| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying unaudited condensed 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 Exchange Commission (the “SEC”). Accordingly,
they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be
expected for the full year. Principles of consolidation The unaudited condensed consolidated financial
statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances are eliminated
upon consolidation. Subsidiaries are those entities in which the Company,
directly or indirectly, controls more than 50% of the voting power; or has the power to govern the financial and operating policies, to
appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors. 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 interest’s
operating result is 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. 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 unaudited condensed 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 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. Accounts Receivable, Net In June 2016, the FASB issued 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 are 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 $2,105,670 and $2,146,679
as of June 30, 2024 and December 31, 2023, 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 $253,635 and $259,621 as of June 30, 2024 and December 31, 2023, 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 operations amounted to $3,066 and $3,138 as of June 30, 2024 and
December 31, 2023, respectively. 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 June 30, 2024 and December 31, 2023, the
Company’s long-term investment in equity investee balance represents its $2,226,021 and $2,337,451, 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 six months ended June 30, 2024 and 2023, the investment loss from Shexian
Ruibo was $57,960 and $83,307, respectively. 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. For the six months ended June 30,
2024 and 2023, the Company did not recognize 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, 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, 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 as of June 30, 2024 and December 31, 2023, 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 as of June 30, 2024 and December 31, 2023 based on the terms of the
borrowings and current market rates as the rates of the borrowings are reflective of the current market rates. The Company elected the fair value option to account
for its convertible loans. The Company engaged an independent valuation firm to perform the valuation. The convertible loans are classified
as level 3 instruments as the valuation was determined based on unobservable inputs which are supported by little or no market activity
and reflect the Company’s own assumptions in measuring fair value. Significant estimates used in developing the fair value of the
convertible loans include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert and expected
timing of conversion. Refer to Note 9 for additional information. As the inputs used in developing the fair value
for level 3 instruments are unobservable, and require significant management estimate, a change in these inputs could result in a significant
change in the fair value measurement. 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 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 six months ended June 30, 2024 and 2023.
● 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,
including sponge city projects and ecological restoration projects. 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 June 30, 2024 and December 31, 2023, 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. The Company’s disaggregation of revenues for the six months ended June 30, 2024 and 2023
is disclosed in Note 16. 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 on its consolidated balance sheet. As of June 30, 2024 and December 31, 2023, the remaining balance was
$187 and $191, respectively. 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. 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 six months ended June
30, 2024 and 2023. As of June 30, 2024, the tax years ended December 31, 2019 through December 31, 2023 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. As of June 30, 2024 and June 30, 2023, 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 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:
June 30, December 31, June 30,
Year-end spot rate US$1=RMB 7.2672 US$1=RMB 7.0999 US$1=RMB 7.2513
Year-end spot rate US$1=INR 83.33 US$1=INR 83.19 US$1=INR 82.06
Average rate US$1=RMB 7.2150 US$1=RMB 7.0809 US$1=RMB 6.9283
Average rate US$1=INR 83.20 US$1=INR 82.57 US$1=INR 82.20 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. 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 June 30, 2024 and December 31, 2023, $1,519,456
and $1,314,636 of the Company’s cash and cash equivalents was deposited at financial institutions in the PRC. These deposits were
insured per PRC’s new Deposit Insurance Regulation for up to RMB500,000 for one bank. In addition, as of June 30, 2024 and December
31, 2023, $5,663 and $4,161 of the Company’s cash and cash equivalents was deposited at financial institutions in the Republic of
India (“India”) which is insured under the Deposit Insurance and Credit Guarantee Corporation for up to 100,000 Indian Rupee
(approximately $1,200). For the six months ended June 30, 2024,
two customers accounted for more than 16% and 12% of the Company’s total revenue. For the six months ended June 30, 2023, two customers
accounted for more than 22% and 17% of the Company’s total revenue. As of June 30, 2024, three customers accounted
for 33%, 24% and 13% of the Company’s consolidated accounts receivable. As of December 31, 2023, three customers accounted
for 29%, 21% and 12% of the Company’s consolidated accounts receivable, respectively. For the six months ended June 30, 2024, the Company
purchased approximately 30%, 22% and 10% of its raw materials from three major suppliers. For the six months ended June 30,
2023, the Company purchased approximately 21%, 17% and 13% of its raw materials from three major suppliers. As of June 30, 2024 and December 31, 2023, three
suppliers accounted for 30%, 22% and 10% of the total accounts payable balance, respectively. 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 October 2021, the FASB issued ASU No. 2021-08,
“Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”
(“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities
in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and
measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not
acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively
to business combinations that occur after the effective date. The adoption does not have a material effect on the consolidated financial
statements. In December 2023, the Financial Accounting
Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”
(“ASU 2023-09”). This ASU 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 Company is currently evaluating these new disclosure requirements and does
not expect the adoption to have a material impact. In November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280). The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment
expenses that are regularly provided to the chief operating decision maker (CODM), as well as the aggregate amount of other segment items
included in the reported measure of segment profit or loss. This ASU requires that a public entity disclose the title and position of
the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss. Public entities will be required
to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment
are required to provide all the disclosures required by the amendments in the update and existing segment disclosures in Topic 280.
ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, and requires retrospective adoption. The adoption does not have a material effect on the consolidated
financial statements. In March 2024, the FASB issued ASU 2024-01, “Compensation
- Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards” (“ASU 2024-01”), which
intends 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 acco |
