Rubber Leaf Inc 10-Q for FY2024 Q3
Rubber Leaf Inc (RLEA)
About this 10-Q
Rubber Leaf Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2M
- up 10.7% from $1.81M a year earlier
- Net loss
- $474.48K
- compared with a net loss of $360.92K a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from ______ to ______
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities
registered under Section 12(g) of the Exchange Act:
Indicate
by check mark 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 past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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 14, 2024, the Registrant had shares of common stock, $ par value, issued and outstanding.
TABLE OF CONTENTS
| 2 |
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section entitled “Risk Factors,” beginning on page 11 of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2023 initially filed with the Securities & Exchange Commission (“SEC”) on March 27, 2024. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms “RLI,” “Company,” “we,” “us,” and “our” in this document refer to Rubber Leaf Inc, a Nevada corporation.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RUBBER LEAF INC
INDEX TO FINANCIAL STATEMENTS
| 4 |
RUBBER LEAF INC
CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivables | ||||||||
| Accounts receivables – related parties | ||||||||
| Accounts receivables | ||||||||
| Advances to vendors | ||||||||
| Advances to vendors and other receivables - related parties | ||||||||
| Advances to vendors | ||||||||
| Inventories, net | ||||||||
| Deposit to vendor - related party | ||||||||
| Other current assets | ||||||||
| Total current asset | ||||||||
| Noncurrent assets: | ||||||||
| Plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Borrowings | $ | $ | ||||||
| Borrowings– related party | ||||||||
| Borrowings | ||||||||
| Accounts payables | ||||||||
| Accounts payables – related parties | ||||||||
| Accounts payables | ||||||||
| Other payable - related party | ||||||||
| Advances from customers | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Long-term borrowing | ||||||||
| Total Liabilities | ||||||||
| Commitment and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock: shares authorized, shares issued and outstanding | ||||||||
| Common stock: shares authorized, shares and shares issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RUBBER LEAF INC
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Sales-related parties | ||||||||||||||||
| Total | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Cost of OEM | ||||||||||||||||
| Loss on factory relocation | ||||||||||||||||
| Loss on idle capacity | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General & administrative expenses | ||||||||||||||||
| Total operation expenses | ||||||||||||||||
| Loss from operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Total other expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax (benefit) expenses | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Earnings per share | ||||||||||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RUBBER LEAF INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Shares | Amount | Shares | Amount | Capital | Deficit) | income (loss) | (Deficit) | |||||||||||||||||||||||||
| Additional | Retained Earnings | Accumulated Other | Total Stockholders’ | |||||||||||||||||||||||||||||
| Preferred Stocks | Common Stocks | Paid-in | (Accumulated | Comprehensive | Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | income (loss) | (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Issue of Shares | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation, net tax | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 (Unaudited) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Additional | Retained Earnings | Accumulated Other | Total Stockholders’ | |||||||||||||||||||||||||||||
| Preferred Stocks | Common Stocks | Paid-in | (Accumulated | Comprehensive | Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | income (loss) | (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Balance | - | $ | 41,109,458 | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation, net tax | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 (Unaudited) | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Balance | - | 41,109,458 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RUBBER LEAF INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2024 | 2023 | |||||||
| For the nine months ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Cash flow from operating activities | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Account receivables | ( | ) | ( | ) | ||||
| Account receivables – related parties | ( | ) | ||||||
| Advances to vendors - related party | ( | ) | ( | ) | ||||
| Advance to vendors | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Notes payable | ( | ) | ||||||
| Account payable | ||||||||
| Accounts payable - related parties | ( | ) | ||||||
| Advances from customers | ||||||||
| Retainage payable | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flow from investing activities | ||||||||
| Issuance of loan receivable | ( | ) | ||||||
| Purchase of equipment and factory construction | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities | ||||||||
| Share issuance for cash | ||||||||
| Proceeds from related parties | ||||||||
| Proceeds from borrowings | ||||||||
| Repayments of borrowings | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes | ( | ) | ||||||
| Decrease in cash | ( | ) | ( | ) | ||||
| Cash and restricted cash, beginning | ||||||||
| Cash and restricted cash, ending | $ | $ | ||||||
| Supplemental disclosures of cash flow | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Construction in progress additions | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated unaudited consolidated financial statements.
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RUBBER LEAF INC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 1 - Organization and Description of Business
Rubber
Leaf Sealing Products (Zhejiang) Co., Ltd. (the “RLSP”) was established on July 8, 2019, and is located in Fenghua District,
Ningbo, Zhejiang province, the People’s Republic of China (“PRC”). It is engaged in the import and export trade, production
and sales of synthetic rubber, rubber compound, car window seals, auto parts, etc. of integrated group companies. It has an integrated
machinery production plant on PRC. RLSP, a well-known auto parts enterprise, is a first-tier supplier of well-known auto brands such
as Dongfeng Motor and French Renault. RLSP has a registered capital of $
Rubber Leaf Inc (the “Company” or “RLI”) was incorporated under the law of the State of Nevada on May 18, 2021 by Ms. Xingxiu Hua, the sole shareholder of RLSP. On May 27, 2021, the Company entered a share exchange agreement with Ms. Hua, pursuant to which, the Company issued shares of common stock to exchange for all of RLSP’s shares. No change of control of RLSP resulted from the execution of the share exchange agreement.
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 nine months ended September 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 the 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.
| 9 |
Revenue Recognition
The Company early adopted Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) since its inception (i.e. July 2019), which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company applies the five-step model to sales contracts.
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
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. |
| 10 |
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.
We also generate revenue through contract manufacturing model or OEM supply model, which is described in the model C.
