 30, 2019		185,968,370		185,968		(7,645,727	)		780,682			(14,835	)		1,639,441			(5,054,471	)

Net income for the quarter		-		-		-			-			-			5,872,984			5,872,984

Disposal of subsidiaries		-		-		979,376			(780,682	)		-			-			198,694

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

Foreign currency translation loss		-		-		-			-			(54,304	)		-			(54,304	)

Balance at September 30, 2019		185,968,370	$	185,968	$	(6,666,351	)	$	-		$	(69,139	)	$	7,487,425		$	937,903

	NINE MONTHS ENDED SEPTEMBER 30						THREE MONTHS ENDED SEPTEMBER 30
	2019			2018			2019			2018

Sales	$	4,979,227		$	3,069,297		$	1,866,027		$	1,002,677
Sales - related party		112,855			955,087			17,300			513,973

Total sales		5,092,082			4,024,384			1,883,327			1,516,650

Cost of sales		4,233,772			3,413,678			1,533,599			1,390,412

Gross profit		858,310			610,706			349,728			126,238

Operating expenses
Selling		279,755			203,628			85,568			72,367
General and administrative		550,506			214,794			159,339			32,116

Total operating expenses		830,261			418,422			244,907			104,483

Income from operations		28,049			192,284			104,821			21,755

Non-operating income
Financial income (expense)		(3,893	)		-			(2,800	)		-
Subsidy income		365,327			192,114			271,680			45,358

Total non-operating income, net		361,434			192,114			268,880			45,358

Income before income tax		389,483			384,398			373,701			67,113

Income tax expense		106,127			57,660			73,605			10,067

Income from continuing operations		283,356			326,738			300,096			57,046

Gain on disposal of discontinued operations, net of tax		5,666,187			-			5,666,187			-

Loss from operations of discontinued entities, net of tax		(215,835	)		-			(93,299	)		-

Net income		5,733,708			326,738			5,872,984			57,046

Other comprehensive item
Foreign currency translation gain attributable to discontinued operations		118,877			-			112,142			-
Foreign currency translation loss attributable to Lithium & Boron Technology, Inc.		(176,065	)		(165,066	)		(166,446	)		(118,311	)


Comprehensive income (loss)	$	5,676,520		$	161,672		$	5,818,680		$	(61,265	)


Basic and diluted weighted average shares outstanding		185,968,370			106,001,971			185,968,370			106,001,971

Basic and diluted earnings per share from continuing operations	$	0.00		$	0.00		$	0.00		$	0.00

Basic and diluted earnings per share from discontinued operations	$	0.03		$	-		$	0.03		$	-

	MARCH 31, 2020 (UNAUDITED)			DECEMBER 31, 2019
ASSETS

CURRENT ASSETS
Cash and equivalents	$	350,545		$	160,024
Accounts receivable		436,703			577,387
Notes receivable		126,844			79,478
Other receivables		19,912			354
Advances to suppliers, net		48,451			7,490
Due from related party		734,877			554,527
Inventories		1,177,266			1,802,647

Total current assets		2,894,598			3,181,907

NONCURRENT ASSETS
Long-term prepaid expense		15,384			-
Property and equipment, net		1,306,905			1,403,681
Construction in progress		1,610,768			1,635,912

Total noncurrent assets		2,933,057			3,039,593

TOTAL ASSETS	$	5,827,655		$	6,221,500

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	138,005		$	332,706
Unearned revenue		105,435			117,188
Accrued liabilities and other payables		1,152,342			1,095,698
Taxes payable		322,121			295,255
Due to related parties		789,805			678,533

Total current liabilities		2,507,708			2,519,380

DEFERRED INCOME		1,293,277			1,360,626

TOTAL LIABILITIES		3,800,985			3,880,006

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 500,000,000 shares authorized, 185,968,370 shares issued and outstanding		185,968			185,968
Paid-in capital deficiency		(6,666,351	)		(6,666,351	)
Statutory reserve		71,252			71,252
Accumulated other comprehensive loss		(73,796	)		(14,600	)
Retained earnings		8,509,597			8,765,225

