| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Discontinued operations On January 2, 2020, the Company discontinued
the machinery and equipment manufacturing business under Gu’an REIT. A component of a reporting entity or a group of components
of a reporting entity that are disposed or meet the criteria to be classified as held for sale, such as the management, having
the authority to approve the action, commits to a plan to sell the disposal group, should be reported in discontinued operations
if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial
results. Discontinued operations are reported when a component of an entity comprising operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the entity is classified as held for disposal
or has been disposed of, if the component either (1) represents a strategic shift or (2) have a major impact on an entity’s
financial results and operations. In the consolidated statements of operations and comprehensive loss, results from discontinued
operations are reported separately from the income and expenses from continuing operations and prior periods are presented on a
comparative basis. In order to present the financial effects of the continuing operations and discontinued operations, revenue
and expenses arising from intra-group transactions are eliminated except for those revenue and expenses that are expected to continue
after the disposal of the discontinued operations. 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, inventories, advances to suppliers, useful
lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, 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 time deposits, which have original maturities of three months or less when purchased and which are unrestricted as
to withdrawal and use. In addition, highly liquid investments which have original maturities of three months or less when purchased
are classified as cash equivalents. The Company maintains most of the bank accounts in the PRC. Cash balances in bank accounts
in PRC are not insured by the Federal Deposit Insurance Corporation or other programs. Restricted Cash Restricted cash consists of cash equivalents
used as collateral to secure bank borrowings. The Company is required to keep certain amounts on deposit that are subject to withdrawal
restrictions. The restricted cash balance is associated with the Company’s short-term borrowings, thus, classified as a current
asset. As of December 31, 2020, and 2019, the Company had restricted cash of $nil and $84,237, respectively, related to the bank
acceptance notes payable. Accounts Receivable, net Accounts receivable are recognized and
carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants credit to
customers with good credit standing with a maximum of 180 days and determines the adequacy of reserves for doubtful accounts based
on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when
there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s
best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. Based on
the assessment of customers’ credit and ongoing relationships, the Company’s payment terms typically range from 90
days to 1 year. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated
statements of income and comprehensive income. Actual amounts received may differ from management’s estimate of credit worthiness
and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management
has determined that the likelihood of collection is not probable. As affected by the recent COVID-19 outbreak and spread, the Company’s
accounts receivable collection was negatively affected. Based on subsequent collection analysis, the Company accrued increased
bad debt reserve for the outstanding accounts receivable as of December 31, 2020. As a result, allowance for uncollectible balances
amounted to $14,717,842 and $11,124,368 as of December 31, 2020 and 2019, respectively. Inventories Inventories are stated at the lower of
cost or net realizable value. Costs include the cost of raw materials, freight, direct labor and related production overhead. The
cost of inventories is calculated using the weighted average method. Any excess of the cost over the net realizable value of each
item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling
price in the normal course of business less any costs to complete and sell products. The Company evaluates inventories on
a quarterly basis for its net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete
or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and future
demand of each type of inventories. The Company recorded an inventory reserve of $293,053 and $144,272 from its continuing operations
as of December 31, 2020 and 2019, respectively. 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 service and material 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 continued operations amounted to $2,830,556 and $916,948 as of December 31, 2020 and 2019, respectively. 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 30–50 years
Machinery equipment 5–15 years
Transportation vehicles 5–10 years
Office and electronic equipment 3–5 years 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. Construction-in-Progress
(“CIP”) Construction-in-progress
represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other
direct costs attributable to the construction. Construction-in-progress is not depreciated. Upon completion and ready for intended
use, construction-in-progress is reclassified to the appropriate category within property, plant and equipment. Intangible Assets Intangible assets consist primarily of
land use rights and software. Under the PRC law, all land in the PRC is owned by the government and cannot be sold to an individual
or company. The government grants individuals and companies the right to use parcels of land for specified periods of time. These
land use rights are sometimes referred to informally as “ownership”. Land use rights 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
Land use rights 45-49 years
Software 10 years Impairment of Long-lived Assets The
Company reviews long-lived assets, including definitive-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 belo Long-term investment in Equity Investee The Company’s
long-term investments include equity method investments and equity investments without readily determinable fair values. Investments in
entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted
for using the equity method of accounting in accordance with ASC 323, Investments-Equity Method and Joint Ventures (“ASC 323”).