Model C (OEM Supply Model)
The contract manufacturing process begins with the customer placing an order and supplying all necessary raw materials. We provide the labor and equipment required to process the raw materials into finished products. The customer is charged a processing fee, which is calculated based on the cost per individual part and settled monthly. At the start of each month, we calculate the number of parts processed in the previous month, and both parties confirm the quantity by stamping the relevant documents. Once confirmed, we issue an invoice for the processing fee, and the customer makes payment upon receipt of the invoice.
Cost of revenue
Cost of revenues includes cost of sales, cost of OEM, loss on factory relocation and loss on idle capacity. Cost of sales 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. The cost of OEM includes labor costs and manufacturing expenses directly related to contract manufacturing. The loss on factory relocation encompasses all expenses incurred during the relocation process, while the loss on idle capacity refers to costs associated with unused capacity within the factory.
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
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, 2024 and December 31, 2023, $ and $ of the Company’s cash held by financial institutions were uninsured, respectively.
Major customers
For the nine months ended September 30, 2024 and 2023, as well as the three months ended September 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
| Nine months ended September 30, 2024 | Three months ended September 30, 2024 | Nine months ended September 30, 2023 | Three months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Amount | % of Total Revenue | Amount | % of Total Revenue | Amount | % of Total Revenue | Amount | % of Total Revenue | |||||||||||||||||||||||||
| Customer B | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Customer A | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
| Accounts Receivable | % of Total Accounts Receivable | Accounts Receivable | % of Total Accounts Receivable | |||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
| 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. |
| 11 |
Major vendors
For the nine months ended September 30, 2024 and 2023, as well as the three months ended September 30, 2024 and 2023, the Company made purchases from the major vendors that accounted more than 10% of the total purchases were as following:
| Nine months ended September 30, 2024 | Three months ended September 30, 2024 | Nine months ended September 30, 2023 | Three months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Amount | % of Total Purchase | Amount | % of Total Purchase | Amount | % of Total Purchase | Amount | % of Total Purchase | |||||||||||||||||||||||||
| Vendor A | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Vendor C | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||
| Accounts payable | % of Total Accounts Payable | Accounts payable | % of Total Accounts Payable | |||||||||||||
| Vendor A | $ | % | $ | % | ||||||||||||
| Vendor B | $ | % | $ | % | ||||||||||||
| 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 the history, economic conditions, and composition of the accounts receivable As of September 30, 2024 and December 31, 2023 no credit risk was identified by the management and no allowance for doubtful accounts was 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 2nd production lines currently under construction. The advances have no interest bearing, normally settled along with purchase transactions within 60 to 180 days depending on market condition, and around 365 days for construction projects and/or equipment purchases.
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: | |
| ● | Leasehold improvement: | |
| ● | Factory
and Building: | |
| ● | Factory
equipment: | |
| ● | Auto
vehicles: | |
| ● | Office
equipment and furniture: |
| 12 |
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
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 nine months ended September 30, 2024 and December 31, 2023, the Company determined there was
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 to 180 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
Value Added Tax
The
Company is subject to value-added tax (“VAT”). The applicable VAT rate is
| 13 |
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, 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 September 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.
| 14 |
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, for the identification of related parties and disclosure of related party transactions.
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 (ASC 220). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of September 30, 2024 and December 31, 2023 is the currency translation adjustment.
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
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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.
Note 3 - Inventories
Inventories consisted of raw rubber materials, finished goods of rubber products and others, and are stated at the lower of cost or net realizable value. As of September 30, 2024 and December 31, 2023, inventories consisted of the following:
Schedule of Inventories
September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total | ||||||||
Note 4 - Plant and equipment, net
Schedule of Plant and Equipment
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Equipment and machinery | $ | $ | ||||||
| Factory and Building | ||||||||
| Furniture and office equipment | ||||||||
| Auto vehicles | ||||||||
| Leasehold improvement | ||||||||
| Minus: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property plant and equipment, net | $ | $ | ||||||
Upon obtained the right use of land, RLSP started to build the manufacture plant on the land. The Company capitalized the cost in related to the construction, including the interests related to the borrowings, the utilities occurred in the construction, the amortization of land use of right.
On
August 5, 2022, RLSP and Ningbo Rongsen Construction Co., Ltd (“Ningbo Rongsen”) signed a Construction Engineering Contract,
with an agreed project cost of US $
| 16 |
For the equipment used for manufacturing, the depreciation expense is included as part of manufacturing overhead, while the equipment used for general administrative are included in selling, general and administrative expense on the statements of operations.
For
the nine months ended September 30, 2024 and 2023, the depreciation and amortization expenses were $
Note 5 - Intangible asset, net
On
October 21, 2020, RLSP entered a purchase contract with the Ninbo government agent, Zhejiang Province, whereby the Company was assigned
the land use rights, for
Intangible asset, net consists of the following:
Schedule of Intangible Asset
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Land use rights | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | ||||||||
For
the nine months ended September 30, 2024, the amortization of land use right was $
Note 6 - Borrowings
On April 30, 2021, RLSP borrowed $ (RMB million) short-term loan from an unrelated entity guaranteed by an individual person. The loan has a monthly interest rate of % with the due date on . On November 10, 2021, RLSP extended the maturity date of the loan till April 30, 2022 with the other loan terms remain the same and the two parties have verbally agreed to extend the due date to . On June 12, 2023, a supplemental agreement entered, pursuant to which, the loans are due on demand, with the other loan terms remain the same. As of September 30, 2024 and December 31, 2023, the loan balance were $ (RMB million) and $ (RMB million), respectively.
On September 1, 2021, RLSP borrowed $ (RMB million) short-term loan from an unrelated individual. The loan has annual interest rate of % with due date on . RLSP has had several round financing transactions with the individual since then. As of September 30, 2024 and December 31, 2023, the individual loan balances were $ (RMB million) and $ (RMB million) respectively. RMB out of $ loan balance has no maturity date. The Company may repay the loan anytime and no interest further on.
