| Summary of Significant Accounting Policies | Note
3 - Summary of Significant Accounting Policies Basis
of Presentation This
summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. These accounting
policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied in
the preparation of the financial statements. With respect to the unaudited financial statements as of and for the nine months ended September
30, 2023, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2023. The
consolidated financial statements include the accounts of Rubber Leaf Inc, the parent company and its wholly owned subsidiary in China
- Rubber Leaf Sealing Products (Zhejiang) Co., Ltd. All intercompany transactions and balances were eliminated in consolidation. Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management,
all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from
those estimates. Signiant estimates are used in the collectability of accounts receivable, the useful lives and impairment of property
and equipment, the valuation of deferred tax assets, inventories reserve and provisions for income taxes, among others. Revenue
Recognition The
Company adopted Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification Topic 606, Revenue from
Contracts with Customers The
Company’s revenue is mainly generated from selling synthetic rubber, rubber compound, car window seals, auto parts under two
models of supply. The Company has disaggregated revenue at the sales channels through direct supply model and indirect supply model. Model
A: Direct supply model. Upon passing the on-site inspections of automobile Original Equipment Manufacturers (the “OEMs”),
RLSP is listed at the OEMs’ directories being one of their first-tier suppliers who will purchase raw materials, produce final
products independently, and deliver finished products to the OEMs’ warehouses directly. RLSP satisfies its performance obligation
when its finished products are delivered to the OEMs’ warehouses and a follow-up quality inspection is accepted by the OEMs. Meanwhile,
the OEMs will also request product replacement for disqualified products. The ownership and control of our finished products are transferred
to our customers as soon as the products pass the inspection and acceptance into the warehouses of the OEMs. Our revenue will be recognized
once the control of our products has been transferred to our customers, and the payments will be paid by the OEMs directly. Model B: Indirect supply model. RLSP received the purchase orders from our
related parties-Shanghai Xinsen Import & Export Co., Ltd (“Shanghai Xinsen”) and Xinsen Sealing Products (Hangzhou) Co.,
Ltd (“Hangzhou Xinsen”) (collectively named as “Xinsen Group” for two companies together). The Company’s
President, Ms. Xingxiu Hua, holds 90 70 63 Effective on October 1, 2022, Ms. Hua reduced her ownership of Shanghai Xinsen
from 90% to 15%, and so accordingly reduced her indirect ownership of Hangzhou Xinsen from 63% to 10.5%
1) RLSP
purchases raw materials and subcontracts the third-party manufacturers to produce WIP. Once WIP is finished and delivered to RLSP’s
warehouse, RLSP performs some manual processes, such as welding and constructing in order to meet the specification of the purchase
orders, the final products are concluded after strict quality inspection.
2) RLSP
purchases raw materials and subcontracts third party manufacturers to produce finished products. RLSP will perform the responsibilities
to trace and observe each step of production from the third-party manufacturers. The
finished products will be delivered to the first-tier suppliers’ warehouses, the downstream customers of Xinsen Group either from
RLSP or third-party manufacturers’ locations. Xinsen Group will assign inspectors and perform quality inspections when the finished
products are delivered. RLSP satisfies its performance obligation when the finished products are delivered to Xinsen Group’s customers
and the quality inspection is qualified performed by Xinsen Group. Meanwhile, Xinsen Group will also request product replacement for
disqualified products. Once the quality and quantity are confirmed and finished products are acceptable into the warehouses of Xinsen
Group’s customers, receiving notes will be provided by Xinsen Group’s customers, then to RLSP as proof of delivery. The date
