RETO 20-F
ReTo Eco-Solutions, Inc. (RETO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR
For
the Fiscal Year Ended
OR
OR
Date of event requiring this shell company report _________
For the transition period from _________ to __________
Commission
file number
(Exact Name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Email:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered
by the annual report: as of December 31, 2025,
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐ Yes
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued | Other ☐ | |
| By the International Accounting Standards Board ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
Table of Contents
i
CERTAIN TERMS AND CONVENTIONS
Except where the context otherwise requires and for purposes of this annual report on Form 20-F only:
| ● | “Act” refers to The BVI Business Companies Act, 2004 (as amended); | |
| ● | “Beijing REIT” refers to Beijing REIT Technology Development Co., Ltd., a PRC limited liability company and a wholly owned subsidiary of REIT Holdings (China) Limited prior to the December 2024 Divestiture (defined below); |
| ● | “BVI” refers to the British Virgin Islands; |
| ● | “China” or the “PRC” refers to the People’s Republic of China and the term “Chinese” has a correlative meaning for the purpose of this annual report; | |
| ● | “Class A Shares” refers to Class A shares, no par value, of ReTo (defined below); | |
| ● | “Class B Shares” refers to Class B shares, par value US$0.01 each, of ReTo (defined below); | |
| ● | “common share” refers to common shares issued in ReTo prior to the 2024 Share Redesignation (defined below); |
| ● | “CSRC” refers to the China Securities Regulatory Commission; | |
| ● | “December 2024 Divestiture” refers to the Company’s sale of all of its shares in REIT Holdings (China) Limited to a certain buyer on December 31, 2024; | |
| ● | “Dirong” refers to Shenzhen Dirong Century Big Data Technology Co., Ltd., a PRC limited liability company and 100% controlled by MMB HK; | |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; | |
| ● | “FINRA” refers to the Financial Industry Regulatory Authority, Inc.; |
| ● | “Hong Kong” refers to the Hong Kong Special Administrative Region of the PRC; | |
| ● | “Honghe ReTo” refers to Honghe ReTo Ecological Technology Co., Ltd., a PRC limited liability company and a wholly owned subsidiary of ReTo Hengda (defined below); | |
| ● | “JOBS Act” refers to the Jumpstart Our Business Startups Act, enacted in April 2012; |
| ● | “M&A” refers to the Memorandum and Articles of Association of ReTo currently in effect, as further amended and/or amended and restated from time to time; |
| ● | “Macau” refers to the Macao Special Administrative Region of the PRC; | |
| ● | “MeinMalzeBier” or “MMB” refers to MeinMalzeBier Holdings Limited, a BVI business company, company number 2164603, in which ReTo holds a 51% ownership interest; | |
| ● | “Shenzhen MMB” refers to Shenzhen MeinMalzeBier Catering Management Co., Ltd., a PRC limited liability company and 100% controlled by MMB HK; | |
| ● | “MMB HK” refers to MeinMalze Bier Global Limited, a Hong Kong limited company and 100% controlled by MMB; |
ii
| ● | “mainland China” refers to the People’s Republic of China, excluding, for the purpose of this annual report, Taiwan, Hong Kong and Macau; | |
| ● | “MOFCOM” refers to China’s Ministry of Commerce; | |
| ● | “New REIT” refers to New REIT International Co., Limited, a Hong Kong limited company and a wholly owned subsidiary of ReTo; | |
| ● | “PCAOB” refers to the Public Company Accounting Oversight Board of the United States; | |
| ● | “PRC subsidiaries” refers to the Company’s subsidiaries that were incorporated in mainland China; |
| ● | “REIT Equipment” refers to Beijing REIT Equipment Technology Co., Ltd. (formerly known as Beijing REIT Ecological Engineering Technology Co., Ltd. until August 9, 2023), a PRC limited liability company and a wholly owned subsidiary of ReTo Hengda (defined below); |
| ● | “REIT Holdings” refers to REIT Holdings (China) Limited, a Hong Kong limited company and a wholly owned subsidiary of ReTo prior to the December 2024 Divestiture; |
| ● | “REIT Ordos” Refers to REIT Ecological Technology Co., Ltd., a PRC limited liability company and a wholly owned subsidiary of REIT Holdings prior to the December 2024 Divestiture; |
| ● | “REIT Technology” refers to REIT Technology Development Co., Ltd., a PRC limited liability company and a wholly owned subsidiary of REIT Holdings prior to the December 2024 Divestiture; |
| ● | “Renminbi” or “RMB” refers to the legal currency of the People’s Republic of China; |
| ● | “ReTo” refers to ReTo Eco-Solutions, Inc., a BVI business company (registered in the BVI with company number 1885527); | |
| ● | “ReTo Hengda” refers to Beijing ReTo Hengda Technology Co., Ltd. (formerly known as Sunoro Hengda (Beijing) Technology Co., Ltd. until April 8, 2025), a PRC limited liability company and a wholly owned subsidiary of Sunoro Holdings (defined below); | |
| ● | “ReTo Hengye” refers to Beijing ReTo Hengye Technology Co., Ltd. (formerly known as Senrui Bochuang (Beijing) Technology Co., Ltd. until April 10, 2025), a PRC limited liability company and a wholly owned subsidiary of ReTo Hengda; | |
| ● | “ReTo Global” refers to ReTo Global Holdings, a BVI business company, company number 2183423, and a wholly owned subsidiary of ReTo; | |
| ● | “ReTo Xincheng” refers to Beijing ReTo Xincheng Technology Co., Ltd., a PRC limited liability company and 100% controlled by ReTo Hengye; | |
| ● | “SAFE” refers to China’s State Administration of Foreign Exchange; | |
| ● | “SEC” refers to the U.S. Securities and Exchange Commission; | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; | |
| ● | “Shares” refers to Class A Shares and Class B Shares, collectively; | |
| ● | “Sunoro Holdings” refers to Sunoro Holdings Limited, a Hong Kong limited company and a wholly owned subsidiary of ReTo; |
iii
| ● | “U.S. dollars,” “US$” and “$” refer to the legal currency of the United States; |
| ● | “We,” “us,” “our,” or the “Company” refers to ReTo Eco-Solutions, Inc. and its subsidiaries, unless the context requires otherwise; and | |
| ● | “Zhangjiakou ReTo” refers to Zhangjiakou ReTo Intelligent Equipment Manufacturing Co., Ltd., a PRC limited liability company and a wholly owned subsidiary of REIT Equipment. |
For the sake of clarity, this annual report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our chief executive officer will be presented as “Xinyang Li,” even though, in Chinese, his name would be presented as “Li Xinyang.”
Our reporting and functional currency is the Renminbi. Solely for the convenience of the reader, this annual report contains translations of some RMB amounts into U.S. dollars, at specified rates. Except as otherwise stated in this annual report, all translations from RMB to U.S. dollars are made at RMB6.9931 to US$1.00, the rate published by the Federal Reserve Board on December 31, 2025. No representation is made that the RMB amounts referred to in this annual report could have been or could be converted into U.S. dollars at such rate.
Except as otherwise stated in this annual report, all numbers of our Shares and related data have been updated to reflect the 10-for-1 share combination effective May 15, 2023 (the “2023 Share Combination”), the 10-for-1 share combination effective March 1, 2024 (the “2024 Share Combination”), and the 10-for-1 share combination effective March 7, 2025 and the 5-for-1 share combination effective November 3, 2025 (collectively, the “2025 Share Combination”). On August 8, 2024, we (a) redesignated the existing common shares, par value US$0.10 each, as Class A Shares with the same rights as the existing common shares (the “2024 Share Redesignation”) and (b) created an additional 2,000,000 shares each to be designated as Class B Shares, with each share to entitle the holder thereof to 1,000 votes but with transfer restrictions, pre-emption rights and no right to any dividend or distribution of the surplus assets on liquidation. On May 12, 2025, our board of directors approved to amend and restate our M&A to adjust the par value of its existing Class A Shares from “par value $1.00 each” to “no par value.” On May 13, 2025, we filed the amended and restated M&A to reflect this adjustment with the British Virgin Islands Registrar of Corporate Affairs.
Our fiscal year end is December 31. References to a particular “fiscal year” are to our fiscal year ended December 31 of that calendar year.
Due to rounding, numbers presented throughout this annual report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products. This annual report may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this annual report is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this annual report or the documents incorporated by reference herein are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
iv
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements are made under the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements contained in this annual report 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. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements include statements relating to:
| ● | the potential impact on our business of the economic, political and social conditions of the PRC; | |
| ● | any changes in the laws of the PRC or local province that may affect our operations; | |
| ● | our ability to operate as a going concern; | |
| ● | the liquidity of our securities; | |
| ● | inflation and fluctuations in foreign currency exchange rates; | |
| ● | our expansion into new businesses, industries or international markets, and undertaking of mergers, acquisitions, investments or divestments; | |
| ● | the ability to realize benefits of the acquisition of MeinMalzeBier and integrate and expand its businesses into our existing business and grow and manage growth profitably; | |
| ● | the ability to navigate geographic market risks of our products; | |
| ● | the ability to maintain a reserve for warranty or defective products and installation claims; | |
| ● | our on-going ability to obtain all mandatory and voluntary government and other industry certifications, approvals, and/or licenses to conduct our business; | |
| ● | our ability to maintain effective supply chain of raw materials and our products; | |
| ● | slowdown or contraction in industries in China in which we operate; | |
| ● | our ability to maintain or increase our market share in the competitive markets in which we do business; | |
| ● | our ability to diversify our product and service offerings and capture new market opportunities; | |
| ● | our estimates of expenses, capital requirements and needs for additional financing and our ability to fund our current and future operations; | |
| ● | the costs we may incur in the future from complying with current and future laws and regulations and the impact of any changes in the regulations on our operations; and | |
| ● | the loss of key members of our senior management. |
v
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Item 3. Key Information — D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects,” and elsewhere in this annual report. Moreover, we operate in a very competitive and rapidly changing environment. 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. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this annual report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this annual report or to conform these statements to actual results or revised expectations.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
vi
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Holding Company Structure
ReTo Eco-Solutions, Inc. (“ReTo,” collectively with its consolidated subsidiaries, the “Company,” “we,” “us,” “our” or similar terminology) is a holding company and a business company incorporated in the British Virgin Islands (the “BVI”) with no material operations of its own. We conduct substantially all of our operations through our subsidiaries established in mainland China. Our equity structure is a direct holding structure, that is, ReTo, the BVI entity listed in the U.S., controls New REIT, ReTo Global, Sunoro Holdings and MeinMalzeBier, and their respective PRC operating entities. See “Item 4. Information on the Company—A. History and development of the company” for more details.
We face various risks and uncertainties relating to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our Class A Shares, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
The PRC government’s significant discretion and authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of our securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China— The PRC government’s significant oversight and discretion over the conduct of our business and may intervene or influence our operations at any time which could result in a material adverse change in our operation and/or the value of our Class A Shares.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and cause our Class A Shares to decrease in value or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China— There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. The rules and regulations in China can change quickly with little advance notice and uncertainties in the interpretation and enforcement of PRC laws, rules and regulations could limit the legal protections available to you and us.”
1
Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries
For the fiscal years ended December 31, 2025, 2024 and 2023, funds equivalent to approximately $2.7 million, $29.4 million and $0.1 million, respectively, were provided to the PRC subsidiaries as shareholder loans, which were accounted as loan receivable from the respective PRC subsidiary. These funds have been used by the Company’s PRC subsidiaries for their operations.
As of the date of this annual report, there have not been any dividends or other distributions from our subsidiaries. ReTo, as a BVI holding company, may rely on dividends and other distributions on equity paid by its PRC subsidiaries for its cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to its shareholders, subject to ReTo’s M&A and the Act or to service any expenses and other obligations it may incur.
Within our direct holding structure, the cross-border transfer of funds from ReTo to its PRC subsidiaries is permitted under laws and regulations of the PRC currently in effect. Specifically, ReTo is permitted to provide funding to its PRC subsidiaries in the form of shareholder loans or capital contributions, subject to satisfaction of applicable government registration, approval and filing requirements in China. There are no quantity limits on ReTo’s ability to make capital contributions to its PRC subsidiaries under the PRC law and regulations. However, the PRC subsidiaries may only procure shareholder loans from Sunoro Holdings in an amount equal to the difference between their respective registered capital and total investment amount as recorded in the Chinese Foreign Investment Comprehensive Management Information System or 3.5 times of its net assets, at the discretion of such PRC subsidiary.
For additional information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China — PRC regulation on loans to, and direct investment in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our offerings to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
Subject to the passive foreign investment company rules, the requirements of ReTo’s M&A and the Act, the gross amount of any distribution that we make to investors with respect to our securities (including any amounts withheld to reflect PRC withholding taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Any proposed dividend would be subject to ReTo’s M&A and the Act; specifically, ReTo may only pay a dividend if ReTo’s directors are satisfied, on reasonable grounds, that, immediately after the dividend is paid, the value of its assets will exceed its liabilities and it will be able to pay its debts as they fall due.
The PRC Enterprise Income Tax Law (the “EIT Law”) and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiaries from our PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.
2
We maintain bank accounts in China, including cash in Renminbi in the amount of approximately RMB347,000 and cash in USD in the amount of approximately US$0.2 million as of December 31, 2025. Funds are transferred between ReTo and its subsidiaries for their daily operation purposes. The transfer of funds between our PRC subsidiaries are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2020 Second Revision, the “Provisions on Private Lending Cases”), which was implemented on January 1, 2021 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. The Provisions on Private Lending Cases set forth that private lending contracts will be upheld as invalid under the circumstance that (i) the lender swindles loans from financial institutions for relending; (ii) the lender relends the funds obtained by means of a loan from another profit-making legal person, raising funds from its employees, illegally taking deposits from the public; (iii) the lender who has not obtained the lending qualification according to the law lends money to any unspecified object of the society for the purpose of making profits; (iv) the lender lends funds to a borrower when the lender knows or should have known that the borrower intended to use the borrowed funds for illegal or criminal purposes; (v) the lending is in violation of public orders or good morals; or (vi) the lending is in violation of mandatory provisions of laws or administrative regulations. We have relied on the opinion of our PRC counsel, Yuan Tai Law Offices, that the Provisions on Private Lending Cases does not prohibit using cash generated from one subsidiary to fund another subsidiary’s operations. We have not been notified of any other restriction which could limit our PRC subsidiaries’ ability to transfer cash between subsidiaries. We have adopted certain cash management policies that dictate the internal approval process on transferring funds between our holding company and our subsidiaries. Such policies dictate the purpose, amount and procedure of cash transfers. Each transfer of cash among our subsidiaries is subject to internal approvals from at least two manager-level personnel, with required procedures including submitting supporting documentation (such as payment receipts or invoices), responsible personnel reviewing the documentation, and executing the payment. A single employee is not allowed to complete each and every stage of a cash transfer, but rather only specific parts of the whole procedure.
There is no assurance that the PRC government will not intervene or impose restrictions on the ability of us or our subsidiaries to transfer cash. Most of our cash is in Renminbi, and the PRC government could prevent the cash maintained in our bank accounts in mainland China from leaving mainland China, could restrict deployment of the cash into the business of our subsidiaries and restrict the ability to pay dividends. For details regarding the restrictions on our ability to transfer cash between us, and our subsidiaries, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China — The PRC government could prevent the cash maintained in our bank accounts in mainland China from leaving mainland China, restrict deployment of the cash into the business of its subsidiaries and restrict the ability to pay dividends to U.S. investors, which could materially adversely affect our operations.” We currently do not have cash management policies that dictate how funds are transferred between our BVI holding company and our subsidiaries.
Restrictions on Our Ability to Transfer Cash Out of China and to U.S. Investors
Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, under PRC law, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. These reserves are not distributable as cash dividends. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to ReTo.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of mainland China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any.
3
Effect of The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act (the “HFCAA”), which was signed into law on December 18, 2020, requires a foreign company to submit that it is not owned or manipulated by a foreign government or disclose the ownership of governmental entities and certain additional information, if the PCAOB is unable to inspect completely a foreign auditor that signs the company’s financial statements. If the PCAOB is unable to inspect the Company’s auditors for three consecutive years, the Company’s securities will be prohibited from trading on a national exchange.
On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA. Such final rules establish procedures that the SEC will follow in (i) determining whether a registrant is a “Commission-Identified Issuer” (a registrant identified by the SEC as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction) and (ii) prohibiting the trading of an issuer that is a Commission-Identified Issuer for three consecutive years under the HFCAA. The SEC began identifying Commission-Identified Issuers for the fiscal years beginning after December 18, 2020. A Commission-Identified Issuer is required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended, for example, September 30, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended September 30, 2022.
On December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in mainland China or Hong Kong. This list did not include YCM CPA INC., our current auditor. Our auditor, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and MOF, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong without any limitations on scope. However, uncertainties exist with respect to the implementation of this framework and there is no assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies the Statement of Protocol. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditor. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate was due to a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.
These developments could add uncertainties to the trading of our securities, including the possibility that the SEC may prohibit trading in our securities if the PCAOB cannot fully inspect or investigate our auditor and we fail to appoint a new auditor that is accessible to the PCAOB and that Nasdaq can delist our Class A Shares.
If it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investors may be deprived of the benefits of such inspection. Any audit reports not issued by auditors that are completely inspected by the PCAOB, or a lack of PCAOB inspections of audit work undertaken in China that prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures, could result in a lack of assurance that our financial statements and disclosures are adequate and accurate, then such lack of inspection could cause our securities to be delisted from the stock exchange.
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For details on the effects of HFCAA on us, see “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Our Class A Shares may be delisted under the HFCAA if the PCAOB is unable to inspect our auditor. The delisting of our Class A Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Regulatory Permissions and Developments
We have been advised by our PRC Counsel, Yuan Tai Law Offices, that pursuant to the relevant laws and regulations in China, none of our PRC subsidiaries’ currently engaged business is stipulated on the Special Administrative Measures for the Access of Foreign Investment (Negative List) promulgated by the Ministry of Commerce (the “MOFCOM”) and the National Development and Reform Commission of the People’s Republic of China (“NDRC”) which the latest version entered into force on November 1, 2024 (2024 Version). Therefore, our PRC subsidiaries are able to conduct their business without being subject to restrictions imposed by the foreign investment laws and regulations of the PRC.
Currently, none of our PRC subsidiaries is required to obtain additional licenses or permits beyond a regular business license for their operations currently being conducted. Each of our PRC subsidiaries is required to obtain a regular business license from the local branch of the State Administration for Market Regulation (“SAMR”). Each of our PRC subsidiaries has obtained a valid business license for its respective business scope, and no application for any such license has been denied.
As of the date of this annual report, neither ReTo nor any of its PRC subsidiaries is subject to permission requirements from the CSRC, the Cyberspace Administration of China (the “CAC”) or any other entity that is required to approve of their respective operations. Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement.
Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”) and Anti-Monopoly Law of the People’s Republic of China promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”) which became effective in 2008 and amended and put into effect as from August 1, 2022 (the “Anti-Monopoly Law”), established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators, issued by the State Council in 2008 and amended on September 19, 2018, are triggered. Moreover, the Anti-Monopoly Law requires that transactions which involve the national security, the examination on the national security shall also be conducted according to the relevant provisions of the State Council. In addition, the PRC Measures for the Security Review of Foreign Investment which became effective in January 2021 require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition.
On July 6, 2021, the relevant PRC governmental authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As official guidance and related implementation rules on these opinions have not been issued yet, the interpretation of these opinions remains unclear at this stage. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China— Approval of the CSRC or other PRC government authorities may be required in connection with our future offerings under PRC law, and if required, we cannot predict whether or for how long we will be able to obtain such approval.”
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On December 28, 2021, the Measures for Cybersecurity Review (2021 Version) was promulgated and became effective on February 15, 2022, which iterates that any “online platform operators” controlling personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. The Measures for Cybersecurity Review (2021 Version), further elaborates the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. We have relied on the opinion of our PRC counsel, Yuan Tai Law Offices, that as a result of: (i) we do not hold personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities, we are not required to apply for a cybersecurity review under the Measures for Cybersecurity Review (2021 Version).
As advised by our PRC legal counsel, Yuan Tai Law Offices, the PRC governmental authorities may have wide discretion in the interpretation and enforcement of these laws, including the interpretation of the scope of “critical information infrastructure operators.” In anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our business, we may face challenges in addressing its requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not received any inquiry, notice, warning, or sanctions in such respect.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. Personal information refers to information related to identified or identifiable natural persons which is recorded by electronic or other means and excluding anonymized information. The Personal Information Protection Law provides that a personal information processor could process personal information only under prescribed circumstances such as with the consent of the individual concerned and where it is necessary for the conclusion or performance of a contract to which such individual is a party to the contract. If a personal information processor shall provide personal information to overseas parties, various conditions shall be met, which includes security evaluation by the national network department and personal information protection certification by professional institutions. The Personal Information Protection Law raises the protection requirements for processing personal information, and many specific requirements of the Personal Information Protection Law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations.
None of our PRC subsidiaries currently operates in an industry that prohibits or limits foreign investment. As a result, as advised by our PRC counsel, Yuan Tai Law Offices, other than those requisite for a domestic company in mainland China to engage in the businesses similar to those of our PRC subsidiaries, none of our PRC subsidiaries is required to obtain any permission from Chinese authorities, including the CSRC, the CAC, or any other governmental agency that is required to approve its current operations. However, if our PRC subsidiaries do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that our PRC subsidiaries are required to obtain approval in the future, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our PRC subsidiaries’ relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our PRC subsidiaries’ operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As of the date of this annual report, we and our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions, or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied.
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On February 17, 2023, CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) together with five guidelines, which became effective on March 31, 2023. The Trial Measures lay out the filing regulation arrangement for both direct and indirect overseas listing by PRC domestic companies, and clarify the determination criteria for indirect overseas listing in overseas markets. Any future securities offerings and listings outside of mainland China by our Company, including but not limited to, follow-on offerings, secondary listings and going private transactions, will be subject to the filing requirements with the CSRC under the Trial Measures. As of the date of this annual report, we have not received any formal inquiry, notice, warning, sanction, or objection from the CSRC or any other PRC governmental authorities with respect to our listing on Nasdaq. As of the date of this annual report, we are in the process of completing the filing procedures with the CSRC in connection with our financings during the fiscal year ended December 31, 2025. The Company is also preparing for the filing with CSRC for the Seven Arrows acquisition completed in February 2026 and expects to submit the filing in short order. As the Trial Measures were newly published and there is uncertainty with respect to the filing requirements and their implementation, we cannot be sure that we will be able to complete such filings in a timely manner, or at all. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Doing Business in China — Approval of the CSRC or other PRC government authorities may be required in connection with our future offerings under PRC law, and if required, we cannot predict whether or for how long we will be able to obtain such approval.”
As of the date of this annual report, except as disclosed above, neither ReTo nor any of our PRC subsidiaries, (i) is required to obtain permissions from the PRC authorities, including the CSRC or the CAC, in connection with our issuance of securities to foreign investors, or (ii) has been denied such permissions by any PRC authority. We are subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that we inadvertently conclude that the permission or approvals discussed here are not required, that applicable laws, regulations or interpretations change such that we and our PRC subsidiaries are required to obtain approvals in the future.
| A. | [Reserved] |
| B. | Capitalization and indebtedness. |
Not applicable.
| C. | Reasons for the offer and use of proceeds. |
Not applicable.
| D. | Risk factors. |
Summary of Risk Factors
Set forth below is a summary of the principal risks we face, organized under relevant headings.
Risks Related to Doing Business in China
We face risks and uncertainties related to doing business in China in general, including, but not limited to, the following:
| ● | Changes in China’s economic, political or social conditions or government policies or in relations between China and the United States; |
| ● | The impact on our operations and value of our Class A Shares by PRC government’s significant oversight, control, intervention and/or influence over our business operation; |
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| ● | The complex and evolving laws and regulations regarding privacy and data protection, including China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, that our business is subject to; |
| ● | Uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations; | |
| ● | The risks of delisting or the threat of being delisted under the HFCAA if the PCAOB is unable to inspect our auditor; | |
| ● | The approval of the CSRC, CAC or other Chinese regulatory agencies which may be required in connection with our offshore offerings under Chinese law and, if required, our inability to obtain such approval or complete such filing; | |
| ● | The potential treatment as a resident enterprise for PRC tax purposes under the EIT Law and the risk of being subject to PRC income tax on our global income; | |
| ● | Foreign exchange controls in China, which could limit our use of funds that would be raised in future offerings, which could have a material adverse effect on our business; | |
| ● | The complex procedures under the PRC laws and regulation in connection with certain acquisitions of China-based companies by foreign investors; |
| ● | PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion, which may restrict or prevent ReTo from making additional capital contributions or loans to its PRC subsidiaries; | |
| ● | Any limitation on the ability of our PRC subsidiaries to make payments to us; | |
| ● | Fluctuations in exchange rates; | |
| ● | The adverse impact on our business by the tensions in international trade and rising political tensions; | |
| ● | The potential supply chain disruptions; and | |
| ● | Any severe or prolonged downturn in the global or Chinese economy. |
Risks Related to Our Business and Industry
We are subject to risks and uncertainties related to our business and industry, including, but not limited to, the following:
| ● | The potential slowdown of the industries in which our customers operate; |
| ● | Any decline in the availability or increase in the cost of raw materials; |
| ● | Any disruption in the supply chain of raw materials and our products; |
| ● | Geopolitical instability and armed conflict in the Middle East; |
| ● | Inability to generate sufficient cash flows or obtain sufficient financing to satisfy our significant cash commitments under our material agreements; |
| ● | Expansion into new business lines and industries outside our historical experience; |
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● | Wage increases in China; |
| ● | Our reliance on a limited number of vendors and the potential loss of any significant vendor; |
| ● | Certain risks in collecting our accounts receivable; |
| ● | Failure to protect our intellectual property rights; |
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| ● | The substantial doubt about our ability to continue as a going concern in the report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2025, 2024 and 2023; |
| ● | Failure to maintain a reserve for warranty or defective products and installation claims; |
| ● | Product defects and unanticipated use or inadequate disclosure with respect to our products; |
| ● | Various hazards that may cause personal injury or property damage and increase our operating costs, which may exceed the coverage of our insurance; |
| ● | Any material costs and losses as a result of claims based on failure of our products to meet regulatory requirements or contractual specifications; |
| ● | Substantial liabilities to comply with environmental laws and regulations; |
| ● | Inability to implement and maintain effective internal control over financial reporting; |
| ● | Our continued investing in technology, resources, and new business capabilities; |
| ● | Any failure to offer or maintain high quality products and support; |
| ● | The competitiveness of the markets in which we participate; |
| ● | Our reliance on a limited number of customers; |
| ● | Lack of business insurance; | |
| ● | Defects or errors in our products; and |
| ● | Our reliance on the reliability, security, and performance of the software and technologies for our products. |
Risks Related to Our Class A Shares
We face risks and uncertainties related to our Class A Shares, including, but not limited to, the following:
| ● | Failure to meet the continued listing requirements of Nasdaq; | |
| ● | The volatility of trading prices of our Class A Shares; |
| ● | Any negative reports by securities or industry analysts publish about our business; and |
| ● | Substantial future sales or perceived sales of our Class A Shares in the public market. |
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Risks Related to Doing Business in China
Changes in the political and economic policies of the PRC government or in relations between China and the United States may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.
Substantially all of our operations are conducted in mainland China and substantially all of our revenues are sourced from mainland China. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC or changes in government relations between China and the United States or other governments. There is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs.
The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.
While the PRC economy has experienced significant growth in the past four decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity.
As substantially all of our operations are based in China, any future Chinese, U.S. or other rules and regulations that place restrictions on capital raising or other activities by China based companies could adversely affect our business and results of operations. If the business environment in China deteriorates from the perspective of domestic or international investment, or if relations between China and the United States or other governments deteriorate, our operations in China as well as the market price of our Class A Shares may be adversely affected.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. The rules and regulations in China can change quickly with little advance notice and uncertainties in the interpretation and enforcement of PRC laws, rules and regulations could limit the legal protections available to you and us.
Substantially all of our operations are conducted in mainland China, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations, especially those relating to overseas listing and offering and the internet, are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable.
In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. The rules and regulations in China can change quickly with little advance notice and uncertainties in the interpretation and enforcement of PRC laws, rules and regulations could limit the legal protections available to you and us.
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The PRC government’s significant oversight and discretion over the conduct of our business and may intervene or influence our operations at any time which could result in a material adverse change in our operation and/or the value of our Class A Shares.
We conduct our business in mainland China primarily through our PRC subsidiaries. Our operations in mainland China are governed by PRC laws and regulations. The PRC government’s significant oversight and discretion over the conduct of our business and may intervene or influence our operations at any time which could result in a material adverse change in our operation and/or the value of our Class A Shares. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. In addition, implementation of industry-wide regulations directly targeting our operations could cause our securities to significantly decline in value or become worthless. Therefore, investors of ReTo face potential uncertainty from actions taken by the PRC government affecting our business.
Approval of the CSRC or other PRC government authorities may be required in connection with our future offerings under PRC law, and if required, we cannot predict whether or for how long we will be able to obtain such approval.
On February 17, 2023, the CSRC published the Trial Measures, which became effective on March 31, 2023. The Trial Measures lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation is with a major operating entity incorporated in mainland China appointed by the issuer and such filing obligation shall be completed within three business days after the overseas listing application is submitted. The required filing materials for an initial public offering and listing should include at least the following: report, commitment from issuer and securities company, the resolutions, shareholding structure chart and control structure chart, the information of issuer and intermediary project team members, Chinese legal opinion and commitment of Chinese counsel, the Prospectus, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable).
In addition, an overseas offering and listing is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) if, in the past three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (4) if, the domestic enterprise is being investigated according to law due to suspected crimes or major violations of laws and regulations, and there is no clear conclusion; (5) if there are material ownership disputes over the equity of the controlling shareholder or shareholders controlled by controlling shareholders and actual controllers. The Trial Measures defines the legal liabilities of breaches such as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million, and in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant business permits or operational license.
Any future securities offerings and listings outside of mainland China by our Company, including but not limited to follow-on offerings, secondary listings, and going private transactions, will be subject to the filing requirements with the CSRC under the Trial Measures, and we cannot assure you that we will be able to comply with such filing requirements in a timely manner, or at all. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Shares to significantly decline in value or become worthless.
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Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, as well as additional laws, regulations and guidelines that the Chinese government promulgates in the future may entail significant expenses and could materially affect our business.
Regulatory authorities in China have implemented and are considering further legislative and regulatory proposals concerning data protection. China’s new Data Security Law went into effect on September 1, 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. The Data Security Law sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB5 million, suspension of relevant business, and revocation of business permits or licenses.
In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure.
On July 10, 2021, the CAC issued the Cybersecurity Review Measures (revised draft for public comments), which proposed to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security. The PRC National Security Law covers various types of national security, including technology security and information security. The Cybersecurity Review Measures (2021 Version) took effect on February 15, 2022. The Cybersecurity Review Measures (2021 Version) expand the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country. Under the Cybersecurity Review Measures (2021 Version), the scope of entities required to undergo cybersecurity review to assess national security risks that arise from data processing activities would be expanded to include all critical information infrastructure operators who purchase network products and services and all data processors carrying out data processing activities that affect or may affect national security. In addition, such reviews would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. An operator that violates these measures shall be dealt with in accordance with the provisions of the PRC Cybersecurity Law and the PRC Data Security Law.
According to the Cybersecurity Review Measures (2021 Version), cybersecurity review will be required when (i) operators of critical information infrastructure purchasing network products and services or online platform operators carry out data processing activities which do or may affect national security; and (ii) any online platform operator controlling personal information of more than one million users which seeks to list in a foreign stock exchange. The factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The CAC has said that under the new rules companies holding data of more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments.” The cybersecurity review will also look into the potential national security risks from overseas initial public offerings. As advised our PRC legal counsel, because (i) none of our PRC subsidiaries collecting personal information or processing data in actual operation, and (ii) none of our PRC subsidiaries is an “online platform operator holding more than one million users’ personal information,” we believe the cybersecurity review requirement is not applicable us. However, there remains uncertainty as to the interpretation and implementation of the revised Cybersecurity Review Measures and we cannot assure you that the CAC will reach the same conclusion as our PRC counsel. As advised by our PRC legal counsel, the PRC governmental authorities may have wide discretion in the interpretation and enforcement of these laws, including the interpretation of the scope of “critical information infrastructure operators.” If the Company or any of its PRC subsidiaries is deemed as a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we and our PRC subsidiaries must fulfill certain obligations as required under the PRC cybersecurity laws and regulations, including, among others, storing personal information and important data collected and produced within the PRC territory during our operations in China, which we and our PRC subsidiaries have fulfilled in our business, and we and our PRC subsidiaries may be subject to review when purchasing internet products and services. We and our PRC subsidiaries may be subject to review when conducting data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this annual report, we and our PRC subsidiaries have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we and our PRC subsidiaries have not received any inquiry, notice, warning, or sanctions in such respect.
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The Regulations on Network Data Security were promulgated in September 2024 and came into force as from January 1, 2025. The enacted version follows the principle that the data will be regulated on a data classification and multi-level protection scheme. The regulations required that if a network data processor carries out network data processing activities that affect or may affect national security, it shall conduct a national security review in accordance with relevant state regulations, and emphasize special protection of important data. Important data refers to data in a specific field, a specific group, a specific region, or of a certain precision and scale, which, once tampered with, damaged, leaked, or illegally accessed or illegally utilized, may directly jeopardize national security, economic operation, social stability, public health and safety.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the Personal Information Protection Law contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year and may also be ordered to suspend any related activity by competent authorities. We have access to certain information of our customers in providing services and may be required to further adjust our business practice to comply with new regulatory requirements.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. We cannot assure you that relevant governmental authorities will not interpret or implement the laws or regulations in ways that negatively affect our industries, our clients and us. Compliance with the PRC Cybersecurity Law and the PRC Data Security Law could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices or service offerings could fail to meet all of the requirements imposed on us by the PRC Cybersecurity Law, the PRC Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by Chinese government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and results of operations. Moreover, the legal uncertainty created by the Data Security Law and the recent Chinese government actions could materially adversely affect our ability, on favorable terms, to raise capital, including engaging in follow-on offerings of our securities in the U.S. market.
We operate in a regulatory environment in which data privacy and protection is evolving. It is also possible that we may become subject to additional or new laws and regulations regarding data privacy and protection in connection with the data we have access to and the data products and services we provide to our clients. Moreover, we may become subject to regulatory requirements as a result of utilization of our products and services by residents of, or travelers who visit, certain jurisdictions, such as the General Data Protection Regulation of the European Union, or the GDPR. Complying with additional or new regulatory requirements could force us to incur substantial costs or require us to change our business practices. Moreover, if a high-profile security breach occurs with respect to our competitors, people may lose trust in the security of intelligent equipment providers generally, including us, which could damage the reputation of the industry, result in heightened regulation and strengthened regulatory enforcement and adversely affect our business and results of operations.
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Our business partners and customers may be subject to regulations related to the handling and transfer of certain types of sensitive and confidential information. Any failure of our partners or customers to comply with applicable laws and regulations would harm our business, results of operations and financial condition. Our business partners and customers that use our products may be subject to privacy- and data protection-related laws and regulations that impose obligations in connection with the collection, processing and use of personal data, financial data, health data or other similar data. Any failure or perceived failure by our business partners or customers to comply with applicable laws and regulations could result in their reputational damage or governmental investigations, inquiries, enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity, which may harm our business partnership and have a negative impact on our business.
Restrictions on currency exchange or outbound capital flows may limit our ability to utilize our PRC revenue effectively.
Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but requires approval from or registration with appropriate government authorities or designated banks under the “capital account,” which includes foreign direct investment and loans, such as loans we may secure from our onshore subsidiaries. Currently, our PRC subsidiaries, a foreign invested enterprise, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions.
Since 2016, PRC governmental authorities have imposed more stringent restrictions on outbound capital flows, including heightened scrutiny over “irrational” overseas investments for certain industries, as well as over four kinds of “abnormal” offshore investments, which are:
| ● | investments through enterprises established for only a few months without substantive operation; |
| ● | investments with amounts far exceeding the registered capital of onshore parent and not supported by its business performance shown on financial statements; |
| ● | investments in targets that are not related to onshore parent’s main business; and |
| ● | investments with abnormal sources of Renminbi funding suspected to be involved in illegal transfer of assets or illegal operation of underground banking. |
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, which tightened the authenticity and compliance verification of cross-border transactions and cross-border capital flow. In addition, the Outbound Investment Sensitive Industry Catalogue (2018) lists certain sensitive industries that are subject to NDRC pre-approval requirements prior to remitting investment funds offshore, which subjects us to increased approval requirements and restrictions with respect to our overseas investment activity. Since a significant amount of our PRC revenue is denominated in Renminbi, any existing and future restrictions on currency exchange or outbound capital flows may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of mainland China, make investments, service any debt we may incur outside of mainland China or pay dividends in foreign currencies to our shareholders, including holders of our Class A Shares.
PRC regulation on loans to, and direct investment in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from using the proceeds of our offerings to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
ReTo is a BVI business company incorporated in the BVI structured as a holding company conducting its operations in mainland China through its PRC subsidiaries. As permitted under PRC laws and regulations, in utilizing the proceeds of its offerings, ReTo may make loans to its PRC subsidiaries subject to the approval from governmental authorities and limitation of amount, or ReTo may make additional capital contributions to its PRC subsidiaries. Furthermore, loans by ReTo to its PRC subsidiaries to finance their activities cannot exceed the difference between their respective total project investment amount and registered capital or 3.5 times of their net worth and capital contributions to its PRC subsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System and registration with other governmental authorities in China.
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The SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within mainland China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether the SAFE will permit such capital to be used for equity investments in mainland China in actual practice. The SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our follow-on offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in mainland China.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from our offerings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
The PRC government could prevent the cash maintained in our bank accounts in mainland China from leaving mainland China, restrict deployment of the cash into the business of its subsidiaries and restrict the ability to pay dividends to U.S. investors, which could materially adversely affect our operations.
