[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This report contains **forward-looking statements** subject to risks and uncertainties that could cause actual results to differ materially from expectations - **Key risks** include significant reliance on top customers, potential uncollectible accounts receivable, fines from the Chinese government, challenges in maintaining product quality, intense competition, need for additional financing, risks related to new facility construction, potential revocation of tax treatments, supply chain disruptions, raw material cost fluctuations, and reliance on key executives[10](index=10&type=chunk) - **Additional risks** involve the absence of long-term supplier contracts, failure to adopt new technologies, lack of business liability insurance, adverse regulatory developments in Mainland China, potential delisting under the HFCAA, and uncertainties in China's economic, political, social, and legal systems, as well as exchange rate fluctuations[13](index=13&type=chunk) [PART I FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including Balance Sheets, Income Statements, Equity Changes, and Cash Flows, along with detailed accounting policy notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets show an increase in total assets and stockholders' equity as of June 30, 2025, compared to December 31, 2024, driven primarily by an increase in cash and accounts receivable Condensed Consolidated Balance Sheet Highlights (in US$) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :------------------------ | :------------------ | | **ASSETS** | | | | Cash | $110,452,470 | $103,760,324 | | Accounts receivable, net | $10,736,898 | $7,504,630 | | Total Current Assets | $123,159,576 | $114,139,861 | | Total Assets | $137,024,190 | $128,019,463 | | **LIABILITIES & EQUITY** | | | | Total Current Liabilities | $5,014,548 | $2,951,192 | | Total Liabilities | $5,219,006 | $3,433,798 | | Total Stockholders' Equity | $131,805,184 | $124,585,665 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Revenues slightly increased for Q2 2025, but gross profit and net income decreased, while for H1 2025, revenues, gross profit, and net income all increased Condensed Consolidated Statements of Income and Comprehensive Income Highlights (in US$) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $12,419,455 | $12,234,575 | $27,709,033 | $27,111,834 | | Gross Profit | $4,111,511 | $4,860,818 | $9,753,142 | $8,198,776 | | Income from Operations | $3,082,904 | $3,725,228 | $7,055,638 | $6,030,303 | | Net Income | $2,241,828 | $2,701,694 | $4,804,550 | $3,260,564 | | Basic EPS | $0.19 | $0.23 | $0.40 | $0.29 | | Diluted EPS | $0.19 | $0.23 | $0.40 | $0.29 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity increased from December 31, 2024, to June 30, 2025, driven by net income and positive foreign currency translation adjustments Stockholders' Equity Changes (in US$) | Metric | Balance as of Dec 31, 2024 | Net Income (Q1 2025) | FX Adjustment (Q1 2025) | Balance as of Mar 31, 2025 | Net Income (Q2 2025) | FX Adjustment (Q2 2025) | Balance as of Jun 30, 2025 | | :-------------------------- | :------------------------- | :------------------- | :---------------------- | :------------------------- | :------------------- | :---------------------- | :------------------------- | | Total Stockholders' Equity | $124,585,665 | $2,562,722 | $732,380 | $127,880,767 | $2,241,828 | $1,682,589 | $131,805,184 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive operating cash flow for H1 2025, with minimal investing and financing activities, resulting in a net increase in cash Condensed Consolidated Statements of Cash Flows Highlights (in US$) | Cash Flow Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $4,676,400 | $(5,335,907) | | Net cash used in investing activity | $- | $(114,762) | | Net cash provided by financing activities | $- | $7,852,960 | | Effect of changes of foreign exchange rates on cash | $2,015,746 | $(2,068,543) | | Net increase in cash | $6,692,146 | $333,748 | | Cash, end of period | $110,452,470 | $98,374,302 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of financial statement figures, covering business, accounting policies, asset/liability accounts, related party transactions, income taxes, equity, and risks [NOTE 1 — BUSINESS DESCRIPTION](index=10&type=section&id=NOTE%201%20%E2%80%94%20BUSINESS%20DESCRIPTION) Wetouch Technology Inc., a Nevada holding company, operates through its PRC subsidiary Sichuan Vtouch, focusing on touchscreen display R&D, manufacturing, and distribution - Wetouch Technology Inc. (formerly Gulf West Investment Properties, Inc.) was incorporated in August 1992 in Nevada[24](index=24&type=chunk) - On **October 9, 2020**, the Company completed a reverse merger with BVI Wetouch, making BVI Wetouch a wholly-owned subsidiary[25](index=25&type=chunk) - Sichuan Wetouch (now Sichuan Vtouch) is **primarily engaged** in the R&D, manufacture, and distribution of touchscreen displays for financial terminals, automotive, POS, gaming, lottery, medical, HMI, and other specialized industries[26](index=26&type=chunk) - In March 2021, Sichuan Wetouch was under a government-directed relocation order, and Sichuan Vtouch took over its operating business. Sichuan Wetouch was deconsolidated on **March 30, 2023**[32](index=32&type=chunk)[33](index=33&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation, consolidation principles, use of estimates, significant accounting policies, and recent accounting pronouncements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP, with certain information condensed or omitted as permitted by SEC rules[37](index=37&type=chunk) - Sichuan Wetouch was deconsolidated on **March 30, 2023**, as the Company no longer operated or controlled it, resulting in nil gain or loss from deconsolidation[39](index=39&type=chunk)[40](index=40&type=chunk) - The Company adopted **ASU No. 2016-02**, Leases (Topic 842), recognizing right-of-use assets and lease liabilities on the balance sheet, and elected certain practical expedients for transition[43](index=43&type=chunk)[45](index=45&type=chunk) - The Company's Chief Executive Officer (CEO) is the CODM, who reviews consolidated results. The Company has only **one reporting segment**: the touchscreen business, as all assets are in the PRC[46](index=46&type=chunk)[47](index=47&type=chunk) - Recent accounting pronouncements, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), **did not have a material impact** on the Company's consolidated financial statements[48](index=48&type=chunk)[49](index=49&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE](index=14&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE) Accounts receivable, net, significantly increased from December 31, 2024, to June 30, 2025, particularly in current and 1-3 months past due categories Accounts Receivable, Net (in US$) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :---------------------- | :------------------------ | :------------------ | | Accounts receivable, net | $10,736,898 | $7,504,630 | Aging of Accounts Receivable (in US$) | Aging Category | June 30, 2025 (Unaudited) | December 31, 2024 | | :--------------- | :------------------------ | :------------------ | | Current | $5,997,500 | $3,726,124 | | 1-3 months past due | $4,739,398 | $2,536,815 | | 4-6 months past due | $- | $1,241,691 | | Total | $10,736,898 | $7,504,630 | [NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=15&type=section&id=NOTE%204%20%E2%80%94%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Prepaid expenses and other current assets decreased due to the full amortization of prepaid consulting service fees by June 30, 2025 Prepaid Expenses and Other Current Assets (in US$) | Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :---------------------------------- | :------------------------ | :------------------ | | Advance to suppliers | $213,551 | $252,618 | | Prepayment for land use right | $547,941 | $537,755 | | Security deposit | $54,861 | $53,840 | | Prepaid consulting service fees | $- | $884,687 | | Prepaid market research fees | $955,000 | $955,000 | | Others receivable | $53,191 | $78,680 | | Total Prepaid expenses and other current assets | $1,824,544 | $2,762,580 | - Prepaid consulting service fees of **$884,687** as of December 31, 2024, have been **fully amortized** by June 30, 2025[55](index=55&type=chunk)[56](index=56&type=chunk) - The Company has a prepayment for land use rights (**$547,941**) for a new facility, expected to be reclassified to intangible assets by H2 2026, and a security deposit (**$54,861**) for a construction license, expected to be refunded by H2 2025[56](index=56&type=chunk) [NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET](index=16&type=section&id=NOTE%205%20%E2%80%94%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) Net property, plant, and equipment increased slightly, primarily due to ongoing construction in progress for the new facility Property, Plant and Equipment, Net (in US$) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Buildings | $12,022 | $11,798 | | Machinery and equipment | $7,817 | $7,672 | | Vehicles | $40,875 | $40,114 | | Construction in progress | $12,997,423 | $12,755,791 | | Subtotal | $13,058,137 | $12,815,375 | | Less: accumulated depreciation | $(38,010) | $(32,378) | | Property, plant and equipment, net | $13,020,127 | $12,782,997 | - Depreciation expense for the six months ended June 30, 2025, was **$4,957**, up from **$4,798** in the prior year[57](index=57&type=chunk) - As of June 30, 2025, the Company had a commitment of **$0.7 million** for construction in progress of its new facility[58](index=58&type=chunk) [NOTE 6 — OPERATING LEASE](index=16&type=section&id=NOTE%206%20%E2%80%94%20OPERATING%20LEASE) The Company continues to lease property due to new facility construction delays, recognizing operating lease expenses and liabilities per ASU 2016-02 - The Company is under a government-directed relocation order and is constructing a new facility, with completion rescheduled to end of **December 31, 2025**, and production commencing in **Q2 2026**[59](index=59&type=chunk)[61](index=61&type=chunk) - The lease for the current property has been renewed multiple times, with the latest extension to **October 31, 2025**, at a monthly rent of **RMB 400,000 ($55,837)**[60](index=60&type=chunk) Lease Expense and Liabilities (in US$) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease expense | $156,869 | $- | $308,244 | $- | | Short-term lease expense | $- | $146,643 | $- | $294,372 | | Total lease expense | $156,869 | $146,643 | $308,244 | $294,372 | | Operating lease right-of-use assets (June 30, 2025) | $813,516 | | | | | Operating lease right-of-use assets (Dec 31, 2024) | | | | $1,055,208 | | Total operating lease liabilities (June 30, 2025) | $813,517 | | | | | Total operating lease liabilities (Dec 31, 2024) | | | | $1,054,145 | [NOTE 7 — RELATED PARTY TRANSACTIONS](index=18&type=section&id=NOTE%207%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Amounts due to related party Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. significantly increased from December 31, 2024, to June 30, 2025 Amounts Due to Related Party (in US$) | Related Party | Relationship | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------------------------------------------ | :------------ | :---------------- | | Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. | An affiliate of Ms. Jiaying Cai, director of the Company | $642,634 | $149,211 | [NOTE 8 — INCOME TAXES](index=18&type=section&id=NOTE%208%20%E2%80%94%20INCOME%20TAXES) Company subsidiaries are subject to varying income tax rates across jurisdictions, with a **32.8%** effective tax rate for H1 2025 - Wetouch is subject to a **21%** U.S. federal income tax rate, BVI Wetouch is not subject to income tax, and HK Wetouch is subject to a **16.5%** profit tax in Hong Kong[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - PRC subsidiaries (Sichuan Wetouch and Sichuan Vtouch) are generally subject to a **25%** CIT rate, though Sichuan Wetouch previously qualified for a **15% HNTE rate** until October 20, 2023[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) Income Tax Provision (in US$) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | PRC income tax provision | $860,267 | $1,099,331 | $2,336,755 | $1,761,179 | | Deferred income tax expenses | $16,455 | $- | $11,073 | $- | | Total Income tax provision | $876,722 | $1,099,331 | $2,347,828 | $1,761,179 | Effective Tax Rate Reconciliation | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | PRC statutory income tax rate | 25.0% | 25.0% | 25.0% | 25.0% | | Income tax computed at PRC statutory corporate income tax rate of 25% | 28.0% | 28.9% | 30.0% | 35.3% | | Effective tax rate | 28.1% | 28.9% | 32.8% | 35.1% | Deferred Tax Assets, Net (in US$) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total gross deferred tax assets | $231,474 | $305,199 | | Deferred tax liabilities | $(200,883) | $(263,802) | | Deferred tax assets, net | $30,591 | $41,397 | [NOTE 9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=21&type=section&id=NOTE%209%20%E2%80%94%20ACCURRED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities significantly increased, driven by higher other payables to third parties and other tax payables Accrued Expenses and Other Current Liabilities (in US$) | Item | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Advance from customers | $- | $166,535 | | Accrued payroll and employee benefits | $82,340 | $81,837 | | Accrued legal compensation charges | $- | $35,356 | | Accrued professional fees | $148,199 | $57,173 | | Accrued director fees | $58,417 | $66,734 | | Other payable to third parties | $629,694 | $147,102 | | Other tax payables | $344,175 | $162,888 | | Others | $145,245 | $248,836 | | Total Accrued expenses and other current liabilities | $1,408,070 | $966,461 | [NOTE 10 — CONVERTIBLE PROMISSORY NOTES PAYABLE](index=21&type=section&id=NOTE%2010%20%E2%80%94%20CONVERTIBLE%20PROMISSORY%20NOTES%20PAYABLE) Convertible promissory notes issued in 2021 were fully repaid by February 2024, and most associated warrants expired or were exercised by June 2024 - In 2021, the Company issued **seven convertible promissory notes totaling $2.25 million**, bearing **8.0% interest**, with a default rate of **16%**[78](index=78&type=chunk)[79](index=79&type=chunk) - The notes were convertible into common stock at a price based on an Uplist Offering or **$15.0 per share**[80](index=80&type=chunk) - On February 23, 2024, the Company made a **full payment of $2,586,960** for the remaining five outstanding promissory notes, including principal and accrued interest/default charges[87](index=87&type=chunk) - The Company also issued three-year warrants to purchase **90,000 shares** of common stock to lenders, with an exercise price of **$25 per share** (subject to adjustment)[89](index=89&type=chunk)[90](index=90&type=chunk) - During the six months ended June 30, 2024, one lender exercised warrants for **2,725 shares**, and the remaining **38,430 Note Warrants expired**[95](index=95&type=chunk) [NOTE 11 — STOCKHOLDERS' EQUITY](index=23&type=section&id=NOTE%2011%20%E2%80%94%20STOCKHOLDERS'%20EQUITY) This note details common stock changes, including issuances, reverse stock splits, the 2024 Public Offering, and statutory reserve requirements - As of June 30, 2025, there were **11,931,534 shares** of common stock issued and outstanding, with a par value of **$0.001**[101](index=101&type=chunk) - The Company effected a **1-for-20 reverse stock split** on **September 12, 2023**, retrospectively adjusting all share information[103](index=103&type=chunk) - On February 23, 2024, the Company closed a public offering of **2,160,000 shares at $5.00 per share**, generating **$10.8 million** gross proceeds, with **$1,810,246** in issuance costs charged to additional paid-in capital[104](index=104&type=chunk)[105](index=105&type=chunk) - Under PRC rules, companies must appropriate **10% of net income** to a statutory surplus reserve until it reaches **50% of registered capital**; this reserve is non-distributable as cash dividends[106](index=106&type=chunk)[107](index=107&type=chunk) [NOTE 12 — SHARE BASED COMPENSATION](index=24&type=section&id=NOTE%2012%20%E2%80%94%20SHARE%20BASED%20COMPENSATION) Share-based compensation is accounted for using ASC 718, with warrants for services exercised or expired by June 30, 2024 - The Company uses the Black-Scholes model to estimate the fair value of share-based compensation awards[109](index=109&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk) - Warrants for **35,861 shares** related to consulting services were exercised during the six months ended June 30, 2024, with no remaining warrants related to services as of that date[114](index=114&type=chunk) [NOTE 13 — WEIGHTED AVERAGE NUMBER OF SHARES](index=26&type=section&id=NOTE%2013%20%E2%80%94%20WEIGHTED%20AVERAGE%20NUMBER%20OF%20SHARES) Weighted-average shares outstanding are computed per ASC 260, with retrospective adjustments for the reverse merger - The weighted-average number of shares outstanding is computed based on ASC 260, adjusting for the reverse merger by using the legal acquiree's shares multiplied by the exchange ratio for the pre-acquisition period[115](index=115&type=chunk) [NOTE 14 — RISKS AND UNCERTAINTIES](index=26&type=section&id=NOTE%2014%20%E2%80%94%20RISKS%20AND%20UNCERTAINTIES) The Company faces financial risks including credit, interest rate, currency, and significant customer and supplier concentration - The Company's cash is primarily held in PRC state-owned banks, which are insured up to **RMB500,000**[117](index=117&type=chunk) - A majority of the Company's revenue and expenses are denominated in RMB, which is not freely convertible, exposing the Company to currency risk[119](index=119&type=chunk) Customer Concentration (Revenue) | Period | Top 5 Customers (% of Revenue) | Top 10 Customers (% of Revenue) | | :--------------------------- | :----------------------------- | :------------------------------ | | 3 Months Ended June 30, 2025 | 22.0%, 16.2%, 15.7%, 14.5%, 12.0% | 99.6% | | 3 Months Ended June 30, 2024 | 21.2%, 19.5%, 16.0%, 14.5%, 12.1% | 100.0% | | 6 Months Ended June 30, 2025 | 21.5%, 16.6%, 15.8%, 14.9%, 12.2% | 99.4% | | 6 Months Ended June 30, 2024 | 21.9%, 20.0%, 15.2%, 13.9%, 11.6% | 99.3% | Supplier Concentration (Raw Material Purchases) | Period | Top Suppliers (% of Total Purchases) | | :--------------------------- | :----------------------------------- | | 3 Months Ended June 30, 2025 | 50.1% (four suppliers) | | 3 Months Ended June 30, 2024 | 27.1% (two suppliers) | | 6 Months Ended June 30, 2025 | 49.6% (four suppliers) | | 6 Months Ended June 30, 2024 | 40.3% (three suppliers) | [NOTE 15 — COMMITMENTS AND CONTINGENCIES](index=26&type=section&id=NOTE%2015%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) The Company has no material legal proceedings but a capital expenditure commitment for new facility construction - As of the report date, the Company is not aware of any material, active, pending, or threatened legal or administrative proceedings[125](index=125&type=chunk) - As of June 30, 2025, the Company had a capital expenditure commitment of **RMB5.0 million (equivalent to $0.7 million)** for construction in progress[126](index=126&type=chunk) [NOTE 16 — SEGMENT REPORTING](index=28&type=section&id=NOTE%2016%20%E2%80%94%20SEGMENT%20REPORTING) The Company operates a single touchscreen business segment with all long-lived assets in the PRC, generating revenue from both domestic and overseas markets - The Company's Chief Executive Officer (CEO) is the chief operating decision maker (CODM), and the Company operates in one operating segment: the touchscreen business[127](index=127&type=chunk) - All of the Company's long-lived assets are located in the People's Republic of China (PRC)[128](index=128&type=chunk) Geographical Revenue Information (in US$) | Region | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Sales in PRC | $8,414,927 | $7,867,625 | $18,715,995 | $17,242,097 | | Sales in Overseas | $4,004,528 | $4,366,950 | $8,993,038 | $9,869,737 | | Total Revenue | $12,419,455 | $12,234,575 | $27,709,033 | $27,111,834 | [NOTE 17 — SUBSEQUENT EVENTS](index=28&type=section&id=NOTE%2017%20%E2%80%94%20SUBSEQUENT%20EVENTS) No subsequent events requiring accrual or disclosure were identified through the financial statement issuance date - No subsequent events occurred that require accrual or disclosure after the balance sheet date through the date the consolidated financial statements were issued[129](index=129&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews the Company's business, financial condition, and operating results for the three and six months ended June 30, 2025, including liquidity and critical accounting policies [Overview](index=29&type=section&id=Overview) Wetouch Technology Inc. operates its touchscreen business through its PRC subsidiary, Sichuan Vtouch, facing regulatory risks and funding new facility construction with existing