| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Principles of Consolidation The consolidated financial
statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its
subsidiaries have been eliminated upon consolidation. Subsidiaries are those entities
in which the Company, directly or indirectly, controls more than one half 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. Use of Estimates The preparation of these consolidated
financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company
evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the
accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are
the most critical to fully understanding and evaluating its consolidated financial statements. Significant accounting estimates reflected in the Company’s consolidated
financial statements include but not limited to the useful lives of property and equipment, impairment of long-lived assets, valuation
of accounts receivables, prepayments, other receivable, inventory and deferred tax assets. Actual results could differ from these estimates. Cash Cash
consists of cash on hand and at banks. The Company has not experienced any losses in such accounts and does not believe the cash is exposed
to any significant risk. Accounts Receivable, Net Accounts receivable represents
the revenues earned from the clients but have not yet collected. Accounts receivable is recorded at net realizable value. On November 1, 2023,
the Company adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASC 326”). ASC 326 requires the application of a credit loss model based prospectively
on current expected credit losses (CECL), and replaces the previous model based retrospectively on past incurred losses. The Company adopted
ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, of which the Company reported
only accounts receivable as of October 31, 2024. Results for reporting periods beginning November 1, 2023 are presented under ASC 326. The Company carries accounts
receivable at the face amounts less a reserve for estimated credit losses. As of October 31, 2023, the Company recorded an allowance
for credit losses related to accounts receivable of $803,170. The Company estimated its reserve for credit losses using relevant available
information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Consequently,
to reflect the cumulative effects of the adoption of ASC 326, the Company recorded the balance of the reserve for credit losses was
$799,617 as of November 1, 2023. During the year ended October 31, 2024, the Company reversed $79,442 adjustments for credit losses
on the consolidated financial statement related to accounts receivable. As of October 31, 2024, the reserve for credit losses was $741,753. Prepayment, Net Prepayments are cash deposited
or advanced to suppliers for future inventory purchases or service providers for future services. This amount is refundable and bears
no interest. For any prepayments determined by management that such advances will not be in receipts of inventories, services, or refundable,
the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis
to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against
allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company’s
management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. Other Receivables Other receivables primarily
include advances to employees, and other deposits. Management regularly reviews the aging of receivables and changes in payment trends
and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off
against allowances after exhaustive efforts at collection are made. On November 1, 2023, the
Company adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASC 326”). ASC 326 requires the application of a credit loss model based prospectively on current expected credit losses
(CECL), and replaces the previous model based retrospectively on past incurred losses. The Company adopted ASC 326 using the modified retrospective method
for all financial assets measured at amortized cost, and the adoption of ASU 2016 had no impact on other receivables. Inventories Inventories are stated at the
lower of cost (weighted average basis) or net realizable value. The methods of determining inventory costs are used consistently from
year to year. Net realizable value is based on estimated selling prices less selling expenses and any further costs expected to be incurred
for completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence,
or impaired balances. Lease Under ASC Topic 842, lease
assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate
used to determine the present value of the future lease payments is the Company’s incremental borrowing rate based on the information
available at the lease commencement date. The Company generally uses the base, non-cancellable lease term in calculating the right-of-use
assets and lease liabilities. The Company may recognize the
lease payments in the unaudited interim condensed consolidated statements of income on a straight-line basis over the lease terms and
variable lease payments in the periods in which the obligations for those payments are incurred, if any. The lease payments under the
lease arrangements are fixed. The Company elected the practical
expedients for an entity ongoing accounting and applied the short-term lease exception for lease arrangements with a lease term of 12 months
or less at commencement. Lease terms used to compute the present value of lease payments do not include any option to extend, renew or
terminate the lease that the Company is not able to reasonably certain to exercise upon the lease inception. Accordingly, operating lease
right-of-use assets and liabilities do not include leases with a lease term of 12 months or less. The Company did not adopt the
practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. Non-lease
components include payments for building management, utilities and property tax. It separates the non-lease components from the lease