The PRC government controls the conversion of Renminbi into foreign currencies and the remittance of currencies out of mainland China. We receive substantially all of our revenues in Renminbi, and most of our cash is in Renminbi. Under our corporate structure, ReTo, a BVI holding company, primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements it may have. Under the existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade- and-service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE by complying with certain procedural requirements. As such, under the existing exchange restrictions, cash generated from the operations of our PRC subsidiaries is able to be paid as dividends in foreign currencies to ReTo without prior approval from the SAFE by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion in the future restrict access to foreign currencies for current account transactions. There is no assurance that the PRC government will not intervene or impose restrictions on the ability of us, our subsidiaries to transfer cash. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies from the PRC subsidiaries to the offshore subsidiaries, across borders, and to our shareholders, including the U.S. investors. These foreign exchange restrictions and limitations could prevent the cash maintained from leaving mainland China, and restrict our ability to pay dividends to ReTo and the U.S. investors.
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There are limitations on our PRC subsidiaries’ ability to distribute earnings to their respective shareholders. On the one hand, under the current PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits. In addition, our PRC subsidiaries are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of their registered capital. Our PRC subsidiaries may at their discretion allocate a portion of their after-tax profits to staff welfare and bonus funds in accordance with relevant PRC rules and regulations. These reserve funds and staff welfare and bonus funds cannot be distributed as cash dividends. Moreover, if the PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
In addition, any transfer of funds by ReTo to our PRC subsidiaries, either as a shareholder loan or as an increase in the registered capital, is subject to a series of procedural requirements imposed by SAFE or its local counterparts. This may hinder or delay our deployment of cash into our subsidiaries’ business, which could result in a material and adverse effect on our operations.
Our Class A Shares may be delisted under the HFCAA if the PCAOB is unable to inspect our auditor. The delisting of our Class A Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.
The HFCAA was enacted on December 18, 2020. According to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, the SEC shall prohibit our Class A Shares from being traded on a national securities exchange or in the over the counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA. Such final rules establish procedures that the SEC will follow in (i) determining whether a registrant is a “Commission-Identified Issuer” (a registrant identified by the SEC as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction) and (ii) prohibiting the trading of an issuer that is a Commission-Identified Issuer for three consecutive years under the HFCAA. The SEC began identifying Commission-Identified Issuers for the fiscal years beginning after December 18, 2020. A Commission-Identified Issuer is required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended, for example, September 30, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended September 30, 2022.
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On December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in mainland China or Hong Kong. This list does not include YCM CPA INC., our current independent registered public accounting firm, which, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is currently registered under the PCAOB and subject to PCAOB inspections. However, the recent developments would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
On August 26, 2022, the PCAOB signed the Protocol with the CSRC and MOF, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong without any limitations on scope. However, uncertainties exist with respect to the implementation of this framework and there is no assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies the Protocol.
The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company’s auditor was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.
On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination.
On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was enacted, which amends the HFCAA and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
Also, on December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditor. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate was due to a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.
These developments could add uncertainties to the trading of our securities, which could cause the market price of our Class A Shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCAA. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair investors’ ability to sell or purchase our Class A Shares when they wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our Class A Shares.
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We may be treated as a resident enterprise for PRC tax purposes under the EIT Law, and we may therefore be subject to PRC income tax on our global income.
China passed the EIT Law and implementing rules, both of which became effective on January 1, 2008, EIT Law was subsequently amended by the SCNPC and became effective on February 24, 2017 and December 29, 2018 and its implementing rules was amended and became effective on April 23, 2019 and December 6, 2024. Under the EIT Law, resident enterprises pay income tax at the rate of 25% for their worldwide income while non-resident enterprises pay 20% for their income generated from China and income generated overseas but are substantially related to the entities established in China by the non-resident enterprises. As far as the definition of resident enterprises, according to the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise.” The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State Administration of Taxation of China issued Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises with the Actual Standards of Organizational Management, or Circular 82, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Circular 82, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “resident enterprise” with its “de facto management body” located within China if (i) the place where the senior management and core management departments that are in charge of its daily operations perform their duties is mainly located in China; (ii) its financial and human resources decisions are made by or are subject to approval by persons or bodies in China; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (iv) at least half of the enterprise’s directors or senior management with voting rights frequently reside in China. A resident enterprise would have to pay a withholding tax at a rate of 10% when paying dividends to its non-mainland-China stockholders.
Given that ReTo does not have a mainland China individual or a mainland China enterprise or group, but a Hong Kong enterprise, as its primary controlling shareholder, we believe Circular 82 will not apply to us. However, Circular 82 did mention that the facts-oriented recognition is more important than format in the case of recognizing “de facto management.” Although we have never been determined by any competent tax authorities to be a “resident enterprise,” and we have not seen any corporations with similar structures to ours to be determined as a “resident enterprise,” whether or not we will be recognized as a “resident enterprise” is subject to the PRC tax authorities’ discretion and their interpretation of the term “de facto management body.”
As for our Hong Kong business, we do not believe that we meet some of the conditions outlined. As a holding company, the key assets and records of Sunoro Holdings, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside mainland China. Accordingly, we believe that Sunoro Holdings should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in Circular 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-mainland-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income.” Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares.
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Fluctuations in exchange rates could result in foreign currency exchange losses to us and may reduce the value of, and amount in U.S. Dollars of dividends payable on, our shares in foreign currency terms.
Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. Although we use the United States dollar for financial reporting purposes, all of the transactions effected by our PRC subsidiaries are denominated in China’s currency, the RMB. The value of the RMB fluctuates and is subject to changes in China’s political and economic conditions. We do not currently engage in hedging activities to protect against foreign currency risks. Even if we choose to engage in such hedging activities, we may not be able to do so effectively. Future movements in the exchange rate of the RMB could adversely affect our financial condition as we may suffer financial losses when transferring money raised outside of China into the country or paying vendors for services performed outside of China. For example, to the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our Class A Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.
Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future Chinese authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
We reflect the impact of currency translation adjustments in our financial statements under the heading “Foreign currency translation gain (loss).” For the years ended December 31, 2025, 2024 and 2023, we had a negative adjustment of $81,629, a positive adjustment of $1,145,186, a positive adjustment of $223,433, respectively, for foreign currency translations. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by China exchange control regulations that restrict our ability to convert RMB into foreign currencies.
Besides, Fluctuation of the Renminbi could materially affect our financial condition and results of operations. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the Chinese government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an appreciation of the Renminbi against the U.S. dollar. While the international reaction to the Renminbi revaluation has generally been positive, there remains international pressure on the Chinese government to adopt an even more flexible currency policy, which could result in a further and more rapid appreciation of the Renminbi against the U.S. dollar. Any material revaluation of Renminbi may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our Class A Shares in U.S. dollars. For example, an appreciation of Renminbi against the U.S. dollar would make any new Renminbi denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into Renminbi for such purposes.
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We may be subject to foreign exchange controls in China, which could limit our use of funds that would be raised in future offerings, which could have a material adverse effect on our business.
Each of our PRC subsidiaries, especially ReTo Hengda, Dirong and Shenzhen MMB, as foreign invested enterprises (“FIEs”), is subject to Chinese rules and regulations on currency conversion. In China, SAFE regulates the conversion of the RMB into foreign currencies. Currently, FIEs are required to apply to SAFE for “Registration of Establishment as FIEs.” ReTo Hengda, Dirong and Shenzhen MMB each is an FIE. With such registration, each of them is allowed to open foreign currency accounts including the “current account” and the “capital account.” Currently, conversion within the scope of the “current account” and general “capital account” can be effected without requiring the approval of SAFE. However, conversion of currency in some restricted “capital account” (e.g., for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE.
In particular, if any of ReTo Hengda, Dirong or Shenzhen MMB borrows foreign currency through loans from ReTo or other foreign lenders, these loans must be registered with SAFE. If any of ReTo Hengda, Dirong or Shenzhen MMB is financed by means of additional capital contributions, reporting to or filings with certain Chinese government authorities, including MOFCOM, or the local counterparts of SAFE and SAMR or its local counterparts, in respect of these capital contributions, is required. These restrictions could limit our use of funds which would be raised in our future offerings, which could have an adverse effect on our business.
Substantial uncertainties exist with respect to the interpretation and implementation of the framework rules of the PRC Foreign Investment Law, and its application may require further rules to be issued by the PRC government, which may incur and increase our compliance costs and expenses and accordingly our financial condition and operation will be adversely affected.
On Mach 15, 2019, the National People’s Congress of China promulgated the Foreign Investment Law of the PRC aiming to replace the major laws governing foreign investment in China. The Foreign Investment Law became effective on January 1, 2020. The Foreign Investment Law applies to PRC enterprises established, acquired or otherwise invested wholly or partially by foreign investors in a manner prescribed under applicable PRC laws and regulations. It also governs investment projects and activities in China by foreign investors. Accordingly, as our company qualifies as a “foreign investor” for these purposes, our PRC subsidiaries are subject to the Foreign Investment Law.
Under the Foreign Investment Law, a “negative list” promulgated or approved by the State Council will set forth industries that are prohibited industries and restricted industries. A foreign investor is prohibited to invest in any prohibited industry included therein. If a foreign investor is found to invest in any prohibited industry set forth under the “negative list,” such foreign investor may be required to, among other aspects, cease its investment activities, dispose of its equity interests in or assets of the FIE and have its income confiscated. A foreign investor may be permitted to invest in a FIE that is in a restricted industry set forth in the “negative list,” provided that relevant conditions are satisfied and certain approvals are acquired from relevant PRC governmental authorities. With respect to industries in which foreign investment is not prohibited or restricted, domestic and foreign investors will be equally treated. On December 27, 2021, the MOFCOM and the NDRC jointly issued the Negative List and the latest version of the Negative List was promulgated in September 2024 and took effect on November 1, 2024 (Edition 2024). Currently, our business falls within the permitted category. However, we cannot assure you that our current operations or any newly-developed business in the future will still deemed to be “permitted” in the “negative list,” which may be promulgated or be amended from time to time by the MOFCOM and the NDRC.
Some of our PRC subsidiaries are FIEs. Once an entity is determined to be a FIE and its business operations fall within a restricted industry under the “negative list,” in order for a foreign investor to invest in the FIE, such entity will be required to obtain entry clearance and approvals from the MOFCOM or its local counterparts and other relevant PRC government agencies. Our main products, including ecological environment protection equipment, intelligent mining equipment and smart craft beer machines, do not fall in the prohibited or restricted industries under “negative list” that is currently effective.
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The relevant business carried out by our PRC subsidiaries and our investment in the PRC subsidiaries currently are not subject to the national security review under applicable PRC laws and regulations. However, if our future business operations or potential mergers and acquisitions we enter into in the PRC are related to national security sensitive areas or industries involving certain key technologies, national security review requirements will likely apply and the review result that is in compliance with PRC laws should be definitive. It remains unclear when the specific implementation measures of the Foreign Investment Law will be issued by the State Council. Given the uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law, its application may require further rules to be issued by PRC government, which may incur and increase our compliance costs and expenses and accordingly our financial condition and operation will be adversely affected.
If we fail to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans, the PRC plan participants or we could be subject to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company (the “SAFE Circular 7). Pursuant to SAFE Circular 7, directors, supervisors, senior management and other employees participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas-listed company, and complete certain other procedures, unless certain exceptions are available. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or non-PRC citizens living in China for a continuous period of not less than one year and have been granted options are subject to these regulations as our company has become an overseas-listed company. Failure to complete SAFE registrations may subject them to fines of up to RMB50,000 for individuals and may also limit our ability to contribute additional capital into our WFOE and our WFOE’ ability to distribute dividends to us. If any unapproved outflow or inflow of capital occurs and constitutes foreign exchange evasion or arbitrage, the amount of fine will be higher.
In addition, the Ministry of Finance and the State Administration of Taxation have issued certain circulars concerning employee share options and restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our relevant PRC subsidiary has obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options or are granted restricted share. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
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We have notified substantial beneficial owners of Class A Shares who we know are PRC residents of their filing obligation as required by SAFE Circular 37. However, we may not at all times be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.
Failure to comply with the Individual Foreign Exchange Rules relating to the overseas direct investment or the engagement in the issuance or trading of securities overseas by our Chinese resident stockholders may subject such stockholders to fines or other liabilities.
Other than Circular 37, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any Chinese individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions. Chinese individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.
We may not be fully informed of the identities of all our beneficial owners who are Chinese residents. For example, because the investment in or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the identity of all of our beneficial owners who are Chinese residents. Furthermore, we have no control over any of our future beneficial owners and we cannot assure you that such Chinese residents will be able to complete the necessary approval and registration procedures required by the Individual Foreign Exchange Rules.
It is uncertain how the Individual Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our Chinese resident stockholders to make the required registration will subject our subsidiaries to fines or legal sanctions on their operations, restriction on remittance of dividends or other punitive actions that would have a material adverse effect on our business, results of operations and financial condition.
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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the annual report based on foreign laws.
Our holding company is a company incorporated under the laws of the British Virgin Islands, but we conduct substantially all of our operations in China and substantially most of our assets are located in China. In addition, most of our senior executive officers are PRC nationals and reside within China for a significant portion of the time. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who reside and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the British Virgin Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
Shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which took effect in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.
The current tensions in international trade and rising political tensions may adversely impact our business, financial condition, and results of operations.
Recently, there have been heightened tensions in international economic relations, such as that between the United States and China, but also as a result of the military or other conflicts in Ukraine, the Middle East and sanctions on Russia. Although we are a primarily China-based company, we have customers located in the countries outside of China. Therefore, government policies restricting international trade and investment, such as capital controls, economic or trade sanctions, export controls, tariffs or foreign investment filings and approvals, may affect the demand for our products, impact the competitive position of our products, or prevent us from being able to sell products in certain countries. If any new tariffs, legislation, or regulations are implemented (including those imposing economic or trade sanctions, export control restrictions or outbound investments restrictions), or if existing trade agreements are renegotiated, such changes could adversely affect our business, financial condition, and results of operations.
The U.S. government has imposed, and has proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States.
In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, tensions over Taiwan, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the PRC central government, the reciprocal tariffs issued by the U.S. government on many items from China,, and various restrictions related to the Chinese semiconductor industry imposed by the U.S. government. Against this backdrop, China has implemented, and may further implement, measures in response to the changing trade policies, treaties, tariffs and sanctions and restrictions against Chinese companies initiated by the U.S. government.
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Rising political tensions could reduce levels of trade, investment, technological exchange, and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our and our customers’ business, prospects, financial condition, and results of operations.
As of the date of this annual report, we do not have any business, operation or assets in Russia or Ukraine, nor do we have any direct or indirect business or contracts with any Russian or Ukraine entity as a supplier or customer. Additionally, we do not have any knowledge as to whether our customers or suppliers have any business, operation or assets in Russia or Ukraine, or have any direct or indirect business or contracts with any Russian or Ukraine entity as a supplier or customer. However, our operations, especially the supply chain, could be adversely impacted as a result of the dramatic fuel cost increases or delay to international shipping, in particular marine freight, that may be caused by the war.
The extent and duration of the military action, sanctions and resulting market disruptions of the war in Ukraine are impossible to predict, but could be substantial. Any such disruptions caused by Russian military actions or resulting sanctions may magnify the impact of other risks described in this section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest, intensified military activities or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on our business, financial condition, results of operations and prospects.
Changes in U.S. and international trade policies, particularly with regard to China, and the ongoing trade war between China and the United States, may adversely impact our business and operating results.
Trade-related tensions between the United States and China remain an important source of potential risk. There have recently been significant changes to international trade policies and tariffs affecting imports and exports. Any significant increases in tariffs on goods or materials or other changes in trade policy, particularly with regard to China, could negatively affect our business and operating results.
Recently, the U.S. has implemented a range of new tariffs and increases to existing tariffs. In response to the tariffs announced by the U.S., other countries have imposed, are considering imposing, and may in the future impose new or increased tariffs on certain exports from the United States. For example, in December 2024, China issued further rules restricting exports of certain materials. The United States thereafter issued reciprocal tariffs, increasing tariffs on many items from China. There is currently significant uncertainty about the future relationship between the United States and China with respect to trade policies, taxes, government regulations and tariffs, and we cannot predict whether, and to what extent, current tariffs will continue or trade policies will change in the future. As of the date of this annual report, we do not import or export any products to the U.S. However, the institution of trade tariffs globally, and between the U.S., on the one hand, and China and other jurisdictions, on the other, specifically, may negatively impact the affected countries’ economic conditions, which could negatively affect demand for our products in those countries and materially and adversely affect our business and results of operations of our customers serving the affected markets.
Furthermore, our association with customers or business partners that are or become subject to U.S. regulatory scrutiny or export controls- or sanctions-related restrictions could subject us to actual or perceived reputational harm among current or prospective suppliers or customers, other parties doing business with us, or the general public. Any such reputational harm could result in the loss of investors, suppliers or customers, which could harm our business, financial conditions or prospects.
A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition.
The Chinese economy has slowed down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets, and over the conflicts involving Ukraine and Syria. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China.
However, any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.
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Risks Related to Our Businesses and Industry
We face risks associated with the divestiture of businesses and the transition of our business focus to new products, and our business and financial condition and results of operations may be materially and adversely affected.
We undertook the December 2024 Divestiture to dispose of non-performing assets, and transition our business focus to the development and sales of ecological environment protection equipment, intelligent mining equipment, and smart craft beer machines. Following the completion of the December 2024 Divestiture on December 31, 2024, we ceased to hold any interest in REIT Holdings (China) Limited and its subsidiaries. As a result, we are no longer engaged in the business of manufacture and distribution of eco-friendly construction materials, ecological restoration projects, roadside assistance services and software development services and solutions utilizing Internet of Things technologies. See “Item 4. Information on the Company – A. History and development of the company –Corporate History.”
These decisions are largely based on our management’s assessment of the business models and likelihood of success of these businesses. As we are going through the transition period, there is no guarantee that we may successfully executing our business strategies. Our judgment may be inaccurate, and we may not achieve the desired strategic and financial benefits from the December 2024 Divestiture. In addition, our financial results may be adversely affected by the impact from the loss of earnings associated with the divested businesses. Given our net income/(loss) from discontinued operations are non-recurrent, it may be difficult for investors and analysts to predict our future earnings potential based on our historical financial performance.
Furthermore, eliminating our ownership interests in the divested businesses might negatively affect our operations, prospects, or long-term value. We may lose access to certain resources or know-how that would have been useful in the development of our own business. For example, we previously benefited from certain government subsidies and incentives tied to the High-New Technology Enterprise (“HNTE”) Certificates held by Beijing REIT, Hainan Yile IoT Technology Co., Ltd., and Hainan Yile IoV Technology Research Institute Co., Ltd., which we no longer control following the December 2024 Divestiture. Any such changes may have a material and adverse impact on our business and financial condition and results of operations.
We derive a significant portion of our revenue from a limited number of customers, and the loss of, or a significant reduction in purchases by, any major customer could materially and adversely affect our business, results of operations and financial condition.
We have historically derived a significant portion of our revenue from a limited number of customers. For the year ended December 31, 2025, one customer accounted for 59% of our total revenue. For the year ended December 31, 2024, two customers accounted for 36% and 13% of our total revenue, respectively. For the year ended December 31, 2023, one customer accounted for 79% of our total revenue. As a result, our revenue and results of operations may be materially affected by the purchasing decisions, financial condition and business performance of a small number of customers.
We cannot assure you that we will be able to maintain or increase sales to our major customers, or that any such customers will continue to purchase our products or services at historical levels or at all. Our customers may reduce, delay or cancel orders, fail to renew or expand their business with us, seek pricing concessions, switch to competing products or suppliers, experience financial or operational difficulties, or otherwise alter their purchasing patterns. In addition, unless we have binding long-term purchase commitments, our customers may not be obligated to purchase any minimum amount of products or services from us and may terminate or reduce their business with us with limited notice.
The loss of any major customer, a material reduction in orders from any such customer, a delay in customer purchases, or a failure by any major customer to make timely payments could materially reduce our revenue, adversely affect our cash flows, increase our exposure to credit risk, and reduce our profitability. We may not be able to replace revenue from any lost or reduced customer relationship on a timely basis, on commercially reasonable terms, or at all. In addition, the identity and number of our major customers may vary from period to period, and revenue concentration may cause our financial results to fluctuate significantly. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects.
We rely on a limited number of vendors, and the loss of any significant vendor could harm our business, and the loss of any one of such vendors could have a material adverse effect on our business.
We consider our major vendors to be those vendors that accounted for more than 10% of overall purchases in any given fiscal period. For the year ended December 31, 2025, the Company purchased approximately 36%, 16% and 13% of its raw materials from three major suppliers, respectively. For the year ended December 31, 2024, the Company purchased approximately 68% and 13% of its raw materials from two major suppliers, respectively. For the year ended December 31, 2023, the Company purchased approximately 83% and 14% of its raw materials from two major suppliers, respectively. We have not entered into long-term contracts with all of our significant vendors and instead rely on individual contracts with such vendors. Although we believe that we can locate replacement vendors readily on the market for prevailing prices, any difficulty in replacing a vendor on terms acceptable to us could negatively affect our company’s performance to the extent it results in higher prices or a slower supply chain.
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We may be subject to supply chain disruptions, which could have a material adverse effect on our business, financial condition and results of operations.
Our operations are subject to supply chain disruptions. Any future disruption in the operations of our major suppliers would impact our ability to produce and deliver our products to customers. In addition, reductions in commercial airline and cargo flights, disruptions to ports and other shipping infrastructure may result in increased transport times to deliver our products to customers. This may limit our ability to fulfill orders and we may be unable to satisfy all of the demand for our products and equipment in a timely manner, which may adversely affect our relationships with our customers. As a result, the supply chain disruptions may materially affect our operations and may impact our outlook or business goals.
We may also experience higher costs of raw materials for manufacture and sale of our equipment, such as steel and certain electronic parts, due to limited availability or increased commodity prices. We have expanded our supplier network in order to control the procurement costs, diversify supply of our raw materials and ensure timely fulfillment of customer orders. As a result, we believe we can still supply products and equipment at competitive prices. See “– We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.”
The invasion of Ukraine by Russia and the escalation of the conflict involving the United States, Israel and Iran and others in the Middle East and Southwest Asia and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts and geopolitical turmoil are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, changes in consumer or producer purchasing behavior and increased cyber-attacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. Even though we do not have any business, operation or assets in Russia, Ukraine or Israel, nor do we have any direct or indirect business or contracts with any Russian, Ukraine or Israeli entity as a supplier or customer, these geopolitical issues have resulted in increasing global trading uncertainties and thus could potentially affect our supply chain. See “– The current tensions in international trade and rising political tensions may adversely impact our business, financial condition, and results of operations.”
Our management has analyzed the current and future international and domestic political and economic situations and formulated different development strategies and measures for each of our business segments, with a goal to reduce the existing and potential impact of supply chain disruptions. For the equipment businesses, we have made market development efforts to expand sales and have strengthened the management of raw material procurement by adding backup suppliers. Moreover, we have focused on production design and processing processes to improve quality and efficiency as well as reduce costs. However, there is no assurance that our efforts to mitigate the impact of supply chain disruptions will be successful. If our efforts were not successful, our business, financial condition and results of operations could be materially adversely affected.
We may not generate sufficient cash flows or obtain sufficient financing to satisfy our significant cash commitments under our material agreements, which could materially and adversely affect our liquidity, business and results of operations.
We have entered into several material agreements that require, or may require, us to make significant cash payments, including a total contract price of RMB 102.0 million, upon completion and acceptance of park infrastructure, greenhouse main structure, and in-greenhouse facilities, and other requirements specified in the agreement. The timing and amount of certain of these obligations may be difficult to predict and may depend on factors outside our control, including the progress of construction, regulatory approvals, the level of revenues generated from related products or services, and the performance of our counterparties.
Our ability to satisfy these cash commitments will depend on our ability to generate sufficient cash flows from operations, obtain additional debt or equity financing, enter into strategic arrangements, reduce operating expenses, renegotiate contractual obligations, or otherwise obtain additional sources of liquidity. We cannot assure you that our operating cash flows will be sufficient to meet these obligations as they become due or that additional financing will be available to us in the amounts required, on acceptable terms, on a timely basis or at all. If we raise additional capital through the issuance of equity or equity-linked securities, our existing shareholders may experience significant dilution. If we incur additional indebtedness, we may become subject to additional fixed payment obligations and restrictive covenants that could limit our operating flexibility.
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If we are unable to generate sufficient cash flows or obtain additional financing when needed, we may be required to delay, reduce or terminate certain business initiatives, reduce capital expenditures, dispose of assets, seek to renegotiate or terminate material agreements, or curtail our operations. Any failure to satisfy our obligations under our material agreements could result in defaults, penalties, termination of important contractual rights, loss of access to key products, services, technologies or suppliers, litigation or damage to our commercial relationships. Any of the foregoing could materially and adversely affect our liquidity, business, financial condition, results of operations and prospects.
Our expansion into new business lines and industries outside our historical experience may not be successful and could divert management attention and resources from our existing business.
We have historically focused on equipment research and development, manufacturing and sales. We are expanding, or may expand, into new business lines and industries, including beverage sales and tropical fruit planting and harvesting. These new business lines differ substantially from our existing operations and may require expertise, operational capabilities, supplier and customer relationships, regulatory knowledge, distribution channels, personnel, systems and controls that our current management team does not currently possess or has not historically needed to manage.
Our management team’s experience is primarily in equipment research and development, manufacturing and sales, and we may not be able to successfully develop, operate or scale businesses in beverage sales, fruit planting and harvesting or other new industries. These businesses may involve risks that are different from, or greater than, those associated with our existing business, including agricultural production risks, crop yield and quality risks, seasonality, weather and climate-related risks, perishability and inventory loss, food safety and quality control requirements, licensing and regulatory compliance, supply chain and logistics risks, brand development, consumer demand fluctuations, channel management and increased working capital needs.
Our expansion into these new industries may require significant capital expenditures, management time and other resources, and we may not generate sufficient revenue, margins or cash flows to justify these investments. If we are unable to hire personnel with relevant industry experience, establish effective operating procedures and internal controls, comply with applicable regulations, develop reliable supply and distribution channels, or accurately assess market demand and competitive dynamics, our new business initiatives may fail to achieve their intended results. In addition, pursuing these initiatives could divert management’s attention from our core business and impair our ability to execute our existing business strategy.
If our expansion into beverage sales, fruit planting and harvesting or other new industries is unsuccessful, or if we incur losses, impairment charges, regulatory issues or operational disruptions in connection with these initiatives, our business, financial condition, results of operations and prospects could be materially and adversely affected.
Geopolitical instability and armed conflict in the Middle East could materially and adversely affect demand from customers in the United Arab Emirates and our results of operations.
During the fiscal year ended December 31, 2025, a significant portion of our revenue was generated from customers located in the United Arab Emirates, or the UAE. As a result, our business, results of operations, cash flows and prospects may be materially affected by economic, political and market conditions in the UAE and the broader Middle East region, even though we do not maintain physical operations or assets in the UAE.
The Middle East has experienced significant geopolitical instability, including armed conflict involving Israel, the United States and Iran, disruptions to shipping and trade through the Strait of Hormuz, volatility in energy markets, and heightened uncertainty regarding regional security and economic conditions. The Strait of Hormuz is a critical maritime route for Gulf trade and global energy shipments, and recent restrictions and disruptions affecting the Strait have created significant uncertainty for regional commerce, logistics, import and export activity, and energy markets. In addition, the UAE’s announced withdrawal from OPEC may contribute to further volatility in regional energy policy, oil prices and investor sentiment. Any escalation, continuation or recurrence of these conditions could adversely affect the UAE economy, regional liquidity, business confidence, customer spending and the ability of our UAE-based customers to conduct business in the ordinary course.
These developments could reduce demand for our products or services, delay or reduce new orders, result in the cancellation or postponement of existing contracts, or impair the ability of our UAE-based customers to satisfy their payment obligations to us. Regional instability may also increase the cost, timing and complexity of logistics, payment processing, currency conversion, banking arrangements and other commercial activities necessary for us to serve customers in the UAE. In addition, heightened geopolitical tensions may increase cybersecurity risks, including risks to financial institutions, payment systems, cloud infrastructure, telecommunications networks and other digital infrastructure on which our customers and business partners may rely. Any disruption to such infrastructure could delay payments, interrupt customer operations, impair trade logistics or otherwise adversely affect our ability to generate revenue from customers in the UAE.
We cannot predict the duration, scope or severity of the current conflict or related regional instability, whether current or future ceasefire or diplomatic efforts will be successful, whether trade routes and market conditions will normalize, or whether the conflict will further escalate or spread to other countries in the region. If geopolitical instability, armed conflict, trade disruption, energy-market volatility or cybersecurity incidents continue or worsen, our revenue from customers in the UAE could decline, our cash flows could be adversely affected, and our business, financial condition, results of operations and prospects could be materially and adversely affected.
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Wage increases in China may prevent us from sustaining our competitive advantage and could reduce our profit margins.
Labor costs in China have increased with China’s economic development. Rising inflation in China is also putting pressure on wages. Wage costs for our employees form a significant part of our costs. For instance, for the fiscal years ended December 31, 2025, 2024 and 2023, our compensation and benefit costs in the PRC for continuing operations amounted to approximately $1.3 million, $1.1 million and $0.4 million, respectively. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated governmental agencies for the benefit of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase, particularly as we seek to expand our operations. In addition, the future issuance of equity-based compensation to our professional staff and other employees would also result in additional stock dilution for our shareholders. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products, services and projects, our profitability and results of operations may be materially and adversely affected. Furthermore, the PRC government has promulgated new laws and regulations to enhance labor protections in recent years, such as the Labor Contract Law and the Social Insurance Law. As the interpretation and implementation of these new laws and regulations are still evolving, our employment practice may not at all times be deemed in compliance with the new laws and regulations. If we are subject to penalties or incur significant liabilities in connection with labor disputes or investigation, our business and profitability may be adversely affected.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business could be materially and adversely affected by natural disasters, health epidemics or outbreaks, such as COVID-19, or other public safety concerns. Natural disasters may give rise to breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware of our products as well as adversely affect our ability to sell our products and provide services and solutions. Our production, sales and delivery and our service operations and capacities could be materially and adversely affected by natural disasters and other calamities in the areas where we operate and where our equipment or products are sold. In addition, our results of operations could be adversely affected to the extent that any health epidemic harms the Chinese economy in general and a prolonged outbreak of any of these illnesses or other adverse public health developments in China or elsewhere. Such outbreaks could significantly impact our industry, and any failure to have our business insurance claims covered could severely disrupt our operations and adversely affect our business, financial condition and results of operations.
Our revenue will decrease if the industries in which our customers operate experience a protracted slowdown, regulatory shift or reduced investment.
Our customers generally operate in different industries, such as environment protection, real estate, mining and mineral processing, and food and beverage. As a result, our business is highly sensitive to macroeconomic conditions, industry-specific trends, and policy developments. A prolonged slowdown or contraction in any of these sectors could significantly reduce demand for our products.
Demand for our mining equipment is closely tied to global and regional commodity markets. Declines in commodity prices, reduced capital expenditures by mining companies, delays in new project approvals, or stricter environmental and safety regulations could lower demand for equipment and services in this sector.
Our environmental protection equipment business is influenced by governmental and regulatory priorities, especially those related to air and water pollution control, carbon emissions, and industrial waste management. Changes in environmental policy, reduced enforcement, shifts in public funding, or delays in infrastructure and green energy initiatives may negatively affect investment in environmental solutions, thus impacting our sales.
The market for our smart craft beer machines depends on growth in the craft brewing industry and broader trends in consumer behavior. Demand may be adversely affected by economic downturns that reduce discretionary spending, increased regulation of alcoholic beverages, supply chain disruptions (e.g., raw materials or packaging), or changing consumer preferences toward non-alcoholic or health-focused alternatives.
In addition, demand across all product lines can be impacted by broader economic variables, such as interest rates, inflation, labor availability, access to financing, and levels of public and private investment. For example, tighter credit markets or government austerity measures could delay or reduce capital expenditures by our customers. If economic activity in China or other key markets where we operate weakens significantly, or if the core industries we rely on underperform, we may experience reduced sales and revenue. This could materially and adversely affect our business, financial condition, and long-term growth.
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Increases in the cost of raw materials or supply chain disruptions affecting our outsourced manufacturers could materially and adversely affect our business, results of operations and reputation.
We currently outsource the manufacture of our equipment and machines to third-party suppliers and manufacturers. As a result, we no longer directly purchase raw materials for the manufacturing of our equipment and machinery. However, our outsourced manufacturers depend on the availability of raw materials, components and other inputs necessary to produce our equipment and machines. The availability and cost of such raw materials and components may fluctuate significantly due to factors beyond our control, including changes in market demand, inflation, supplier capacity constraints, logistics disruptions, trade restrictions, tariffs, geopolitical events, natural disasters, labor shortages and other supply chain disruptions.
If our third-party suppliers or manufacturers experience shortages of raw materials or components, significant increases in input costs, delays in procurement or production, or other manufacturing disruptions, they may be unable to manufacture our equipment and machines in the quantities, at the quality levels, or within the timeframes required by us or our customers. In addition, our suppliers may seek to pass increased raw material, component, labor, logistics or other production costs on to us through higher purchase prices or other revised commercial terms. We may not be able to pass these increased costs on to our customers in full or at all, particularly if we are constrained by competitive pressures, fixed-price arrangements, customer expectations or market conditions.
Any inability of our suppliers or manufacturers to obtain necessary raw materials or components on commercially reasonable terms, or any increase in the prices charged to us by such suppliers or manufacturers, could increase our costs, reduce our margins, delay customer deliveries, impair our ability to fulfill customer orders, result in order cancellations or customer claims, and damage our reputation. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects.
We do not maintain a reserve for warranty or defective products and installation claims. Our costs could increase if we experience a significant number of claims, which could have a material adverse effect on our business.
We generally obtain customers’ acceptance when we deliver equipment. In practice, we allow our customers to reserve approximately 5-20% of the agreed purchase or installation price as a security retention for a period of one or two years after we deliver the equipment. We consider this one or two year term to be a warranty period for our products sold. Historically, we have not experienced significant customer complaints concerning our products, and none of our customers have claimed damages for any loss incurred due to quality problems. In addition to our one to two year reserve, China’s Product Quality Law generally allows customers two years to seek compensation for damages caused by product quality deficiencies in cases in which a product lacks an expiration period.
We expect our customer support teams and our quality assurance and manufacturing monitoring procedures to continue to keep claims at a level that does not support a need for a financial reserve. However, if we experience significant increases in claims or customers’ failure to pay the final 5-20% of a purchase/installation price as a result of quality concerns, our financial results could be adversely affected.
The sales of our equipment are subject to geographic market risks, which could adversely affect our revenues and profitability.
Currently, our equipment products are mainly sold in China and, overseas, in the Middle East, Southeast Asia, and Africa. Accordingly, we are subject to risks related to the economy of China and the Middle East, Southeast Asia, and Africa. In addition to economic conditions, the geographic concentration suggests that regional specific legislation, taxes and disasters such as earthquakes could disproportionately affect us and our financial performance. For example, a downturn in the demand for ecological environment protection equipment and intelligent equipment or economic conditions in China or the Middle East, Southeast Asia, and Africa could result in a material decline in our business, financial condition and results of operation.
The report of our independent registered public accounting firm on our financial statements includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern, and if our business is unable to continue it is likely investors will lose all of their investment.
As discussed in Note 3 to the consolidated financial statements in this annual report, we have suffered significant losses from operations and has a significant decrease in working capital that raises substantial doubt about our ability to continue as a going concern. Our auditor, YCM CPA INC., has indicated in their report on our financial statements for the fiscal year ended December 31, 2025 that there is a substantial doubt about our ability to continue as a going concern for the next 12 months from the issuance of the consolidated financial statements. A “going concern” opinion could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives.
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Management’s plan to alleviate the substantial doubt about our ability to continue as a going concern include working to improve our liquidity and capital sources mainly through cash flow from its operations, renewal of bank borrowings, equity or debt offering and borrowing from related parties. In order to fully implement its business plan and recover from continuing losses, we may also seek equity financing from outside investors. At the present time, however, we do not have commitments of funds from any potential investors. There can be no assurance that additional financing, if required, would be available on favorable terms or at all and/or that these plans and arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other requirements. If we are unable to achieve these goals, our business will be jeopardized and we may not be able to continue. If we ceased operations, it is likely that all of our investors will lose their investment.
We cannot assure you that our growth strategy will be successful, which may result in a negative impact on our growth, financial condition, results of operations and cash flow.
We intend to grow by expanding our business, increasing market penetration of our existing products, developing new products and increasing our targeting of domestic and international markets. However, many obstacles to this expansion exist, including increased competition from similar businesses, our ability to improve our products and product mix to realize the benefits of our research and development efforts, unexpected costs and costs associated with marketing efforts. As such, we cannot assure you that we will be able to successfully overcome these potential challenges and establish our business in additional markets. Our inability to implement this growth strategy successfully may have a negative impact on our growth, future financial condition, and results of operations or cash flows.
We have recorded a full impairment of goodwill in connection with the MMB acquisition, and we may record additional impairment charges in the future, including in connection with our recently completed acquisition of Seven Arrows.
As of December 31, 2025, we recorded approximately $8.0 million of goodwill in connection with our acquisition of MMB. Due to MMB’s continuing losses, we determined that it was appropriate to perform a quantitative goodwill impairment assessment as of December 31, 2025. Based on the results of this impairment test, we recorded a full impairment of approximately $8.0 million of goodwill for the year ended December 31, 2025.
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized, but is tested for impairment at least annually and more frequently if events or changes in circumstances indicate that the carrying value of the applicable reporting unit may exceed its fair value. The determination of whether goodwill is impaired requires significant judgment and depends on a number of estimates and assumptions, including projected revenue, operating margins, cash flows, customer retention, market conditions, expected synergies from acquisitions, discount rates, terminal growth rates and the fair value of the relevant reporting unit. These estimates and assumptions may differ materially from actual results.
Although we recorded a full impairment of the goodwill associated with the MMB acquisition for the year ended December 31, 2025, we may recognize additional goodwill or other intangible assets in connection with our recently completed Seven Arrows acquisition or future acquisitions. If the businesses we acquire fail to perform as expected, if we are unable to successfully integrate acquired businesses, if we do not realize anticipated revenues, cost savings or synergies, or if adverse changes occur in our business, competitive environment, customer demand, macroeconomic conditions, interest rates, market capitalization or other assumptions used in impairment analyses, we may be required to record additional impairment charges.
Any future impairment of goodwill or other intangible assets could be material and could materially reduce our reported earnings and shareholders’ equity. In addition, the recognition of the full goodwill impairment related to MMB may indicate that the anticipated benefits of the MMB acquisition have not been realized and may raise concerns regarding our ability to successfully evaluate, integrate and realize value from acquisitions. If we experience similar underperformance or integration challenges in connection with our recently completed Seven Arrows acquisition or any future acquisition, our business, financial condition, results of operations and prospects could be materially and adversely affected.
If we fail to protect our intellectual property rights, it could harm our business and competitive position.
As of the date of this annual report, we own an aggregate of 49 patents and one pending patent application in China. In addition, we own six software copyrights in China. We rely on a combination of patent, copyright, trademark and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights.
The process of seeking patent protection on future patents can be lengthy and expensive, our patent applications may fail to result in patents being issued, and our existing and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may also be challenged, invalidated or circumvented.
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Implementation of Chinese intellectual property-related laws have historically been lacking, primarily because of ambiguities in PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position.
We may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations.
Our success depends, in large part, on our ability to use and develop our technology and know-how without infringing third party intellectual property rights. We face a high risk of being the subject of claims for intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights because we sell our equipment internationally and litigation is becoming more common in China. Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our branded products in either China or other countries, including the United States and other countries in Asia. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be costly, time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to:
| ● | pay damage awards; |
| ● | seek licenses from third parties; |
| ● | pay ongoing royalties; |
| ● | redesign our branded products; or |
| ● | be restricted by injunctions. |
Each of these events could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our branded products, which could have a material adverse effect on our financial condition and results of operations.
Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of proprietary information and trade secrets.
In addition to patents, we rely on confidentiality agreements to protect our technical know-how and other proprietary information. In addition, our officers and each of our main technical and management employees have signed a confidentiality agreement. Nevertheless, there can be no guarantee that an employee or a third party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures.
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If we experience a significant disruption in, or a breach in security of, our information technology systems or if we fail to implement, manage or integrate new systems, software and technologies successfully, it could harm our business.
Our information technology (“IT”) systems are an integral part of our business. We depend on our IT systems to process transactions, manage logistics, keep financial records, prepare our financial reporting and operate other critical functions. Security breaches, cyber-attacks or other serious disruptions of our IT systems can create systemic disruptions, shutdowns or unauthorized disclosure of confidential information. If we are unable to prevent or adequately respond to such breaches, attacks or other disruptions, our operations could be adversely affected or we may suffer financial or reputational damage.
In addition, our ability to effectively implement our business plan in a rapidly evolving market requires effective planning, reporting and analytical processes and systems. We are improving and expect that we will need to continue to improve and further integrate our IT systems, reporting systems and operating procedures on an ongoing basis. If we fail to do so effectively, it could adversely affect our ability to achieve our objectives.
Product defects and unanticipated use or inadequate disclosure with respect to our products could adversely affect our business, reputation and financial performance.
Manufacturing or design defects (including in products or components that we source from third parties), unanticipated use of, or inadequate disclosure of risks relating to, the use of products or equipment that we sell may lead to personal injury, death or property damage. These events could lead to recalls or alerts relating to our products, result in the removal of a product or equipment from the market or result in product liability claims being brought against us. Product and equipment recalls, removals and liability claims can lead to significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and equipment.
Our future growth depends on new products and new technology innovation, and failure to invent and innovate could adversely impact our business prospects.
Our future growth depends in part on maintaining our competitive advantage with current products in new and existing markets, as well as our ability to develop new products, and technologies to serve such markets. To the extent that competitors develop competitive products, and technologies, or new products, or technologies that achieve higher customer satisfaction, our business prospects could be adversely impacted. In addition, regulatory approvals for new products, equipment or technologies may be required, and these approvals may not be obtained in a timely or cost-effective manner, which could adversely impact our business prospects.
Changes in demand for our products, equipment and business relationships with key customers and suppliers may negatively affect operating results.
To achieve our objectives, we must develop and sell products and equipment that are subject to the demands of our customers. This is dependent on many factors, including managing and maintaining relationships with key customers, responding to the rapid pace of technological change and obsolescence, which may require increased investment by us or result in greater pressure to commercialize developments rapidly or at prices that may not fully recover the associated investment, and the effect on demand resulting from customers’ research and development, capital expenditure plans and capacity utilization. If we are unable to keep up with our customers’ demands, our sales, earnings and operating results may be negatively affected.
Our operations are subject to various hazards that may cause personal injury or property damage and increase our operating costs, and which may exceed the coverage of our insurance.
There are inherent risks to our operations. Our workers are subject to the usual hazards associated with providing services on construction sites, while our plant personnel are subject to the hazards associated with moving and storing large quantities of heavy raw materials and finished products. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. Although we conduct training programs designed to reduce these risks, we cannot eliminate these risks. We rely on state mandated social insurance for work-related injuries of our employees. However, any claim that exceeds the scope of our insurance coverage, if successful and of sufficient magnitude, could result in the incurrence of substantial costs and the diversion of resources, which could have a material adverse effect on us. In addition, we do not have any business liability, disruption, litigation or property insurance coverage for our operations. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may also materially and adversely affect our ability to operate.
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Our operations may incur substantial liabilities to comply with environmental laws and regulations.
Our ecological environment protection equipment and intelligent mining equipment businesses are subject to laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection. Our failure to have complied with the applicable laws may result in the assessment of administrative, civil and criminal penalties, the incurrence of investigatory or remedial obligations and the imposition of injunctive relief. Resolution of these matters may require considerable management time and expense. In addition, changes in environmental laws and regulations occur frequently and any changes that result in more stringent or costly manufacturing, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to reach and maintain compliance and may otherwise have a material adverse effect on our industry in general and on our own results of operations, competitive position or financial condition.
We depend on our key personnel, and our business and growth prospects may be severely disrupted if we lose their services.
Our future success depends heavily upon the continued service of our key executives. In particular, we rely on the expertise and experience of Xinyang Li, our Chief Executive Officer and Director, Guangfeng Dai, our President, Chief Operating Officer and Chairman, Zhizhong Hu, our Chief Technology Officer and Director, Degang Hou, our Chief Internal Control Officer, and Yue Hu, our Chief Financial Officer. We rely on their industry expertise and experiences in our business operations, and in particular, their business visions, management skills, and working relationships with our employees, our other major shareholders, the regulatory authorities, and many of our clients. If any of them became unable or unwilling to continue in the present position, or if any of them joined a competitor or formed a competing company in violation of their respective employment agreements, we may not be able to replace such executive easily, our business may be significantly disrupted and our financial condition and results of operations may be materially adversely affected.
In addition, we compete for qualified personnel with other industry competitors, and we face competition in attracting skilled personnel and retaining the members of our senior management team. These personnel possess technical and business capabilities, including expertise relevant to the equipment manufacturing, which are difficult to replace. There is intense competition for experienced senior management with technical and industry expertise in this field, and we may not be able to retain our key personnel. Intense competition for these personnel could cause our compensation costs to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals.
We do not purchase business insurance. Any future business liability, disruption or litigation we experience might divert management focus from our business and could significantly impact our financial results.
Availability of business insurance products and coverage in China is limited, and most such products are expensive in relation to the coverage offered. We have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurances on commercially reasonable terms make it impractical for us to maintain such insurances. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Accordingly, a business disruption, litigation or natural disaster may result in substantial costs and divert management’s attention from our business, which would have an adverse effect on our results of operations and financial condition.
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We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.
We may need to obtain additional debt or equity financing to fund future capital expenditures. Any additional equity financing may result in dilution to the holders of our outstanding shares of capital stock. Additional debt financing may put us in situations that would restrict our freedom to operate our business, such as situations that:
| ● | limit our ability to pay dividends or require us to seek consent for the payment of dividends; |
| ● | increase our vulnerability to general adverse economic and industry conditions; |
| ● | require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and |
| ● | limit our flexibility in planning for, or reacting to, changes in our business and our industry. |
We cannot guarantee that we will be able to obtain additional financing on terms that are acceptable to us, or any financing at all, and the failure to obtain sufficient financing could adversely affect our business operations.
Potential disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements, which could adversely affect our results of operations, cash flows and financial condition.
Potential changes in the global economy may affect the availability of business and consumer credit. We may need to rely on the credit markets, particularly for short-term borrowings from banks in China, as well as the capital markets, to meet our financial commitments and short-term liquidity needs if internal funds from our operations are not available to be allocated to such purposes. Disruptions in the credit and capital markets could adversely affect our ability to draw on such short-term bank facilities. Our access to funds under such credit facilities is dependent on the ability of the banks that are parties to those facilities to meet their funding commitments, which may be dependent on governmental economic policies in China. Those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.
Long-term disruptions in the credit and capital markets could result from uncertainty, changing or increased regulations, reduced alternatives or failures of financial institutions could adversely affect our access to the liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures may include deferring capital expenditures, and reducing or eliminating discretionary uses of cash. These events would adversely impact our results of operations, cash flows and financial position.
Changes in China’s environmental laws and policies may affect our financial condition.
Our ecological environment protection equipment is primarily used in the environment protection and real estate industries. Our business is in line with China’s current focus on environmental protection policies, specifically the 15th Five-Year Plan (2026-2030). The 15th Five-Year Plan emphasizes accelerating the comprehensive green transformation of economic and social development and achieving certain carbon peaking goals. Key priorities under the Plan include implementing the dual control system of total carbon emissions and emission intensity, promoting energy conservation and carbon reduction in key industries. These policies collectively drive sustained demand for ecological and environmental protection technologies and equipment. However, should China alter its environmental policies towards less regulation, we believe demand for our ecological environment protection equipment will decrease, adversely impacting our results of operations, cash flows and financial position.
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We have granted, and may continue to grant, share options, restricted shares and other forms of share-based incentive awards, which have resulted in and may continue to result in significant share-based compensation expenses.
We have adopted multiple equity incentive plans over the years, including most recently, the 2022 Share Incentive Plan in December 2022, for the purpose of granting share-based compensation awards to employees, non-employee directors, officers and consultants to incentivize their performance and align their interests with ours. The 2022 Share Incentive Plan, as amended, allows for issuance of up to 360,000 Class A Shares to employees, non-employee directors, officers and consultants for services rendered to the Company, with an automatic semi-annual share reserve increase by a number equal to the lesser of (i) 5% of the total number of Class A Shares issued and outstanding on December 31 of the calendar year immediately preceding the date of such increase or on June 30 of the same calendar year and (ii) a number of Class A Shares determined by the Compensation Committee.
We account for compensation costs for certain share awards granted using a fair value-based method and recognize expenses in our consolidated statement of income in accordance with U.S. GAAP. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to our key personnel and employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.
Failure to make adequate contributions to certain employee benefit plans as required by PRC regulations may subject us to penalties.
We are required under PRC law to participate in various government sponsored employee benefit plans, including social security insurance, housing provident funds and other welfare-oriented payments, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. We have not made adequate employee benefit payments to the housing provident fund. We may be required to pay the shortage of our contributions. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Since our operations and assets are located in China, shareholders may find it difficult to enforce a U.S. judgment against the assets of our Company, our directors and executive officers.
Our operations and assets are located in China. In addition, a majority of our executive officers and directors are non-residents of the U.S., and substantially all the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.
We have a limited operating history in the newly developed businesses and may be unable to achieve or sustain profitability or accurately predict the future results of such businesses.
We started our research development and manufacturing mining equipment in March 2024, and smart craft beer machines in June 2024. Because these businesses and their markets are both new and evolving, evaluating the current businesses and their future performances is difficult and based upon limited historical data, a changing market, and the ability to influence the market. This applies to predictions of both revenue and expenses.
In addition, to build our businesses, the continued investment in new technology and services will add to our operating expenses. We cannot assure you that our businesses will be profitable, that we will be able to sustain profitability, or of the magnitude of our profitability. Our financial performance may be adversely impacted if we fail to address the risks described in this “Item 3. Key Information — D. Risk Factors” section, or any other risks and challenges that we may face. If the assumptions for addressing the risks that we have identified and other business conditions are incorrect, our plans for operating the business may be impacted and we may not achieve our planned and expected results.
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Growing the newly developed businesses requires us to continue investing in technology, resources, and new business capabilities; these investments may contribute to losses, and we cannot guarantee that any will be successful or contribute to profitability.
Our plans for operating our newly developed businesses and leading further growth of our product offerings, include developing new products. These investments could contribute to losses, and we cannot guarantee whether or when any of the new products will become operational, be successful with customers, or whether they will be profitable.
Failure to maintain the quality of our equipment products manufactured by third-party suppliers could have a material and adverse effect on our reputation, financial condition, and results of operations.
Maintaining the quality of our equipment products is our core value and critical to our success. We currently outsource the manufacturing of our ecological environmental protection equipment, intelligent mining equipment, and smart craft beer machines to third-party suppliers. We pay close attention to quality control, monitoring each step in the process from procurement to production and from inspection to delivery (see “Item 4. Information on the Company—Quality control” in this annual report). Yet, maintaining consistent product quality depends significantly on the effectiveness of our quality control system and the cooperation and performance of our third-party suppliers which manufacture our products. While we conduct supplier qualification reviews, on-site inspections, and sample testing, we do not have direct control over the day-to-day operations of these third-party suppliers. As a result, despite our efforts, we may not completely eliminate the risk of defects or quality failures. We may fail to detect or cure defects as a result of a number of factors, many of which are outside our control, including:
| ● | technical or mechanical malfunctions in the manufacturing process; |
| ● | human error or malfeasance by our quality control personnel; |
| ● | tampering by third parties; and |
| ● | defective raw materials or manufacturing equipment. |
In addition, the quality of the products or services provided by our suppliers is subject to factors beyond our control, including the effectiveness and the efficiency of their quality control system. There can be no assurance that our suppliers may always be able to adopt appropriate quality control systems and meet our stringent quality control requirements in respect of the products they manufacture. Any failure of our suppliers to provide satisfactory products could harm our reputation and adversely impact our operations.
Any failure to offer high quality services and support may adversely affect our relationships with our customers and prospective customers, and adversely affect our business, results of operations and financial condition.
Our clients depend on our customer support team to assist them in installing and testing the equipment effectively, to help them to resolve issues quickly, and to provide ongoing support. If we do not devote sufficient resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and could discourage prospective customer from purchasing and using our equipment. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to modify the nature, scope and delivery of our customer support to compete with changes in the support services provided by our competitors. Increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our business, results of operations and financial condition. Any failure to maintain high quality customer support, or a market perception that we do not maintain high quality customer support, could erode customer trust and adversely affect our reputation, business, results of operations and financial condition.
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The ecological environment protection equipment market in which we participate is competitive, and if we do not compete effectively, our business, results of operations and financial condition could be harmed.
The ecological environment protection equipment market is competitive and influenced by evolving regulatory standards, environmental policies, and customer demand for cost-effective and compliant solutions. Key competitive factors in this industry include technical performance and reliability, compliance with national and local environmental regulations, cost-effectiveness, energy and resource efficiency, customization capabilities, project execution track record, and after-sales service and maintenance support. See “Item 4. Information on the Company— Competition” in this annual report.
Some of our existing competitors and potential competitors have larger scale, greater brand name recognition, longer operating histories, more established customer relationships and greater resources than we do. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with greater depth than our products or in different geographies. Our current and potential competitors may develop and market new products and services with comparable functionality to ours, and this could force us to decrease prices in order to remain competitive. With the introduction of new products and services and new market entrants, we expect competition to intensify in the future. In addition, some of our customers may choose to use our products and our competitors’ products at the same time.
Defects or errors in our equipment or in the software embedded in our equipment could diminish demand for our products, harm our business and results of operations and subject us to liability.
Our customers use our equipment for important aspects of their businesses, and any errors, defects or disruptions to our products and any other performance problems with our products could damage our customers’ businesses and, in turn, hurt our brand and reputation. We provide regular updates to the software embedded in our equipment, which may contain, undetected errors, failures, vulnerabilities and bugs when first introduced or released. The reliability and continuous availability of the software embedded in our equipment is critical to our business. However, such software may contain errors, defects, security vulnerabilities or software bugs that are difficult to detect and correct, particularly when first introduced or when new versions or updates are released. Our equipment software may contain errors or real or perceived defects, security vulnerabilities, failures or software bugs that we may be unable to successfully correct in a timely manner or at all, which may result in revenue loss, increased operational costs, a delay or loss in market acceptance of our equipment, negative publicity, loss of competitive position, lower customer retention or claims by customers for losses sustained by them and damage to our reputation and brand, any of which could have an adverse effect on our business, results of operations and financial condition. In such an event, we may be required, or may choose, to allocate additional resources in order to address these issues. Also, we do not carry insurance to compensate us for any losses that may result from claims arising from defects or disruptions in our solutions or products. As a result, our reputation and our brand could be harmed, and our business, results of operations and financial condition may be adversely affected.
In addition, our products must interoperate with our customers’ existing internal networks and infrastructure. These complex internal systems are developed, delivered, and maintained by the customer and a myriad of vendors and service providers. As a result, the components of our customers’ infrastructure have different specifications, rapidly evolve, utilize multiple protocol standards, include multiple versions and generations of products, and may be highly customized. We must be able to interoperate and provide products to customers with highly complex and customized internal networks, which requires careful planning and execution between our customers, our customer support teams and, in some cases, our channel partners. Further, when new or updated elements of our customers’ infrastructure or new industry standards or protocols are introduced, we may have to update or enhance our technologies and infrastructure to allow us to continue to provide our products or solutions to customers. Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our products and solutions, which could make it difficult for our products and solutions to function properly in customer internal networks and infrastructures that include these third-party products.
We may not deliver or maintain interoperability quickly or cost-effectively, or at all. These efforts require capital investment and engineering resources. If we fail to maintain compatibility of our solutions and products with our customers’ internal networks and infrastructures, our customers may not be able to fully utilize our solutions and products, and we may, among other consequences, lose or fail to increase our market share and experience reduced demand for our products which would materially harm our business, results of operations, and financial condition.
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We could be harmed by data loss or other security breaches.
Because we process, store, and transmit data, failure to prevent or mitigate risks of data loss or other security breaches, including breaches of our vendors’ or customers’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us, deter customers from using our products and services, and otherwise harm our business and reputation. We use third-party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some of our systems have experienced past security breaches, and, although they did not have a material adverse effect on our operating results, there can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to protect the information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor or customer, such measures cannot provide absolute security. Moreover, in the event of a major system disruption, hardware malfunction or damages to data centers and servers caused by technologies failures, natural disasters or man-made problems, we may experience significant loss of data which would materially and adversely affect our business, financial condition and results of operations.
Our use of open source or third-party software could negatively affect our ability to sell our products and solutions, and subject us to possible litigation.
Our products incorporate open source software, and we expect to continue to incorporate open source software in our products in the future. Courts have interpreted few of the licenses applicable to open source software, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, although we have implemented policies to regulate the use and incorporation of open source software into our products and solutions, we cannot be certain that we have not incorporated open source software in our products in a manner that is inconsistent with such policies. If we or our employees fail to comply with open source licenses, we may be subject to certain requirements, including requirements that we offer our products that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating revenues from customers using products that contained the open source software and required to comply with onerous conditions or restrictions on these products. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products and to re-engineer our products or discontinue offering our products to customers in the event re-engineering cannot be accomplished on a timely basis. Any of the foregoing could require us to devote additional research and development resources to re-engineer our products, could result in customer dissatisfaction and may adversely affect our business, results of operations and financial condition.
We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property could adversely affect our business, results of operations and financial condition.
Our success depends, in part, on our ability to protect our brand and the proprietary methods and technologies that we develop under patent and other intellectual property laws in China so that we can prevent others from using our inventions and proprietary information. As of the date of this annual report, we have registered 49 patents, 1 pending patent applications, 26 trademarks, 6 software copyrights, and 8 domain names in China. There can be no assurance that any patents that have been issued or that may be issued in the future will provide significant protection for our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business, results of operations and financial condition may be adversely affected. There can be no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file trademark applications and patent applications, will be adequate to protect our business. We may have to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights, determine the validity and scope of our proprietary rights or those of others, or defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of significant resources, the narrowing or invalidation of portions of our intellectual property and have an adverse effect on our business, results of operations and financial condition. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant’s own intellectual property. Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation.
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We also rely, in part, on confidentiality agreements and non-compete agreements with our business partners, employees, consultants, advisors, customers and others in our efforts to protect our proprietary technology, processes and methods. These agreements may not effectively prevent disclosure of our confidential information, and it may be possible for unauthorized parties to copy our software or other proprietary technology or information, or to develop similar software independently with us lacking an adequate remedy for unauthorized use or disclosure of our confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in these cases, we would not be able to assert any trade secret rights against those parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, to the extent we expand our international activities, our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase.
We cannot be certain that our means of protecting our intellectual property and proprietary rights will be adequate or that our competitors will not independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights, our business, results of operations and financial condition could be adversely affected.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Shares may decline.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in preparing our consolidated financial statements in connection with this annual report, we identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. The material weaknesses identified relate to (i) a lack of full-time accounting and financial reporting personnel with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of an effective review by management for the year ended accounting close and reporting; and (iii) a lack of adequate review procedures on the measurement of share-based compensation which led to restatement of our unaudited financial statements for the six months ended June 30, 2023. As a result, our management has concluded that our internal control was not effective as of December 31, 2025.
Following the identification of the material weaknesses and control deficiencies, we have taken remedial measures, including (i) hiring external financial consultants with experience in U.S. GAAP and SEC reporting obligations; and (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel. We plan to continue implementing the above remedial initiatives including engaging more qualified accounting personnel and consultants with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting and U.S. GAAP training and to set up a financial and system control framework. See “Item 15. Controls and Procedures.”
However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.
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We are no longer an “emerging growth company.” If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
Risks Related to Our Class A Shares
Failure to meet Nasdaq’s continued listing requirements could result in the delisting of the Company’s Class A Shares, negatively impact the price of the Company’s Class A Shares and negatively impact its ability to raise additional capital.
As previously disclosed, on January 29, 2025, we received a delisting determination letter from The Nasdaq Stock Market LLC (“Nasdaq”) due to failure to comply with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). We requested a hearing before a Nasdaq Hearings Panel (the “Panel”). Following the hearing before the Panel, at which we outlined our plan of compliance, we received a letter, dated March 28, 2025, from Nasdaq notifying us that the Panel has concluded that we have regained compliance with the Listing Rules of The Nasdaq Stock Market. We remained on a Discretionary Panel Monitor, pursuant to Listing Rule 5815(d)(4)(A), for a one-year period from the date of the Letter, which period expired March 28, 2026. As of the date of this report, we are fully compliant with the Nasdaq continued listing standards.
There can be no assurance that we will not receive deficiency notifications from Nasdaq in the future. A decline in the closing price of our Class A Shares could result in a breach of the requirements for listing on the Nasdaq Capital Market. If we do not maintain compliance, Nasdaq could commence suspension or delisting procedures in respect of our Class A Shares. The commencement of suspension or delisting procedures by an exchange remains at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, our ability to raise additional necessary capital through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted Class A Shares, we would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such Class A Shares. A suspension or delisting would likely decrease the attractiveness of our Class A Shares to investors and cause the trading volume of our Class A Shares to decline, which could result in a further decline in the market price of our Class A Shares.
In the event that our Class A Shares are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in our Class A Shares because they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our Class A Shares could be considered to be a “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Class A Shares, which could severely limit the market liquidity of such Class A Shares and impede their sale in the secondary market.
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A U.S. broker-dealer selling a penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock,” a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks.”
The market for “penny stock” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage potential acquirors from pursuing any change of control transactions that holders of our Class A Shares may view as beneficial.
As approved at our 2024 Annual General Meeting of Shareholders, we have adopted a dual-class share structure such that our Shares consist of Class A Shares and Class B Shares. In respect of matters requiring the votes of shareholders, holders of Class A Shares are entitled to one vote per share, while holders of Class B Shares are entitled to 1,000 votes per share. Only Class A Shares are listed on Nasdaq.
As of the date of this annual report, through REIT International Development (Group) Co., Limited (“REIT International”), Mr. Guangfeng Dai, Mr. Zhizhong Hu, and Mr. Degang Hou, each holding 20%, 20% and 20% ownership, of REIT International, respectively, beneficially own 60% of our issued Class B Shares. As of the date of this annual report, the Class B Shares they held in the aggregate accounted for approximately 7.1% of our total issued and outstanding Shares and 98.7% of the aggregate voting power of our total issued and outstanding Shares. See “Item 6. Directors, Senior Management and Employees – E. Share ownership.” and “Item 7. Major Shareholders and Related Party Transactions.”
As a result of the dual-class share structure and the concentration of ownership, holders of our Class B Shares will have control over matters such as decisions regarding (i) mergers, consolidations and the sale of all or substantially all of our assets, (ii) election or removal of directors, (iii) making amendments to our memorandum and articles of association, (iv) whether to issue additional shares, including to them, (v) employment, including compensation arrangements, and (vi) other significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our Class A Shares. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A Shares may view as beneficial.
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The dual-class structure of our Shares may adversely affect the trading market for our Class A Shares.
We cannot predict whether our dual-class share structure with disproportionate voting rights will result in a lower or more volatile market price of the Class A Shares, adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. As a result, our dual-class voting structure may prevent the inclusion of the Class A Shares in such indices, which could adversely affect the trading price and liquidity of the Class A Shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures and our dual-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of the Class A Shares could be adversely affected.
If we are classified as a passive foreign investment company, United States taxpayers who own our Class A Shares may have adverse United States federal income tax consequences.
Based on the nature of our business activities, we may be classified as a passive foreign investment company (“PFIC”), by the U.S. Internal Revenue Service (“IRS”), for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, a U.S. investor will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either:
| ● | 75% or more of our gross income in a taxable year is passive income; or |
| ● | the average percentage of our assets by value in a taxable year that produce or are held for the production of passive income (which includes cash) is at least 50%. |
The calculation of the value of our assets is based, in part, on the then market value of our Class A Shares, which is subject to change. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raised in our prior public offerings. We cannot assure you that we will not be a PFIC for any taxable year. See “Taxation – Material United States Federal Income Tax Considerations – Passive Foreign Investment Company.”
Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
The trading market for our Class A Shares will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a young public company, we may be slow to attract research coverage and the analysts who publish information about our Class A Shares will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.
Shares eligible for future sale may adversely affect the market price of our Class A Shares, as the future sale of a substantial amount of outstanding Class A Shares in the public marketplace could cause the price of our Class A Shares to decrease.
The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Class A Shares.
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General Risk Factors
Our classified board structure may prevent a change in control of our Company.
Our board of directors is divided into three classes of directors. Class A directors hold office for a term expiring at the 2026 annual meeting of shareholders, Class B directors hold office for a term expiring at the 2027 annual meeting of shareholders, and Class C directors hold office for a term expiring at the 2028 annual meeting of shareholders. Directors of each class are elected for three-year terms upon the expiration of their current terms. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our shareholders.
As the rights of stockholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.
Our corporate affairs are governed by (among other things) our constitutional documents (consisting of our M&A) and the British Virgin Island’s primary corporate legislation, the British Virgin Islands Business Companies Act, 2004 (as amended) (the “BVI Act”). The British Virgin Islands has a common law legal system based on the English model, comprising statute law and binding case precedents influenced by the laws of England and other Commonwealth jurisdictions, with a right of final appeal to the Privy Council in London. The rights of shareholders to take legal action against our directors, actions by minority stockholders and the fiduciary responsibilities and duties of our directors under British Virgin Islands law are to a large extent found under common law and the BVI Act. While decisions of the BVI courts are treated as precedents in the usual way, reference often needs to be made to decided cases in other jurisdictions. While the common law of England is recognised in the jurisdiction by way of statutory enactment, this is subject to local conditions that give the court a degree of flexibility. However, in practice, the courts ordinarily treat English judgments as highly persuasive (although in certain cases, the BVI courts have declined to follow English precedents, which is normally justified by distinguishing on the basis that the position is modified in the BVI by statute). The BVI forms part of the wider jurisdiction of the Eastern Caribbean Supreme Court, so judgments from other courts in the same jurisdiction are normally persuasive, even though they are not technically binding upon the court. Judgments from other leading Commonwealth jurisdictions, particularly Australia and Hong Kong, are also often considered by the BVI courts. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law may not be as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands may have a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.
British Virgin Islands companies may not be able to initiate shareholder derivative actions in a federal court of the United States and may have to proceed with such action in the British Virgin Islands, thereby limiting shareholders’ ability to protect their interests.
Whether a British Virgin Islands company has standing to initiate a shareholder derivative action in a federal court of the United States is a matter of United States law and in such case, that company may have to proceed with such action in the British Virgin Islands. Permission is required from the BVI Court in order for a shareholder of a BVI company to bring a derivative action in the BVI. The circumstances in which any such action may be brought, and the procedures and defenses that may be available with respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal monetary judgment of a foreign court of competent jurisdiction without retrial on the merits.
The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.
Under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, in our case, our M&A. Shareholders are entitled to have the affairs of the Company conducted in accordance with the general law and the Memorandum and Articles.
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We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.
We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements and we do not intend to file quarterly reports. We are not required to disclose detailed individual executive compensation information and we do not intend to disclose detailed executive compensation information. Furthermore, our directors and executive officers are subject to the insider short-swing profit disclosure and recovery regime.
As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we do plan to disclose material information to all investors at this time. In addition, we are still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law, including the laws of the BVI. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Mail addressed to the Company at its registered office may be delayed due to forwarding practice.
Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by the Company to be dealt with. None of the Company, its directors, officers, advisors or service providers (including the organization which provides registered office services in the BVI) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
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Item 4. Information on the Company
| A. | History and development of the company. |
Corporate History
ReTo is a BVI business company with limited liability, established under the laws of the BVI on August 7, 2015 as a holding company to develop business opportunities in China.
In November 2017, ReTo completed its initial public offering (“IPO”) of 644 common shares at a public offering price of $27,500 per share. In connection with the IPO, the Company’s common shares began trading on the Nasdaq Capital Market beginning on November 29, 2017 under the symbol “RETO.”
In January 2016, REIT Holdings was incorporated as a Hong Kong limited liability company wholly owned by ReTo. Prior to the December 2024 Divestiture, REIT Holdings had been a holding company of multiple direct or indirect subsidiaries of ReTo in China, including but not limited to Beijing REIT, REIT Ordos, and REIT Technology.
In April 2023, ReTo entered into an instrument of transfer with the original shareholder of Sunoro Holdings for the acquisition of 100% of the equity interests in Sunoro Holdings, for a total consideration of HKD 1, after which ReTo became the 100% owner of Sunoro Holdings’ equity interest. Sunoro Holdings is a holding company with no operation.
In November, 2022, Honghe ReTo was incorporated as a limited liability company in mainland China and a wholly-owned subsidiary of REIT Ordos at that time. In August 2023, ReTo Hengda was incorporated as a PRC limited liability company wholly owned by Sunoro Holdings. ReTo Hengda is a holding company with no operation. In August 2023, REIT Ordos transferred all of its equity interest of Honghe ReTo to ReTo Hengda for no consideration, after which ReTo Hengda became a 100% owner of Honghe ReTo’s equity interest.
In August 2023, REIT Ordos transferred all of its 100% equity interest of REIT Equipment to ReTo Hengda for no consideration, after which ReTo Hengda became a 100% owner of REIT Equipment’s equity interest. REIT Equipment is mainly engaged in the business of development and sales of ecological environment protection equipment and mining equipment.
In January 2024, New REIT International Co., Limited was incorporated as a Hong Kong limited liability company wholly owned by ReTo. New REIT International Co., Limited is a holding company with no operation.
In June 2024, ReTo Hengye was incorporated as a PRC limited liability company wholly owned by ReTo Hengda. ReTo Hengye is mainly engaged in the business of manufacturing, research, development and sales of smart craft beer machines.
In December 2024, ReTo sold all of its shares in REIT Holdings to a certain buyer for a purchase price of US$80,000, after which ReTo ceased to hold any interest in REIT Holdings and its subsidiaries.
In April 2025, ReTo acquired a 51% equity interest in MeinMalzeBier from certain third-party individuals for a total consideration of $3,978,000 in cash and 936,000 Class A Shares.
In October 2025, Beijing ReTo Xincheng Technology Co., Ltd. was established in China, which is a wholly-owned subsidiary of ReTo Hengye.
In November 2025, Zhangjiakou ReTo Intelligent Equipment Manufacturing Co., Ltd.. was established in China, which is a wholly-owned subsidiary of REIT Equipment. Starting from 2026, its business will mainly focus on the production of spare parts.
In February 2026, ReTo acquired a 51% equity interest in Seven Arrows Supply Chain Limited, a British Virgin Islands business company, which is primarily engaged in the distribution and sales of craft beer, from a certain third-party individual for a total consideration of 8,670,000 Class A Shares, subject to adjustments, as more fully described under “Item 4. Information on the Company – B. Business Overview – Recent Developments – Acquisition of Seven Arrows”.
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Corporate Structure
The diagram below summarizes our corporate structure as of the date of this annual report:
| B. | Business overview. |
Overview
Prior to the December 2024 Divesture (as defined below), we were mainly engaged in the manufacture and distribution of eco-friendly construction materials as well as equipment used for the production of these eco-friendly construction materials as well as ecological restoration projects and software development services and solutions utilizing Internet of Things technologies.
To navigate the impacts of the pandemic and the evolving economic landscape, we undertook a strategic review and analysis and, in December 2024, completed the December 2024 Divestiture, which involved the divestment of non-performing assets and a capital restructuring aimed to enhance our liquidity and sharpening our strategic focus.
Following the December 2024 Divestiture, we ceased operations in the business of manufacture and distribution of eco-friendly construction materials, ecological restoration projects and software development services and solutions utilizing Internet of Things technologies. We have since transitioned our focus toward the design, research and development, and sale of ecological environmental protection equipment and intelligent equipment. Our offerings mainly include comprehensive solid waste treatment solutions and equipment, with applications also extending to the research, development, and production of mining equipment and smart craft beer machines.
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We currently provide a full spectrum of products and solutions related to ecological environment protection equipment and intelligent equipment, from solid waste treatment equipment, mining equipment, to smart craft beer machine. We differentiate us from our competitors through strong research and development capabilities and advanced technologies and systems. We leverage our strengths in R&D and sales of equipment to enhance existing products and develop new solutions that align with market needs and future growth opportunities.
Due to China’s recent emphasis on environmental protection, we believe there is a unique opportunity to grow our company, which we expect will be driven by demand for our ecological environment protection equipment. To further expand our equipment business, we conducted research into the mining markets of East African countries, and identified that the area is rich in mineral resources so we believe it will have strong demand for mining equipment. Additionally, we have identified significant growth potential in demand for craft beer in China in the coming years, which we expect to drive demand for smart craft beer machines. We believe our technological know-how and reputation and offerings of products and services will enable us to seize these opportunities.
Our clients are located throughout mainland China, and internationally in Middle East, Southeast Asia, and Africa. We are actively pursuing additional clients for our products, equipment, internationally in the Middle East, Southeast Asia, and Africa and in additional provinces of China. We seek to establish long-term relationships with our clients by producing and delivering high-quality products and equipment and then providing technical support and consulting services after equipment is delivered.
Divesture in December 2024
On December 30, 2024, ReTo entered into a Share Sale Agreement with Zhao Duan Wen, pursuant to which the Company agreed to sell all of its shares in REIT Holdings to the buyer for a purchase price of US$80,000 (the “December 2024 Divesture”). REIT Holdings is the holding company of multiple indirect subsidiaries of ReTo, which were engaged in in the business of manufacture and distribution of eco-friendly construction materials, ecological restoration projects and software development services and solutions utilizing Internet of Things technologies. The board of directors of the Company approved the December 2024 Divesture based on considerations that these lines of business had experienced significant losses over the years and that the Company plans to focus on existing and new businesses that are more profitable and promising. The terms of the Share Sale Agreement, including the purchase price, were negotiated based on a valuation report of a third-party appraisal firm.
Pursuant to the Share Sale Agreement, the buyer shall bear any debts, claims and liabilities of REIT Holdings existing or potentially contingent prior to the closing of the December 2024 Divestiture, or any default liabilities arising out of the management of the business. The buyer may not make any claim under the Share Sale Agreement, including for a breach of warranty, unless full details of the claim have been notified to ReTo within 12 months from the closing. The Share Sale Agreement contains customary representations, warranties and covenants by the parties. ReTo’s total liability for any claims, subject to exclusions, under the Share Sale Agreement is limited to US$100,000.
The December 2024 Divestiture closed on December 31, 2024. Following the December 2024 Divestiture, we are no longer engaged in the business of manufacture and distribution of eco-friendly construction materials, ecological restoration projects and software development services and solutions utilizing Internet of Things technologies and focus on research and sales of environmental protection technologies and equipment, intelligent equipment and machineries and application of new energy technologies.
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Recent Developments
Acquisition of MeinMalzeBier in April 2025
On April 25, 2025, ReTo completed the acquisition (the “MeinMalzeBier Acquisition”) of a 51% equity interest in MeinMalzeBier, a BVI business company, pursuant to a Share Exchange Agreement, dated April 25, 2025, by and among ReTo, MeinMalzeBier, and MeinMalzeBier’s existing shareholders. The total consideration for the MeinMalzeBier Acquisition consisted of $3,978,000 in cash and 936,000 newly issued Class A Shares, with an aggregate value of $15,912,000. All the 936,000 Class A Shares issued as consideration were placed in escrow and are subject to a three-year earnout period based on the post-closing financial performance of MeinMalzeBier’s two wholly-owned PRC subsidiaries, Shenzhen MMB and Dirong. The securities issued were made pursuant to exemptions from registration under Regulation S and/or Regulation D of the Securities Act.
In connection with the MeinMalzeBier Acquisition:
| 1. | ReTo Hengda entered into certain Management Services Agreement, dated April 25, 2025, with Shenzhen MMB and Dirong, under which ReTo Hengda will provide management and advisory services to Shenzhen MMB and Dirong in exchange for performance-based fees of up to $3,978,000 during the three-year period following the closing of the MeinMalzeBier Acquisition; and |
| 2. | ReTo entered into certain Advisory and Consulting Agreement, dated April 25, 2025, with a third-party consultant, pursuant to which ReTo agreed to issue an additional 152,941 Class A shares, with an aggregate value of $2.6 million, to the third-party consultant in consideration of its advisory services provided in connection with the MeinMalzeBier Acquisition. The securities will be issued pursuant to exemptions from registration under Regulation D of the Securities Act. |
2025 Streeterville Financing
On June 16, 2025, ReTo entered into a securities purchase agreement (the “Streeterville SPA”) with Streeterville Capital, LLC (“Streeterville”). Pursuant to the Streeterville SPA, ReTo agreed to issue and sell to Streeterville one or more pre-paid purchases (each, a “Pre-Paid Purchase” and collectively, the “Pre-Paid Purchases”) at an aggregate purchase price of up to $10,000,000 for the purchase of the Class A Shares. Pursuant to the Streeterville SPA, ReTo issued (i) 5,722 Class A Shares to Streeterville (the “Commitment Shares”) as consideration for Streeterville’s commitment and (ii) 127,000 Class A Shares to Streeterville (the “Pre-Delivery Shares”) for $63.50. ReTo received gross proceeds of $3,165,000 from the initial Pre-Paid Purchase, before deducting an original issue discount of $150,000 and a transaction expense amount of $15,000. The proceeds from the Pre-Paid Purchases are expected to be used for working capital and other corporate purposes.
The Streeterville SPA provides for an initial Pre-Paid Purchase in the principal amount of $3,165,000, before deducting an original issue discount (the “OID”) of $150,000 and a transaction expense amount of $15,000 (the “Initial Pre-Paid Purchase”). The OID for each subsequent Pre-Paid Purchase after the Initial Pre-Paid Purchase will be five percent (5%) of the amount set forth in the applicable Request (as defined in the Streeterville SPA) and each subsequent Pre-Paid Purchase will accrue interest at the rate of seven percent (7%) per annum. Within a committed two-year period, and subject to certain specified conditions, ReTo may request the issuance of additional Pre-Paid Purchases to Streeterville, with each purchase amount no less than $250,000, provided that the total outstanding balance of all Pre-Paid Purchases does not exceed $2,000,000.
October 2025 Offering
On October 23, 2025, ReTo entered into a securities purchase agreement (the “October 2025 SPA”) with certain purchasers (the “October 2025 Purchasers”), in connection with the offer and sale (the “October 2025 Offering”) of an aggregate of 274,725 Class A Shares, at a price of US$5.8 per share, with the sale being made at US$5.2 per share, for an aggregate offering amount of US$1,428,571. The October 2025 Offering closed on October 25, 2025.
Acquisition of Seven Arrows
On February 27, 2026, ReTo entered into a Share Exchange Agreement with Seven Arrows Supply Chain Limited, a British Virgin Islands business company (“Seven Arrows”) and (iii) Rei Shiba (“Seller”) to buy, an aggregate of 25,500 ordinary shares, par value $0.01 per share, of Seven Arrows, representing fifty-one percent (51%) of the issued and outstanding equity interests of Seven Arrows in exchange for 8,670,000 newly issued Class A Shares of ReTo, at a price of $1.00 per share (the “Share Exchange”). The Share Exchange closed on February 27, 2026. All 8,670,000 Class A Shares were deposited into a segregated escrow account and shall vest or be subject to forfeiture during the thirty-six (36) month period following the closing. In addition, Seller will have a contingent right to receive the escrow earnout shares after the closing based on the net income and the contributed profits of Seven Arrows’ operating company (the “Operating Company”) during the three (3) fiscal years ending December 31, 2026, 2027 and 2028 (the “Earnout Period”).
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In connection with the Share Exchange, on February 27, 2026, ReTo, ReTo Hengda and the Operating Company entered into a management services agreement (the “Management Services Agreement”), pursuant to which ReTo Hengda will provide consulting and management advisory services to the Operating Company. In exchange for ReTo Hengda’s services, the Operating Company will pay an aggregate management fee of up to $2,601,000, subject to certain adjustment pursuant to the Management Services Agreement during the Earnout Period.
In connection with the Share Exchange, on February 27, 2026, ReTo entered into an Advisory and Consulting Agreement with certain consultant (the “Consultant”), pursuant to which ReTo agreed to issue the Consultant and/or its designees an aggregate of 867,000 Class A Shares, at a price of $1.00 per share, with an aggregate value of $867,000 within five business days following the closing of the Share Exchange, in consideration for the Consultant’s advisory services rendered related to the Share Exchange.
Tropical Fruit Cultivation Project
As part of our commitment to agricultural innovation and regional development, we have launched a multi-phase Tropical Fruit Cultivation Project focused on the R&D and large-scale production of tropical fruit varieties in northern climates. Through strategic partnerships, we have already successfully completed trial planting and technical validation for over 20 tropical fruit varieties. Having completed the pre-construction infrastructure, including site roads, temporary facilities, and power systems, we intend to complete Phase I construction and receive final regulatory approvals by 2026, which we expect will facilitate the first commercial-scale harvest. We anticipate commencing Phase II in 2027 to achieve full planting capacity; however, the successful realization of these milestones is subject to risks regarding biological yield stability, weather-related impacts, and our ability to maintain technical R&D milestones.
Industry and Market Opportunities
Ecological Environment Protection Equipment Market
According to the Guiding Opinions on Promoting the High-Quality Development of the Environmental Protection Equipment Manufacturing Industry issued by the Chinese government authorities, the total value of China’s environmental protection equipment industry reached RMB920 billion in 2024, with a compound annual growth rate (“CAGR”) of 6%. As global environmental awareness continues to rise, countries around the world are strengthening environmental protection efforts, driving sustained growth in demand for environmental protection equipment. Developing countries, in particular, face serious environmental challenges among rapid industrialization and urbanization, which creates a pressing need for advanced equipment to improve environmental quality, especially in our key target regions such as Southeast Asia and Central Asia along the Belt and Road Initiative.
Mining Equipment Market
According to a report by Mordor Intelligence, the global mining equipment market reached $98 billion in 2024 and is projected to reach $135 billion by 2029, representing a CAGR of approximately 5.12%. Emerging markets in regions such as Southeast Asia, Central Asia, and Africa are experiencing rapid economic development, driving increasing demand for infrastructure and energy supply, which in turn fuels the development of mineral resources. While these countries are rich in mineral reserves, their mining operations remain relatively underdeveloped, creating a strong need for the introduction of advanced mining equipment and technologies to enhance resource extraction efficiency.
Smart Craft Beer Machine Market
According to an industry report by Fortune Business Insights, the global craft beer market was valued at $95.23 billion in 2020 and is projected to grow from $102.59 billion in 2021 to $210.78 billion by 2028, at a CAGR of 10.83% during the forecast period. The Asia-Pacific region holds the largest market share and is expected to grow at a CAGR of 10.50% over the same period.
Meanwhile, analysis by Market Research Future (MRFR) estimates the size of the China craft beer market at $6.13 billion in 2023. It is projected to grow from $6.53 billion in 2024 to $30 billion by 2035, with a forecast CAGR of approximately 14.87% between 2025 and 2035.
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Our Strategies
We plan to expand our global footprint and promote sales of our ecological and environmental protection equipment, mining equipment, and smart craft beer brewing equipment across the world. To achieve these goals, we are pursuing the following strategies:
Continue to upgrade existing products and develop new products. We are committed to the ongoing research and development of new products addressing specific customer needs. Our plans include advancing the technology and design of our equipment, introducing new product models, such as the large-scale RT18 machine for solid waste utilization, various types of mining equipment, and smart craft beer machines, and launching multi-phase Tropical Fruit Cultivation Project, among others. We believe scientific and technological innovations will help our Company achieve its long-term strategic objectives.
Increase our revenue and market share by expanding our business network internationally. In order to expand our international market share, we plan to add more distributors in Southeast Asia, the Middle East, and Africa. We plan to change our advertising strategies to reach new customers through new methods, such as digital marketing. We are striving to expand our international market, aiming to increase our exports to countries such as the United Arab Emirates and Saudi Arabia in the Middle East, Algeria in North Africa, and India in Asia. We have participated, and will continue to participate, in targeted international marketing events, such as seminars, workshops, and trade shows, where we can meet potential customers, promote our products and deepen our network to further expand our sales. At the same time, we plan to increase investment in marketing and promotion in the international market, especially in Southeast Asia, the Middle East and Africa, such as by participating in various exhibitions, shows, forum or conferences and developing agent relationships, to effectively leverage our established network of agency cooperation there.
Pursue Strategic Acquisitions. We intend to continue to pursue expansion opportunities in existing and new markets, as well as in core and adjacent categories through strategic acquisitions. Specifically, we are seeking to acquire companies engaged in photovoltaic (“PV”) power generation in an effort to further diversify our business. We entered into a letter of intent to build power stations in the distributed PV power generation mode with full on-grid electricity generation in Gansu province in China with a total investment of approximately RMB 600 million. The PV power generation project represents a strategic expansion of our ecological restoration and green infrastructure portfolio, integrating renewable energy technology with our core environmental solutions. This initiative focuses on the deployment of high-efficiency solar arrays and energy storage systems, building upon our proprietary research in luminescent materials and sustainable construction.
Our Products
Ecological Environment Protection Equipment
We conduct our ecological environment protection equipment business mainly through our subsidiary, REIT Equipment. Manufacturing is outsourced to a third-party supplier located in Zhangjiakou City, Hebei Province, China, which fabricates our equipment strictly according to our proprietary engineering specifications and quality control standards. We sell our equipment to customers in China, the Middle East, North Africa and Southeast Asia.
We specialize in the design and integration of advanced solid waste treatment systems engineered to reduce waste volume, optimize material recovery, and improve overall environmental sustainability. Our equipment is highly customizable and built to meet specific client requirements across industrial, municipal, and commercial sectors. Key system components and technologies include:
| ● | Waste incinerators, which enable energy recovery for electricity generation or heating; |
| ● | Waste compactors, designed to compress solid waste for more efficient transport; |
| ● | Shredders, which break down bulky materials to facilitate size reduction and processing; |
| ● | Sorting equipment, which classifies waste based on physical or chemical properties such as density, magnetism, or conductivity to improve recycling outcomes; and |
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Composting systems, which convert organic waste into fertilizer. These technologies collectively support sustainable waste management practices and are applicable across a wide range of industrial, municipal, and commercial settings.
Intelligent Mining Equipment
We conduct our intelligent mining equipment business mainly through our subsidiary, REIT Equipment. Manufacturing is outsourced to a third-party supplier, with its facility located in in Langfang City, Hebei Province, China. The supplier produces our equipment in strict accordance with our technical specifications and quality standards. Our intelligent mining equipment is currently sold to customers primarily in Uganda in Africa.
Our product line consists of advanced equipment designed to support efficient and automated mineral extraction processes. Our product line includes, but is not limited to, the following:
| ● | Gold Grinding Mill. Engineered primarily for extracting gold and other precious metals from ores, this equipment performs crushing and grinding to reduce ore size, facilitates mineral dissociation, and enables initial gravity-based enrichment of gold particles, enhancing the efficiency and recovery rate of subsequent extraction processes. | |
| ● | Jaw Crusher. Designed for primary and secondary crushing of various ores and large materials, this equipment breaks down rocks via compressive force between a moving and fixed jaw. It offers adjustable discharge settings for precise control over output size, making it suitable for a wide range of downstream applications. As a result of its high crushing ratio and stable output, the jaw crusher is a critical equipment used in mining, metallurgy, and construction industries. |
Smart Craft Beer Machines
We conduct our smart craft beer machine business mainly through our subsidiary, ReTo Hengye, and outsource the manufacturing to a supplier, with its facility located in in Tangshan, Hebei province. The supplier manufactures our equipment in accordance with our proprietary technical specifications and quality standards. Our target market for the smart craft beer machines include China (including Hong Kong), Singapore, Malaysia, and other Southeast Asian countries. We believe our machines have several technological advantages over competitors, including:
| ● | Precise temperature control and inert gas preservation technology; |
| ● | Automated operation and intelligent adjustment; |
| ● | Data-driven operation and remote management; |
| ● | Automatic cleaning cycle; |
| ● | Reduction of operating costs; and |
| ● | Energy-saving operation. |
We commenced sales of smart craft beer machines during the first quarter of 2025. Following the MeinMalzeBier Acquisition, we also began the sales of craft beer in addition to the sales of craft beer machines, utilizing the sales network and distribution channels of MeinMalzeBier.
In February 2026, the Company completed the acquisition of Seven Arrows, a company primarily engaged in the distribution and sales of craft beer. This acquisition is expected to enhance the Company’s product portfolio and market presence in the craft beer sector. In addition to craft beer sales, the Company anticipates growth opportunities through the expanded distribution of craft beer machines.
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Customers
Our machinery and equipment are sold in China, Southeast Asia, Africa and the Middle East. Sales of machinery and equipment amounted to approximately $3.1 million, $1.2 million and $0.01 million for the years ended December 31, 2025, 2024 and 2023, respectively. The following is a summary of our sales of machinery and equipment from our continuing operations by geographic market for each of the last three years:
| Region | 2025 | 2024 | 2023 | |||||||||
| Middle East | $ | 1,973,194 | $ | 29,965 | $ | - | ||||||
| India | 215,161 | 236,907 | - | |||||||||
| South Korea | - | 5,281 | - | |||||||||
| China | 651,349 | 887,018 | 9,873 | |||||||||
| Malaysia | 11,819 | 2,920 | 908 | |||||||||
| Africa | 255,151 | - | - | |||||||||
| Maldives | 11,728 | 13,979 | - | |||||||||
| Total | $ | 3,118,402 | $ | 1,176,070 | $ | 10,781 | ||||||
For the year ended December 31, 2025, one customer accounted for 59% of the Company’s total revenue. For the year ended December 31, 2024, two customers accounted for 36% and 13% of the Company’s total revenue, respectively. For the year ended December 31, 2023, one customer accounted for 79% of the Company’s total revenue.
Sales and Marketing
We are increasing our marketing and sales efforts, including a directed focus on online marketing. Online marketing allows us to efficiently educate prospective customers about the products and services we have to offer and assists us in expanding the reach of our market, both in China and internationally. We also participate in exhibitions, trade shows, conferences to introduce our equipment and machineries in China and internationally.
We are also striving to expand our international market, aiming to increase our exports to countries such as the United Arab Emirates and Saudi Arabia in the Middle East, Algeria in North Africa, Uganda in East Africa, India in Asia and so on. In 2025, in order to expand our international market, we have appointed a partner as an agent in the Middle East and participated in various international exhibitions and events. In the future we plan to make efforts to look for more partners to boost our market. We are aiming to adjust our advertising strategies to reach new and existing customers through new methods such as digital marketing. We have participated, and will continue to participate, in targeted international marketing events, such as seminars, workshops, and trade shows, where we can meet potential customers, promote our products and deepen our network to further expand our sales.
We also acquire new customers through word-of-mouth referrals and have found that satisfied customers often become repeat customers. We believe high quality products and excellent services are effective marketing tools to retain and expand our customer base and as such we continue to improve the performance and quality of our equipment and integrate smart technologies into our equipment and improve our after-sale services to better satisfy the customers’ needs. In addition, we believe that continued investment in research and development is important to maintaining the competitiveness of our products and supporting customer retention and expansion. We have upgraded traditional environmental protection equipment by integrating smart technologies to enhance automation and efficiency. Building on this foundation, we developed the large-scale RT18 machine. In response to market demand and leveraging our expertise on research and development of equipment, we have also developed and introduced intelligent mining equipment and smart craft beer machines. We believe that this strategy has been crucial in winning and retaining clients and increasing our ability to compete effectively in our markets.
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Competition
We face competition in both domestic and international markets.
Ecological Environment Protection Equipment
In the domestic market, our primary competitors are local manufacturers in China, while in the international market, we face competition mainly from European companies, particularly those based in Germany. We believe our competitive strength against these competitors is our experienced R&D team, which is focused on improving product functionality and automation through ongoing technological upgrades. We have also introduced higher-capacity models, such as large-scale RT18 machines, to better meet customer needs. Additionally, we consider our sales network and after-sales service capabilities as supportive factors in delivering value to our customers.
Intelligent Mining Equipment
Our mining equipment is primarily developed for markets in East Africa, where traditional gold mining and extraction methods are still largely manual. In these regions, the adoption of automated and intelligent mining equipment is at an early stage, and we currently face relatively limited direct competition. We believe our ability to introduce more modern solutions, along with localized service teams that provide timely support, would position us to address the evolving needs of these markets effectively.
Smart Craft Beer Machines
In the domestic market, we face competition in the general craft beer machine segment. However, in the segment for smart craft beer machines, featuring automated dispensing, self-cleaning systems, and backend data collection and management, is still emerging and relatively less competitive. We believe our ability to offer a diverse range of tailored to different customer needs and application scenarios, combined with the intellectual property right we are applying for this product line, supports our long-term growth in this emerging niche market.
Research and Development
We believe scientific and technological innovation will help our Company achieve its long-term strategic objectives. We conduct research and development in the following areas:
| ● | Solid waste treatment equipment and solutions; | |
| ● | Intelligent mining equipment; and | |
| ● | Smart craft beer machines. |
We conduct our research and development according to strategic objectives, the market and customer needs. Combining application research and advanced research, we will not only improve current products, but also develop future strategic products, realizing technology development in line with market demand.
Prior to the December 2024 Divestiture, our research and development activities mainly focused on solid waste utilization and recycling, ecological environmentally friendly construction materials, technology and equipment, thermal insulation products and related production equipment. Following the December 2024 Divestiture, our research and development activities mainly focus on solid waste treatment equipment and solutions, intelligent mining equipment, and smart craft beer machines.
For the fiscal years ended December 31, 2025, 2024 and 2023, we spent $361,080, $498,168 and nil, respectively, on research and development associated with our continuing operations. We expect to increase our allocation of research and development funds in the future in an effort to enhance our core competence.
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Sample research and development projects from 2023 to 2025 include the following:
Year 2023
| ● | A multi-purpose concrete trimming cutter | |
| ● | A lightweight solid-liquid front-end mixture for 3D printing printhead | |
| ● | A new type of ore gravity separation device | |
| ● | A power milling coaxial integrated additive and subtractive extrusion nozzle |
Year 2024
| ● | RTQT #18 Block Forming Machines | |
| ● | Smart Craft Beer Machines | |
| ● | Intelligent Mining Equipment | |
| ● | Block Splitting Machine Control System | |
| ● | Smart Construction Site Safety Supervision Platform |
Year 2025
| ● | Rotating Device for Transporting Cement Block Products | |
| ● | Pneumatic Clamping Device for Block Machine |
Suppliers and Raw Materials
Prior to the December 2024 Divestiture, our primary raw materials were steel for our manufacturing equipment and iron tailings, fly-ash and cement for our construction materials. We purchased from a variety of suppliers and believe these equipment are widely available.
For the year ended December 31, 2025, we purchased approximately 36%, 16% and 13% of our equipment from three major suppliers, respectively. For the year ended December 31, 2024, we purchased approximately 68% and 13% of our equipment from two major suppliers, respectively. For the year ended December 31, 2023, we purchased approximately 83% and 14% of our equipment from two major suppliers, respectively.
Following the December 2024 Divestiture, we believe we have efficient access to all of the equipment necessary for the manufacturing of our equipment and ecological environment protection equipment, intelligent mining equipment and smart craft beer machines. We believe our relationships with the suppliers of these equipment are strong. We do not expect the prices of such equipment to vary greatly from their current prices, as there has traditionally been little price volatility for such materials.
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Quality Control
We maintain a multi-layered quality control system to ensure that products manufactured by third-party suppliers meet our stringent internal quality standards as well as the specific technical and performance requirements of our customers. While manufacturing is outsourced to qualified third-party facilities, we retain direct oversight of key processes and component sourcing to ensure consistent product quality and to safeguard our proprietary designs and technologies.
To ensure quality assurance across all phases of production, we implement the following measures:
Specification Control: All outsourced products are manufactured in strict accordance with our proprietary engineering drawings, technical specifications, and process documentation. We maintain close collaboration with our suppliers to ensure alignment on production requirements and quality benchmarks.
On-Site Quality Supervision: We deploy dedicated company personnel to be stationed at our manufacturing partners’ facilities. These employees oversee daily production activities, perform in-process inspections, and verify compliance with our standards in real time. This on-site presence allows us to promptly identify and address any deviations or issues during production.
Component Sourcing and Confidentiality Protection: To protect the confidentiality of our proprietary technologies and maintain control over critical quality elements, we either directly procure or specify the sourcing of key components, including but not limited to hydraulic systems, electrical assemblies, and core control modules.
Supplier Qualification, Auditing, and Certification: We conduct comprehensive pre-qualification assessments of third-party manufacturers, including evaluations of their technical capabilities, quality control systems, and compliance history. Our key suppliers are required to maintain relevant certifications such as ISO 9001 (Quality Management Systems), and we perform regular audits to verify adherence to these standards and applicable regulatory requirements.
Final Inspection and Quality Verification: Prior to shipment, our quality assurance team conducts thorough final inspections to verify that all products meet mechanical, electrical, and functional specifications. Inspections may include operational testing, dimensional checks, and safety validations.
Regulatory Compliance: All products are designed and manufactured in compliance with applicable national and international safety, environmental, and industry-specific regulations.
Customer Feedback and Continuous Improvement: We collect and analyze customer feedback and field performance data to support continuous product and process improvements. Insights gained from this feedback loop are used to refine future product designs, supplier training, and quality protocols.
Through these integrated quality control measures—combined with on-site supervision, direct component sourcing, and adherence to international standards—we ensure that all products delivered by our third-party manufacturers consistently meet our performance expectations, reliability goals, and regulatory obligations.
Intellectual Property
We regard our patents, copyrights, trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to our businesses, and we rely on patent, copyrights, trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. However, we do not believe that our business, as a whole, is dependent on, or that its profitability would be materially affected by the revocation, termination, expiration or infringement upon any particular patent. We own an aggregate of 49 PRC patents, including 13 design patents, 32 utility model patents and 2 invention patents. In addition, we own six software copyrights in China.
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REGULATION
Regulations Relating to the Manufacturing Industry
Our manufacturing activities are regulated by the Law of China on Work Safety, or the Work Safety Law, which was adopted in 2002 and latest amended in 2021. The State Administration of Work Safety is responsible for the supervision and administration of work safety nationwide. Pursuant to the Work Safety Law, production units which are engaged in producing and operating activities in China shall meet the conditions of work safety stipulated by relative law and regulations or national standards or industry standards; otherwise, those production units are not allowed to undertake manufacturing activities in China.
Our major products are regulated by the Law of China on Product Quality, which was promulgated in 1993 and latest amended in 2018, which require our products to comply with national standards and industry standards during the process of manufacturing and selling. Our products will be defined as defective products if they fail to comply with such standards. Meanwhile if our products cause personal injuries or other product damages, we shall be responsible for applicable compensation. The statute of limitation of legal proceedings for injuries or damages caused by defective products will be two years, commencing from the date of awareness of injuries or damages. Our products are mainly divided into three categories, which are ecological environment protection equipment, intelligent mining equipment, and smart craft beer machines. Under the Law of China on Product Quality, our products manufacturing shall be in compliance with five national standards and four industry standards, including but not limited to the GB/T 8533-2008 (national standard) and the JC/T 920-2011 (industry standard) for our manufacturing equipment.
Regulations Relating to Sale of Craft Beer
The production and processing of food, as well as the sale of food and catering services within the territory of the People's Republic of China, are subject to the Food Safety Law of the People's Republic of China (the “Food Safety Law”). In accordance with Article 4 of the Measures for the Administration of Food Business Licensing and Filing (effective from December 1, 2023), any entity engaging in food sales activities within the territory of the PRC is generally required to obtain a food business license pursuant to the law.
Specifically, with respect to the sale of craft beer:
Sale of pre-packaged products only (e.g., bottled or canned craft beer): Pursuant to Paragraph 2 of Article 4 of the aforementioned Measures, the sale of pre-packaged food only does not require a food business license. However, the relevant entity is required to complete a filing with the local market supervision and administration authority at or above the county level. The filing entity must possess valid legal personality (e.g., a business license) and maintain operating conditions commensurate with the type and volume of food sold. Upon completion of the filing, the entity will be assigned a filing number.
Sale of both pre-packaged and bulk products (e.g., draft beer dispensed from a tap): If a company sells both pre-packaged craft beer and bulk draft beer, such activity falls under the “sale of bulk food” business category. Pursuant to Article 11 of the Measures for the Administration of Food Business Licensing and Filing, the sale of bulk food is a separate licensed business item. Entities engaged in such activities must obtain a valid Food Business License and have “sale of bulk food” explicitly designated as a licensed business item on the license.
All craft beer products sold must comply with the Measures for the Administration of Food Labeling. Labels on pre-packaged food must contain the mandatory information required under Article 67 of the Food Safety Law and relevant national food safety standards, including but not limited to: the food name; ingredient list; net content; name and address of the producer; date of production and shelf life; storage conditions; food production license number; and product code/number.
Furthermore, pursuant to Article 33 of the Measures for the Administration of Food Labeling, when selling bulk food, such food must have a label affixed to its container or external packaging clearly indicating: the food name; ingredients or ingredient list; date of production or production batch number; shelf life; and the name, address, and contact information of the producer or distributor.
Regulations Relating to Foreign Investment
The Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Sino-foreign Equity Joint Venture Law, the PRC Sino-foreign Cooperative Joint Venture Law and the PRC Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. On December 26, 2019, the Regulation on the Implementation of the Foreign Investment Law of the People’s Republic of China, was issued by the State Council and came into force on January 1, 2020. The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of this Law may retain the original business organization and so on within five years after the implementation of this Law. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
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According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests and establishes new projects within China; and (iv) a foreign investor invests through other approaches as stipulated by laws, administrative regulations, or otherwise regulated by the State Council.
According to the Foreign Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” The Foreign Investment Law provides that FIEs operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list,” such foreign investor may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative measure for restrictive access provided for in the “negative list,” the relevant competent department shall order the foreign investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive access. On December 27, 2021, MOFCOM and NDRC jointly issued the Negative List (Edition 2021) and the latest version of Negative List was issued in September 2024 and took effect on November 1, 2024 (Edition 2024). See “Item 4. Information on the Company – B. Business Overview – Regulation — Regulations relating to Foreign Investment — The Guidance Catalogue of Industries for Foreign Investment.”
Besides, the PRC government will establish a foreign investment information reporting system, according to which foreign investors or foreign-invested enterprises shall submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment affecting or likely affecting the state security.
Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
The Guidance Catalogue of Industries for Foreign Investment
Investment activities in the PRC by foreign investors are subject to the Catalogue for the Guidance of Foreign Investment Industry, or the Catalogue, which was promulgated and is amended from time to time by the MOFCOM and the NDRC. The Foreign Investment Catalogue which was promulgated jointly by MOFCOM and the NDRC, on June 28, 2017 and became effective on July 28, 2017, classifies industries into three categories with regard to foreign investment: (1) “encouraged,” (2) “restricted,” and (3) “prohibited.” The latter two categories are included in a negative list, which was first introduced into the Foreign Investment Catalog in 2017 and specified the restrictive measures for the entry of foreign investment.
On June 28, 2018, MOFCOM and NDRC jointly promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2018), which replaced the negative list attached to the Foreign Investment Catalogue in 2017. On December 24, 2025, NDRC and MOFCOM jointly issued the Catalogue of Industries for Encouraging Foreign Investment (Edition 2025), or the Encouraging Catalogue (Edition 2025), which replaced the Encouraging Catalogue (Edition 2019). On June 30, 2019, MOFCOM and NDRC jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2019), which replaced the Negative List (Edition 2018), and the Catalogue of Industries for Encouraging Foreign Investment (Edition 2019), or the Encouraging Catalogue (Edition 2019), which replaced the encouraged list attached to the Foreign Investment Catalogue in 2017. On June 23, 2020, MOFCOM and NDRC jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2020), which replaced the Negative List (Edition 2019). On December 27, 2021, MOFCOM and NDRC jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2021), which replaced the Negative List (Edition 2020). On September 6, 2024, MOFCOM and NDRC jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List (Edition 2024), which replaced the Negative List (Edition 2021).
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Pursuant to the Negative List (Edition 2024) effective on November 1, 2024, any industry that is not listed in any of the restricted or prohibited categories is classified as a permitted industry for foreign investment. Establishment of wholly foreign-owned enterprises is generally allowed for industries outside of the Negative List. For the restricted industries within the Negative List, some are limited to equity or contractual joint ventures, while in some cases PRC partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals and certain special requirements. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC regulations.
The Encouraging Catalogue (Edition 2025) effective on February 1, 2026, encourages foreign investment in advanced manufacturing and modern services. It has added or expanded items in areas such as end products, components, raw materials, business services, technical services, scientific research, and service consumption, aiming to promote high-quality development in the service sector and along the industrial and supply chains. It also encourages and guides foreign investment to the central and western regions, the northeastern region, and Hainan Province.
In October 2016, the MOFCOM issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises or FIE Record-filing Interim Measures, which was revised in June 2018. Pursuant to FIE Record-filing Interim Measures, the establishment and change of FIE are subject to record-filing procedures, instead of prior approval requirements, provided that the establishment or change does not involve special entry administration measures. If the establishment or change of FIE matters involves the special entry administration measures, the approval of the MOFCOM or its local counterparts is still required. Pursuant to the Announcement [2016] No. 22 of the NDRC and the MOFCOM dated October 8, 2016, the special entry administration measures for foreign investment apply to restricted and prohibited categories specified in the Catalogue, and the encouraged categories are subject to certain requirements relating to equity ownership and senior management under the special entry administration measures.
On January 1, 2020, the Foreign-invested Information Reporting Measures or FIE Reporting Measures came into force which replaced the FIE Record-filing Interim Measures. Pursuant to FIE Reporting Measures, foreign investors or FIEs are required to submit an initial report, change report, deregistration report and annual report through the enterprises registration system.
Currently, our business falls within the permitted category.
Company Law
Pursuant to the PRC Company Law, promulgated by the SCNPC on December 29, 1993, effective as of July 1, 1994, and as amended on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 October 26, 2018, and December 29, 2023 (the latest amendment became effective on July 1, 2024), the establishment, operation and management of corporate entities in the PRC are governed by the PRC Company Law. The PRC Company Law defines two types of companies: limited liability companies and companies limited by shares.
Each of our PRC subsidiaries is a limited liability company. Unless otherwise stipulated in the related laws on foreign investment, foreign invested companies are also required to comply with the provisions of the PRC Company Law.
Regulations on Tax
See “Item 10. Additional Information —E. Taxation—People’s Republic of China Taxation.”
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Regulation of Foreign Currency Exchange and Dividend Distribution
Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Measures on Administration of Foreign Debts Registration (2013). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount or three times of its net assets, at the discretion of such company.
Any increase in the amount of the total investment and registered capital must be reported to and filed with the China Ministry of Commerce or its local counterpart and SAMS or its local counterparts. We may not be able to report to or file with these government authorities on a timely basis, if at all, which could result in a delay in the process of making these loans.
Pursuant to the Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies, or the SAFE Notice 13, which was promulgated on February 13, 2015 and with effect from June 1, 2015, the foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment is directly reviewed and handled by banks in accordance with the SAFE Notice 13, and the SAFE and its branches shall perform indirect regulation over the foreign exchange registration via banks.
Dividend Distribution. According to the PRC Company Law and Foreign Investment Law, enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and an enterprise is not permitted to distribute any profits until losses from prior fiscal years have been offset. Furthermore, under the Enterprise Income Tax Law, or the EIT Law, which became effective in January 2008 and latest amended in 2018, the maximum tax rate for the withholding tax imposed on dividend payments from PRC foreign invested companies to their overseas investors that are not regarded as “resident” for tax purposes is 20%. The rate was reduced to 10% under the Implementing Regulations for the EIT Law issued by the State Council. However, a lower withholding tax rate might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such as tax rate of 5% in the case of Hong Kong companies that holds at least 25% of the equity interests in the foreign-invested enterprise, and certain requirements specified by PRC tax authorities are satisfied.
Circular 37. On July 4, 2014, SAFE issued Notice on Relevant Issues concerning Foreign Exchange Administration for Domestic Residents Engaging in Overseas Financing and Investing through Round-Trip Investment via Special Purpose Companies, or Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required by SAFE and its branches.
Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 (approximately $46,000) for an organization or up to RMB 50,000 (approximately $8,000) for an individual.
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PRC residents who control our Company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Circular 37.
Circular 19 & Circular 16. On March 30, 2015, SAFE issued the Circular Concerning the Reform of the Administration of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or Circular 19, which became effective on June 1, 2015. Circular 19 regulates the conversion of foreign currency capital funds into RMB by a foreign-invested enterprise, and limits how the converted RMB may be used.
Furthermore, SAFE promulgated a circular on June 9, 2016, Circular on Reforming and Regulating Policies on the Administration over Foreign Exchange Settlement under Capital Accounts, or Circular 16, which further revises several clauses in Circular 19. Both Circular 19 and Circular 16 regulate that foreign exchange incomes of a domestic enterprise under their capital account shall not be used in the ways stated below:
| ● | For expenditures that are forbidden by relevant laws and regulations, or for purposes which are not included in the business scope approved by relevant government authority; | |
| ● | For direct or indirect securities investments within China, or for any other kinds of investments except banks’ principal-guaranteed wealth-management products, unless otherwise prescribed by other laws and regulations; | |
| ● | For issuing RMB entrusted loans directly or indirectly (except those included in the business scope), or for repaying inter-enterprise loans (including advances by the third party), or for repaying bank loans which has been lent to third parties; | |
| ● | For issuing RMB loans to non-affiliated enterprises, unless expressly permitted in the business scope; | |
| ● | For purchasing or constructing real estate which is not for personal use, in addition to those real estate enterprises. |
In addition, SAFE supervises the flow and use of those RMB capital converted from foreign currency capital funds of a foreign-invested company by further focusing on ex post facto supervisions and violations, and the use of the net proceeds from our initial public offering to invest in or acquire any other PRC companies in China is subject to the provisions under both Circular 19 and Circular 16.
Mergers & Acquisitions Regulations and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals should obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On September 21, 2006, CSRC published on its official website the Provisions on Indirect Issuance of Securities Overseas by a Domestic Enterprise or Overseas Listing of Its Securities for Trading, which specify procedures regarding CSRC’s approval for overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.
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In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011 and which became effective 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011 and which became effective on September 1, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement.
On July 6, 2021, the State Council and General Office of the CPC Central Committee issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. The opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
In December 2019, the newly revised Securities Law of the PRC clarified that direct and indirect overseas issuances and listings should comply with the relevant regulations of the State Council.
On February 17, 2023, the CSRC published the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. The Trial Measures lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation is with a major operating entity incorporated in mainland China which appointed by the issuer and such filing obligation shall be completed within three business days after the overseas listing application is submitted. The required filing materials for an initial public offering and stock exchange listing shall include, but are not limited to: record-filing report and related undertakings; regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); security assessment opinion issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus. In addition, an overseas offering and listing is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) if, in the past three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (4) if, the domestic enterprise is being investigated according to law due to suspected crimes or major violations of laws and regulations, and there is no clear conclusion; or (5) if there are material ownership disputes over the equity of the controlling shareholder or shareholders controlled by controlling shareholders and actual controllers. The Trial Measures provide directional guidance to the PRC’s reform plan for the supervision of overseas listings. The Trial Measures adopt an “ex-post filing mechanism” where the filer completes its filing obligation within three business days after it submits its listing application to the regulator in the place of intended listing. With respect to the domestic enterprises, non-compliance with the Trial Measures or an overseas listing completed in breach of it may result in a warning or a fine ranging from RMB 1 million to RMB10 million. Furthermore, the directly responsible executives and other directly responsible personnel of the domestic enterprises may be warned, or fined between RMB 500,000 and RMB 5 million and the controlling shareholder, actual controllers, and other legally appointed persons of the domestic enterprises may be warned, or fined between RMB 1 million and RMB 10 million. If, during the filing process, the domestic enterprises conceal important factors or the content is materially false, and securities are not issued, they are subject to a fine of RMB1 million to RMB10 million. With respect to the directly responsible executives and other directly responsible personnel of the domestic enterprises, they are subject to a warning and fine between RMB 500,000 and RMB 5 million, and with respect to the controlling shareholder, actual controllers, and other legally appointed persons of the domestic enterprises, they are subject to a warning and fine between RMB 1 million and RMB 10 million.
On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises, or the Confidentiality and Archives Administration, and, which became effective on March 31, 2023. The Confidentiality and Archives Administration requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination.
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Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries
An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include Foreign Investment Law of the People’s Republic of China, Implementation Regulations for the Foreign Investment Law of the People’s Republic of China, the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment.
Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to prior approval by or filing with the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAMS or its local counterpart, report to Ministry of Commerce and a local bank authorized by the SAFE.
Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.
Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with a local bank authorized by the SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to the governmental approval or 3.5 times of the net assets of such subsidiary.
Regulations Relating to Intellectual Property Rights
Patent. Patents in China are principally protected under the Patent Law of China, which was promulgated by the SCNPC in 1984 and latest amended on October 17, 2020. The duration of a patent right is either 10 years (utility model), 15 years (design) or 20 years (invention) from the date of application, depending on the type of patent right.
Copyright. Copyright in China, including software copyright, is principally protected under the Copyright Law of China which was issued by the Standing Committee of the NPC in 1990 and latest amended on November 11, 2020, and its related rules and regulations. Under the Copyright Law, for a company, the term of protection for copyright is 50 years from the first publication of its work.
Trademark. Registered trademarks are protected under the Trademark Law of China promulgated by the Standing Committee of the NPC in 1982 and latest amended on April 23, 2019, and its related rules and regulations. Trademarks are registered with the Trademark Office of the State Administration for Industry and Commerce. Where registration is sought for a trademark that is identical or similar to another trademark that has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark could be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.
Domain names. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT on April 24, 2017 (effective as of November 1, 2017) and the Registration Implementing Measures on the Domain Names promulgated by the CNNIC. The MIIT is the major regulatory body responsible for the administration of the PRC Internet domain names, under supervision of which the CNNIC is responsible for the daily administration of .cn domain names and PRC domain names. MIIT adopts the “first to file” principle with respect to the registration of domain names.
Employee Stock Option Plans
In February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007, to regulate the foreign exchange administration of PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year, with a few exceptions, who participate in stock incentive plans of overseas publicly-listed companies. Pursuant to these rules, these individuals who participate in any stock incentive plan of an overseas publicly-listed company, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures.
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Regulations Relating to Labor
Pursuant to the China Labor Law, which first took effect on January 1, 1995 and was most recently amended on December 29, 2018, and the China Labor Contract Law, which became effective on January 1, 2008 and amended in 2012, a written labor contract is required when an employment relationship is established between an employer and an employee. The China Labor Law stipulates the maximum number of working hours per day and per week while other labor-related regulations and rules of China stipulate the minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.
An employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive fixed-term labor contracts, with certain exceptions. The employer also has to pay compensation to the employee if the employer terminates an indefinite term labor contract, with certain exceptions. Except where the employer proposes to renew a labor contract by maintaining or raising the conditions of the labor contract and the employee is not agreeable to the renewal, an employer is required to compensate the employee when a definite term labor contract expires. Furthermore, under the Regulations on Paid Annual Leave for Employees issued by the State Council in December 2007 and effective as of January 2008, an employee who has served an employer for more than one year and less than ten years is entitled to a 5-day paid vacation, those whose service period ranges from 10 to 20 years are entitled to a 10-day paid vacation, and those who have served for more than 20 years are entitled to a 15-day paid vacation. An employee who does not use such vacation time at the request of the employer must be compensated at three times their normal daily salaries for each waived vacation day.
Regulations Relating to Environmental Protection
The Environmental Protection Law, which was adopted in 1989 and amended in 2015, effectively established the legal framework for environment protection in China. The Environmental Protection Law requires the Ministry of Environmental Protection (the “MEP”), to implement uniform supervision and administration of environmental protection work nationwide and establishes national environmental quality standards and pollutants discharge standards. Enterprises producing environmental contamination and other public hazards must incorporate environmental protection work into their planning and establish environmental protection systems.
Through the adoption of the Environmental Impact Assessment Law of China in 2003 and last amended in 2018 and the Classification Lists for Environmental Impact Assessment of Construction Projects (latest 2021 Version), the PRC government established a system to appraise the environmental impact of construction projects and classify the appraisal based on the degree of environmental impact caused by the construction project.
Pursuant to the Order on Ecosystem by The Ministry of Ecology and Environment, which was issued on July 28, 2017 and most recently amended on December 20, 2019, The Ministry of Ecology and Environment implements a classification-based management on the environmental impact assessment, or EIA, of pollutants according to pollutant amount and the impact of the pollutants on the environment as below:
| ● | For those pollutant discharge units with large amount of pollutants and significant environmental impacts, the key management on a pollutant discharge permit is required; |
| ● | For those pollutant discharge units with small amount of pollutants and small environmental impacts, the simplified management on a pollutant discharge permit is required; and |
| ● | For those pollutant discharge units with very small amount of pollutants and very small environmental impacts, the pollutant discharge registration form is required. |
| C. | Organizational structure. |
Please refer to “Item 4. Information on the Company– A. History and Development of the Company – Corporate Structure.”
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| D. | Property, plants and equipment. |
Our headquarters is located at X-702, 60 Anli Road, Chaoyang District, Beijing City, People’s Republic of China. We own and lease properties for our operations in China. We believe our facilities are adequate for our current needs and we do not believe we will encounter any disputes of property rights or any difficulty in extending the terms of the leases by which we occupy our respective premises. A summary description of our material leased properties is as follows:
| Office | Address | Term | Ownership | Space (m2) | ||||||
| Office of REIT Equipment | X-702, No. 60 Anli Road, Chaoyang District, Beijing City | January 2025 - December 2027 | Leased | 322.24 | ||||||
| Staff Dormitory of REIT Equipment | Room 702, Building 9, Jixiang Community, Langfang City | May 2025 – May 2026 | Leased | 125.59 | ||||||
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Staff Dormitory of REIT Equipment |
Room 1601, Unit 1, Building 3, Meilin Town, Zhangjiakou City, Hebei Province | April 2025 – March 2028 | Leased | 94.99 | ||||||
| Office of REIT Equipment Xi’an Branch | Room 2304, 5 Building, Luxury Times City, 168 Jixiang Road, Yanta District, Xi’an City | December 2024 - December 2026 | Leased | 126 | ||||||
| Office of Honghe ReTo | No. 11 to No. 13, 1st Floor, Building A, Phase III, Tiancheng Garden, Tamsui Road, Wenlan Town, Mengzi City, Honghe Prefecture, Yunnan Province | June 2023 - May 2028 | Leased | 340.29 | ||||||
| Office of Honghe ReTo | No. 201 to No. 202, 2nd Floor, Unit 1, Building A, Phase III, Tiancheng Garden, Tamsui Road, Wenlan Town, Mengzi City, Honghe Prefecture, Yunnan Province | June 2023 - May 2028 | Leased | 269.78 | ||||||
| Office of REIT Equipment | 03-Room 515, Unit 1, Building 11, Huijingxuan, No. 355 Yuhua Road, Guangyang District, Langfang City | February 2026 - February 2027 | Leased | 151.92 | ||||||
| Operation Space of REIT Equipment | Wanquan Industrial Zone, Zhangjiakou, Hebei Province | December 2025 - July 2028 | Leased | 420 | ||||||
| Staff Dormitory of ReTo Hengda | Room 2002, 20th Floor, Building 304, Huizhong Beili, Chaoyang District, Beijing | July 2025 - July 2026 | Leased | 86.84 | ||||||
Office of Dirong |
Room 603, 6th Floor, Building 420, Bagualing Industrial Zone, Futian District, Shenzhen | February 2025 – January 2027 | Leased | / | ||||||
Office of Dirong |
Room 603-1, 6th Floor, Building 420, Bagualing Industrial Zone, Futian District, Shenzhen | April 2025 – April 2027 | Leased | / | ||||||
Store Space of Dirong |
No. 2 Taixin Road, Humen Town, Dongguan CityFront Shop 120 & Shop 121 |
December 2025 – December 2026 |
Leased |
/ | ||||||
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Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this annual report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in “Risk Factors.”
| A. | Operating Results |
Overview
Our continuing operations primarily consisted of sales of equipment and accessories, technological consulting and other services, and sales of craft beer, which accounted for 93%, 5% and 3% of our total revenue from our continuing operations for the year ended December 31, 2025, respectively, 64%, 36% and nil of our total revenue from our continuing operations for the year ended December 31, 2024, respectively, 100%, nil and nil of our total revenue from our continuing operations for the year ended December 31, 2023, respectively.
Our domestic customers are throughout China and our international customers are mainly located in Southeast Asia, the Middle East and Africa. Sales to customers in China and internationally from our continuing operations accounted for approximately 27% and 73%, respectively, of our total sales for the year ended December 31, 2025, approximately 84% and 16%, respectively, of our total sales for the year ended December 31, 2024, and approximately 92% and 8%, respectively, nil of our total sales for the year ended December 31, 2023.
Results of Operations from Our Continuing Operations
On December 31, 2024, ReTo sold all of its shares in REIT Holdings (China) Limited, a Hong Kong limited company (“REIT Holdings”), to a shareholder holding less-than 5% of Class A shares of the Company (the “Buyer”) for a purchase price of US$80,000. REIT Holdings was the holding company of multiple indirect subsidiaries of ReTo, which were engaged in in the business of manufacture and distribution of eco-friendly construction materials, ecological restoration projects and software development services and solutions utilizing Internet of Things technologies. The disposition was completed on December 31, 2024. The discontinued operations represent a strategic shift that has a major effect on the Company’s operations and financial results, which triggers discontinued operations accounting in accordance with Accounting Standards Codification (“ASC”) 205-20-45. The results of operations related to the discontinued operations for the years ended December 31, 2024 and 2023 were reported as loss from discontinued operations.
65
Comparison of Operation Results for the Years Ended December 31, 2025 and 2024
The following table summarizes the results of our continuing operations during for the fiscal years ended December 31, 2025 and 2024, and provides information regarding the changes in terms of dollar amounts and percentage during such years.
| 2025 | 2024 | Amount | Percentage | |||||||||||||||||||||
| Statements of Income Data: | Amount | As % of Sales | Amount | As % of Sales | Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||
| Revenues - third party customers | $ | 3,370,789 | 100 | % | $ | 1,599,376 | 87 | % | $ | 1,771,413 | 111 | % | ||||||||||||
| Revenue- related party customers | - | - | % | 229,600 | 13 | % | (229,600 | ) | (100 | )% | ||||||||||||||
| Total revenues | 3,370,789 | 100 | % | 1,828,976 | 100 | % | 1,541,813 | 84 | % | |||||||||||||||
| Cost of revenues - third party | 2,181,184 | 65 | % | 871,329 | 48 | % | 1,309,855 | 150 | % | |||||||||||||||
| Cost of revenues - related party customers | - | - | 132,443 | 7 | % | (132,443 | ) | (100 | )% | |||||||||||||||
| Total cost of revenues | 2,181,184 | 65 | % | 1,003,772 | 55 | % | 1,177,412 | 117 | % | |||||||||||||||
| Gross profit | 1,189,605 | 35 | % | 825,204 | 45 | % | 364,401 | 44 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 783,813 | 23 | % | 330,828 | 18 | % | 452,985 | 137 | % | |||||||||||||||
| General and administrative expenses | 2,916,360 | 87 | % | 3,927,450 | 215 | % | (1,011,090 | ) | (26 | )% | ||||||||||||||
| Provision for credit losses | 89,719 | 3 | % | 199,812 | 11 | % | (110,093 | ) | (55 | )% | ||||||||||||||
| Impairment of long-lived assets | 725,940 | 22 | % | - | - | % | 725,940 | - | % | |||||||||||||||
| Impairment of goodwill | 7,982,271 | 237 | % | - | - | % | 7,982,271 | - | % | |||||||||||||||
| Research and development expense | 361,080 | 11 | % | 498,168 | 27 | % | (137,088 | ) | (28 | )% | ||||||||||||||
| Total operating expenses | 12,859,183 | 381 | % | 4,956,258 | 271 | % | 7,902,925 | 159 | % | |||||||||||||||
| Loss from continuing operations | (11,669,578 | ) | (346 | )% | (4,131,054 | ) | (226 | )% | (7,538,524 | ) | 182 | % | ||||||||||||
| Other income (expenses) | ||||||||||||||||||||||||
| Interest expense, net | (981,761 | ) | (29 | )% | (2,015 | ) | - | % | (979,746 | ) | 48,623 | % | ||||||||||||
| Other income (expenses) | 37,938 | 1 | % | (602,228 | ) | (33 | )% | 640,166 | (106 | )% | ||||||||||||||
| Loss from disposal of subsidiaries | - | - | % | (3,577,279 | ) | (196 | )% | 3,577,279 | (100 | )% | ||||||||||||||
| Total other expenses, net | (943,823 | ) | (28 | )% | (4,181,522 | ) | (229 | )% | 3,237,699 | (77 | )% | |||||||||||||
| Loss before income taxes | (12,613,401 | ) | (374 | )% | (8,312,576 | ) | (455 | )% | (4,300,825 | ) | 52 | % | ||||||||||||
| Income taxes provision (benefit) | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Net loss from continuing operations | $ | (12,613,401 | ) | (374 | )% | $ | (8,312,576 | ) | (455 | )% | $ | (4,300,825 | ) | 52 | % | |||||||||
| Net loss from discontinued operations, net of taxes | - | - | % | (74,347 | ) | (4 | )% | 74,347 | (100 | )% | ||||||||||||||
| Net loss | $ | (12,613,401 | ) | (374 | )% | $ | (8,386,923 | ) | (459 | )% | $ | (4,226,478 | ) | 50 | % | |||||||||
Revenues
The following table summarizes the results of revenues for the fiscal years ended December 31, 2025 and 2024:
Revenue by Category
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % of Sales | Amount | % of Sales | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||||||||
| Equipment and accessories | $ | 3,118,402 | 93 | % | $ | 1,176,070 | 64 | % | $ | 1,942,332 | 165 | % | ||||||||||||
| Technological consulting and other services | 152,444 | 5 | % | 652,906 | 36 | % | (500,462 | ) | (77 | )% | ||||||||||||||
| Craft beer and vending machine | 99,943 | 3 | % | - | - | 99,943 | - | |||||||||||||||||
| Total | $ | 3,370,789 | 100 | % | $ | 1,828,976 | 100 | % | $ | 1,541,813 | 84 | % | ||||||||||||
66
Our total revenues increased by approximately $1.5 million, or 84%, to approximately $3.4 million for the year ended December 31, 2025 from $1.8 million for the year ended December 31, 2024.
Equipment and accessories
Revenue from equipment and accessories sales increased by approximately $1.9 million, or 165%, from $1.2 million for the year ended December 31, 2024 to approximately $3.1 million for the year ended December 31, 2025. The increase is due to higher overseas demand which led to increased international sales.
Technological consulting and other services
We provide technological consulting support for customers. Revenue from technological consulting services decreased by approximately $0.5 million, or 77%, from $0.7 million for the year ended December 31, 2024 to approximately $0.2 million for the year ended December 31, 2025. The decrease was due to the loss of customers.
Craft beer
Revenue from craft beer sales amounted to $0.1 million during the period from April 25, 2025 to December 31, 2025. On April 25, 2025, ReTo acquired 51% equity interest in MMB which, through its subsidiaries in the PRC, is engaged in the business of selling craft beer and beer vending machines in the PRC.
Cost of Revenues
Cost of Revenues by Category
| For the Year Ended December 31, | Variance | |||||||||||||||||||||||
| 2025 | 2024 | Amount | Percentage | |||||||||||||||||||||
| Amount | % of
Costs | Amount | % of
Costs | Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||
| Equipment and accessories | $ | 2,076,122 | 95 | % | $ | 1,003,772 | 100 | % | $ | 1,072,350 | 107 | % | ||||||||||||
| Technological consulting and other services | 49,587 | 2 | % | - | - | 49,587 | - | |||||||||||||||||
| Craft beer and vending machine | 55,475 | 3 | % | - | - | 55,475 | - | |||||||||||||||||
| Total | $ | 2,181,184 | 100 | % | $ | 1,003,772 | 100 | % | $ | 1,177,412 | 117 | % | ||||||||||||
Our total cost of revenues increased by approximately $1.2 million, or 117%, to approximately $2.2 million for the year ended December 31, 2025 from approximately $1.0 million for the year ended December 31, 2024.
Equipment and accessories
Cost of equipment and accessories sales increased by approximately $1.1 million, or 107%, from $1.0 million for the year ended December 31, 2024 to approximately $2.1 million for the year ended December 31, 2025. This increase was in line with the growth in revenue; however, fixed costs such as salaries and depreciation expense did not see a commensurate increase.
Technological consulting and other services
Cost of technological consulting and other service increased from nil for the year ended December 31, 2024 to approximately $50,000 for the year ended December 31, 2025. The increase was due to additional resources required for service delivery, including labor.
Craft beer
Cost of craft beer sales amounted to $55,475 during the period from April 25, 2025 to December 31, 2025.
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Gross Profit
Our gross profit and gross margin by category are as follows:
| For the Year Ended December 31, | Variance | |||||||||||||||||||||||
| 2025 | 2024 | Gross | Gross | |||||||||||||||||||||
| Gross Profit | Gross Profit % | Gross
Profit | Gross
Profit % | Profit Increase (Decrease) | Profit%
Increase (Decrease) | |||||||||||||||||||
| Equipment and accessories | $ | 1,042,280 | 33 | % | $ | 172,298 | 15 | % | $ | 869,982 | 505 | % | ||||||||||||
| Technological consulting and other services | 102,857 | 67 | % | 652,906 | 100 | % | (550,049 | ) | (84 | )% | ||||||||||||||
| Craft beer and vending machine | 44,468 | 44 | % | - | - | % | 44,468 | - | ||||||||||||||||
| Total | $ | 1,189,605 | 35 | % | $ | 825,204 | 45 | % | $ | 364,401 | 44 | % | ||||||||||||
Our gross profit increased by approximately $0.4 million, or 44%, to approximately $1.2 million for the year ended December 31, 2025 from $0.8 million for the year ended December 31, 2024. Our gross profit for equipment and accessories sales increased by approximately $0.9 million, or 505%, to approximately $1.0 million for the year ended December 31, 2025 from $0.2 million for the year ended December 31, 2024, which is consistent with the increase in equipment and accessories sales. Our gross profit for technological consulting and other services decreased by approximately $0.6 million to approximately $0.1 million for the year ended December 31, 2025 from $0.7 million for the year ended December 31, 2024. Gross profit for craft beer sales amounted to $44,468 during the period from April 25, 2025 to December 31, 2025. Gross profit margin for our continuing operations was 35% for the year ended December 31, 2025, as compared with 45% for the year ended December 31, 2024. The decrease in gross profit margin was primarily due to decrease in gross profit from the technical service. The equipment and accessories gross margin has increased.
Selling Expenses
For the year ended December 31, 2025, our selling expenses were approximately $0.8 million, representing a 137% increase from $0.3 million in the year ended December 31, 2024. The increase was mainly due to an increase of $0.2 million in salary and benefit and an increase of $0.3 million in marketing activities fees associated with increased sales in the year ended December 31, 2025.
General and Administrative Expenses
For the year ended December 31, 2025, our general and administrative expenses were approximately $2.9 million, representing a decrease of approximately $1.0 million compared to approximately $3.9 million in the year ended December 31, 2024. The decrease in general and administrative expenses was mainly due to a decrease in amortization of stock-based compensation for services $2.4 million, partially offset by an increase of $0.3 million in salaries and benefit, increase in professional service fees of approximately $0.6 million, increase in amortization of intangible assets of approximately $0.2 million, and increase in other expenses of approximately $0.2 million.
Provision for Credit Losses
For the year ended December 31, 2025, our provision for credit losses were approximately $89,000, as compared to $0.2 million for the year ended December 31, 2024.
Research and Development Expenses
Our research and development (“R&D”) expenses were approximately $0.4 million and $0.5 million for the year ended December 31, 2025 and 2024, respectively. The decrease in R&D expenses in the fiscal year ended December 31, 2025 was due to a decrease of $0.2 million in salary and partially offset by an increase of $57,000 in travel and other expenses.
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Impairment of Long-lived Assets
The Company recorded an impairment loss of long-lived assets of $0.7 million and nil for the year ended December 31, 2025 and 2024, respectively.
Impairment of Goodwill
For the year ended December 31, 2025, due to the continuous loss of MMB, the Company recorded an impairment of goodwill of approximately $8.0 million from the acquisition of MMB according to a third-party assessment.
Interest Expense, Net
Our interest expenses, net, increased from $2,015 for the year ended December 31, 2024 to approximately $1.0 million the year ended December 31, 2025 due to accrued interest of the Streeterville convertible note.
Other Income (loss)
Other income amounted to approximately $37,938 for the year ended December 31, 2025, as compared to other expense of approximately $0.6 million for the year ended December 31, 2024.
Loss from Disposal of Subsidiaries
The Company recognized a loss from disposal of subsidiaries of approximately $3.6 million in connection with the December 2024 Divesture in the year ended December 31, 2024. No such loss occurred in 2025.
Loss before Income Taxes
Our loss before income taxes was approximately $12.6 million for the year ended December 31, 2025, an increase of approximately $4.3 million as compared to loss before income taxes of approximately $8.3 million for the year ended December 31, 2024. The increase in our loss before income taxes for fiscal year 2025 was primarily attributable the significant impairment loss of goodwill, as discussed above, partially offset by an increase in revenues.
Provision for Income Taxes
The Company is subject to income taxes on an entity basis on income arising in or derived from the location in which each entity is domiciled.
ReTo, ReTo Global and MMB were incorporated in the British Virgin Islands and is exempt from paying income tax. New REIT, MMB HK and Sunoro Holdings are registered in Hong Kong as holding companies.
Under the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case-by-case basis. According to the relevant PRC tax policies, once an enterprise meets certain requirements and is identified as a small-scale minimal profit enterprise, the portion of its taxable income not more than RMB3 million is subject to a reduced effective rate of 5%, for the years ended December 31, 2024 and 2025. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. REIT Equipment, the Company’s main operating subsidiary in PRC, was recognized as a HNTE on October 28, 2025 and is entitled to the preferential income tax rate of 15% for three years.
69
The following table reconciles the income tax expense by statutory rate to the Company’s actual income tax expense from our continuing operations:
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Income tax benefit computed based on PRC statutory income tax rate | $ | (3,153,351 | ) | $ | (2,078,144 | ) | $ | (1,631,581 | ) | |||
| Effect of favorable income tax rate in certain entity in PRC | (10,230 | ) | - | - | ||||||||
| Non-PRC entities not subject to PRC tax (1) | 2,675,379 | 1,768,565 | 1,596,505 | |||||||||
| Research & Development (“R&D”) tax credit (2) | (84,079 | ) | - | - | ||||||||
| Non-deductible expenses - permanent difference (2) | 28,915 | 1,393 | 243 | |||||||||
| Change in valuation allowance | 543,366 | 308,186 | 34,833 | |||||||||
| Effective tax (benefit) expense | $ | - | $ | - | $ | - | ||||||
| (1) | Represents the tax losses incurred from operations outside of China. |
| (2) | Represents expenses incurred by the Company that were not deductible for PRC income tax. |
Net Loss
Our net loss from continuing operations amounted to approximately $12.6 million and $8.3 million for the year ended December 31, 2025 and 2024, respectively. Our net loss from discontinued operations amounted to nil and $74,347 for the year ended December 31, 2025 and 2024, respectively. Total net loss amounted to approximately $12.6 million and $8.4 million for the year ended December 31, 2025 and 2024, respectively.
Comparison of Operation Results for the Years Ended December 31, 2024 and 2023
The following table summarizes the results of our continuing operations during the fiscal years ended December 31, 2024 and 2023, and provides information regarding the changes in terms of dollar amounts and percentage during such years.
| 2024 | 2023 | Amount | Percentage | |||||||||||||||||||||
| Statements of Income Data: | Amount | As %
of Sales | Amount | As %
of Sales | Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||
| Revenues - third party customers | $ | 1,599,376 | 87 | % | $ | 10,781 | 100 | % | $ | 1,588,595 | 14,735 | % | ||||||||||||
| Revenue- related party customers | 229,600 | 13 | % | - | - | % | 229,600 | - | % | |||||||||||||||
| Total revenues | 1,828,976 | 100 | % | 10,781 | 100 | % | 1,818,195 | 16,865 | % | |||||||||||||||
| Cost of revenues - third party | 871,329 | 48 | % | 9,240 | 86 | % | 862,089 | 9,330 | % | |||||||||||||||
| Cost of revenues - related party customers | 132,443 | 7 | % | - | - | % | 132,443 | - | % | |||||||||||||||
| Total cost of revenues | 1,003,772 | 55 | % | 9,240 | 86 | % | 994,532 | 10,763 | % | |||||||||||||||
| Gross profit | 825,204 | 45 | % | 1,541 | 14 | % | 823,663 | 53,450 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 330,828 | 18 | % | 5,939 | 55 | % | 324,889 | 5,470 | % | |||||||||||||||
| General and administrative expenses | 3,927,450 | 215 | % | 6,499,940 | 60,291 | % | (2,572,490 | ) | (40 | )% | ||||||||||||||
| Provision (recovery) for credit losses | 199,812 | 11 | % | (22,306 | ) | (207 | )% | 222,118 | (996 | )% | ||||||||||||||
| Research and development expense | 498,168 | 27 | % | - | - | % | 498,168 | - | % | |||||||||||||||
| Total operating expenses | 4,956,258 | 271 | % | 6,483,573 | 60,139 | % | (1,527,315 | ) | (24 | )% | ||||||||||||||
| Loss from continuing operations | (4,131,054 | ) | (226 | )% | (6,482,032 | ) | (60,125 | )% | 2,350,978 | (36 | )% | |||||||||||||
| Other income (expenses) | ||||||||||||||||||||||||
| Interest expense, net | (2,015 | ) | - | % | (92,081 | ) | (854 | )% | 90,066 | (98 | )% | |||||||||||||
| Other income (expenses) | (602,228 | ) | (33 | )% | (22 | ) | - | (602,206 | ) | 2,737,300 | % | |||||||||||||
| Change in fair value in convertible debt | - | - | % | 47,813 | 443 | % | (47,813 | ) | (100 | )% | ||||||||||||||
| Loss from disposal of subsidiaries | (3,577,279 | ) | (196 | )% | - | - | % | (3,577,279 | ) | - | % | |||||||||||||
| Total other expenses, net | (4,181,522 | ) | (229 | )% | (44,290 | ) | (411 | )% | (4,137,232 | ) | 9,341 | % | ||||||||||||
| Loss before continuing operating income taxes | (8,312,576 | ) | (455 | )% | (6,526,322 | ) | (60,535 | )% | (1,786,254 | ) | 27 | % | ||||||||||||
| Income taxes provision (benefit) | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Net loss from continuing operations | $ | (8,312,576 | ) | (455 | )% | $ | (6,526,322 | ) | (60,535 | )% | $ | (1786,254 | ) | 27 | % | |||||||||
| Net loss from discontinued operations, net of taxes | (74,347 | ) | (4 | )% | (9,542,748 | ) | (88,514 | )% | 9,468,401 | (99 | )% | |||||||||||||
| Net loss | $ | (8,386,923 | ) | (459 | )% | $ | (16,069,070 | ) | (149,050 | )% | $ | 7,682,147 | (48 | )% | ||||||||||
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Revenues
The following table summarizes the results of revenues from our continuing operations for the fiscal years ended December 31, 2024 and 2023:
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % of Sales | Amount | % of Sales | Amount Increase (Decrease) | Percentage Increase (Decrease) | |||||||||||||||||||
| Machinery and equipment | $ | 1,176,070 | 64 | % | $ | 10,781 | 100 | % | $ | 1,165,289 | 10,809 | % | ||||||||||||
| Technological consulting and other services | 652,906 | 36 | % | - | - | % | 652,906 | - | % | |||||||||||||||
| Total | $ | 1,828,976 | 100 | % | $ | 10,781 | 100 | % | $ | 1,818,195 | 16,865 | % | ||||||||||||
Our total revenues from continuing operations increased by approximately $1.8 million, or 16,865%, to approximately $1.8 million for the year ended December 31, 2024 from $10,781 for the year ended December 31, 2023. Among our total revenue, revenue from third party customers increased by approximately $1.6 million, or 14,735%, from $10,781 for the year ended December 31, 2023 to approximately $1.6 million for the year ended December 31, 2024, while revenue from related party customers was $229,600 as compared to nil for the year ended December 31, 2023. The lower revenue for the year ended December 31, 2023 was mainly due to the fact that a significant portion of revenue was generated through disposed subsidiaries and included in the discontinued operations for the year ended December 31, 2023.
Machinery and Equipment
Revenue from continuing operations in machinery and equipment sales increased by approximately $1.2 million, or 10,809%, from $10,781 for the year ended December 31, 2023 to approximately $1.2 million for the year ended December 31, 2024. The lower revenue for the year ended December 31, 2023 was mainly due to the fact that a significant portion of revenue from machinery and equipment sales was generated through disposed subsidiaries and included in the discontinued operations for the year ended December 31, 2023.
Technological Consulting and Other Services
We provided one-time technological consulting services to a client related to construction site management during the year ended December 31, 2024. Revenue from technological consulting and other services was approximately $0.7 million and nil for the year ended December 31, 2024 and 2023, respectively.
Cost of Revenues
Our total cost of revenues from continuing operations increased by approximately $1.0 million, or 10,763%, to approximately $1.0 million for the year ended December 31, 2024 from approximately $9,240 for the year ended December 31, 2023. Cost of revenues from third party customers increased by approximately $0.9 million, or 9,330%, from approximately $9,240 in the year ended December 31, 2023 to approximately $0.9 million in the year ended December 31, 2024, while cost of revenues from related party customers were approximately $0.1 million and nil for the years ended December 31, 2024 and 2023, respectively. The increase in our total cost of revenue was generally in line with the increase in sales of machinery and equipment. As a percentage of revenues, cost of revenues decreased to 55% in the year ended December 31, 2024 from 86% in the year ended December 31, 2023, attributable to high profit margin of our technological consulting and other services in 2024.
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Gross Profit
Our gross profit from continuing operations increased by approximately $0.8 million, or 53,450%, to approximately $0.8 million for the year ended December 31, 2024 from $1,541 for the year ended December 31, 2023. Our gross profit for machinery and equipment increased by approximately $0.2 million, or 11,081%, to approximately $0.2 million for the year ended December 31, 2024 from $1,541 for the year ended December 31, 2023, which is consistent with the increase in machinery and equipment sales. Our gross profit for technological consulting and other services increased by approximately $0.6 million to approximately $0.6 million for the year ended December 31, 2024 from nil for the year ended December 31, 2023. Gross profit margin for our continuing operations was 45% for the year ended December 31, 2024, as compared with 14% for the year ended December 31, 2023. The increase was attributable to high profit margin of our technological consulting and other services in 2024.
Selling Expenses
For the year ended December 31, 2024, our selling expenses from continuing operations were approximately $0.3 million, representing a 5,470% increase from $5,939 in the year ended December 31, 2023. The increase was mainly due to an increase of $0.2 million in salary and benefit, an increase of $0.1 million in marketing activities fees associated with increased sales in the year ended December 31, 2024.
General and Administrative Expenses
For the year ended December 31, 2024, our general and administrative expenses from continuing operations were approximately $3.9 million, representing a decrease of approximately $2.6 million compared to approximately $6.5 million in the year ended December 31, 2023. The decrease in general and administrative expenses was mainly due to a decrease of professional service fees by approximately $0.2 million and amortization of stock-based compensation for services of approximately $2.6 million partially offset by an increase of other expenses approximately $0.2 million.
Provision for (Recovery of) Credit Losses
For the year ended December 31, 2024, our provision for credit losses from continuing operations were approximately $0.2 million, as compared to recovery of credit losses $22,306 for the year ended December 31, 2023. We recorded provision for credit losses on uncollectible accounts receivable and advance payments based on the increased accounts receivable and advance payments for the year ended December 31, 2024.
Research and Development Expenses
Our R&D expenses from continuing operations were approximately $0.5 million and nil for the year ended December 31, 2024 and 2023, respectively. The increase in R&D expenses in the year ended December 31, 2024 was due to more R&D projects conducted by REIT Equipment.
Interest Expense, Net
Our interest expenses, net, from continuing operations was approximately $2,015 and $0.1 million for the year ended December 31, 2024 and 2023, respectively. The year-over-year decrease in interest expenses was in line with the decrease in outstanding bank loans.
Other Expense
Other expense from continuing operations amounted to approximately $0.6 million and $22 in the year ended December 31, 2024 and 2023, respectively.
Loss from Disposal of Subsidiaries
The Company recognized a loss from disposal of subsidiaries of approximately $3.6 million in the year ended December 31, 2024 in connection with the 2024 Divesture.
Loss before Income Taxes
Our loss before income taxes from continuing operations was approximately $8.3 million for the year ended December 31, 2024, an increase of approximately $1.8 million as compared to loss before income taxes of approximately $6.5 million for the year ended December 31, 2023. The increase in our loss before income taxes for the fiscal year 2024 was primarily attributable to the increase in revenues, partially offset by increased costs, operating expenses and loss from disposal of subsidiaries as discussed above.
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Provision for Income Taxes
The Company’s PRC subsidiaries are subject to PRC income tax, which is computed according to the relevant laws and regulations in the PRC. Under the EIT Law, the corporate income tax rate applicable to all companies, including both domestic and foreign-invested companies, is 25%.
Net Loss
Our net loss from continuing operations amounted to approximately $8.3 million and $6.5 million for the year ended December 31, 2024 and 2023, respectively. Our net loss from discontinued operations amounted to $74,347 and approximately $9.5 million for the year ended December 31, 2024 and 2023, respectively. Total net loss amounted to approximately $8.4 million and $16.1 million for the year ended December 31, 2024 and 2023, respectively.
Discontinued Operations
The disposition of REIT Holdings was completed on December 31, 2024. The Company recorded a loss from the disposition of $3.6 million for the year ended December 31, 2024.
The discontinued operation represents a strategic shift that has a major effect on the Company’s operations and financial results, which triggers discontinued operations accounting in accordance with ASC 205-20-45. The results of operations related to the discontinued operations for the years ended December 31, 2024 and 2023 were reported as loss from discontinued operations.
The results of discontinued operations of REIT Holdings for the years ended December 31, 2024 and 2023 are as follows:
| For
the years ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 2,429,726 | $ | 3,225,505 | ||||
| Cost of revenues | 1,249,372 | 3,016,974 | ||||||
| Gross profit | 1,180,354 | 208,531 | ||||||
| Operating expenses | 897,658 | 5,070,857 | ||||||
| Loss from discontinued operations | 282,696 | (4,862,326 | ) | |||||
| Other income, net | (373,467 | ) | (4,697,061 | ) | ||||
| Loss before tax | (90,771 | ) | (9,559,387 | ) | ||||
| Income tax benefit | (16,424 | ) | (16,639 | ) | ||||
| Net loss from discontinued operations | $ | (74,347 | ) | $ | (9,542,748 | ) | ||
| B. | Liquidity and Going Concern |
ReTo is a holding company incorporated in the British Virgin Islands. Under applicable PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
Substantially all of our operations are conducted in China and are denominated in RMB, which is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict the ability to convert RMB into U.S. Dollars.
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Under PRC law, RMB is currently convertible into U.S. Dollars under a company’s “current account,” which includes dividends, trade and service-related foreign exchange transactions, without prior approval of the SAFE, not from a company’s “capital account,” which includes foreign direct investments and loans, without the prior approval of the SAFE.
We have historically funded our working capital needs from cash flow from operations, advance payments from customers, bank borrowings, equity and debt offerings and related-party loans. Presently, our principal sources of liquidity are generated from our operations, proceeds from debt and equity financings, and loans and notes from commercial banks. Our working capital requirements are influenced by the level of our operations, the numerical volume and dollar value of our sales contracts, the progress of execution on our customer contracts, and the timing of accounts receivable collections.
As reflected in the Company’s consolidated financial statements for the year ended December 31, 2025, the Company reported a net loss of approximately $12.6 million. As of December 31, 2025, the Company had a working capital deficit of approximately of $5.1 million. As of December 31, 2025, the Company had cash of approximately $0.3 million. In addition, the Company had outstanding accounts receivable of approximately $0.3 million, of which approximately $20,000 were subsequently collected and became available for use as working capital, the Company had outstanding bank loans of $0.2 million. Based on the reasons above, there is a substantial doubt about the Company’s ability to continue as a going concern for the next 12 months from the issuance of the consolidated financial statements.
Currently, the Company is working to improve its liquidity and capital source mainly through cash flow from its operations, renewal of bank borrowings, and borrowing from related parties. In order to fully implement its business plan and sustain operations, the Company may also seek equity financing from outside investors. At the present time, however, the Company does not have commitments of funds from any potential investors. No assurance can be given that additional financing, if required, would be available on favorable terms or at all.
Cash Flows for Years Ended December 31, 2025, 2024 and 2023
The following table sets forth a summary of our cash flows for the periods indicated:
| December 31, 2025 | December 31, 2024 | December 31, 2023 | ||||||||||
| Net cash provided by (used in) operating activities from continuing operations | $ | (4,341,056 | ) | $ | 3,270,343 | $ | (918,879 | ) | ||||
| Net cash used in operating activities from discontinued operations | - | (193,061 | ) | (10,671,866 | ) | |||||||
| Net cash provided by (used in) operating activities | (4,341,056 | ) | 3,077,282 | (11,590,745 | ) | |||||||
| Net cash used in investing activities from continuing operations | (2,151,465 | ) | (32,592,778 | ) | (47,226 | ) | ||||||
| Net cash provided by (used in) investing activities from discontinued operations | - | (987,511 | ) | 398,909 | ||||||||
| Net cash provided by (used in) investing activities | (2,151,465 | ) | (33,580,289 | ) | 351,683 | |||||||
| Net cash provided by financing activities from continuing operations | 6,039,573 | 29,735,049 | 6,564,841 | |||||||||
| Net cash provided by financing activities from discontinuing operations | - | 47,457 | 5,900,479 | |||||||||
| Net cash provided by financing activities | 6,039,573 | 29,782,506 | 12,465,320 | |||||||||
Operating Activities
Net cash used in operating activities was approximately $4.3 million in the year ended December 31, 2025. Net cash used in continuing operating activities in the year ended December 31, 2025 mainly consisted of net loss from continuing operation of approximately $12.6 million, decrease in advances from customers of approximately $0.9 million, decrease in accrued expenses and other liabilities of approximately $0.6 million, decrease in operating lease liabilities of approximately $0.2 million, increase of approximately $0.2 million in accounts receivable, increase of approximately $0.1 million in prepaid expense and other assets, offset by adjustments of non-cash items of approximately $10.1 million. Net cash used in discontinued operating activities was nil.
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Net cash provided by operating activities was approximately $3.1 million in the year ended December 31, 2024. Net cash provided by continuing operating activities in the year ended December 31, 2024 mainly consisted of adjustments of non-cash items of approximately $6.2 million, decrease in prepaid expenses and other current assets of approximately $4.4 million, increase in advances from customers of approximately $1.2 million, increase in accrued expenses and other liabilities of approximately $0.5 million, offset by net loss from continuing operation of approximately 8.3 million, increase of approximately $0.5 million in advance to suppliers, increase of approximately $0.3 million in accounts receivable. Net cash used in discontinued operating activities was approximately $0.2 million.
Net cash used in operating activities was approximately $11.6 million in the year ended December 31, 2023. Net cash used in continuing operating activities in the year ended December 31, 2023 mainly consisted of net loss from continuing operation of approximately $6.5 million, decrease of $42,367 in operating leases payable, partially offset by adjustments of non-cash items of approximately $5.1 million, increase of approximately $0.3 million in accrued and other liabilities, increase of $75,276 in accounts payable, increase of $72,300 in advances from customers. Net cash used in discontinued operating activities was approximately $10.7 million.
Investing Activities
Net cash used in investing activities was approximately $2.2 million for the year ended December 31, 2025, which consisted of prepayment made on construction in process of approximately $0.6 million related to the forest land, deposits for equity acquisition of approximately $1.4 million relate to the photovoltaic power generation project, purchase of property and equipment of $0.1 million. Net cash used in discontinued investing activities was nil.
Net cash used in investing activities was approximately $33.6 million for the year ended December 31, 2024. During the year ended December 31, 2024, the Company made deposits for equity acquisition of approximately $18.5 million and purchased concession right on forest land for approximately $7.7 million with additional spending of approximately $6.8 million on the construction in progress related to the forest land. These cash outflows were partially offset by proceeds from disposal of subsidiaries of $80,000. Net cash used in discontinued investing activities was approximately $1.0 million.
Net cash used in investing activities was approximately $0.4 million for the year ended December 31, 2023. During the year ended December 31, 2023, the Company paid $46,831 on addition of property. Net cash provided by discontinued investing activities was approximately $0.4 million.
Financing Activities
Net cash provided by financing activities was approximately $6.0 million for the year ended December 31, 2025, including proceeds from convertible notes of approximately $3.0 million, proceeds from securities offering of approximately $1.4 million, proceeds from short-term bank loans of approximately $0.3 million, proceeds from third-party loans of approximately $0.4 million, and proceeds from related party loans of approximately $1.2 million, partially offset by repayment of third parties loans of approximately $0.2 million, repayment of bank loan of approximately $90,000. Net cash provided by discontinued financing activities was nil.
Net cash provided by financing activities was approximately $29.8 million for the year ended December 31, 2024, including proceeds from private placement approximately $29.4 million, and net proceeds from related party loans of approximately $0.3 million. Net cash provided by discontinued financing activities was $47,457.
Net cash provided by financing activities was approximately $12.5 million for the year ended December 31, 2023, including proceeds from private placement $6.6 million, proceeds from related party loans of approximately $0.5 million, proceeds from third-party loans of approximately $0.1 million, partially offset by repayment of loans to related parties of approximately $0.7 million, Net cash provided by discontinued financing activities was approximately $6.0 million.
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Statutory Reserves
The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The restricted amounts as determined pursuant to PRC laws totaled $1,072,895 and $1,072,895 as of December 31, 2025 and 2024, respectively.
Capital Expenditures
We had capital expenditures of approximately $0.7 million, $14.2 million, and $0.04 million for the years ended December 31, 2025, 2024 and 2023, respectively, for construction in progress, deposits for equity acquisition, purchases of equipment and intangible assets in connection with our business activities.
Recent Accounting Pronouncements
A list of recent relevant accounting pronouncements is included in Note 2 “Summary of Principal Accounting Policies” of our consolidated financial statements included elsewhere in this filing.
| C. | Research and Development, Patent and Licenses, etc. |
Please refer to “Item 4. Information on the Company—B. Business Overview—Research and Development” and “—Intellectual Property.”
| D. | Trend Information. |
Other than as disclosed elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
| E. | Critical Accounting Estimates. |
We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Accounts Receivable, Net
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. The Company adopted this guidance effective January 1, 2023. ASC 326 introduces an approach based on expected losses to estimate the allowance for credit losses, which replaces the previous incurred loss impairment model. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. Accounts receivable were recognized and carried at original invoiced amount less an estimated allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated economic conditions, customer-specific circumstances, recent payment history and other relevant factors. Allowance for credit losses amounted to $201,995 and $108,936 as of December 31, 2025 and 2024, respectively.
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Impairment of Long-lived Assets
The Company reviews long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. Given the Company’s net loss position in fiscal 2025, 2024 and 2023, the Company further assessed that the expected future cash flow generated from its machinery, equipment, and other long-lived assets would not recover their carrying value and as a result, the Company recorded an impairment of approximately $0.7 million, nil and nil on these fixed assets for the years ended December 31, 2025, 2024 and 2023, respectively, based on the fair value assessment provided by the third party valuation firm using the significant unobservable inputs.
Goodwill
Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the acquisition-date amounts recognized for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. Impairment testing is performed at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. If fair value is in excess of the carrying value, impairment is not indicated. If the carrying amount of a reporting unit is higher than its estimated fair value, the excess is recorded as an impairment expense. The Group performs its goodwill impairment test on annual basis. When assessing goodwill for impairment the Company first performs a qualitative assessment to determine whether it is necessary to perform a quantitative analysis. On April 25, 2025, ReTo entered into the Share Exchange Agreement to acquire 51% equity interest in MMB, a British Virgin Islands business company, from the Sellers and recognized approximately $8.0 million goodwill. Due to the continuous loss of MMB, the Company determined it appropriate to perform the quantitative assessment of goodwill as of December 31, 2025.
The quantitative impairment test involves the use of significant estimates and assumptions to evaluate the impact of operational and economic changes on each reporting unit. The Company estimate the fair value using the income valuation approach with assistance of third-party valuation firm. The income approach applies a fair value methodology to the single reporting unit based on discounted cash flows. This analysis requires significant estimates and judgments, including (i) the estimation of future revenue, projected gross profit margins, projected operating costs, projected operating income margins, and projected capital expenditures, which are dependent on internal cash flow forecasts; and (iii) determination of the risk-adjusted discount rates. The weighted average cost of capital used in the Company’s impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and was estimated at 18.23%. Based on the goodwill impairment test, the Group recorded a full impairment of approximately $8.0 million on goodwill for the year ended December 31, 2025. The Company bases fair value estimates on assumptions the Company believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Share-based Compensation
The Company accounts for share-based compensation in accordance with ASC 718, “Compensation — Stock Compensation” (“ASC 718”). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All the Company’s share-based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.
The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted with graded vesting based on service conditions. The Company uses the accelerated method for all awards granted with graded vesting. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting. The Company, with the assistance of an independent third-party valuation firm, determined the fair value of the stock options granted to employees.
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Income Taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated.
To the extent applicable, the Company records interest and penalties as a general and administrative expense. The Company’s subsidiaries in China and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No significant taxable income was generated outside the PRC as of December 31, 2025 and 2024. As of December 31 2025, the tax years ended December 31, 2019 through December 31, 2024 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.
Item 6. Directors, Senior Management and Employees
| A. | Directors and senior management. |
The following table sets forth information regarding directors and our executive officers as of the date of this annual report.
| Name (1) | Age | Position | ||
| Xinyang Li (2) | 31 | Chief Executive Officer and Director | ||
| Guangfeng Dai (2) | 65 | President, Chief Operating Officer and Chairman of the Board | ||
| Zhizhong Hu (2) | 64 | Chief Technology Officer and Director | ||
| Degang Hou | 65 | Chief Internal Control Officer | ||
| Yue Hu | 37 | Chief Financial Officer | ||
| Tonglong Liu (3) (5) (6) (7) | 62 | Director | ||
| Baoqing Sun (3) (5) (6) (7) | 63 | Director | ||
| Lidong Liu (4) (5) | 54 | Director | ||
| Austin Huang (4) (6) (7) | 69 | Director |
| (1) | Each individual’s business address is Building X-702, 60 Anli Road, Chaoyang District, Beijing China. |
| (2) | Class C director, whose term will expire at the 2028 annual meeting of shareholders. |
| (3) | Class B director, whose term will expire at the 2027 annual meeting of shareholders. |
| (4) | Class A director, whose term will expire at the 2026 annual meeting of shareholders. |
| (5) | Member of audit committee. |
| (6) | Member of compensation committee. |
| (7) | Member of nominating committee. |
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Xinyang Li. Mr. Li has served as the Chief Executive Officer and a director of ReTo, as well as Chief Executive Officer of ReTo Hengda, a wholly owned subsidiary of ReTo, since May 2025. From July 2021 to December 2024, he served as Assistant to the President at Beijing REIT, formerly a wholly owned subsidiary of the Company prior to its divestiture of REIT Holdings (China) Limited in December 2024. Mr. Li earned his Bachelor’s degree in Economics from University of Nebraska Lincoln in 2019.
Guangfeng Dai. Mr. Dai became the President of ReTo in 2020. Mr. Dai has served as the Chief Operating Officer and a Director of ReTo since November 2016. In addition, Mr. Dai has served as ReTo Hengda’s Chief Operating Officer since December 2024. Previously, Mr. Dai served as Beijing REIT’s Chief Operating Officer and Director from February 2000 to November 2024. Mr. Dai served as the deputy representative in China for Hess Mechanical Engineering Co., Ltd. of Germany from 1997 until 2000. From 1995 through 1997, Mr. Dai was a senior engineer at Yanxing Corporation of China. From 1992 through 1994, Mr. Dai was a senior engineer at China North Industries Group Corporation. Mr. Dai received his master’s degree in Automobile Engineering from Beijing Institute of Technology.
Zhizhong Hu. Mr. Hu has served as the Chief Technology Officer and Director of ReTo since November 2016. Mr. Hu has served as ReTo Hengda’s Chief Technology Officer since December 2024. Previously, Mr. Hu served as Beijing REIT’s Chief Technology Officer and Director from February 2000 to November 2024. Mr. Hu served as the general manager and executive director of Yichang Hayes Building Materials Co., Ltd. from 1997 through 2000. From 1996 through 1997, Mr. Hu served as the business representative for Hayes Mechanical Engineering Co., Ltd. of Germany. Mr. Hu received his bachelor’s degree in Mechanical Engineering from Nanjing University of Science and Technology.
Degang Hou. Mr. Hou has served as the Chief Internal Control Officer of ReTo since February 2020. Mr. Hou has served as the Chief Internal Control Officer of ReTo Hengda since December 2024. Previously, Mr. Hou served as Beijing REIT’s Chief Internal Control Officer from February 2000 to November 2024. From 1983 through 1999, he was an engineer and senior engineer of North Vehicle Research Institute, State Weaponry Equipment Corporation. From 1999 through 2020, he was the deputy general manager for Beijing REIT. He graduated in Ship Internal Combustion Engine Direction from Dalian University of Technology in 1983.
Yue Hu. Ms. Hu has served as Chief Financial Officer of ReTo since August 2022. She has served as the Chief Financial Officer of ReTo Hengda since December 2024. Previously, she worked in Beijing REIT as an assistant to the management from May 2019 to November 2024, and assisted with preparation and filing of periodic reports of the Company to the SEC. From March 2015 to December 2016, Ms. Hu worked in Gu’an REIT Machinery Manufacturing Co., Ltd., a former wholly owned subsidiary of the Company, as a procurement specialist, in charge of purchasing accessories needed for production and processing. Ms. Hu received her bachelor’s degree in Accounting from Xi’an Siyuan University.
Tonglong Liu. Mr. Liu has served as an independent director of ReTo since November 2022. Mr. Liu has also served as the Chief Executive Officer and Chairman of Beike Huizhi Software Technology Co., Ltd., a private company, since June 2018. From December 2012 to June 2018, he served as the Vice President of Great China of Dassault Systèmes S.A., a software solutions provider. Mr. Liu was with PTC, Inc. (formerly Parametric Technology Corporation) (China), a computer software and services company, from March 1993 to November 2012, where he served as the Application Engineer from March 1993 to March 1995, Sale Representative from March 1995 to September 1996, District Manager of North China from September 1996 to September 1999, Reginal Director of North China from September 1999 to September 2002, Senior Regional Director of North China from September 2002 to September 2005, Area Vice President of China from September 2005 to September 2008, and Senior Vice President of China from September 2008 to September 2012. Prior to that, Mr. Liu worked at Computer Application Research Institute, NORICO Group from February 1988 to February 1993 where, he served as Engineer from February 1988 to February 1990 and as the Deputy Director of Computer Aided Design software research division from February 1990 to February 1993. Mr. Liu received his master’s degree and bachelor’s degree from the Department of Vehicle Engineering of Beijing Institute of Technology.
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Baoqing Sun. Mr. Sun has served as an independent director of ReTo since November 2022. Before retiring in 2014, Mr. Sun served as the Deputy Director of Gu’an County Transportation Bureau from March 2003 to April 2014, where he was responsible for political and administration affairs, matters regarding transportation technology, transportation combat readiness, and highway stations. He was also responsible for construction and maintenance of national and provincial main lines and local highways. Prior to that, Mr. Sun served as the Director of Economic Commission, Deputy Secretary of the Committee, Secretary of the Disciplinary Committee, and Deputy Mayor of Gu’an Town, Gu’an County, from March 2001 to March 2003, from June 2000 to March 2001, from December 1999 to June 2000, and from December 1999 to April 1995, respectively, where he was mainly handling town affairs such as town enterprises, taxation, or market development. From April 1995 to May 1996, he was the Deputy General Manager of Langfang Sanhe Food Co., Ltd. Mr. Sun served as the Clerk of Gu’an County Labor and Personnel Bureau from June 1984 to April 1995 and worked in Gu’an County Transportation Bureau Second Automobile Team Overhaul Workshop from July 1983 to June 1984. Mr. Sun obtained a bachelor’s degree in mechanical engineering automotive from Hebei Institute of Technology.
Lidong Liu. Ms. Liu has served as an independent director of ReTo since November 2022. Ms. Liu has served as the Chief Financial Officer since November 2015 for Jilin Yiyatong Deep Supply Chain Management Co., Ltd, a supply chain management company. From January 2011 to September 2015, she served as the Chief Financial Officer for Sinopharm Holding (Jilin) Co., Ltd, a pharmaceuticals company. In addition, between January 2002 and December 2010, Ms. Liu was the Chief Financial Officer for Changchun Yongxin Dirui Pharmaceutical Co., Ltd., a pharmaceuticals company. Ms. Liu is a member of China Certified Public Accountants and a seasoned executive with professional experience in auditing and financial reporting. Ms. Liu holds a bachelor’s degree in Accounting from Ji Lin University of Finance and Economics, and an MBA from Changchun University of Science and Technology.
Austin Huang. Dr. Huang has served as an independent director of ReTo since November 2016. Dr. Huang has served as the President and Principal Engineer for Merit Engineering, Inc., a geotechnical, environmental, and civil engineering services company, since 1993. Among other awards, Mr. Huang has received the Diplomat of Geotechnical Engineering by the Academy of Geoprofessionals in 2011 and named a Fellow, ACCE (American Society of Civil engineering) in 2007. Dr. Huang served as an expert witness on geo-retaining wall design issues. In addition, he has presented two papers in the area of slope stability and pile foundations with socket in bedrock in international conferences. He holds 19 research publications including six in leading research journals. Dr. Huang holds a master’s degree and Ph.D. in Geotechnical Engineering from University of Wisconsin.
Family Relationship
There are no family relations among any of our officers or directors, except that Yue Hu is Zhizhong Hu’s daughter. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.
| B. | Compensation. |
Executive Compensation
Our board of directors has not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive officers. Currently, our board of directors determines the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers to our success. Each of our named executive officers is measured by a series of performance criteria by the board of directors, or the compensation committee on a yearly basis. Such criteria are set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance. The board of directors will make an independent evaluation of appropriate compensation to key employees, with input from management. The board of directors has oversight of executive compensation plans, policies and programs.
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Cash Compensation
In the fiscal year ended December 31, 2025, we expensed an aggregate of approximately $410,762 as salaries to our executive officers named in this annual report.
Equity Awards
In the fiscal year ended December 31, 2025, no securities were issued to our executive officers named in this annual report, pursuant to the 2022 Share Incentive Plan.
Other than salaries, fees and share incentives, we do not otherwise provide pension, retirement or similar benefits to our officers and directors.
Employment Agreements
We have entered into employment agreements with each of our executive officers.
Employment Agreement with Xinyang Li
The Company entered into an employment agreement with Mr. Li on May 25, 2025 (the “Li Employment Agreement”), pursuant to which Mr. Li serves as Chairman and Chief Executive Officer of the Company for an initial term from May 25, 2025 to May 25, 2028, subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the expiration of the applicable term. Pursuant to the Li Employment Agreement, Mr. Li is entitled to an annual compensation of RMB336,000 (approximately $47,040) and other discretionary equity bonus or benefits as determined by the Company from time to time.
Employment Agreement with Guangfeng Dai
The Company entered into an employment agreement with Mr. Dai on May 11, 2024 (the “Dai Employment Agreement”) pursuant to which Mr. Dai serves as the President of the Company for a term from May 11, 2024 to December 31, 2025, subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the expiration of the applicable term. Pursuant to the Dai Employment Agreement, Mr. Dai is entitled to annual compensation of RMB 750,000 (approximately $109,000), and other discretionary equity bonus or benefits as determined by the Company from time to time.
Employment Agreement with Zhizhong Hu
The Company entered into an employment agreement with Mr. Hu on May 11, 2024 (the “Hu Employment Agreement”), pursuant to which Mr. Hu serves as the Chief Technology Officer of the Company for a term from May 11, 2024 to December 31, 2025, subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the expiration of the applicable term. Pursuant to the Hu Employment Agreement, Mr. Hu is entitled to annual compensation of RMB 700,000 (approximately $102,000), and other discretionary equity bonus or benefits as determined by the Company from time to time.
Employment Agreement with Degang Hou
The Company entered into an employment agreement with Mr. Hou on May 11, 2024 (the “Hou Employment Agreement”), pursuant to which Mr. Hou serves as the Chief Internal Control Officer of the Company for a term from May 11, 2024 to December 31, 2025, subject to successive, automatic one-year extensions unless either party gives notice of non-extension to the other party at least 30 days prior to the expiration of the applicable term. Pursuant to the Hou Employment Agreement, Mr. Hou is entitled to annual compensation of RMB 700,000 (approximately $102,000), and other discretionary equity bonus or benefits as determined by the Company from time to time.
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Under each of the Li Employment Agreement, the Dai Employment Agreement, the Hu Employment Agreement, and the Hou Employment Agreement, we may terminate their employment for cause, at any time, without notice or remuneration, for certain acts, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and his right to all other benefits will terminate, except as required by any applicable law. We may also terminate the executive officer’s employment without cause immediately and without prior written notice upon the removal of the executive officer pursuant to the exercise of any power contained in the memorandum and articles of association of the Company or upon 30 days’ advance written notice. In such case of termination by us, we are required to pay the executive officer a cash payment of three months of base salary as of the date of such termination. The executive officer may terminate his employment at any time with 30 days’ advance written notice if there is a material reduction in his authority, duties and responsibilities, without his consent, or a material reduction in his annual salary. In such case, the executive officer will be entitled to receive compensation equivalent to three months of his base salary. In addition, if we or our successor terminates the employment agreements upon a merger, consolidation, or transfer or sale of all or substantially all of our assets with or to any other individual(s) or entity, the executive officer shall be entitled to the following severance payments and benefits upon such termination: (1) a lump sum cash payment equal to three months of base salary at a rate equal to the greater of his annual salary in effect immediately prior to the termination, or his then current annual salary as of the date of such termination; (2) payment of premiums for continued health benefits under our health plans for three months following the termination; and (3) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by the executive officer, if any.
The employment agreements also contain customary restrictive covenants relating to confidentiality, non-competition and non-solicitation, as well as indemnification of the executive officer against certain liabilities and expenses incurred by him in connection with claims made by reason of him being an officer of our company.
Employment Agreement with Yue Hu
ReTo Hengda entered into a standardized labor contract with Ms. Hu on November 20, 2024, pursuant to which Ms. Hu serves as the Chief Financial Officer for a term from December 1, 2024 to December 31, 2026. Pursuant to the labor contract, Ms. Hu is entitled to an annual compensation of RMB204,000 (approximately $28,045) and social insurance and other employee benefits (including health insurance, vacation and expense reimbursement), each in accordance with laws in the People’s Republic of China and the Company’s policy. Her employment agreement may be terminated in accordance with the PRC Labor Contract Law and relevant local regulations in Beijing.
Director Compensation
Officers are elected by and serve at the discretion of the board of directors. Employee directors do not receive any compensation for their services on the board of directors. Non-employee directors are entitled to receive $10,000 per year for serving as directors and may receive stock grants pursuant to our share incentive plans. In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for each board of directors meeting attended, up to a maximum of $2,000 per meeting and $4,000 per year.
Cash Compensation
During the fiscal year ended December 31, 2025, we paid an aggregate of approximately RMB280,000 (approximately $40,000) in cash to our non-employee directors.
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Equity Awards
During the fiscal year ended December 31, 2025, no securities were issued to our directors pursuant to the 2022 Share Incentive Plan.
See Item 6.E for a description of our 2022 Share Incentive Plan.
| C. | Board Practices. |
See information provided in response to Item 6.A. above as to the current directors.
Composition of Board
Our board of directors currently consists of seven directors. The directors are divided into three classes, as nearly equal in number as the then total number of directors permits. All directors hold office until the next annual meeting of shareholders at which their respective class of directors is re-elected and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the board of directors. Class A directors shall face re-election at our 2026 annual general meeting of shareholders and shall face reelection every three years thereafter. Class B directors shall face re-election at our 2027 annual general meeting of shareholders and every three years thereafter. Class C directors shall face re-election at our 2028 annual general meeting of shareholders and every three years thereafter.
If the number of directors changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible. Any additional director of a class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent director. These board provisions could make it more difficult for third parties to gain control of our Company by making it difficult to replace members of the board of directors.
Save as required under the BVI Act, there are no membership qualifications for directors. Further, save as required under the BVI Act, there are no share ownership qualifications for directors unless so fixed by us in a general meeting.
The board of directors maintains a majority of independent directors who are deemed to be independent under the definition of independence under Rule 5605(c)(2) of the Nasdaq Stock Market Rules and meet the independence standards under Rule 10A-3 under the Exchange Act, as amended. Baoqing Sun, Tonglong Liu, Lidong Liu and Austin Huang are our independent directors.
There are no other arrangements or understandings pursuant to which our directors are selected or nominated. We do not have any service contacts with our directors that provide benefits upon termination of employment.
Our board of directors plays a significant role in our risk oversight. The board of directors makes all relevant company decisions. As such, it is important for us to have both our Chief Executive Officer and President to serve on the Board as they play key roles in the risk oversight or the Company. As a company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
Committees of the Board of Directors
Currently, three committees have been established under the board: the audit committee, the compensation committee and the nominating committee. The audit committee is responsible for overseeing the accounting and financial reporting processes of the Company and audits of the financial statements of the Company, including the appointment, compensation and oversight of the work of our independent auditors. The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The nominating committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.
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Baoqing Sun and Tonglong Liu serve on all three committees, Austin Huang serves on the nominating committee and compensation committee, Lidong Liu serves on the audit committee. Austin Huang chairs the nominating committee and the compensation committee and Lidong Liu chairs the audit committee. Lidong Liu qualifies as an “audit committee financial expert” as that term is defined by the applicable SEC regulations and Nasdaq Capital Market corporate governance requirements.
Duties of Directors
Under BVI law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our M&A. Shareholders shall have the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
| ● | having all the powers necessary for managing and for directing and supervising, the business and affairs for the Company |
| ● | appointing officers and determining the term of office of the officers; |
| ● | fixing the emoluments of officers; |
| ● | exercising all powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party; |
| ● | designating committees of directors; |
| ● | executing checks, promissory notes, drafts, bills of exchange and other negotiable instruments on behalf of the Company; and |
| ● | determining that any sale, transfer, lease, exchange, or other disposition is in the usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive. |
Interested Transactions
A director may vote, attend a board meeting and be included for the purposes of a quorum, sign a document on behalf of the Company, or do any other thing in their capacity as a director with respect to any transaction in which that director is interested. A director must immediately disclose the interest to all other directors after becoming aware of the fact that they are interested in a transaction entered into or to be entered into by the Company. Subject to compliance with the BVI Act, a Company director shall not, by reason of that director’s office, be accountable to the Company for any remuneration, profit or other benefit derived, or resulting, from derived from such transaction and no such transaction shall be liable to be avoided on the grounds that a director has an interest in it or derives any remuneration, profit or other benefit from it.
Remuneration and Borrowing
The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors.
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Subject to compliance with the BVI Act, our board of directors may exercise all the powers of the Company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.
Qualification
A director is not required to hold shares as a qualification to office.
Limitation on Liability and Other Indemnification Matters
Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a view to our best interests. Our M&A provide that, to the fullest extent permitted by British Virgin Islands law or any other applicable laws, our directors will not be personally liable to us or our shareholders for any acts or omissions in the performance of their duties. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws.
We may indemnify any of our directors or anyone serving at our request as a director of another entity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings. We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board of directors as to whether the director acted honestly and in good faith with a view to our best interests and as to whether the director had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in good faith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings.
We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers against the liability as provided in our M&A.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of United States law.
| D. | Employees. |
As of December 31, 2025, we had a total of 48 full-time employees. Among these employees, we had 11 employees in management, 6 employees in sales and marketing, 13 employees in research and development, 7 employees in manufacturing and installation and 11 employees in administration/finance. We had a total of 48 and 46 full-time employees as of December 31, 2025 and 2024, respectively. We did not hire any part-time employees during the fiscal years ended December 31, 2025, 2024 and 2023. All of our employees are located at our offices or facilities in Beijing, Xi’an, Shenzhen, Yunnan and Hebei, China. Our employees are not represented by a labor organization or covered by a collective bargaining agreement.
We participate in various employee social security plans that are organized by municipal and provincial governments, including housing, pension, medical insurance and unemployment insurance, as required by laws and regulations in China. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.
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We typically enter into standard labor contracts with our employees. We also enter into standard confidentiality and non-compete agreements with our senior management and research and development personnel. These contracts involve a covenant that prohibits them from engaging in any activities that compete with our business within certain agreed period after the termination of their employment with us, and during such non-competition period. We believe we maintain a good working relationship with our employees, and we have not experienced any material labor disputes or any difficulty in recruiting staff for our operations.
| E. | Share ownership. |
The following tables set forth certain information with respect to the beneficial ownership of our Shares as of April 27, 2026, for:
| ● | each of our directors and named executive officers; and |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all Class A Shares that they beneficially own, subject to applicable community property laws.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o ReTo Eco-Solutions, Inc., Building X-702, 60 Anli Road, Beijing, People’s Republic of China 100101.
| Beneficial Ownership | ||||||||||||||||||||
| Name of Beneficial Owner | Class A Shares | Class B Shares | %
of beneficial ownership of Class A Shares** | %
of beneficial ownership of Class B Shares** | %
of aggregate voting power*** | |||||||||||||||
| Directors and Executive Officers: | ||||||||||||||||||||
| Xinyang Li | — | — | — | — | — | |||||||||||||||
| Guangfeng Dai(1) | 156 | 200,000 | * | 20.0 | % | 20.0 | % | |||||||||||||
| Zhizhong Hu(2) | 156 | 200,000 | * | 20.0 | % | 20.0 | % | |||||||||||||
| Degang Hou(3) | 156 | 200,000 | * | 20.0 | % | 20.0 | % | |||||||||||||
| Yue Hu | — | — | — | — | — | |||||||||||||||
| Tonglong Liu | — | — | — | — | — | |||||||||||||||
| Baoqing Sun | — | — | — | — | — | |||||||||||||||
| Lidong Liu | — | — | — | — | — | |||||||||||||||
| Austin Huang | 8 | — | * | — | * | |||||||||||||||
| All directors and executive officers as a group (nine persons) | 476 | 600,000 | * | 60.0 | % | 59.9 | % | |||||||||||||
| Other 5% or greater beneficial owner(s) | ||||||||||||||||||||
| REIT International Development (Group) Co., Limited(1)(2)(3) | 781 | 1,000,000 | * | 100.0 | % | 99.8 | % | |||||||||||||
| Streeterville Capital, LLC(4) | 781,966 | — | 9.9 | % | — | * | ||||||||||||||
| * | Less than 1%. |
| ** | For each person and group included in this column, percentage of beneficial ownership is calculated by dividing the number of Class A or Class B shares, as applicable, beneficially owned by such person or group by the sum of 14,079,201, being the number of Shares, including 13,079,201 Class A Shares and 1,000,000 Class B shares, issued and outstanding as of April 27, 2026. |
| *** | For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our shares, including Class A Shares and Class B shares, as a single class. Each holder of Class A Shares is entitled to one vote per share and each holder of our Class B shares is entitled to 1,000 votes per share on all matters submitted to them for a vote. Our Class A Shares and Class B shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. |
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| (1) | Represents (i) approximately 156 Class A Shares held through REIT International (Group) Co, a Hong Kong limited liability company (“REIT International”). Mr. Dai holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 781 Class A Shares held by REIT International and (ii) 200,000 Class B shares held through REIT International. Mr. Dai holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 1,000,000 Class B shares held by REIT International. |
| (2) | Represents (i) approximately 156 Class A Shares held through REIT International. Mr. Hu holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 781 Class A Shares held by REIT International and (ii) 200,000 Class B shares held through REIT International. Mr. Hu holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 1,000,000 Class B shares held by REIT International. |
| (3) | Represents (i) approximately 156 Class A Shares held through REIT International. Mr. Hou holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 781 Class A Shares held by REIT International and (ii) 200,000 Class B shares held through REIT International. Mr. Dai holds a 20% ownership of REIT International and has the voting and investment power with respect to 20% of the 1,000,000 Class B shares held by REIT International. |
| (4) | Pursuant to the Schedule 13G/A filed with the SEC on February 25, 2026, Streeterville Capital, LLC (“Streeterville”) has rights, under a Pre-Paid Purchase, to own an aggregate number of shares of the Class A Shares which, except for a contractual cap on the amount of outstanding shares that Streeterville may own, would exceed such a cap. Streeterville's current ownership cap is 9.99%. Thus, the number of shares of the Class A Shares beneficially owned by Streetertville was 781,966 shares, which is 9.99% of the 7,827,491 shares outstanding on October 24, 2025. John M Fife is the sole member of Streeterville Management, LLC which is the manager of Streeterville. The business address of Streeterville, Streeterville Management LLC and John M. Fife is 300 East Randolph Street, Suite 40.150, Chicago, IL 60601. |
Record Holders
As of April 27, 2026, to our knowledge, we had 11 holders of record of our Class A Shares in the United States, which represented 10,698,728 Class A Shares, approximately 81.8% of our outstanding Class A Shares (including Cede & Co., the nominee of the Depositary Trust Company, holding 2,028,137 Class A Shares, representing approximately 15.5% of our outstanding Class A Shares). The number of holders of record and the shares they held is based exclusively upon the certified shareholder list provided by our transfer agent and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in the Company.
2022 Share Incentive Plan
On December 6, 2022, the Company’s shareholders approved the 2022 Share Incentive Plan, which initially allowed for issuance of up to 1,000 Class A Shares to employees, non-employee directors, officers and consultants for services rendered to the Company, with an automatic share reserve increase by a number equal to the lesser of (i) 5% of the total number of Class A Shares issued and outstanding on December 31 of the calendar year immediately preceding the date of such increase and (ii) a number of Class A Shares determined by the Compensation Committee.
On March 8, 2023, the Company’s board of directors approved the issuance of an aggregate of 1,000 Class A Shares to its employees, officers and directors for their services.
On December 22, 2025, shareholders approved Amendment No. 1 to 2022 Share Incentive Plan to, among other things, (a) increase the number of authorized shares available for issuance to a total of 360,000 unissued Class A Shares and (b) revise the evergreen provision from an annual increase to a semi-annual increase.
The following is a summary of the principal terms of the 2022 Share Incentive Plan.
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Administration
The 2022 Share Incentive Plan is administered by the Compensation Committee of the board of directors. The 2022 Share Incentive Plan provides the Compensation Committee with flexibility to design compensatory awards that are responsive to the company’s needs. Subject to the terms of the 2022 Share Incentive Plan, the Compensation Committee has the discretion to determine the terms of each award.
Amount of Awards
The maximum number of Class A Shares as to which awards may be granted under the 2022 Share Incentive Plan is 360,000 shares. The 2022 Share Incentive Plan provides for an automatic share reserve increase feature, whereby the share reserve will be increased automatically on January 1 and July 1, respectively, of each calendar year beginning with the 2023 fiscal year, in an amount equal to the lesser of (i) a number equal to 5% of the aggregate number of Class A Shares outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares as is determined by the compensation committee. The automatic share reserve feature and any provisions that are or would create a “formula” plan for purposes of Nasdaq listing requirements will operate only until the ten-year anniversary of the earlier of the initial adoption of the 2022 Share Incentive Plan by the Board or the approval of the 2022 Share Incentive Plan by our shareholders, and therefore no automatic share reserve increase will be added after the increase on the first day of our 2032 fiscal year.
Types of Awards
Awards under the 2022 Share Incentive Plan may be in the form of incentive stock options, non-statutory stock options or restricted stock awards. An option is the right to purchase the Company’s Class A Shares at a price and on a schedule set by the Compensation Committee. The option price will be no less than the fair market value of the shares on the option grant date.
Participants
Employees of the Company, executive officers, non-employee directors and consultants may all be selected by the Compensation Committee to receive awards under the 2022 Share Incentive Plan. The benefits or amounts that may be received by or allocated to participants under the 2022 Share Incentive Plan will be determined at the discretion of the Compensation Committee and are not presently determinable.
Termination and Amendment
The Compensation Committee may terminate the 2022 Share Incentive Plan at any time. If not sooner terminated by the board of directors, the 2022 Share Incentive Plan will terminate on the tenth anniversary of its effective date.
The 2022 Share Incentive Plan may be amended by the board of directors, but without further approval by the shareholders of the Company, the Board shall not amend the 2022 Share Incentive Plan in any manner that requires shareholder approval. The Board may condition any amendment on the approval of the shareholders if such approval is necessary or deemed advisable with respect to the applicable listing or other requirements of a national securities exchange or other applicable laws, policies or regulations.
F. Disclosure of a registrant’s action to recover erroneously awarded compensation.
None.
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Item 7. Major Shareholders and Related Party Transactions
| A. | Major shareholders. |
Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”
| B. | Related party transactions. |
The Company records transactions with various related parties. These related party balances as of December 31, 2025 and 2024 and transactions for the years ended December 31, 2025, 2024 and 2023 are identified as follows:
| (1) | Related parties |
| Name of Related Party | Relationship to the Company | |
| Mr. Hengfang Li* | Former Chief Executive Officer and former Chairman of the board of directors of ReTo prior to May 25, 2025; shareholder of the Company and father of Mr. Xinyang Li, Chief Executive Officer and director of the Company | |
| Mr. Xiaojun Zou | Chief Executive Officer and Chairman of Dirong | |
| Mr. Lap Cheong Chan | A shareholder of MMB and ReTo | |
| Shexian Ruibo Environmental Science and Technology Co., Ltd. (“Shexian Ruibo”) | Mr. Hengfang Li is the Chairman of the board of directors of Shexian Ruibo | |
| Shexian Ruida Environmental Science and Technology Co., Ltd. (“Shexian Ruida”) | An entity controlled by Shexian Ruibo | |
| Q Green Techcon Private Limited | A non-controlling shareholder of disposed subsidiary, until December 31, 2025 |
| * | On May 25, 2025, Mr. Hengfang Li resigned as the Chief Executive Officer and a director of the Company. |
| (2) | Due from related parties |
As of December 31, 2025 and 2024, the balance due from related parties was as follows:
| As
of December 31, 2025 | As
of December 31, 2024 | |||||||
| Mr. Hengfang Li | $ | - | $ | 24,048 | ||||
| (3) | Sales to related party |
| For
the year ended December 31, 2025 | For
the year ended December 31, 2024 | For
the year ended December 31, 2023 | ||||||||||
| Q Green Techcon Private Limited | $ | - | $ | 229,600 | $ | -- | ||||||
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| (4) | Due to related parties |
| As
of December, 2025 | As
of December 31, 2024 | |||||||
| Mr. Hengfang Li | $ | 606,862 | $ | - | ||||
| Mr. Lap Cheong Chan | 1,070,111 | - | ||||||
| Mr. Xiaojun Zou | 14,872 | - | ||||||
| $ | 1,691,845 | $ | - | |||||
For the year ended December 31, 2025, the above related parties paid certain business expenses on behalf of the Company. The Company expects to repay the amount by December 31, 2026.
| C. | Interests of Experts and Counsel |
Not applicable.
Item 8. Financial Information
| A. | Consolidated Statements and Other Financial Information. |
The financial statements required by this item may be found at the end of this report on 20-F, beginning on page F-1.
Legal and Administrative Proceedings
In the ordinary course of business, the Company is from time to time involved in legal proceedings and litigation that are generally contractual in nature.
Except as disclosed above, we are currently not a party to any material legal or administrative proceedings and we are not aware of any material legal or administrative proceedings threatened against us. We may from time to time be subject to various legal or administrative proceedings arising in the ordinary course of business.
Dividend Policy
Holders of our Class B Shares are not entitled to receive dividends, and We have never declared or paid any cash dividends on our Class A Shares. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the board of directors may deem relevant.
Under British Virgin Islands law, a distribution (including a dividend) is considered to be any direct or indirect transfer by a company of any of its assets (other than any of its shares), or the incurring by it of a debt, to or for the benefit of, a shareholder. The BVI Act only allows the directors of the Company to authorize a distribution if they are satisfied on reasonable grounds that the Company will, immediately after the distribution is made, satisfy the following tests (the “solvency tests”): (i) the value of its assets will exceed its liabilities; and (ii) it will be able to pay its debts as they fall due. The solvency tests are also included in the Memorandum and Articles of Association.
If, after a dividend has been authorised but before it is made, a director ceases to be satisfied on reasonable grounds that the company will satisfy the solvency tests immediately after the distribution is made, the distribution is taken not to have been authorised.
If we determine to pay dividends on any of our Class A Shares in the future, as a holding company, we will be dependent on receipt of funds from our PRC subsidiaries. Current PRC regulations permit our PRC subsidiaries to pay dividends to Sunoro Holdings only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Our PRC subsidiaries are also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Our subsidiaries in China are required to set aside statutory reserves and have done so.
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In addition, pursuant to the EIT Law and its implementation rules, dividends generated and distributed to us by ReTo Hengda, Dirong or Shenzhen MMB is subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations in China may be used to pay dividends to our company. See “Item 4. Information on the Company – B. Business Overview – Regulation – Regulation of Foreign Currency Exchange and Dividend Distribution.”
| B. | Significant Changes. |
Except as otherwise disclosed in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included herein.
Item 9. The Offer and Listing
| A. | Offer and listing details. |
Our Class A Shares have been listed on the Nasdaq Capital Market since November 29, 2017 under the symbol “RETO.”
| B. | Plan of distribution. |
Not applicable.
| C. | Markets. |
Our Class A Shares are listed on the Nasdaq Capital Market under the symbol “RETO.”
| D. | Selling shareholders. |
Not applicable.
| E. | Dilution. |
Not applicable.
| F. | Expenses of the issue. |
Not applicable.
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Item 10. Additional Information
| A. | Share capital. |
Not applicable.
| B. | Memorandum and articles of association. |
We incorporate by reference the description of our M&A, as currently in effect in the British Virgin Islands, set forth in our current report on Form 6-K as furnished with the SEC on August 14, 2024.
| C. | Material contracts. |
MMB Share Exchange Agreement dated April 25, 2025
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—Acquisition of MeinMalzeBier in April 2025.”
MMB Management Services Agreement dated April 25, 2025
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—Acquisition of MeinMalzeBier in April 2025.”
MMB Advisory and Consulting Agreement dated April 25, 2025
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—Acquisition of MeinMalzeBier in April 2025.”
Streeterville SPA dated June 16, 2025
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—2025 Streeterville Financing.”
October 2025 SPA dated October 23, 2025
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—October 2025 Offering.”
Seven Arrows Share Exchange Agreement dated February 27, 2026
For a description of the terms of this agreement, see “Item 4. Information on the Company—B. Business Overview—Recent Developments—Share Exchange with Seven Arrows.”
Facility Agriculture Park Construction Contract
On September 30, 2025, our subsidiary, ReTo Hengye, entered into an Overall Construction Contract with Shanxi Wanxing Longda Industrial Co., Ltd. for the development of a Facility Agriculture Park in Lingqiu County, Datong City, Shanxi Province. Under the terms of this agreement, the contractor is responsible for the comprehensive construction of tropical fruit planting greenhouses and necessary park infrastructure. The project carries a total contract price of RMB 102.0 million, inclusive of taxes, which is payable through a series of progress-based installments, including completion and acceptance of park infrastructure, greenhouse main structure, and in-greenhouse facilities, along with other requirements specified in this agreement. The construction period is established as 730 calendar days from the date of ReTo Hengye’s written notice to commence work, with a mandatory completion and acceptance deadline set for September 30, 2027. The agreement includes strict confidentiality provisions regarding technical data and is governed by the laws of the PRC.
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Tropical Fruit Cultivation Technology Development and Technical Service Contract
On October 15, 2025, ReTo Hengye entered into a five-year Technical Service Contract with Beijing Haoyu Runze Technology Group Co., Ltd. to secure advanced cultivation techniques for various tropical fruit varieties, including passion fruit, dragon fruit, and Australian finger lime, among others. Pursuant to this agreement, the counterparty licenses existing patented technologies and provides technical guidance for large-scale production. Furthermore, the agreement stipulates that any new technical achievements, intellectual property, or plant variety rights arising from research and development funded by ReTo Hengye will be solely owned by ReTo Hengye. The total consideration for these licenses and services is RMB 30.0 million, with the first payment of RMB 20.0 million due within 15 business days after the date of the agreement, the second payment of RMB 9.0 million due to certain milestone achievement and the last payment of RMB 1.0 million due within 15 business days after the complete performance of this agreement.
Other than those set forth above and those described elsewhere in this annual report, we did not have any other material contracts.
| D. | Exchange controls. |
Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures on Administration on Foreign Debts (2003), as amended on July 26, 2022. Under these regulations, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount or three times of its net assets, at the discretion of such operating subsidiary. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved by the MOFCOM or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.
The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in mainland China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.
On August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within China. SAFE also strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. On March 30, 2015, SAFE issued SAFE Circular 19, which took effective and replaced SAFE Circular 142 on June 1, 2015. Although SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in China, the restrictions continue to apply as to foreign-invested enterprises’ use of the converted RMB for purposes beyond the business scope, for entrusted loans or for inter-company RMB loans. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or SAFE Circular 16 could result in administrative penalties.
On November 19, 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts (e.g., pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts), the reinvestment of lawful incomes derived by foreign investors in China (e.g. profit, proceeds of equity transfer, capital reduction, liquidation and early repatriation of investment), and purchase and remittance of foreign exchange as a result of capital reduction, liquidation, early repatriation or share transfer in a foreign-invested enterprise no longer require SAFE approval, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible before. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local departments over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in China based on the registration information provided by SAFE and its local departments.
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On February 13, 2015, SAFE promulgated the Circular on Further Simplifying and Improving the Policies Concerning Foreign Exchange Control on Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 delegates the authority to enforce the foreign exchange registration in connection with the inbound and outbound direct investment under relevant SAFE rules to certain banks and therefore further simplifies the foreign exchange registration procedures for inbound and outbound direct investment.
Circular 37
On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required by SAFE and its branches.
Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000 for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed.
PRC residents who control our Company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Circular 37.
Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries
According to the Interim Regulations on Statistics and Supervision of Foreign Debt promulgated by the State Council and latest amended on November 29, 2020, and the Interim Provisions on the Management of Foreign Debts promulgated by SAFE, the NDRC and the MOFCOM and effective from March 1, 2003 and latest amended on July 26, 2022, loans by foreign companies to their subsidiaries in China, which accordingly are FIEs, are considered foreign debt, and such loans must be registered with the local branches of the SAFE. Under the provisions, the total amount of accumulated medium-term and long-term foreign debt and the balance of short-term debt borrowed by a FIE is limited to the difference between the total investment and the registered capital of the foreign-invested enterprise.
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On January 12, 2017, the People’s Bank of China promulgated the Circular of the People’s Bank of China on Matters relating to the Macro-prudential Management of Comprehensive Cross-border Financing, or PBOC Circular 9, which took effect on the same date. The PBOC Circular 9 established a capital or net assets-based constraint mechanism for cross-border financing. Under such mechanism, a company may carry out cross-border financing in Renminbi or foreign currencies at their own discretion. The total cross-border financing of a company shall be calculated using a risk-weighted approach and shall not exceed an upper limit. The upper limit is calculated as capital or assets multiplied by a cross-border financing leverage ratio and multiplied by a macro-prudential regulation parameter.
In addition, according to PBOC Circular 9, as of the date of the promulgation of PBOC Circular 9, a transition period of one year is set for foreign-invested enterprises and during such transition period, FIEs may apply either the current cross-border financing management mode, namely the mode provided by Implementation Rules for the Provisional Regulations on Statistics and Supervision of Foreign Debt and the Interim Provisions on the Management of Foreign Debts, or the mode in this PBOC Circular 9 at its sole discretion. After the end of the transition period, the cross-border financing management mode for FIEs will be determined by the People’s Bank of China and SAFE after assessment based on the overall implementation of this PBOC Circular 9.
According to applicable PRC regulations on FIEs, capital contributions from a foreign holding company to its PRC subsidiaries, which are considered FIEs shall both be registered with SAMS or its local counterpart, report to Ministry of Commerce and a local bank authorized by the SAFE.
Regulation of Dividend Distribution
The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of China (1993), as amended in 2018 and 2023 (the latest amendment became effective on July 1, 2024).
Under these regulations, enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and an enterprise is not permitted to distribute any profits until losses from prior fiscal years have been offset.
| E. | Taxation. |
The following sets forth the material British Virgin Islands, PRC and U.S. federal income tax matters related to an investment in our Class A Shares. The following discussion is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our Class A Shares, such as the tax consequences under state, local and other tax laws.
WE URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES.
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PRC Enterprise Income Tax
According to the EIT Law, which was promulgated by the SCNPC on March 16, 2007 (effective as of January 1, 2008 and was last amended on February 24, 2017 (effective on the same day) and on December 29, 2018 (effective on the same day), respectively. The income tax for both domestic and foreign-invested enterprises on their global income is at a uniform rate of 25%, unless they qualify for certain exceptions. The Regulation on the Implementation of Enterprise Income Tax Law of China (the “EIT Rules”) was promulgated by the State Council on December 6, 2007 and became effective on January 1, 2008 and partly amended on April 23, 2019 and December 6, 2024, further clarifies the calculation of the income tax on different types of incomes and permit certain “HNTEs strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate.
On January 29, 2016, the PRC Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation enacted the Administrative Measures for Certifying High and New Technology Enterprises (2016 Version) (the “Certifying Measures”), which retroactively became effective on January 1, 2016. Under the EIT Law and the Certifying Measures, certain qualified high-tech companies may benefit from a preferential tax rate of 15% if they own their core intellectual properties and are classified into certain industries strongly supported by the PRC government and set forth by certain departments of the PRC State Council.
Pursuant to Circular of the State Administration of Taxation on Printing and Distributing the Implementing Measures for Special Tax Adjustments (for Trial Implementation), effective on January 1, 2008, enterprises shall adopt a reasonable transfer pricing method when conducting transactions with their affiliates. Tax authorities have the power to assess whether related transactions conform to the principle of equity and make adjustments accordingly. Therefore, the invested enterprise should faithfully report relevant information of its related transactions. Pursuant to the Announcement of the State Administration of Taxation on Issuing the Administrative Measures for Special Tax Adjustment and Investigation and Mutual Consultation Procedures, effective on May 1, 2017, an enterprise may adjust and pay taxes at its own discretion when it receives a special tax adjustment risk warning or identifies its own special tax adjustment risks, and the tax authorities may also carry out special tax investigation and adjustment in accordance with the relevant provisions in regard to enterprises that adjust and pay taxes at their own discretion.
In January 2009, the SAT promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises, or the Non-resident Enterprises Measures, which was repealed by Announcement of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises in December 2017. According to the new announcement, it shall apply to handling of matters relating to withholding at source of income tax of non-resident enterprises pursuant to the provisions of Article 37, Article 39 and Article 40 of the EIT Law. According to Article 37, Article 39 of the EIT Law, income tax over non-resident enterprise income pursuant to the provisions of the third paragraph of Article 3 shall be subject to withholding at the source, where the payer shall act as the withholding agent. The tax amount for each payment made or due shall be withheld by the withholding agent from the amount paid or payable. Where a withholding agent fails to withhold tax or perform tax withholding obligations pursuant to the provisions of Article 37, the taxpayer shall pay tax at the place where the income is derived. Where the taxpayer fails to pay tax pursuant to law, the tax authorities may demand payment of the tax amount payable, from a payer of the taxpayer with payable tax amounts from other taxable income items in China.
On April 30, 2009, the MOFCOM and the SAT jointly issued the Circular on Issues Concerning Treatment of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59, which became effective retroactively as of January 1, 2008 and was partially revised on January 1, 2014. By promulgating and implementing this circular, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a Non-resident Enterprise.
On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax of Transfers of Assets between Non-resident Enterprises, or SAT Bulletin 7, which was partially abolished on December 29, 2017. SAT Bulletin 7 extends its tax jurisdiction to transactions involving transfer of immovable property in China and assets held under the establishment, and placement in China, of a foreign company through the offshore transfer of a foreign intermediate holding company. SAT Bulletin 7 also addresses transfer of the equity interest in a foreign intermediate holding company broadly. In addition, SAT Bulletin 7 introduces safe harbor scenarios applicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee of the Indirect Transfer as they have to assess whether the transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly.
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On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017 and was revised on June 15, 2018. The SAT Bulletin 37 further clarifies the practice and procedure of withholding of non-resident enterprise income tax.
If non-resident investors were involved in our private equity financing, if such transactions were determined by the tax authorities to lack reasonable commercial purpose, we and our non-resident investors may be at risk of being required to file a return and be taxed under SAT Bulletin 7 and we may be required to expend valuable resources to comply with SAT Bulletin 7 or to establish that we should not be held liable for any obligations under SAT Bulletin 7.
Uncertainties exist with respect to how the EIT Law applies to the tax residence status of ReTo and our offshore subsidiaries. Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a PRC enterprise for enterprise income tax purposes. Although the EIT Rules define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, on April 22, 2009 which provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if all of the following criteria are satisfied:
| ● | the place where the senior management and core management departments that are in charge of its daily operations perform their duties is mainly located in China; |
| ● | its financial and human resources decisions are made by or are subject to approval by persons or bodies in China; |
| ● | its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and |
| ● | half or more than half of the enterprise’s directors or senior management with voting rights frequently reside in China. |
We do not believe that we meet the conditions outlined in the preceding paragraph since ReTo does not have a PRC enterprise or enterprise group as our primary controlling shareholder. In addition, we are not aware of any offshore holding companies with a corporate structure similar to the Company that has been deemed a China “resident enterprise” by the PRC tax authorities.
If we are deemed a China resident enterprise, we may be subject to the EIT at the rate of 25% on our global income, except that the dividends we receive from our PRC subsidiaries may be exempt from the EIT to the extent such dividends are deemed dividends among qualified resident enterprises. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiaries, a 25% EIT on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.
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PRC Value-Added Tax
The Provisional Regulations of the PRC on Value-added Tax were promulgated by the State Council on December 13, 1993 and came into effect on January 1, 1994, which were subsequently amended on November 10, 2008 and came into effect on January 1, 2009 and most recently amended on November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax was promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011, or collectively, VAT Law. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-added Tax, or Order 691. According to the VAT Law and Order 691, all enterprises and individuals in China engaging in the sale of goods, the provision of processing, repair and assembly services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. On April 4, 2018, Ministry of Finance and State Administration of Taxation collectively promulgated the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates, the implementation of which began on May 1, 2018, pursuant to which a taxpayer engaging in a taxable sales activity for the value-added tax purpose or imports of goods, the previous applicable 17% and 11% tax rates are adjusted to 16% and 10% respectively, and exported goods originally subject to 17% and 11% tax rates and export rebate rate, will be subject to 16% and 10% tax rate and export rebate rate. From April 1, 2019, the 16% and 10% tax rates were reduced to 13% and 9%, respectively. The VAT tax rates generally applicable are simplified as 17%, 11%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%. The amount of VAT payable is calculated as “output VAT” minus “input VAT” and the rate of VAT for the China PRC subsidiaries ranges from 3% to 13%.
On December 25, 2024, the Law on Value-Added Tax of the People’s Republic of China (the “VAT Law”) were promulgated and took effect as from January 1, 2026. On the same day, the Implementing Regulations of the Law on Value-Added Tax of the People’s Republic of China (the “Implementing Regulations of the VAT Law”) were promulgated and also took effect as from January 1, 2026. The VAT Law and the Implementing Regulations of the VAT Law have refined, improved and adjusted relevant provisions on value-added tax on the basis of keeping the current tax framework and the tax burden generally unchanged.
China Dividend Withholding Tax
Under the PRC tax laws effective prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises were exempt from PRC withholding tax. Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement came into effect on December 8, 2006, and other applicable PRC laws and regulations, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws and regulations, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. According to the Announcement of the SAT on Issuing the Measures for the Administration of Non-resident Taxpayers’ Enjoyment of Treaty Benefits effective on January 1, 2020, non-resident taxpayers can enjoy tax treaty benefits via the “self-assessment of eligibility, claiming treaty benefits, retaining documents for inspection” mechanism. Non-resident taxpayers who have self-assessed that they are eligible for the treaty benefits can claim such tax treaty benefits accordingly provided that they have collected and retained relevant supporting documents for inspection by the tax authorities in their post-filing administration process. Pursuant to the Announcement on Certain Issues with Respect to the “Beneficial Owner” in Tax Treaties, issued by the SAT on February 3, 2018, and effective on April 1, 2018, when determining an applicant’s “beneficial owner” status regarding tax treatments in connection with dividends, interests or royalties in tax treaties, several factors set forth below will be taken into account, although the actual analysis will be fact-specific: (i) whether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in a third country or region; (ii) whether the business operated by the applicant constitutes a substantial business operation; and (iii) whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate. The applicant must submit relevant documents to the competent tax authorities to prove his or her “beneficial owner” status.
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British Virgin Islands Taxation
All dividends paid by ReTo to holders of Class A Shares who are not persons resident in the BVI are exempt from the provisions of the British Virgin Islands Income Tax Act, and any capital gains realized with respect to any Class A Shares by persons who are not persons resident in the BVI are exempt from all forms of taxation in the BVI.
No estate, inheritance, succession, or gift tax, rate, duty, levy, or other charge is payable by persons who are not persons resident in the BVI with respect to Class A Shares.
All instruments relating to transfers of property (except in the case of real estate situated in the BVI) to or by ReTo and all instruments relating to transactions in respect of Class A Shares are exempt from the payment of stamp duty in the BVI.
There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and the British Virgin Islands.
Material United States Federal Income Tax Considerations
The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Class A Shares. It is directed to U.S. Holders (as defined below) of our Class A Shares and is based upon laws and relevant interpretations thereof in effect as of the date of this report, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our Class A Shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, estate and gift and state, local and other tax laws.
The following brief description applies only to U.S. Holders (defined below) that hold Class A Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | a dealer in securities or currencies; |
| ● | a person whose “functional currency” is not the United States dollar; |
| ● | banks; |
| ● | financial institutions; |
| ● | insurance companies; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | broker-dealers; |
| ● | traders that elect to mark their securities to market; |
| ● | U.S. expatriates; |
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| ● | tax-exempt entities; |
| ● | persons liable for alternative minimum tax; |
| ● | persons holding our Class A Shares as part of a straddle, hedging, conversion or integrated transaction; |
| ● | persons that actually or constructively own 10% or more of our voting shares; |
| ● | persons that are subject to the applicable financial statement accounting rules under Section 451(b) of the Code; |
| ● | persons who acquired our Class A Shares pursuant to the exercise of any employee share option or otherwise as compensation; or |
| ● | persons holding our Class A Shares through partnerships or other pass-through entities. |
Prospective purchasers are urged to consult their tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Class A Shares.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Class A Ordinary Shares that is, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
Taxation of Dividends and Other Distributions on our Class A Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the Class A Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Class A Shares are readily tradable on an established securities market in the United States, or in the event we are deemed to be a PRC “resident enterprise” under the China tax law, we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, Class A Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Class A Shares, including the effects of any change in law after the date of this annual report.
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Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Class A Shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Class A Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Class A Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Class A Shares. The gain or loss will generally be capital gain or loss. Capital gains are generally subject to United States federal income tax at the same rate as ordinary income, except that non-corporate U.S. Holders who have held Class A Shares for more than one year may be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes.
Passive Foreign Investment Company
Based on our current and anticipated operations and the composition of our income and assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year ending December 31, 2025. Our actual PFIC status for the current taxable year ending December 31, 2025 and subsequent years will not be determinable until after the close of such taxable years and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year. PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:
| ● | at least 75% of its gross income for such taxable year is passive income; or |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.
We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A Shares, our PFIC status will depend in large part on the market price of our Class A Shares. Accordingly, fluctuations in the market price of the Class A Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raised in our IPO. If we are a PFIC for any year during which you hold Class A Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A Shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the Class A Shares.
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If we are a PFIC for any taxable year during which you hold Class A Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Class A Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Class A Shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the Class A Shares; |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| ● | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale or other disposition of the Class A Shares cannot be treated as capital, even if you hold the Class A Shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the Class A Shares, you will include in ordinary income each year an amount equal to the excess, if any, of the fair market value of the Class A Shares as of the close of your taxable year over your adjusted tax basis in such Class A Shares. You are allowed an ordinary loss for the excess, if any, of the adjusted tax basis of the Class A Shares over their fair market value as of the close of the taxable year. Such ordinary loss, however, is allowable only to the extent of any net mark-to-market gains on the Class A Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Class A Shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the Class A Shares, as well as to any loss realized on the actual sale or disposition of the Class A Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Class A Shares. Your tax basis in the Class A Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Taxation of Dividends and Other Distributions on our Class A Shares” generally would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq Capital Market. If the Class A Shares are regularly traded on the Nasdaq Capital Market and if you are a holder of Class A Shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Class A Shares in any taxable year in which we are a PFIC, you will generally be required to file U.S. Internal Revenue Service Form 8621 to report your ownership of our Class A Shares as well as distributions received on the Class A Shares, any gain realized on the disposition of the Class A Shares, any PFIC elections you would like to make in regard to the Class A Shares, and any information required to be reported pursuant to such an election.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Class A Shares and the elections discussed above.
102
Information Reporting and Backup Withholding
Dividend payments with respect to our Class A Shares and proceeds from the sale, exchange or redemption of our Class A Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders.
Under the Hiring Incentives to Restore Employment Act of 2010, certain United States Holders are required to report information relating to Class A Shares, subject to certain exceptions (including an exception for shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold shares. U.S. Holders are urged to consult their own tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payor, under penalties of perjury, on the applicable IRS Form W-8BEN.
| F. | Dividends and paying agents. |
Not applicable.
| G. | Statement by experts. |
Not applicable.
| H. | Documents on display. |
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at www.retoeco.com. In addition, we will provide hard copies of our annual report free of charge to shareholders upon request.
| I. | Subsidiary information. |
Not applicable.
| J. | Annual Report to Security Holders. |
Not applicable.
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Item 11. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Foreign Exchange Risk
Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. China’s currency has gradually depreciated against most foreign currencies over the last few years. The average exchange rate for US$ against Chinese RMB has changed from US$1.00 for RMB7.1957 in the fiscal year ended December 31, 2024 to US $1.00 for RMB7.1875 in the fiscal year ended December 31, 2025. The exchange rate was US$1.00 for RMB6.9931 as of December 31, 2025. The change in the value of RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or results of operation. If using the average exchange rate in fiscal year ended December 31, 2024, our revenue cost of revenue and total expenses, including selling expenses, general administrative expenses, bad debt expense and research and development expenses, for the fiscal year ended December 31, 2025 would increase by $101,022, $52,939 and $603,429, respectively.
Currently, our assets, liabilities, revenues and costs are denominated in RMB and in U.S. dollars, our exposure to foreign exchange risk will primarily relate to those financial assets denominated in U.S. dollars. Any significant revaluation of RMB against U.S. dollar may materially affect our earnings and financial position, and the value of, and any dividends payable on, our Class A Shares in U.S. dollars in the future. See “Item 3. Key Information- D. Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could result in foreign currency exchange losses to us and may reduce the value of, and amount in U.S. Dollars of dividends payable on, our shares in foreign currency terms.”
Credit Risk
As of December 31, 2025, we had cash and cash equivalents of approximately $0.3 million. Our cash and cash equivalents are invested primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a small amount of interest income.
Inflation Risk
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material effect on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs.
Commodity Risk
As a company engaged in the research, development and sales of ecological environment protection equipment, intelligent mining equipment and smart craft beer machines, our Company is exposed to the risk of an increase in the price of raw materials required for manufacturing of these equipment and machines. We historically have been able to pass on price increases to customers by virtue of pricing terms that vary with changes in raw material prices such as steel and cement, but we have not entered into any contract to hedge any specific commodity risk. Moreover, our Company does not purchase or trade on commodity instruments or positions; instead, it purchases commodities for use.
Item 12. Description of Securities Other Than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
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PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information – B. Memorandum and Articles of Association” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
Not applicable.
Item 15. Controls and Procedures
| (a) | Disclosure Controls and Procedures. |
As of December 31, 2025 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision of and with the participation of management, including the Company’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the foregoing, the chief executive officer and chief financial officer concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective due to the material weaknesses identified below.
| (b) | Management’s Annual Report on Internal Control over Financial Reporting. |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purpose in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used the framework set forth in the report Internal Control – Integrated framework issued in 2013 by the Committee of Sponsoring Organization of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (1) the control environment, (2) risk assessment, (3) control activities, (4) information and communication and (5) monitoring.
Based on that evaluation, management concluded that these controls were ineffective at December 31, 2025 due to material weaknesses relating to (i) a lack of full-time accounting and financial reporting personnel with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of an effective review by management for the year ended accounting close and reporting; and (iii) a lack of adequate review procedures on the measurement of share-based compensation which led to restatement of our unaudited financial statements for the six months ended June 30, 2023. As a result, our management has concluded that our internal control was not effective as of December 31, 2025.
| (c) | Attestation report of the registered public accounting firm. |
This annual report does not include an attestation report of our company’s registered public accounting firm as we are a non-accelerated filer as defined in Rule 12b-2 of the Exchange Act.
| (d) | Changes in Internal Control over Financial Reporting. |
105
Remediation Activities and Plans
The Company is in the process of designing and implementing measures to improve our internal control over financial reporting to remediate the material weaknesses that have we identified, including (i) hiring external financial consultants with experience in U.S. GAAP and SEC reporting obligations; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; iii) implementing new policies and procedures to standardize relevant processes, and (iv) enhancing our internal recordkeeping.
Since initially identifying the material weaknesses, we have improved our internal control environment in the following ways:
| (i) | Management engaged certain qualified consultants with relevant U.S. GAAP and SEC reporting experience and qualification to strengthen the Company’s financial reporting and U.S. GAAP and SEC reporting training; and |
| (ii) | Management strengthened the application of critical accounting policies and implemented new critical accounting policies to support the financial reporting and disclosure. |
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Company’s board of directors has determined that Ms. Lidong Liu qualifies as an “audit committee financial expert” in accordance with applicable Nasdaq standards. The Company’s board of directors has also determined that Ms. Liu and the other members of the audit Committee are all “independent” in accordance with the applicable Nasdaq standards.
Item 16B. Code of Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to all of our directors, executive officers and employees. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1, declared effective on July 27, 2017 (File No. 333-217355). The code is also available on our official website under the investor relations section at www.retoeco.com.
Item 16C. Principal Accountant Fees
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered and billed by YCM CPA INC., our independent registered public accounting firm, for the periods indicated.
| December 31,
2025 | December 31, 2024 | |||||||
| Audit fees(1) | $ | 180,000 | $ | 180,000 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees(2) | - | - | ||||||
| Total | $ | 180,000 | $ | 180,000 | ||||
| (1) | Audit fees include the aggregate fees billed for each of the fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements and review of the interim financial statements. |
| (2) | All other fees include the aggregate fees billed in each of the fiscal years for products and services provided by our independent registered public accounting firm other than the services reported under audit fees, audit-related fees, and tax fees. |
106
The policy of our audit committee is to pre-approve all audit and non-audit services provided by YCM CPA INC., our independent registered public accounting firm, including audit services, audit-related services, tax services, and other services as described above.
Item 16D. Exemptions form the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrant’s Certifying Accountant
None.
Item 16G. Corporate Governance
Our Class A Shares are listed on the Nasdaq Capital Market. As such, we are subject to corporate governance requirements imposed by Nasdaq. Under Nasdaq rules, listed non-US companies such as ourselves may, in general, follow their home country corporate governance practices in lieu of some of the Nasdaq corporate governance requirements.
Certain corporate governance practices in the BVI, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. The following summarizes some significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the Nasdaq:
Pursuant to the home country rule exemption set forth under Nasdaq Listing Rule 5615(a)(3)(A), which provides (with certain exceptions not relevant to the conclusions expressed herein) that a foreign private issuer may follow its home country practice in lieu of the requirements of the Nasdaq Marketplace Rule 5600 Series, we elected to be exempt from the requirements as follows:
| (a) | Nasdaq Marketplace Rule 5620 which provides that (with certain exceptions not relevant to the conclusions expressed herein) each company listing common stock or voting preferred stock, and their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the company’s fiscal year-end; and |
| (b) | Nasdaq Marketplace Rule 5635 which sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. |
We currently intend to comply with the Nasdaq corporate governance practices and do not rely on the home country rule exemption and except for the foregoing, there is no significant difference between our corporate governance practices and what the Nasdaq requires of domestic U.S. companies.
107
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider Trading Policies
On
November 30, 2023, we
The foregoing description of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and conditions of the Insider Trading Policy, a copy of which is attached hereto as Exhibit 11.2 and is incorporated herein by reference.
Item 16K. Cybersecurity
The
Company has established and maintains a cybersecurity risk management policy, mainly comprising procedures and regulations for website
and email security and management, responsibilities and authorities for relevant departments, and rewards and penalties measures aimed
at mitigating risks.
The
As
of the date of this annual report, there are
108
PART III
Item 17. Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18. Financial Statements
The consolidated financial statements of ReTo Eco-Solutions, Inc. are included at the end of this annual report, beginning with page F-1.
Item 19. Exhibits
109
| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Indicates a management contract or any compensatory plan, contract or arrangement. |
110
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| RETO ECO-SOLUTIONS, INC. | ||
| By: | /s/ Xinyang Li | |
| Xinyang Li | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Date: May 1, 2026
111
RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of ReTo Eco-Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ReTo Eco-Solutions, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2025 and 2024 and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the three years ended December 31, 2025 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024 and the results of its operations and its cash flows for the three years ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company reported a net loss of approximately $12.6 million and $8.4 million for the years ended December 31, 2025 and 2024, respectively, and the Company had a working deficit of approximately $5.1 million as of December 31, 2025. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Goodwill – MMB Craft Beer Reporting Unit - Refer to Note 1, Note 3, and Note 5 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually (in the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, which requires management to make significant estimates and assumptions related to projected revenue, discount rates, and earnings before interest, taxes, depreciation and amortization (“EBITDA”). Changes in these assumptions could have a significant impact on the fair value of the reporting unit and the amount of any goodwill impairment charge. As of December 31, 2025, the Company had one reporting unit, MMB Craft Beer reporting unit (“MMB”), with a goodwill balance of $7,982,271 before assessing potential impairment.
During the impairment test performed during the fourth quarter of fiscal year 2025, the Company identified several triggering factors indicating possible impairment of goodwill within MMB, which primarily included a slowdown of sales of MMB’s craft beer equipment and delayed expansion in medium-sized cities of the PRC during the second half of fiscal 2025 due to high competition from existing premium brand and rising costs, particularly in materials, packaging and logistics, which squeezed the segment’s profit margins. As a result, the Company used a discounted cash flow methodology to determine the fair value of MMB. These discounted cash flows did not support the carrying value of MMB. As a result, the Company recorded a goodwill impairment charge of $7,982,271 in the fourth quarter of 2025.
Given the significant judgments made by management to estimate the fair value of the MMB reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to projected revenue, the discount rate, and terminal growth rate required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the projected revenues, discount rate, EBITDA, and terminal growth rate used by management to estimate the fair value of the MMB reporting unit included the following, among others:
| ● | We evaluated the reasonableness of management’s forecasted revenues by comparing the projected revenues and EBITDA to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) projected revenues used in the initial valuation. |
| ● | We evaluated the reasonableness of management's choice of the discount rate and terminal growth rate used to determine the fair value of the MMB reporting unit by: |
| o | Performing a sensitivity analysis on the discount rate and terminal growth rate to assess whether reasonable changes in those assumptions would alter the conclusion that the carrying value of the reporting unit exceeded its fair value; and |
| o | Evaluating the reasonableness of the interaction between the discount rate and other assumptions used in the forecast. |
/s/
We have served as the Company’s auditor since 2021.
PCAOB ID 6781
May 1, 2026
F-3
RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Advances to suppliers, net | ||||||||
| Prepayments and other current assets | ||||||||
| Due from related parties | ||||||||
| Due from third parties | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Prepayment for construction of properties | ||||||||
| Right-of-use assets | ||||||||
| Deposits for business acquisitions | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Convertible note, net of issuance cost | $ | $ | ||||||
| Short-term bank loans | ||||||||
| Advances from customers | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Loans from third parties | ||||||||
| Taxes payable | ||||||||
| Due to related parties | ||||||||
| Lease liability – current | ||||||||
| Total current liabilities | ||||||||
| Long-term accounts payable | ||||||||
| Loans from third parties – non-current | ||||||||
| Lease liability – non-current | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| $ | $ | |||||||
| Class B shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity attributable to ReTo Eco-Solutions, Inc. | $ | $ | ||||||
| Non-controlling interest | ||||||||
| Total shareholders’ equity | $ | $ | ||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Revenues – related parties | ||||||||||||
| Total revenues | ||||||||||||
| Cost of revenues | ||||||||||||
| Cost of revenues – related parties | ||||||||||||
| Total cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling | ||||||||||||
| General and administrative | ||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ||||||||||
| Impairment of long-lived assets | ||||||||||||
| Impairment of goodwill | ||||||||||||
| Research and development | ||||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses): | ||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ||||||
| Interest income | ||||||||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||||||
| Loss from disposal of subsidiaries | - | ( | ) | - | ||||||||
| Change in fair value of convertible debt | - | - | ||||||||||
| Total other expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income taxes expense | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net loss from discontinued operations, net of taxes | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to ReTo Eco-Solutions, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Comprehensive loss: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to Reto Eco-Solutions, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net loss attributable to ReTo Eco-Solutions, Inc. | ||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Discontinued operations | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Basic and diluted Loss per share attributable to ReTo Eco-Solutions, Inc. | ||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Discontinued operations | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted average number of shares* | ||||||||||||
| Basic and diluted | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023
| Class
A Shares | Class
B Shares | Additional Paid-in | Statutory | Accumulated | Accumulated Other Comprehensive | Non-controlling | Total | |||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Reserve | Deficit | Loss | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Fractional share issued for reverse share split | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in private placements | ||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for services | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Appropriation to statutory reserve | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Fractional share issued for reverse shares split | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Class B common shares in private placement | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in private placements | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for services | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares to employees and officers | ||||||||||||||||||||||||||||||||||||||||
| Disposal of subsidiaries | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of Escrow Earnout shares | ||||||||||||||||||||||||||||||||||||||||
| Pre-delivery shares and commitment shares issued for financing | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares in private placements | ||||||||||||||||||||||||||||||||||||||||
| Fractional share issued for reverse shares split | ||||||||||||||||||||||||||||||||||||||||
| Convertible note conversion | ||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest from acquisition | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
RETO ECO-SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Less: Net loss from discontinued operations | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Change in fair value of convertible debt | ( | ) | ||||||||||
| Convertible debt issuance cost | ||||||||||||
| Accrued coupon interest expense | ||||||||||||
| Accrued accretion expense | ||||||||||||
| Share-based compensation | ||||||||||||
| Change in allowance for credit losses | ( | ) | ||||||||||
| Impairment of long-lived assets | ||||||||||||
| Impairment of goodwill | ||||||||||||
| Loss from disposal subsidiary | ||||||||||||
| Amortization of operating lease right-of-use assets | ||||||||||||
| Changes in operating assets: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||||
| Advances to suppliers | ( | ) | ( | ) | ||||||||
| Advances to suppliers-related party | ||||||||||||
| Inventories | ||||||||||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||||||
| Changes in operating liabilities: | ||||||||||||
| Advances from customers | ( | ) | ||||||||||
| Accounts payable | ||||||||||||
| Accounts payable - related party | ( | ) | ||||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||||||
| Taxes payable | ||||||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||||||
| Net cash provided by (used in) operating activities from continuing operations | $ | ( | ) | $ | $ | ( | ) | |||||
| Net cash used in operating activities from discontinued operations | $ | $ | ( | ) | $ | ( | ) | |||||
| Net cash provided by (used in) operating activities | $ | ( | ) | $ | $ | ( | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Proceeds from disposal of subsidiaries | $ | $ | $ | |||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||
| Prepayment made on construction in process | ( | ) | ( | ) | ||||||||
| Loans to third parties | ( | ) | ||||||||||
| Collection from third party loans | ||||||||||||
| Collection from related parties | ||||||||||||
| Deposits made for business acquisitions | ( | ) | ( | ) | ||||||||
| Net cash used in investing activities from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net cash provided by (used in) investing activities from discontinued operations | $ | $ | ( | ) | $ | |||||||
| Net cash provided by (used in) investing activities | $ | ( | ) | $ | ( | ) | $ | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds received from share issuance, net of offering cost | ||||||||||||
| Proceeds from short-term bank loans | ||||||||||||
| Repayment of short-term bank loans | ( | ) | ||||||||||
| Proceeds from third-party loans | ||||||||||||
| Repayment of third-party loans | ( | ) | ( | ) | ||||||||
| Proceeds from convertible note, net of offering cost | ||||||||||||
| Proceeds from related party loans | ||||||||||||
| Repayment to related party loans | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | $ | $ | $ | |||||||||
| Net cash provided by financing activities from discontinuing operations | $ | $ | $ | |||||||||
| Net cash provided by financing activities | $ | $ | $ | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ||||||||||
| NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | ( | ) | ( | ) | ||||||||
| CASH AND RESTRICTED CASH, BEGINNING OF YEAR | $ | $ | $ | |||||||||
| CASH AND RESTRICTED CASH, END OF YEAR | $ | $ | $ | |||||||||
| Reconciliation of cash and restricted cash, end of year | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Restricted cash | $ | |||||||||||
| CASH AND RESTRICTED CASH, END OF YEAR | $ | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
| Interest paid | $ | $ | $ | |||||||||
| Income tax paid | $ | $ | $ | |||||||||
| Non-Cash Activities | ||||||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | $ | |||||||||
| Addition to intangible assets through long term account payable | $ | $ | $ | |||||||||
| Common shares issued for conversion of debt | $ | $ | $ | |||||||||
| Payment to acquisition from deposits for equity acquisition | $ | $ | ||||||||||
| Addition to construction in process from deposits for equity acquisition | $ | $ | $ | |||||||||
| Convertible note issuance cost | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
ReTo
Eco-Solutions, Inc. (“ReTo”) is a business company established under the laws of the British Virgin Islands on August 7,
2015 as a holding company to develop business opportunities in the People’s Republic of China (the “PRC” or “China”).
ReTo and its subsidiaries are collectively referred to as the Company. ReTo, through its subsidiaries, is engaged in manufacture and
distribution of ecological environment protection equipment, intelligent mining equipment and related consultation and technological
services. On April 25, 2025, ReTo entered into a share exchange agreement (the “Share Exchange Agreement”) to acquire
As of December 31, 2025, the consolidated financial statements of the Company reflected the principal activities of the entities listed below. All inter-company balances and transactions have been eliminated upon consolidation.
| Name of the Entity | Place of Incorporation | Ownership Percentage | ||||
| ReTo Eco-Solutions, Inc. | British Virgin Islands | Parent | ||||
| ReTo Global Holdings (“ReTo Global”)** | % | |||||
| New REIT International Co., Limited (“New REIT”) | % | |||||
| Sunoro Holdings Limited (“Sunoro Holdings”) | % | |||||
| Beijing ReTo Hengda Technology Co., Ltd. (“ReTo Hengda”)* | % | |||||
| Honghe ReTo Ecological Technology Co., Ltd. (“Honghe ReTo”) | % | |||||
| Zhangjiakou ReTo Intelligent Equipment Manufacturing Co., Ltd. (“Zhangjiakou ReTo”)** | % | |||||
| Beijing ReTo Hengye Technology Co., Ltd. (“ReTo Hengye”)* | % | |||||
| Beijing ReTo Xincheng Technology Co., Ltd. (“ReTo Xincheng”)** | ||||||
| Beijing REIT Equipment Technology Co., Ltd. (“REIT Equipment”) | % | |||||
| MeinMalze Bier Holdings Limited (“MMB”) | ||||||
| MeinMalze Bier Global Limited (“MMB HK”) | ||||||
| Shenzhen Dirong Century Big Data Technology Co., Ltd. (“Dirong”) | ||||||
| Shenzhen MeinMalzeBier Catering Management Co., Ltd. (“Shenzhen MMB”) | ||||||
| ● | *
* |
| ● | **
**
** |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The consolidated financial statements include the financial statements of ReTo and its subsidiaries. All intercompany transactions and balances are eliminated upon consolidation.
Subsidiaries
are those entities in which ReTo, directly or indirectly, controls more than
F-8
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-controlling interests
Non-controlling interest represents the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company. The non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interests’ operating results are presented on the face of the consolidated statements of income and comprehensive income as an allocation of the total income for the year between non-controlling shareholders and the shareholders of the Company.