On
September 1, 2021, RLSP borrowed $
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On
November 30, 2021, RLSP borrowed $
On
March 2022, RLSP borrowed $
On
November 18, 2022, RLSP entered a one-year bank loan of $
On September 14, 2023, RLSP borrowed $ (RMB million) a short-term loan from unrelated individual for temporarily fund shortage. The loan bears % monthly interest rate and has its maturity date of . RLSP repaid back $ (RMB million out of RMB million) during September 2023. RLSP paid back $ (RMB million) for nine months ended September 30, 2024. There is no maturity date with balance of $ (RMB million) and $ (RMB million) as of September 30, 2024 and December 31, 2023. After negotiation with the unrelated individual, RLSP extends the timeline to pay off the remaining loans from May 2024 to January 2025.
On October 20 and October 30, 2023, RLSP borrowed $ (RMB million) and $ (RMB million) short-term loans with a monthly interest rate of % from an unrelated individual. On January 16, 2024, RLSP borrowed additional $ (RMB million) with a same interest rate of % in month, and paid back $ (RMB million) in April 2024. The total loan balance was $ (RMB million) and $ (RMB million) as of September 30, 2024 and December 31, 2023. After negotiation with the unrelated individual, RLSP extended the timeline to pay off the remaining loans from May 2024 to January 2025.
On March 27, 2024, RLSP borrowed $ (RMB million) a short-term loan from unrelated individual for temporarily fund shortage. The loan bears % daily interest rate and on March 29,2024, the loan was partially paid in the amount of $ (RMB million) and the remaining $ (RMB million) was fully paid off in April 2, 2024, with $ outstanding balance as of September 30, 2024.
On
March 25, 2024, RLSP secured approval for a line of credit (“LOC”) from the Industrial and Commercial Bank of China, Ningbo
National Gaoxin Branch, with a total amount of $
Subsequently,
on March 28, 2024 and April 2, 2024, RLSP obtained a one-year bank loan of $
Interest
expense primarily consists of the interest incurred on the bank loans, commercial & individual loans and minor bank service charges.
For nine months ended September 30, 2024 and 2023, the Company recorded the interest expense of $
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Note 7– Related Party Transactions
Purchase
In
order to reduce the purchase cost and enhance the purchase power, the Company purchases the main raw materials from Yongliansen Import
and Export Trading Company (“Yongliansen”) and Shanghai Haozong Rubber & Plastic Technology Co., Ltd. (“Shanghai
Haozong”), and also purchases equipment and rubber products under indirect supply model from Shanghai Huaxin Economic and Trade
Co., Ltd. (“Shanghai Huaxin”) during the nine months ended September 30, 2024 and 2023. The Company’s founder holds
minor equity interests of the three suppliers directly or indirectly and one of the Company directors, Mr. Jun Tong holds
For nine months ended September 30, 2024 and 2023, the Company purchased raw materials from Yongliansen (“Vendor C”) in the total amount of $ and $ , respectively. As of September 30, 2024 and December 31, 2023, the Company advanced Yongliansen $ and $, respectively, mainly for raw material purchases. On November 30, 2020, RLSP advanced RMB million or $ as a deposit (the “Deposit”) to Yongliansen in order to lock-down our premium customer position among all customers of Yongliansen and maintain a long-term business relationship. The Deposit bears no interest and due on demand. Due to less procurement of raw materials made from Yongliansen in 2022, RLSP requested Yongliansen to refund the Deposit, and Yongliansen agreed to fully refund RLSP by December 31, 2022. On December 15, 2022, RLSP and Yongliansen entered into a Payment Agreement, among which Yongliansen requested to extend the repayment date of the Deposit to April 30, 2024, and RLSP has agreed to grant such extension request. Yongliansen, and Shanghai Huaxin signed a Tripartite Payment Agreement (the “TPA”) on May 6, 2024. Under the terms of the TPA, RLSP, Yongliansen, and Shanghai Huaxin (“Vendor B”) have agreed that the advance of $ or RMB million from RLSP to Yongliansen will be directly remitted from Yongliansen to Shanghai Huaxin. This remittance serves as payment to settle the payable amount owed to Shanghai Huaxin by RLSP. In May 2024, the RMB million or $ has been offset with the balance due to Shanghai Huaxin, with $ deposit to vendor as of September 30, 2024.
For nine months ended September 30, 2024 and 2023, the Company purchased $ and $ rubber products from Shanghai Haozong (“Vendor A”) respectively. As of September 30, 2024 and December 31, 2023, $ and $ accounts payable due to Shanghai Haozong, respectively.
For nine months ended September 30, 2024 and 2023, RLSP purchased $ and $ rubber products and equipment from Shanghai Huaxin (“Vendor B”), respectively.
On
December 25, 2021, RLSP signed a Payment Extension Agreement with Shanghai Huaxin regarding outstanding account payable balance, which
was amended on August 14, 2022. Under the amended Payment Extension Agreement, RLSP and Shanghai Huaxin both agreed that the $
Sales under Indirect Supply Model
In
order to stabilize customer relationships and maintain long-term orders, we authorized two related parties - Shanghai Xinsen (“Customer
B”) and Hangzhou Xinsen (“Customer C”) as our distributors. The Company’s President, Ms. Xingxiu Hua, held
For
nine months ended September 30, 2024 and 2023, RLSP had indirect sales through Xinsen Group that were sold to two certified first-tier
suppliers of the Auto Manufacturers $
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Others
As
of September 30, 2024 and December 31, 2023,, the Company’s founder and officer funded the Company and RLSP in the total amount
of $
Note 8 – Shareholders’ Equity
RLSP
was established on July 8, 2019 with registered capital of $
From
May to July 2023, the Company issued shares of common stocks at $ per share pursuant to the private placements with ten individuals
for cash. The total $
Note 9 - Commitment and Contingencies
On
August 5, 2022, RLSP signed a Construction Engineering Contract (the “Project”) with Zhejiang Fengrong Construction Co.,
Ltd (a.k.a “Ningbo Rongsen”) to construct a factory and a new production line with an annual production capacity of up to
four million sets of automotive seals. The budget of the Project is around $
However,
a significant discrepancy emerged following a second evaluation by Kexin United Engineering Consulting Co., Ltd., which determined the
Project cost to be US $
On
March 21, 2024, RLSP filed a complaint against Ningbo Rongsen in the Ningbo Fenghua District People’s Court of China, challenging
the overvalued construction costs of our newly constructed factory. Concurrently with RLSP’s complaint, on March 25, 2024, Ningbo
Rongsen filed a counter-claim against RLSP with the Ningbo Fenghua District People’s Court demanding RLSP to pay full construction
costs, overdue penalty, attorney fees and other costs totalling US$
Our management maintains confidence in our legal standing and is actively pursuing a resolution that will be beneficial to us. As legal proceedings are subject to inherent uncertainties, we cannot predict the outcome of this matter at the time of filing this Quarterly Report.