TOTAL STOCKHOLDERS' EQUITY		2,026,670			2,341,494

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,827,655		$	6,221,500

	THREE MONTHES ENDED MARCH 31,
	2020			2019

Sales	$	1,010,498		$	1,327,372
Sales - related party		-			58,379

Total sales		1,010,498			1,385,751

Cost of sales		930,744			1,224,059

Gross profit		79,754			161,692

Operating expenses
Selling		56,205			100,402
Bad debts (reversal)		2,568			(91,888	)
General and administrative		284,434			294,361

Total operating expenses		343,207			302,875

Loss from operations		(263,453	)		(141,183	)

Non-operating income
Interest income		33			1,244
Non-operating expenses		(14,349	)		-
Subsidy income		47,141			47,060

Total non-operating income, net		32,825			48,304

Loss before income tax		(230,628	)		(92,879	)

Income tax expense		-			-

Loss from continuing operations		(230,628	)		(92,879	)

Loss from operations of discontinued entities, net of tax		-			(2,807	)

Net loss		(230,628	)		(95,686	)

Other comprehensive item
Foreign currency translation loss attributable to discontinued operations		-			(77,145	)
Foreign currency translation gain (loss) attributable to the Company		(59,196	)		32,271

Comprehensive loss	$	(289,824	)	$	(140,560	)

Weighted average shares outstanding		185,968,370			185,968,370

Loss per share from continuing operations	$	(0.00	)	$	(0.00	)

Loss per share from discontinued operations	$	(0.00	)	$	(0.00	)

	Common Stock
	Shares		Amount		Paid-in capital (deficiency)			Statutory reserves		Accumulated other comprehensive loss			Retained earnings			Total
Balance at January 1, 2019		185,968,370	$	185,968	$	(7,645,727	)	$	780,682	$	(11,951	)	$	1,828,717		$	(4,862,311	)

Net loss		-		-		-			-		-			(95,686	)		(95,686	)

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

Foreign currency translation loss		-		-		-			-		(44,874	)		-			(44,874	)

Balance at March 31, 2019		185,968,370	$	185,968	$	(7,645,727	)	$	780,682	$	(56,825	)	$	1,708,031		$	(5,027,871	)

	United States		China		Total
September 30, 2019		-	$	329,498	$	329,498
December 31, 2018		-	$	163,145	$	163,145

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

	●	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	●	Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement.

	2019		2018
Advances to unrelated third-party companies	$	-	$	3,471,902
Advances to employees		-		327,067
Other		1,212		208,671
Total		1,212		4,007,640
Less: allowances		-		(3,852,921	)
Other receivables (net), prepayments and deposits	$	1,212	$	154,719

	2020		2019
VAT tax receivable and prepaid shipping fee	$	19,558	$	-
Other receivable – sale of discontinued operations		354		354
Total	$	19,912	$	354

	Government subsidy amount		Project completion date	Useful life in years		Accumulated amortization		Net		Government subsidy amount		Project completion date	Useful life in years	Accumulated amortization		Net

Technology upgrade for using lean ore to produce magnesium sulfate	$	311,046	8/1/2013		10	$	191,812	$	119,234	$	310,511	8/1/2013	10	$	207,007	$	103,504
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		70,693	5/1/2015		10		31,223		39,470		70,570	5/1/2015	10		34,697		35,873
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		1,413,847	1/1/2018		10		247,423		1,166,424		1,411,413	1/1/2018	10		317,568		1,093,845
Project of high value utilization of magnesium-rich waste liquid		65,037	7/9/2019		10		1,626		63,411		64,925	7/9/2019	10		4,870		60,055
Total	$	1,860,623				$	472,084	$	1,388,539	$	1,857,419			$	564,142	$	1,293,277

	Nine Months Ended September 30,
	2019		2018
Technology upgrade for using lean ore to produce magnesium sulfate	$	24,073	$	25,308
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		5,471		5,752
Project of production of high purity boric acid from lean ore		-		-
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		109,424		115,039
Development of 1,000 tons battery-grade lithium carbonate		-		46,015
Project of high value utilization of magnesium-rich waste liquid		226,359		-
Total	$	365,327	$	192,114

