Company: RETO
Filing Date: 2025-05-09
Form Type: 20-F
Source: 0001213900-25-041195
Chunk: 54

Company: ReTo Eco-Solutions, Inc.
Filing Date: 2025-05-09
Form: 20-F
Item: Item 19
Chunk 54
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 the fair value option to account
for its convertible loans (Note 11). The Company engaged an independent valuation firm to perform the valuation. The convertible loans
are classified as level 3 instruments, as the valuation was determined based on unobservable inputs which are supported by little or no
market activity and reflect the Company’s own assumptions in measuring fair value. Significant estimates used in developing the
fair value of the convertible loans include time to maturity, risk-free interest rate, straight debt discount rate, probability to convert
and expected timing of conversion.

As the inputs used in developing the fair value
for level 3 instruments are unobservable and require significant management estimation, a change in these inputs could result in a significant
change in the fair value measurement.

F-12

RETO ECO-SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

The Company adopted ASC Topic 606 Revenue from
Contracts with Customers (“ ASC 606”) on January 1, 2018 using the modified retrospective approach. Under ASC 606, revenue
is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration
to which an entity expects to be entitled to in exchange for those goods or services.

To determine revenue recognition for contracts
with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable
that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations
in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

The Company’s revenues from continuing operations
are primarily derived from the following sources:

  Revenue from machinery and equipment sales  

The Company recognizes revenue when the machinery and equipment are
delivered and control is transferred. The Company generally provides a warranty for a period of 12 months after the customers receive
the equipment. The Company determines that such product warranty is not a separate performance obligation because the nature of warranty
is to provide assurance that a product will function as expected and in accordance with customer’s specification, and the Company
has not sold the warranty separately. From its past experience, the Company has not experienced any material