Under the equity method, the Company initially records its investment at cost and the difference between the cost of the equity investee
and the amount of the underlying equity in the net assets of the equity investee is accounted for as if the investee were a consolidated
subsidiary. The share of earnings or losses of the investee are recognized in the consolidated statements of comprehensive loss. Equity
method adjustments include the Company’s proportionate share of investee income or loss, adjustments to recognize certain differences
between the Company’s carrying value and its equity in net assets of the investee at the date of investment, impairments, and other
adjustments required by the equity method. The Company assesses its equity investment for other-than-temporary impairment by considering
factors as well as all relevant and available information including, but not limited to, current economic and market conditions, the operating
performance of the investees including current earnings trends, the general market conditions in the investee’s industry or geographic
area, factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and
cash burn rate and other company-specific information. Investments in
equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes
in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on
a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss
is recognized in the consolidated statements of comprehensive loss equal to the amount by which the carrying value exceeds the fair value
of the investment. Prior to the adoption of ASU 2016-01 on January 1, 2019, these investments were accounted for using the cost method
of accounting, measured at cost less other-than-temporary impairment. As of December
31, 2019, the Company’s long term investment in equity investee balance consisted of (i) its $28,720 or 40% ownership interest in
Inner Mongolia REIT Zhengbei Environment Technology Co. Ltd. (“REIT Zhengbei”) and (ii) nominal amount or 28.75% ownership
interest in Yunnan Litu Ruima Biotechnology Co., Ltd (“Litu Ruima”). Both REIT Zhengbei and Litu Ruima were incorporated in
2019. The Company accounted for the above-mentioned investments using equity method, because the Company has significant influence but
does not own a majority equity interest or otherwise control over these equity investees. Since both REIT Zhengbei and Litu
Ruima As of December 31, 2020,
the Company’s long term investment in equity investee balance represents its $2,836,050 or 41.67% equity investment in Shexian Ruibo
Environmental Science and Technology Co., Ltd. (Shexian Ruibo). On September 7, 2020, the Company acquired such equity interest from an
original shareholder of Shexian Ruibo and the original shareholder of Shexian Ruibo. Shexian Ruibo manufactures and sells eco-friendly
construction materials in the PRC. The Company accounted for the investments using equity method, because the Company has significant
influence but does not own a majority equity interest or otherwise control over the equity investee. Under the equity method, the Company
adjusts the carrying amount of the investment and recognizes investment income or loss for its share of the earnings or loss of the investee
after the date of investment. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity
investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on
behalf of the equity investee. For the year ended December 31, 2020, the investment income from Shexian Ruibo was immaterial The Company continually
reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other-than-temporary.
The primary factors the Company considers in its determination include the financial condition, operating performance and the prospects
of the equity investee; other company specific information such as recent financing rounds; the geographic region, market and industry
in which the equity investee operates; and the length of time that the fair value of the investment is below its carrying value. If the
decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.
As of December 31, 2020 and 2019, the Group did not recognized any impairment on its equity investment. 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, we elected the package of practical expedients permitted under the transition guidance
within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new
standard resulted in the recording of lease assets and lease liabilities of approximately $0.7 million as of January 1, 2019. The standard
did not materially impact our 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, advance to
suppliers, accounts payable, accrued 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, 2020 and 2019, based upon
the short-term nature of the assets and liabilities. The Company believes that the carrying
amount of the short-term and long-term borrowings approximates fair value at December 31, 2020 and 2019 based on the terms of the
borrowings and current market rates as the rates of the borrowings are reflective of the current market rates. 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 are primarily
derived from the following sources:
● Revenue from machinery and equipment sales The
Company recognizes revenue when the machinery and equipment is delivered and control is transferred. The Company generally provide a warranty
for a period of 12 months after the customers receive the equipment. The Company determines that such product warranty is not a separated
performance obligation because the nature of warrant
● Revenue from construction materials sales The Company recognizes revenue, net of
sales taxes and estimated sales returns, when the construction materials are shipped to, delivered to or picked up by customers
and control is transferred.
● Revenue from municipal construction projects The Company provides municipal construction
services which includes sponge city projects, sewage pipeline construction, public plaza construction, and landscaping, etc. The
Company recognizes revenue associated with these contracts over time as service is performed and the transfer of control occurs,
based on a percentage-of-completion method using cost-to-cost input methods as a measure of progress. When the percentage-of-completion
method is used, the Company estimates the costs to complete individual contracts and records as revenue that portion of the total
contract price that is considered complete based on the relationship of costs incurred to date to total anticipated costs (the
cost-to-cost approach). Under the cost-to-cost approach, the use
of estimated costs to complete each contract is a significant variable in the process of determining recognized revenue, requires
judgment and can change throughout the duration of a contract due to contract modifications and other factors impacting job completion.
