As filed with the Securities and Exchange Commission on April
26, 2022
Registration
No.
333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-8
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ReTo
Eco-Solutions, Inc.
(Exact
name of registrant as specified in its charter)
British
Virgin Islands |
|
Not
Applicable |
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(IRS
Employer
Identification
No.)
|
c/o
Beijing REIT Technology Development Co., Ltd.
X-702,
Runfengdeshangyuan, 60 Anli RoadChaoyang District,
Beijing
|
|
100101 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
ReTo
Eco-Solutions, Inc. 2021 Share Incentive Plan
ReTo Eco-Solutions,
Inc. 2018 Share Incentive Plan
|
(Full
Title of the Plan) |
Vcorp
Agent Services, Inc.
25
Robert Pitt Dr., Suite 204
Monsey,
New York 10952
(Name
and address of agent for service)
Tel:
(888) 528-2677
(Telephone
number, including area code, of agent for service)
With copies to:
Wei
Wang, Esq.
Ellenoff
Grossman & Schole LLP
1345
Avenue of the Americas, 11th Floor
New
York, NY 10105
Phone:
(212) 370-1300
Fax:
(212) 370-7889
|
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, anon-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the
Securities Exchange Act of 1934 (the “Exchange Act”).
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☒ |
Smaller
reporting company |
☒ |
|
|
Emerging
growth company |
☒ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
EXPLANATORY
NOTE
This
registration statement on Form S-8 (the “Registration Statement”)
is being filed by ReTo Eco-Solutions, Inc., a British Virgin
Islands business company, registered in the British Virgin Islands
with company number 1885527 (the “Company”, “we”, “us”, “our” or
similar terminology) relating to (i) 3,000,000 common shares, par
value $0.001 per share (the “Common Shares”) which may be offered
and sold pursuant to the ReTo Eco-Solutions, Inc. 2021 Share
Incentive Plan (the “2021 Plan”) and (ii) 1,025,000 Common Shares
which may be offered and sold pursuant to the ReTo Eco-Solutions,
Inc. 2018 Share Incentive Plan (the “2018 Plan”).
This
Registration Statement includes, pursuant to General Instruction E
to Form S-8, a re-offer prospectus in Part I (the “Reoffer
Prospectus”). The Reoffer Prospectus may be utilized for
reofferings and resales by certain executive officers and directors
listed in the Reoffer Prospectus who may be deemed “affiliates” of
the Company on a continuous or a delayed basis in the future of up
to 1,610,000 Common Shares to be issued under the 2021 Plan. These
shares constitute “control securities” or “restricted securities”
which have been issued prior to or issuable after the filing of
this Registration Statement. The Reoffer Prospectus does not
contain all of the information included in the Registration
Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement, as permitted by the rules
and regulations of the SEC. Statements contained in the Reoffer
Prospectus as to the contents of any agreement, instrument or other
document referred to are not necessarily complete. With respect to
each such agreement, instrument or other document filed as an
exhibit to the Registration Statement, we refer you to the exhibit
for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by this
reference.
PART
I
INFORMATION
REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item
1. |
Plan
Information.* |
Item
2. |
Registrant
Information and Employee Plan Annual Information.* |
* |
Information
required by Part I to be contained in the Section 10(a) Prospectus
is omitted from the Registration Statement in accordance with Rule
428 under the Securities Act. |
REOFFER
PROSPECTUS
ReTo
Eco-Solutions, Inc.
UP
TO 1,610,000 COMMON SHARES
ISSUABLE
UNDER THE 2021 SHARE INCENTIVE PLAN
This
reoffer prospectus (“Reoffer Prospectus”) relates to the resale,
from time to time, of up to 1,610,000 Common Shares, par value
$0.001 per share (the “Common Shares”) of ReTo Eco-Solutions, Inc.
(“ReTo”, collectively with its consolidated subsidiaries, the
“Company,” “we,” “us”, “our” or similar terminology), by certain
security holders (the “Selling Shareholders”) identified herein in
the section entitled “Selling Shareholders” for such Selling
Shareholders’ own account, subject to the requirements of ReTo’s
memorandum and articles of association (the “M&A”) and the BVI
Business Companies Act, 2004 (as amended) (the “Act”). Common
Shares have been or may be acquired in connection with awards
granted under the ReTo Eco-Solutions, Inc. 2021 Share Incentive
Plan (the “2021 Plan”). The 2021 Plan is intended to provide
incentives which will attract, retain and motivate highly
compensate persons such as officers, employees, directors, and
consultants to our Company by providing them opportunities to
acquire our Common Shares. Additionally, the 2021 Plan is intended
to assist in further aligning the interests of our officers,
employees, directors, and consultants to those of the Company’s
other shareholders.
The persons who are issued Common Shares under the 2021 Plan may
include our directors, officers, employees and consultants, certain
of whom may be considered our “affiliates”. Such persons may, but
are not required to, sell the Common Shares they acquire pursuant
to this prospectus, subject to the requirements of ReTo’s M&A
and the Act. If any additional awards are issued to or shares are
purchased by affiliates under the 2021 Plan, we will file with the
Securities and Exchange Commission (the “Commission”) an update to
this prospectus naming such person as a selling shareholder and
indicating the number of shares such person is offering pursuant to
the prospectus. See “Selling Shareholders” on page 39 of this
prospectus. Our Common Shares are listed on the Nasdaq Capital
Market under the symbol “RETO.” On April 22, 2022, the closing
price of the Common Shares on Nasdaq Capital Market was $0.95 per
share.
We
will not receive any proceeds from any sale of Common Shares
offered pursuant to this prospectus. The Common Shares may be
offered from time to time by any or all of the Selling Shareholders
through ordinary brokerage transactions, in negotiated transactions
or in other transactions, at such prices as such Selling
Shareholder may determine, which may relate to market prices
prevailing at the time of sale or be a negotiated price. See “Plan
of Distribution.” Sales may be made through brokers or to dealers,
who are expected to receive customary commissions or discounts. We
are paying all expenses of registration incurred in connection with
this offering but the Selling Shareholders will pay all brokerage
commissions and other selling expenses.
The
Selling Shareholders and participating brokers and dealers may be
deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”), in which event any
profit on the sale of shares of those Selling Shareholders and any
commissions or discounts received by those brokers or dealers may
be deemed to be underwriting compensation under the Securities
Act.
ReTo
is a business company incorporated in the British Virgin Islands
(“BVI”). As a holding company with no material operations of its
own, ReTo conducts substantially all of our operations through our
subsidiaries established in the People’s Republic of China (the
“PRC” or “China”). Investors in the Common Shares should be aware
that they may never directly hold equity interests in the Chinese
operating entities, but rather purchasing equity solely in ReTo,
our BVI holding company, which does not directly own substantially
all of our business in China conducted by our subsidiaries. Common
Shares offered in this offering are shares of our BVI holding
company instead of shares of our subsidiaries in
China.
We
face various legal and operational risks and uncertainties related
to being based in and having substantially all of our operations in
China. The PRC government has significant authority to exert
influence on the ability of a China-based company, such as us, to
conduct its business, accept foreign investments or list on U.S. or
other foreign exchanges. For example, we face risks associated with
regulatory approvals of offshore offerings, anti-monopoly
regulatory actions, as well as oversight on cybersecurity and data
privacy. Such risks could result in a material change in our
operations and/or the value of our Common Shares or could
significantly limit or completely hinder our ability to offer or
continue to offer Common Shares and/or other securities to
investors and cause the value of such securities to significantly
decline or be worthless. For a detailed description of risks
related to doing business in China, see “Risk Factors — Risks
Related to Doing Business in China.”
The
PRC government has significant oversight and discretion over the
conduct of our business and may intervene with or influence our
operations as the government deems appropriate to further
regulatory, political and societal goals. The PRC government has
recently published new policies that significantly affected certain
industries such as the education and internet industries, and we
cannot rule out the possibility that it will in the future release
regulations or policies regarding our industry that could adversely
affect our business, financial condition and results of operations.
Furthermore, the PRC government has recently indicated an intent to
exert more oversight and control over overseas securities offerings
and other capital markets activities and foreign investment in
China-based companies like us. Any such action, once taken by the
PRC government, could significantly limit or completely hinder our
ability to offer or continue to offer securities to investors and
cause the value of such securities to significantly decline or in
extreme cases, become worthless.
Furthermore,
as more stringent criteria have been imposed by the SEC and the
Public Company Accounting Oversight Board (the “PCAOB”) recently,
our securities may be prohibited from trading if our auditor cannot
be fully inspected. On December 16, 2021, the PCAOB issued its
determination that the PCAOB is unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered
in mainland China and in Hong Kong, because of positions taken by
PRC authorities in those jurisdictions, and the PCAOB included in
the report of its determination a list of the accounting firms that
are headquartered in the PRC or Hong Kong. This list does not
include our auditor, YCM CPA Inc. While our auditor is based in the
U.S. and is registered with PCAOB and subject to PCAOB inspection,
in the event it is later determined that the PCAOB is unable to
inspect or investigate completely our auditor, then such lack of
inspection could cause our securities to be delisted from the stock
exchange. See “Risk Factors — Risks Related to Doing
Business in China — Our Common Shares may be delisted under the
Holding Foreign Companies Accountable Act if the PCAOB is unable to
inspect auditors who are located in China. The delisting of our
Common Shares, or the threat of their being delisted, may
materially and adversely affect the value of your investment.
Additionally, the inability of the PCAOB to conduct inspections
deprives our investors with the benefits of such inspections”
on page 30.
As
a holding company, ReTo may rely on dividends and other
distributions on equity paid by our PRC subsidiaries for its cash
and financing requirements. If any of our PRC subsidiaries incurs
debt on its own behalf in the future, the instruments governing
such debt may restrict their ability to pay dividends to our
holding company. However, none of our subsidiaries has made any
dividends or other distributions to our holding company or any U.S.
investors as of the date of this prospectus. Our PRC operating
subsidiary, Beijing REIT, received an aggregate of approximately
$18.5 million via shareholder loans and capital contribution from
ReTo since the initial public offering of ReTo to fund its business
operations in China. In the future, cash proceeds raised from
overseas financing activities may be transferred by ReTo to our PRC
subsidiaries via capital contribution or shareholder loans, as the
case may be.
Investing
in our Commons Shares involves substantial risk. See “Risk
Factors” beginning on page 23 of this prospectus for a
discussion of certain risks and other factors that you should
consider before purchasing our Common Shares.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
The date of this Reoffer Prospectus is April 26, 2022.
TABLE
OF CONTENTS
Please
read this prospectus and the documents incorporated by reference
herein carefully. These documents describe our business, our
financial condition and our results of operations. We have prepared
this prospectus so that you will have the information necessary to
make an informed investment decision. You should rely only on the
information contained or incorporated by reference in this
prospectus. We and the Selling Shareholders have not authorized
anyone to provide you with any information or to make any
representations about us, the securities being offered pursuant to
this prospectus or any other matter discussed or incorporated by
reference in this prospectus, other than the information and
representations contained or incorporated by reference in this
prospectus. If any other information or representation is given or
made, such information or representation may not be relied upon as
having been authorized by us or the Selling
Shareholders.
The
information contained or incorporated by reference in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any
sale of our Common Shares. Neither the delivery of this prospectus
nor any distribution of securities in accordance with this
prospectus shall, under any circumstances, imply that there has
been no change in our affairs since the date of this prospectus.
This prospectus will be updated and made available for delivery to
the extent required by the federal securities laws.
We
are responsible for the disclosure in this prospectus. However,
this prospectus (including the documents incorporated by reference
herein) includes industry data that we obtained from internal
surveys, market research, publicly available information and
industry publications. The market research, publicly available
information and industry publications that we use generally state
that the information contained therein has been obtained from
sources believed to be reliable. Such information contained or
incorporated by reference herein represents the most recently
available data from the relevant sources and publications and we
believe remains reliable. We did not fund and are not otherwise
affiliated with any of the sources cited in this prospectus.
Forward-looking information obtained from these sources is subject
to the same qualifications and additional uncertainties regarding
the other forward-looking statements in this prospectus.
Unless
otherwise indicated or the context implies otherwise:
|
● |
“2020
Annual Report” refers to our Annual Report on Form 20-F for the
fiscal year ended December 31, 2020 filed with the SEC on May 14,
2021; |
|
● |
“Beijing
REIT” refers to Beijing REIT Technology Development Co., Ltd., a
PRC limited liability company; |
|
● |
“BVI”
refers to the British Virgin Islands; |
|
● |
“China”
or the “PRC” refers to the People’s Republic of China, excluding,
for the purpose of this prospectus only, Taiwan and the special
administrative regions of Hong Kong and Macau; |
|
● |
“CSRC”
refers to the China Securities Regulatory Commission; |
|
● |
“Common
Shares” refers to common shares of par value $0.001 per share
issued in ReTo; |
|
● |
“Hong
Kong” refers to the Hong Kong Special Administrative Region of the
PRC; |
|
● |
“Hainan
Yile IoT” refers to Hainan Yile IoT Technology Co., Ltd, a PRC
limited liability company and subsidiary of REIT
Mingde; |
|
● |
“M&A”
refers to the amended and restated memorandum and articles of
association of ReTo, currently in effect and as amended from time
to time; |
|
● |
“REIT
Changjiang” refers to REIT MingSheng Environment Protection
Construction Materials (Changjiang) Co., Ltd., a PRC limited
liability company; |
|
● |
“REIT
Construction” refers to Hainan REIT Construction Engineering Co.,
Ltd., a PRC limited liability company; |
|
● |
“REIT
Holdings” refers to REIT Holdings (China) Limited, a Hong Kong
limited company and a wholly owned subsidiary of ReTo; |
|
● |
“REIT
Mingde” refers to Hainan REIT Mingde Investment Holding Co., Ltd.,
a PRC limited liability company and a wholly owned subsidiary of
REIT Technology Development Co., Ltd.; |
|
● |
“REIT
Technology” refers to REIT Technology Development Co., Ltd., a PRC
limited liability company and subsidiary of Beijing
REIT; |
|
● |
“Renminbi”
or “RMB” refers to the legal currency of the People’s Republic of
China; |
|
● |
“ReTo”
refers to ReTo Eco-Solutions, Inc., a BVI business company
(registered in the BVI with company number 1885527); |
|
● |
“Xinyi
REIT” refers to REIT New Materials Xinyi Co., Ltd, a joint venture
established by Beijing REIT; |
|
● |
“SEC”
refers to the U.S. Securities and Exchange Commission; |
|
● |
“U.S.
dollars”, “US$” and “$” refer to the legal currency of the United
States; and |
|
● |
“We”,
“us”, “our”, or the “Company” refers to ReTo Eco-Solutions, Inc.
and its subsidiaries, unless the context requires
otherwise. |
Our
reporting and functional currency is the Renminbi. Solely for the
convenience of the reader, this prospectus contains translations of
some RMB amounts into U.S. dollars, at specified rates. Except as
otherwise stated in this prospectus, all translations from RMB to
U.S. dollars are made at RMB6.3643 to US$1.00, the rate published
by the Federal Reserve Board on April 8, 2022. No representation is
made that the RMB amounts referred to in this prospectus could have
been or could be converted into U.S. dollars at such
rate.
Our
fiscal year end is December 31. References to a particular “fiscal
year” are to our fiscal year ended December 31 of that calendar
year.
We
own or have rights to trademarks or trade names that we use in
connection with the operation of our business, including our
corporate names, logos and website names. In addition, we own or
have the rights to copyrights, trade secrets and other proprietary
rights that protect the content of our products. This prospectus
may also contain trademarks, service marks and trade names of other
companies, which are the property of their respective owners. Our
use or display of third parties’ trademarks, service marks, trade
names or products in this prospectus is not intended to, and should
not be read to, imply a relationship with or endorsement or
sponsorship of us. Solely for convenience, some of the copyrights,
trade names and trademarks referred to in this prospectus or the
documents incorporated by reference herein are listed without their
©, ® and ™ symbols, but we will assert, to the fullest extent under
applicable law, our rights to our copyrights, trade names and
trademarks. All other trademarks are the property of their
respective owners.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference herein
contains forward-looking statements that reflect our current
expectations and views of future events. Readers are cautioned that
known and unknown risks, uncertainties and other factors, including
those over which we may have no control and others listed in the
“Risk Factors” section of this prospectus, may cause our actual
results, performance or achievements to be materially different
from those expressed or implied by the forward-looking
statements.
You
can identify some of these forward-looking statements by words or
phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”
“estimate,” “intend,” “plan,” “believe,” “is/are likely to,”
“potential,” “continue” or other similar expressions. We have based
these forward-looking statements largely on our current
expectations and projections about future events that we believe
may affect our financial condition, results of operations, business
strategy and financial needs. These forward-looking statements
include statements relating to:
|
● |
the
potential impact on our business of the economic, political and
social conditions of the PRC; |
|
● |
any
changes in the laws of the PRC or local province that may affect
our operations; |
|
● |
the
impact of COVID-19 on our operations;
|
|
● |
our
ability to operate as a going concern; |
|
● |
the
liquidity of our securities;
|
|
● |
inflation
and fluctuations in foreign currency exchange rates;
|
|
● |
the
ability to realize benefits of the acquisition of REIT Mingde and
integrate and expand its businesses into our existing business and
grow and manage growth profitably;
|
|
● |
our
projections for our return on investment in client
projects; |
|
● |
the
ability to navigate geographic market risks of our eco-friendly
constructions materials; |
|
● |
the
ability to maintain a reserve for warranty or defective
products and installation claims; |
|
|
|
|
● |
our
on-going ability to obtain all mandatory and voluntary government
and other industry certifications, approvals, and/or licenses to
conduct our business;
|
|
● |
our
ability to maintain effective supply chain of raw materials and our
products; |
|
● |
slowdown
or contraction in industries in China in which we
operate; |
|
● |
our
ability to maintain or increase our market share in the competitive
markets in which we do business; |
|
● |
our
ability to diversify our product and service offerings and capture
new market opportunities; |
|
● |
our
estimates of expenses, capital requirements and needs for
additional financing and our ability to fund our current and future
operations; |
|
● |
the
costs we may incur in the future from complying with current and
future laws and regulations and the impact of any changes in the
regulations on our operations; and |
|
|
|
|
● |
the
loss of key members of our senior management. |
These
forward-looking statements involve numerous risks and
uncertainties. Although we believe that our expectations expressed
in these forward-looking statements are reasonable, our
expectations may later be found to be incorrect. Our actual results
of operations or the results of other matters that we anticipate
could be materially different from our expectations. Important
risks and factors that could cause our actual results to be
materially different from our expectations are generally set forth
in “Risk Factors” and other sections included or incorporated by
reference in this prospectus. You should thoroughly read this
prospectus and the documents incorporated herein by reference with
the understanding that our actual future results may be materially
different from and worse than what we expect. We qualify all of our
forward-looking statements by these cautionary
statements.
The
forward-looking statements made in this prospectus relate only to
events or information as of the date on which the statements are
made in or incorporated by reference in this prospectus. Except as
required by law, we undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, after the date on which
the statements are made or to reflect the occurrence of
unanticipated events. You should read this prospectus, the
documents incorporated by reference into this prospectus and the
documents we have filed as exhibits to the registration statement,
of which this prospectus forms a part, completely and with the
understanding that our actual future results may be materially
different from what we expect.
PROSPECTUS
SUMMARY
This
summary of the prospectus highlights material information
concerning our business and this offering. This summary does not
contain all of the information that you should consider before
making your investment decision. You should carefully read the
entire prospectus and the documents incorporated by reference
herein, including the information presented under the section
entitled “Risk Factors” included or incorporated by reference
herein, before making an investment decision. This summary contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ significantly from future results
contemplated in the forward-looking statements as a result of
factors such as those set forth in “Risk Factors” and “Cautionary
Note Regarding Forward-Looking Statements.”
Overview
We,
through our operating subsidiaries in China, are engaged in the
manufacture and distribution of eco-friendly construction materials
(aggregates, bricks, pavers and tiles), made from mining waste
(iron tailings), as well as equipment used for the production of
these eco-friendly construction materials. In addition, we provide
consultation, design, project implementation and construction of
urban ecological protection projects through our operating
subsidiaries in China. We also provide parts, engineering support,
consulting, technical advice and service, and other project-related
solutions for our manufacturing equipment and environmental
protection projects. As more fully described below under the
heading “Our Products and Services,” through the newly acquired
subsidiaries, we expand our product and service offerings to
include roadside assistance services, and software development
services and solutions utilizing Internet of Things (“IoT”)
technologies.
We
currently provide a full spectrum of products and services related
to recycling and reuse of solid wastes, from producing eco-friendly
construction materials and manufacturing equipment used to produce
construction materials, to project installation. We differentiate
us from our competitors through strong research and development
capabilities and advanced technologies and systems.
Our
products are eco-friendly, as they contain approximately 70% of
reclaimed iron tailings in place of traditional cement. The use of
reclaimed iron tailings assists in the protection of the
environment by saving space in landfills used for the disposal of
these materials, and assisting in the remediation and reclamation
of abandoned or closed mining sites. In addition, we believe less
energy is consumed when manufacturing our eco-friendly construction
materials as compared with other traditional building materials. We
believe our eco-friendly construction materials, with superior
water permeability and competitive prices, are in greater demand
than traditional materials as governments and others increase their
focus on reducing the environmental impact of their
activities.
Due
to China’s recent emphasis on environmental protection, we believe
there is a unique opportunity to grow our company, which we expect
will be driven by demand for our eco-friendly construction
materials and equipment used to produce these materials as well as
our project construction expertise. We believe our technological
know-how, production capacity, reputation and offerings of products
and services will enable us to seize this opportunity.
Our
clients are located throughout mainland China, and internationally
in Middle East, Southeastern Asia, Africa, Europe and North
America. We are actively pursuing additional clients for our
products, equipment and projects, internationally in the
Bangladesh, North America and in additional provinces of China. We
seek to establish long-term relationships with our clients by
producing and delivering high-quality products and equipment and
then providing technical support and consulting services after
equipment is delivered and projects are completed.