| 20 |
Note 10 - Income Taxes
The
Company, RLI is a Nevada company and subject to the United States federal income tax at a tax rate of
For
the nine months ended September 30, 2024 and 2023, the provision for income taxes was $(
The table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for nine months ended September 30, 2024 and 2023:
Schedule of Federal Effective Tax Rate
| 2024 | 2023 | |||||||
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| U.S. federal income tax rate | % | % | ||||||
| Tax rate difference | % | % | ||||||
| Tax except | % | % | ||||||
| Nontaxable items | % | ( | )% | |||||
| GILTI tax | % | % | ||||||
| Others | % | % | ||||||
| Valuation allowance | ( | )% | ( | )% | ||||
| Effective tax rate | % | ( | )% | |||||
For U.S. income tax purposes, the Company has no cumulative undistributed earnings of foreign subsidiary as of September 30, 2024 after acquired RLSP on May 27, 2021. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted to the U.S. in the future.
In addition, the 2017 Tax Act also creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income (“GILTI”)) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. For the nine months ended September 30, 2024 and 2023, no GILTI tax expense was incurred.
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and considered that no provision for uncertainty in income taxes was necessary as of September 30, 2024.
Note 11 - Segment Reporting
We
realize revenue primarily through the sale of synthetic rubber, rubber compound, car window seals, auto parts with two sales channels.
The Company managed and reviewed its business as
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The business line distribution of the Company’s information as of and for nine months as well as three months ended September 30, 2024 and 2023 as following:
Schedule of Business Line Distribution
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenue: | ||||||||||||||||
| Direct supply model | $ | $ | $ | |||||||||||||
| Indirect supply model | ||||||||||||||||
| OEM supply model | ||||||||||||||||
| Total | ||||||||||||||||
| Revenue | ||||||||||||||||
| Gross profit: | ||||||||||||||||
| Direct supply model | % | % | % | ( | )% | |||||||||||
| Indirect supply model | ( | )% | ( | )% | ( | )% | ( | )% | ||||||||
| OEM supply model | ( | )% | % | ( | )% | |||||||||||
| Total | ( | )% | % | ( | )% | ( | )% | |||||||||
| Gross profit | ( | )% | % | ( | )% | ( | )% | |||||||||
| Income(loss) from operations: | ||||||||||||||||
| Direct supply model | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Indirect supply model | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OEM supply model | ( | ) | ( | ) | ||||||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | ( | ) | ( | ) | ( | ) | ( | |||||||||
| Income(loss) from operations | ( | ) | ( | ) | ( | ) | ( | |||||||||
| Net income(loss) | ||||||||||||||||
| Direct supply model | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Indirect supply model | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OEM supply model | ( | ) | ( | ) | ||||||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income(loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Reportable assets | ||||||||
| Direct supply model | $ | $ | ||||||
| Indirect supply model | ||||||||
| Corporate | ||||||||
| Total | $ | $ | ||||||
All long-term assets are managed under direct supply model by the chief operating decision maker.
Note 12 - Subsequent Events
The Company has evaluated all subsequent events through the date these condensed financial statements were issued and determine that there were no subsequent events or transactions that require recognition or disclosures in the condensed financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guarantee, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Overview
Rubber Leaf Inc was incorporated under the laws of the State of Nevada on May 18, 2021. We acquired Rubber Leaf Sealing Products (Zhejiang) Co., Ltd. on July 1, 2021, through an equity transfer between Rubber Leaf LLC and Rubber Leaf Inc. After the acquisition, RLSP became our 100% directly controlled subsidiary and wholly foreign-owned enterprise in China. Currently, all of our business is conducted through RLSP. RLSP was established in Fenghua, Ningo, China and commenced operations in July 2019. RLSP was a wholly-owned subsidiary of Rubber Leaf LLC, a Delaware company organized on June 1, 2018, and Xingxiu Hua was the sole member of Rubber Leaf LLC. RLSP specializes in the production and sales of automotive rubber and plastic sealing strips. We are a well-known auto parts enterprise, and we are also a first-tier supplier of well-known auto brands such as eGT and Volkswagen.
Our principal business address is located at Qixing Road, Weng’ao Industrial Zone, Chunhu Subdistrict, Fenghua District Ningbo, Zhejiang, China.
