ReTo(RETO) - 2023 Q4 - Annual Report

Financial Support and Capital Structure - For the fiscal years ended December 31, 2021, 2022, and 2023, funds equivalent to approximately $2.6 million, $4.2 million, and $0.1 million were provided to the PRC subsidiaries as shareholder loans[24]. - The PRC subsidiaries may procure shareholder loans from REIT Holdings up to the difference between their registered capital and total investment amount or three times their net assets[26]. - The company has not made any capital contributions to its PRC subsidiaries that exceed the regulatory limits set by the Chinese government[26]. - The company has not been involved in any investigations regarding cybersecurity review by the CAC and has not received any inquiries or sanctions in this respect[46]. - The company has confirmed that its PRC subsidiaries are not engaged in business activities that require special licenses or permits beyond a regular business license[42]. Dividend and Taxation - As of the date of this annual report, there have not been any dividends or other distributions from PRC subsidiaries to ReTo, REIT Holdings, and Sunoro Holdings[25]. - The gross amount of any distribution made to investors with respect to securities will be taxable as a dividend at a rate of 10% unless reduced under treaties[28]. - The withholding tax rate for dividends payable by PRC companies to non-PRC-resident enterprises is generally 10%, but may be reduced to 5% under certain conditions[28]. - Under current PRC laws, PRC subsidiaries can only pay dividends from accumulated profits and must set aside at least 10% of after-tax profits for statutory reserve funds[93]. - The EIT Law imposes a 25% income tax rate on resident enterprises for worldwide income, while non-resident enterprises are taxed at 20% on income generated from China[107]. Regulatory Environment and Compliance - The company is subject to risks related to doing business in China, including regulatory changes and economic conditions[27]. - The company is not currently subject to permission requirements from the CSRC or other regulatory bodies for its PRC subsidiaries' operations[43]. - The CSRC's Trial Administrative Measures for Overseas Securities Offering became effective on March 31, 2023, requiring filing for future overseas listings[50]. - The company is in the process of completing filing procedures with the CSRC for financings during the fiscal year ended December 31, 2023[50]. - The company faces risks related to potential changes in PRC laws and regulations that could impact its ability to offer securities to investors[50]. Cash Management and Currency Risks - The company has adopted cash management policies that require internal approvals for cash transfers among subsidiaries, involving at least two manager-level personnel[29]. - The PRC government may impose restrictions on the ability to transfer cash out of China, which could materially adversely affect the company's operations[31]. - The PRC government controls the conversion of Renminbi into foreign currencies, which may restrict the ability to pay dividends to U.S. investors[91]. - The ability to transfer funds to PRC subsidiaries is subject to procedural requirements imposed by SAFE, which may hinder cash deployment[94]. - The company's revenue is primarily denominated in Renminbi, which is convertible under the "current account" but requires approval for "capital account" transactions, potentially limiting its ability to utilize PRC revenue effectively[83]. Operational Risks and Challenges - The company has suffered significant losses from operations, raising substantial doubt about its ability to continue as a going concern[178]. - The company faces risks related to natural disasters and health epidemics, which could significantly disrupt operations and affect financial performance[159]. - The ongoing COVID-19 pandemic has had a lasting impact on the global economy, affecting the company's operations and financial condition[160]. - The company is subject to the interpretation and enforcement of the Individual Foreign Exchange Rules, which may impact its ability to conduct foreign exchange transactions[138]. - The company may face challenges in utilizing proceeds from offerings due to regulatory requirements on loans and capital contributions to its PRC subsidiaries, impacting liquidity and business expansion[87]. Supply Chain and Market Conditions - The company experienced a decline in sales of products and services due to reduced market demand for equipment and building materials, particularly in China, as government investment in infrastructure remained limited[152]. - The geopolitical tensions and sanctions related to the Ukraine conflict have created uncertainties that could affect the company's supply chain and overall business operations[156]. - The company is focusing on the growth of software development and RSA services, which are less prone to supply chain disruptions, as part of its strategic response to current challenges[156]. - The company has made market development efforts to expand sales and strengthen raw material procurement management to mitigate supply chain risks[156]. - The company faces risks related to supply chain disruptions, which could negatively impact its ability to produce and deliver products[168]. Intellectual Property and Innovation - The company owns 126 patents and has 70 pending patent applications in China, relying on various legal protections for its intellectual property[182]. - Future growth is dependent on new products, environmental solutions, and technology innovation, with potential adverse impacts if innovation fails[194]. - The company must maintain competitive advantages and develop new products to avoid negative impacts from competitors[195]. - Changes in demand for products and relationships with key customers and suppliers may negatively affect operating results[196]. Human Resources and Management - Compensation and benefit costs for employees were approximately $2.5 million, $2.9 million, and $3.3 million for the years ended December 31, 2023, 2022, and 2021, respectively, indicating rising labor costs[157]. - Key personnel are critical to the company's success, and losing them could severely disrupt business operations[202]. - The company does not maintain key man life insurance, and the loss of senior management could have a material adverse effect[204]. - The company does not purchase business insurance, which could lead to significant costs and management distraction in case of disruptions[206]. Financing and Liquidity - Management plans to improve liquidity through cash flow from operations, renewal of bank borrowings, and potential equity financing, but lacks current commitments from investors[179]. - Additional financing may be required for future capital expenditures, and failure to obtain it could adversely affect operations[207]. - The company cannot guarantee obtaining additional financing on acceptable terms, which could negatively impact business operations[208].