components to which they relate. The Company’s accounting
for finance lease (formerly called capital lease) remains substantially unchanged. ASC Topic 842 adoption did not have a material
impact on the Company’s consolidated financial statements. On the other hand, operating lease expense is recognized on a straight-line
basis over the lease term. The Company evaluates the impairment
of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its
long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted
future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of finance and operating lease
liabilities in any tested asset group and include the associated lease payments in the undiscounted future pre-tax cash flows. For the years
ended October 31, 2024 and 2023, the Company did not have any impairment loss against its operating lease ROU assets. Property and Equipment Property and equipment are
recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
Estimated
Electronic equipment 2 – 5
Office facilities 2 – 5
Machinery equipment 3 – 5
Vehicles 4 – 5 Expenditure for maintenance
and repairs is expensed as incurred. The gain or loss on the
disposal of property and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair
value less cost to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements
of income and comprehensive income. The depreciation is recorded
under the general and administrative expenses as well as research and development expenses in the consolidated statements of income and
comprehensive income. Intangible Assets Intangible assets mainly comprise
patent right. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible
assets is computed using the straight-line method over their estimated useful lives. The amortization is recorded under the general and
administrative expenses in the consolidated statements of income and comprehensive income. The estimated useful lives
of the Company’s intangible assets are listed below: Estimated Patent right 20 Impairment of Long-lived Assets In
accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators
of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group
level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and
anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s
business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value
of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of
the assets exceed the fair value of the assets. For the year ended No Revenue Recognition The Company recognized its
revenue under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). The Company
recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which
the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model
prescribed under Topic 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in
the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation. Revenues are recognized when
control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on
the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those
goods or services. The Company generates its revenues
primarily from three sources: (1) Wastewater treatment revenue, (2) River water quality management revenue, (3) Product
sales revenue and (4) Others. The Company recognizes revenue, excluding any VAT, when performance obligations under the terms of
a contract with its customers are satisfied. This occurs when the control of the goods and services have been transferred to the customer. (1) Wastewater treatment revenue For wastewater treatment projects,
the Company contracts with customers to provide design proposal according to customers’ need and complete the construction. The
terms of pricing and payment are fixed with no discount or rebate offered, no variable consideration is involved. Apart from the completion
of the construction, an assurance-type warranty promise is identified in the contract, which normally for one year. This promise is used
to complete the project, and the customers cannot benefit from standalone promise. Thus, there is only one performance obligation with
standard quality guarantee for wastewater treatment projects. The revenue is recognized at a point in time since the projects do not meet
any of the following criteria:
1. The customer simultaneously receives and consumes the economic
benefits of the provided asset as the entity performs;
2. The seller’s performance creates or enhances an asset
controlled by the customer as the asset is created or enhanced; or
3. The seller’s performance creates an asset with no alternative
use, and the seller has an enforceable right to payment for performance completed to date. The performance obligation
is satisfied at a point of time and recognized in revenue upon the completion of project, usually at the time when the project has been
passed final acceptance by customers. The control of the project is then transferred from the Company to the customers upon completion
of customers’ final acceptance. Payments are due from its customers based on the payment terms established in its contracts. The Company only provides customers
with the assurance that the projects would function in accordance with agreed-upon specifications are accounted for in accordance with
existing guidance on product warranties. Hence, the warranties are considered as assurance type warranties, and would be treated as a
liability with no impact to revenue recognition. (2) River water quality management revenue For river water quality management
projects, the Company contracts with customers to provide design proposal according to customers’ need and achieve the target of
water quality improvement which often takes an extended period of time. The terms of pricing and payment are fixed, no variable consideration
is involved. Thus, there is only one performance obligation. Revenue generated from river water quality management is recognized over
time using contract cost-based input method to measure progress. Contract costs include labor, material and allocable indirect expenses.