Components of Our Results of Operations
Sales Revenue
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.
| 23 |
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% ownership interest in Shanghai Xinsen and Shanghai Xinsen holds a 70% ownership interest in Hangzhou Xinsen. 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%. The Xinsen Group is a rubber product trading expert with 20 years of experience in the auto parts market, who charges 1% of the total sales amount before VAT tax as sales commission before September 30, 2022, and subsequently 0.25% effective from October 1, 2022 after the renegotiation between RLSP and Xinsen Group. The sales commission incurred in each period is recorded as part of selling expense of the Company. The Xinsen Group serves as a certified second-tier supplier for branded Automobile Manufacturers (“Auto Manufacturers”). A second-tier supplier refers to a supplier that provides products to the first-tier suppliers of the OEM. First-tier suppliers could be suppliers of car doors, rubber and plastic components and other automobile parts. Auto Manufacturers issue consolidated purchase orders for complete sets of rubber and plastic auto parts for a particular model to their first-tier suppliers. These first-tier suppliers subcontract the production of rubber and plastic seals to second-tier suppliers. As a second-tier supplier and a facilitator of production rather than a direct manufacturer, Xinsen Group coordinates with us to fulfill orders. Upon receipt of purchase orders, RLSP procures rubber materials from our vendors. The production process involves outsourcing to third-party manufacturers for either work-in-process products (“WIP”) or finished products, based on management’s decisions in response to operational circumstances.
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.
We also generate revenue through contract manufacturing model or OEM supply model, which is described in the model C.
Model C: OEM supply model
The contract manufacturing process begins with the customer placing an order and supplying all necessary raw materials. We provide the labor and equipment required to process the raw materials into finished products. The customer is charged a processing fee, which is calculated based on the cost per individual part and settled monthly. At the start of each month, we calculate the number of parts processed in the previous month, and both parties confirm the quantity by stamping the relevant documents. Once confirmed, we issue an invoice for the processing fee, and the customer makes payment upon receipt of the invoice.
Related Party Revenues
We also generate revenue through the indirect supply model. We process the purchase orders from our related parties, subcontract them to third party suppliers, who will produce and deliver the finished products to the final customers. Specifically, we either purchase raw materials and subcontract them for manufacturing or procure the products directly in the market to supply our customers, which depends on the specific requirements of the orders.
Cost of Revenues
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.
Selling Expense
Selling expense principally consist of costs associated with our sales force. Our main selling cost is the commission fee from indirect supply model sales.
General and Administrative Expense
General and administrative expenses include the expenses for commercial support personnel, personnel in executive and other administrative functions, other commercial costs necessary to support the commercial operation of our products, professional fees for legal, consulting and accounting services. General and administrative expenses also include depreciation and impairments of office furniture and equipment.
| 24 |
Interest Expense
Interest expense primarily consists of interest expense incurred under our Revolving Loan Agreement with banks, individual third parties, and minor bank service charges.
Income taxes
We are governed by the Income Tax Law of the PRC, and the United States. We account for income tax using the liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
Result of Operations
Comparison of the Three Months Ended on September 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended on September 30, 2024 and 2023:
| For three months ended on September 30, | ||||||||||||
| 2024 | 2023 | Changes | ||||||||||
| Sales | $ | 2,107 | $ | 143,424 | $ | (141,317 | ) | |||||
| Sales-related parties | 2,001,574 | 1,666,917 | 334,657 | |||||||||
| Total | 2,003,681 | 1,810,341 | 193,340 | |||||||||
| Cost of sales | 2,012,707 | 1,983,537 | 29,170 | |||||||||
| Cost of OEM | 9,317 | - | 9,317 | |||||||||
| Loss on factory relocation | 882 | - | 882 | |||||||||
| Loss on idle capacity | 161,902 | - | 161,902 | |||||||||
| Total cost of sales | 2,184,808 | 1,983,537 | 201,271 | |||||||||
| Gross profit (loss) | (181,127 | ) | (173,196 | ) | (7,931 | ) | ||||||
| Operating Expenses | ||||||||||||
| Selling expenses | 5,011 | 6,835 | (1,824 | ) | ||||||||
| General & administrative expenses | 213,632 | 124,130 | 89,502 | |||||||||
| Total operation expenses | 218,643 | 130,965 | 87,678 | |||||||||
| (Loss) income from operation | (399,770 | ) | (304,161 | ) | (95,609 | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest expense | (74,712 | ) | (56,762 | ) | (17,950 | ) | ||||||
| Other expense, net | (20 | ) | 7 | (27 | ) | |||||||
| Total other expenses, net | (74,732 | ) | (56,755 | ) | (17,977 | ) | ||||||
| Net loss before income taxes | (474,502 | ) | (360,916 | ) | (113,586 | ) | ||||||
| Income tax (benefit) expenses | (21 | ) | - | (21 | ) | |||||||
| Net loss | $ | (474,481 | ) | $ | (360,916 | ) | $ | (113,565 | ) | |||
| 25 |
Sales Revenue
Sales revenue for the three months ending on September 30, 2024 and 2023 amounted to $2,003,681 and $1,810,341, respectively, marking an increase of $0.19 million or 11% year over year. The increase was mainly attributed to the demand increase from the indirect supply model while there was a decrease in demand from the direct supply. During the three months ended September 30, 2024, RLSP introduced an OEM supply model, through which the customer places an order with us and sends over all raw materials. We provide the labor and equipment to process the finished product.
RLSP initiated the relocation of its factory to our newly constructed facility in early August 2023 and subsequently obtained the property title certificate in December 2023. As of September 2024, production under the direct supply model had not yet resumed at the new factory. The Company received its production license certificate from the government on June 6, 2024, and planned to arrange an inspection by eGT, which was expected to take approximately 2-3 months to complete. However, the profitability of exports to Europe has been impacted by the recently imposed EU tariffs on cars produced in China. As a result, eGT’s headquarters in France is still in negotiations with its Chinese counterpart regarding the orders and tariffs. These ongoing inter-company discussions have led to further delays in both the inspection process by eGT and order processing, with no orders resumed as of the third quarter of 2024.
