ReTo(RETO) - 2024 Q2 - Quarterly Report

Financial Statements This section provides the company's condensed consolidated financial statements, detailing its financial position, performance, and cash flows Condensed Consolidated Balance Sheets As of June 30, 2024, the company's total assets and shareholders' equity significantly increased, primarily driven by capital raises and supplier advances, while liabilities slightly decreased Condensed Consolidated Balance Sheet Summary (in USD) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $19,604,814 | $10,464,678 | | Total Assets | $33,671,537 | $25,245,248 | | Total Current Liabilities | $19,287,009 | $17,313,078 | | Total Liabilities | $19,894,564 | $20,394,074 | | Total Shareholders' Equity | $13,776,973 | $4,851,174 | | Total Liabilities and Shareholders' Equity | $33,671,537 | $25,245,248 | - Key drivers for the increase in current assets were 'Advances to suppliers' which more than doubled to $10.9 million and a new 'Deposits for equity acquisition' of $4.1 million[5] - The number of issued and outstanding Class A shares increased from 1,205,188 to 3,828,868, contributing to a significant rise in Additional paid-in capital from $68.9 million to $78.7 million[5] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss For the six months ended June 30, 2024, the company significantly improved its financial performance, reporting increased revenues and gross profit, alongside a substantial reduction in net loss due to lower operating expenses Statement of Operations Summary (in USD) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Revenues | $1,838,639 | $1,233,783 | | Gross Profit | $567,481 | $93,591 | | Total Operating Expenses | $1,641,581 | $7,099,012 | | Loss from Operations | $(1,074,100) | $(7,005,421) | | Net Loss | $(716,633) | $(11,643,858) | | Net Loss Attributable to ReTo | $(678,459) | $(11,219,743) | | Loss Per Share (Basic and diluted) | $(0.25) | $(20.63) | - General and administrative expenses were significantly reduced to $1.37 million from $5.54 million in the prior year period, which was a major contributor to the reduced net loss[9] Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity significantly increased from $4.85 million to $13.78 million, primarily driven by capital raising activities through private placements and public offerings Shareholders' Equity Movement (in USD) | Description | Amount | | :--- | :--- | | Balance at December 31, 2023 | $4,851,174 | | Net Loss | $(716,633) | | Issuance of common shares in private placements, net | $3,969,063 | | Issuance of common shares, net (public offering) | $6,000,000 | | Share-based compensation | $162,769 | | Foreign currency translation adjustment | $(489,400) | | Balance at June 30, 2024 | $13,776,973 | Unaudited Condensed Consolidated Statements of Cash Flows For the first six months of 2024, cash used in operating and investing activities was largely offset by significant cash provided by financing activities, resulting in a net increase in cash and cash equivalents Cash Flow Summary (in USD) | Cash Flow Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,755,332) | $(4,540,270) | | Net cash (used in) provided by investing activities | $(3,951,146) | $407,004 | | Net cash provided by financing activities | $9,322,724 | $4,173,282 | | Net increase in cash | $138,786 | $119,944 | - Financing activities were the primary source of cash, with $3.97 million from a private placement and $6.0 million from a public offering[14] - A significant use of cash in operating activities was a $5.7 million increase in 'Advances to suppliers' Investing activities included a $4.1 million 'Deposits for equity acquisition'[14] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, offering further context and breakdowns of accounting policies, significant balances, and transactions Note 1 – Organization and Description of Business ReTo Eco-Solutions, Inc. is a BVI holding company primarily operating in the PRC, engaged in eco-friendly construction materials, urban ecological projects, roadside assistance, and software development - The company operates through its subsidiaries primarily in the PRC[17] - Business activities include: (i) eco-friendly construction materials & equipment, (ii) urban ecological projects, (iii) roadside assistance, and (iv) software development[17] Note 2 – Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, including revenue recognition, consolidation, and estimates, while also disclosing material customer and supplier concentration risks - Revenue is recognized from four primary sources: machinery and equipment sales (upon delivery), construction materials sales (upon transfer of control), municipal construction projects (over time using cost-to-cost method), and technological consulting (when rendered)[54][55][56][60] - The company faces significant customer concentration risk For the six months ended June 30, 2024, two customers accounted for 