Revenue is recognized proportionally as contract costs are incurred plus estimated fees. Under this method, the extent of progress towards
completion is measured based on the ratio of total cost incurred to date to the total estimated cost at completion of the performance
obligation. Revenues are recorded proportionally as total costs are incurred. The customer simultaneously receives and consumes the economic
benefits once the river water quality management projects are performed. Payments are due from its customers based on the payment terms
established in its contracts. The Company only provides customers
with the assurance that the products would function in accordance with agreed-upon specifications are accounted for in accordance with
existing guidance on product warranties. Hence, the warranties are considered as assurance type warranties, and would be treated as a
liability with no impact to revenue recognition. (3) Product sales revenue For product sales, the Company
contracts with customers to provide hydrophyte and chemical reagent, which is the only performance obligation under the contract. The
terms of pricing and payment are fixed with no discount or rebate offered, no variable consideration is involved. The performance obligation
is satisfied at a point of time and recognized in revenue upon the completion of delivery to the customers, usually at the time when the
goods related to products sales contract is delivered to and accepted by the customers. Payments are due from its customers based on the
payment terms established in its contracts. Revenue by major product line
For The Years Ended
2024 2023 2022
Wastewater treatment revenue $ 2,468,097 2,355,126 $ 650,308
River water quality management revenue 6,864,631 4,436,214 1,910,425
Product sales revenue 2,192,864 2,648,445 1,008,042
Others 16,700 7,549 24,927
Total Revenue $ 11,542,292 9,447,334 3,593,702 Cost of Revenues Cost of revenues consists primarily
of materials purchased from suppliers, and labor cost (including salaries and benefits), as well as project and production support cost,
which are directly related to revenue generating transactions. These costs are charged to the consolidated statements of income and comprehensive
income as incurred. Contract balances Timing of revenue recognition
may differ from the timing of invoicing to customers. In accordance with ASC340-40-25-1, an entity shall recognize as an asset the incremental
costs of obtaining a contract with a customer if the entity expects to recover those costs. Costs that are recognized as assets are amortized
over the period that the related goods or services transfer to the customer, and are periodically reviewed for impairment. Only incremental
costs should be recognized as assets. The revenue is recognized when
control of the promised is rendered over the service period and the payment from customers is not contingent on a future event, and the
right to consideration in exchange that the Company has transferred to a customer is only conditioned on the passage of time. The contract
assets as of October 31, 2024 and 2023 are as follows:
October 31, October 31,
Contract assets for wastewater treatment revenue $ 281,548 $ 5,467
Contract assets for river water quality management revenue 322,431 139,409
Total $ 603,979 $ 144,876 Contract liabilities represents
cash payment received from customers in advance of the Company satisfying performance obligations under contractual arrangements, including
those with performance obligations to be satisfied over a period of time and point in time. Contract liabilities are derecognized when
or as revenue is recognized. The amount of revenue recognized that was included in the contract liabilities at the beginning of the year
were $ nil General and administrative expenses General and administrative
expenses consist primarily of salaries and welfare expenses and related expenses for employees involved in general corporate functions,
including accounting, legal and human resources; and costs associated with use by these functions of facilities and equipment, such as
traveling and general expenses, professional service fees, depreciation, amortization and other general corporate related expenses. Selling expenses Selling expenses consist primarily
of salaries and welfare expenses to sales and marketing personnel and costs associated with use by sales function, such as travelling
expenses, business entertainment expense and other sales related expenses. These expenses are charged to the consolidated statements of
income and comprehensive income as incurred. Research and Development Expenses Research and development expenses
consist primarily of compensation and benefits to research and development staffs, and costs associated with use by research and development
function of facilities and equipment, such as traveling and general expenses, depreciation and other expenses related to research and
development. These expenses are charged to the consolidated statements of income and comprehensive income as incurred. Comprehensive income The Company applies ASC 220,
Comprehensive Income (“ASC 220”), with respect to reporting and presentation of comprehensive income and its components in
a full set of financial statements. Comprehensive income is defined to include all changes in equity of the Company during a period arising
from transactions and other event and circumstances except those resulting from investments by shareholders and distributions to shareholders.
For the years ended October 31, 2024 and 2023, the Company’s comprehensive income includes net income, and other comprehensive income
(loss) consists of a foreign currency translation adjustment resulting from the Company’s subsidiaries not using the U.S. dollar
as their functional currencies. Earnings per share The Company computes earnings
per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic
and diluted EPS. Basic EPS is measured as net income (loss) attributable to Xinzi shareholders, divided by the weighted average ordinary
share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential Ordinary 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 Ordinary 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. Fair Value Measurements U.S. GAAP establishes a three-tier
hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy
also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The three-tier fair value hierarchy is: Level 1 – observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 – include other
inputs that are directly or indirectly observable in the market place. Level 3 – unobservable
inputs which are supported by little or no market activity. The carrying value of the Company’s
financial instruments, including cash, accounts and other receivables, other current assets, accounts and other payables, and other short-term
liabilities approximate their fair value due to their short maturities. Income Taxes The Company’s subsidiaries
in China are subject to the income tax laws of the relevant tax jurisdiction. No taxable income was generated outside the PRC for the years
ended October 31, 2024 and 2023. The Company accounts for income tax in accordance with U.S. GAAP. Current income taxes are provided
on the basis of net profit (loss) for financial reporting purposes, adjusted for income and expense items which are not assessable or
deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes
are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax
assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are
expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the
consolidated statements of income and comprehensive income in the period of the enactment of the change. The Company considers positive
and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This
assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability,
the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies.
