| Summary of Significant Accounting Policies | Note
2 - 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. These Interim Financial Statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Form 10-K. In
the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments,
considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods
presented. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2024. 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. Reclassifications Certain
amounts on the prior year’s consolidated balance sheets, consolidated statements of operations and cash flows were reclassified
to conform to current-year presentation, with no effect on ending stockholders’ equity. 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 early adopted Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification Topic 606, Revenue
from Contracts with Customers We
generate revenue through selling automotive rubber and plastic sealing strips under two models of supply: Model
A (Direct Supply Model) Following
successful on-site inspections by auto OEMs, RLSP secures listing in its directories as a first-tier supplier that directly provides
products to the OEM. For example, eGT is an auto OEM, and we serve as their first-tier supplier. eGT directly signs purchase or supply
agreements with RLSP. This positions RLSP to independently procure raw materials, manufacture final products and directly deliver finished
goods to the warehouses of the auto OEMs. RLSP fulfills its performance obligation upon the delivery of finished products to their warehouses,
following a subsequent quality inspection approved by them. Simultaneously, they may request product replacements for disqualified items.
Ownership and control of our finished products transfer to customers upon successful inspection and acceptance into an OEM’s warehouse.
Revenue recognition occurs upon the transfer of control of our products to a customer, with payments made directly by the OEM. Model
B (Indirect Supply Model) RLSP
receives the purchase orders from our related parties-Shanghai Xinsen and Xinsen Sealing Products (Hangzhou) Co., Ltd (“Hangzhou
Xinsen”) (collectively named as “Xinsen Group” for two companies together). The Company’s Chief Executive Officer,
President and Chairperson, Ms. Xingxiu Hua, previously held a 90 70 Effective October 1, 2022, Ms. Hua reduced her ownership of Shanghai Xinsen from 90% to 15%, and
accordingly reduced her indirect ownership of Hangzhou Xinsen from 63% to 10.5%. We
employ two distinct forms of outsourced processing under Model B.
1) RLSP
purchases raw materials and subcontracts production to third-party manufacturers for WIP. Once WIP is finished and delivered to RLSP’s
warehouse, RLSP performs certain manual processes, such as welding and constructing in order to meet the specification of the purchase
orders. The completion of the final products is contingent upon a rigorous quality inspection conducted by RLSP, ensuring they meet
the highest standards.
2) RLSP
purchases raw materials and subcontracts third party manufacturers to produce finished products. RLSP will trace and observe each
step of production undertaken by third-party manufacturers, with a primary focus on the final quality control step. The
finished products are delivered to the warehouses of Xinsen Group’s upstream first-tier suppliers, either from our locations or
those of the third-party manufacturers. Quality inspection is carried out by assigned inspectors from Xinsen Group upon delivery. RLSP
fulfills its obligation when the finished products reach Xinsen Group’s customers and pass the qualified quality inspection. In
the event of products that do not pass inspection, the Xinsen Group initiates a product replacement process. Upon confirmation of quality
and quantity, and acceptance of finished products into Xinsen Group’s customers’ warehouses, invoices are provided to us
as proof of delivery. The date of the invoices signifies the transfer of ownership and control of the finished products under model B
from us to Xinsen Group and indirectly to its upstream first-tier suppliers. We recognize at such time as Xinsen Group’s customers
accept delivery of 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. 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 June 30, 2024 and December 31, 2023, $ Nil Nil Major
customers For
the six months ended June 30, 2024 and 2023, as well as three months ended June 30, 2024 and 2023 the Company’s revenues
from two major customers accounted more than 10% of the total revenue were as following: Schedule
of Concentration Risk Percent
Six months ended June 30, 2024 Three months ended June 30, 2024 Six months ended June 30, 2023 Three months ended June 30, 2023
Amount % of Total Revenue Amount % of Total Revenue Amount % of Total Revenue Amount % of Total Revenue
Customer B $ 4,912,365 100 % $ 1,957,758 100 % $ 3,358,311 73 % $ 1,910,202 84 %
Customer A $ - - % $ - - % $ 1,267,970 27 % $ 370,538 16 %
As of June 30, 2024 As of December 31, 2023
Accounts Receivable % of Total Accounts Receivable Accounts Receivable % of Total Accounts Receivable
Customer B $ 6,101,665 100 % $ 5,209,169 100 %
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 six months ended June 30, 2024 and 2023, as well as three months ended June 30, 2024 and 2023, the Company made purchases from the
major vendors accounted more than 10% of the total purchases were as following:
Six months ended June 30, 2024 Three months ended June 30, 2024 Six months ended June 30, 2023 Three months ended June 30, 2023
Amount % of Total Purchase Amount % of Total Purchase Amount % of Total Purchase Amount % of Total Purchase
Vendor A $ 4,900,879 100 % $ 1,940,715 100 % $ 3,864,667 90 % $ 1,956,561 96 %
Vendor B $ - - % $ - - % $ - - % $ - - %
Vendor C $ - - % $ - - % $ 441,441 10 % $ 72,052 4 %
As of June 30, 2024 As of December 31, 2023
Accounts payable % of Total Accounts Payable Accounts payable % of Total Accounts Payable
Vendor A $ 3,661,440 34 % $ 2,871,033 22 %
Vendor B $ 1,302,484 12 % $ 4,364,105 34 %
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 As of June 30, 2024 and December 31, 2023 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
and Building: 47
● 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 Impairment
of Long-Lived Assets The
Company’s long-lived assets mainly include property and equipment, land use right recorded under intangible assets and right-of-use
assets obtained through operating lease. In
accordance with ASC 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable.
If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset
is less than its carrying value, then the Company would recognize an impairment loss based on the excess of the carrying value over the
fair value. For
the six months ended June 30, 2024 and December 31, 2023, the Company determined there was no 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. 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 June 30, 2024 and December 31, 2023, 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 June
30, 2024 and December 31, 2023. 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 consolidated financial statements are stated in United States dollars, unless stated otherwise. The Company’s subsidiary
in the PRC uses 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 Accounting
Standards Issued but Not Yet Adopted Income
Tax Disclosures - In December 2023, the Financial Accounting Standards Board (FASB) released ASU No. 2023-09, titled “Income Taxes
(Topic 740): Enhancements to Income Tax Disclosures” (referred to as “ASU 2023-09”). This new standard mandates the
disclosure, on an annual basis, of specific categories in the rate reconciliation and the disaggregation of income taxes paid by jurisdiction.
ASU 2023-09 becomes effective for annual reporting periods starting after December 15, 2025. The Company anticipates that the adoption
of this standard will not significantly impact its financial position, results of operations, or cash flows. In November 2023, the Financial
Accounting Standards Board (FASB) released ASU 2023-07, titled “Enhancements to Reportable Segment Disclosures” (“ASU
2023-07”). This standard necessitates companies to provide additional, more comprehensive details regarding significant expenses
of a reportable segment, even if there is only one such segment. Its purpose is to enhance disclosures related to a public entity’s
reportable segments. ASU 2023-07 will be effective for fiscal years commencing after December 15, 2023, and for interim periods starting
after December 15, 2024, with the option for early adoption. We are presently assessing the potential impact of adopting ASU 2023-07
on our consolidated financial statements. |