of receiving notes signed is the time that RLSP transfers ownership and control of the finished products under model B to Xinsen Group
then indirectly to the first-tier suppliers. RLSP recognizes revenue on the dates when receiving notes are signed by Xinsen Group’s
customers. Under
both supply models, payment of products is generally made within a 30-day term upon receiving notes signed by our customers. Extended
payment terms are provided on a limited basis not to exceed two months. After the customer receives the finished products, if the customer
finds quality problems before installing them to the vehicles, the customer is able to inform RLSP and request replacement for the same
type products. RLSP does not offer warranty assurance to our customers due to the characteristics of our products. Cost
of revenue Cost
of revenues is comprised of raw materials consumed, manufacturing costs, third party logistics and distribution costs including packaging,
freight, transportation, shipping and handling costs, and inventory adjustment due to the defectives and inventory count. Cash
and Cash Equivalents Cash
and cash equivalents include bank deposits and liquid investments with original maturities of three months or less as of the purchase
date of such investments. Restricted
cash The
Company had notes payable outstanding with Ningbo bank and was required to keep certain amounts on deposit that were subject to withdrawal
restrictions. The notes payable is generally short term in nature due to its maturity period of six months or less, thus restricted
cash was classified as a current asset. Concentration
risk The
Company maintains cash with banks in the United States of America (“USA”) and PRC. Should any bank holding cash become insolvent,
or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the Company has not
experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In China,
a depositor has up to RMB 500,000 250,000 Financial
instruments that potentially subject the Company to significant concentrations of credit risk are cash and cash equivalents and accounts
receivable. As of September 30, 2023 and December 31, 2022, $ Nil 1,240,272 Major
customers For
the nine months ended September 30, 2023 and 2022, as well as three months ended September 30, 2023 and 2022 the Company’s revenues
from two major customers accounted more than 10% of the total revenue were as following: Schedule
of Concentration Risk Percent
Nine months ended Three months ended Nine months ended Three months ended
Amount % of Total Revenue Amount % of Total Revenue Amount % of Total Revenue Amount % of Total Revenue
Customer B $ 4,901,355 78 % $ 1,666,917 92 % $ 4,229,247 54 % $ 510,034 26 %
Customer A $ 1,250,979 20 % 30,663 2 % $ 3,641,039 46 % $ 1,443,070 74 %
As of As of
Accounts Receivable % of Total Accounts Receivable Accounts Receivable % of Total Accounts Receivable
Customer B $ 3,411,067 96 % $ 2,997,351 100 %
Customer A $ - - % $ - - %
● Customer
A: eGT New Energy Automotive Co., Ltd. (“eGT”), an unrelated party.
● Customer
B: Shanghai Xinsen Import & Export Co., Ltd (“Shanghai Xinsen”), a related party that sells RLSP’s products
to Shanghai Hongyang Sealing Co., Ltd. (“Shanghai Hongyang”) and Wuhu Huichi Auto Parts Co., Ltd. (“Wuhu Huichi”),
two unrelated parties of RLSP and the Company, and certified first-tier suppliers of Auto Manufacturers. Major
vendors For
the nine months ended September 30, 2023 and 2022, as well as three months ended September 30, 2023 and 2022, the Company made purchases
from the major vendors accounted more than 10% of the total purchases were as following:
Nine months ended September 30, 2023 Three months ended September 30, 2023 Nine months ended September 30, 2022 Three months ended September 30, 2022
Amount % of Total Purchase Amount % of Total Purchase Amount % of Total Purchase Amount % of Total Purchase
Vendor A $ 5,418,472 93 % $ 1,696,683 99 % $ 4,317,141 71 % $ 523,970 48 %
Vendor B $ - - % $ - - % $ 79,091 1 % $ - - %
Vendor C $ 428,109 7 % $ 3,269 1 % $ 1,685,360 28 % $ 557,569 52 %
As of September 30, 2023 As of September 30, 2022
Accounts payable % of Total Accounts Payable Accounts payable % of Total Accounts Payable
Vendor A $ 1,795,676 28 % $ 1,330,458 17 %
Vendor B $ 4,564,380 72 % $ 6,399,960 83 %
Vendor C $ - - % $ - - %
● Vendor
A: Shanghai Haozong Rubber & Plastic Technology Co., Ltd. (“Shanghai Haozong”), a related party.
● Vendor
B: Shanghai Huaxin Economic and Trade Co., Ltd. (“Shanghai Huaxin”), a related party, purchase amounts and accounts payable
balances include retainage payables.
● Vendor
C: Shanghai Yongliansen Import and Export Trading Company (“Yongliansen”), a related party. Accounts
Receivable Accounts
receivables are reported at their net realizable value. Any value adjustments are booked directly against the relevant receivable. We
have standard payment terms that generally require payment within approximately 30 to 60 days. Management performs ongoing credit evaluations
of its customers. An allowance for potentially uncollectible accounts is provided based on history, economic conditions, and composition
of the accounts receivable started from January 1, 2023, the first date the Company adopted ASC 2016-13. As of September 30, 2023 and
December 31, 2022 no credit risk identified by the management and no allowance for doubtful accounts deemed necessary. Inventories Inventories
consist of raw materials and finished products, and are stated at the lower of cost or net realizable value. Cost is calculated by applying
the weighted -average method and physically applied first-in-first-out method (FIFO) in inventory stock in and out. The Company regularly
reviews inventory quantities on hand and writes down to its net realizable value any inventory that it believes to be impaired. Management
considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life
cycles when determining excess and obsolescence and net realizable value adjustments. Once inventory is written down and a new cost basis
is established, it is not written back up if demand increases. Advances
to vendors From
time to time, we paid advances to our vendors in order to secure our purchase orders or as retainers required pursuant to various purchase
agreements related to production and the 2 nd Property
and equipment Property
and equipment are initially recorded at their historical cost. Repairs and maintenance are expensed as incurred. Depreciation is computed
using the straight-line method over the following estimated useful lives of the depreciable assets:
● Land
use rights: 50
● Leasehold
improvement: shorter of the estimate useful life or lease term
● Factory
equipment: 3 36
● Auto
vehicles: 4
● Office
equipment and furniture: 4 10 Construction
in progress (“CIP”) includes pre-construction costs, construction costs, interest incurred on financing, amortization of
land use right during the construction period, insurance and overhead costs related to construction. Interest of borrowings specific
for the construction project and amortization of land use rights are capitalized under CIP when development activities commence, and
end when the qualifying assets are ready for their intended use. Intangible
Assets All
land in the PRC is owned by the PRC government and cannot be sold to any individual or company. The Company has recorded the amounts
paid to the PRC government when acquired long-term interests of land use rights under intangible assets. This type of arrangement is
common for the use of land in the PRC. The Company amortizes land use rights based on the term of the respective land use rights granted,
which generally ranges from 15 50 Notes
payable Short-term
notes payable are lines of credit extended by banks. The banks in-turn issue the Company a bankers acceptance notes, which can be endorsed
and assigned to vendors as payments for purchases. These short-term notes payable bear no interest and is guaranteed by the bank for
its complete face value and usually matures within three to six-month period. The banks usually require the Company to deposit a certain
amount of cash at the bank as a guaranteed deposit, which is classified on the balance sheet as restricted cash. As
of September 30, 2023 and December 31, 2022, RLSP held $ Nil 1,312,362 Advances
from customers From
time to time, we receive advances from our customers, which are made normally under sales frame contracts, each sales transaction will
be initiated by purchase orders received under the frame contracts. The advances have no interest bearing, normally settled along with
purchase/sales transactions within 60 to180 days. Retainage
Payables For
equipment purchased from Shanghai Huaxin in the PRC, a related party, by RLSP in the PRC, the Company typically retains a portion of
the purchase invoices, typically 3-5%, for 12 to 24 months to ensure the quality of equipment after installation during the qualifying
warranty period Nil 38,138 Income
Taxes We
are governed by the Income Tax Law of the PRC and the United States. The Company accounts for income taxes using the asset and liability
method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records
a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The
2017 Tax Reform Act permanently reduces the U.S. corporate income tax rate to a 21 25 Value
added tax The
Company is subject to value added tax (“VAT”). The applicable VAT rate is 13 Earnings
Per Share The
Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, Earnings per Share. Basic earnings per
share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding
during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments
to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings
of the Company. Pursuant
to ASC 260-10-55, EPS computations should be based on the facts and circumstances of the transaction for reorganization. The Company
calculated its EPS retrospectively akin to a normal share issuance as if the reorganization incurred from the inception. The
Company does not have any potentially dilutive instruments as of September 30, 2023 and December 31, 2022, and, thus, anti-dilution issues
are not applicable. Fair
Value of Financial Instruments The
Company’s balance sheets include certain financial instruments. The carrying amounts of current assets and current liabilities
approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected
realization. ASC
820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s
own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the
fair value hierarchy are described below:
● Level
1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities.