	Three Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2020		2019
Technology upgrade for using lean ore to produce magnesium sulfate	$	7,851	$	8,044	$	7,881	$	8,152
Technical transformation for boric acid and magnesium sulfate produced from low grade ore		1,784		1,828		1,791		1,853
Project of production of high purity boric acid from lean ore		-		-
Project of comprehensive utilization of DaChaiDan Solid Boron Mine		35,686		35,486		35,822		37,055
Development of 1,000 tons battery-grade lithium carbonate		-		-
Project of high value utilization of magnesium-rich waste liquid		226,359		-		1,647		-
Total	$	271,680	$	45,358	$	47,141	$	47,060

	2019			2018
Deferred tax asset - current (bad debt allowance for accounts receivable)	$	-		$	653,737
Deferred tax asset - current (bad debt allowance for retention receivable)		-			36,201
Deferred tax asset - current (inventory impairment provision)		-			1,592,875
Deferred tax asset – current (bad debt allowance for other receivables)		-			435,900
Deferred tax asset – current (allowance for advance to supplier)		-			541,194
Deferred tax asset – noncurrent (NOL of US parent company)		2,215,731			2,282,517
Deferred tax asset – noncurrent (NOL of PRC subsidiaries)		-			4,905,775
Less: valuation allowance		(2,215,731	)		(10,448,199	)
Deferred tax assets, net	$	-		$	-

	2020			2019
Deferred tax asset –NOL of US parent company	$	972,955		$	941,203
Less: valuation allowance		(972,955	)		(941,203	)
Deferred tax assets, net	$	-		$	-

	2019			2018
US statutory benefit rates		21.0	%		21.0	%
Tax rate difference		4.0	%		4.0	%
Tax holiday in PRC		-	%		(10.0	)%
Valuation allowance		(23.2	)%		-	%
Tax expense per financial statements		1.8	%		15.0	%

	2019		2018
Income tax expense – current	$	106,127	$	57,660
Income tax benefit – deferred		-		-
Total income tax benefit, net	$	106,127	$	57,660

	Nine Months Ended September 30, 2018
	Mid-heaven BVI		Lithium Tech			Total
Net sales	$	4,024,384	$	19,931		$	4,044,315
Net income (loss)		326,738		(71,104	)		255,634
Basic and diluted weighted average shares outstanding		106,001,971		8,683,399			114,685,370
Basic and diluted net earnings (loss) per share	$	0.00	$	(0.01	)	$	0.00

	Three Months Ended September 30, 2018
	Mid-heaven BVI		Lithium Tech		Total
Net sales	$	1,516,650	$	-	$	1,516,650
Net income		57,046		169,521		226,567
Basic and diluted weighted average shares outstanding		106,001,971		8,683,399		114,685,370
Basic and diluted net earnings per share	$	0.00	$	0.02	$	0.00

Cash	$	149,929
Other receivables, net		89,635
Inventory, net		42,415
Advance to suppliers, net		46,775
Fixed assets, net		9,338
Accounts payable		(910,999	)
Unearned revenue		(1,116,980	)
Taxes payable		(24,280	)
Accrued expenses and other payables		(3,951,667	)
Selling price		(353	)
Gain on sale	$	5,666,187

Exhibit No.		Document Description
31.1 †		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 †		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 ‡		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†		XBRL Instance Document
101.SCH†		XBRL Schema Document
101.CAL†		XBRL Calculation Linkbase Document
101.DEF†		XBRL Definition Linkbase Document
101.LAB†		XBRL Label Linkbase Document
101.PRE†		XBRL Presentation Linkbase Document

		LITHIUM & BORON TECHNOLOGY, INC.
		(Registrant)

Date: ~~November 14, 2019~~June 19, 2020	By:	/s/ Jimin Zhang
		Mr. Jimin Zhang Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory)