ReTo(US:RETO)2020-10-30 20:40Company Overview - ReTo Eco-Solutions was incorporated on August 7, 2015, as a holding company to develop business opportunities in China [241]. - The company completed its IPO on November 29, 2017, offering 3,220,000 shares at $5.00 per share, with trading commencing on NASDAQ under the symbol "RETO" [242]. - The company has established multiple subsidiaries in China, including Beijing REIT, which was founded in 1999 and has since developed five other subsidiaries [243]. - REIT Changjiang, a subsidiary, was established with a registered capital of RMB 100 million (approximately $16 million) and focuses on processing construction and mining waste [245]. - REIT India, a joint venture with Q Green Techon Private Limited, is 51% owned by Beijing REIT and aims to expand into the Indian market [234]. - The company sold its 100% ownership interest in Gu'an REIT for RMB 39.9 million (approximately $5.7 million) to Hebei Huishitong Technology Inc. on January 2, 2020 [253]. - The company aims to enhance its ecological technology solutions and expand its market presence through various subsidiaries and joint ventures [240]. Financial Performance - In 2019, the company generated total revenue from continuing operations of approximately $XX million, with machinery and equipment production accounting for 48% and construction materials production for 52% [380]. - Total revenue from continuing operations increased by approximately $0.3 million, or 1%, to approximately $29.6 million for the year ended December 31, 2019, compared to approximately $29.3 million for the year ended December 31, 2018 [398]. - Revenue from third-party customers increased by $2.1 million or 8% from approximately $27.4 million in 2018 to approximately $29.5 million in 2019, while revenue from related party customers decreased by $1.9 million or 96% [398]. - Gross profit decreased to $7.4 million, representing 25% of total revenue, down from $14.0 million or 48% in the previous year [396]. - Total operating expenses increased by 68% to $15.5 million, up from $9.3 million in the previous year [396]. - Net loss from continuing operations was $12.3 million, a decrease of 563% compared to a net income of $2.7 million in the previous year [396]. - Revenue from machinery and equipment sales increased by approximately $4.9 million, or 53%, from approximately $9.2 million in 2018 to approximately $14.0 million in 2019 [400]. - Sales of environmental-friendly construction materials decreased by $3.5 million or 19% for the year ended December 31, 2019, compared to the previous year [403]. - Bad debt expenses increased significantly by 383% to $8.3 million, up from $1.7 million in the previous year [396]. Research and Development - The company spent $438,371 and $656,563 on research and development for the years ended December 31, 2019, and 2018, respectively, with plans to increase this allocation in the future [313]. - The company is researching new products, including mineral wool, and has introduced permeable floor tiles for sponge city construction [304]. - The company collaborates with various universities to develop innovative construction materials and disposal techniques for fly ash and iron tailings [317][318]. - The company has developed several research and development projects from 2017 to 2019, including an automated palletizing system and a fully automatic pigment metering feeding device [319]. Market and Industry Trends - The Chinese construction market is expected to maintain a 26% share of the global market by 2025, driven by urbanization and government focus on green building [265]. - The Chinese government allocated between 400 to 600 million RMB (approximately $85 million to $128 million) for each of the 30 pilot sponge cities to enhance water management [271]. - Eco-friendly construction materials contain about 70% reclaimed fly-ash and iron tailings, reducing environmental waste and energy consumption during manufacturing [256]. - The company aims to expand remediation projects in former mining regions, addressing environmental concerns associated with abandoned mines [282]. - The company is actively pursuing additional international markets, including the Philippines, Laos, and Morocco, to expand its product reach [257]. Compliance and Regulations - The Foreign Investment Law, effective January 1, 2020, provides a framework for foreign investments in China, allowing for national treatment of foreign-invested entities [329]. - The Encouraging Catalogue (Edition 2019) lists 415 industry sectors that encourage foreign investments, indicating a favorable environment for investment [340]. - The company operates within the permitted category for foreign investment, allowing for the establishment of wholly foreign-owned enterprises [342]. - The company is subject to regulations governing foreign currency exchange, which may impact its ability to repatriate profits and manage foreign investments [345]. - The dividends paid by the subsidiary to its shareholder are taxable in China [346]. Production and Supply Chain - The company’s production facilities include factories operated by REIT Changjiang, Gu'an REIT, and REIT Xingyi, focusing on eco-friendly construction materials [381]. - The primary raw materials for construction materials production are sourced from iron ore refining, concrete, and steel [385]. - Approximately 25% of the company's raw materials were sourced from one major supplier in 2019, down from 28% in 2018 [322]. - The company has established strong relationships with suppliers, ensuring efficient access to necessary raw materials with little expected price volatility [321]. Strategic Plans - The company plans to expand its international market by adding four to five distributors in South America and the Middle East [284][302]. - The company aims to pursue strategic acquisitions in construction material or manufacturing equipment companies in established economies in China [285]. - The company plans to build new manufacturing plants for REIT Yancheng and REIT Lingqiu, and has 67 registered patents and 14 ongoing R&D projects [383]. Impact of COVID-19 - The company experienced a significant impact from COVID-19, with revenues for the first ten months of fiscal 2020 expected to be approximately 80% lower compared to the same period in the previous year [388].