Cost of Sales
Cost of sales were $2,184,808 and $1,983,537 for the three months ended September 30, 2024 and 2023, respectively, an increase of $0.2 million, or 10% year over year. RLSP suspended production in July 2023 and resumed operations in July 2024. Although RLSP initiated an OEM supply model upon resuming in July 2024, overall production capacity has not been fully utilized, resulting in an idle capacity loss of $161,902 for the three months ending September 30, 2024.
If the loss on idle capacity is not considered, our cost of sales increased by $39,369 for the three months ended on September 30, 2024 compared with the same quarter last year, which was mainly due to the increased cost of OEM supply model as well as the overall cost of indirect supply model.
Gross profit (loss)
Gross profit (loss) were $(181,127) and $(173,196) for the three months ended on September 30, 2024 and 2023, respectively. Our revenue and gross profit margin were presented as below:
For the three months ended September 30, | ||||||||||||
| 2024 | 2023 | changes | ||||||||||
| Revenue: | ||||||||||||
| Direct supply model | $ | - | $ | 30,663 | $ | (30,663 | ) | |||||
| Indirect supply model | 2,001,574 | 1,779,678 | 221,896 | |||||||||
| OEM supply model | 2,107 | - | 2,107 | |||||||||
| Total | 2,003,681 | 1,810,341 | 193,340 | |||||||||
| Gross profit margin: | ||||||||||||
| Direct supply model | - | % | (417 | )% | (417 | )% | ||||||
| Indirect supply model | (1 | )% | (3 | )% | 2 | % | ||||||
| OEM supply model | (342 | )% | - | (342 | )% | |||||||
| Total | (9 | )% | (10 | )% | 1 | % | ||||||
The overall gross profit margin remained stable for the three months ended September 30, 2024, compared to the same period in 2023. The gross margin for indirect supply models showed a slight increase, primarily due to reduced purchase costs in these sales compared to the previous year. Since RLSP only began its OEM supply model in July 2024, production has yet to scale up due to limited customer orders.
Selling expenses
Selling expenses were $5,011 and $6,835 for the three months ended September 30, 2024 and 2023, respectively, with a decrease of 1,824 or 27 % year over year. The decrease was mainly associated with the decrease in sales in our direct supply model.
General and administrative cost
General and administrative expenses were $213,632 and $124,130 for the three months ended September 30, 2024 and 2023, respectively, increased by $89,502, or 72% year over year. The increase was primarily attributed to the rise in professional service fees during the three months ended September 30, 2024, stemming from the Company’s application for uplisting to The Nasdaq Capital Market.
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(Loss) income from Operations
For the three months ended September 30, 2024 and 2023, loss from operations was $(399,770) and $(304,161), a decrease of $95,609 or 31% year over year. The decrease in loss from operations was primarily due to the decrease in sales from our direct sales model client, eGT and loss due to idle capacity for three months ended September 30, 2024 compared to the corresponding period of 2023.
Net loss
As a result of the factors described above, our net loss was $(474,481) for the three months ended September 30, 2024, decreased by $113,565 from the net loss of $(360,916) for the three months ended September 30, 2023.
Comparison of the Nine Months Ended on September 30, 2024 and 2023
The following table summarizes our results of operations for the nine months ended on September 30, 2024 and 2023:
| For nine months ended on September 30, | ||||||||||||
| 2024 | 2023 | Changes | ||||||||||
| Sales | $ | 2,107 | $ | 1,363,906 | $ | (1,361,799 | ) | |||||
| Sales-related parties | 6,913,939 | 4,901,355 | 2,012,584 | |||||||||
| Total | 6,916,046 | 6,265,261 | 650,785 | |||||||||
| Cost of sales | 6,921,186 | 6,137,529 | 783,657 | |||||||||
| Cost of OEM | 9,317 | - | 9,317 | |||||||||
| Loss on factory relocation | 359,549 | - | 359,549 | |||||||||
| Loss on idle capacity | 161,903 | - | 161,903 | |||||||||
| Total cost of sales | 7,451,955 | 6,137,529 | 1,314,426 | |||||||||
| Gross profit (loss) | (535,909 | ) | 127,732 | (663,641 | ) | |||||||
| Operating Expenses | ||||||||||||
| Selling expenses | 20,311 | 66,670 | (46,359 | ) | ||||||||
| General & administrative expenses | 929,165 | 487,512 | 441,653 | |||||||||
| Total operation expenses | 949,476 | 554,182 | 395,294 | |||||||||
| Loss from operation | (1,485,385 | ) | (426,450 | ) | (1,058,935 | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest expense | (288,385 | ) | (161,216 | ) | (127,169 | ) | ||||||
| Other (expense) income, net | (8,021 | ) | 11,832 | (19,853 | ) | |||||||
| Total other expenses, net | (296,406 | ) | (149,384 | ) | (147,022 | ) | ||||||
| Net Income(loss) before income taxes | (1,781,791 | ) | (575,834 | ) | (1,205,957 | ) | ||||||
| Income tax (benefit) expenses | (8,608 | ) | 15,695 | (24,303 | ) | |||||||
| Net loss | $ | (1,773,183 | ) | $ | (591,529 | ) | $ | (1,181,654 | ) | |||
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Sales Revenue
Sales revenue were $6,916,046 and $6,265,261 for the nine months ended on September 30, 2024 and 2023, respectively, an increase of $0.65 million or 10 % year over year. The increase was mainly attributed to the demand increase from the indirect supply model while there was a decrease in demand from the direct supply model. As of September 2024, production under the direct supply model had not yet resumed at the new factory. The Company received its production license certificate from the government on June 6, 2024, and planned to arrange an inspection by eGT, which was expected to take approximately 2-3 months to complete. However, the profitability of exports to Europe has been impacted by the recently imposed EU tariffs on cars produced in China. As a result, eGT’s headquarters in France is still in negotiations with its Chinese counterpart regarding the orders and tariffs. These ongoing inter-company discussions have led to further delays in both the inspection process by eGT and order processing, with no orders resumed as of the third quarter of 2024. In July 2024, RLSP adjusted its business strategy and introduced an OEC supply model, which is expected to generate revenue for the Company in 2024.