cash - Wetouch is a Nevada holding company with operations primarily in mainland China through its subsidiary, Sichuan Vtouch, engaged in R&D, manufacturing, sales, and servicing of medium- to large-sized projected capacitive touchscreens[131](index=131&type=chunk)[132](index=132&type=chunk) - The Company faces complex and evolving PRC laws and regulations, including restrictions on capital flows, dividend payments, currency conversion, cybersecurity, and data privacy[132](index=132&type=chunk) - As of June 30, 2025, the Company contributed **RMB 348.0 million (US$47.7 million)** to its PRC subsidiary, with no dividends distributed to date[132](index=132&type=chunk) - Domestic sales accounted for **67.7%** and **66.7%** of revenues for the three and six months ended June 30, 2025, respectively, with international sales covering Taiwan, South Korea, and Germany[133](index=133&type=chunk) - Construction of a new facility in Chengdu is expected to be completed by the **end of 2025**, with production commencing in **Q2 2026**, funded by existing cash and operating cash flows[135](index=135&type=chunk)[136](index=136&type=chunk) [Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024](index=30&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202024) Q2 2025 saw slight revenue growth but decreased gross profit and net income, primarily due to higher cost of revenues and general and administrative expenses Key Financial Highlights (Three Months Ended June 30) (in US$ millions) | Metric | 2025 (in US$ millions) | 2024 (in US$ millions) | Change % | | :-------------------------- | :--------------------- | :--------------------- | :------- | | Revenues | $12.4 | $12.2 | 1.6% | | Cost of revenues | $(8.3) | $(7.4) | 12.2% | | Gross profit | $4.1 | $4.8 | (14.5)% | | Total operating expenses | $(1.0) | $(1.1) | (9.1)% | | Operating income | $3.1 | $3.7 | (16.2)% | | Net income | $2.2 | $2.7 | (18.5)% | - Revenues increased by **1.6% to $12.4 million**, driven by a **5.1% increase** in sales volume and a **0.2% positive exchange rate impact**, partially offset by a **3.6% decrease** in average selling price[140](index=140&type=chunk) - Gross profit decreased by **14.5% to $4.1 million**, with gross profit margin falling to **33.1%** from **39.7%**, primarily due to a **12.8% increase** in cost of goods sold (**13.5%** in raw materials, **3.3%** in labor cost)[147](index=147&type=chunk) - Selling expenses decreased by **66.7% to $0.1 million** due to reduced traveling expenses, while **General and administrative expenses increased by 12.5% to $0.9 million** due to higher professional fees[148](index=148&type=chunk)[149](index=149&type=chunk) - Research and development expenses were **nil** in Q2 2025, down from **$43,211** in Q2 2024[150](index=150&type=chunk) - Net income decreased by **18.5% to $2.2 million**, and the effective income tax rate was **28.1%** (vs. **28.9%** in Q2 2024)[153](index=153&type=chunk)[154](index=154&type=chunk) [Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024](index=34&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024) H1 2025 revenues, gross profit, and net income increased, driven by higher sales volume and improved gross margin, despite increased general and administrative expenses Key Financial Highlights (Six Months Ended June 30) (in US$ millions) | Metric | 2025 (in US$ millions) | 2024 (in US$ millions) | Change % | | :-------------------------- | :--------------------- | :--------------------- | :------- | | Revenues | $27.7 | $27.1 | 2.2% | | Cost of revenues | $(18.0) | $(18.9) | (4.8)% | | Gross profit | $9.7 | $8.2 | 18.3% | | Total operating expenses | $(2.7) | $(2.2) | 22.7% | | Operating income | $7.0 | $6.0 | 16.7% | | Net income | $4.8 | $3.3 | 45.5% | - Revenues increased by **2.2% to $27.7 million**, primarily due to an **8.9% increase** in total units sold, partially offset by a decrease in average RMB selling price and negative exchange rate impact[156](index=156&type=chunk) - Gross profit increased by **18.3% to $9.7 million**, with gross profit margin rising to **35.2%** from **30.2%**, mainly due to increased revenues from high-end products[162](index=162&type=chunk) - Selling expenses decreased by **71.4% to $0.2 million** due to reduced traveling expenses. **General and administrative expenses increased by 92.3% to $2.5 million**, driven by higher professional fees and amortization of prepaid marketing research fees[163](index=163&type=chunk)[164](index=164&type=chunk) - Research and development expenses were **nil** in H1 2025, down from **$85,949** in H1 2024[165](index=165&type=chunk) - Net income increased by **45.5% to $4.8 million**, and the effective income tax rate was **32.8%** (vs. **35.1%** in H1 2024)[169](index=169&type=chunk)[170](index=170&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The Company maintains strong liquidity with significant cash, generating positive operating cash flow in H1 2025, with minimal investing and financing activities - As of June 30, 2025, current assets were **$123.2 million** (including **$110.5 million** in cash), and current liabilities were **$5.0 million**[173](index=173&type=chunk) Cash Flow Summary (Six Months Ended June 30) (in US$ millions) | Cash Flow Activity | 2025 (in US$ millions) | 2024 (in US$ millions) | | :--------------------------------------- | :--------------------- | :--------------------- | | Net cash provided by (used in) operating activities | $4.7 | $(5.3) | | Net cash used in investing activities | $(0.0) | $(0.1) | | Net cash provided by financing activities | $0.0 | $7.8 | | Effect of foreign currency exchange rate changes on cash | $2.0 | $(2.1) | | Net increase in cash and cash equivalents | $6.7 | $0.4 | | Cash and cash equivalents at the end of period | $110.5 | $98.4 | - Net cash provided by operating activities was **$4.7 million** in H1 2025, a significant improvement from net cash used of **$5.3 million** in H1 2024[175](index=175&type=chunk) - The positive operating cash flow in H1 2025 was driven by net income, amortization of operating right-of-use assets, decreased prepaid expenses, and increased accounts payable and accrued liabilities, partially offset by increased accounts receivable[176](index=176&type=chunk) - Days Sales Outstanding (DSO) increased to **89 days** for the six months ended June 30, 2025, from **64 days** for the year ended December 31, 2024[180](index=180&type=chunk) - The Company expects existing cash, operating cash flows, and bank borrowings to meet liquidity requirements for **at least the next 12 months**[182](index=182&type=chunk)[184](index=184&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) No material changes to critical accounting estimates have occurred since the 2024 Form 10-K, as detailed in Note 2 of the financial statements - The Company's critical accounting policies involve judgments, assumptions, and estimates affecting reported amounts, as detailed in Note 2 of the financial statements[189](index=189&type=chunk) - No material changes to critical accounting estimates have occurred since the 2024 Form 10-K[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for smaller reporting companies - This section is not applicable for smaller reporting companies[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of June 30, 2025, due to material weaknesses in financial reporting personnel and risk assessment, with ongoing remediation efforts - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **not effective** due to identified material weaknesses[191](index=191&type=chunk) - Despite the material weakness, management believes the unaudited condensed consolidated financial statements fairly represent the Company's financial condition, results of operations, and cash flows[192](index=192&type=chunk) - **Material weaknesses** identified include a lack of competent financial reporting and accounting personnel with U.S. GAAP understanding and a lack of risk assessment procedures on internal controls[195](index=195&type=chunk)[196](index=196&type=chunk) - Management is implementing measures to remediate these weaknesses, including identifying skill gaps, cooperating with operation teams for control environment, and establishing SOX compliance procedures[198](index=198&type=chunk)[202](index=202&type=chunk) - Remediation efforts are **ongoing**, and the Company cannot assure that internal control over financial reporting will be effective as a result of these efforts[199](index=199&type=chunk) [PART II OTHER INFORMATION](index=42&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently involved in any material legal or administrative claims or proceedings - As of the date of this Quarterly Report, the Company is not aware of any material, active, pending, or threatened legal proceedings[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or common stock repurchases occurred during the three and six months ended June 30, 2025 - No unregistered sales of equity securities occurred during the three and six months ended June 30, 2025[205](index=205&type=chunk) - The Company did not repurchase any shares of its common stock during the three and six months ended June 30, 2025[206](index=206&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[207](index=207&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This section is not applicable[208](index=208&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is applicable[209](index=209&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report, including organizational documents, stock certificates, warrants, and certifications - The exhibits include Amended and Restated Articles of Incorporation, Bylaws, Specimen Common Stock Certificate, Underwriter's Warrants, Common Stock Purchase Warrants, and various **certifications (e.g., 302 and 906 certifications)** and XBRL documents[210](index=210&type=chunk) [SIGNATURES](index=44&type=section&id=SIGNATURES) The Quarterly Report was signed by CEO Zongyi Lian and CFO Xing Tang on **October 9, 2025** - The Quarterly Report was signed on **October 9, 2025**, by Zongyi Lian (CEO and President) and Xing Tang (CFO)[213](index=213&type=chunk)

CHENGDU, CN / ACCESS Newswire / October 9, 2025 / WeTouch Technology Inc. (NASDAQ:WETH) ("WeTouch" or the "Company"), a global leader in touch display solutions, today announced its financial results for the first half of fiscal year 2025 ended June 30, 2025. First Half Fiscal Year 2025 Financial Highlights Total Revenue: $27.7 million, an increase of 2.2% compared with $27.1 million in the first half of fiscal 2024. ...