Recent
Developments
Spinoff of REIT Changjiang
On
November 12, 2021, Beijing REIT and REIT Holdings entered into an
equity transfer agreement to sell 100% equity interest in REIT
MingSheng Environment Protection Construction Materials
(Changjiang) Co., Ltd. (“REIT Changjiang”) to the Purchasers in
exchange for a total consideration of RMB 60,000,000 (approximately
$9.4 million) in cash. The Purchasers have issued to Beijing REIT
and REIT Holdings a promissory note in the principal amount of RMB
60,000,000, reflecting the purchase price to be paid in accordance
with the equity transfer agreement. The disposition of REIT
Changjiang includes the disposition of REIT Changjiang’s wholly
owned subsidiary, REIT Construction. The parties entered into a
supplemental agreement on December 24, 2021, providing for a
revised payment schedule for the purchase price. As of the date of
this prospectus, we received a total of RMB 45 million
(approximately US$7.1 million) from the Purchasers with the
remaining payment of RMB 15 million (approximately US$2.4 million)
to be paid by the Purchasers by June 15, 2022. On December 17,
2021, we completed the disposition of REIT Changjiang following the
approval of our shareholders and board of directors.
Acquisition of REIT Mingde
On
December 27, 2021, REIT Technology Development Co., Ltd., a wholly
owned subsidiary of Beijing REIT (“REIT Technology”) entered into
an Equity Transfer Agreement (the “Agreement”) with REIT Mingde,
Xiaoping Li and Jing Peng, former shareholders of REIT Mingde and
owning 99% and 1% of the equity interest of REIT Mingde prior to
the Acquisition (as defined below), respectively, and together with
Hainan Yile IoT Technology Co., Ltd, a PRC limited liability
company and subsidiary of REIT Mingde (“Hainan Yile IoT”) and
Yangpu Fangyuyuan United Logistics Co., Ltd, a PRC limited
liability company and subsidiary of REIT Mingde (“Yangpu
Fangyuyuan”). REIT Mingde owned 100% of the equity interest of
Yangpu Fangyuyuan and 61.548% of the equity interest of Hainan Yile
IoT.
Pursuant
to the Agreement, among other things, REIT Technology acquired 100%
of the equity interest of REIT Mingde for a total consideration of
RMB10,000,000 (approximately US$1.6 million) in cash or cash
equivalents (the “Acquisition”). After the closing of the
Acquisition, Xiaoping Li, who is also the legal representative of
REIT Mingde, will be appointed as a director and Executive Vice
President of ReTo.
On
February 22, 2022, ReTo issued an aggregate of 2,580,000 Common
Shares to Xiaoping Li and Jing Peng (and/or their designees), at
$0.61 per share, in lieu of the cash payment of RMB 10 million
payable to Xiaoping Li and Jing Peng under the Acquisition. The
2,580,000 Common Shares represented approximately 8.45% of the
issued and outstanding Common Shares of ReTo immediately prior to
the issuance.
Convertible Note Financing
On
March 10, 2022, ReTo entered into a Securities Purchase Agreement
pursuant to which ReTo issued an unsecured convertible promissory
note (the “Note”) to Streeterville Capital, LLC, an institutional
accredited investor (the “Investor”). The Note will mature 12
months after the purchase price of the Note is delivered from the
Investor to ReTo (the “Purchase Price Date”). The Note has an
original principal amount of $3,105,000 and Investor gave
consideration of $3,000,000, reflecting an original issue discount
of $90,000 and $15,000 for Investor’s fees, costs and other
transaction expenses incurred in connection with the purchase and
sale of the Note. The transaction contemplated under the Securities
Purchase Agreement was closed on March 11, 2022 and the Company
anticipates using the proceeds for general working capital
purposes.
On
March 28, 2022, ReTo and Investor entered into an amendment to the
Note, pursuant to which ReTo has agreed to satisfy any conversion
request from Investor by making a cash payment equal to 110% of any
converted amount if, at the time of the conversion, the Floor Price
(as defined in the Note) is higher than the then current conversion
price.
Industries
and Market Opportunities
Construction and Construction Materials Markets
From
2011 to 2020, the total output value of China’s construction
industry showed an upward trend year by year. Although China’s
economic growth has slowed in recent years, it is believed China
is, and will continue to be, the world’s largest construction
market for a number of years despite the decline of its share of
the global construction industry.
The
slowdown in China’s urbanization process since 2020 has a
significant impact on the construction industry. However, we
believe our eco-friendly construction materials will be in greater
demand than traditional materials as the Chinese construction
market continues to grow and the Chinese government increases its
focus on reducing the environmental impact of construction
activities, which includes, among other things, recent
environmental initiatives.
Sponge city. The concept of the “sponge city” proposed by
Chinese scientists and politicians is equivalent to the
“Sustainable Drainage Systems” (SuDS) in the United Kingdom as well
as the “Low Impact Development” in the United States. Sponge cities
are being constructed nationwide in China, not only in new urban
(town) areas, but also in the transformation of existing urban
(town) areas. In the “14th Five-Year Plan” (2021-2025) announced by
China in March 2021, “sponge city construction” will remain one of
the PRC government’s investment focuses for the next few years,
which will not only lead to changes in materials for municipal
pavement, pond slope protection and other construction purposes,
but also create an ongoing need for these materials.
Water ecological restoration and high-standard farmland
construction. In China’s 14th Five-Year Plan, water
conservation continues to be the top priority of the national
infrastructure network, with emphases on water resource management,
water ecological restoration and environmental water protection. In
2021, the Ministry of Agriculture and Rural Affairs of China issued
the National High-standard Farmland Construction Plan
(2021-2030), and provide for some specific indicators for the
farmlands, water and roads. We believe this will create higher
demands for construction projects such as ecological slope
protection (retaining walls), dry barrier walls (SRWs), and
drainage trenches and thereby bring us new market from molding
equipment and small precast concrete products.
“Rural revitalization” and “urban renewal”. In January
2022, the Opinions of the Central Committee of the Communist
Party of China and the State Council on Doing a Good Job in
Comprehensively Promoting the Key Work of Rural Revitalization in
2022 was issued by the Central Committee of the Communist Party
of China and the State Council. Also known as “Document No. 1,” the
Opinions is the first official policy document issued by the PRC
government in the new year that traditionally focuses on rural
issues with this year’s focus on the advancement of rural
revitalization. Rural revitalization calls for high standard
farmland construction, advancement of agricultural infrastructure,
and improvement of the implementation of rural conduction system,
among other things.
In
addition, in November 2021, the General Office of the Ministry of
Housing and Urban-Rural Development of the PRC issued the Notice
on Launching the First Batch of Urban Renewal Pilot Work, and
decided to carry out the first batch of urban renewal pilot work in
a two-year period in 21 cities (districts) including Beijing. The
connotation of “urban renewal” is to “promote the optimization of
urban structure, function improvement and quality improvement”. It
is believed that “Urban renewal” is fundamentally different from
the previous “old city renovation” and includes the renovation of
the old city, with a higher level and a wider scope, including
house renovation (demolition) and road renovation, as well as
preservation of urban culture and customs, and division of
functional areas. We believe the rural revitalization and urban
renewal policies of the PRC government will create demand for
construction materials, in particular in the concrete blocks
(bricks) industry, which will bring opportunities to increase
product value and competition for product differentiation, optimize
product structures and improve the equipment
functionalities.
Eco-friendly
raw materials and low carbon products. The current
Industrial Structure Adjustment Guidance Catalogue (2019
Version) issued by the National Development and Reform
Commission of the PRC, list pavement bricks (boards), pavement
permeable bricks (boards) , square permeable bricks (boards),
decorative bricks (blocks), antique bricks, slope protection
ecological bricks (blocks), hydraulic ecological bricks (blocks)
and other green building materials in the Encouraged Category:
Building Materials. The catalogue proposes in “Encouraged
Categories: Environmental protection and comprehensive utilization
of resource conservation, the comprehensive utilization of
tailings, waste residues and other resources and the manufacture of
supporting equipment” as well as the “construction waste recycling
project and industrialization.” As China aims to achieve peak
carbon dioxide emission before 2030 and achieve carbon neutrality
before 2060, certification of green buildings in China continues to
advance. The government commitment and related policies to support
green buildings development will create growth opportunities for
eco-friendly construction materials, including the concrete blocks
(bricks) which are one of our main products.
As a
result of the above government initiatives and market trends, we
expect the demand for equipment for manufacturing eco-friendly
building materials to recover and increase. In response, we have
improved our existing equipment and technologies to meet the market
demands. Specifically, we have improved the degree of automation of
our equipment, further optimized the technology to use solid waste,
realized timely customer services through use of Internet
technology and developed production lines with a larger output. We
plan to leverage our advanced production and advanced research and
development research capabilities to take advantages of the
opportunities created by these government initiatives and market
demands and provide high quality eco-friendly construction
materials.
Automotive After-Sales Market
According
to the data reported by Xinhua News Agency in 2020, the automotive
after-sales market continues to recover and was estimated to exceed
a total consumption amount of RMB one trillion (approximately
$157.1 billion ) for 2020. The automotive after-sales refers to the
transactions or services during the use of sold cars. In the
automotive after-sales market, fuel is the largest segment with an
average annual market size of RMB 2.6 trillion (approximately
$408.5 billion ) from 2019 to 2021, and insurance is the second
largest segment with an average annual market size of about RMB 800
billion (approximately $125.7 billion ), which is our targeted
segment.
In
September 2020, the China Banking and Insurance Regulatory
Commission formulated and issued the Guiding Opinions on
Implementing Comprehensive Reform of Auto Insurance, requiring
insurance companies to achieve the reform goals of “reducing
prices, increasing coverage and improving quality” of auto
insurance. The Guiding Opinion also call for development of new
insurance products, including the vehicle mileage insurance. As a
result, it is expected that the growth of the segment will slow
down and market size will decrease in the near future.
With
the explosive growth of new energy vehicle production and sales,
traditional auto insurance no longer meets the demand, and relevant
insurance companies have launched corresponding new energy vehicle
insurance. The initial market size is expected to be RMB 17 billion
(approximately $2.8 billion). According to the “New Energy Vehicle
Industry Development Plan (2021-2035)” issued by Ministry of
Industry and Information Technology, by 2025, China sets the goal
to have its new energy vehicle sales account for about 20% of the
total vehicle sales. New energy vehicle insurance market in China
is therefore expected to expand further.
However,
after years of expansion, China’s auto insurance market has started
to experience a significant slowdown in the increase in premiums,
as a result of the reform and saturation of the auto insurance
market and the resulting decrease in average premium per policy and
increase marketization of auto insurance. Auto insurance premiums
in China showed an increasing growth trend during 2013 to 2020 and
reached an aggregate of RMB 824.5 billion (approximately $129.6
million) in 2020, representing an increase of 0.7% from the prior
year. During the first three quarters of 2021, China’s auto
insurance premiums were RMB562.2 billion (approximately $88.3
million), showing a cumulative decrease of 9.44% as compared to the
same period in the prior year.
According
to the s data released by the Hainan Insurance Industry
Association, there was a total of approximately 108,100 and 120,500
car accidents (involving solely the mandatory liability insurance
cases that occurred and closed during the relevant year, excluding
single-vehicle accidents) in Hainan province, representing an
average of approximately 296 and 330 accident per day,
respectively.
Software and Information Technology Service
Industry
In
recent years, with the rapid expansion of China’s software and
information technology service industry and the significant
advancement in technologies, the industry has become an important
part of the strategic emerging industries. According to the 14th
Five-Year Plan Software and Information Technology Service Industry
Development Plan, during the 13th Five-Year Plan period, the
revenue of the software and information technology service industry
increased from RMB4.28 trillion (approximately $672.5 billion) in
2015 to RMB8.16 trillion (approximately $128.2 billion) in 2020,
with an average annual growth rate of 13.8%, and its share of the
information industry has increased from 28% in 2015 to 40% in 2020.
The total profit of the software and information technology service
industry has increased from RMB576.6 billion (approximately $90.6
billion) in 2015 to RMB1,067.6 billion (approximately $16.7
billion) in 2020, with an average annual growth rate of 13.1% and
its share of the information industry has increased from 51% in
2015 to 64% in 2020. The information technology services revenue
increased from 51.2% of the information technology in 2015 to 61.1%
in 2020. Emerging platform software, industrial application
software, and embedded software has developed rapidly while revenue
from basic software and industrial software products has continued
to grow. According to the Analysis Report on Market Prospects and
Investment Strategic Planning of China’s Software Industry released
by the Prospective Industry Research Institute, in 2021, there were
more than 40,000 enterprises above designated size in the software
and information technology service industries in China, and the
accumulated software business revenue was RMB9,499.4 billion
(approximately $149.3 billion), representing a year-on-year
increase of 17.7%. The 14th Five-Year Plan for Software and
Information Technology Service Industry Development Plan sets out
the development goals, i.e., the software business revenue of
enterprises above designated size will exceed RMB14 trillion
(approximately $220 billion), with an average annual growth rate of
more than 12%.
Our
Competitive Strengths
We
believe the following competitive strengths differentiate us from
our competitors and contribute to our ongoing success.
Eco-friendly products. Unlike many of our
competitors, who still use traditional materials, we use reclaimed
iron tailings to manufacture our construction materials. In doing
so, we help reduce environmental waste. In addition, our equipment
used to produce construction materials can recycle disposed
building materials, including, without limitation, waste clay
bricks and waste concrete, to manufacture construction
materials.
Effective operational management. The consistent quality of
our products and manufacturing equipment is achievable only through
effective management in all aspects of our operations, from
purchasing to production and sales. In every step, we have fully
trained, experienced and skilled employees to ensure the quality of
our construction materials and manufacturing equipment. In
addition, we have a committed and qualified management team who
fully understand our corporate culture and effectively implement
our business strategy.
Proprietary technologies and strong research and development
capabilities. We have developed key technologies and
knowhow in the manufacture of various types of construction
materials and manufacturing equipment. We own an aggregate of 101
PRC patents (ten of which are owned jointly with Luoyang
Water-Conservancy Surveying & Design Co., Ltd. (“Luoyang”), an
independent third party), including 27 design patents, 59 utility
model patents and five invention patents. Two of our patents were
awarded Gold and Silver Prize of International Exhibition of
Inventions of Geneva. In addition, we own ten software copyrights
in China.
As a
result of the acquisition of REIT Mingde, our patent portfolio is
increased by an additional 28 patents and 55 pending patent
applications pertaining to IoT, cloud platform, data transmission,
gateway technologies and hardware designs, including 23 utility
model patents and five invention patents. We also acquired an
additional 14 software copyrights in China.
We
are committed to the research and development of new construction
materials and the equipment used to produce these materials. As of
the date of this prospectus, our research and development team
consists of an aggregate of 41 staff, accounting for approximately
40% of our total employees. Of all our research and development
staff, 25 hold bachelor’s degree or higher degrees. Our team has an
average of five years of experience in research and development in
relevant industries.
Full range of eco-friendly project solutions. We are
able to provide consultation, design and implementation of projects
such as sponge city and hydraulic ecological projects for
customers, in addition to manufacturing and sales of eco-friendly
construction materials and equipment. Our one-stop solution allows
us to capture revenue from all stages of a project and serve more
types of customers, such as municipalities and
governments.
Experienced management team and work force. Our management
team, led by Hengfang Li, our Chief Executive Officer, who has
extensive industry experience, deep knowledge of our business and a
demonstrated track record of managing costs, adapting to changing
market conditions, and developing new products. In addition, Mr. Li
has a vast network and understating of the market. In addition,
following the acquisition of REIT Mingde, we expect to leverage the
expertise of Mr. Li Xiaoping, Chairman of REIT Mingde, in the field
of mobile communication and IoT and his extensive experience in
business management and operations, to grow and expand our
businesses related to the application of the IoT technologies. Mr.
Li has more than 20 years of experience in the communication and
IoT industry. He worked and held senior positions at Nokia
Corporation Asia Pacific, and Huawei Technology Services Co., Ltd.
successively before he founded his own businesses, including Hainan
Yile IoT, among others.
We
also maintain a well-trained workforce that is highly skilled and
capable to address complex and individualized client
issues.
Our
Strategies
Our
objective is to become the leading provider of eco-friendly
construction materials and equipment. Following our acquisition of
REIT Mingde, we also aim to expand the application of our IoT
solutions and products for commercial use vehicles, build smart
environmental protection solutions and logistics and supply chain
services. To achieve these goals, we are pursuing the following
strategies:
Market Opportunity. China’s 14th Five-Year Plan
(2021-2025) promotes a cleaner and greener economy, with
strong commitments to environmental management and protection,
clean energy and emissions controls, ecological protection and
security, and the development of renewable energy industry. This
demonstrates a clear focus on charting a sustainable course for the
economy in the long-term. The 14th Five-Year Plan offers
opportunities for the private sector to support China’s
environmental goals of water resource management, water ecology
remediation and environmental protection of water, such as through
the construction of sponge cities and the use of eco-friendly
construction materials. Presently, we are able to serve all facets
of sponge city construction through our construction materials that
are used in construction, our equipment that can produce the
construction materials and our general contracting
expertise.
The
14th Five-Year Plan also calls for the strengthening of the
innovation and application of key digital technologies, the
acceleration of digitalization development in China and the
promotion of transition of industry digitalization. The plan lists
the IoT industry as one of the key industries of a digital economy.
We plan to take advantages of the resources and support available
under the 14th Five-Year Plan and promote the in-depth integration
of the IoT technologies with the equipment manufacturing industry,
the ecological restoration market and the automotive after-sales
market based our existing experience and expertise in the IoT
technologies and RSA services.
Expand our remediation projects in mining regions. We
believe there are thousands of former mining locations in China
that need to remediated and reclaimed. Abandoned ore mines contain
tailings and abandoned or closed mines are normally associated with
environmental concerns such as contaminated water and soil. As part
of the remediation and reclamation process we are able to assist
mining companies with the disposal of tailings, and municipalities
creating viable villages in former mining areas. For example, in
2015, we completed a sponge city project in Hainan Province where a
village located in a former mining area was built with our
eco-friendly construction materials made from iron tailings. We
will continue to focus on using iron tailings in our eco-friendly
construction materials and seek reclamation projects in former
mining areas.
Continue to develop new products. We are committed to
the research and development of new products for specific customer
needs. We believe scientific and technological innovations will
help our Company achieve its long-term strategic
objectives.
Increase our revenue and market share by expanding our business
network internationally. In order to expand our
international market, we plan to add four to five distributors in
South America and the Middle East. We also plan to participate in
targeted international marketing events, such as seminars,
workshops, and trade shows, where we can meet potential customers,
promote our products and deepen our network to further expand our
sales.
Take advantage of the Hainan Free Trade Port policy. Hainan
province government recently promulgated the Hainan Province’s
Three-Year Action Plan to Win the Battle of Science and Technology
Innovation by Extraordinary Means (2021-2023) (Qiong Fu Ban
[2021] No. 24) and the Hainan Province Science and Technology
Planning System Optimization and Reform Plan (Qionke [2021] No.
250)in an aim to promote the technology innovation-driven
development of enterprises. The government is promoting the
establishment of the Haikou City Research and Development Center
for Internet of Things Digitalization Application Engineering and
Technology” and gathers resources for and renovation and
development of high technologies. The government offers subsidies,
tax incentives as well as support for introducing talents to the
province, such as housing subsidies and bonuses. We plan to take
advantages of the government resources and support of the Hainan
Free Trade Port to further the development of our technologies and
our business operations.
Pursue Strategic Acquisitions. We intend to
continue to pursue expansion opportunities in existing and new
markets, as well as in core and adjacent categories through
strategic acquisitions. Specifically, we are seeking to acquire
construction material or construction material manufacturing
equipment companies in areas of China with more established
economies. We believe the demand for eco-friendly construction
materials and manufacturing equipment used to produce these
materials are and will continue to be in greater demand in these
established economies.
Our
Products and Services
Eco-Friendly Construction Materials
We
manufacture eco-friendly construction materials (aggregates,
bricks, pavers and tiles) through our subsidiary, REIT New
Materials Xinyi Co., Ltd. (“Xinyi REIT”), which operates our plant
in Xinyi, Jiangsu Province. We refer to our construction materials
as eco-friendly because we produce them from reclaimed iron mine
tailings. Tailings are the materials left over after the process of
separating the valuable fraction from the worthless fraction of an
ore. Iron ore tailings generally consist of hard rock and sand.
Waste rock and tailings constitute the largest (by volume)
industrial solid waste generated in the mining process. By
recycling iron tailings, we believe that our construction materials
manufacturing process is a viable and environmentally friendly
solution to disposal problems associated with these
materials.
Traditional
bricks in China consist primarily of clay, which is mixed with
water and silt, pressed into a mold for shaping, then fired in a
kiln, or furnace. We use reclaimed iron tailings primarily as a
substitute for rocks. Through vibration technology, with these raw
materials inputted, the finished products can come out with
different shape and types. Since the whole production is cured
without fire, this process has the benefits of less space required
for production and less pollution generated to the environment. We
believe iron tailings reduce both the density and heat conductivity
of our construction materials without sacrificing their durability
and strength. Our construction materials’ density and strength meet
or exceed China national standards. In addition, because we use
iron tailings in the manufacturing process, we believe our
construction materials are consistent with China’s recent
environmental protection policies, such as energy conservation
included in the 2016 China’s 14th Five-Year Plan
(2021-2025).
In
addition to iron tailings, our construction materials contain river
sand and granite. Our eco-friendly construction materials are
produced on a fully automatic production line primarily based upon
our proprietary technology.
Our
eco-friendly construction materials include, without limitation,
the following:
|
● |
Ground works materials. Essential materials for sponge
cities to assist in water absorption, flood control and water
retention. These construction materials can be used for urban
roads, pedestrian streets and sidewalks, city squares, landmarks,
parking lots, and docks. |
|
● |
Landscape retaining materials. These construction materials
are mainly used for gardens, roads, bridges, city squares,
retaining walls and slope construction. |
|
● |
Hydraulic engineering materials. Construction material for
sponge city construction, they can be used for hydraulic ecological
projects such as slope protection and river
transformation. |
|
● |
Wall materials. These construction materials are used for
insulation, decoration, and for building walls. |
Eco-friendly Construction Materials Manufacturing
Equipment
In
2019, we produced manufacturing equipment used to create
eco-friendly construction materials. We have sold equipment to
customers in China, South Asia, North America, the Middle East,
North Africa and Southeast Asia. The equipment consists of
large-scale fully automated production equipment with hydraulic
integration. The equipment can be used to produce various types of
eco-friendly construction materials that can be used for a variety
of projects such as ground works, hydraulic engineering, landscape
retention and wall projects.
Our
equipment used to manufacture construction materials include,
without limitation, the following:
|
● |
REIT-Classic RT9A, RT9B, RT15A, RT15B. These are fully
automated block production lines and can be universally used for
the manufacture of bricks, tiles, pavers with and without face mix,
curbstones, hollow blocks and similar construction
materials. |
|
● |
Horizontal Pull Holes Device. Horizontal Pull Holes Device
is used to produce interlocking bricks, water conservancy blocks
and slope protection blocks. |
|
● |
REIT-I Concrete Block Splitter. Synchronized concrete block
cutting machine with four blades. The blades are guided by
ultra-wear resistant guide leads and driven by a large bore
hydraulic drive, which lowers the operating pressure of the
hydraulic unit and increases the splitting force. |
|
● |
REIT Foam Insert Device. This device is used to insert a
foam plate into the mold and produce thermal insulation
blocks. |
Roadside Assistance Services
Following
the acquisition of REIT Mingde, we, through Hainan Yile IoT,
provide roadside assistance services (“RSA services”) to drivers
within Hainan Province, China, through our network of RSA services
providers of tow providers and automotive repair services. Our RSA
services include towing, jump start, tire change, automobile repair
services, and other services. We do not directly provide the RSA
services but coordinate with our contracted RSA service providers
who are licensed to provide such services. Our RSA services area
cover the entire island of Hainan province, including 18 cities and
counties. Upon receipt of a request for RSA services, we will
contact our tow providers and other RSA service providers in close
proximity to the vehicles and arrange the vehicles to be towed or
repaired. We operate a proprietary platform, which connects
insurance companies, tow providers, automobile repair services, and
other service providers as well as the drivers. The platform is
accessible to users via web interface and mobile applications,
consisting of a central management system, a mobile application for
RSA service providers to accept orders and dispatch service teams,
a mobile application for drivers to send requests and monitor
status, and a mobile application for insurance companies to monitor
and review the request status.
Our
RSA services are available to insured drivers and uninsured
drivers. Our services to insured drivers are based on the type of
insurance policy they have with their insurance company as well as
the terms of our service contract with their insurance companies.
Uninsured drivers pay our services fee based our prevailing rates
at the time of services. We maintain a 24/7 service team to ensure
timely responses to RSA services requests.
Our
RSA services commenced in 2020 and we have established a network of
an aggregate of 38 RSA services providers. Hainan Yile IoT has
signed written agreements with all of its RSA services providers
and settles payments to these service providers on a periodical
basis.
We
are paid by the drivers receiving RSA services or if they are
insured, by their insurance companies. Hainan Yile IoT has entered
into annual agreements with four major insurance companies in
China, including, without limitation, China Life Property &
Casualty Insurance Company Limited and China Pacific Insurance
(Group) Co., Ltd. Pursuant to these agreements, we agree to provide
RSA services to the insured drivers of these insurance companies
upon requests and receive fees based on the services
provided.
Software Solutions
Through
Hainan Yile IoT, we are also engaged in the design, development and
sales of customized software solutions based on the client
specifications. We have developed the following software solutions
for our clients during the fiscal years ended December 31, 2021 and
2020:
|
○ |
Logistics
management system – comprehensive software solutions for the
management of multimodal logistics, encompassing functions
including customer management, supplier management, order
management, and vehicle management. |
|
○ |
Retail
management system - comprehensive software solutions for retail
management, including functions such as invoicing, reporting, data
statistics, online marketing. |
|
○ |
Fleet
management system – comprehensive software solutions providing
client with capabilities to manage its fleet including functions
such as vehicle management, vehicle application, vehicle alarm, and
location control. |
|
○ |
Vehicle
rental management system - comprehensive software solutions
providing client with capabilities to manage its car rental
services, including functions such as vehicle management, vehicle
rental (rental renewal), and remote fuel and electricity
disconnection. |
In
connection with the sales of software solutions, we also include
hardware sales and/or service subscriptions based on the clients’
requirements, which are charged separately.
Our
Projects
In
2014, we entered into the field of urban ecological construction
(sponge city construction) and established Beijing REIT Ecological
Engineering Technology Co., Ltd. (“Beijing REIT Ecological”) and
Hainan REIT Construction Project Co., Ltd. (“REIT Construction”)
for this purpose. We act as general contractor and consultant for
the construction of sponge cities and are responsible for the
planning, construction and design of such cities. We subcontract
with architects and subcontractors in order to complete the
projects. During the years ended December 31, 2021 and 2020, we
completed a total of five projects, all of which are sponge city
projects. We also sold our construction materials in these
projects.
Representative Projects
Sponge
City – Changjiang County, Hainan Province
We
were the general contractor for a sponge city project where an
entire village was relocated and constructed in a former mining
area. The project took 16 months to complete resulting in revenue
of approximately RMB 14 million ($2.2 million) for us. We made all
construction materials out of recycled iron tailings. A total of 86
single-family homes were built with a total construction area of
9,400 square meters (101,000 square feet). An estimated 1,810,000
pieces of bricks were used for walls, 90,000 roof tiles, and 4,200
square meters (approximately 45,000 square feet) of ground was
covered with our construction materials. The completed project has
won recognitions at various government levels in Hainan Province,
and has been designated as a demonstration or model project for
promotion of sponge city construction.
Sponge
City – Haikou City, Hainan Province
We
acted as a consultant for a sponge city project in Haikou City,
Hainan Province. We also paved 50,000 square meters for this
project. To assist with the nationwide efforts to promote pilot
cities in sponge city construction, we will collaborate with
international institutions in sponge city construction such as Jude
Technology Corporation located in Germany. By gradually increasing
our efforts, and expanding the scale in the planning, design and
construction of sponge cities, we aim to become a key enterprise in
sponge city construction.
Ecological
Restoration Projects – Datong City, Shanxi Province
Pursuant
to a strategic cooperation agreement entered into with Hunyuan
County People’s Government, we have acted as the general contractor
in connection with the restoration of abandoned coal mines and
disposal of solid wastes in Hunyuan County, Datong City, Shanxi
Province. We commenced the project in November 2019 and are in
charge of the project feasibility study, design, implementation and
supervision of the project. This project covers several affected
villages and has an aggregate area of approximately 386 acres. We
expect to complete this project in 2022. We believe the completion
of the project is expected to enable the local government to
complete geological disaster prevention and control of an area of
approximately 329 acres and reclaim land for agricultural use of
approximately 133 acres, among other restoration to the
environment. Upon completion of the project, we will be paid our
fees upon receipt of proceeds from the sale of restored
lands.
Sales
and Marketing
We
are increasing our marketing and sales efforts, including a
directed focus on online marketing. Online marketing allows us to
efficiently educate prospective customers about the products and
services we have to offer and assists us in expanding the reach of
our market, both in China and internationally. In addition, we are
expanding our presence in the markets we serve. In India, for
example, in order to reduce costs, improve customer service quality
and expand sales, we have established local assembly
companies.
In
order to expand our international market, we plan to add four to
five distributors in South America and the Middle East. We also
plan to participate in targeted international marketing events,
such as seminars, construction expo and trade shows where we can
meet potential customers, promote our products and services and
deepen our network to further expand our sales.
Within
our domestic markets, specifically Hainan, we have increased our
brand recognition by focusing on governmental projects and
large-scale projects, such as sponge city construction. We also
participate in conferences or activities organized by industry
associations (such as Hainan New Wall Construction Materials
Association and Hainan Block Association), provincial governments
and research institutes to promote our products and
services.
We
have obtained new customers by word-of-mouth referrals and have
found that satisfied customers are loyal customers. In addition,
the introduction of new products, such as permeable floor tiles for
sponge city construction and slope and damn protection blocks in
water conservancy construction have helped open new markets. In
addition, we have developed the equipment to reuse waste rock wool
products for manufacturing of construction materials. We believe
that this approach has been crucial in winning and retaining
clients and increasing our ability to withstand
competition.
Competition
We
face significant competition in both our manufacturing equipment
and construction materials markets. We have both domestic and
international competitors in our manufacturing equipment market. In
the international market for our manufacturing equipment our main
competition is from German made manufacturing equipment. We believe
our competitive strength against these competitors is the lower
cost of our equipment with the same technical standards and high
quality service. Our disadvantage is that the German-made equipment
has a better aesthetic appearance as compared to the equipment we
manufacture. To improve the appearance of our equipment, we have
collaborated with Tsinghua University and have jointly developed an
aesthetic one-piece soundproof cover on our equipment and obtained
patents for the design.
Our
construction materials are manufactured by Xinyi REIT, which is
located in Xuzhou City, the transportation hub connecting five
neighboring provinces. The main competitors of our building
materials are the small workshops in the region, who primarily rely
on low-price competition to seize the market. However, we believe
we can effectively compete with them based on large-scale automatic
production lines, wide recognition by local governments and
customers and strong research and development
capabilities.
Our
main competitors in the Chinese market for our manufacturing
equipment are small Chinese companies located in Fujian Province.
We believe our competitive strength against these competitors is
the quality of our equipment while our competitive disadvantage is
the higher cost of our equipment. There is an increased demand for
fully automated construction materials production lines due to the
increase of Chinese labor costs. We are positioned to take
advantage of the increased demand for fully automated construction
lines due to our current ability to manufacture such
equipment.
In
both the domestic and international markets we are increasing our
research and development of technology for construction materials
manufacturing equipment. In addition, we are researching a variety
of construction materials that can be made with our manufacturing
equipment. We believe that a continued focus on a broad array of
products and product designs coupled with our engineering and
manufacturing expertise will enable us to provide customers with
differentiated product performance and customer support.
In
Hainan, our primary competitors for providing RSA services are the
tow providers and other RSA service providers who may also be our
contracted service providers. We believe we effectively compete
with other RSA service providers in the following
aspects:
|
● |
Proprietary
platform that can be customized and offered to different customers,
enabling broader outreach to potential customers; |
|
● |
Streamlined
service process fully supported by our operation, technology and
customer support teams; |
|
● |
Efficiency
and responsiveness of service requests; and |
|
● |
Province
wide service coverage. |
The
rapidly evolving market for our software solutions is competitive
and highly fragmented in certain of our regions, particularly by
geography and customer segment. We compete with other developers of
software solutions and services locally in Hainan and nationwide in
China, such as Digital Hainan Co., Ltd., Inspur Group Co., Ltd.,
and Neusoft Group Co., Ltd. Some of our actual and potential
competitors may enjoy competitive advantages over us, such as
greater name recognition, longer operating histories, more varied
services, and larger marketing budgets, as well as greater
financial, technical, and other resources. We believe that the key
competitive factors in our market include:
|
● |
ease
of onboarding, initial setup and use; |
|
● |
platform
functionality, performance and reliability (speed and
stability); |
|
● |
relevant
features that best meet the needs of clients’
operators; |
|
● |
business
intelligence capabilities; |
|
● |
technology
architecture scalability; and |
We
believe that our patented technologies, focus on segments with high
demand as well as dedication to customers in Hainan
province enable us to compete effectively in Hainan
province.
Our
Corporate History and Structure
Corporate History
ReTo
is a BVI business company with limited liability, established under
the laws of the BVI on August 7, 2015 as a holding company to
develop business opportunities in China.
On
November 29, 2017, ReTo completed its initial public offering
(“IPO”) of 3,220,000 Common Stock at a public offering price of
$5.00 per share. In connection with the offering, the Company’s
common stock began trading on the NASDAQ Capital Market beginning
on November 29, 2017 under the symbol “RETO”.
ReTo
owns 100% equity interest of REIT Holdings, a limited liability
company established in Hong Kong. Beijing REIT Technology
Development Co., Ltd. (“Beijing REIT”) was established on May 12,
1999 under the laws of PRC. Over the years, Beijing REIT
established four subsidiaries consisting of: Gu’an REIT Machinery
Manufacturing Co., Ltd. (“Gu’an REIT”), which was incorporated on
May 12, 2008; REIT Eco Engineering, which was incorporated on April
24, 2014; Langfang Ruirong Mechanical and Electrical Equipment Co.,
Ltd. (“Ruirong”), which was incorporated on May 12, 2014 and was
subsequently dissolved in 2021; and REIT Technology Development
(America), Inc., a California corporation, which was incorporated
on February 27, 2014 and was dissolved in March 2022.
On
February 7, 2016, Beijing REIT and its individual original
shareholders entered into an equity transfer agreement, pursuant to
which these shareholders agreed to transfer all of their ownership
interests in Beijing REIT with a carrying value of RMB 24 million
(or $3,466,260) to REIT Holdings. After this equity transfer,
Beijing REIT became a Wholly Foreign-Owned Enterprise (“WOFE”) and
amended the registration with the State Administration of Market
Regulation on March 21, 2016.
REIT
Changjiang was incorporated in Hainan Province, China, on November
22, 2011 with the original registered capital of RMB 100 million
(approximately $15.7 million). REIT Changjiang was engaged in
hauling and processing construction and mining waste, with which it
produces recycled aggregates and bricks for environmental-friendly
uses prior to the disposition of REIT Changjiang in December
2021.
On
June 1, 2015, REIT Construction was incorporated as a wholly owned
subsidiary of REIT Changjiang.
On
July 15, 2015, Beijing REIT established a joint venture, Xinyi
REIT, together with Xinyi City Transportation Investment Co., Ltd.
(“Xinyi TI”), a third party. Beijing REIT owns 70% equity interest
of Xinyi REIT, with the remaining 30% owned by Xinyi TI.
On
September 20, 2015, Beijing REIT acquired 100% of the equity
interest of Nanjing Dingxuan Environment Protection Technology
Development Co., Ltd. (“Nanjing Dingxuan”) from a third party for
no consideration given the company’s registered capital was not
paid and had no assets or operations. Najing Dingxuan was engaged
in providing technical support and consulting services for
environmental protection projects but its operation was suspended
in 2021.
In
February 2016, Beijing REIT established a joint venture, REIT Q
GREEN Machines Private Limited (“REIT India”), together with an
Indian company, Q Green Techcon Private Limited (“Q Green”).
Beijing REIT owns 51% equity interest of REIT India with the
remaining 49% owned by Q Green.
On
October 22, 2018, REIT Ecological Technology Co., Ltd. was
incorporated as its wholly owned subsidiary.
On
August 29, 2019, Datong Ruisheng Environmental Protection
Engineering Co., Ltd. (“Datong Ruisheng”) was incorporated as a
wholly owned subsidiary of Beijing REIT. Datong Ruisheng is engaged
in the potential ecological restoration projects in Datong, Shanxi
Province.
On
November 11, 2019, Yangbi Litu Ecological Technology Co., Ltd.
(“Yangbi Litu”) was jointly established by REIT Eco Engineering and
Yunnan Litu Technology Development Co., Ltd. (“Yunnan Litu”). REIT
Eco Engineering owned a 55% of the ownership interest in Yangbi
Litu, with the remaining 45% equity interest owned by Yunnan Litu.
Because the Company’s ownership interest in Yunnan Litu was 55%,
the Company held an aggregate 79.75% equity interest in Yangbi
Litu, directly and indirectly. Yangbi Litu will be engaged in
providing services in comprehensive ecological restoration and
sales of environmentally friendly equipment and new materials. On
July 13, 2020, REIT Eco Engineering transferred its 55% equity
interest in Yunnan Litu to a third-party individual and two
third-party companies for a nominal price. As a result, the
Company’s equity ownership interest in Yangbi Litu decreased from
79.75% to 55%. On July 13, 2020, ReTo transferred its 55% equity
interests in 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
January 2, 2020, Beijing REIT signed a share transfer agreement
with third party, Hebei Huishitong Techonology Inc. (“Huishitong”)
and sold 100% of its ownership interest in Gu’an REIT to Huishitong
for total consideration of RMB 39.9 million (approximately $5.7
million).
On
September 7, 2020, 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.
In
December 2020, we incorporated Guangling REIT Ecological Cultural
Tourism Co., Ltd. in China as a wholly owned subsidiary of REIT
Ecological Technology Co., Ltd. Guangling REIT will be engaged in
the business of ecological restoration and management, and
construction and operation of health and cultural tourism
projects.
On
November 12, 2021, Beijing REIT and REIT Holdings entered into an
equity transfer agreement to sell 100% equity interest in REIT
Changjiang to Zhixin Group the Purchasers, in exchange for a total
consideration of RMB 60,000,000 (approximately $9.4 million) in
cash. The Purchasers have issued to Beijing REIT and REIT Holdings
a promissory note in the principal amount of RMB 60,000,000,
reflecting the purchase price to be paid in accordance with the
equity transfer agreement. The disposition of REIT Changjiang
includes the disposition of REIT Changjiang’s wholly owned
subsidiary, REIT Construction. As of the date of this prospectus,
the company received a total of RMB 45 million (approximately
US$7.1 million) from the Purchasers with the remaining payment of
RMB 15 million (approximately US$2.4 million) to be paid by the
Purchasers by June 15, 2022. In December 2021, we completed the
disposition of REIT Changjiang following the approval of our
shareholders and board of directors.
On
December 27, 2021, REIT Technology acquired 100% equity interest of
REIT Mingde, as more fully described under the heading “Recent
Developments” above.
Corporate Structure
The
chart below summarizes our corporate structure as of the date of
this prospectus:
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCAA, was
enacted on December 18, 2020. The HFCAA states that if the SEC
determines that we have filed audit reports issued by a registered
public accounting firm that has not been subject to inspection by
the PCAOB for three consecutive years beginning in 2021, the SEC
shall prohibit our Common Shares from being traded on a national
securities exchange or other over-the-counter markets.
On December 16, 2021, the PCAOB issued its determination that the
PCAOB is unable to inspect or investigate completely
PCAOB-registered public accounting firms headquartered in mainland
China and in Hong Kong, because of positions taken by PRC
authorities in those jurisdictions, and the PCAOB included in the
report of its determination a list of the accounting firms that are
headquartered in the PRC or Hong Kong. This list does not include
our auditor, YCM CPA Inc. While our auditor is based in the U.S.
and is registered with PCAOB and subject to PCAOB inspection, in
the event it is later determined that the PCAOB is unable to
inspect or investigate completely our auditor, then such lack of
inspection could cause our securities to be delisted from the stock
exchange. See “Risk Factors — Risks Related to Doing Business in
China — Our Common Shares may be delisted under the Holding Foreign
Companies Accountable Act if the PCAOB is unable to inspect our
auditors. The delisting of our Common Shares, or the threat of
their being delisted, may materially and adversely affect the value
of your investment. Additionally, the inability of the PCAOB to
conduct inspections deprives our investors with the benefits of
such inspections.”
Regulatory
Permissions and Developments
We
have been advised by our PRC Counsel that pursuant to the
relevant laws and regulations in China, none of our PRC
subsidiaries’ current business is stipulated on the Special
Administrative Measures for the Access of Foreign Investment
(Negative List) (2021 Version) (the “2021 Negative List”)
promulgated by the Ministry of Commerce of the People’s Republic of
China (“MOFCOM”) and the National Development and Reform Commission
of the People’s Republic of China (“NDRC”) which entered into force
on January 1, 2022. Therefore, our PRC subsidiaries are able to
conduct their business without being subject to restrictions
imposed by the foreign investment laws and regulations of the
PRC.
Currently,
none of our PRC subsidiaries is required to obtain additional
licenses or permits beyond a regular business license for their
operations currently being conducted. Each of our PRC subsidiaries
is required to obtain a regular business license from the local
branch of the State Administration for Market Regulation (“SAMR”).
Each of our PRC subsidiaries has obtained a valid business license
for its respective business scope, and no application for any such
license has been denied.
As of
the date of this prospectus, ReTo and its PRC subsidiaries are not
subject to permission requirements from the China Securities
Regulatory Commission (the “CSRC”), the Cyberspace Administration
of China (the “CAC”) or any other entity that is required to
approve of its PRC subsidiaries’ operations. Recently, the PRC
government initiated a series of regulatory actions and made a
number of public statements on the regulation of business
operations in China with little advance notice, including cracking
down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas, adopting
new measures to extend the scope of cybersecurity reviews, and
expanding efforts in anti-monopoly enforcement.
Among
other things, the Regulations on Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors (the “M&A Rules”) and
Anti-Monopoly Law of the People’s Republic of China promulgated by
the Standing Committee of the National People’s Congress which
became effective in 2008 (the “Anti-Monopoly Law”), established
additional procedures and requirements that could make merger and
acquisition activities by foreign investors more time-consuming and
complex. Such regulation requires, among other things, that the
Ministry of Commerce of the People’s Republic of China, or the
MOFCOM, be notified in advance of any change-of-control transaction
in which a foreign investor acquires control of a PRC domestic
enterprise or a foreign company with substantial PRC operations, if
certain thresholds under the Provisions of the State Council on the
Standard for Declaration of Concentration of Business Operators,
issued by the State Council in 2008, are triggered. Moreover, the
Anti-Monopoly Law requires that transactions which involve the
national security, the examination on the national security shall
also be conducted according to the relevant provisions of the State
Council. In addition, the PRC Measures for the Security Review of
Foreign Investment which became effective in January 2021 require
acquisitions by foreign investors of PRC companies engaged in
military-related or certain other industries that are crucial to
national security be subject to security review before consummation
of any such acquisition.
On
July 6, 2021, the relevant PRC governmental authorities made public
the Opinions on Strictly Cracking Down Illegal Securities
Activities in Accordance with the Law. These opinions emphasized
the need to strengthen the administration over illegal securities
activities and the supervision on overseas listings by China-based
companies and proposed to take effective measures, such as
promoting the construction of relevant regulatory systems to deal
with the risks and incidents faced by China-based overseas-listed
companies. As these opinions are recently issued, official guidance
and related implementation rules have not been issued yet and the
interpretation of these opinions remains unclear at this stage.
Given the current PRC regulatory environment, it is uncertain when
and whether ReTo, REIT Holdings or any of our PRC subsidiaries will
be required to obtain permission from the PRC government to list on
U.S. exchanges in the future, and even when such permission is
obtained, whether it will be denied or rescinded. See “Risk
Factors—Risks Relating to Doing Business in China—The approval
and/or other requirements of the CSRC or other PRC governmental
authorities may be required in connection with an offering under
PRC rules, regulations or policies, and, if required, we cannot
predict whether or how soon we will be able to obtain such
approval.” As of the date of this prospectus, we have not
received any inquiry, notice, warning, or sanctions regarding
offshore offering from the CSRC or any other PRC governmental
authorities.
On
July 10, 2021, the CAC published the Measures for Cybersecurity
Review (Revised Draft for Comments), or the Measures, for public
comments, which propose to authorize the relevant government
authorities to conduct cybersecurity review on a range of
activities that affect or may affect national security, including
listings in foreign countries by companies that possess the
personal data of more than one million users. On December 28, 2021,
the Measures for Cybersecurity Review (2021 version) was
promulgated and became effective on February 15, 2022, which
iterates that any “online platform operators” controlling personal
information of more than one million users which seeks to list in a
foreign stock exchange should also be subject to cybersecurity
review. The Measures for Cybersecurity Review (2021 version),
further elaborates the factors to be considered when assessing the
national security risks of the relevant activities, including,
among others, (i) the risk of core data, important data or a large
amount of personal information being stolen, leaked, destroyed, and
illegally used or exited the country; and (ii) the risk of critical
information infrastructure, core data, important data or a large
amount of personal information being affected, controlled, or
maliciously used by foreign governments after listing abroad. The
CAC has said that under the proposed rules companies holding data
on more than 1,000,000 users must now apply for cybersecurity
approval when seeking listings in other nations because of the risk
that such data and personal information could be “affected,
controlled, and maliciously exploited by foreign governments.” The
cybersecurity review will also look into the potential national
security risks from overseas IPOs.
As
advised by our PRC legal counsel, the PRC governmental authorities
may have wide discretion in the interpretation and enforcement of
these laws, including the interpretation of the scope of “critical
information infrastructure operators”. In anticipation of the
strengthened implementation of cybersecurity laws and regulations
and the continued expansion of our business, we may face challenges
in addressing its requirements and make necessary changes to our
internal policies and practices in data processing. As of the date
of this prospectus, we have not been involved in any investigations
on cybersecurity review made by the CAC on such basis, and we have
not received any inquiry, notice, warning, or sanctions in such
respect.
On
December 24, 2021, the CSRC released the Administrative Provisions
of the State Council Regarding the Overseas Issuance and Listing of
Securities by Domestic Enterprises (Draft for Comments) (the “Draft
Administrative Provisions”) and the Measures for the Overseas
Issuance of Securities and Listing Record-Filings by Domestic
Enterprises (Draft for Comments) (the “Draft Filing Measures,”
collectively with the Draft Administrative Provisions, the “Draft
Rules Regarding Overseas Listing”), both of which have a comment
period that expired on January 23, 2022. The Draft Rules Regarding
Overseas Listing lay out the filing regulation arrangement for both
direct and indirect overseas listing, and clarify the determination
criteria for indirect overseas listing in overseas markets. Among
other things, if a domestic enterprise intends to indirectly offer
and list securities in an overseas market and conduct follow-on
offerings after the listing, the record-filing obligation is with a
major operating entity incorporated in the PRC and such filing
obligation shall be completed within three working days after the
overseas listing application is submitted or the completion of the
issuance of security in the follow-on offering. The required filing
materials for an initial public offering and listing shall include
but not limited to: regulatory opinions, record-filing, approval
and other documents issued by competent regulatory authorities of
relevant industries (if applicable); and security assessment
opinion issued by relevant regulatory authorities (if applicable)
and the filing materials for issuing overseas listing securities in
an follow-on offering shall include but not limited to:
record-filing and domestic legal opinion.
The
Draft Rules Regarding Overseas Listing, if enacted, may subject us
to additional compliance requirement in the future, and we cannot
assure you that we will be able to get the clearance of filing
procedures under the Draft Rules Regarding Overseas List on a
timely basis, or at all. As of the date of this prospectus, the
Draft Rules Regarding Overseas Listings have not been promulgated,
and we have not been required to obtain permission from the
government of China for any offering and continuous listing
pursuant to this prospectus. While the final version of the Draft
Rules Regarding Overseas Listings are expected to be adopted in
2022, we believe that none of the situation which would clearly
prohibit overseas offering and listing would apply to us. In
reaching this conclusion, we are relying on an opinion of our PRC
counsel and that there is uncertainty inherent in relying on an
opinion of counsel in connection with whether we are required to
obtain permissions from the Chinese government that is required to
approve of our operations and/or offering. Any failure of us to
fully comply with new regulatory requirements may significantly
limit or completely hinder our ability to offer or continue to
offer our securities, cause significant disruption to our business
operations, and severely damage our reputation, which would
materially and adversely affect our financial condition and results
of operations and cause our Common Shares to significantly decline
in value or become worthless.
On
August 20, 2021, the Standing Committee of the National People’s
Congress of China promulgated the Personal Information Protection
Law, which integrates the scattered rules with respect to personal
information rights and privacy protection and took effect on
November 1, 2021. Personal information refers to information
related to identified or identifiable natural persons which is
recorded by electronic or other means and excluding anonymized
information. The Personal Information Protection Law provides that
a personal information processor could process personal information
only under prescribed circumstances such as with the consent of the
individual concerned and where it is necessary for the conclusion
or performance of a contract to which such individual is a party to
the contract. If a personal information processor shall provide
personal information to overseas parties, various conditions shall
be met, which includes security evaluation by the national network
department and personal information protection certification by
professional institutions. The Personal Information Protection Law
raises the protection requirements for processing personal
information, and many specific requirements of the Personal
Information Protection Law remain to be clarified by the CAC, other
regulatory authorities, and courts in practice. We may be required
to make further adjustments to our business practices to comply
with the personal information protection laws and
regulations.
Transfer
of Cash through Our Organization
Holding Company Structure
Our equity structure is a direct holding structure, that is, ReTo,
the BVI entity listed in the U.S., controls Beijing REIT and other
PRC operating entities through REIT Holdings. See “Prospectus
Summary—Corporate History and Structure” above on page 11 for
more details.
Cash and Other Assets Transfers between the Holding Company and Its
Subsidiaries
As a
result of ReTo’s IPO closed in November 2017, ReTo received net
proceeds of approximately $14.3 million. In March 2021, ReTo issued
a convertible debenture to an institutional investor in the
principal amount of $2,300,000 and received net proceeds of
$1,476,915. In July 2021, ReTo issued a convertible debenture to an
institutional investor in the principal amount of $2,500,000 and
received net proceeds of $2,189,256. In March 2022, ReTo issued the
Note in the principal amount of $3,105,000 and received net
proceeds of $3,000,000. As of the date of this prospectus, with
respect to the net proceeds from the IPO and the convertible
debentures and the Note, ReTo had transferred an aggregate of
approximately $18.5 million to Beijing REIT through REIT Holdings.
ReTo had kept the remaining approximately $0.4 million in its own
account.
Other
than the IPO, the convertible debentures and the Note, ReTo has not
raised funds from investors so far, nor has transferred any other
funds to its subsidiaries. To date, there have not been any
dividends or other distributions from our Chinese subsidiaries to
our companies located outside of mainland China, namely REIT
Holdings and ReTo. ReTo, as a BVI holding company, may rely on
dividends and other distributions on equity paid by its PRC
subsidiaries for its cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to
its shareholders, subject to ReTo’s M&A and the Act or to
service any expenses and other obligations it may incur.
Within
our direct holding structure, the cross-border transfer of funds
from ReTo to its PRC subsidiaries is permitted under laws and
regulations of the PRC currently in effect. Specifically, ReTo is
permitted to provide funding to its PRC subsidiaries in the form of
shareholder loans or capital contributions, subject to satisfaction
of applicable government registration, approval and filing
requirements in China. There are no quantity limits on ReTo’s
ability to make capital contributions to its PRC subsidiaries under
the PRC law and regulations. However, the PRC subsidiaries may only
procure shareholder loans from REIT Holding in an amount equal to
the difference between their respective registered capital and
total investment amount as recorded in the Chinese Foreign
Investment Comprehensive Management Information System or 2.5 times
of its net assets, at the discretion of such PRC
subsidiary.
For
additional information, see “Risk Factors—Risks Related to Doing
Business in China— PRC regulation of loans to, and direct
investment in, PRC entities by offshore holding companies and
governmental control of currency conversion may restrict or prevent
ReTo from making additional capital contributions or loans to its
PRC subsidiaries.”
Dividends and Other Distributions to U.S. Investors and Tax
Consequences
As of
the date of this prospectus, neither ReTo nor any of its
subsidiaries have paid dividends or made distributions to U.S.
investors. We intend to retain most, if not all, of our available
funds and any future earnings to the development and growth of our
business. We do not expect to pay dividends in the foreseeable
future.
Subject
to the passive foreign investment company rules, the requirements
of ReTo’s M&A and the Act, the gross amount of any distribution
that we make to investors with respect to our securities (including
any amounts withheld to reflect PRC withholding taxes) will be
taxable as a dividend, to the extent paid out of our current or
accumulated earnings and profits, as determined under United States
federal income tax principles. Any proposed dividend would be
subject to ReTo’s M&A and the Act; specifically, ReTo may only
pay a dividend if ReTo’s directors are satisfied, on reasonable
grounds, that, immediately after the dividend is paid, the value of
its assets will exceed its liabilities and it will be able to pay
its debts as they fall due.
The
PRC Enterprise Income Tax Law and its implementation rules provide
that a withholding tax at a rate of 10% will be applicable to
dividends payable by PRC companies to non-PRC-resident enterprises
unless reduced under treaties or arrangements between the PRC
central government and the governments of other countries or
regions where the non-PRC resident enterprises are tax resident.
Pursuant to the tax agreement between Mainland China and the Hong
Kong Special Administrative Region, the withholding tax rate in
respect to the payment of dividends by a PRC enterprise to a Hong
Kong enterprise may be reduced to 5% from a standard rate of 10%.
However, if the relevant tax authorities determine that our
transactions or arrangements are for the primary purpose of
enjoying a favorable tax treatment, the relevant tax authorities
may adjust the favorable withholding tax in the future.
Accordingly, there is no assurance that the reduced 5% withholding
rate will apply to dividends received by our Hong Kong subsidiary
from our PRC subsidiaries. This withholding tax will reduce the
amount of dividends we may receive from our PRC
subsidiaries.
Restrictions on Our Ability to Transfer Cash Out of China and to
U.S. Investors
Our
PRC subsidiaries’ ability to distribute dividends is based upon
their distributable earnings. Current PRC regulations permit our
PRC subsidiaries to pay dividends to their respective shareholders
only out of their accumulated profits, if any, as determined in
accordance with PRC accounting standards and regulations. In
addition, under PRC law, each of our PRC subsidiaries is required
to set aside at least 10% of its after-tax profits each year, if
any, to fund certain statutory reserve funds until such reserve
funds reach 50% of its registered capital. These reserves are not
distributable as cash dividends. If any of our Chinese subsidiaries
incurs debt on its own behalf in the future, the instruments
governing such debt may restrict its ability to pay dividends to
ReTo.
To
address persistent capital outflows and the RMB’s depreciation
against the U.S. dollar in the fourth quarter of 2016, the People’s
Bank of China and the State Administration of Foreign Exchange, or
SAFE, implemented a series of capital control measures in the
subsequent months, including stricter vetting procedures for
China-based companies to remit foreign currency for overseas
acquisitions, dividend payments and shareholder loan repayments.
The PRC government may continue to strengthen its capital controls
and our PRC subsidiaries’ dividends and other distributions may be
subject to tightened scrutiny in the future. The PRC government
also imposes controls on the conversion of RMB into foreign
currencies and the remittance of currencies out of the PRC.
Therefore, we may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign
currency for the payment of dividends from our profits, if
any.
Summary
of Risk Factors
Below
please find a summary of the principal risks we face, organized
under relevant headings.
Risks Related to Doing Business in China
We
face risks and uncertainties related to doing business in China in
general, including, but not limited to, the following:
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Changes
in China’s economic, political or social conditions or government
policies or in relations between China and the United States could
have a material adverse effect on our business, financial condition
and operations; and may result in our inability to sustain our
growth and expansion strategies. See “Risk Factors — Risks
Related to Doing Business in China — Changes in the political and
economic policies of the PRC government or in relations between
China and the United States may materially and adversely affect our
business, financial condition and results of operations and may
result in our inability to sustain our growth and expansion
strategies” on page 23;
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Our
business is subject to complex and evolving laws and regulations
regarding privacy and data protection. Compliance with China’s new
Data Security Law, Cybersecurity Review Measures, Personal
Information Protection Law, as well as additional laws, regulations
and guidelines that the Chinese government promulgates in the
future may entail significant expenses and could materially affect
our business. See “Risk Factors — Risks Related to Doing
Business in China — Our business is subject to complex and evolving
laws and regulations regarding privacy and data protection.
Compliance with China’s new Data Security Law, Cybersecurity Review
Measures, Personal Information Protection Law, as well as
additional laws, regulations and guidelines that the Chinese
government promulgates in the future may entail significant
expenses and could materially affect our business” on page
25; |
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● |
There
are uncertainties regarding the interpretation and enforcement of
PRC laws, rules and regulations. See “Risk Factors — Risks
Related to Doing Business in China — There are uncertainties
regarding the interpretation and enforcement of PRC laws, rules and
regulations” on page 24; |
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● |
Our Common Shares may be delisted under the Holding Foreign
Companies Accountable Act if the PCAOB is unable to inspect our
auditors. The delisting of our Common Shares, or the threat of
their being delisted, may materially and adversely affect the value
of your investment. Additionally, the inability of the PCAOB to
conduct inspections deprives our investors with the benefits of
such inspections. See “Risk Factors — Risks Related to Doing
Business in China—Our Common Shares may be delisted under the
Holding Foreign Companies Accountable Act if the PCAOB is unable to
inspect our auditors. The delisting of our Common Shares, or the
threat of their being delisted, may materially and adversely affect
the value of your investment. Additionally, the inability of the
PCAOB to conduct inspections deprives our investors with the
benefits of such inspections” on page 30;
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The
PRC government’s significant oversight over our business operation
could result in a material adverse change in our operations and the
value of our Common Shares. The Chinese government may intervene or
influence our operations at any time, or may exert more control
over offerings conducted overseas and/or foreign investment in
China-based issuers. Any actions by the Chinese government to exert
more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers could
significantly limit or completely hinder our ability to offer or
continue to offer securities to investors and cause the value of
such securities to significantly decline or become worthless. See
“Risk Factors —Risks Related to Doing Business in China—The PRC
government’s significant oversight over our business operation
could result in a material adverse change in our operations and the
value of our Common Shares” on page 32. |
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PRC
laws and regulations establish complex procedures in connection
with certain acquisitions of China-based companies by foreign
investors, which could make it more difficult for us to pursue
growth through acquisitions or mergers in China. See “Risk
Factors — Risks Related to Doing Business in China — PRC laws and
regulations establish complex procedures in connection with certain
acquisitions of China-based companies by foreign investors, which
could make it more difficult for us to pursue growth through
acquisitions or mergers in China.” on page 27; |
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PRC
regulation of loans to, and direct investment in, PRC entities by
offshore holding companies and governmental control of currency
conversion may restrict or prevent ReTo from making additional
capital contributions or loans to its PRC subsidiaries. See
“Risk Factors — Risks Related to Doing Business in China — PRC
regulation of loans to, and direct investment in, PRC entities by
offshore holding companies and governmental control of currency
conversion may restrict or prevent ReTo from making additional
capital contributions or loans to its PRC subsidiaries.” on
page 29; and |
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● |
We
may rely on dividends and other distributions on equity paid by our
PRC subsidiaries to fund any cash and financing requirements we may
have, and any limitation on the ability of our PRC subsidiaries to
make payments to us could have a material and adverse effect on our
ability to conduct our business. See “Risk Factors — Risks
Related to Doing Business in China — We rely to a significant
extent on dividends and other distributions on equity paid by our
subsidiaries to fund offshore cash and financing requirements and
any limitation on the ability of our PRC subsidiaries to make
remittance to pay dividends to us could limit our ability to access
cash generated by the operations of those entities” on page
30. |
Risks Related to Our Business and Industry
We
are subject to risks and uncertainties related to our business and
industry, including, but not limited to, the following:
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Our
revenue will decrease if the industries in which our customers
operate experience a protracted slowdown; |
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● |
Any
decline in the availability or increase in the cost of raw
materials could materially impact our earnings; |
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● |
Any
disruption in the supply chain of raw materials and our products
could adversely impact our ability to produce and deliver products
which could have a material adverse effect on our
business; |
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Wage
increases in China may prevent us from sustaining our competitive
advantage and could reduce our profit margins; |
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● |
We
rely on a limited number of vendors, and the loss of any
significant vendor could harm our business, and the loss of any one
of such vendors could have a material adverse effect on our
business; |
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● |
We
face certain risks in collecting our accounts receivable, the
failure to collect could have a material adverse effect on our
business; |
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● |
If we
fail to protect our intellectual property rights, it could harm our
business and competitive position. |
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● |
The
report of our independent registered public accounting firm on our
financial statements for the years ended December 31, 2020 and 2019
includes an explanatory paragraph that expresses substantial doubt
about our ability to continue as a going concern, and if our
business is unable to continue it is likely investors will lose all
of their investment; |
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● |
We do
not maintain a reserve for warranty or defective products and
installation claims. Our costs could increase if we experience a
significant number of claims, which could have a material adverse
effect on our business; |
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● |
Product
defects and unanticipated use or inadequate disclosure with respect
to our products could adversely affect our business, reputation and
financial performance; |
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● |
We
may be unable to deliver our backlog on time, which could affect
future sales and profitability and our relationships with
customers; |
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● |
Our
operations are subject to various hazards that may cause personal
injury or property damage and increase our operating costs, and
which may exceed the coverage of our insurance; |
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● |
We
may incur material costs and losses as a result of claims our
products do not meet regulatory requirements or contractual
specifications; |
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● |
Our
operations may incur substantial liabilities to comply with
environmental laws and regulations; and |
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If we
are unable to implement and maintain effective internal control
over financial reporting, investors may lose confidence in the
accuracy and completeness of our financial reports and the market
price of our Common Shares may decline. |
Risks Related to Our Newly Acquired Businesses and Related
Industries
We
face risks and uncertainties related to the Acquisition, the newly
acquired businesses and related industries, including, but not
limited to, the following:
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● |
The
integration of newly acquired businesses may not provide the
benefits anticipated at the time of acquisition; |
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● |
We
have a limited operating history in the newly acquired businesses
and may be unable to achieve or sustain profitability or accurately
predict the future results of such businesses; |
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● |
Growing
the newly acquired businesses requires us to continue investing in
technology, resources, and new business capabilities; these
investments may contribute to losses, and we cannot guarantee that
any will be successful or contribute to profitability; |
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● |
Any
failure to offer high quality services and support may adversely
affect our relationships with our customers and prospective
customers, and adversely affect our business, results of operations
and financial condition; |
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● |
The
software and information technology service market in which we
participate is competitive, and if we do not compete effectively,
our business, results of operations and financial condition could
be harmed; |
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● |
Hainan
Yile IoT receives a substantial portion of its revenues from a
limited number of customers, and the loss of, or a significant
reduction in usage by, one or more of its customers would result in
lower revenues and could harm our business; |
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We
operate in an emerging and evolving markets. If our market does not
grow as we expect, or if we fail to adapt and respond effectively
to rapidly changing technology, evolving industry standards,
changing regulations, and changing customer needs, requirements or
preferences, our products and solutions may become less
competitive; |
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Security
incidents and attacks on our products or solutions could lead to
significant costs and disruptions that could harm our business,
financial results, and reputation. |
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A
significant portion of our revenues were derived from customers in
the insurance industry. The intensifying competition, change in
sector trend and landscape and government policies may have a
direct impact on the insurance industry and negatively affect the
stability of our clients, which may subsequently have negative
impact on our business; |
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● |
Changes
in practices of insurance companies in the markets in which we
provide, and sell, our SVR and RSA and emergency home repair
products services could adversely affect our revenues and growth
potential; |
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● |
Defects
or errors in our products or solutions could diminish demand for
our products or solutions, harm our business and results of
operations and subject us to liability; |
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● |
We
face challenges from the evolving regulatory environment and user
attitude toward data privacy and protection. Actual or alleged
failure to comply with data privacy and protection laws and
regulations could materially and adversely affect our business and
results of operations; |
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● |
We
could be harmed by data loss or other security
breaches; |
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● |
Changes
in laws and regulations related to the internet or changes in the
internet infrastructure itself may diminish the demand for our
products and solutions, and could adversely affect our business,
results of operations and financial condition; |
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● |
Our
services rely on the stable performance of servers, and any
disruption to our servers due to internal and external factors
could diminish demand for our products or solutions, harm our
business, our reputation and results of operations and subject us
to liability; |
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● |
Our
use of open source or third-party software could negatively affect
our ability to sell our products and solutions, and subject us to
possible litigation; |
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● |
We
could incur substantial costs in protecting or defending our
intellectual property rights, and any failure to protect our
intellectual property could adversely affect our business, results
of operations and financial condition; and |
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● |
The
estimates of market opportunity, forecasts of market growth
included in this prospectus may prove to be inaccurate, and any
real or perceived inaccuracies may harm our reputation and
negatively affect our business. Even if the market in which we
compete achieves the forecasted growth, our business could fail to
grow at similar rates, if at all. |
Risks Related to our Common Shares
We
face risks and uncertainties related to our Common Shares,
including, but not limited to, the following:
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● |
The
trading prices of our Common Shares are likely to be volatile,
which could result in substantial losses to investors; |
|
● |
If
securities or industry analysts publish negative reports about our
business, the price and trading volume of our Common Shares
securities could decline; |
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● |
Our
Common Shares would be subject to delisting from the Nasdaq Capital
Market if we are unable to achieve and maintain compliance with the
Nasdaq Capital Market’s continued listing standards; |
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● |
Substantial
future sales or perceived sales of our Common Shares in the public
market could cause the price of our Common Shares to decline;
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● |
Some
provisions of the M&A discourage, delay or prevent a change in
control of ReTo or its management that shareholders may consider
favorable. However, under BVI law, ReTo’s directors may only
exercise the rights and powers granted to them under the M&A,
as amended and restated from time to time, and must always act in
good faith in what they believe to be the best interests of ReTo;
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You
may not receive dividends or other distributions on our Common
Shares and you may not receive any value for them, if it is illegal
or impractical to make them available to you and any proposed
dividend would be subject to ReTo’s M&A and the Act;
specifically, ReTo may only pay a dividend if ReTo’s directors are
satisfied, on reasonable grounds, that, immediately after the
dividend is paid, the value of its assets will exceed its
liabilities and it will be able to pay its debts as they fall due;
and |
|
● |
Your
right to participate in any future rights offerings may be limited,
which may cause dilution to your holdings and you may not receive
distributions with respect to the underlying Common Shares if it is
impractical to make them available to you.
|
We
are an “emerging growth company,” as defined in the JOBS Act. We
will remain an “emerging growth company” for up to five fiscal
years after we completed our IPO, i.e., December 31, 2022. However,
if our non-convertible debt issued within a three year period
exceeds $1.0 billion or total annual gross revenue exceeds $1.07
billion, or the market value of our Common Shares that are held by
non-affiliates exceeds $700 million on the last day of the second
fiscal quarter of any given fiscal year, we would cease to be an
emerging growth company as of the following fiscal year. As an
emerging growth company, we are not required to comply with the
auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, we have reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy
statements and we are exempt from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
Additionally, as an emerging growth company, we have elected to
delay the adoption of new or revised accounting standards that have
different effective dates for public and private companies until
those standards apply to private companies. As such, our financial
statements may not be comparable to companies that comply with
public company effective dates. We cannot predict if investors will
find our Common Shares less attractive because we may rely on these
provisions. If some investors find our Common Shares less
attractive as a result, there may be a less active trading market
for our Common Shares and our Common Shares price may be more
volatile.