Cost of Sales
Cost of sales were $7,451,955 and $6,137,529 for the nine months ended on September 30, 2024 and 2023, respectively, an increase of $1.34 million, or 21% year over year. The increase was accompanied by increasing sales in the corresponding period. Besides, RLSP suspended production in July 2023 and resumed operations in July 2024, which resulted in the loss of factory relocation of $359,549 during the nine months ended September 30, 2024. Although RLSP initiated an OEM supply model upon resuming in July 2024, overall production capacity has not been fully utilized, resulting in an idle capacity loss of $161,903 for the nine months ending September 30, 2024.
Gross profit (loss)
Gross profit (loss) were $(535,909) and $127,732 for the nine months ended on September 30, 2024 and 2023, respectively. Our revenue and gross profit margin were presented as below:
| For the nine months ended on September 30 | ||||||||||||
| 2024 | 2023 | changes | ||||||||||
| Revenue: | ||||||||||||
| Direct supply model | $ | - | 1,250,979 | (1,250,979 | ) | |||||||
| Indirect supply model | 6,913,939 | 5,014,282 | 1,899,657 | |||||||||
| OEM supply model | 2,107 | - | 2,107 | |||||||||
| Total | 6,916,046 | 6,265,261 | 650,785 | |||||||||
| Gross profit margin: | ||||||||||||
| Direct supply model | - | % | 13 | % | (13 | )% | ||||||
| Indirect supply model | (1 | )% | (1 | )% | - | % | ||||||
| OEM supply model | (342 | )% | - | (342 | )% | |||||||
| Total | (8 | )% | 2 | % | (10 | )% | ||||||
The decrease in our overall gross profit margin, compared with the nine months ended September 30, 2024 and 2023, was mainly attributed to the Company generating less sales from its direct supply model which has a higher gross profit margin as the Company has suspended its direct supply model production since July 2023. Since RLSP only began its OEM supply model in July 2024, production has yet to scale up due to limited customer orders, which leads to a low gross profit margin.
Selling expenses
Selling expenses were $20,311 and $66,670 for nine months ended on September 30, 2024 and 2023 respectively, with a decrease of 46,356 or 70% year over year. The decrease was mainly associated with the decrease in sales in the Company’s direct supply model.
General and administrative cost
General and administrative expenses were $929,165 and $487,512 for the nine months ended on September 30, 2024 and 2023, respectively, increased by $441,653, or 91% year over year. The increase was primarily attributed to the rise in professional service fees during the nine months ended on September 30, 2024, stemming from the Company’s application for uplisting to The Nasdaq Capital Market.
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Loss from Operations
For the nine months ended on September 30, 2024, loss from operations was $(1,485,385), as compared to loss from operations of $(426,450) for the nine months ended on September 30, 2023, a decrease of $1,058,935 or 248% year over year. The decrease in income from operations was primarily due to the decrease in sales from our direct sales model client, eGT and loss due to factory relocation and idle capacity for the nine months ended September 30, 2024.
Net Loss
As a result of the factors described above, our net loss was $(1,773,183) for the nine months ended on September 30, 2024, decreased by $1,181,654 from the net loss of $(591,529) for the nine months ended on September 30,2023.
Liquidity and Capital Resources
As of September 30, 2024, we had an accumulated deficit of $(4,991,084). As of September 30, 2024, we had cash of $28,618 and negative working capital of $(12,730,616), compared to cash of $41,687 and a negative working capital of $(11,300,145) on December 31, 2023. The decrease in the working capital was primarily due to the decrease in accounts receivable from a related party of the Company.
On March 25, 2024, RLSP secured approval for a line of credit (“LOC”) from the Industrial and Commercial Bank of China, Ningbo National Gaoxin Branch, with a total amount of $7.75 million (RMB 56 million). RLSP used its new factory building and land use right located at Qixing Road, Weng’ao Industrial Zone, Chunhu Subdistrict, Fenghua District, Ningbo, Zhejiang, China as collateral pledged for this LOC. The LOC can be utilized through separate loans and has a term of two years. As of November 5, 2024, RLSP still has RMB 26 million available to apply for using from the LOC.
Cash Flow
Cash Flow Activities
Cash decreased from $41,687 at December 31, 2023, to $28,618 at September 30, 2024, decreased by $13,069 or 31%. The decrease was primarily due to the increased cash used in operating activities for the nine months ended September 30, 2024.
As of September 30, 2024, our total current assets amounted to $10,359,731, compared to $8,775,183 as of December 31, 2023. Concurrently, our total current liabilities stood at $23,090,347, a slight increase from $20,075,328 as of December 31, 2023.
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was $(2,233,478), compared to $147,597in the prior period, primarily driven by increased net loss and accounts receivable from related parties for the nine months ended September 30, 2024.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 was $(236,222) compared to $(2,364,359) in the prior period. The decrease was primarily attributable to the decreased purchase of equipment and factory construction.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $2,455,798 compared to cash provided by financing activities of $985,496 in the prior period. The increase was primarily attributable to the increased new borrowings for the nine months ended September 30, 2024.
Critical Accounting Policies
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires making estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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The critical accounting policies are discussed in further detail in the notes to the unaudited financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the SEC, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls are also designed with an objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and President, in order to allow timely consideration regarding required disclosures.
