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ReTo Eco-Solutions Reports First Half of 2020 Financial Results

December 22, 2020 GMT

BEIJING, Dec. 22, 2020 /PRNewswire/ -- ReTo Eco-Solutions, Inc. (NASDAQ: RETO) (“ReTo” or the “Company”), a provider of technology solutions for the improvement of ecological environments, today announced its financial results for the six months ended June 30, 2020. ReTo is a manufacturer and distributor of eco-friendly construction materials as well as equipment used for the production of eco-friendly construction materials. ReTo also engages in consultation, design, project implementation, and construction of urban ecological projects, including those for the purpose of capturing, controlling, and reusing rainwater, commonly called “sponge cities.”

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Mr. Hengfang Li, Chairman and Chief Executive Officer of ReTo, commented, “As was the case for most companies, COVID-19 had a significant negative impact on our business throughout 2020. Unfortunately, projects we were anticipating to contribute to revenue never materialized due to forced closures. As a result of COVID-19 related business and government closures, logistic complications, delays and higher costs, and the cancellation or delay in the delivery of products and services to customers, our financial results for the first six months of 2020 were negative when compared to the first six months of 2019.”

Net revenue for the six months ended June 30, 2020 was $3.14 million compared to $14.13 million for the same period of last year. The decrease was primarily due to the materially adverse impact of COVID-19 on the economy, ReTo’s operations, its customers, and its supply chain. Revenue from machinery and equipment, construction materials, and municipal construction projects accounted for 43.6%, 52.0%, and 4.4%, respectively, of total revenue for the six months ended June 30, 2020, compared to 48.0%, 51.5%, and 0.5%, respectively, for the same period of last year.

Cost of revenue was $2.88 million for the six months ended June 30, 2020 compared to $10.70 million for the same period of last year, which reflected the decrease in revenue over the same period. Gross profit was $0.26 million for the six months ended June 30, 2020 compared to $3.44 million for the same period of last year. Gross margin was 8.2% for the six months ended June 30, 2020 compared to 24.3% for the same period of last year. Net loss attributable to ReTo was $3.7 million, or $0.16 per basic and diluted share, as compared to a net loss of $3.0 million, or $0.13 per basic and diluted share in the year-ago period. The six-month period ended June 30, 2020 included a $2.19 million one-time gain from the disposal of a subsidiary.

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As of June 30, 2020, the Company had balance of cash and cash equivalents of approximately $0.2 million, with an accounts receivable balance of approximately $6.7 million, of which approximately $1.3 million was subsequently collected after June 30, 2020, with the remaining balance expected to be substantially collected before June 30, 2021. The Company is working to improve its liquidity and capital sources mainly through cash flow from its operations, renewal of bank borrowings, borrowing from related parties, and potential equity financings, but it cannot guarantee the timing or a positive outcome leading to a substantial doubt about the Company’s ability to continue as a going concern for the next 12 months based on its unaudited condensed consolidated financial statements.

Mr. Hengfang Li continued, “We believe we have solid long-term business fundamentals based on the growing demand for eco-friendly solutions. Our focus is on reducing operating expenses and overhead wherever possible as we align our cost structure with the current business level. We have seen an improvement in the operating environment in the second half of 2020 and expect a continued improvement in 2021. We are excited about our long-term fundamentals and believe we will emerge from 2020 in a stronger position as we are now offering customers additional features and customized configurations on our machinery and equipment products. We will continue to devote our efforts to manufacturing equipment used for production of eco-friendly construction materials.

In addition, with more stringent environmental regulations being enforced in China, many companies have to replace older equipment with more environmentally friendly equipment. We believe our products can provide an ideal solution for these companies and will work to capitalize on this potential growth opportunity. In line with our development strategy, we have started several ecological restoration projects in cooperation with local governments and state-owned companies. We believe these projects will contribute our business growth in 2021.”

Recent Developments

On July 13, 2020, ReTo transferred its 55% equity interests in Yunnan Litu Technology Development Co., Ltd. (“Yunnan Litu”) to third parties for a nominal price given the inactivity of Yunnan Litu’s business operations since its inception and ReTo’s ongoing focus on its own organic business growth.