We
are a “foreign private issuer,” as defined in Rule 405 under the
Securities Act and Rule 3b-4(c) under the Exchange Act. As a
result, we are not subject to the same requirements as U.S.
domestic issuers. Under the Exchange Act, we are subject to
reporting obligations that, to some extent, are more lenient and
less frequent than those of U.S. domestic reporting companies. For
example, we are not required to issue quarterly reports or proxy
statements. We are not required to disclose detailed individual
executive compensation information. Furthermore, our directors and
executive officers are not required to report equity holdings under
Section 16 of the Exchange Act and are not subject to the insider
short-swing profit disclosure and recovery regime. As a result, you
may not be afforded the same protections or information, which
would be made available to you, were you investing in a U.S.
domestic issuer.
In
addition, if and to the extent we fail to qualify as a foreign
private issuer in any future period, we would have increased
disclosure and other requirements, which would increase our
compliance and other costs. We are a “smaller reporting company” as
defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting
companies may take advantage of certain reduced disclosure
obligations, including, among other things, providing only two
years of audited financial statements. We will remain a smaller
reporting company until the last day of the fiscal year in which
(1) the market value of our Common Shares held by non-affiliates
equals or exceeds $250 million as of the end of the second fiscal
quarter of such fiscal year, or (2) our annual revenues equals or
exceeds $100 million during such completed fiscal year and the
market value of our Common Shares held by non-affiliates equals or
exceeds $700 million as of the end of the second fiscal quarter of
such fiscal year.
Corporate
Information
ReTo
is a BVI holding company and we conduct business through our
subsidiaries in China. Our principal executive offices are
currently located at X-702, Runfengdeshangyuan, 60 Anli Road,
Chaoyang District, Beijing, People’s Republic of China 100101. Our
company’s current telephone number at this address is (+86)
10-64827328. Our registered office in the BVI is located at the
offices of Vistra (BVI) Limited at Vistra Corporate Services
Centre, Wickhams Cay II, Road Town, Tortola, VG1110, BVI. Our agent
for service of process in the United States is Vcorp Agent
Services, Inc., located at 25 Robert Pitt Dr., Suite 204, Monsey,
New York 10952. Our corporate website
is www.retoeco.com. Information contained in our
website or any third-party websites does not constitute a part of
this prospectus.
The
Offering
Outstanding
Common Shares |
33,113,112 Common Shares of $0.001 par value each issued and
outstanding as of April 22, 2022. |
|
|
Common
Shares Offered |
Up to
1,610,000 Common Shares for sale by the Selling Shareholders for
their own account. |
|
|
Selling
Shareholders |
The
Selling Shareholders are set forth in the section of this
prospectus entitled “Selling Shareholders.” |
|
|
Use
of Proceeds |
We
will not receive any proceeds from the resale of our Common Shares
by the Selling Shareholders pursuant to this prospectus. However,
we will receive the exercise price of any Common Shares issued to
the Selling Shareholders upon cash exercise by them of options held
by them. We would expect to use these proceeds, if any, for general
working capital purposes. We have agreed to pay the expenses of
registration of these shares. See “Use of
Proceeds.” |
|
|
Risk
Factors |
The
securities offered hereby are speculative and involve a significant
degree of risk. See “Risk Factors.” |
|
|
Symbol |
RETO |
RISK
FACTORS
Investment in the securities involves significant risks.
You should carefully consider the risks described below and
under “Risk Factors” in our 2020 Annual Report and our other public
filings made with the SEC, and all other information contained in,
or incorporated by reference in, this prospectus and any prospectus
supplement or related free writing prospectus before you decide to
invest in the securities. If any such risks actually occurs, then
our business, prospects, financial condition, results of operations
and cash flow could be materially and adversely affected, thus
potentially causing the trading price of any or all of our
securities to decline and you could lose all or part of your
investment.
Such
risks are not exhaustive. We may face additional risks that are
presently unknown to us or that we believe to be immaterial as of
the date of this prospectus. Known and unknown risks and
uncertainties may significantly impact and impair our business
operations.
As
a result of all of the above, public shareholders may have more
difficulty in protecting their interests in the face of actions
taken by management, members of the board of directors or
controlling shareholders than they would as public shareholders of
a company incorporated in the United States.
Risks
Related to Doing Business in China
Changes in the political and economic policies of the PRC
government or in relations between China and the United States may
materially and adversely affect our business, financial condition
and results of operations and may result in our inability to
sustain our growth and expansion strategies.
Substantially
all of our operations are conducted in the PRC and substantially
all of our revenues is sourced from the PRC. Accordingly, our
financial condition and results of operations are affected to a
significant extent by economic, political and legal developments in
the PRC or changes in government relations between China and the
United States or other governments. There is significant
uncertainty about the future relationship between the United States
and China with respect to trade policies, treaties, government
regulations and tariffs.
The
PRC economy differs from the economies of most developed countries
in many respects, including the extent of government involvement,
level of development, growth rate, control of foreign exchange and
allocation of resources. Although the PRC government has
implemented measures emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in
business enterprises, a substantial portion of productive assets in
China is still owned by the government. In addition, the PRC
government continues to play a significant role in regulating
industry development by imposing industrial policies. The PRC
government also exercises significant control over China’s economic
growth by allocating resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy,
regulating financial services and institutions and providing
preferential treatment to particular industries or
companies.
While
the PRC economy has experienced significant growth in the past four
decades, growth has been uneven, both geographically and among
various sectors of the economy. The PRC government has implemented
various measures to encourage economic growth and guide the
allocation of resources. Some of these measures may benefit the
overall PRC economy, but may also have a negative effect on us. Our
financial condition and results of operation could be materially
and adversely affected by government control over capital
investments or changes in tax regulations that are applicable to
us. In addition, the PRC government has implemented in the past
certain measures, including interest rate increases, to control the
pace of economic growth. These measures may cause decreased
economic activity.
In
July 2021, the Chinese government provided new guidance on
China-based companies raising capital outside of China. In light of
such developments, the SEC has imposed enhanced disclosure
requirements on China-based companies seeking to register
securities with the SEC. As substantially all of our operations are
based in China, any future Chinese, U.S. or other rules and
regulations that place restrictions on capital raising or other
activities by China based companies could adversely affect our
business and results of operations. If the business environment in
China deteriorates from the perspective of domestic or
international investment, or if relations between China and the
United States or other governments deteriorate, our operations in
China as well as the market price of our Common Shares may be
adversely affected.
There are uncertainties regarding the interpretation and
enforcement of PRC laws, rules and regulations.
Substantially
all of our operations are conducted in the PRC, and are governed by
PRC laws, rules and regulations. Our PRC subsidiaries are subject
to laws, rules and regulations applicable to foreign investment in
China. The PRC legal system is a civil law system based on written
statutes. Unlike the common law system, prior court decisions may
be cited for reference but have limited precedential value. In
1979, the PRC government began to promulgate a comprehensive system
of laws, rules and regulations governing economic matters in
general. The overall effect of legislation over the past three
decades has significantly enhanced the protections afforded to
various forms of foreign investment in China. However, China has
not developed a fully integrated legal system, and recently enacted
laws, rules and regulations may not sufficiently cover all aspects
of economic activities in China or may be subject to significant
degrees of interpretation by PRC regulatory agencies. In
particular, because these laws, rules and regulations, especially
those relating to the internet, are relatively new, and because of
the limited number of published decisions and the nonbinding nature
of such decisions, and because the laws, rules and regulations
often give the relevant regulator significant discretion in how to
enforce them, the interpretation and enforcement of these laws,
rules and regulations involve uncertainties and can be inconsistent
and unpredictable. In addition, the PRC legal system is based in
part on government policies and internal rules, some of which are
not published on a timely basis or at all, and may have a
retroactive effect. As a result, we may not be aware of our
violation of these policies and rules until after the occurrence of
the violation. Any administrative and court proceedings in China
may be protracted, resulting in substantial costs and diversion of
resources and management attention.
The
PRC government has recently announced its plans to enhance its
regulatory oversight of Chinese companies listing overseas. The
Opinions on Strictly Cracking Down on Illegal Securities Activities
issued on July 6, 2021 called for:
|
● |
tightening
oversight of data security, cross-border data flow and
administration of classified information, as well as amendments to
relevant regulation to specify responsibilities of overseas listed
Chinese companies with respect to data security and information
security; |
|
● |
enhanced
oversight of overseas listed companies as well as overseas equity
fundraising and listing by Chinese companies; and |
|
● |
extraterritorial
application of China’s securities laws. |
As
the Opinions on Strictly Cracking Down on Illegal Securities
Activities were recently issued, there are great uncertainties as
to how soon legislative or administrative regulation making bodies
will respond and what existing or new laws or regulations or
detailed implementations and interpretations will be modified or
promulgated, if any, and the potential impact such modified or new
laws and regulations will have on companies like us, but among
other things, our ability and the ability of our subsidiaries to
obtain external financing through the issuance of equity securities
overseas could be negatively affected.
On
December 24, 2021, the CSRC released the Draft Rules Regarding
Overseas Listing, which aim to establish a unified supervision
system and promote cross-border regulatory cooperation. The Draft
Rules Regarding Overseas Listing lay out filing procedures for
domestic companies to record their initial public offerings and
follow-on offerings abroad with the CSRC. Issuers are required to
file follow-on offerings with the CSRC within 3 business days after
the closing of such offerings.
According
to the Q&A held by CSRC officials for journalists thereafter,
the CSRC will adhere to the principle of non-retroactive
application of law and first focus on issuers conducting initial
public offerings and follow-on offerings by requiring them to
complete the registration procedures. Other issuers will be given a
sufficient transition period. The CSRC officials also noted that
the regulation system contemplated by the Draft Rules Regarding
Overseas Listing differentiates between initial public offerings
and follow-on offerings to take into account overseas capital
markets’ fast and efficient features and to reduce impacts on
overseas financing activities by domestic companies. If the Draft
Rules Regarding Overseas Listing are enacted in their current
forms, we expect to perform necessary registration filings with the
CSRC for our listing on the Nasdaq within the prescribed transition
period and for any follow-on offering in the event that it takes
place after the Draft Rules Regarding Overseas Listing enter into
force. However, it is uncertain when the Draft Rules Regarding
Overseas Listing will take effect or if they will take effect as in
their current forms.
In
addition, our holding company structure involves unique risks to
investors and you may never directly hold equity interests in our
Chinese operating entities. Although we believe our operating
structure is legal and permissible under the Chinese law and
regulations currently in effect, Chinese regulatory authorities
could take a different position on the interpretation and
enforcement of laws and regulations and disallow our operating
structure, which would likely result in a material change in our
operations and/or the value of our securities, including that it
could cause the value of such securities to significantly decline
or become worthless.
Our business is subject to complex and evolving laws and
regulations regarding privacy and data protection. Compliance with
China’s new Data Security Law, Cybersecurity Review Measures,
Personal Information Protection Law, as well as additional laws,
regulations and guidelines that the Chinese government promulgates
in the future may entail significant expenses and could materially
affect our business.
Regulatory
authorities in China have implemented and are considering further
legislative and regulatory proposals concerning data protection.
China’s new Data Security Law went into effect on September 1,
2021. The Data Security Law provides that the data processing
activities must be conducted based on “data classification and
hierarchical protection system” for the purpose of data protection
and prohibits entities in China from transferring data stored in
China to foreign law enforcement agencies or judicial authorities
without prior approval by the Chinese government. The Data Security
Law sets forth the legal liabilities of entities and individuals
found to be in violation of their data protection obligations,
including rectification order, warning, fines of up to RMB5
million, suspension of relevant business, and revocation of
business permits or licenses.
In
addition, the PRC Cybersecurity Law provides that personal
information and important data collected and generated by operators
of critical information infrastructure in the course of their
operations in the PRC should be stored in the PRC, and the law
imposes heightened regulation and additional security obligations
on operators of critical information infrastructure. According to
the Cybersecurity Review Measures promulgated by the CAC and
certain other PRC regulatory authorities in April 2020, which
became effective in June 2020, operators of critical information
infrastructure must pass a cybersecurity review when purchasing
network products and services which do or may affect national
security. Any failure or delay in the completion of the
cybersecurity review procedures may prevent the critical
information infrastructure operator from using or providing certain
network products and services, and may result in fines of up to ten
times the purchase price of such network products and services. The
PRC government recently launched cybersecurity reviews against a
number of mobile apps operated by several U.S.-listed Chinese
companies and prohibiting these apps from registering new users
during the review periods. We do not believe that we constitute a
critical information infrastructure operator under the
Cybersecurity Review Measures that took effect in June
2020.
On
July 10, 2021, the CAC issued the Cybersecurity Review Measures
(revised draft for public comments), which proposed to authorize
the relevant government authorities to conduct cybersecurity review
on a range of activities that affect or may affect national
security. The PRC National Security Law covers various types of
national security, including technology security and information
security. The revised Cybersecurity Review Measures took effect on
February 15, 2022. The revised Cybersecurity Review Measures expand
the cybersecurity review to data processing operators in possession
of personal information of over 1 million users if the operators
intend to list their securities in a foreign country. Under the
revised Cybersecurity Review Measures, the scope of entities
required to undergo cybersecurity review to assess national
security risks that arise from data processing activities would be
expanded to include all critical information infrastructure
operators who purchase network products and services and all data
processors carrying out data processing activities that affect or
may affect national security. In addition, such reviews would focus
on the potential risk of core data, important data, or a large
amount of personal information being stolen, leaked, destroyed,
illegally used or exported out of China, or critical information
infrastructure being affected, controlled or maliciously used by
foreign governments after such a listing. An operator that violates
these measures shall be dealt with in accordance with the
provisions of the PRC Cybersecurity Law and the PRC Data Security
Law. As advised by our PRC counsel, we believe that the
cybersecurity review requirement under the revised Cybersecurity
Review Measures for online platform operators in possession of
personal information of over one million users going public in a
foreign country does not apply to us or any of our PRC
subsidiaries, because we became a public company with shares listed
on Nasdaq before such Measures entered into force on February 15,
2022. However, there remains uncertainty as to the interpretation
and implementation of the revised Cybersecurity Review Measures and
we cannot assure you that the CAC will reach the same conclusion as
our PRC counsel.
On
November 14, 2021, the CAC released the Regulations on Network Data
Security (draft for public comments) and accepted public comments
until December 13, 2021. The draft Regulations on Network Data
Security provide more detailed guidance on how to implement the
general legal requirements under legislations such as the
Cybersecurity Law, Data Security Law and the Personal Information
Protection Law. The draft Regulations on Network Data Security
follow the principle that the state will regulate based on a data
classification and multi-level protection scheme. We believe that
we or any of our PRC subsidiaries do not constitute an online
platform operator under the draft Regulations on Network Data
Security as proposed, which is defined as a platform that provides
information publishing, social network, online transaction, online
payment and online audio/video services. None of our PRC
subsidiaries is an online platform operator themselves, nor is any
of them required to obtain an ICP license for their current
operations.
On
August 20, 2021, the Standing Committee of the National People’s
Congress of China promulgated the Personal Information Protection
Law which became effective on November 1, 2021. The Personal
Information Protection Law provides a comprehensive set of data
privacy and protection requirements that apply to the processing of
personal information and expands data protection compliance
obligations to cover the processing of personal information of
persons by organizations and individuals in China, and the
processing of personal information of persons in China outside of
China if such processing is for purposes of providing products and
services to, or analyzing and evaluating the behavior of, persons
in China. The Personal Information Protection Law also provides
that critical information infrastructure operators and personal
information processing entities who process personal information
meeting a volume threshold to be set by Chinese cyberspace
regulators are also required to store in China personal information
generated or collected in China, and to pass a security assessment
administered by Chinese cyberspace regulators for any export of
such personal information. Lastly, the Personal Information
Protection Law contains proposals for significant fines for serious
violations of up to RMB 50 million or 5% of annual revenues from
the prior year and may also be ordered to suspend any related
activity by competent authorities. We have access to certain
information of our customers in providing services and may be
required to further adjust our business practice to comply with new
regulatory requirements.
Interpretation,
application and enforcement of these laws, rules and regulations
evolve from time to time and their scope may continually change,
through new legislation, amendments to existing legislation or
changes in enforcement. Compliance with the PRC Cybersecurity Law
and the PRC Data Security Law could significantly increase the cost
to us of providing our service offerings, require significant
changes to our operations or even prevent us from providing certain
service offerings in jurisdictions in which we currently operate or
in which we may operate in the future. Despite our efforts to
comply with applicable laws, regulations and other obligations
relating to privacy, data protection and information security, it
is possible that our practices or service offerings could fail to
meet all of the requirements imposed on us by the PRC Cybersecurity
Law, the PRC Data Security Law and/or related implementing
regulations. Any failure on our part to comply with such law or
regulations or any other obligations relating to privacy, data
protection or information security, or any compromise of security
that results in unauthorized access, use or release of personally
identifiable information or other data, or the perception or
allegation that any of the foregoing types of failure or compromise
has occurred, could damage our reputation, discourage new and
existing counterparties from contracting with us or result in
investigations, fines, suspension or other penalties by Chinese
government authorities and private claims or litigation, any of
which could materially adversely affect our business, financial
condition and results of operations. Even if our practices are not
subject to legal challenge, the perception of privacy concerns,
whether or not valid, may harm our reputation and brand and
adversely affect our business, financial condition and results of
operations. Moreover, the legal uncertainty created by the Data
Security Law and the recent Chinese government actions could
materially adversely affect our ability, on favorable terms, to
raise capital, including engaging in follow-on offerings of our
securities in the U.S. market.
PRC laws and regulations establish complex procedures in connection
with certain acquisitions of China-based companies by foreign
investors, which could make it more difficult for us to pursue
growth through acquisitions or mergers in China.
On August 8, 2006, six PRC regulatory agencies, including the
Ministry of Commerce, the State-Owned Assets Supervision and
Administration Commission, the State Administration of Taxation,
the State Administration for Industry and Commerce, the CSRC, and
the State Administration of Foreign Exchange, jointly adopted the
Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors, or the M&A Rules, which came into effect on
September 8, 2006 and were amended on June 22, 2009. The M&A
Rules include, among other things, provisions that purport to
require that an offshore special purpose vehicle formed for the
purpose of an overseas listing of securities of a PRC company
obtain the approval of the CSRC prior to the listing and trading of
such special purpose vehicle’s securities on an overseas stock
exchange. On September 21, 2006, the CSRC published on its official
website procedures regarding its approval of overseas listings
through special purpose vehicles. However, substantial uncertainty
remains regarding the scope and applicability of the M&A Rules
to offshore special purpose vehicles.
The
regulations also established additional procedures and requirements
that are expected to make merger and acquisition activities in
China by foreign investors more time consuming and complex,
including requirements in some instances that the Ministry of
Commerce be notified in advance of any change-of-control
transaction in which a foreign investor takes control of a PRC
domestic enterprise, or that the approval from the Ministry of
Commerce of the PRC (“MOFCOM”) be obtained in circumstances where
overseas companies established or controlled by PRC enterprises or
residents acquire affiliated domestic companies.
Moreover,
according to the Anti-Monopoly Law of the People’s Republic of
China promulgated on August 30, 2007 and the Provisions on
Thresholds for Reporting of Concentrations of Undertakings (the
“Prior Reporting Rules”) issued by the State Council in August 2008
and amended in September 2018, the concentration of business
undertakings by way of mergers, acquisitions or contractual
arrangements that allow one market player to take control of or to
exert decisive impact on another market player must also be
notified in advance to the anti-monopoly enforcement agency of the
State Council when the applicable threshold is crossed and such
concentration shall not be implemented without the clearance of
prior reporting. In addition, the Regulations on Implementation of
Security Review System for the Merger and Acquisition of Domestic
Enterprise by Foreign Investors (the “Security Review Rules”)
issued by the MOFCOM that became effective in September 2011
specify that mergers and acquisitions by foreign investors that
raise “national defense and security” concerns and mergers and
acquisitions through which foreign investors may acquire de facto
control over domestic enterprises that raise “national security”
concerns are subject to strict review by the MOFCOM, and the rules
prohibit any activities attempting to bypass a security review by
structuring the transaction through, among other things, trusts,
entrustment or contractual control arrangements.
We
may grow our business in part by acquiring other companies
operating in our industry. Compliance with the requirements of the
regulations to complete such transactions could be time-consuming,
and any required approval processes, including approval from the
Ministry of Commerce, may delay or inhibit our ability to complete
such transactions, which could affect our ability to expand our
business or maintain our market share.
The approval of the CSRC or other Chinese regulatory agencies may
be required in connection with our overseas capital-raising
activities under Chinese law.
The
M&A Rules purport to require offshore special purpose vehicles
that are controlled by Chinese companies or individuals and that
have been formed for the purpose of seeking a public listing on an
overseas stock exchange through acquisitions of Chinese domestic
companies or assets in exchange for the shares of the offshore
special purpose vehicles shall obtain CSRC approval prior to
publicly listing their securities on an overseas stock
exchange.
Based
on our understanding of the Chinese laws and regulations currently
in effect and in the opinion of our PRC legal counsel, we will not
be required to submit an application to the CSRC for its approval
of any of our offerings of securities to foreign investors under
the M&A Rules. However, there remains some uncertainties as to
how the M&A Rules will be interpreted or implemented, and its
opinions summarized above are subject to any new laws, rules and
regulations or detailed implementations and interpretations in any
form relating to the M&A Rules. We cannot assure you that
relevant Chinese government agencies, including the CSRC, would
reach the same conclusion.
Furthermore,
on July 6, 2021, the General Office of the Central Committee of the
Communist Party of China and the General Office of the State
Council jointly promulgated the Opinions on Strictly Cracking Down
on Illegal Securities Activities, pursuant to which Chinese
regulators are required to accelerate rulemaking related to the
overseas issuance and listing of securities, and update the
existing laws and regulations related to data security,
cross-border data flow, and management of confidential information.
Numerous regulations, guidelines and other measures have been or
are expected to be adopted under the umbrella of or in addition to
the Cybersecurity Law and Data Security Law.
As
part of such efforts, the CAC issued the Cybersecurity Review
Measures (revised draft for public comments) on July 10, 2021,
which went into effect on February 15, 2022. The current
Cybersecurity Review Measures expand the cybersecurity review to
online platform operators in possession of personal information of
over one million users if the operators intend to list their
securities in a foreign country. And such reviews will focus on the
potential risk of core data, important data, or a large amount of
personal information being stolen, leaked, destroyed, illegally
used or exported out of China, or critical information
infrastructure being affected, controlled or maliciously used by
foreign governments after a listing outside China. As advised by
our PRC counsel, we believe that the cybersecurity review
requirement under the Cybersecurity Review Measures currently in
effect for online platform operators in possession of personal
information of over one million users going public in a foreign
country does not apply to us or any of our PRC subsidiaries and we
or any of our PRC subsidiaries are not required to apply to the CAC
for a cybersecurity review, because we became a public company with
shares listed on Nasdaq before the effective date of the
Cybersecurity Review Measures on February 15, 2022. However, there
remains uncertainty as to the interpretation and implementation of
the revised Cybersecurity Review Measures and we cannot assure you
that the CAC will reach the same conclusion as our PRC
counsel.
We
believe that we and our PRC subsidiaries are compliant with the
regulations and policies that have been issued by the CAC to date
and will continue to closely monitor the interpretation,
enforcement and implications of such regulations and policies as
well as any new regulations and rules that the CAC or other Chinese
regulatory agencies may issue in the future.
As
there are still uncertainties regarding the interpretation and
implementation of such regulatory guidance, we cannot assure you
that we will be able to comply with new regulatory requirements
relating to our future overseas capital-raising activities and we
may become subject to more stringent requirements with respect to
matters including data privacy and cross-border investigation and
enforcement of legal claims. Notwithstanding the foregoing, as of
the date of this prospectus, we are not aware of any Chinese laws
or regulations in effect requiring that we obtain permission from
any Chinese authority to issue securities to foreign investors, and
we have not received any inquiry, notice, warning, or sanction in
relation to the listing and trading of our Common Shares on Nasdaq
from the CSRC, the CAC or any other Chinese authorities that have
jurisdiction over our operations.
We
are advised by our PRC counsel that based on the Chinese laws and
regulations currently in effect, as of the date of this prospectus,
we are not required to submit an application to the CSRC, the CAC
or any other PRC regulatory authority for the approval of our
offerings of securities to foreign investors or trading of our
Common Shares on Nasdaq. Neither ReTo nor any of its subsidiaries
has obtained the approval or clearance from either the CSRC, the
CAC or any other Chinese regulatory authority for the offering that
we may make under this prospectus and any applicable prospectus
supplement. However, there remains significant uncertainty inherent
in relying on an opinion of our PRC counsel as to the enactment,
interpretation and implementation of regulatory requirements
related to overseas securities offerings and other capital markets
activities. The PRC regulatory agencies, including the CSRC or the
CAC, may not reach the same conclusion as our PRC counsel. If we do
not receive or maintain the approvals, or we inadvertently conclude
that such approvals are not required but the CSRC or other PRC
regulatory body subsequently determines that we need to obtain the
approval for this offering or if the CSRC or any other PRC
government authorities promulgates any interpretation or implements
rules subsequently that would require us to obtain CSRC or other
governmental approvals for this offering, we may not be able to
proceed with this offering, and may face adverse actions or
sanctions by the CSRC or other PRC regulatory agencies. In any such
event, these regulatory agencies may impose fines and penalties on
our operations in China, limit our operating privileges in China,
delay or restrict the repatriation of the proceeds from this
offering into the PRC or take other actions that could have a
material adverse effect on our business, financial condition, the
value of our securities, as well as our ability to offer or
continue to offer securities to investors or cause such securities
to significantly decline in value or become worthless. In addition,
if the CSRC, the CAC or other regulatory agencies later promulgate
new rules requiring that we obtain their approvals for any of our
offerings, we cannot assure you that we can obtain the approval,
authorizations, or complete required procedures or other
requirements in a timely manner, or at all, or obtain a waiver of
the requisite requirements if and when procedures are established
to obtain such a waiver. Any uncertainties and/or negative
publicity regarding such an approval requirement could have a
material adverse effect on the value of the securities that we are
registering.
PRC regulation of loans to, and direct investment in, PRC entities
by offshore holding companies and governmental control of currency
conversion may restrict or prevent ReTo from making additional
capital contributions or loans to its PRC
subsidiaries.
ReTo,
as an offshore holding company, is permitted under PRC laws and
regulations to provide funding to its PRC subsidiaries through
loans or capital contributions. However, loans by ReTo to its PRC
subsidiaries to finance their activities cannot exceed statutory
limits and must be registered with the local counterpart of the
State Administration of Foreign Exchange and capital contributions
to its PRC subsidiaries are subject to the requirement of making
necessary filings in the Foreign Investment Comprehensive
Management Information System, and registration with other
governmental authorities in China.
The
State Administration of Foreign Exchange promulgated the Notice of
the State Administration of Foreign Exchange on Reforming the
Administration of Foreign Exchange Settlement of Capital of
Foreign-invested Enterprises, or Circular 19, effective on June 1,
2015, in replacement of the Circular on the Relevant Operating
Issues Concerning the Improvement of the Administration of the
Payment and Settlement of Foreign Currency Capital of Foreign-
Invested Enterprises, the Notice from the State Administration of
Foreign Exchange on Relevant Issues Concerning Strengthening the
Administration of Foreign Exchange Businesses, and the Circular on
Further Clarification and Regulation of the Issues Concerning the
Administration of Certain Capital Account Foreign Exchange
Businesses. According to Circular 19, the flow and use of the RMB
capital converted from foreign currency-denominated registered
capital of a foreign-invested company is regulated such that RMB
capital may not be used for the issuance of RMB entrusted loans,
the repayment of inter-enterprise loans or the repayment of bank
loans that have been transferred to a third party. Although
Circular 19 allows RMB capital converted from foreign
currency-denominated registered capital of a foreign-invested
enterprise to be used for equity investments within the PRC, it
also reiterates the principle that RMB converted from the foreign
currency-denominated capital of a foreign-invested company may not
be directly or indirectly used for purposes beyond its business
scope. Thus, it is unclear whether the State Administration of
Foreign Exchange will permit such capital to be used for equity
investments in the PRC in actual practice. The State Administration
of Foreign Exchange promulgated the Notice of the State
Administration of Foreign Exchange on Reforming and Standardizing
the Foreign Exchange Settlement Management Policy of Capital
Account, or Circular 16, effective on June 9, 2016, which
reiterates some of the rules set forth in Circular 19, but changes
the prohibition against using RMB capital converted from foreign
currency-denominated registered capital of a foreign-invested
company to issue RMB entrusted loans to a prohibition against using
such capital to grant loans to non-associated enterprises.
Violations of Circular 19 and Circular 16 could result in
administrative penalties. Circular 19 and Circular 16 may
significantly limit our ability to transfer any foreign currency
ReTo holds to its PRC subsidiaries, which may adversely affect our
liquidity and our ability to fund and expand our business in the
PRC.
In
light of the various requirements imposed by PRC regulations on
loans to, and direct investment in, PRC entities by offshore
holding companies, we cannot assure you that we will be able to
complete the necessary government registrations or obtain the
necessary government approvals on a timely basis, if at all, with
respect to future loans or future capital contributions by us to
our PRC subsidiaries. As a result, uncertainties exist as to our
ability to provide prompt financial support to our PRC subsidiaries
when needed. If we fail to complete such registrations or obtain
such approvals, our ability to use foreign currency and to
capitalize or otherwise fund our PRC operations may be negatively
affected, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.
We rely to a significant extent on dividends and other
distributions on equity paid by our PRC subsidiaries to fund
offshore cash and financing requirements and any limitation on the
ability of our PRC subsidiaries to make remittance to pay dividends
to us could limit our ability to access cash generated by the
operations of those entities.
We
rely to a significant extent on dividends and other distributions
on equity paid by our PRC subsidiaries for our offshore cash and
financing requirements, including the funds necessary to pay
dividends (subject to ReTo’s M&A and the Act) and other cash
distributions to our shareholders, fund inter-company loans,
service any debt we may incur outside of China and pay our
expenses. The laws, rules and regulations applicable to our PRC
subsidiaries permit payments of dividends only out of their
retained earnings, if any, determined in accordance with applicable
accounting standards and regulations.
Under
PRC laws, rules and regulations, each of our subsidiaries
incorporated in China is required to set aside at least 10% of its
after-tax profits each year, after making up for previous years’
accumulated losses, if any, to fund certain statutory reserves,
until the aggregate amount of such fund reaches 50% of its
registered capital. As a result of these laws, rules and
regulations, our subsidiaries incorporated in China are restricted
in their ability to transfer a portion of their respective net
assets to their shareholders as dividends. As of December 31, 2021
and 2020, these restricted assets totaled $48,035,523 and
$46,119,381, respectively.
Limitations
on the ability of our PRC subsidiaries to make remittance to pay
dividends to us could limit our ability to access cash generated by
the operations of those entities, including to make investments or
acquisitions that could be beneficial to our businesses, pay
dividends to our shareholders (subject to ReTo’s M&A and the
Act) or otherwise fund and conduct our business.
Any failure to comply with PRC regulations regarding the
registration requirements for employee stock incentive plans may
subject the PRC plan participants or us to fines and other legal or
administrative sanctions.
Under
current PRC law, PRC citizens and non-PRC citizens who reside in
China for a continuous period of no less than one year who
participate in any stock incentive plan of an overseas publicly
listed company offered to the director, supervisor, senior
management and other employees, and any individual who has labor
relationship with its domestic affiliated entities, are required to
register with SAFE through a domestic qualified agent, which could
be a PRC subsidiary of such overseas listed company, and complete
certain other procedures. In addition, an overseas-entrusted
institution must be retained to handle matters in connection with
the exercise or sale of stock options and the purchase or sale of
shares and interests. In addition, SAFE Circular 37 stipulates that
PRC residents who participate in a share incentive plan of an
overseas non-publicly-listed special purpose company may register
with SAFE or its local branches before they obtain the incentive
shares or exercise the share options. We and our executive officers
and other employees who are PRC citizens or who reside in the PRC
for a continuous period of not less than one year and who have been
or will be granted incentive shares or options are or will be
subject to these regulations. Failure to complete the SAFE
registrations for our employee incentive plans may subject our PRC
resident personnel to fines and legal sanctions, and there may be
additional restrictions on the ability of them to exercise their
stock options or remit proceeds gained from sale of their stock
into the PRC, and may also limit our ability to contribute
additional capital into our PRC subsidiaries and limit our PRC
subsidiaries’ ability to distribute dividends to us. We also face
regulatory uncertainties that could restrict our ability to adopt
additional incentive plans for our directors, executive officers
and employees under PRC law.
Our Common Shares may be delisted under the Holding Foreign
Companies Accountable Act if the PCAOB is unable to inspect our
auditors. The delisting of our Common Shares, or the threat of
their being delisted, may materially and adversely affect the value
of your investment. Additionally, the inability of the PCAOB to
conduct inspections deprives our investors with the benefits of
such inspections.
The HFCA Act was enacted on December 18, 2020. The HFCA Act states
if the SEC determines that we have filed audit reports issued by a
registered public accounting firm that has not been subject to
inspection by the PCAOB for three consecutive years, the SEC shall
prohibit our shares or Common Shares from being traded on a
national securities exchange or in the over the counter trading
market in the U.S.
On
March 24, 2021, the SEC adopted interim final rules relating to the
implementation of certain disclosure and documentation requirements
of the HFCA Act. We will be required to comply with these rules if
the SEC identifies us as having a “non-inspection” year under a
process to be subsequently established by the SEC. The SEC is
assessing how to implement other requirements of the HFCA Act,
including the listing and trading prohibition requirements
described above. Furthermore, on June 22, 2021, the U.S. Senate
passed a bill which, if passed by the U.S. House of Representatives
and signed into law, would reduce the number of consecutive
non-inspection years required for triggering the prohibitions under
the HFCA Act from three years to two. On September 22, 2021, the
PCAOB adopted a final rule implementing the HFCA Act, which
provides a framework for the PCAOB to use when determining, as
contemplated under the HFCA Act, whether the PCAOB is unable to
inspect or investigate completely registered public accounting
firms located in a foreign jurisdiction because of a position taken
by one or more authorities in that jurisdiction. On December 2,
2021, the SEC issued amendments to finalize rules implementing the
submission and disclosure requirements in the HFCA Act. The rules
apply to registrants that the SEC identifies as having filed an
annual report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction and that
PCAOB is unable to inspect or investigate completely because of a
position taken by an authority in foreign jurisdictions. On
December 16, 2021, the PCAOB issued a Determination Report which
found that the PCAOB is unable to inspect or investigate completely
registered public accounting firms headquartered in: (i) China, and
(ii) Hong Kong. This list does not include our auditor, YCM CPA
Inc.
Furthermore,
various equity-based research organizations have recently published
reports on China-based companies after examining their corporate
governance practices, related party transactions, sales practices
and financial statements, and these reports have led to special
investigations and listing suspensions on U.S. national exchanges.
Any similar scrutiny on us, regardless of its lack of merit, could
cause the market price of our Common Shares to fall, divert
management resources and energy, cause us to incur expenses in
defending ourselves against rumors, and increase the premiums we
pay for director and officer insurance.
Our
auditor, the independent registered public accounting firm that
issues the audit report included in our 2020 Annual Report
incorporated by reference in this prospectus, as an auditor of
companies that are traded publicly in the United States and a firm
registered with the PCAOB, is subject to laws in the United States
pursuant to which the PCAOB conducts regular inspections to assess
its compliance with the applicable professional standards. Our
auditor is currently registered with the PCAOB and subject to PCAOB
inspections. However, the recent developments would add
uncertainties to our offering and we cannot assure you whether
Nasdaq or regulatory authorities would apply additional and more
stringent criteria to us after considering the effectiveness of our
auditor’s audit procedures and quality control procedures, adequacy
of personnel and training, or sufficiency of resources, geographic
reach or experience as it relates to the audit of our financial
statements.
The
SEC may propose additional rules or guidance that could impact us
if our auditor is not subject to PCAOB inspection. For example, on
August 6, 2020, the President’s Working Group on Financial Markets,
or the PWG, issued the Report on Protecting United States Investors
from Significant Risks from Chinese Companies to the then President
of the United States. This report recommended the SEC implement
five recommendations to address companies from jurisdictions that
do not provide the PCAOB with sufficient access to fulfil its
statutory mandate. Some of the concepts of these recommendations
were implemented with the enactment of the HFCA Act. However, some
of the recommendations were more stringent than the HFCA Act. For
example, if a company was not subject to PCAOB inspection, the
report recommended that the transition period before a company
would be delisted would end on January 1, 2022.
The
SEC has announced that the SEC staff is preparing a consolidated
proposal for the rules regarding the implementation of the HFCA Act
and to address the recommendations in the PWG report. It is unclear
when the SEC will complete its rulemaking and when such rules will
become effective and what, if any, of the PWG recommendations will
be adopted. The implications of this possible regulation in
addition to the requirements of the HFCA Act are uncertain. Such
uncertainty could cause the market price of our Common Shares to be
materially and adversely affected, and our securities could be
delisted or prohibited from being traded “over-the-counter” earlier
than would be required by the HFCA Act. If our securities are
unable to be listed on another securities exchange by then, such a
delisting would substantially impair your ability to sell or
purchase our Common Shares when you wish to do so, and the risk and
uncertainty associated with a potential delisting would have a
negative impact on the price of our Common Shares.
The
PCAOB’s inability to conduct inspections in China prevents it from
fully evaluating the audits and quality control procedures of our
independent registered public accounting firm. As a result, we and
investors in our securities are deprived of the benefits of such
PCAOB inspections. The inability of the PCAOB to conduct
inspections of auditors in China makes it more difficult to
evaluate the effectiveness of our independent registered public
accounting firm’s audit procedures or quality control procedures as
compared to auditors outside of China that are subject to the PCAOB
inspections, which could cause investors and potential investors in
our Common Shares to lose confidence in our audit procedures and
reported financial information and the quality of our financial
statements.
In
May 2013, the PCAOB announced that it had entered into a Memorandum
of Understanding on Enforcement Cooperation with the CSRC and the
PRC Ministry of Finance, which establishes a cooperative framework
between the parties for the production and exchange of audit
documents relevant to investigations undertaken by the PCAOB in the
PRC or by the CSRC or the PRC Ministry of Finance in the United
States. The PCAOB continues to be in discussions with the CSRC and
the PRC Ministry of Finance to permit joint inspections in the PRC
of audit firms that are registered with the PCAOB and audit Chinese
companies that trade on U.S. exchanges.
The PRC government’s significant oversight over our business
operation could result in a material adverse change in our
operations and the value of our Common Shares.
We
conduct our business in China primarily through our PRC
subsidiaries. Our operations in China are governed by PRC laws and
regulations. The PRC government has significant oversight over the
conduct of our business, and it regulates and may intervene our
operations, which could result in a material adverse change in our
operation and/or the value of our Common Shares. Also, the PRC
government has recently indicated an intent to exert more oversight
over offerings that are conducted overseas and/or foreign
investment in China-based issuers. Any such action could
significantly limit or completely hinder our ability to offer or
continue to offer securities to investors. In addition,
implementation of industry-wide regulations directly targeting our
operations could cause our securities to significantly decline in
value or become worthless. Therefore, investors of ReTo face
potential uncertainty from actions taken by the PRC government
affecting our business.
Risks
Related to Our Newly Acquired Businesses and Related
Industries
The integration of newly acquired businesses may not provide the
benefits anticipated at the time of acquisition.
In
line with our strategy to expand our operations and services in
markets in which we currently operate as well as into new and
emerging markets, leveraging our existing know-how and
infrastructure, in December 2021, we acquired REIT Mingde, and we
may make future acquisitions. We are required to devote management
attention and resources to integrating business practices and
operations of REIT Mingde. Potential difficulties we may encounter
in the integration process include the following:
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● |
the
inability to successfully integrate the businesses, including
operations, technologies, products and services, in a manner that
permits us to achieve the anticipated cost savings, revenue
synergies and business growth, which could result in the
anticipated benefits of the Acquisition not being realized partly
or wholly in the time frame currently anticipated or at
all; |
|
● |
lost
sales and customers as a result of certain customers of any of the
businesses deciding not to do business with us, or deciding to
decrease their amount of business in order to reduce their reliance
on a single company; |
|
● |
the
necessity of coordinating geographically separated organizations,
systems and facilities; |
|
● |
potential
unknown liabilities and unforeseen increased expenses, delays or
regulatory conditions following the Acquisition; |
|
● |
integrating
personnel with diverse business backgrounds and business cultures,
while maintaining focus on providing consistent, high-quality
products and services; |
|
● |
consolidating
and rationalizing information technology platforms and
administrative infrastructures as well as accounting systems and
related financial reporting activities and difficulty implementing
effective internal controls over financial reporting and disclosure
controls and procedures in particular; and |
|
● |
preserving
important relationships of the Company and REIT Mingde and
resolving potential conflicts that may arise. |
Furthermore,
it is possible that the integration process could result in the
loss of key employees or skilled workers of REIT Mingde. The loss
of key employees and skilled workers could adversely affect our
ability to successfully conduct the newly acquired business because
of their experience and knowledge of REIT Mingde’s businesses. In
addition, we could be adversely affected by the diversion of
management’s attention and any delays or difficulties encountered
in connection with the integration of REIT Mingde’s businesses. The
process of integrating operations could cause an interruption of,
or loss of momentum in, the activities of one or more of our
operations. If we experience difficulties with the integration
process, the anticipated benefits of the Acquisition may not be
realized fully or at all, or may take longer to realize than
expected. These integration matters could have an adverse effect on
our business, results of operations, financial condition or
prospects during this transition period and for an undetermined
period after completion of the Acquisition.
We have a limited operating history in the newly acquired
businesses and may be unable to achieve or sustain profitability or
accurately predict the future results of such
businesses.
Hainan
Yile IoT commenced the RSA services operations in 2020 and the
development and sales of software solutions in May 2019. Because
its businesses and the market for its services are both new and
evolving, evaluating the current business and its future
performance is difficult and based upon limited historical data, a
changing market, and its ability to influence the market. This
applies to predictions of both revenue and expenses.
Building
its businesses to date, Hainan Yile IoT has accumulated losses. The
continued investment in new technology and services will add to its
operating expenses. We cannot assure you that Hainan Yile IoT will
be profitable, that it will be able to sustain profitability, or of
the magnitude of its profitability. Our financial performance may
be adversely impacted if we fail to address the “Risk Factors”
described in this section, or any other risks and challenges that
we may face. If its assumptions for addressing the risks that
Hainan Yile IoT has identified and other business conditions are
incorrect, our plans for operating the business may be impacted and
it may not achieve our planned and expected results.
Growing the newly acquired businesses requires us to continue
investing in technology, resources, and new business capabilities;
these investments may contribute to losses, and we cannot guarantee
that any will be successful or contribute to
profitability.
Our
plans for operating the newly acquired businesses and leading
further growth of its RSA services and software solution offerings.
These plans include developing new products and services. These
investments could contribute to losses, and we cannot guarantee
whether or when any of the new products and services will become
operational, be successful with customers, or whether they will be
profitable.
Any failure to offer high quality services and support may
adversely affect our relationships with our customers and
prospective customers, and adversely affect our business, results
of operations and financial condition.
Our
software solutions clients depend on our customer support team to
assist them in deploying the solutions effectively, to help them to
resolve post-deployment issues quickly, and to provide ongoing
support. If we do not devote sufficient resources or are otherwise
unsuccessful in assisting our customers effectively, it could
adversely affect our ability to retain existing customers and could
discourage prospective customer from purchasing and using our
software solutions. We may be unable to respond quickly enough to
accommodate short-term increases in demand for customer support. We
also may be unable to modify the nature, scope and delivery of our
customer support to compete with changes in the support services
provided by our competitors. Increased demand for customer support,
without corresponding revenue, could increase costs and adversely
affect our business, results of operations and financial condition.
Any failure to maintain high quality customer support, or a market
perception that we do not maintain high quality customer support,
could erode customer trust and adversely affect our reputation,
business, results of operations and financial condition.
The software and information technology service market in which we
participate is competitive, and if we do not compete effectively,
our business, results of operations and financial condition could
be harmed.
The
software and information technology service market is competitive
and rapidly evolving. The principal competitive factors in our
market include completeness of product offerings, level of
customization of solutions, credibility with developers, global
reach, ease of integration and programmability, product features,
platform scalability, reliability, security and performance, brand
awareness and reputation, the strength of sales and marketing
efforts, customer support, as well as the cost of deploying and
using our products.
Some
of our existing competitors and potential competitors have larger
scale, greater brand name recognition, longer operating histories,
more established customer relationships and greater resources than
we do. As a result, our competitors may be able to respond more
quickly and effectively than we can to new or changing
opportunities, technologies, standards or customer requirements. In
addition, some competitors may offer products, solutions or
services that address one or a limited number of functions at lower
prices, with greater depth than our products or in different
geographies. Our current and potential competitors may develop and
market new products, solutions and services with comparable
functionality to ours, and this could force us to decrease prices
in order to remain competitive. With the introduction of new
products, solutions and services and new market entrants, we expect
competition to intensify in the future. In addition, some of our
customers may choose to use our products and solutions and our
competitors’ products and solutions at the same time.
Hainan Yile IoT receives a substantial portion of its revenues from
a limited number of customers, and the loss of, or a significant
reduction in usage by, one or more of its customers would result in
lower revenues and could harm our business.
Our
future success is dependent on establishing and maintaining
successful relationships with a diverse set of customers. Hainan
Yile IoT currently receives a substantial portion of its revenues
from a limited number of customers, i.e. four insurance companies.
In the years ended December 31, 2021 and 2020, total revenues
generated from the four insurance company customers accounted for
54.3% and 8.5% of the total revenues of Hainan Yile IoT in the same
periods, respectively. It is likely that we will continue to be
dependent upon a limited number of customers for a significant
portion of our revenues for the foreseeable future and, in some
cases, the portion of our revenues attributable to one single
customer may increase in the future. The loss of one or more
significant customers or a reduction in usage by any significant
customers would reduce our revenues. If we fail to maintain
existing customers or develop relationships with new customers, our
business would be harmed.
We operate in an emerging and evolving markets. If our market does
not grow as we expect, or if we fail to adapt and respond
effectively to rapidly changing technology, evolving industry
standards, changing regulations, and changing customer needs,
requirements or preferences, our products and solutions may become
less competitive.
The
software and information technology service market in China is at
an early stage of development. There are uncertainties over the
size and rate at which this market will grow, as well as whether
our solutions and products will be widely adopted. Moreover, the
industry is subject to rapid technological change, evolving
industry standards, changing regulations, as well as changing
customer needs, requirements and preferences. The success of our
business will depend, in part, on our ability to adapt and respond
effectively to these changes on a timely basis. If we are unable to
develop new solutions and products that satisfy our customers and
provide enhancements and new features for our existing products
that keep pace with rapid technological and industry change, our
business, results of operations and financial condition could be
adversely affected. If new technologies emerge that are able to
deliver competitive products and services at lower prices, more
efficiently, more conveniently or more securely, such technologies
could adversely impact our ability to compete
effectively.
Our
solutions must also integrate with a variety of network, hardware,
software platforms and technologies, and we need to continuously
modify and enhance our products and solutions to adapt to changes
and innovation. For example, if customers adopt new software
platforms or infrastructure, we may be required to develop new
versions of our products to be compatible with those new software
platforms or infrastructure. This development effort may require
significant resources, which would adversely affect our business,
results of operations and financial condition. Any failure of our
products and solutions to operate effectively with evolving or new
software platforms and technologies could reduce the demand for our
products and solutions. If we are unable to respond to these
changes in a cost-effective manner, our products and solutions may
become less marketable and less competitive or obsolete, and our
business, results of operations and financial condition could be
adversely affected.
Security incidents and attacks on our products or solutions could
lead to significant costs and disruptions that could harm our
business, financial results, and reputation.
Our
business is dependent on providing our customers with safe,
reliable and high-quality software solutions. Maintaining the
security and availability of our systems, network, and the security
of information we hold is a critical issue for us and our
customers. Attacks on our customers and our own network are
frequent and take a variety of forms. Malicious actors can attempt
to fraudulently induce employees or suppliers to disclose sensitive
information through spamming, phishing, or other tactics. We may be
subject to cyber-attacks from third parties. If attacks like these
were to occur in the future and if we do not have the systems and
processes in place to respond to them, our business could be
harmed.
The
costs incurred by us to avoid or alleviate cyber or other security
problems and vulnerabilities may be significant. However, our
efforts to address these problems and vulnerabilities may not be
successful. Any significant breach of our security measures
could:
|
● |
lead
to the dissemination of proprietary information or sensitive,
personal, or confidential data about us, our employees, or our
customers—including personally identifiable information of
individuals involved with our customers and their
end-users; |
|
● |
lead
to interruptions or degradation of performance in our products and
solutions; |
|
● |
threaten
our ability to provide our customers with access to our products
and solutions, and negatively affect our abilities to retain
existing customers; |
|
● |
generate
negative publicity about us; |
|
● |
result
in litigation and increased legal liability or fines;
or |
|
● |
lead
to governmental inquiry or oversight. |
The
occurrence of any of these events could harm our business or damage
our brand and reputation, lead to customer credits, loss of
customers, higher expenses, and possibly impede our present and
future success in retaining and attracting new customers. Security
incidents or attacks on our infrastructure would be damaging to our
reputation and could harm our business.
Similar
security risks exist with respect to our business partners and our
third-party suppliers for information technology support services
and administrative functions. As a result, we are subject to the
risk that cyber-attacks on our business partners and third-party
suppliers may adversely affect our business even if an attack or
breach does not directly impact our systems. It is also possible
that security breaches sustained by our competitors could result in
negative publicity for our entire industry that indirectly harms
our reputation and diminishes demand for our platform.
A significant portion of our revenues were derived from customers
in the insurance industry. The intensifying competition, change in
sector trend and landscape and government policies may have a
direct impact on the insurance industry and negatively affect the
stability of our clients, which may subsequently have negative
impact on our business.
A
significant portion of our revenues were derived from insurance
companies in Hainan province. Any change in the competitive
landscape, market trend or user behaviors in such sector may have a
negative impact on our customers, thus harm their ability to make
payments and maintain and increase the usage of our services. In
addition, the insurance industry in China is highly regulated by
the PRC government and numerous regulatory authorities of the
central PRC government are empowered to issue and implement
regulations governing various aspects of the industry. As the laws
and regulations are evolving and some of them are relatively new,
changes to the current laws and regulations may harm our business
and results of operation. In addition, interpretation and
enforcement of such laws and regulations involve significant
uncertainty. As a result, in certain circumstances it may be
difficult to determine what actions or omissions may be deemed to
be in violations of applicable laws and regulations. If these laws
and regulations or the uncertainty associated with their
interpretation negatively impact the insurance industry where our
customers operate, our business may be adversely affected as
well.
Changes in practices of insurance companies in the markets in which
we provide, and sell, our SVR and RSA and emergency home repair
products services could adversely affect our revenues and growth
potential.
We
depend on the practices of insurance companies in the markets in
which we provide our RSA services. The majority of our RSA
customers are insurance companies, which in turn sell our RSA
services to their policy holders as policy benefits. Other
customers of our RSA services are drivers without any insurance
coverage for RSA services. Therefore, we rely on insurance
companies’ continued practice of offering RSA services as benefits
under its policies and accepting our RSA services.
If
any of these policies or practices change, for regulatory or
commercial reasons, or if market prices for these services fall,
revenues from our RSA services could decline, which could adversely
affect our revenues and growth potential.
Defects or errors in our products or solutions could diminish
demand for our products or solutions, harm our business and results
of operations and subject us to liability.
Our
customers use our products or solutions for important aspects of
their businesses, and any errors, defects or disruptions to our
products and solutions and any other performance problems with our
products or solutions could damage our customers’ businesses and,
in turn, hurt our brand and reputation. We provide regular updates
to our products or solutions, which have in the past contained, and
may in the future contain, undetected errors, failures,
vulnerabilities and bugs when first introduced or released. Real or
perceived errors, failures or bugs in our products or solutions
could result in negative publicity, loss of or delay in market
acceptance of our products or solutions, loss of competitive
position, lower customer retention or claims by customers for
losses sustained by them. In such an event, we may be required, or
may choose, for customer relations or other reasons, to expend
additional resources in order to help correct the problem. In
addition, we do not carry insurance to compensate us for any losses
that may result from claims arising from defects or disruptions in
our products. As a result, our reputation and our brand could be
harmed, and our business, results of operations and financial
condition may be adversely affected.
In
addition, our solutions and products must interoperate with our
customers’ existing internal networks and infrastructure. These
complex internal systems are developed, delivered, and maintained
by the customer and a myriad of vendors and service providers. As a
result, the components of our customers’ infrastructure have
different specifications, rapidly evolve, utilize multiple protocol
standards, include multiple versions and generations of products,
and may be highly customized. We must be able to interoperate and
provide products to customers with highly complex and customized
internal networks, which requires careful planning and execution
between our customers, our customer support teams and, in some
cases, our channel partners. Further, when new or updated elements
of our customers’ infrastructure or new industry standards or
protocols are introduced, we may have to update or enhance our
technologies and infrastructure to allow us to continue to provide
our products or solutions to customers. Our competitors or other
vendors may refuse to work with us to allow their products to
interoperate with our products and solutions, which could make it
difficult for our products and solutions to function properly in
customer internal networks and infrastructures that include these
third-party products.
We
may not deliver or maintain interoperability quickly or
cost-effectively, or at all. These efforts require capital
investment and engineering resources. If we fail to maintain
compatibility of our solutions and products with our customers’
internal networks and infrastructures, our customers may not be
able to fully utilize our solutions and products, and we may, among
other consequences, lose or fail to increase our market share and
experience reduced demand for our products or solutions which would
materially harm our business, results of operations, and financial
condition.
We face challenges from the evolving regulatory environment and
user attitude toward data privacy and protection. Actual or alleged
failure to comply with data privacy and protection laws and
regulations could materially and adversely affect our business and
results of operations.
We
operate in the regulatory environment in which data privacy and
protection is evolving. We cannot assure you that relevant
governmental authorities will not interpret or implement the laws
or regulations in ways that negatively affect the software and
information technology service industry, our clients and us.
Regulatory investigations, restrictions, penalties and sanctions,
whether targeted at us or not, may negatively affect the market
environment in which we operate, our existing or potential clients,
and our products and services, which may in turn have a material
adverse effect on our business, results of operations and financial
condition. It is also possible that we may become subject to
additional or new laws and regulations regarding data privacy and
protection in connection with the data we have access to and the
data products and services we provide to our clients. Moreover, we
may become subject to regulatory requirements as a result of
utilization of our products and services by residents of, or
travelers who visit, certain jurisdictions, such as the General
Data Protection Regulation of the European Union, or the GDPR.
Complying with additional or new regulatory requirements could
force us to incur substantial costs or require us to change our
business practices. Moreover, if a high profile security breach
occurs with respect to our competitors, people may lose trust in
the security of software solutions providers generally, including
us, which could damage the reputation of the industry, result in
heightened regulation and strengthened regulatory enforcement and
adversely affect our business and results of operations.
Our
business partners and customers may be subject to regulations
related to the handling and transfer of certain types of sensitive
and confidential information. Any failure of our partners or
customers to comply with applicable laws and regulations would harm
our business, results of operations and financial
condition.
Our
business partners and customers that use our products may be
subject to privacy- and data protection-related laws and
regulations that impose obligations in connection with the
collection, processing and use of personal data, financial data,
health data or other similar data.
Any
failure or perceived failure by our business partners or customers
to comply with applicable laws and regulations could result in
their reputational damage or governmental investigations,
inquiries, enforcement actions and prosecutions, private
litigation, fines and penalties or adverse publicity, which may
harm our business partnership and have a negative impact on our
business.
We could be harmed by data loss or other security
breaches.
Because
we process, store, and transmit data, including personal
information, failure to prevent or mitigate risks of data loss or
other security breaches, including breaches of our vendors’ or
customers’ technology and systems, could expose us or our customers
to a risk of loss or misuse of such information, adversely affect
our operating results, result in litigation or potential liability
for us, deter customers from using our products and services, and
otherwise harm our business and reputation. We use third-party
technology and systems for a variety of reasons, including, without
limitation, encryption and authentication technology, employee
email, content delivery to customers, back-office support, and
other functions. Some of our systems have experienced past security
breaches, and, although they did not have a material adverse effect
on our operating results, there can be no assurance of a similar
result in the future. Although we have developed systems and
processes that are designed to protect customer information and
prevent data loss and other security breaches, including systems
and processes designed to reduce the impact of a security breach at
a third-party vendor or customer, such measures cannot provide
absolute security. Moreover, in the event of a major system
disruption, hardware malfunction or damages to data centers and
servers caused by technologies failures, natural disasters or
man-made problems, we may experience significant loss of data which
would materially and adversely affect our business, financial
condition and results of operations.
Changes in laws and regulations related to the internet or changes
in the internet infrastructure itself may diminish the demand for
our products and solutions, and could adversely affect our
business, results of operations and financial
condition.
The
future success of our business depends upon the continued use of
the internet as a primary medium for commerce, communications and
business applications. Chinese or foreign government bodies or
agencies have in the past adopted, and may in the future adopt,
laws or regulations affecting the use of the internet as a
commercial medium. Changes in these laws or regulations could
require us to modify our products and solutions in order to comply
with these changes. In addition, government agencies or private
organizations have imposed and may impose additional taxes, fees or
other charges for accessing the internet or commerce conducted via
the internet. These laws or charges could limit the growth of
internet-related commerce or communications generally, or result in
reductions in the demand for internet-based products and services
such as our products and solutions. In addition, the use of the
internet as a business tool could be adversely affected due to
delays in the development or adoption of new standards and
protocols to handle increased demands of internet activity,
security, reliability, cost, ease-of-use, accessibility and quality
of service. The performance of the internet and its acceptance as a
business tool has been adversely affected by “viruses,” “worms,”
and similar malicious programs. If the use of the internet is
reduced as a result of these or other issues, then demand for our
products or solutions could decline, which could adversely affect
our business, results of operations and financial
condition.
Our services rely on the stable performance of servers, and any
disruption to our servers due to internal and external factors
could diminish demand for our products or solutions, harm our
business, our reputation and results of operations and subject us
to liability.
We
rely in part upon the stable performance of our servers for
provision of our solutions, products and services. Any disruption
to our servers may happen due to internal and external factors,
such as inappropriate maintenance, defects in the servers,
cyber-attacks targeted at us, occurrence of catastrophic events or
human errors. Such disruption could result in negative publicity,
loss of or delay in market acceptance of our solutions and
products, loss of competitive position, lower customer retention or
claims by customers for losses sustained by them. In such an event,
we may need to expend additional resources to help with recovering.
In addition, we may not carry insurance to compensate us for any
losses that may result from claims arising from disruption in
servers. As a result, our reputation and our brand could be harmed,
and our business, results of operations and financial condition may
be adversely affected.
Our use of open source or third-party software could negatively
affect our ability to sell our products and solutions, and subject
us to possible litigation.
Our
products and solutions incorporate open source software, and we
expect to continue to incorporate open source software in our
products and solutions in the future. Courts have interpreted few
of the licenses applicable to open source software, and there is a
risk that these licenses could be construed in a manner that could
impose unanticipated conditions or restrictions on our ability to
commercialize our products and solutions. Moreover, although we
have implemented policies to regulate the use and incorporation of
open source software into our products and solutions, we cannot be
certain that we have not incorporated open source software in our
products or solutions in a manner that is inconsistent with such
policies. If we or our employees fail to comply with open source
licenses, we may be subject to certain requirements, including
requirements that we offer our products that incorporate the open
source software for no cost, that we make available source code for
modifications or derivative works we create based upon,
incorporating or using the open source software and that we license
such modifications or derivative works under the terms of
applicable open source licenses. If an author or other third party
that distributes such open source software were to allege that we
had not complied with the conditions of one or more of these
licenses, we could be required to incur significant legal expenses
defending against such allegations and could be subject to
significant damages, enjoined from generating revenues from
customers using products that contained the open source software
and required to comply with onerous conditions or restrictions on
these products. In any of these events, we and our customers could
be required to seek licenses from third parties in order to
continue offering our products and solutions and to re-engineer our
products or solutions or discontinue offering our products to
customers in the event re-engineering cannot be accomplished on a
timely basis. Any of the foregoing could require us to devote
additional research and development resources to re-engineer our
products or solutions, could result in customer dissatisfaction and
may adversely affect our business, results of operations and
financial condition.
We could incur substantial costs in protecting or defending our
intellectual property rights, and any failure to protect our
intellectual property could adversely affect our business, results
of operations and financial condition.
Our
success depends, in part, on our ability to protect our brand and
the proprietary methods and technologies that we develop under
patent and other intellectual property laws in China so that we can
prevent others from using our inventions and proprietary
information. As of the date of this prospectus, we have registered
28 patents, 55 pending patent applications, 38 trademarks, 14
software copyrights, and ten domain names in China related to our
newly acquired businesses. There can be no assurance that any
patents that have been issued or that may be issued in the future
will provide significant protection for our intellectual property.
If we fail to protect our intellectual property rights adequately,
our competitors might gain access to our technology and our
business, results of operations and financial condition may be
adversely affected. There can be no assurance that the particular
forms of intellectual property protection that we seek, including
business decisions about when to file trademark applications and
patent applications, will be adequate to protect our business. We
may have to spend significant resources to monitor and protect our
intellectual property rights. Litigation may be necessary in the
future to enforce our intellectual property rights, determine the
validity and scope of our proprietary rights or those of others, or
defend against claims of infringement or invalidity. Such
litigation could be costly, time-consuming and distracting to
management, result in a diversion of significant resources, the
narrowing or invalidation of portions of our intellectual property
and have an adverse effect on our business, results of operations
and financial condition. Our efforts to enforce our intellectual
property rights may be met with defenses, counterclaims and
countersuits attacking the validity and enforceability of our
intellectual property rights or alleging that we infringe the
counterclaimant’s own intellectual property. Any of our patents,
copyrights, trademarks or other intellectual property rights could
be challenged by others or invalidated through administrative
process or litigation.
We
also rely, in part, on confidentiality agreements and non-compete
agreements with our business partners, employees, consultants,
advisors, customers and others in our efforts to protect our
proprietary technology, processes and methods. These agreements may
not effectively prevent disclosure of our confidential information,
and it may be possible for unauthorized parties to copy our
software or other proprietary technology or information, or to
develop similar software independently with us lacking an adequate
remedy for unauthorized use or disclosure of our confidential
information. In addition, others may independently discover our
trade secrets and proprietary information, and in these cases we
would not be able to assert any trade secret rights against those
parties. Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection could
adversely affect our competitive business position. In addition, to
the extent we expand our international activities, our exposure to
unauthorized copying, transfer and use of our proprietary
technology or information may increase.