The evaluation of our disclosure controls by our principal executive officer included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this report. Our management, including our Chief Executive Officer and President, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and President and Chief Financial Officer have concluded that there were material weakness in our internal controls over financial reporting as of September 30, 2024 and they were therefore not as effective as they could be to ensure that information required to be disclosed by us in 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. The material weakness in our controls and procedure were lack of U.S. generally accepted accounting principles (GAAP) knowledge and segregation duties. Management does not believe that any of these material weaknesses materially affected the results and accuracy of its financial statements. However, in view of this discovery of such weaknesses, management has begun a review to improve them.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, claims are made against us in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties, or injunctions prohibiting us from selling one or more products or engaging in other activities. There were no reportable litigation events and there have been no material developments to litigation events previously disclosed in our SEC filings during the quarter ended September 30, 2024 except as described below.
On August 5, 2022, RLSP signed a Construction Engineering Contract (the “Project”) with Zhejiang Fengrong Construction Co., Ltd (a.k.a “Ningbo Rongsen”) to construct a factory and a new production line with an annual production capacity of up to four million sets of automotive seals. The budget of the Project is around $4,931,105 (RMB 35 million), and the Project was completed on October 25, 2023. As of December 31, 2023, RLSP has paid Ningbo Rongsen a total of $2,395,142 (RMB 17 million) for the Project. The Project was subsequently audited by Ningbo Zhongxin Engineering Management Co., Ltd., which initially appraised the Project at US $6,519,991 (RMB 46,277,593). Based on this appraisal, RLSP signed a Settlement Payment Agreement with Ningbo Rongsen on January 7, 2024, setting the final settlement price at US $7,171,990 (RMB 50,905,352).
However, a significant discrepancy emerged following a second evaluation by Kexin United Engineering Consulting Co., Ltd., which determined the Project cost to be US $5,221,922 (RMB 37,064,159), indicating a discrepancy of 26.32% compared to the price in the Settlement Payment Agreement. Citing a major misunderstanding influenced by the initial overvaluation, RLSP seeks legal action to revoke the Settlement Payment Agreement, in accordance with Article 147 of the Civil Code of the People’s Republic of China, which allows for the revocation under significant misunderstanding.
On March 21, 2024, RLSP filed a complaint against Ningbo Rongsen in the Ningbo Fenghua District People’s Court of China, challenging the overvalued construction costs of our newly constructed factory. Concurrently with RLSP’s complaint, on March 25, 2024, Ningbo Rongsen filed a counter-claim against RLSP with the Ningbo Fenghua District People’s Court demanding RLSP to pay full construction costs, overdue penalty, attorney fees and other costs totalling US$7,163,361 (RMB50,844,103.89) in accordance with the Settlement Payment Agreement. The Ningbo Fenghua District People’s Court accepted the above filings in connection with RLSP’s complaint and Ningbo Rongsen’s counter-claim on May 9, 2024 and assigned a case number being (2024) Zhejiang 0213 Minchu No. 2289. Subsequently, on July 26, 2024, the court ruled in favor of Ningbo Rongsen, ordering RLSP to pay full construction costs, overdue penalty, attorney fees and other costs in accordance with the Settlement Payment Agreement. On August 9, 2024, RLSP appealed to the Ningbo Intermediate People’s Court, requesting the revocation of the civil court judgement in case number (2024) Zhejiang 0213 Minchu No. 2289. RLSP seeks either a remand of the case for retrial or a revised judgement that supports its claims and rejects the counter-claim filed by Ningbo Rongsen.
In May 2024, RLSP received a Notice of Legal Action from Taicang People’s Court of China, with RLSP being the co-defendants under a goods purchase contract dispute with case number (2024)SU0585 Minchu No. 3400. This lawsuit was initiated by Hecheng Special Rubber (Taicang) Co., Ltd. (“Taicang Hecheng”), claiming that RSLP and Yongliansen, acting as co-buyers, have purchased EPDM rubber from Taicang Hecheng since April 2023 but failed to pay purchase price for an aggregate amount of US$132,836.92 (RMB942,849.86). Taicang Hecheng therefore filed a complaint against RSLP and Yongliansen for the outstanding purchase price and the late payment fee.
Our management maintains confidence in our legal standing and is actively pursuing a resolution that will be beneficial to us. As legal proceedings are subject to inherent uncertainties, we cannot predict the outcome of this matter at the time of filing this Quarterly Report on Form 10-Q.
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Item 1A. Risk Factors.
As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(A) Unregistered Sales of Equity Securities
None.
(B) Use of Proceeds
Not applicable.
(C) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During
the quarter ended September 30, 2024, no director or officer
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14 and Rule 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 and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of Chief Executive Officer and President 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* | Inline Interactive Data Files | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Schema Document | |
| 101.CAL* | Inline XBRL Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Label Linkbase Document | |
| 101.PRE* | Inline XBRL Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith and not to be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor incorporated by reference into any filing of Rubber Leaf Inc under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date of this report.
| 32 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RUBBER LEAF INC | |
| Date: November 14, 2024 | /s/ Xingxiu Hua |
| Xingxiu Hua, Chief Executive Officer | |
| Date: November 14, 2024 | /s/ Hua Wang |
| Hua Wang, Chief Financial Officer |
| 33 |
EXHIBIT 31.1
CERTIFICATION
I, Xingxiu Hua, certify that:
| 1. | I have reviewed this report on Form 10-Q of Rubber Leaf Inc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Xingxiu Hua | |
| Xingxiu Hua | |
Chief Executive Officer and President (Principal Executive Officer) | |
| November 14, 2024 |
EXHIBIT 31.2
CERTIFICATION
I, Hua Wang, certify that:
| 1. | I have reviewed this report on Form 10-Q of Rubber Leaf Inc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Hua Wang | |
| Hua Wang | |
Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) | |
| November 14, 2024 |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Rubber Leaf Inc (the “Company”) on Form 10-Q for the period ending September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Xingxiu Hua | |
| Xingxiu Hua | |
Chief Executive Officer and President (Principal Executive Officer) | |
| November 14, 2024 | |
| /s/ Hua Wang | |
| Hua Wang | |
Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) | |
| November 14, 2024 |