● Level
2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates);
and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
● Level
3 - Inputs that are both significant to the fair value measurement and unobservable. Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September
30, 2023 and December 31, 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair
values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalent, restricted cash,
accounts receivable, advances to vendors, inventories, other current assets, accounts payables, advances from customers and other current
liabilities. For short term borrowings and notes payable, the Company concluded the carrying values are a reasonable estimate of fair
values because of the short period of time between the origination and repayment and as their stated interest rates approximate current
rates available. Operating
Leases The
Company adopted ASC 842 since its inception. The Company determines if an arrangement is or contains a lease at inception. Operating
leases with lease terms of more than 12 months are included in operating lease assets, accrued and other current liabilities, and long-term
operating lease liabilities on its consolidated balance sheet. Operating lease assets represent its right to use an underlying asset
for the lease term and lease liabilities represent its obligation to make lease payments over the lease term. Operating lease assets
and liabilities are recognized based on the present value of the remaining lease payments discounted using its incremental borrowing
rate. Lease expense is recognized on a straight-line basis over the lease term. Related
Parties Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also
considered to be related if they are subject to common control or common significant influence. The Company follows ASC 850, Related
Party Disclosures, Foreign
Currency Amounts
reported in the condensed consolidated financial statements are stated in United States dollars, unless stated otherwise. The Company’s
subsidiary in the PRC use the Chinese renminbi (RMB) as their functional currency and the holding company - RLI uses the United States
dollar as their functional currency. For subsidiaries that use the local currency as the functional currency, all assets and liabilities
are translated to United States dollars using exchange rates in effect at the end of the respective periods and the results of operations
have been translated into United States dollars at the weighted average rates during the periods the transactions were recognized. Resulting
translation gains or losses are recognized as a component of other comprehensive income (loss). In
accordance with ASC 830, Foreign Currency Matters (ASC 830), the Company translates the assets and liabilities into United States dollars
using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an
average rate during the reporting period. Adjustments resulting from the translation from RMB into United States dollar are recorded
in stockholders’ equity as part of accumulated other comprehensive income. Further, foreign currency transaction gains and losses
are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Gains
and losses on those foreign currency transactions are included in other income (expense), net for the period in which exchange rates
change. Comprehensive
Income (Loss) The
Company accounts for comprehensive income (loss) in accordance with ASC 220, Income Statement-Reporting Comprehensive Income Segment
Information Operating
segments are defined as components of a company about which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The
Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer and the chief
financial officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how
to allocate the resources and in assessing the performance, the Company has determined that it has two operating and reporting segments
based on sales channels – direct supply and indirect supply as of September 30, 2023 and December 31, 2022 and for three and six
months ended. Adoption
of New Accounting Standards In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently
issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at amortized
cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected
based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective
date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2016-13 effective on January
1, 2023. Adoption of the new standard did not have impact on the Company’s consolidated financial statements or financial disclosure
since all accounts receivable as of January 1, 2023 were due from Xinsen Group, which were deemed no credit loss issue. Accounting
Standards Issued but Not Yet Adopted ASUs
issued but not yet adopted were assessed and determined to be not applicable or are not expected to have a material impact on our consolidated
financial statements or financial statement disclosures. |