We
cannot be certain that our means of protecting our intellectual
property and proprietary rights will be adequate or that our
competitors will not independently develop similar technology. If
we fail to meaningfully protect our intellectual property and
proprietary rights, our business, results of operations and
financial condition could be adversely affected.
The estimates of market opportunity, forecasts of market growth
included in this prospectus may prove to be inaccurate, and any
real or perceived inaccuracies may harm our reputation and
negatively affect our business. Even if the market in which we
compete achieves the forecasted growth, our business could fail to
grow at similar rates, if at all.
Market
opportunity estimates and growth forecasts included in this
prospectus are subject to significant uncertainty and are based on
assumptions and estimates that may not prove to be accurate. The
variables that go into the calculation of our market opportunities
are subject to change over time, and there is no guarantee that any
particular number or percentage of addressable companies covered by
our market opportunities estimates will purchase our products and
solutions at all or generate any particular level of revenues for
us. Even if the market in which we compete meets the size estimates
and growth forecasted in this prospectus, our business could fail
to grow for a variety of reasons, including reasons outside of our
control, such as competition in our industries.
USE OF
PROCEEDS
We
will not receive any proceeds from the resale of our Common Shares
by the Selling Shareholders pursuant to this prospectus. However,
we will receive the exercise price of any Common Shares issued to
the Selling Shareholders upon cash exercise by them of options held
by them. We would expect to use these proceeds, if any, for general
working capital purposes. We have agreed to pay the expenses of
registration of these shares.
SELLING
SHAREHOLDERS
This
prospectus covers the public resale (subject to ReTo’s M&A and
the Act) of our Common Shares are to be issued to the Selling
Shareholders referred to below. Such Selling Shareholders may from
time to time offer and sell pursuant to this prospectus any or all
of the Common Shares owned by them. The Selling Shareholders,
however, make no representations that the Common Shares will be
offered for sale. The table below presents information regarding
the Selling Shareholders and the Common Shares that each may offer
and sell from time to time under this prospectus.
The
Common Shares being registered by this prospectus consist of
1,610,000 Common Shares that are to be issued to the Selling
Shareholders under the 2021 Plan in connection with their service
with the Company.
The
following table sets forth (a) the name and position or positions
with our company of each Selling Shareholder; (b) the aggregate of
(i) the number of Common Shares held by each Selling Shareholder as
of the date of this prospectus and (ii) the number of shares
issuable upon exercise of awards granted to each Selling
Shareholder under the 2021 Plan that are being registered pursuant
to this registration statement for resale by each Selling
Shareholder as of the date of this prospectus; (c) the number of
Common Shares that each Selling Shareholder may offer for sale from
time to time pursuant to this prospectus, whether or not such
Selling Shareholder has a present intention to do so; and (d) the
number of Common Shares to be beneficially owned by each Selling
Shareholder following the sale of all shares that may be so offered
pursuant to this prospectus, assuming no other change in ownership
of Common Shares by such Selling Shareholder after the date of this
prospectus. Unless otherwise indicated, beneficial ownership is
direct and the person indicated has sole voting and investment
power. To our knowledge, none of our officers and directors have a
present intention to offer Common Shares for sale, although they
retain the right to do so.
As
used in the table below, a beneficial owner of our Common Shares
includes any person who, directly or indirectly, through contract,
arrangement, understanding or otherwise has or shares (i) the power
to vote or direct the voting of such security or (ii) investment
power, which includes the power to dispose or to direct the
disposition of such security. In addition, a person is deemed to be
the beneficial owner of our Common Shares, if that person has the
right to acquire beneficial ownership of such security within 60
days. The numbers of shares owned prior to resale by each Selling
Shareholder includes (i) the aggregate of Common Shares currently
owned by such Selling Shareholder and (ii) Common Shares to be
granted to such Selling Shareholders under the 2021 Plan,
registered pursuant to this prospectus for resale.
Inclusion
of an individual’s name in the table below does not constitute an
admission that such individual is an “affiliate” of the
Company.
Selling Shareholder |
|
Principal Position
with the Company |
|
Shares Owned Prior
to Resale
|
|
|
Number of
Shares
Offered
for
|
|
|
Shares Beneficially
Owned After Resale |
|
|
|
|
|
Number |
|
|
Percent(1) |
|
|
Resale |
|
|
Number |
|
|
Percent(2) |
|
Hengfang Li |
|
Chief Executive Officer
and Chairman of the Board |
|
|
2,396,264 |
(3) |
|
|
7.2 |
% |
|
|
600,000 |
|
|
|
1,796,264 |
|
|
|
5.2 |
% |
Guangfeng Dai |
|
Chief Operating Officer and
Director |
|
|
1,370,632 |
(4) |
|
|
4.1 |
% |
|
|
440,000 |
|
|
|
930,632 |
|
|
|
2.7 |
% |
Zhizhong Hu |
|
Chief Technology Officer and
Director |
|
|
1,205,632 |
(5) |
|
|
3.6 |
% |
|
|
300,000 |
|
|
|
905,632 |
|
|
|
2.6 |
% |
Degang Hou |
|
Chief Internal Control Officer |
|
|
1,105,632 |
(6) |
|
|
3.3 |
% |
|
|
200,000 |
|
|
|
905,632 |
|
|
|
2.6 |
% |
Xingchun Wang |
|
Chief Financial Officer |
|
|
50,000 |
|
|
|
* |
|
|
|
30,000 |
|
|
|
20,000 |
|
|
|
* |
|
Zhi Li |
|
Director |
|
|
30,000 |
|
|
|
* |
|
|
|
10,000 |
|
|
|
20,000 |
|
|
|
* |
|
Austin Huang |
|
Director |
|
|
30,000 |
|
|
|
* |
|
|
|
10,000 |
|
|
|
20,000 |
|
|
|
* |
|
Lidong Liu |
|
Director |
|
|
10,000 |
|
|
|
* |
|
|
|
10,000 |
|
|
|
- |
|
|
|
- |
|
Shuhua Ma |
|
Director |
|
|
10,000 |
|
|
|
* |
|
|
|
10,000 |
|
|
|
- |
|
|
|
- |
|
Total |
|
|
|
|
6,208,160 |
|
|
|
18.7 |
% |
|
|
1,610,000 |
|
|
|
4,598,160 |
|
|
|
13.2 |
% |
* |
Less
than one percent. |
(1) |
Percentage
is computed with reference to 33,113,112 Common Shares outstanding
as of April 22, 2022. |
(2) |
Percentage is computed with reference to 33,113,112 Common Shares
outstanding as of April 22, 2022, and assumes for each Selling
Shareholder the sale of all shares offered by that particular
Selling Shareholder under this prospectus and the issuance of an
aggregate of 1,610,000 Common Shares under the 2021 Plan. |
(3) |
Represents
(i) approximately 1,561,264 Common Shares held through REIT
International Development (Group) Co, a Hong Kong limited liability
company (“REIT International”). Mr. Li holds a 40% ownership of
REIT International and has the voting and investment power with
respect to 40% of the 3,903,161 Common Shares held by REIT
International; (ii) 10,000 Common Shares held through Soothie
Holdings Limited, a British Virgin Islands company, controlled by
Mr. Li; (iii) 225,000 Common Shares held by Mr. Li directly and
(iv) 600,000 Common Shares to be granted to Mr. Li under the 2021
Plan. |
(4) |
Represents
(i) approximately 780,632 Common Shares held through REIT
International. Mr. Dai holds a 20% ownership of REIT International
and has the voting and investment power with respect to 20% of the
3,903,161 Common Shares held by REIT International; (ii) 150,000
Common Shares held by Mr. Dai directly and (iii) 440,000 Common
Shares to be granted to Mr. Dai under the 2021 Plan. |
(5) |
Represents
(i) approximately 780,632 Common Shares held through REIT
International. Mr. Hu holds a 20% ownership of REIT International
and has the voting and investment power with respect to 20% of the
3,903,161 Common Shares held by REIT International; (ii) 125,000
Common Shares held by Mr. Hu directly; and (iii) 300,000 Common
Shares to be granted to Mr. Hu under the 2021 Plan. |
(6) |
Represents
(i) approximately 780,632 Common Shares held through REIT
International. Mr. Hou holds a 20% ownership of REIT International
and has the voting and investment power with respect to 20% of the
3,903,161 Common Shares held by REIT International; (ii) 125,000
Common Shares held by Mr. Hou directly; and (iii) 200,000 Common
Shares to be granted to Mr. Hou under the 2021 Plan. |
We
may supplement this prospectus from time to time as required by the
rules of the Securities and Exchange Commission to include certain
information concerning the security ownership of the Selling
Shareholders or any new Selling Shareholders, the number of
securities offered for resale and the position, office or other
material relationship which a Selling Shareholder has had with us
or our affiliates and predecessors within the past three
years.
PLAN OF
DISTRIBUTION
In
this section of the prospectus, the term “Selling Shareholder”
means and includes certain security holders identified herein in
the section entitled “Selling Shareholders.” The Common Shares
offered by this prospectus may be sold from time to time directly
by the Selling Shareholders, subject to ReTo’s M&A and the Act.
Alternatively, the Selling Shareholders may from time to time offer
such shares through underwriters, brokers, dealers, agents or other
intermediaries. The Selling Shareholders as of the date of this
prospectus have advised us that there were no underwriting,
distribution or transfer arrangements entered into with respect to
the Common Shares offered hereby. The distribution or transfer of
the Common Shares by the Selling Shareholders, subject to the
requirements of ReTo’s M&A may be effected: in one or more
transactions settled by issuance of Common Shares that may take
place on the Nasdaq Capital Market (including one or more block
transaction) through customary brokerage channels, either through
brokers acting as agents for the Selling Shareholders, or through
market makers, dealers or underwriters acting as principals who may
resell these shares on the Nasdaq Capital Market; in
privately-negotiated sales; by a combination of such methods; or by
other means. These transactions may be effected at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at other negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions
may be paid by the Selling Shareholders in connection with sales of
our Common Shares.
Subject
to ReTo’s M&A and the Act, the Selling Shareholders may enter
into hedging transactions with broker-dealers in connection with
distributions of the shares or otherwise. In such transactions,
broker-dealers may engage in short sales of the Common Shares in
the course of hedging the positions they assume with the Selling
Shareholders. The Selling Shareholders may enter into option or
other transactions with broker-dealers which require the delivery
to the broker-dealer of Common Shares. The broker-dealer may then
resell or otherwise transfer such Common Shares pursuant to this
prospectus.
The
Selling Shareholders also may lend or pledge Common Shares to a
broker-dealer. The broker-dealer may sell the Common Shares so
lent, or upon a default the broker-dealer may sell the pledged
Common Shares pursuant to this prospectus. Any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 may
be sold under Rule 144 rather than pursuant to this
prospectus.
The
Selling Shareholders have advised us that they have not entered
into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their
securities. There is no underwriter or coordinating broker acting
in connection with the proposed sale of Common Shares by the
Selling Shareholders.
Although
the Common Shares covered by this prospectus are not currently
being underwritten, the Selling Shareholders or their underwriters,
brokers, dealers or other agents or other intermediaries, if any,
that may participate with the Selling Shareholders in any offering
or distribution of Common Shares may be deemed “underwriters”
within the meaning of the Securities Act and any profits realized
or commissions received by them may be deemed underwriting
compensation thereunder.
Under
applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), any person engaged in a
distribution of Common Shares offered hereby may not simultaneously
engage in market making activities with respect to the Common
Shares for a period of up to five days preceding such distribution.
The Selling Shareholders will be subject to the applicable
provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation, Regulation M,
which provisions may limit the timing of purchases and sales by the
Selling Shareholders.
In
order to comply with certain state securities or blue sky laws and
regulations, if applicable, the Common Shares offered hereby will
be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the Common Shares may not be
sold unless they are registered or qualified for sale in such
state, or unless an exemption from registration or qualification is
available and is obtained.
We
will bear all costs, expenses and fees in connection with the
registration of the Common Shares offered hereby. However, the
Selling Shareholders will bear any brokerage or underwriting
commissions and similar selling expenses, if any, attributable to
the sale of the shares of Common Shares offered pursuant to this
prospectus. We have agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments to which any of those
security holders may be required to make in respect
thereof.
There
can be no assurance that the Selling Shareholders will sell any or
all of the securities offered by them hereby.
LEGAL
MATTERS
The
validity of the Common Shares to be offered by this prospectus and
relevant legal matters under BVI law has been passed upon by
Mourant Ozannes, a BVI partnership.
EXPERTS
The
audited financial statements of the Company incorporated by
reference in this prospectus and elsewhere in the registration
statement have been so incorporated by reference in reliance upon
the report of YCM CPA Inc., an independent registered public
accounting firm, given the authority of said firm as experts in
auditing and accounting, which is included as exhibit to this
registration statement upon the authority and consent of said firm
as experts in accounting and auditing.
The
registered business address of YCM CPA Inc. is 2400 Barranca Pkwy,
Ste 330, Irvine, CA 92606.
WHERE YOU CAN FIND
MORE INFORMATION
We
have filed with the SEC a registration statement under the
Securities Act, with respect to the Common Shares offered hereby.
This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules filed
therewith. For further information about us and the Common Shares
offered hereby, we refer you to the registration statement, the
documents incorporated by reference herein and the exhibits and
schedules filed thereto. Statements contained or incorporated by
reference in this prospectus regarding the contents of any contract
or any other document that is filed as an exhibit to the
registration statement are not necessarily complete, and each such
statement is qualified in all respects by reference to the full
text of such contract or other document filed as an exhibit to the
registration statement. The SEC maintains an Internet website that
contains reports, proxy statements and other information about
registrants, like us, that file electronically with the SEC. The
address of that site is www.sec.gov.
We
are subject to the information and periodic reporting requirements
of the Exchange Act as applicable to foreign private issuers and,
in accordance therewith, we file annual reports and other
information with the Commission under the Exchange Act. Our 2020
Annual Report has been filed with the SEC and an annual report on
Form 20-F for subsequent years will be due within four months
following the fiscal year end. Our Commission filings, including
the complete registration statement of which this prospectus is a
part, are available to the public from commercial document
retrieval services and also available at the Internet website
maintained by the Commission at www.sec.gov.
We
are not required to disclose certain other information that is
required from U.S. domestic issuers. As a foreign private issuer,
we are exempt under the Exchange Act from, among other things, the
rules prescribing the furnishing and content of proxy statements,
and our executive officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act and
Regulation FD (Fair Disclosure), which was adopted to ensure that
select groups of investors are not privy to specific information
about an issuer before other investors.
We
are, however, still subject to the anti-fraud and anti-manipulation
rules of the SEC, such as Rule 10b-5. Since many of the disclosure
obligations required of us as a foreign private issuer are
different than those required by companies filing as a domestic
issuer, our shareholders, potential shareholders and the investing
public in general should not expect to receive information about us
in the same amount and at the same time as information is received
from, or provided by, companies filing as a domestic issuer. We are
liable for violations of the rules and regulations of the SEC that
apply to us as a foreign private issuer.
Only
the specific documents incorporated by reference below, or
incorporated by reference in any prospectus supplement, are to be
deemed incorporated by reference into this prospectus and the
registration statement of which it is a part. No information
available on or through our website, or any other website reference
herein, shall be deemed incorporated by reference into this
prospectus.
Under
BVI law, holders of our Common Shares are entitled, upon giving
written notice to us, to inspect (i) our M&A, (ii) our register
of members, (iii) our register of directors and (iv) minutes of
meetings and resolutions of members, and to make copies of, and
take extracts from the, these documents and records. However, our
directors can refuse access if they are satisfied that to allow
such access would be contrary to our interests.
INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE
The
SEC allows us to incorporate by reference the information we file
with it, which means that we can disclose important information to
you by referring you to another document that we have filed
separately with the SEC. You should read the information
incorporated by reference herein because it is an important part of
this prospectus. We incorporate by reference into this prospectus
and the registration statement of which this prospectus is a part
the information or documents listed below that we have filed with
the SEC:
|
● |
our 2020 Annual Report on
Form 20-F for the fiscal year ended December 31, 2020 filed
with the SEC on May 14, 2021; and |
|
● |
our
Current Reports on Form 6-K dated on
June 7, 2021,
July 8, 2021,
September 13, 2021,
October 27, 2021,
October 29, 2021,
November 3, 2021,
November 15, 2021,
November 18, 2021,
November 24, 2021,
December 1, 2021,
December 17, 2021, January
4, 2022,
January 13, 2022,
February 24, 2022, and
March 14, 2022, including all the exhibits thereto. |
Except
to the extent such information is deemed furnished and not filed
pursuant to securities laws and regulations, all documents
subsequently filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act and, to the extent
specifically designated therein, reports on Form 6-K furnished by
the Registrant to the Commission, in each case, prior to the filing
of a post-effective amendment to this registration statement
indicating that all securities offered under this registration
statement have been sold, or deregistering all securities then
remaining unsold, shall be deemed to be incorporated by reference
in this registration statement and to be a part hereof from the
date of filing or furnishing of such documents.
Any
statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
this registration statement to the extent that a statement
contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this registration
statement.
Upon
written or oral request, we shall provide without charge to each
person, including any beneficial owner, a copy of any or all of the
documents that are incorporated by reference to this prospectus but
not delivered with this prospectus. You may request a copy of these
filings by contacting us at ReTo Eco-Solutions, Inc., X-702,
Runfengdeshangyuan, 60 Anli Road, Chaoyang District, Beijing,
People’s Republic of China 100101, Attention: Chief Executive
Officer, telephone: (+86) 10-64827328.
You
should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to
provide you with information that is different. This document may
only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of
this document.
Additional
risks and uncertainties not presently known or that are currently
deemed immaterial may also impair our business operations. The
risks and uncertainties described in this document and other risks
and uncertainties which we may face in the future will have a
greater impact on those who purchase our Common Shares. These
purchasers will purchase our Common Shares at the market price or
at a privately negotiated price and will run the risk of losing
their entire investment.
ReTo
Eco-Solutions, Inc.
1,610,000
Common Shares
REOFFER
PROSPECTUS
April 26, 2022
PART
II
INFORMATION
REQUIRED IN THE REGISTRATION STATEMENT
Item
3. Incorporation
of Documents by Reference.
Included
in the prospectus which is part of this Registration
Statement.
Item
4. Description
of Securities.
Not
applicable.
Item
5. Interests
of Named Experts and Counsel.
None.
Item
6. Indemnification
of Directors and Officers.
The
Act allows a BVI company to indemnify any current or former
director against any expense, judgment, fine or amount paid in
settlement and reasonably incurred in connection with any legal,
administrative or investigative proceedings brought against the
director because the director served as a director of the company
if: (i) the director acted honestly and in good faith and in what
the director believed to be in the best interests of the company;
and (iii) (in the case of criminal proceedings) the director had no
reasonable cause to believe that the director’s conduct was
unlawful. An indemnity that breaches the Act is void.
The
Act allows a BVI company to pay any expenses incurred by any
current or former director in defending any legal, administrative
or investigative proceedings before the proceedings are finally
concluded if the company is given an undertaking from, or on behalf
of, the director to repay all amounts paid by the company if it is
ultimately determined that the director is not entitled to be
indemnified by the company.
With
regard to conflicts of interest, any director of ReTo who is
interested in a transaction into which ReTo has entered or will
enter may vote on a matter relating to that transaction as long as
he or she has disclosed the interest to each other director of
ReTo.
We
are permitted under the M&A to purchase D&O insurance for
an officer of the Company whether or not the Company has the power
to indemnify that person under the M&A.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Item
7. Exemption
from Registration Claimed.
Not
applicable.
Item
8. Exhibits.
The
following exhibits are filed with this Registration
Statement.
Item
9. Undertakings.
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration
Statement:
(i)
to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii)
to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this Registration Statement; and
(iii)
to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to that information in the
Registration Statement
provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in this Registration
Statement;
(2)
That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(3)
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b)
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(c)
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Beijing, China, on April
26, 2022.
|
ReTo
Eco-Solutions, Inc. |
|
|
|
|
By: |
/s/
Hengfang Li |
|
|
Hengfang
Li |
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
By: |
/s/
Xingchun Wang |
|
|
Xingchun
Wang |
|
|
Chief
Financial Officer
(Principal
Executive Officer)
|
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hengfang Li as his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments and registration statements
filed pursuant to Rule 462(b) under the Securities Act of 1933) to
this Registration Statement and to file the same, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that each of said attorney-in-fact and agent or his substitutes
or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Form S-8 has been signed by the following persons in the capacities
indicated on April 26, 2022.
Name |
|
Title |
|
|
|
/s/
Hengfang Li |
|
Chairman
of the Board & Chief Executive Officer |
Hengfang
Li |
|
(Principal
Executive Officer) |
|
|
|
/s/
Xingchun Wang |
|
Chief
Financial Officer |
Xingchun
Wang
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
|
/s/
Guangfei Dai |
|
Chief
Operating Officer and Director |
Guangfei
Dai |
|
|
|
|
|
/s/
Shuhua Ma |
|
Director |
Shuhua
Ma |
|
|
|
|
|
/s/
Lidong Liu |
|
Director |
Lidong
Liu |
|
|
|
|
|
/s/
Zhi Li |
|
Director |
Zhi
Li |
|
|
|
|
|
/s/
Zhizhong Hu |
|
Director |
Zhizhong
Hu |
|
|
|
|
|
/s/
Austin Huang |
|
Director |
Austin
Huang |
|
|
AUTHORIZED U.S. REPRESENTATIVE
Pursuant
to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of ReTo
Eco-Solutions, Inc., has signed this Registration Statement in New
York, NY on April 26, 2022.
|
Authorized
U.S. Representative |
|
|
|
By: |
/s/
Xinran Li |
|
|
Name: |
Xinran
Li |
II-4
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