16% and 12% of total revenue[81] - There is also a significant supplier concentration risk For the six months ended June 30, 2024, the company purchased approximately 30%, 22%, and 10% of its raw materials from three major suppliers[84] Note 3 – Going Concern The company's going concern ability is in substantial doubt due to low working capital and operating losses, though management anticipates sufficient funds from a recent $19.5 million private placement - Factors raising substantial doubt about the company's ability to continue as a going concern include a working capital of approximately $0.3 million, a net loss of $0.7 million, and cash used in operations of $4.8 million in H1 2024[94] - Management's mitigation plan relies on a private placement completed on August 30, 2024, which raised $19,451,376 These proceeds are intended for future M&A and working capital[96] Note 10 – Short-term Loans As of June 30, 2024, the company held $5.26 million in short-term loans, primarily a working capital loan from Shanxi Hunyuan Rural Commercial Bank at a 6.55% interest rate Short-Term Loans Breakdown (in USD) | Lender | As of June 30, 2024 (Unaudited) | As of December 31, 2023 | | :--- | :--- | :--- | | Shanxi Hunyuan Rural Commercial Bank Co., Ltd | $5,228,800 | $5,352,188 | | Bank of China | $34,328 | $35,212 | | Total | $5,263,128 | $5,387,400 | - A new loan agreement was signed on April 10, 2024, with Shanxi Hunyuan Rural Commercial Bank for approximately $5.2 million (RMB 38 million) with a maturity date of March 28, 2025, and a fixed interest rate of 6.55%[116] Note 12 – Taxes This note details the company's tax structure, including PRC corporate income tax rates and a full valuation allowance on deferred tax assets due to continuous losses, with $2.0 million in total taxes payable Taxes Payable Breakdown (in USD) | Tax Type | As of June 30, 2024 (Unaudited) | As of December 31, 2023 | | :--- | :--- | :--- | | VAT tax payable | $377,992 | $320,946 | | Corporate income tax payable | $1,615,700 | $1,653,827 | | Land use tax and other taxes payable | $16,009 | $12,162 | | Total | $2,009,701 | $1,986,935 | - Due to continuous losses, the company has a full valuation allowance of $11,131,961 on its deferred tax assets as of June 30, 2024[151] Note 14 – Related Party Transactions The company conducts various transactions with related parties, including its CEO and an equity investee, involving significant advances to suppliers, accounts receivable, sales, and purchases Key Related Party Balances (in USD) | Balance Type | Related Party | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | :--- | | Due from related parties | Mr. Hengfang Li | $72,082 | $358,659 | | Accounts receivable | Multiple | $105,694 | $108,188 | | Advance to suppliers | Shexian Ruibo & others | $1,500,983 | $1,807,965 | Key Related Party Transactions (in USD) | Transaction Type | Related Party | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | | Sales to | Q Green Techcon | $218,631 | $210,864 | | Purchases from | Shexian Ruibo | $232,016 | $359,398 | Note 15 – Shareholders' Equity This note details significant changes in shareholders' equity, including share combinations, the creation of Class B shares, and capital raises through public and private offerings - The company implemented a 10-for-1 share combination effective March 1, 2024, following a similar combination in May 2023[169][171] - In March 2024, the company closed a public offering of 1,500,000 shares at $4.00 per share, for gross proceeds of $6,000,000[182] - Concurrently, a private placement of 1,000,000 shares at $4.00 per share was closed, yielding net proceeds of $3,969,063[183] Note 16 – Segment Reporting The company reports across four operating segments, with Machinery and Equipment sales being the primary revenue and gross profit driver, while the Construction Materials segment incurred a gross loss Segment Performance for Six Months Ended June 30, 2024 (in USD) | Segment | Revenues | Gross Profit / (Loss) | Segment Loss | | :--- | :--- | :--- | :--- | | Machinery and Equipment sales | $1,661,336 | $701,886 | $136,408 | | Construction materials sales | $146,293 | $(157,545) | $(244,481) | | Technological consulting and other services | $31,010 | $23,140 | $(608,560) | | Total | $1,838,639 | $567,481 | $(716,633) | - The Machinery and Equipment sales segment is the company's largest and most profitable segment, contributing the vast majority of total revenue and all of the gross profit[189] Note 17 – Subsequent Events Significant subsequent events include an August 2024 private placement raising $19.45 million for M&A and working capital, alongside share issuances to advisors and directors - On August 30, 2024, the company closed a private placement, raising approximately $19.5 million in gross proceeds[194] - As part of the private placement, the company issued 1,268,568 Class A Shares to a financial advisor as consideration for services[195]