[Filing Information](index=1&type=section&id=Filing%20Information) This report is a Quarterly Report on Form 10-Q for WETOUCH TECHNOLOGY INC. for Q1 2025, identifying the registrant as a non-accelerated, smaller reporting, and emerging growth company - The document is a Quarterly Report on Form 10-Q for WETOUCH TECHNOLOGY INC. for the period ended March 31, 2025[1](index=1&type=chunk) - The registrant is classified as a non-accelerated filer, smaller reporting company, and emerging growth company[4](index=4&type=chunk) - As of October 7, 2025, there were **11,931,534 shares of common stock outstanding**[4](index=4&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This report contains forward-looking statements subject to risks like customer reliance, uncollectible receivables, government fines, and financing needs - This report contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations[8](index=8&type=chunk)[10](index=10&type=chunk) - Key risks include significant reliance on top customers, potential uncollectible accounts receivable, fines from the Chinese government, and the need for substantial additional financing[9](index=9&type=chunk) - Other risks involve adverse regulatory developments in Mainland China, potential delisting under the Holding Foreign Companies Accountable Act, and fluctuations in exchange rates[12](index=12&type=chunk) [PART I FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion for Q1 2025 [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Wetouch Technology Inc. and its subsidiaries for Q1 2025 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased by $5.66 million, driven by cash and accounts receivable, while liabilities rose due to payables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Total Assets | $133,677,892 | $128,019,463 | $5,658,429 | 4.42% | | Cash | $106,407,564 | $103,760,324 | $2,647,240 | 2.55% | | Accounts receivable, net | $11,101,555 | $7,504,630 | $3,596,925 | 47.93% | | Total Current Liabilities | $5,444,381 | $2,951,192 | $2,493,189 | 84.48% | | Total Liabilities | $5,797,125 | $3,433,798 | $2,363,327 | 68.82% | | Total Stockholders' Equity | $127,880,767 | $124,585,665 | $3,295,102 | 2.64% | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%28Loss%29) Net income surged over 300% year-over-year due to revenue growth, lower cost of revenues, and eliminated interest expense | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :------------------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Revenues | $15,289,578 | $14,877,259 | $412,319 | 2.77% | | Cost of revenues | $(9,647,947) | $(11,539,301) | $1,891,354 | -16.39% | | Gross Profit | $5,641,631 | $3,337,958 | $2,303,673 | 69.01% | | Income from Operations | $3,972,734 | $2,304,904 | $1,667,830 | 72.36% | | Interest expense | $0 | $(1,169,974) | $1,169,974 | -100.00% | | Net Income | $2,562,722 | $558,870 | $2,003,852 | 358.55% | | Basic EPS | $0.21 | $0.04 | $0.17 | 425.00% | | Diluted EPS | $0.21 | $0.04 | $0.17 | 425.00% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased to $127.88 million, primarily from net income and foreign currency translation adjustment | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------- | :---------------- | | Total Stockholders' Equity | $127,880,767 | $124,585,665 | | Net income contribution | $2,562,722 | N/A (part of prior year) | | Foreign currency translation adjustment | $732,380 | N/A (part of prior year) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive in Q1 2025, a significant improvement from the prior year's negative cash flow | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | | Net cash provided by (used in) operating activities | $2,039,728 | $(9,217,544) | $11,257,272 | | Net cash used in investing activities | $0 | $(111,289) | $111,289 | | Net cash provided by financing activities | $0 | $7,506,140 | $(7,506,140) | | Net increase (decrease) in cash | $2,647,238 | $(3,244,104) | $5,891,342 | | Cash, end of period | $106,407,562 | $94,796,450 | $11,611,112 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for financial statements, covering accounting policies, related party transactions, and risks [NOTE 1 — BUSINESS DESCRIPTION](index=10&type=section&id=NOTE%201%20%E2%80%94%20BUSINESS%20DESCRIPTION) Wetouch Technology Inc. operates through Sichuan Vtouch, focusing on touchscreen R&D, manufacturing, and distribution in PRC - Wetouch Technology Inc. acquired BVI Wetouch in a reverse merger in October 2020[24](index=24&type=chunk) - The company's primary business is R&D, manufacturing, and distribution of touchscreen displays for financial terminals, automotive, POS, gaming, medical, and HMI industries[25](index=25&type=chunk) - Sichuan Vtouch took over operating business from Sichuan Wetouch in March 2021 due to a government-directed relocation order, and Sichuan Wetouch was deconsolidated in March 2023[30](index=30&type=chunk)[31](index=31&type=chunk)[37](index=37&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Financial statements adhere to U.S. GAAP, with key policies including consolidation, estimates, and recent ASU evaluations - Financial statements are prepared under U.S. GAAP, with management making significant estimates[35](index=35&type=chunk)[39](index=39&type=chunk) - The company adopted ASU 2016-02 (Leases), recognizing right-of-use assets and lease liabilities[42](index=42&type=chunk)[43](index=43&type=chunk) - The company operates in one reporting segment, focusing on touchscreen business, with all assets located in the PRC[46](index=46&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - Recent FASB ASUs (2023-07, 2023-09, 2024-03, 2025-02) are being evaluated for their impact on future financial statements and disclosures[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE](index=16&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE) Accounts receivable, net, increased significantly to $11.10 million, with a notable rise in 1-3 months past due receivables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Accounts receivable, net | $11,101,555 | $7,504,630 | $3,596,925 | 47.93% | | Current (aging) | $4,365,438 | $3,726,124 | $639,314 | 17.16% | | 1-3 months past due | $5,828,772 | $2,536,815 | $3,291,957 | 129.77% | [NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=16&type=section&id=NOTE%204%20%E2%80%94%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Prepaid expenses and other current assets decreased to $2.17 million, mainly due to reduced prepaid consulting fees | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Prepaid expenses and other current assets | $2,167,153 | $2,762,580 | $(595,427) | -21.55% | | Prepaid consulting service fees | $357,390 | $884,687 | $(527,297) | -59.60% | | Prepayment for land use right | $540,912 | $537,755 | $3,157 | 0.59% | | Prepaid market research fees | $955,000 | $955,000 | $0 | 0.00% | [NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET](index=18&type=section&id=NOTE%205%20%E2%80%94%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) Property, plant and equipment, net, slightly increased to $12.86 million, driven by construction in progress | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Property, plant and equipment, net | $12,855,562 | $12,782,997 | $72,565 | 0.57% | | Construction in progress | $12,830,673 | $12,755,791 | $74,882 | 0.59% | | Depreciation expense (3 months) | $2,471 | $2,316 | $155 | 6.69% | [NOTE 6 — OPERATING LEASE](index=18&type=section&id=NOTE%206%20%E2%80%94%20OPERATING%20LEASE) New facility construction is delayed to Q2 2026, with operating lease expenses at $151,375 for Q1 2025 - New facility construction delayed, expected completion by end of 2025, production to start **Q2 2026**[60](index=60&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | | :---------------------- | :-------------------------- | :-------------------------- | | Operating lease expense | $151,375 | $0 | | Short-term lease expense | $0 | $147,729 | | Total lease expense | $151,375 | $147,729 | | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $952,398 | $1,055,208 | | Total operating lease liabilities | $952,398 | $1,054,145 | [NOTE 7 — RELATED PARTY TRANSACTIONS](index=20&type=section&id=NOTE%207%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Amounts due to a related party increased significantly to $400,513 for expenses paid on behalf of the company | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Due to a related party | $400,513 | $149,211 | $251,302 | 168.42% | [NOTE 8 — INCOME TAXES](index=20&type=section&id=NOTE%208%20%E2%80%94%20INCOME%20TAXES) Income tax expense increased to $1.47 million in Q1 2025, with an effective tax rate of 36.5% - PRC subsidiaries (Sichuan Wetouch, Sichuan Vtouch) are subject to **25% CIT**, with Sichuan Wetouch previously benefiting from a **15% HNTE rate until Oct 2023**[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Income tax provision | $1,471,106 | $661,848 | $809,258 | 122.28% | | Effective tax rate | 36.5% | 54.2% | -17.7% | -32.66% | | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Deferred tax assets, net | $47,035 | $41,397 | $5,638 | 13.62% | [NOTE 9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=22&type=section&id=NOTE%209%20%E2%80%94%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities rose to $1.56 million, driven by increases in other payables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Accrued expenses and other current liabilities | $1,558,615 | $966,461 | $592,154 | 61.27% | | Other payable to third parties | $629,694 | $147,102 | $482,592 | 328.07% | | Other tax payables | $296,946 | $162,888 | $134,058 | 82.30% | [NOTE 10 — CONVERTIBLE PROMISSORY NOTES PAYABLE](index=23&type=section&id=NOTE%2010%20%E2%80%94%20CONVERTIBLE%20PROMISSORY%20NOTES%20PAYABLE) All convertible promissory notes were repaid in February 2024, eliminating interest expenses in Q1 2025 - All remaining five outstanding convertible promissory notes were fully repaid on February 23, 2024, for **$2,586,960**[87](index=87&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Interest expenses of Notes | $0 | $1,169,974 | $(1,169,974) | -100.00% | - Warrants issued with the notes expired during the year ended December 31, 2024[94](index=94&type=chunk) [NOTE 11 — STOCKHOLDERS' EQUITY](index=25&type=section&id=NOTE%2011%20%E2%80%94%20STOCKHOLDERS'%20EQUITY) Stockholders' equity includes 11,931,534 shares outstanding, a 1-for-20 reverse split, and a statutory reserve - **11,931,534 shares