| Summary of Significant Accounting Policies | (4)
Summary of Significant Accounting Policies The
accompanying unaudited consolidated financial statements reflect the application of certain significant accounting policies as
described in this note and elsewhere in the accompanying consolidated financial statements and notes. Use
of estimates The
preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of net sales and expenses during the reporting period. Some of the significant
estimates include values and lives assigned to acquired property and equipment, reserves for customer returns and allowances,
uncollectible accounts receivable, slow moving, obsolete and/or damaged inventory. Actual results may differ from these estimates. Cash
and cash equivalents The
Company considers all highly liquid debt instruments purchased with maturity periods of six months or less to be cash equivalents.
The carrying amounts reported in the accompanying balance sheet for cash and cash equivalents approximate their fair value. Substantially
all of the Company’s cash is held in bank accounts in the PRC and is not protected by FDIC insurance or any other similar
insurance. The Company’s bank account in the United States is protected by FDIC insurance. Accounts
receivable Trade
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance
for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance
for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically
evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments
in the allowance when it is considered necessary. Inventory Inventory
is stated at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchases, and other costs
incurred in bringing the inventories to their present location and condition. Cost is determined using the weighted average method.
Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary
to complete the sale. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially
obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances
based on excess and obsolete inventories determined principally by customer demand. Impairment of inventories is recorded in cost
of goods sold. For
the three months ended March 31, 2021 and 2020, the Company has not made provision for inventory in regards to slow moving or
obsolete items. Lease The
Company used comparative method and adopted ASU 2018-20, Leases (Topic 842) to recognize leases assets and lease liabilities on
the balance sheet and disclosing key information about lease transactions. All existing leases since January 1, 2018 are reported
under this rule. After the adoption, $44,144 of operating lease right-of-use asset and $44,144 of operating lease liabilities
were retroactively reflected to December 31, 2020 financial statements. After the adoption, $33,025 of operating lease
right-of-use asset and $33,025 of operating lease liabilities were retroactively reflected to March 31, 2021 financial statements. Property
and equipment Property
and equipment is stated at the historical cost, less accumulated depreciation. Depreciation on property and equipment is provided
using the straight-line method over the estimated useful lives of the assets for both financial and income tax reporting purposes
as follows:
Machinery and equipment 5 years
Motor vehicle 5 years Expenditures
for renewals and betterments are capitalized while repairs and maintenance costs are normally charged to the statement of operations
in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in
an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized
as an additional cost of the asset. Upon
sale or disposal of an asset, the historical cost and related accumulated depreciation or amortization of such asset were removed
from their respective accounts and any gain or loss is recorded in the statements of income. The Company reviews the carrying value of property,
plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable
from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future
cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds
the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends
and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors.
Based on this assessment, no impairment expenses for property, plant, and equipment were recorded in operating expenses during the three
months ended March 31, 2021 and 2020. Stock-based
compensation Stock-based
compensation includes (i) common stock awards granted to employees and directors for services which are accounted for under FASB
ASC 718, Compensation–Stock Compensation” and (ii) common stock awards granted to consultants which are accounted
for under FASB ASC 505-50, Equity–Equity-Based Payments to Non-Employees. All
grants of common stock awards and stock options to employees and directors are recognized in the financial statements based on
their grant date fair values. The Company has elected to recognize compensation expense using the straight-line method for all
common stock awards and stock options granted with service conditions that have a graded vesting schedule, with a corresponding
charge to additional paid-in capital. Common
stock awards are granted to directors for services provided. The vested portions of common stock awards granted but not yet issued
are recorded in common stock to be issued. Common