Business acquisition
The Company accounts for its business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred to the sellers, liabilities incurred by the Company and equity instruments issued by the Company. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired and liabilities assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of consideration paid and fair value of the non-controlling interests over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the consideration of acquisition is less than the fair value of the net assets acquired, the difference is recognized directly in the statements of operations and comprehensive (loss) income.
The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company 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. These estimates are based on information as of the date of the consolidated financial statements.
Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable, advances to suppliers, intangible assets, the recoverability of long-lived assets and goodwill, provision necessary for contingent liabilities, revenue recognition under the input method, and realization of deferred tax assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand
and cash deposited in major third-party payment processing platforms such as Alipay. In addition, highly liquid investments which have
original maturities of three months or less when purchased are classified as cash equivalents, deposit insurance. Cash maintained in banks
within the People’s Republic of China of less than RMB
Restricted Cash
Cash
that is restricted as to withdrawal or is used or pledged as security is reported separately on the face of the Consolidated Balance
Sheets and is included in the total cash in the consolidated statements of cash flows. The Company’s restricted cash mainly represents
security deposits held in designated bank accounts for purchase payments. As of December 31, 2025 and 2024, restricted cash consists
was $
Accounts Receivable, Net
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13,
“Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires
the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net
income. The Company adopted this guidance effective January 1, 2023. Accounting Standards Codification (“ASC”) 326 introduces
an approach based on expected losses to estimate the allowance for credit losses, which replaces the previous incurred loss impairment
model. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. Accounts
receivable was recognized and carried at original invoiced amount less an estimated allowance for credit losses. The Company estimates
the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any
known or anticipated economic conditions, customer-specific circumstances, recent payment history and other relevant factors. Allowance
for credit losses amounted to $
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advances to Suppliers, Net
Advances
to suppliers consist of balances paid to suppliers for services and materials that have not been provided or received. Advances to suppliers
for services and materials are short-term in nature. Advances to suppliers are reviewed periodically to determine whether their carrying
value has become impaired. The Company considers the assets to be impaired if the collectability of the advance becomes doubtful. The
Company uses the aging method to estimate the allowance for uncollectible balances. In addition, at each reporting date, the Company
generally determines the adequacy of allowance for doubtful accounts by evaluating all available information and then records specific
allowances for those advances based on the specific facts and circumstances. Allowance for uncollectible balances from the continuing
operations amounted to $
Property, Plant and Equipment
Property and equipment are stated at cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Useful life | ||
| Property and buildings | ||
| Machinery equipment | ||
| Transportation vehicles | ||
| Office and electronic equipment |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.
Intangible Assets
Intangible assets consist primarily of an acquired concession right on forest land and software. Intangible assets are stated at cost less accumulated amortization. Intangible assets are amortized using the straight-line method with the following estimated useful lives:
| Items | Useful life | |
| Concession right on forest land |
Impairment of Long-lived Assets
The Company reviews long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. See Note 11—Property, Plant and Equipment and Note 12—Intangible assets, net for additional information on impairment.
Goodwill
Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the acquisition-date amounts recognized for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. Impairment testing is performed at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. If fair value is in excess of the carrying value, impairment is not indicated. If the carrying amount of a reporting unit is higher than its estimated fair value, the excess is recorded as an impairment expense. The Company performs its goodwill impairment test on annual basis. or more frequently if events or changes in circumstances indicate that goodwill may be impaired.
F-10
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill (continued)
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. See Note 5—Acquisition for additional information on impairment.
Leases
The Company adopted ASU No. 2016-02—Leases (Topic 842) on January 1, 2019 using the modified retrospective transition method permitted under ASU No. 2018-11. This transition approach provides a method for recording existing leases only at the date of adoption and does not require previously reported balances to be adjusted. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The standard did not materially impact the Company’s consolidated net earnings and cash flows.
Fair Value of Financial Instruments
ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, advances to suppliers, accounts payable, accrued expenses and other liabilities, advances from customers, deferred revenue, taxes payable and due to related parties to approximate the fair value of the respective assets and liabilities at December 31, 2025 and 2024 based upon the short-term nature of the assets and liabilities. The Company believes that the carrying amount of the long-term borrowings approximates fair value on December 31, 2025 and 2024 as the rates of the borrowings are reflective of the market rates.
F-11
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments (continued)
Assets measured at fair value on a recurring basis
The following tables represent the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025:
| ● | Contingent consideration – earn-out liability from MMB acquisition |
In connection with the acquisition of MMB (see
Note 5) on April 25, 2025, the original shareholders (the “Sellers”) may be entitled to receive earnout shares in aggregated
of
The
Company measures contingent consideration – earn-out liability at fair value on a recurring basis as of the dates of acquisition
and December 31, 2025. Given MMB’s financial underperformance and delayed expansion plan after the acquisition, the fair value
of the earnout liability from MMB acquisition was determined at as of the date of acquisition and December 31, 2025. The Company
determined the fair value of the contingent consideration using Monte Carlo simulation, which includes significant unobservable inputs
that are classified as level 3 in the fair value hierarchy.
| December
31, 2025 | April
25, 2025 | |||||||
| Risk-free interest rate | % | % | ||||||
| Share price | $ | $ | ||||||
| Expected payment % | % | % | ||||||
| Volatility | % | % | ||||||
The Company did not transfer any assets or liabilities in or out of Level 3 during the years ended December 31, 2025.
Assets measured at fair value on a nonrecurring basis
Annual and interim impairment tests may subject our reporting units with goodwill and long-lived assets to nonrecurring fair value measurement.
| ● | Long-lived assets |
When impairment indicators are identified, the
Company evaluates the impairment by comparing the carrying value of the asset or the asset group with its fair value. The fair value
of the asset or asset group is determined, with assistance by an independent valuation firm, using income approach based on the discount
cash flows with unobservable inputs (Level 3) and discount rate of
| ● | Goodwill |
The
Company tested for impairment on an annual basis as of December 31, and in between annual tests when the impairment indicators
occur. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount,
including goodwill. The Company engaged an independent valuation firm to perform the quantitative impairment test in accordance with
professional standards. The valuation utilized an income approach based on discount cash flows with unobservable inputs (Level 3)
and discount rate of
F-12
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective approach. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company’s revenues from continuing operations are primarily derived from the following sources:
| ● | Revenue from machinery and equipment sales |
The Company recognizes revenue when the machinery and equipment, are delivered and control is transferred. The Company generally provides a warranty for a period of 12 months after the customers receive the equipment. The Company determines that such product warranty is not a separate performance obligation because the nature of warranty is to provide assurance that a product will function as expected and in accordance with customer’s specification, and the Company has not sold the warranty separately. From its past experience, the Company has not experienced any material warranty costs and, therefore, the Company does not believe an accrual for warranty cost is necessary for the years ended December 31, 2025, 2024 and 2023.
| ● | Revenue from technological consulting and other services |
Revenue is recognized over time in accordance with the input method, based on the Company’s progress toward satisfying the related performance obligation.
| ● | Revenue from craft beer and vending machine sales |
The Company engaged in craft beer business after the acquisition of MMB in April 2025. The Company recognizes revenue when beer and vending machines are delivered and control is transferred. The Company generally provides a warranty for a period of 12 months after the customers receive the equipment. The Company determines that such product warranty is not a separate performance obligation because the nature of warranty is to provide assurance that a product will function as expected and in accordance with customer’s specification, and the Company has not sold the warranty separately. From its past experience, the Company has not experienced any material warranty costs and, therefore, the Company does not believe an accrual for warranty cost is necessary for the years ended December 31, 2025.
The following summarizes the Company’s revenue by nature from continuing operations:
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Equipment and accessories | $ | $ | $ | |||||||||
| Technological consulting and other services | ||||||||||||
| Craft beer and vending machine | ||||||||||||
| Total revenue | $ | $ | $ | |||||||||
F-13
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Contract Assets and Liabilities
Payment terms are established in accordance with the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contract assets are included in accounts receivable. Contract liabilities are recognized for contracts for which payment has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing of when an order is placed and when shipment or delivery occurs.
As of December 31, 2025 and 2024, other than accounts receivable and advances from customers, the Company had no other material contract assets, contract liabilities or deferred contract costs recorded on its consolidated balance sheet. Costs of fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur prior to the transfer of control, are recognized in selling, general and administrative expense when incurred.
Disaggregation of Revenues
The Company disaggregates its revenue from contracts by products and services, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
Shipping and Handling
Shipping
and handling costs are expensed as incurred and are included in operating expenses as a part of selling and general and administrative
expenses in the Company’s consolidated statements of income and comprehensive income. Shipping and handling costs associated with
the Company’s continuing operations were $
Share-based Compensation
The Company accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All the Company’s share-based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.
Income Taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
F-14
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes (continued)
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated.
To the extent applicable, the Company records interest and penalties as a general and administrative expense. The Company’s subsidiaries in China and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No significant taxable income was generated outside the PRC for the years ended December 31, 2025, 2024 and 2023. As of December 31, 2025, the tax years ended December 31, 2019 through December 31, 2024 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.
Value Added Tax (“VAT”)
Sales
revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price, and VAT rates range up to
Loss per Share
The Company computes loss per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares outstanding for the period using the two-class method. Under the two-class method, net income is allocated between Ordinary Shares and other participating securities based on their participating rights. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
For the years ended December 31, 2025, 2024 and
2023, the Company had no dilutive security outstanding that could potentially dilute EPS in the future. Since shareholders of Class B
shares have no rights to any dividend, therefore, the Class B shares were excluded from the calculation of basic and diluted loss per
share. In addition, the Company issued
Foreign Currency Translation
The Company’s principal country of operations is the PRC. The financial position and results of its operations located in the PRC are determined using Renminbi (“RMB”), the local currency, as the functional currency. ReTo, MMB HK, MMB, ReTo Global, New REIT and Sunoro Holdings use U.S. Dollars (“US$”) as their functional currency. The Company’s financial statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in the results of operations.
F-15
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation (continued)
The
value of RMB against US$ (“$”) and other currencies may fluctuate and is affected by, among other things, changes in the
PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial
condition in terms of US$ reporting.
| December 31, 2025 | December 31, 2024 | December 31, 2023 | ||||
| Year-end spot rate | US$1=RMB | US$1=RMB | US$1=RMB | |||
| Year-end spot rate (discontinued operations) | US$1= INR | US$1= INR | US$1=INR | |||
| Average rate | US$1=RMB | US$1=RMB | US$1=RMB | |||
| Average rate (discontinued operations) | US$1=INR | US$1=INR | US$1=INR |
Risks and Uncertainties
The main operation of the Company is located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Discontinued Operations
The Company reports a disposal of its component or a group of its components as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. In the period that a discontinued operation is classified as held for sale, the assets and liabilities of the discontinued operation are presents separately in asset and liability sections, respectively, of the consolidated balance sheets and prior periods are presented on a comparative basis. In the consolidated statements of operations and comprehensive (loss)/income, the results from discontinued operations are reported separately from the income and expenses from continuing operations and prior periods are presented on a comparative basis. Cash flows for discontinued operations are presented separately in the consolidated statements of cash flows. Unless otherwise noted, discussion in the Notes to consolidated financial statements refers to the Company’s continuing operations. Refer to Note 4 for additional information.
Segment Reporting
ASC
280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for details on the Company’s business segments. The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different
products or services. Based on management’s assessment, the Company has determined that it has
Concentrations and Credit Risk
A majority of the Company’s transactions are denominated in RMB, and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
As
of December 31, 2025 and 2024, $
For
the year ended December 31, 2025, one customer accounted for
F-16
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations and Credit Risk (continued)
As
of December 31, 2025, two customers accounted for
For
the year ended December 31, 2025, the Company purchased approximately
As
of December 31, 2025, three suppliers accounted for
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses and other segment items on an annual and interim basis under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim periods beginning after December 15, 2024. Early adoption is permitted and the amendments in this ASU should be applied on a retrospective basis to all periods presented. The Company adopted this ASU on January 1, 2024. The adoption of this ASU did not have significant impact on the Company’s financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires that public business entities must annually “(1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate).” A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The adoption of this ASU did not have significant impact on the Company’s financial statements.
In March 2024, the FASB issued ASU No. 2024-01, Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”), which is intended to improve clarity and operability without changing the existing guidance. ASU 2024-01 provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. Entities can apply the guidance either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The adoption of this ASU did not have significant impact on the Company’s financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which is intended to improve disclosures about a public entity’s expenses, primarily through additional disaggregation of income statement expenses. In January 2025, the FASB further clarified the effective date of ASU 2024-03 with the issuance of Accounting Standards Update 2025-01, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2025-01”). ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and may be applied either on a prospective or retrospective basis. The Company is currently evaluating the impact ASU 2024-03 will have on its financial
F-17
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
In May 2025, the FASB issued ASU No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (“ASU 2025-03”), which clarifies the guidance to determine the accounting acquirer in a business combination that is affected primarily by exchanging equity interests, when the legal acquiree is a variable interest entity (“VIE”) that meets the definition of a business. ASU 2025-03 requires entities to consider the same factors in ASC 805, Business Combinations, required for determining which entity is the accounting acquirer in other acquisition transactions. ASU 2025-03 is effective for the Company’s annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-03 is required to be applied on a prospective basis to any acquisition transaction that occurs after the initial application date. The Company is currently evaluating the impact ASU 2025-03 will have on its financial statement disclosures.
In May 2025, the FASB issued ASU No. 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (“ASU 2025-04”), which revises the definition of the term performance condition for share-based consideration payable to a customer to incorporate conditions that are based on the volume or monetary amount of a customer’s purchases or potential purchases. ASU 2025-04 also eliminates the policy election to account for forfeitures as they occur for awards with service conditions. ASU 2025-04 also clarifies that ASC 606 variable consideration guidance does not apply to share-based payments to customers; instead, vesting probability should be assessed solely under ASC 718, Compensation—Stock Compensation. ASU 2025-04 is effective for the Company’s annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-04 may be applied on either a modified retrospective basis or on a retrospective basis. The Company is currently assessing the impact this standard will have on its consolidated financial statements.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which amends ASC 326, Financial Instruments—Credit Losses and introduces a practical expedient available for all entities and an accounting policy election available for all entities, other than public business entities, that elect the practical expedient. These changes apply to the estimation of expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue Recognition. Under the practical expedient, entities may assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset when developing reasonable and supportable forecasts. This simplifies the estimation process for short-term financial assets. ASU 2025-05 is effective for the Company’s annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-05 should be applied on a prospective basis. The adoption of this ASU did not have significant impact on the Company’s financial statements.
In December 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”), which establishes authoritative guidance on the accounting for government grants received by business entities. This update is effective beginning with the Company’s 2029 fiscal year annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which is intended to improve the navigability of required interim disclosures and clarify when that guidance is applicable, and also to provide additional guidance on what disclosures should be provided in interim reporting periods. ASU 2025-11 is effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2025-11 on its financial statements and related disclosures.
In December 2025, the FASB issued ASU No. 2025-12, Codification Improvements (“ASU 2025-12”), which makes thirty-three incremental improvements to generally accepted accounting principles. ASU 2025-12 is effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of ASU 2025-12 on its financial statements
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of operations and comprehensive loss and statements of cash flows.
F-18
NOTE 3 – GOING CONCERN
As reflected in the Company’s consolidated financial statements
for the year ended December 31, 2025, the Company’s revenue increased by approximately $
As of December 31, 2025, the Company had cash
of approximately $
The Company is working to improve its liquidity and capital source mainly through cash flow from its operations, renewal of bank borrowings, and borrowing from related parties. In order to fully implement its business plan and sustain operations, the Company may also seek equity financing from outside investors. At the present time, however, the Company does not have commitments of funds from any potential investors. No assurance can be given that additional financing, if required, would be available on favorable terms or at all.
Based on above reasons, there is substantial doubt about the Company’s ability to continue as a going concern for the next 12 months from the issuance of these consolidated financial statements.
NOTE 4 – DISCONTINUED OPERATIONS
The
Company’s subsidiary, REIT Holdings (China) Limited (“REIT Holdings”), and its subsidiaries were primarily engaged
in municipal construction material sales business, municipal construction projects and equipment manufacture and sales business. On December
31, 2024, the Company, with the approval from its board of directors, sold its
The discontinued operations represent a strategic shift that has a major effect on the Company’s operations and financial results, which triggers discontinued operations accounting in accordance with ASC 205-20-45. The results of operations related to the discontinued operations for the years ended December 31, 2023 and 2024 were reported as loss from discontinued operations.
The results of discontinued operations of REIT Holdings for the years ended December 31, 2024 and 2023 are as follows:
| For the year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Gain (loss) from discontinued operations | ( | ) | ||||||
| Other income (loss), net | ( | ) | ( | ) | ||||
| Loss before tax | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
F-19
NOTE 5 – ACQUISITION
On
April 25, 2025, ReTo entered into the Share Exchange Agreement to acquire
MMB, through its subsidiaries in the PRC, is engaged in the business of selling craft beer and beer machines in the PRC. The MMB acquisition was accounted for as business combination in accordance with ASC 805. Acquisition-related costs incurred for the acquisitions are not material.
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition based on a valuation performed by an independent valuation firm engaged by the Company.
| Amount | ||||
| Cash | ||||
| Accounts receivable, net | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Total assets | ||||
| Current liabilities | ( | ) | ||
| Total liabilities | ( | ) | ||
| ( | ) | |||
| Total consideration | ||||
MMB’s
revenue and net loss included in the Company’s consolidated financial statements of operations and comprehensive loss since date
of acquisition through December 31, 2025, were $
Supplemental pro forma information (unaudited)
The unaudited pro forma information summarizes
the results of operations of the Company for the years ended December 31, 2023, 2024 and 2025 assuming that the acquisition of MMB occurred
as of January 1, 2023.
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Pro forma revenue | $ | $ | $ | |||||||||
| Pro forma loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Fiscal 2025 year ended Goodwill Impairment
During the impairment test performed during the fourth quarter of fiscal year 2025, the Company identified several triggering factors indicating possible impairment of goodwill within MMB craft beer reporting unit, which primarily included a slowed down of sales MMB’s craft beer equipment and delayed expansion plan in medium size cities of PRC during the second half of fiscal 2025 due to high competition from existing premium brand; and rising costs, particularly in material, packaging and logistics, were squeezing the segment’s profit margins. As a result, MMB had in continuous loss since acquisition. Based on the qualitative assessment indicating it was more likely than not that the fair value of the MMB reporting unit was less than its carrying amount, the Company proceeded to perform the quantitative goodwill impairment test as required by ASU 2017-04. The Company engaged an independent valuation firm to perform the quantitative impairment test. The valuation utilized the income approaches based on discounted cash flow method. Significant assumptions used in the valuation included revenue growth rates, discount rates, and terminal value calculations.
F-20
NOTE 5 – ACQUISITION (continued)
The valuation concluded that the carrying value
of the MMB reporting unit exceeded its fair value, which resulted in a goodwill impairment charge of $
The quantitative impairment test involves the
use of significant estimates and assumptions to evaluate the impact of operational and economic changes on each reporting unit. The Company
estimate the fair value using the income valuation approach with assistance of third-party valuation firm. The income approach applies
a fair value methodology to the single reporting unit based on discounted cash flows. This analysis requires significant estimates and
judgments, including (i) the estimation of future revenue, projected gross profit margins, projected operating costs, projected operating
income margins, and projected capital expenditures, which are dependent on internal cash flow forecasts; and (ii) determination of the
risk-adjusted discount rates. The weighted average cost of capital used in the Company’s impairment test was risk-adjusted
to reflect the specific risk profile of the reporting units and was estimated at
NOTE 6 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
| As
of December 31, 2025 | As
of December 31, 2024 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Less: Allowance for credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Allowance for credit losses movement is as follows:
| December 31, 2025 | December 31, 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for credit losses | ||||||||
| Foreign exchange translation | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 7 – DEPOSITS FOR BUSINESS ACQUISITION
Deposits for business acquisition consisted of the following:
| December 31, 2025 | December 31, 2024 | |||||||
| Deposit on potential acquisition with Sunflower (i) | $ | $ | ||||||
| Refundable deposit on equity investment on Guanghong Energy (ii) | ||||||||
| Ending balance | $ | $ | ||||||
| (i) |
| (ii) |
F-21
NOTE 8 – ADVANCES TO SUPPLIERS, NET
Advances to suppliers consisted of the following:
| As
of December 31, 2025 | As
of December 31, 2024 | |||||||
| Prepayment for equipment and service purchase | $ | $ | ||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Advances to suppliers, net | $ | $ | ||||||
The Company’s suppliers generally require refundable prepayments from the Company before delivery of goods or support of services. The prepayment is necessary to secure the supply in the market or secure a favorable price.
The changes of allowance for doubtful accounts for the years ended December 31, 2025 and 2024 are as follows:
| December 31,
2025 | December 31,
2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Foreign exchange translation | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 9 – PREPAYMENT FOR CONSTRUCTION OF PROPERTIES
| December 31, 2025 | December 31, 2024 | |||||||
| Orchard construction project | $ | $ | ||||||
| Fruit planting construction and planting project | ||||||||
| Total | $ | $ | ||||||
Orchard construction project
On December 31, 2023, the Company signed orchard
construction project contracts with Inner Mongolia Yurun Construction Engineering Co., Ltd. (“Yurun”) and Lingqiu County Jinling
Construction Engineering Co., Ltd. (“Jinling”) to construct orchard projects on the forest land that the Company owns concession
right (Note 12). As of December 31, 2024, the Company hade prepaid amount of $
Due to replanning and restructure of the project
in 2025, on September 30, 2025, the Company signed a new orchard construction project contract with Shanxi Wanxing Longda Industrial Co.,
Ltd. (“Wanxing”) introduced by Sunflower as general contractor for the orchard project with the estimated project cost of
$
Fruit planting construction and planting project
On
October 15, 2025, the Company signed a fruit planting technology development contract with Beijing Haoyu Runze Technology Group Co.,
Ltd (“Haoyu”) introduced by Sunflower, with total investment of $
As of December 31, 2025 and 2024, the total prepayment
for construction of properties was $
NOTE 10 – LEASES
The
Company has several operating leases for manufacturing facilities, dormitories and offices. The Company’s lease agreements do not
contain any material residual value guarantees or material restrictive covenants. Rent expense for the years ended December 31, 2025,
2024 and 2023 was $
F-22
NOTE 10 – LEASES (continued)
The Company’s operating leases primarily
include leases for dormitories, office space and manufacturing facilities. The current portion of operating lease liabilities is presented
on the consolidated balance sheet. For the year ended December 31, 2025, total lease expense amounted to $
| As
of December 31, 2025 | ||||
| Right-of-use assets | $ | |||
| Operating lease liabilities – current | $ | |||
| Operating lease liabilities – non-current | ||||
| Total operating lease liabilities | $ | |||
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2025:
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
The following is a schedule of maturities of lease liabilities as of December 31, 2025:
| Twelve months ending December 31, | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total future minimum lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 11 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the following:
| As
of December 31, 2025 | As
of December 31, 2024 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Transportation vehicles | ||||||||
| Office and electronic equipment | ||||||||
| Leasehold improvement | ||||||||
| Subtotal | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Impairment of fixed assets | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense was $
During
the impairment test performed during the fourth quarter of fiscal year 2025, due to the delayed expansion plan and financial underperformance
of MMB craft business (See Note 5), the Company performed a quantitative impairment assessment and determined that the carrying value
of certain fixed assets in the MMB exceeded its fair value. Accordingly, impairment loss of $
F-23
NOTE 12 – INTANGIBLE ASSETS, NET
Intangible assets, net, consisted of the following:
| As of December 31, 2025 | As of December 31, 2024 | |||||||
| Concession right on forest land | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Impairment of intangible assets | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense was $
During the impairment test performed in the fourth
quarter of fiscal 2025, the Company determined that the carrying value of concession right on forest land exceeded fair value based on
the valuation performed by third party valuation firm. of $
Estimated future amortization expense is as follows:
| Twelve months ending December 31, | Amortization expense | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 13 – CONVERTIBLE LOANS
On
June 16, 2025, ReTo entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Streeterville
Capital, LLC (the “Investor”). Pursuant to the Securities Purchase Agreement, the Company agreed to issue and sell to the
Investor one or more pre-paid purchases (each, a “Pre-Paid Purchase” and collectively, the “Pre-Paid Purchases”)
at an aggregate purchase price of up to $
The
Securities Purchase Agreement provides for an initial Pre-Paid Purchase in the principal amount of $
F-24
NOTE 13 – CONVERTIBLE LOANS (continued)
The Company has identified and evaluated the embedded features of the Convertible Note and concluded that the risks associated with the conversion provisions are in substance a redemption option and are clearly and closely associated with the risks associated with the Convertible Note (Debt host), and other embedded features such as the Company’s call option, contingent interest features for event of default, the right to prepay, and event of delisting put option are also clearly and closely related to the debt host instrument and, therefore, are not required to be bifurcated under ASC 815. Consequently, the Company accounts for the Convertible Note as a liability following the respective guidance ASC 470-20, measured at its amortized cost on the consolidated balance sheets.
As
Pre-Delivery Shares can be separately exercised (i.e. each can continue to exist unchanged when the other is exercised), the Company
concluded that they were freestanding. The Pre-Delivery Shares are considered a form of stock borrowing facility and are accounted for
as own-share lending arrangement in accordance with 470-20-25-20A. The Company did not receive any proceeds or pay any consideration
related to the Pre-Delivery Shares, except that the Company received a one-time nominal fee of $
On
December 23, 2025, pursuant to the terms of the Purchase Agreement, upon the Investor’ notice, the Company issued
The Convertible Note accounted for at amortized cost as of December 31, 2025 consisted of following:
| As of December 31, 2025 | ||||
| Convertible note principal | $ | |||
| Original issue discount | ( | ) | ||
| Legal cost | ( | ) | ||
| Fair value for pre-delivery shares related to the issuance of convertible note | ( | ) | ||
| Accrued accretion expense | ||||
| Accrued coupon interest expense | ||||
| Convertible note conversion | ( | ) | ||
| Total | $ | |||
Subsequent to December 31, 2025 and up to April 23, 2026, the Company
issued an aggregate of
NOTE 14 – LOANS FROM THIRD PARTIES
| Loans from Third Parties | As of December 31, 2025 | As of December 31, 2024 | ||||||
| Honghe County Yisa Hengtong Decoration Company (“Yisa”) (1) | ||||||||
| Ms. Yan Liu(2) | ||||||||
| Mr. YuHuan Yang(3) | ||||||||
| Mr. Shaocheng Li(1) | ||||||||
| Yunnan Longbao Biotechnology Co., LTD (“Yunnan Longbao”) (4) | ||||||||
| Loans from third parties | $ | $ | ||||||
| Less: Loans from third parties - non-current | ||||||||
| Loans from third parties - current | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
F-25
NOTE 15 – TAXES
| (a) | Corporate income taxes |
The Company is subject to income taxes on an entity basis on income arising in or derived from the location in which each entity is domiciled.
ReTo, ReTo Global and MMB was incorporated in the British Virgin Islands and is exempt from paying income tax. New REIT, MMB HK and Sunoro Holdings are registered in Hong Kong as holding companies.
Under
the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”)
are usually subject to a unified
The following table reconciles income tax expense by statutory rate to the Company’s actual income tax expense:
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Income tax benefit computed based on PRC statutory income tax rate | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Effect of favorable income tax rate in certain entity in PRC | ( | ) | ||||||||||
| Non-PRC entities not subject to PRC tax (1) | ||||||||||||
| Research & Development (“R&D”) tax credit (2) | ( | ) | ||||||||||
| Non-deductible expenses - permanent difference (2) | ||||||||||||
| Change in valuation allowance | ||||||||||||
| Effective tax (benefit) expense | $ | $ | $ | |||||||||
| (1) | |
| (2) |
The breakdown of the Company’s loss before income tax provision is as follows:
| For the Year Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Loss before income tax expense from China | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss before income tax expense from outside of China | ( | ) | ( | ) | ( | ) | ||||||
| Total loss before income tax provision | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
F-26
NOTE 15 – TAXES (continued)
| (a) | Corporate income taxes (continued) |
Loss before income tax expense from outside of China represents the losses incurred by ReTo holdings companies incorporated outside of China.
The income tax provision (benefit) was for the years ended December 31, 2025, 2024 and 2023, respectively.
Deferred
income taxes reflect the net effects of temporary difference between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. The Company periodically evaluates the likelihood of the realization of deferred
tax assets and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will
not be realized.
| Deferred tax asset | As of December 31 2025 | As of December 31 2024 | ||||||
| Allowance for credit loss | $ | $ | ||||||
| Tax loss carried forwards | ||||||||
| Lease liability | ||||||||
| Net of deferred tax liability | ( | ) | ||||||
| Deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| Deferred tax liability | As of December 31 2025 | As of December 31 2024 | ||||||
| Deferred tax liability | ||||||||
| Net deferred tax liability to deferred tax assets | ( | ) | ||||||
| Deferred tax liability, net | $ | $ | ||||||
| (b) | VAT |
The
Company is subject to VAT for selling products in China. The applicable VAT rate is
| (c) | Taxes payable |
The Company’s taxes payable consist of the following:
| As of December 31, | As of December 31, | |||||||
| 2025 | 2024 | |||||||
| VAT tax payable | $ | $ | ||||||
| Corporate income tax payable | ||||||||
| Land use tax and other taxes payable | ||||||||
| Total | $ | $ | ||||||
As
of December 31, 2025 and 2024, the Company had taxes payable of approximately $
F-27
NOTE 16 – COMMITMENTS AND CONTIGENCIES
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The majority of these claims and proceedings are related to, or arise from, lease disputes, commercial disputes, worker compensation complaints, default on guaranteeing third-party lease obligations, and default on loans. The Company first determines whether a loss from a claim is probable, and if it is reasonable to estimate the potential loss, the loss will be accrued. The Company discloses a range of possible losses, if a loss from a claim is probable but the amount of loss cannot be reasonably estimated.
NOTE 17 – RELATED PARTY TRANSACTIONS
The Company records transactions with various related parties. These related party balances as of December 31, 2025 and 2024 and transactions for the years ended December 31, 2025, 2024 and 2023 are identified as follows:
| (1) |
| Name of Related Party | Relationship to the Company | |
| Mr. Hengfang Li* | ||
| Mr. Xiaojun Zou | ||
| Mr. Lap Cheong Chan | ||
| Shexian Ruibo Environmental Science and Technology Co., Ltd. (“Shexian Ruibo”) | ||
| Shexian Ruida Environmental Science and Technology Co., Ltd. (“Shexian Ruida”) | ||
| Q Green Techcon Private Limited |
| * |
| (2) | Due from related parties |
As of December 31, 2025 and 2024, the balance due from related parties was as follows:
| As
of December 31, 2025 | As
of December 31, 2024 | |||||||
| Mr. Hengfang Li | $ | $ | ||||||
| (3) |
| For
the year ended December 31, 2025 | For
the year ended December 31, 2024 | For
the year ended December 31, 2023 | ||||||||||
| Q Green Techcon Private Limited | $ | $ | $ | |||||||||
| (4) |
| As
of December, 2025 | As
of December 31, 2024 | |||||||
| Mr. Hengfang Li | $ | $ | ||||||
| Mr. Lap Cheong Chan | ||||||||
| Mr. Xiaojun Zou | ||||||||
| $ | $ | |||||||
For the year ended December 31, 2025, the above related parties paid certain business expenses on behalf of the Company. The Company expects to repay the amount by December 31, 2026.
F-28
NOTE 18 – SHAREHOLDERS’ EQUITY
Statutory Reserve
The
Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus
reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC
GAAP”). Appropriations to the statutory surplus reserve are required to be at least
Common Shares
ReTo was established on August 7, 2015 under the laws of the British Virgin Islands.
Share redesignation
On
August 4, 2024, shareholders of ReTo at the 2024 Annual General Meeting of Shareholders approved the amendment and restatement of
its amended memorandum and articles of association to, among other things, (a) redesignate the existing shares, par value $
Immediately
after the share redesignation, the Company has an unlimited authorized number of Class A Shares, no par value, and
Issuance of Class B shares
On
August 14, 2024, as approved by the Company’s board of directors and shareholders, the Company issued
Share combinations
On
May 9, 2023, the Company implemented a combination of its authorized, issued and outstanding shares at a ratio of ten-for-one so that
every ten shares (or part thereof) authorized and issued were combined into one share (with the fractional shares rounding up to the
next whole share) (the “2023 Share Combination”). The Company’s shares began trading on a post-combination basis on
May 12, 2023. As a result of the 2023 Share Combination, the Company’s authorized shares were changed from
On
July 31, 2023, the Company’s board of directors approved a change of the maximum number of shares that the Company is authorized
to issue from
On
February 1, 2024, the Company’s board of directors approved another combination of shares on a ten-for-one basis (the “2024
Share Combination”). The Company’s shares began trading on a post combination basis on March 1, 2024. As a result of the
2024 Share Combination, each ten pre-combination shares of the Company were automatically combined into one share without any action
on the part of the holders, with par value of the shares of the Company changing from $
F-29
NOTE 18 – SHAREHOLDERS’ EQUITY (continued)
Common Shares (continued)
On
February 11, 2025, the Company’s board of directors approved another combination of shares on a ten-to-one basis (the “2025
Share Combination I”). The Company’s shares began trading on a post-combination basis on March 7, 2025. As a result of the
2025 Share Combination I, each ten pre-combination shares of the Company were automatically combined into one share without any action
on the part of the holders, with par value of the shares of the Company changing from $
On
May 12, 2025, the Company’s board of directors approved to amend and restate the memorandum and articles of association, currently
in effect, to adjust the par value of its existing Class A Shares from “par value $
On November 3, 2025, the Company’s board of directors approved another combination of shares on a five-to-one basis (the “2025 Share Combination II”). The Company’s shares began trading on a post-combination basis on November 3, 2025. As a result of the 2025 Share Combination II, each five pre-combination shares of the Company were automatically combined into one share without any action on the part of the holders, with no par value of the shares of the Company.
The
above share redesignation and share combinations are part of the Company’s recapitalization, which was accounted for on a retroactively
basis as if the transaction occurred at the beginning of the period presented pursuant to ASC 260. All Class A and Class B ordinary shares
and per share data for all periods have been retroactively restated accordingly. As of December 31, 2025 and December 31, 2024,
Escrow Earnout Shares
Commitment Shares and Pre-Delivery Shares
Equity grants
On
March 8, 2023, the Company’s board of directors approved the issuance of an aggregate of
On
June 7, 2024, the Company’s board of directors approved the issuance of an aggregate of
Issuances for Consulting Services
On
February 27, 2023, the Company entered into a consulting service agreement with Express Transportation Ltd. (“ETL”). Pursuant
to the agreement, ETL agreed to provide feasibility, analysis and risk management services for investment projects in mainland China
in exchange for
On
February 27, 2023, the Company entered into a consulting service agreement with Maxleed Investment Holding Ltd. (“MIHL”).
Pursuant to the agreement, MIHL agreed to provide strategy, due diligence, business expansion and optimization services in exchange for
On
September 25, 2023, the Company entered into a consulting service agreement with SevenBull, Inc. (“SevenBull”), pursuant
to which the Company agreed to issue
F-30
NOTE 18 – SHAREHOLDERS’ EQUITY (continued)
Common Shares (continued)
On
September 6, 2024, the Company entered into a consulting service agreement with Jaash Investment Limited (“Jaash Investment”),
pursuant to which the Company agreed to issue
Private placement in 2023
On
May 18, 2023, the Company entered into a securities purchase agreement. Pursuant to the agreement, the Company issued
Private placements in 2024
On
September 29, 2023, the Company entered into a securities purchase agreement (the “Public Offering SPA”) to sell an aggregate
of
On
August 30, 2024, the Company entered into an offering agreement. Pursuant to the agreement, the Company issued
Private placements in 2025
On October 23, 2025, the Company entered into
an offering agreement. Pursuant to the agreement, the Company issued
Conversion of Convertible Debentures
During
the year ended December 31, 2023, the Company issued an aggregate of
During
the year ended December 31, 2025, the Company issued an aggregate of
Subsequent
to December 31, 2025 and up to April 23, 2026, the Company issued an aggregate of
Non-controlling Interest from Acquisition
On
April 25, 2025, ReTo entered into the Share Exchange Agreement to acquire
F-31
NOTE 19 – SEGMENT REPORTING
The
Company uses the “management approach” in determining reportable operating segments.
The following table presents summary information by segments for the Company’s continuing operations for the year ended December 31, 2025, 2024 and 2023:
| For the Year Ended December 31, 2025 | ||||||||||||
| Equipment and technical service segment | Craft beer segment | Total | ||||||||||
| (US$) | ||||||||||||
| Revenues | ||||||||||||
| Cost of goods sold | ||||||||||||
| Gross profit | ||||||||||||
| Interest expense and charges | ||||||||||||
| Interest income | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Capital expenditures | ||||||||||||
| Income tax expenses | ||||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ||||||
| Segment assets | ||||||||||||
| For the Year Ended December 31, 2024 | ||||||||||||
| Equipment and technical service segment | Craft beer segment | Total | ||||||||||
| (US$) | ||||||||||||
| Revenues | ||||||||||||
| Cost of goods sold | ||||||||||||
| Gross profit | ||||||||||||
| Interest expense and charges | ||||||||||||
| Interest income | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Capital expenditures | ||||||||||||
| Income tax expenses | ||||||||||||
| Segment loss | ( | ) | ( | ) | ||||||||
| Segment assets | ||||||||||||
F-32
NOTE 19 – SEGMENT REPORTING (continued)
| For the Year Ended December 31, 2023 | ||||||||||||
| Equipment and technical service segment | Craft beer segment | Total | ||||||||||
| (US$) | ||||||||||||
| Revenues | ||||||||||||
| Cost of goods sold | ||||||||||||
| Gross profit | ||||||||||||
| Interest expense and charges | ||||||||||||
| Interest income | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Capital expenditures | ||||||||||||
| Income tax expenses | ||||||||||||
| Segment loss | ( | ) | ( | ) | ||||||||
| Segment assets | ||||||||||||
NOTE 20 – SUBSEQUENT EVENTS
On February 27, 2026, ReTo entered into a Share
Exchange Agreement to acquire
In
February 2026, the Company entered into the advisory and consulting service agreements with Heraise Consulting Services Limited (“Heraise
Consulting”), pursuant to which the Company agreed to issue in aggregated of
F-33