The costs of earned revenue include all direct material and labor costs and those indirect costs related to contract performance,
such as indirect labor, supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
● Revenue from technological consulting and other services The Company recognizes revenue when technological
consulting and other services are rendered and accepted by the customers. Contract assets and liabilities Payment terms are established on the Company’s
pre-established credit requirements based upon an evaluation of customers’ credit quality. Contact assets are recognized
for in related accounts receivable. Contract liabilities are recognized for contracts where 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, 2020 and 2019, 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 we believe it best depicts how the nature, amount, timing
and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the
years ended December 31, 2020 and is
disclosed in Note 19. 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 $328,305, $451,333 and $658,382 for the years ended December 31, 2020, 2019 and 2018, respectively. Government grants Government grants represent cash subsidies received
from PRC government or related institutions. Cash subsidies which have no defined rules and regulations to govern the criteria necessary
for companies to enjoy the benefits are recognized as other income, net when received. Specific subsidies that local government has provided
for a specific purpose, such as research and development are recorded as other non-current liabilities when received and recognized as
other income or reduction of related expense when the specific performance is meet. As of December 31, 2020, the Company received related
grants of $490,560 for a specific research and development project to be conducted during the period from 2021 to 2022. The Company recorded
such grants as deferred grants in the non-current liability of its consolidated balance sheet. 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 for the years ended
December 31, 2020, 2019 and 2018. As of December 31, 2020, the tax years ended December 31, 2016 through December 31, 2020 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 13%, starting from April 1, 2019, depending
on the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in
the cost of producing or acquiring its finished products. The Company recorded a VAT payable net of payments in the accompanying
consolidated financial statements. All of the VAT returns of the Company have been and remain subject to examination by the tax
authorities for five years from the date of filing. Earnings (Loss) per Share The Company computes earnings (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. 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, 2020, 2019 and 2018, the Company had no dilutive security outstanding that could potentially dilute
EPS in the future. Foreign Currency Translation The Company’s principal country of
operations is the PRC. The financial position and results of its operations located in PRC are determined using RMB, the local
currency, as the functional currency. RETO, REIT US and REIT Holdings use U.S. Dollars as their functional currency, while REIT
India uses Indian rupee as the 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. 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. The
following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
December 31, 2020 December 31, 2019 December 31, 2018
Year-end spot rate US$1=RMB 6.5250 US$1=RMB 6.9618 US$1=RMB 6.8755
Average rate US$1=RMB 6.9042 US$1=RMB 6.9081 US$1=RMB 6.6090 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 political,
economic, and legal environments 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. The coronavirus disease 2019 (“COVID-19”)
outbreak has, and continues to have, a severe and negative impact on the Chinese and the global economy. The Company’s business
has been negatively impacted by the COVID-19 outbreak. From late January 2020 to March 2020, the
Company had to temporarily suspend its manufacturing activities due to government restrictions. During the temporary business closure
period, employees had very limited access to the Company’s manufacturing facilities and the shipping companies were not available,
and as a result, the Company experienced difficulty delivering its products to customers on a timely basis. In addition, due to
the COVID-19 outbreak, some of the Company’s customers or suppliers experienced financial distress, delayed or defaulted
on their payments, reduced the scale of their business, and suffered disruptions in their business. Any increased difficulty in
collecting accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of
agreements due to deterioration in economic conditions could negatively impact the Company’s results of operations. As the
COVID-19 outbreak is relatively under control in China, the Company’s production and sales activities from the Company’s
continuing operations have been gradually returning to normal. However, the COVID-19 outbreak continues to have a severe and negative
impact on China and the global economy. The total impact is still unknown and cannot be reasonably estimated at this point of time. Reclassifications In connection with the discontinued operations
of a business, certain prior-year amounts have been reclassified for consistency with the current-year presentation. These reclassifications
had no effect on the reported results of operations. The assets and liabilities related to the discontinued operations are classified
as assets/liabilities held for sale as of December 31, 2020 and 2019, while results of operations related to the discontinued operations,
including comparatives, were reported as losses from discontinued operations. Certain prior-year balance sheet accounts have been
reclassified to conform to the current-year presentation. 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, 2020, and 2019, $1,032,264 and $765,701 of
the Company’s cash and cash equivalents was on deposit at financial institutions in the PRC where there currently is no rule
or regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure.
In addition, as of December 31, 2020 and 2019, $63,603 and $9,324 of the Company’s cash and cash equivalent |