stock awards issued to consultants represent common stock granted to non-employees in exchange for services at fair value. The
measurement dates for such awards are set at the dates that the contracts are entered into as the awards are non-forfeitable and
vest immediately. The measurement date fair value is then recognized over the service period as if the Company has paid cash for
such service. The
Company estimates fair value of common stock awards based on the number of shares granted and the quoted price of the Company’s
common stock on the date of grant. Foreign
currency translation The
reporting currency of the Company is U.S. dollars. The Company uses RMB as its functional currency. The results of operations
and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified
exchange rates at the balance sheet dates, and equity is translated at the historical exchange rates. As a result, amounts related
to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding
accounts on the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive
income in the statements of stockholders’ equity. Translation adjustments for the three months ended March 31, 2021 and
2020 were $2,004 and $6,075, respectively. The cumulative translation adjustment and effect of exchange rate changes on cash for
the three months ended March 31, 2021 and 2020 were $35 and $(332), respectively. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results
of operations as incurred. Assets
and liabilities were translated at 6.55 RMB and 6.53 RMB to $1.00 at March 31, 2021 and December 31, 2020, respectively. The equity
accounts were stated at their historical rates. The average translation rates applied to income statements for the three months
ended March 31, 2021 and 2020 were 6.48 RMB and 6.98 RMB to $1.00, respectively. Cash flows are also translated at average translation
rates for the period; therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet. Revenue
recognition The
Company derives revenues from distribution of graphite-based products. We recognize revenue in accordance with ASC 606, Revenue
is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect
to receive in exchange for those products. We enter into contracts that can include products, which are generally capable of being
distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes
collected from customers, which are subsequently remitted to governmental authorities. Sales represent the invoiced value of goods,
net of value added tax (“VAT”), if any, and are recognized upon delivery of goods and passage of title according to
shipping terms. The
Company is subject to VAT, which is levied on a majority of the products, at a rate ranging from 13% to 17% on the invoiced value
of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in
addition to the invoiced value of purchases to the extent not refunded for export sales. The
Company recognizes revenue upon transfer of control of promised products to customers according to shipping terms. The Company
does not provide chargeback or price protection rights to the customers. The customer only places purchase orders with the Company once
it has confirmed the sale with a third party because this is a specialized business, which dictates that the Company will not
sell the products until the purchase order is received. The Company allows its customers to return products only if its products
are later determined by the Company to be defective. Based on the Company’s historical experience, product returns have
been insignificant throughout all of its product lines. Therefore, the Company does not record an allowance for sales returns.
If sales returns occur, they are taken against revenue when products are returned from customers. Sales are presented net of any
discounts given to customers. Interest income is recognized when earned. The Company experienced no returns for the three months
ended March 31, 2021 and 2020. In
May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers
(Topic 606) There
is no impact of applying this ASU. Cost
of goods sold Cost
of goods sold consists primarily of the purchase costs of products. Shipping
and handling costs The
Company follows ASC 606, as amended and clarified by ASU 2016-10, to record shipping and handling cost. The Company classifies
shipping and handling costs paid on behalf of its customers in selling expenses. For the three months ended March 31, 2021 and
2020, shipping and handling costs were $2,730 and $20,008, respectively. Taxation Taxation
on profits earned in the PRC has been calculated based on the estimated assessable profits for the year at the rates of taxation
prevailing in the PRC after taking into account the benefits from any special tax credits or “tax holidays” allowed
in the county of operations. The
Company does not accrue U.S. income tax since it has no operations in the United States. Its operating subsidiaries are organized
and located in the PRC and do not conduct any business in the United States. In
2006, the Financial Accounting Standards Board (“FASB”) issued ASC, 740 Income Tax, formerly known as FIN 48, which
clarifies the application of SFAS 109 by defining a criterion that an individual income tax position must meet for any part of
the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on measurement,
recognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure and transition.