On September 7, 2020, Beijing REIT Technology Development Co., Ltd. (“Beijing REIT”) entered into a share transfer agreement with the original shareholder of Shexian Ruibo Environmental Science and Technology Co., Ltd. (“Shexian Ruibo”) for the acquisition of 41.67% of the equity interests in Shexian Ruibo for a total consideration of $3.6 million (RMB 25 million), including a cash payment of $2.7 million (RMB 18.5 million) and non-cash contribution of six patents valued at $0.9 million (RMB 6.5 million). Beijing REIT made the cash payment of $2.7 million (RMB 18.5 million) on October 20, 2020 and the six patents had been transferred to Shexian Ruibo prior to September 15, 2020.

About ReTo Eco-Solutions, Inc. (NASDAQ: RETO)

Founded in 1999, ReTo (NASDAQ: RETO), through its proprietary technologies, systems and solutions, is striving to bring clean water and fertile soil to communities worldwide. The Company offers a full range of products and services, ranging from the production of environmentally-friendly construction materials, environmental protection equipment, and manufacturing equipment used to produce environmentally-friendly construction materials, to project consulting, design, and installation for the improvement of ecological environments, such as ecological soil restoration through solid waste treatment. For more information, please visit: http://en.retoeco.com

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. When the Company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate,” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Specifically, the Company’s statements regarding: 1) the ability of additional features and customized configurations on its machinery and equipment products to attract new customers; 2) the ability of the growth of its business to resume in the near future; and 3) the further spread of COVID-19 or the occurrence of another wave of cases and the impact it may have on the Company’s operations are forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the actual results to differ materially from the Company’s expectations discussed in the forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, the following: the Company’s goals and strategies; the Company’s future business development; product and service demand and acceptance; changes in technology; economic conditions; the growth of the construction industry in China; reputation and brand; the impact of competition and pricing; government regulations; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing and other risks contained in reports filed by the Company with the Securities and Exchange Commission. For these reasons, among others, investors are cautioned not to place undue reliance upon any forward-looking statements in this press release. Additional factors are discussed in the Company’s filings with the U.S. Securities and Exchange Commission, which are available for review at www.sec.gov. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS




June 30,



December 31,




2020



2019


ASSETS


(Unaudited)





Current Assets:







Cash and cash equivalents


$

202,078



$

897,281


Restricted cash



83,005




84,237


Accounts receivable, net – third parties



6,590,699




11,252,002


Accounts receivable, net – related party



96,661




469,474


Advances to suppliers, net – third parties



3,793,935




2,449,629


Advances to suppliers, net – related parties



3,043,191




-


Inventories, net



2,704,139




888,203


Prepayments and other current assets



2,951,906




435,273


Prepayment for construction of properties



3,608,250




3,661,800


Current assets held for sale associated with discontinued operation of Gu'an REIT



-




5,326,348


Total Current Assets



23,073,864




25,464,247











Property, plant, and equipment, net



35,910,908




37,457,643


Intangible assets, net



5,982,569




6,145,179


Long-term investment in equity investee



-




28,720


Right-of-use assets



603,535




505,630


Non-current assets held for sale associated with discontinued operation of Gu'an REIT



-




1,193,825


Total Assets


$

65,570,876



$

70,795,244











LIABILITIES AND EQUITY


















Current Liabilities:









Short term loans


$

6,042,188



$

8,309,098


Long term bank loans - current portion



2,369,643




1,436,000


Advances from customers



4,510,113




3,087,315


Deferred revenue



460,661




471,375


Accounts payable



1,645,417




1,151,570


Accounts payable - related party



416,534




1,485,049


Accrued and other liabilities



4,165,919




2,487,616


Taxes payable



1,824,407




1,806,777


Due to related parties



2,887,208




405,222


Operating lease liabilities, current



305,452




177,903


Advance payment from the buyer associated with discontinued operation of Gu'an REIT



-




1,392,920


Current liabilities held for sale associated with discontinued operation of Gu'an REIT



-




3,004,924


Total Current Liabilities



24,672,542




25,215,769











Long-term bank loans



6,226,000




7,323,600


Operating lease liabilities – noncurrent



278,301




301,012


Total Liabilities



31,131,843




32,840,381











Commitments and Contingencies


















Shareholders' Equity:









Common shares, $0.001 par value, 200,000,000 shares authorized, 24,135,000 shares and
23,160,000 shares issued and outstanding as of June 30, 2020 and December 31, 2019,
respectively



24,135




23,160


Additional paid-in capital



43,709,127




42,725,852


Statutory reserve



2,067,439




2,632,797


Accumulated deficit



(8,893,351)




(5,718,368)


Accumulated other comprehensive loss



(3,937,379)




(3,527,438)


Total RETO Eco-Solutions, Inc. Shareholders' Equity



32,969,971




36,136,003











Non-controlling interest



1,469,062




1,818,860


Total Equity



34,439,033




37,954,863











Total Liabilities and Equity


$

65,570,876



$

70,795,244


RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)




For the Six Months
Ended
June 30,




2020



2019









Revenue


$

3,142,102



$

14,125,892


Cost of revenue – third-party customers



2,884,298




10,689,311


Gross Profit



257,804




3,436,581











Operating Expenses:









Selling expenses



474,901




631,664


General and administrative expenses



1,788,625




1,709,377


Bad debt expenses



2,792,800




2,686,782


Research and development expenses



180,339




234,741


Total Operating Expenses



5,236,665




5,262,564











Loss from Operations



(4,978,861)




(1,825,983)











Other Income (expenses):









Interest expense



(876,660)




(632,830)


Interest income



2,715




1,722


Other income (expenses), net



(111,729)




126,765


Total Other expenses, net



(985,674)




(504,343)











Loss before provision for income taxes



(5,964,535)




(2,330,326)


Provision for income taxes



131,615




171,922


Net loss from continuing operations



(6,096,150)




(2,502,248)


Net loss from discontinued operations



-




(900,097)


Gain from disposal of Gu'an REIT



2,192,801




-


Net Loss



(3,903,349)




(3,402,345)











Less: net loss attributable to non-controlling interest



(163,008)




(391,899)


Net loss attributable to ReTo Eco-Solutions, Inc.


$

(3,740,341)



$

(3,010,446)











Net Loss


$

(3,903,349)



$

(3,402,345)


Other comprehensive (loss) income:









Foreign currency translation adjustment:



(596,731)




115,298


Comprehensive Loss



(4,500,080)




(3,287,047)


Less: comprehensive loss attributable to noncontrolling interest



(349,798)




(509,567)


Comprehensive loss attributable to ReTo Eco-Solutions, Inc.


$

(4,150,282)



$

(2,777,480)











Loss per share









Basic and diluted


$

(0.16)



$

(0.13)











Weighted average number of shares









Basic and diluted



23,622,148




22,760,000


RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(UNAUDITED)







Additional






Retained
Earnings



Accumulated
Other



Non-







Common Shares



paid-in



Statutory



(Accumulated



Comprehensive



controlling



Total




Shares



Amount



Capital



Reserve



Deficit)



Income (Loss)



Interest



Equity



























Balance at
December
31, 2018



22,760,000



$

22,760



$

42,278,252



$

2,632,797



$

9,084,246



$

(3,105,185)



$

2,267,985



$

53,180,855


Net loss



-




-




-




-




(3,010,446)




-




(391,899)




(3,402,345)


Foreign
currency
translation
adjustment



-




-




-




-




-




232,966




(117,668)




115,298


Balance at
June 30,
2019



22,760,000



$

22,760



$

42,278,252



$

2,632,797



$

6,073,800



$

(2,872,219)



$

1,758,418



$

49,893,808



































Balance at
December
31, 2019



23,160,000



$

23,160



$

42,725,852



$

2,632,797



$

(5,718,368)



$

(3,527,438)



$

1,818,860



$

37,954,863


Net loss



-




-




-




-




(3,740,341)




-




(163,008)




(3,903,349)


Change in
statutory
reserve
related to
disposal of
Gu'an
REIT



-




-




-




(565,358)




565,358




-




-




-


Foreign
currency
translation
adjustment



-




-




-




-




-




(409,941)




(186,790)




(596,731)


Issuance of
common
shares on
January 1,
2020



685,000




685




650,065




-




-




-




-




650,750


Issuance of
common
shares on
February 3,
2020



290,000




290




333,210




-




-




-




-




333,500


Balance at
June 30,
2020



24,135,000



$

24,135



$

43,709,127



$

2,067,439



$

(8,893,351)



$

(3,937,379)



$

1,469,062



$

34,439,033


RETO ECO-SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




For the six months ended
June 30,




2020



2019


CASH FLOWS FROM OPERATING ACTIVITIES







Net loss


$

(3,903,349)



$

(3,402,345)


Less: net loss from discontinued operations



-




(900,097)


Net loss from continuing operations



(3,903,349)




(2,502,248)


Adjustments to reconcile net loss to net cash provided by (used in) operating activities:









Loss from disposal of property and equipment



10,458




-


Depreciation and amortization



1,127,480




826,670


Amortization of stock-based compensation for services



456,063




-


Change in bad debt allowances



2,792,800




2,687,156


Gain from disposal of Gu'an REIT



(2,192,801)




-


Amortization of operating lease right-of-use assets



116,120




109,975


Changes in operating assets:









Accounts receivable



2,125,800




(4,987,255)


Accounts receivable - related party



220,998




-


Advances to suppliers



(1,628,556)




(9,003)


Advances to suppliers - related parties



(3,069,487)




-


Inventories



(1,837,972)




(2,063,087)


Prepayments and other current assets



(479,015)




(32,915)


Billings in excess of costs and estimated earnings



-




(91,735)


Changes in operating liabilities:



-




-


Advances from customers



1,475,209




1,577,496


Deferred revenue



(3,839)




-


Accounts payable



513,213




1,607,792


Accounts payable - related party



(1,051,977)






Accrued and other liabilities



1,718,195




174,185


Taxes payable



44,270




168,613


Operating lease liabilities



(143,306)




(103,462)


Net cash used in operating activities from continuing operations



(3,709,696)




(2,637,818)


Net cash provided by operating activities from discontinuing operations



-




3,134,281


Net cash provided by (used in) operating activities



(3,709,696)




496,463











CASH FLOWS FROM INVESTING ACTIVITIES


















Addition of property, equipment and construction in progress



(91,946)




(508,236)


Proceeds from disposal of long-term investment



28,440




-


Proceeds from disposal of Gu'an REIT



2,768,703




-


Term deposits



-




(141,096)


Net cash provided by (used in) investing activities from continuing operations



2,705,197




(649,332)


Net cash used in investing activities from discontinued operations



-




-


Net cash provided by (used in) investing activities



2,705,197




(649,332)











CASH FLOWS FROM FINANCING ACTIVITIES









Proceeds from short-term loans



5,801,760




6,619,731


Proceeds from long-term bank loans



-




737,069


Repayment of short-term bank loans



(7,957,772)




(6,633,621)


Repayment of long-term bank loans



(36,035)




(147,414)


Proceeds from related party loans



3,677,761




202,329


Repayment to related party loans



(1,180,383)




-


Net cash provided by financing activities from continuing operations



305,331




778,094


Net cash used in financing activities from discontinuing operations



-




(324,280)


Net cash provided by financing activities



305,331




453,814











EFFECT OF EXCHANGE RATE CHANGES ON CASH AND RESTRICTED CASH



2,733




(32,181)











NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH



(696,435)




268,764











CASH AND RESTRICTED CASH, BEGINNING OF PERIOD



981,518




1,563,166











CASH AND RESTRICTED CASH, END OF PERIOD


$

285,083



$

1,831,930


Less: cash and cash equivalents, restricted cash from discontinued operation, end of period



-




(8,448)


Cash and and cash equivalents, restricted cash from continuing operations, end of period


$

285,083



$

1,823,482











RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS:









Cash


$

202,078



$

1,652,050


Restricted cash



83,005




171,432


Total cash and restricted cash


$

285,083



$

1,823,482











SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:









Interest paid


$

572,201



$

711,255


Income tax paid


$

-



$

75,387











Non-Cash Investing Activities









Right-of-use Assets obtained in exchange for operating lease obligations


$

221,940



$

731,517


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SOURCE ReTo Eco-Solutions, Inc.