The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the
carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing
the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals
of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards,
(iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected
to be reflected within the industry. An uncertain tax position is
recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely
of being realized upon examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. PRC
tax returns filed in 2024 and 2023 are subject to examination by any applicable tax authorities. The Company had no uncertain tax position
for the years ended October 31, 2024 and 2023. Foreign Currency and Foreign Currency Translation An entity’s functional
currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in
which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by
assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
The functional currency of the Company is the United States dollar (“US dollar”). The functional currency of the Company’s
subsidiaries in the Hong Kong, China is the Hong Kong dollar (“HKD”). The functional currency of the Company’s
operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The consolidated financial
statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate
in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the
reporting period. Shareholders’ equity accounts are translated using the historical exchange rates at the date the entry to shareholders’
equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates
used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting
currency are recorded in accumulated other comprehensive income in the consolidated balance sheets. Foreign currency transactions
denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured
at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included
in the consolidated statements of income and comprehensive income. Translation of amounts from
RMB into U.S. dollars has been made at the following exchange rates:
Balance sheet items, except for equity accounts
October 31, 2024 RMB7.1178 to $1
October 31, 2023 RMB7.3166 to $1
Income statement and cash flows items
For the year ended October 31, 2024 RMB7.1855 to $1
For the year ended October 31, 2023 RMB7.0637 to $1
For the year ended October 31, 2022 RMB6.6150 to $1 Segment Reporting The Company’s management
reviews the consolidated results when making decisions about allocating resources and assessing performance of the Company as a whole
and hence, the Company has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of
internal reporting. The Company’s long-lived assets are substantially all located in the PRC and substantially all of the Company’s
revenues are derived from within the PRC. Therefore, no geographical segments are presented. Commitments and Contingencies In the normal course of business,
the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range
of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines
it is probable that a loss has occurred, and a reasonable estimate of the loss can be made. The Company may consider many factors in making
these assessments including historical and the specific facts and circumstances of each matter. Restricted Assets The Company’s PRC Operating
Subsidiary should comply with existing regulations when transferring a portion of their net assets to the Company. The payment of dividends
by entities organized in China is subject to certain administrative and procedural requirements. Regulations in the PRC currently permit
payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. The
Company’s PRC Operating Subsidiary are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards
each year to its statutory reserves account until the accumulative amount of such reserves reaches 50% of its respective registered capital.
The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. In addition, the Company’s
operations are conducted, and revenues are generated in China, and all of the Company’s revenues earned and currency received, are
denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable
to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability
to convert RMB into U.S. dollars. Financial Statement Reclassification Certain amounts in the prior
year consolidated financial statements have been reclassified for comparison purposes to conform to the presentation in the current year
consolidated financial statements. These reclassifications had no effect on the reported results of operations or financial position. Recent Accounting Pronouncements In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements
— codification amendments in response to SEC’s disclosure Update and Simplification initiative which amend the disclosure
or presentation requirements of codification subtopic 230-10 Statement of Cash Flows — Overall, 250-10 Accounting Changes and Error
Corrections — Overall, 260-10 Earnings Per Share — Overall, 270-10 Interim Reporting — Overall, 440-10 Commitments —
Overall, 470-10 Debt — Overall, 505-10 Equity — Overall, 815-10 Derivatives and Hedging — Overall, 860-30 Transfers
and Servicing — Secured Borrowing and Collateral, 932-235 Extractive Activities — Oil and Gas — Notes to Financial Statements,
946-20 Financial Services — Investment Companies — Investment Company Activities, and 974-10 Real Estate — Real Estate
Investment Trusts — Overall. The amendments represent changes |