In accordance with the transition provisions, the Company adopted FIN 48 effective January 1, 2007. The
Company recognizes that virtually all tax positions in the PRC are not free from some degree of uncertainty due to tax law and
policy changes by the state. The Company cannot reasonably quantify political risk factors and thus must depend on guidance issued
by current government officials. Based
on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits
as of March 31, 2021 is not material to its results of operations, financial condition or cash flows. The Company also believes
that the total amount of unrecognized tax benefits as of March 31, 2021, if recognized, would not have a material effect on its
effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on
current Chinese tax law and policy, that the unrecognized tax benefits will significantly increase or decrease over the next twelve
months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial
condition or cash flows. Enterprise
income tax The
enterprise income tax is calculated on the basis of the statutory profit as defined in the PRC tax laws. This statutory profit
is computed differently than the Company’s net income under U.S. GAAP. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and
credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities from
a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents
the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets
and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Value
added tax The
Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1,
1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax,
value added tax (“VAT”) is imposed on goods sold in or imported into the PRC and on processing, repair and replacement
services provided within the PRC. VAT
payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the
full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the
taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of VAT included in
the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services
in the same financial year. Contingent
liabilities and contingent assets A
contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence
or non-occurrence of one or more uncertain future events not wholly within the control of the Company. It can also be a present
obligation arising from past events that is not recognized because it is not probable that the Company will incur a liability
or obligations as a result. A contingent liability, which might occur but is not probable, is not recorded but is disclosed in
the notes to the financial statements. The Company will recognize a liability or obligation when it is probable that the Company
will incur such liability or obligation. A
contingent asset is an asset, which could possibly arise from past events and whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain events not wholly within the control of the Company. Contingent assets are not recorded
but are disclosed in the notes to the financial statements when it is likely that the Company will recognize an economic benefit.
When the benefit is virtually certain, the asset is recognized. Fair
value of financial instruments The
Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for
measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. It does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source
of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable
inputs, which may be used to measure fair value and include the following:
● 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 assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
● Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value. The
carrying amount of other receivables, advance to vendors, advances from customers, other payables, accrued liabilities are reasonable
estimates of their fair value because of the short-term nature of these items. Loss
per share Basic
loss per share is computed by dividing net income available to common shareholders by the weighted average number of shares of
common stock outstanding during the period. Diluted loss per share is computed by dividing net income available to common shareholders
by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding
during each period. Potentially dilutive shares of common stock consist of the common stock issuable upon the conversion of convertible
debt, preferred stock and warrants. The Company uses if-converted method to calculate the dilutive preferred stock and treasury
stock method to calculate the dilutive shares issuable upon exercise of warrants. The
following table sets forth the computation of the number of net loss per share for the three months ended March 31, 2021 and 2020:
March 31, March 31,
Weighted average shares of common stock outstanding (basic) 28,734,053 27,644,764
Shares issuable upon conversion of Series B Preferred Stock - -
Weighted average shares of common stock outstanding (diluted) 28,734,053 27,644,764
Net loss available to common shareholders $ (186,175 ) $ (38,815 )
Net loss per shares of common stock (basic) $ (0.01 ) $ (0.00 )
Net loss per shares of common stock (diluted) $ (0.01 ) $ (0.00 ) Accumulated
other comprehensive income The
Company follows ASC 220, Comprehensive Income, formerly known as SFAS No. 130, Reporting Comprehensive Income, to recognize the
elements of comprehensive income. Comprehensive income is comprised of net income and all changes to the statements of stockholders’
equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the
Company, comprehensive income for the three months ended March 31, 2021 and 2020 included net income and foreign currency translation
adjustments. Related
parties Parties
are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal if one party controls or can significantly influence the management or operating policies of the other
to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. Transactions
with related parties are disclosed in the financial statements. Recent
accounting pronouncements The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption
of any such pronouncements will have a material impact on its financial condition or the results of its operations. In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, to increase the transparency and comparability
about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset
for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective
for interim and annual periods beginning after December 15, 2018, and requires a modified retrospective approach to adoption.
The Company adopted the policy on January 1, 2019 and the impact of the adoption of this guidance is listed in Note 15. In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory”,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-06 will be effective for the Company in its first quarter of 2019. The Company does not expect that
the adoption of this guidance will have a material impact on its consolidated financial statements. Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying financial statements. |