of common stock** were issued and outstanding as of March 31, 2025, and December 31, 2024[102](index=102&type=chunk) - A **1-for-20 reverse stock split** was effective on September 12, 2023[104](index=104&type=chunk) - In February 2024, a public offering of **2,160,000 shares generated $10.8 million gross proceeds**[105](index=105&type=chunk) | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :---------------- | :------------- | :---------------- | | Statutory reserve | $8,073,968 | $8,073,968 | [NOTE 12 — SHARE BASED COMPENSATION](index=27&type=section&id=NOTE%2012%20%E2%80%94%20SHARE%20BASED%20COMPENSATION) No share-based compensation expense was recognized in Q1 2025 or Q1 2024 as all warrants expired - No share-based compensation expense was recognized for the three months ended March 31, 2025, or 2024[116](index=116&type=chunk) - Warrants related to legal and consulting services were exercised or expired by December 31, 2024[116](index=116&type=chunk) [NOTE 13 — WEIGHTED AVERAGE NUMBER OF SHARES](index=28&type=section&id=NOTE%2013%20%E2%80%94%20WEIGHTED%20AVERAGE%20NUMBER%20OF%20SHARES) Weighted-average shares are computed per ASC 260, adjusting for reverse merger exchange ratios - Weighted-average shares are computed per ASC 260, adjusting for reverse merger exchange ratios[118](index=118&type=chunk) [NOTE 14 — RISKS AND UNCERTAINTIES](index=28&type=section&id=NOTE%2014%20%E2%80%94%20RISKS%20AND%20UNCERTAINTIES) The company faces credit, interest rate, and currency risks, alongside high customer and supplier concentration - Significant credit risk from accounts receivable and currency risk due to RMB non-convertibility[119](index=119&type=chunk)[122](index=122&type=chunk) - High customer concentration: top ten customers accounted for **99.7% of total revenue in Q1 2025**[124](index=124&type=chunk) - High supplier concentration: four suppliers accounted for **48.2% of raw material purchases in Q1 2025**[125](index=125&type=chunk) [NOTE 15 — COMMITMENTS AND CONTINGENCIES](index=28&type=section&id=NOTE%2015%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) No material legal proceedings are active, and there is a $0.7 million capital expenditure commitment - No material legal proceedings are active, pending, or threatened[127](index=127&type=chunk) - Capital expenditure commitment of **$0.7 million** for construction in progress as of March 31, 2025[128](index=128&type=chunk) [NOTE 16 — SEGMENT REPORTING](index=30&type=section&id=NOTE%2016%20%E2%80%94%20SEGMENT%20REPORTING) The company operates in a single touchscreen segment, with domestic sales increasing to 67.3% of total revenues - The company operates in one operating segment: touchscreen business[130](index=130&type=chunk) - Substantially all long-lived assets are located in the PRC[131](index=131&type=chunk) | Region | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Sales in PRC | $10,301,069 | $9,374,473 | $926,596 | 9.88% | | Sales in Overseas | $4,988,509 | $5,502,786 | $(514,277) | -9.34% | | Total revenues | $15,289,578 | $14,877,259 | $412,319 | 2.77% | [NOTE 17 — SUBSEQUENT EVENTS](index=30&type=section&id=NOTE%2017%20%E2%80%94%20SUBSEQUENT%20EVENTS) Sichuan Vtouch signed a $0.6 million supplemental construction contract for its R&D facility in April 2025 - Sichuan Vtouch signed a **$0.6 million supplemental construction contract** for R&D facility completion on April 11, 2025, with **50% prepaid**[132](index=132&type=chunk)[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, liquidity, and capital resources for Q1 2025, highlighting key operational aspects [Overview](index=32&type=section&id=Overview) Wetouch Technology operates through Sichuan Vtouch in touchscreen R&D and manufacturing, facing PRC regulatory risks - Company operates through PRC subsidiary Sichuan Vtouch, specializing in medium- to large-sized projected capacitive touchscreens[137](index=137&type=chunk) - Domestic sales in China accounted for **67.3% of revenues in Q1 2025**, up from 63.1% in Q1 2024[139](index=139&type=chunk) - New production facility construction expected to finish by end of 2025, with production commencing in **Q2 2026**[142](index=142&type=chunk) | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :---------------------- | :------------- | :------------- | :------- | :------- | | Revenues | $15.3 | $14.9 | $0.4 | 2.7% | | Gross profit | $5.6 | $3.3 | $2.3 | 69.7% | | Gross profit margin | 36.9% | 22.4% | 14.5% | 64.73% | | Net income | $2.5 | $0.6 | $1.9 | 316.7% | | Total volume shipped | 762,545 units | 681,370 units | 81,175 units | 11.9% | [Results of Operations](index=34&type=section&id=Results%20of%20Operations) The company achieved a 2.7% revenue increase and a 316.7% net income surge in Q1 2025, driven by improved margins [Revenues](index=34&type=section&id=Revenues) Total revenues increased by 2.7% to $15.3 million, driven by sales volume growth despite lower average selling prices - Revenue increase of **2.7% driven by 11.9% sales volume increase**, offset by 6.9% lower average selling price and 1.2% negative exchange rate impact[145](index=145&type=chunk) | Market | Q1 2025 Revenue (USD millions) | Q1 2024 Revenue (USD millions) | Change (USD millions) | % Change | | :---------------- | :-------------- | :-------------- | :------- | :------- | | Mainland China | $10.3 | $9.4 | $0.9 | 9.6% | | Overseas | $5.0 | $5.5 | $(0.5) | -9.1% | | Total Revenue | $15.3 | $14.9 | $0.4 | 2.7% | | Product Category | Q1 2025 Revenue (USD) | Q1 2024 Revenue (USD) | Change (USD) | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | :------- | | Automotive Touchscreens | $3,960,497 | $4,185,270 | $(224,773) | -5.4% | | Industrial Control Computer Touchscreens | $3,235,073 | $2,847,660 | $387,413 | 13.6% | | POS Touchscreens | $2,411,031 | $2,114,099 | $296,932 | 14.0% | | Gaming Touchscreens | $2,320,592 | $2,172,475 | $148,117 | 6.8% | | Medical Touchscreens | $1,949,656 | $2,414,961 | $(465,305) | -19.3% | | Multi-Functional Printer Touchscreens | $1,412,727 | $1,142,794 | $269,933 | 23.6% | - Company is shifting production mix to higher-end products like industrial control computer, POS, gaming, and multi-functional printer touchscreens due to growth potential and stronger demand[151](index=151&type=chunk) [Gross Profit and Gross Profit Margin](index=35&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Gross profit increased by 69.7% to $5.6 million, with margin expanding to 36.9% due to lower raw material costs | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :---------------- | :------------- | :------------- | :------- | :------- | | Gross Profit | $5.6 | $3.3 | $2.3 | 69.7% | | Gross Profit Margin | 36.9% | 22.4% | 14.5% | 64.73% | - Gross profit margin increase driven by lower raw material costs, partially offset by higher labor costs[153](index=153&type=chunk) [Selling Expenses](index=36&type=section&id=Selling%20Expenses) Selling expenses decreased by 80.0% to $0.1 million, primarily due to reduced traveling expenses and online communication | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------- | :------- | | Selling Expenses | $0.1 | $0.5 | $(0.4) | -80.0% | | As a percentage of revenues | 0.6% | 3.4% | -2.8% | -82.35% | - Decrease in selling expenses attributed to less traveling and increased use of online communication[154](index=154&type=chunk) [General and Administrative Expenses](index=36&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased by 220.0% to $1.6 million, driven by higher professional and marketing fees | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | :------- | | General and Administrative Expenses | $1.6 | $0.5 | $1.1 | 220.0% | | As a percentage of revenues | 10.5% | 3.4% | 7.1% | 208.82% | - Increase driven by higher professional fees, amortization of prepaid marketing research fees, and allowance for credit losses[155](index=155&type=chunk) [Research and Development Expenses](index=36&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses were nil in Q1 2025, representing a 100% decrease from the prior year | Metric | Q1 2025 (USD) | Q1 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------ | :------ | :------- | :------- | | Research and Development Expenses | $0 | $42,738 | $(42,738) | -100.0% | [Operating Income](index=37&type=section&id=Operating%20Income) Operating income increased by 73.9% to $4.0 million, driven by higher gross margin and lower selling expenses | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------------- | :-------------------- | :-------------------- | :------- | :------- | | Operating Income | $4.0 | $2.3 | $1.7 | 73.9% | [Interest Expenses](index=37&type=section&id=Interest%20Expenses) Interest expenses were nil in Q1 2025 due to the full repayment of all outstanding convertible promissory notes | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------------- | :-------------------- | :-------------------- | :------- | :------- | | Interest Expenses | $0.0 | $1.2 | $(1.2) | -100.0% | - Elimination of interest expenses due to full repayment of convertible promissory notes in February 2024[158](index=158&type=chunk) [Income Taxes](index=37&type=section&id=Income%20Taxes) Income tax expense increased by 150.0% to $1.5 million, while the effective tax rate decreased to 36.5% | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------- | :------- | | Income Tax (Expense) | $(1.5) | $(0.6) | $(0.9) | 150.0% | | Effective income tax rate | 36.5% | 54.2% | -17.7% | -32.66% | [Net Income](index=37&type=section&id=Net%20Income) Net income significantly increased to $2.5 million, a 316.7% rise, driven by improved margins and lower expenses | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------- | :-------------------- | :-------------------- | :------- | :------- | | Net Income | $2.5 | $0.6 | $1.9 | 316.7% | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved with $106.4 million cash, and operating activities generated $2.0 million in Q1 2025 - Current assets were **$119.8 million** and current liabilities were **$5.4 million** as of March 31, 2025[163](index=163&type=chunk) | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | | :------------------------------------------ | :------ | :------ | :------- | | Net cash provided by (used in) operating activities | $2.0 | $(9.2) | $11.2 | | Net cash used in investing activities | $0.0 | $(0.1) | $0.1 | | Net cash provided by financing activities | $0.0 | $7.5 | $(7.5) | | Net increase (decrease) in cash | $2.7 | $(3.2) | $5.9 | | Cash, end of period | $106.4 | $94.8 | $11.6 | - Positive cash flow from operating activities in Q1 2025 (**$2.0 million**) compared to negative in Q1 2024 (**$9.2 million**)[165](index=165&type=chunk) - Days Sales Outstanding (DSO) decreased to **55 days in Q1 2025** from 64 days in FY 2024[170](index=170&type=chunk) - Company expects to meet liquidity needs for the next 12 months with existing cash and operating cash flows[172](index=172&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of March 31, 2025 - No off-balance sheet arrangements as of March 31, 2025[176](index=176&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) No material changes to critical accounting estimates have occurred since the 2024 Form 10-K - No material changes to critical accounting estimates since the 2024 Form 10-K[177](index=177&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[178](index=178&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to material weaknesses, but management believes financial statements are fairly presented [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls were ineffective due to material weaknesses, yet financial statements are deemed fairly presented - Disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses[179](index=179&type=chunk) - Despite material weaknesses, management believes financial statements fairly represent the company's financial condition[180](index=180&type=chunk) [Material Weakness](index=40&type=section&id=Material%20Weakness) Identified material weaknesses include a lack of competent financial reporting personnel and insufficient risk assessment - Material weaknesses include lack of competent financial reporting personnel with U.S. GAAP understanding[185](index=185&type=chunk) - Material weaknesses also include lack of risk assessment procedures on internal controls[185](index=185&type=chunk) [Management's Plan to Remediate the Material Weakness](index=41&type=section&id=Management's%20Plan%20to%20Remediate%20the%20Material%20Weakness) Remediation plans are ongoing, focusing on skill gaps, control environment, and Sarbanes-Oxley Act compliance - Remediation plans include identifying skill gaps, improving the control environment, and establishing Sarbanes-Oxley Act compliance procedures[186](index=186&type=chunk)[190](index=190&type=chunk) - Remediation efforts are ongoing, and effectiveness cannot be assured until controls operate for a sufficient period and are tested[187](index=187&type=chunk) [Changes in Internal Control over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No other material changes in internal control over financial reporting occurred, apart from ongoing remediation efforts - No other material changes in internal control over financial reporting during Q1 2025, apart from remediation efforts[189](index=189&type=chunk) [PART II OTHER INFORMATION](index=42&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides disclosures on legal, equity, and other corporate matters, along with a list of filed exhibits [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material legal or administrative claims or proceedings as of the report date - No material legal proceedings are active, pending, or threatened[192](index=192&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or share repurchases occurred during Q1 2025 - No unregistered sales of equity securities or share repurchases during Q1 2025[193](index=193&type=chunk)[194](index=194&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the quarter ended March 31, 2025 - No defaults upon senior securities[195](index=195&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[196](index=196&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - Not applicable[197](index=197&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and data files - Lists various exhibits including organizational documents, warrants, and certifications[198](index=198&type=chunk) [Signatures](index=44&type=section&id=Signatures) The report is signed by CEO Zongyi Lian and CFO Xing Tang on October 8, 2025 - The report is signed by CEO Zongyi Lian and CFO Xing Tang on October 8, 2025[201](index=201&type=chunk)

Core Insights - WeTouch Technology Inc. reported a total revenue of $15.3 million for the first quarter of fiscal year 2025, marking a 2.7% increase from $14.9 million in the same period of fiscal year 2024 [1] - The company's net income surged to $2.6 million, reflecting a significant year-over-year increase of 316.7% [1] Financial Performance - Total Revenue: $15.3 million, up 2.7% from $14.9 million in Q1 FY 2024 [1] - Net Income: $2.6 million, an increase of 316.7% year-over-year [1]

[COMMONLY USED DEFINED TERMS](index=4&type=section&id=COMMONLY%20USED%20DEFINED%20TERMS) This section defines key terms and abbreviations used throughout the Annual Report, such as "China," "PRC," "BVI Wetouch," "Sichuan Vtouch," and currency denominations, to ensure clarity and consistency - The report defines key entities and geographical terms, including **"China"** (People's Republic of China, excluding Taiwan, Hong Kong, Macau for this report), **"BVI Wetouch"** (Wetouch Holding Group Limited), and **"Sichuan Vtouch"** (Sichuan Vtouch Technology Co., Ltd.), which is a wholly foreign-owned subsidiary of HK Wetouch[14](index=14&type=chunk) [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=5&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns readers that the Annual Report contains forward-looking statements, which are subject to known and unknown risks, uncertainties, and assumptions, where actual results may differ materially from expectations - Forward-looking statements are based on current estimates and assumptions, but **actual results may differ materially** due to various risks[16](index=16&type=chunk)[17](index=17&type=chunk)[19](index=19&type=chunk) - Key risks include **significant reliance on top customers**, potential **uncollectible accounts receivable**, challenges in maintaining product quality and safety, **intense competition**, and the need for **substantial additional financing**[18](index=18&type=chunk) - Risks related to operating in China include **adverse regulatory developments**, potential **delisting under the HFCAA**, changes in economic/political conditions, **uncertainties in the PRC legal system**, and **exchange rate fluctuations**[20](index=20&type=chunk) [PART I](index=7&type=section&id=PART%20I) This part outlines Wetouch Technology Inc.'s business operations, including its touchscreen manufacturing and corporate structure, along with key business and regulatory risks, unresolved staff comments, and cybersecurity disclosures [ITEM 1. BUSINESS](index=7&type=section&id=ITEM%201.%20BUSINESS) Wetouch Technology Inc. specializes in R&D, manufacturing, and sales of medium- to large-sized projected capacitive touchscreens for diverse industries, detailing its corporate history, product portfolio, customer and supplier relations, and the regulatory landscape in China - Wetouch specializes in **medium- to large-sized projected capacitive touchscreens** (7.0 to 42-inch) for diverse markets[22](index=22&type=chunk)[23](index=23&type=chunk) - The company holds **ISO9001, ISO 14001, and RoHS SGS certifications**, highlighting its commitment to product quality and environmental standards[24](index=24&type=chunk) - **Top five customers accounted for 82.4% of total revenues in 2024**, indicating high customer concentration[64](index=64&type=chunk) - **R&D expenses were nil in 2024**, a significant decrease from $84,551 in 2023, with future increases expected for new product development[84](index=84&type=chunk)[85](index=85&type=chunk) - The company faces **fewer competitors in its niche of medium- to large-sized touchscreens** for specialized industries due to requirements for stable supply and longer lifespans[95](index=95&type=chunk) - Operations in Mainland China are subject to a **comprehensive legal regime** covering foreign investment, environmental protection, consumer rights, intellectual property, foreign exchange, offshore financing, dividend distribution, M&A, and taxation[98](index=98&type=chunk)[99](index=99&type=chunk) [Overview](index=7&type=section&id=Overview) Wetouch Technology Inc. focuses on the R&D, manufacturing, sales, and servicing of medium- to large-sized projected capacitive touchscreens for specialized industries, generating $42.3 million in revenues in 2024 - Wetouch specializes in **medium- to large-sized projected capacitive touchscreens** (7.0 to 42-inch) for diverse markets[22](index=22&type=chunk)[23](index=23&type=chunk) - **Revenue Breakdown (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | | :----- | :--------- | :--------- | | Total Revenues | $42.3 million | $39.7 million | | Domestic Sales | 64.7% | 69.7% | | International Sales | 35.3% | 30.3% | - The company holds **ISO9001, ISO 14001, and RoHS SGS certifications**, highlighting its commitment to product quality and environmental standards[24](index=24&type=chunk) [Corporate History and Structure](index=7&type=section&id=Corporate%20History%20and%20Structure) Wetouch Technology Inc. was formed through a reverse merger with BVI Wetouch in 2020, establishing Sichuan Vtouch as its PRC operating subsidiary, and has since undergone private placements, stock splits, and a Nasdaq uplisting - Wetouch Technology Inc. was formed through a **reverse merger with BVI Wetouch on October 9, 2020**, making Sichuan Wetouch (later Sichuan Vtouch) an indirect wholly-owned subsidiary[31](index=31&type=chunk)[33](index=33&type=chunk) - The company completed a **private placement in January 2023**, selling 160,000,000 shares for **$40,000,000**, used for working capital and debt repayment[41](index=41&type=chunk) - Two reverse stock splits were effected: **1-for-70 in September 2020** and **1-for-20 in September 2023**, retroactively adjusting share information[44](index=44&type=chunk)[46](index=46&type=chunk) - A **2024 Uplisting Offering on Nasdaq raised $10.8 million gross ($9.2 million net)** by selling 2,160,000 shares at $5.00 per share[47](index=47&type=chunk) - Recent material events include **board changes, Nasdaq notifications for late periodic filings and minimum bid price non-compliance**, and a change in the independent registered public accounting firm[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Our Products](index=12&type=section&id=Our%20Products) Wetouch offers a portfolio of medium- to large-sized projected capacitive touchscreens (7.0 to 42-inch) with various structures, primarily GG and GFF, applied across diverse industries, with automotive touchscreens being the largest revenue contributor - Product portfolio includes **GG, GFF, PG, and GF touchscreens**, ranging from 7.0 to 42 inches[23](index=23&type=chunk)[53](index=53&type=chunk) - **Product Type Revenue Contribution (2024 vs. 2023):** | Product Type | 2024 Revenue Share | 2023 Revenue Share | | :----------- | :----------------- | :----------------- | | GG | 52.7% | 51.7% | | GFF | 38.5% | 41.8% | | GF | 2.6% | 2.0% | | PG | 4.4% | 2.4% | - **Application Revenue Contribution (2024 vs. 2023):** | Application | 2024 Revenue Share | 2023 Revenue Share | | :---------- | :----------------- | :----------------- | | Automotive Touchscreens | 27.2% | 24.6% | | Industrial HMI Touchscreens | 19.4% | 19.9% | | Gaming Touchscreens | 15.3% | 14.1% | | Medical Touchscreens | 14.9% | 14.6% | | POS Touchscreens | 14.8% | 16.7% | | Multi-Functional Printer Touchscreens | 8.4% | 10.1% | [Our Customers](index=14&type=section&id=Our%20Customers) Wetouch relies heavily on a concentrated customer base, with its top five customers accounting for 82.4% of total revenues in 2024, and maintains sales framework agreements with key clients - High customer concentration, with **top five customers representing 82.4% of total revenues in 2024**[64](index=64&type=chunk) - Sales framework agreements with top customers include **annual minimum purchase amounts, price lists, and credit terms** (e.g., $1.5 million credit limit, 3-month term for the first year)[66](index=66&type=chunk) - Standard payment terms require **full payment within three to six months** from the delivery date, with no extended terms provided in 2023 or 2024[68](index=68&type=chunk) [Sales and Marketing](index=16&type=section&id=Sales%20and%20Marketing) Wetouch acquires customers through SEO, referrals, company websites, and industry exhibitions, targeting economically developed regions in Mainland China, Taiwan, South Korea, and Germany, with overseas sales increasing to $14.9 million in 2024 - Customer acquisition channels include **SEO, referrals, websites, and industry exhibitions**[69](index=69&type=chunk) - Target markets include Eastern, Southern, Northern, and Southwest Mainland China, Taiwan, South Korea, and Germany[70](index=70&type=chunk) - **Overseas Sales (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | | :----- | :--------- | :--------- | | Overseas Sales | $14.9 million | $12.1 million | - Products are produced to order and marketed directly by the company's sales personnel, **without reliance on distributors**[71](index=71&type=chunk) [Our Suppliers](index=17&type=section&id=Our%20Suppliers) Sichuan Vtouch maintains flexibility in supplier choice without long-term agreements or minimum purchase requirements, procuring raw materials via purchase orders that specify quality standards and return policies - **No long-term supply agreements**; flexibility in choosing suppliers without minimum purchase requirements[74](index=74&type=chunk) - Purchase orders specify product details, delivery, packaging, inspection, breach terms, and payment terms, with a requirement for **quality certification and unconditional returns for defects**[75](index=75&type=chunk)[78](index=78&type=chunk) - **Top Supplier Concentration (2024 vs. 2023):** | Year | Top Supplier 1 | Top Supplier 2 | Top Supplier 3 | | :--- | :------------- | :------------- | :------------- | | 2024 | 15.5% | 12.2% | 11.5% | | 2023 | 13.3% | N/A | N/A | [Production and Quality Control](index=18&type=section&id=Production%20and%20Quality%20Control) Wetouch operates on a made-to-order production model with continuous review and monitoring to ensure high quality and ISO9001 compliance, implementing strict quality control and exceeding industry standards in key product attributes - Made-to-order production model with **continuous review and monitoring** by management and technical experts to ensure quality and **ISO9001 compliance**[79](index=79&type=chunk)[81](index=81&type=chunk) - Strict quality control includes **cosmetic, function, stress (humidity, temperature, corrosion), and hazardous substances testing** before delivery[83](index=83&type=chunk)[87](index=87&type=chunk) - **Product Quality Standards (Company vs. Industry):** | Item | Industry Standards | Our Standards | | :--- | :----------------- | :------------ | | Reaction time | ≤ 5 milliseconds | ≤ 5 milliseconds | | Surface hardness | 6H | 7H~9H | | Operational temperature | 0~70 degrees Celsius | -30~80 degrees Celsius | | EsD requirement | 6~12KV | 8~15KV | | Transparency | 86% | 88% | | Touch conditions | Normal touch and ordinary conditions | Waterproof and anti-saline solution and anti-corrosion and Anti interference | [Research and Development ("R&D")](index=19&type=section&id=Research%20and%20Development%20%28%22R%26D%22%29) Wetouch is committed to R&D for continuous touchscreen technology upgrades, employing 11 R&D staff, though expenses were nil in 2024, with future increases anticipated for new product development - R&D department has **11 employees**, all with at least a bachelor's degree and an average of three years' experience[84](index=84&type=chunk) - **R&D Expenses (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | Change (%) | | :----- | :--------- | :--------- | :--------- | | R&D Expenses | $0 | $84,551 | -100.0% | - Future R&D expenses are expected to **increase to accelerate new product development** and enhance existing products[85](index=85&type=chunk) [Intellectual Property](index=19&type=section&id=Intellectual%20Property) Wetouch protects its intellectual property through trademarks, patents, domain names, trade names, and trade secrets, with Sichuan Vtouch holding one registered trademark and five pending patent applications in Mainland China - Intellectual property protection relies on **trademarks, patents, domain names, trade names, and trade secrets**[86](index=86&type=chunk) - Sichuan Vtouch has **one registered trademark in Mainland China** and **five pending patent applications** (utility models and inventions)[86](index=86&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk) - Patents registered in Mainland China **cannot be enforced in other jurisdictions** where the company supplies products[89](index=89&type=chunk) [Environmental Matters](index=20&type=section&id=Environmental%20Matters) Wetouch's operations in Mainland China are subject to various pollution control regulations, with Sichuan Vtouch registered under the local environmental protection system and no known environmental investigations or punishments - Operations in Mainland China are subject to **PRC pollution control regulations** (noise, water, air, waste disposal)[91](index=91&type=chunk) - Sichuan Vtouch holds a **Stationary Pollution Source Registration Form** under the local environmental protection system[92](index=92&type=chunk) - The company is **not aware of any environmental investigations, prosecutions, or punishments**[93](index=93&type=chunk) [Competition](index=20&type=section&id=Competition) The touchscreen market is highly competitive and rapidly changing, with Wetouch facing fewer competitors in its niche of medium- to large-sized touchscreens for specialized industries due to stringent requirements - Highly competitive touchscreen market, with **product characteristics** (performance, durability, clarity, price) and **supplier attributes** (quality, service, delivery, reputation) as key competitive factors[94](index=94&type=chunk) - Wetouch faces **fewer competitors in its niche of medium- to large-sized touchscreens** for specialized industries requiring stable supply and longer lifespans[95](index=95&type=chunk) - Competitors include **Apex Material Technology Corp., Elo Touch Systems Inc., and AbonTouch System Inc.**, which are expanding into capacitive touchscreens for industrial, medical, and POS applications[100](index=100&type=chunk) [Industry](index=21&type=section&id=Industry) Wetouch operates in the professional touchscreen display industry, which has seen significant evolution and widespread adoption since 2007, making touchscreen technology integral to human-machine interaction across various computing products - Wetouch operates in the **professional touchscreen display industry**, which has seen rapid technological advancements and widespread adoption since 2007[96](index=96&type=chunk)[97](index=97&type=chunk) - Touchscreen technology is now a **crucial component for human-machine interaction** across various computing products[97](index=97&type=chunk) [Regulations](index=21&type=section&id=Regulations) Wetouch's operations in Mainland China are governed by a comprehensive legal regime covering foreign investment, environmental protection, consumer rights, intellectual property, foreign exchange, offshore financing, dividend distribution, M&A, and taxation - Operations in Mainland China are subject to a **legal regime covering foreign investment, environmental protection, consumer rights, intellectual property, foreign exchange, offshore financing, dividend distribution, M&A, and taxation**[98](index=98&type=chunk)[99](index=99&type=chunk) - The **Foreign Investment Law** (effective Jan 1, 2020) permits foreign investment in touchscreen manufacturing and provides protections for foreign investors[101](index=101&type=chunk)[103](index=103&type=chunk)[105](index=105&type=chunk) - Environmental Protection Law requires impact assessments and pollution control, with Sichuan Vtouch registered under the **Stationary Pollution Source Registration Form**[108](index=108&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk) - Intellectual property is protected by **PRC Trademark Law (1 registered trademark)** and **Patent Law (5 pending patent applications)**[117](index=117&type=chunk)[118](index=118&type=chunk) - Foreign exchange regulations (SAFE Circulars) govern **RMB convertibility, capital contributions, and dividend remittances**, requiring registrations and approvals[119](index=119&type=chunk)[120](index=120&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - Offshore financing by PRC residents through SPVs requires **SAFE registration (SAFE Circular 37)**, with non-compliance potentially leading to restrictions on onshore entities[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - Dividend distribution by FIEs is limited to retained earnings, subject to statutory reserve funds and **withholding tax (10% generally, 5% with treaty)**[135](index=135&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - M&A and overseas listings are regulated by the **M&A Rule and Trial Administrative Measures**, requiring CSRC filings for indirect overseas listings by domestic companies meeting specific criteria[137](index=137&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Enterprise Income Tax is **25% (15% preferential for HNTEs)**, VAT rates are up to 13%, and labor laws mandate written contracts and social insurance contributions[141](index=141&type=chunk)[142](index=142&type=chunk)[145](index=145&type=chunk) - Cybersecurity review measures (effective Feb 15, 2022) apply to "online platform operators" with over one million users seeking foreign listings, though Wetouch believes it is **not applicable to them**[146](index=146&type=chunk) [Employees](index=30&type=section&id=Employees) Wetouch has 131 full-time employees, with Sichuan Vtouch participating in government-organized social security plans, and maintains good working relationships without significant labor disputes - The company has **131 full-time employees** and no part-time employees or independent contractors[147](index=147&type=chunk) - Sichuan Vtouch contributes to various employee **social security plans** (pension, unemployment, childbirth, work-related injury, medical, housing insurance) as required by PRC regulations[148](index=148&type=chunk) - The company maintains **good working relationships** with employees and has not experienced significant labor disputes[149](index=149&type=chunk) [ITEM 1A. RISK FACTORS](index=31&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section outlines significant business, industry, China-specific, and common stock risks, including financial reporting weaknesses, customer dependency, regulatory uncertainties, potential delisting threats, and stock price volatility - Identified **material weaknesses in internal control over financial reporting** include lack of competent financial reporting personnel and inadequate risk assessment procedures[160](index=160&type=chunk)[161](index=161&type=chunk) - **High customer concentration** poses a significant risk, with the top five customers accounting for **82.4% of 2024 revenues**[163](index=163&type=chunk)[164](index=164&type=chunk) - Failure to secure land use rights for new facilities and **delays in construction could materially and adversely affect business operations** and financial condition[168](index=168&type=chunk)[169](index=169&type=chunk) - The company faces risks from **fluctuations in raw material costs and availability**, and **dependency on key executives** without long-term supplier contracts[192](index=192&type=chunk)[193](index=193&type=chunk)[195](index=195&type=chunk) - Significant risks related to doing business in China include **adverse regulatory developments**, potential **delisting under the HFCAA** due to PCAOB inspection issues, and **uncertainties in the PRC legal system**[208](index=208&type=chunk)[216](index=216&type=chunk)[251](index=251&type=chunk) - The company is subject to the **CSRC's Trial Administrative Measures for overseas listings** and faces potential fines for non-compliance with post-offering filing obligations[214](index=214&type=chunk)[215](index=215&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - Risks to common stock include **price volatility**, potential for **manipulative short selling**, and **delisting from Nasdaq** due to late periodic filings or minimum bid price non-compliance[267](index=267&type=chunk)[273](index=273&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) [Summary of Risks Affecting Our Company](index=31&type=section&id=Summary%20of%20Risks%20Affecting%20Our%20Company) This section provides a high-level overview of key risks, including financial reporting weaknesses, customer dependency, operational challenges, China-specific regulatory changes, potential delisting, and common stock price volatility - Key business risks include **financial reporting weaknesses, heavy customer dependency, uncollectible accounts receivable**, and **intense industry competition**[152](index=152&type=chunk) - Risks specific to operating in China involve **regulatory changes, potential delisting under the HFCAA**, and **uncertainties in the PRC legal system**[155](index=155&type=chunk) - Risks to common stock include **price volatility**, potential for **manipulative short selling**, and **delisting from Nasdaq** due to non-compliance[155](index=155&type=chunk) [Risks Related to Our Business and Industry](index=33&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Wetouch faces various business and industry-specific risks, including material weaknesses in financial reporting, heavy dependence on top customers, operational delays, uncollectible accounts, raw material cost fluctuations, and lack of insurance - **Material weaknesses in internal control over financial reporting** were identified, including a lack of competent financial reporting personnel and inadequate risk assessment procedures[158](index=158&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - **Heavy dependence on top customers** (top five accounted for **82.4% of 2024 revenues**) creates a significant risk if these relationships are not maintained or new customers are not acquired[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - **Delays in obtaining land use rights and completing construction of new facilities** in Sichuan Province could materially and adversely affect business expansion and operations[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - The company holds **$7.5 million in accounts receivable** as of December 31, 2024, which could become uncollectible, impacting cash flows and liquidity[179](index=179&type=chunk) - Risks include **fluctuations in raw material costs and availability, dependency on key executives**, lack of long-term supplier contracts, and the need to adopt new technologies to evolving customer needs[192](index=192&type=chunk)[193](index=193&type=chunk)[195](index=195&type=chunk)[197](index=197&type=chunk) - The company **lacks business liability or disruption insurance**, exposing it to significant costs and business disruption from uninsured risks[202](index=202&type=chunk)[204](index=204&type=chunk) [Risks Related to Doing Business in China](index=42&type=section&id=Risks%20Related%20to%20Doing%20Business%20in%20China) Operating in China exposes Wetouch to substantial risks, including adverse regulatory developments, potential delisting under the HFCAA, trade policy impacts, governmental control over currency, and uncertainties in the PRC legal system - **Adverse regulatory developments in China**, including cybersecurity reviews and restrictions on offshore capital raising, could increase compliance costs and limit business operations[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk) - The company is subject to the **CSRC's Trial Administrative Measures for overseas listings**, requiring post-offering filings and facing potential fines (**RMB 1 million to RMB 10 million**) for non-compliance or misrepresentation[214](index=214&type=chunk)[215](index=215&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - The **Holding Foreign Companies Accountable Act (HFCAA)** poses a risk of delisting from U.S. exchanges if the PCAOB is unable to inspect the company's auditor for two consecutive years[216](index=216&type=chunk)[221](index=221&type=chunk) - **PRC regulations on loans and currency conversion** may delay or prevent the use of offering proceeds for capital contributions to Chinese subsidiaries, affecting liquidity and business expansion[231](index=231&type=chunk)[232](index=232&type=chunk) - **PRC labor laws** could negatively impact operational flexibility and financial results, while exposure to the FCPA and Chinese anti-corruption laws carries risks of severe sanctions[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - The Chinese government exerts **substantial influence over business activities**, and changes in economic, political, or social conditions or government policies could materially affect operations and stock value[246](index=246&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[264](index=264&type=chunk) - **Uncertainties in the evolving PRC legal system**, including enforcement and sudden changes in laws, limit legal protections and could adversely affect business[251](index=251&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - **Difficulties in enforcing foreign judgments in China** and government control of currency conversion (RMB into foreign currencies) could undermine contractual protections and affect investment value[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - Classification as a **PRC resident enterprise** could lead to a **25% enterprise income tax** on worldwide income and a **10% withholding tax on dividends** for non-PRC shareholders[265](index=265&type=chunk)[266](index=266&type=chunk) [Risks Related to Our Common Stock](index=53&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The market price of Wetouch's common stock may be volatile and decline, influenced by market performance, company results, analyst opinions, and regulatory developments, with shareholders facing potential difficulties in judicial forums and risks from manipulative short selling - The market price of common stock may be **volatile** due to numerous factors beyond control, including overall equity market performance, company operating results, analyst opinions, and regulatory developments[267](index=267&type=chunk)[269](index=269&type=chunk) - By-laws designate **Nevada courts as the exclusive forum** for most shareholder disputes, potentially limiting litigation options[270](index=270&type=chunk)[271](index=271&type=chunk) - The stock is susceptible to **manipulative short selling and negative publicity** involving U.S.-listed Chinese companies, which could drive down its market price[273](index=273&type=chunk)[274](index=274&type=chunk)[276](index=276&type=chunk) - **Substantial sales of common stock** by existing shareholders could negatively affect the market price[277](index=277&type=chunk) - **No dividends are expected** in the foreseeable future, meaning returns depend entirely on stock price appreciation[278](index=278&type=chunk)[279](index=279&type=chunk) - **Worsening U.S.-China relations** could decrease stock price and complicate access to U.S. capital markets[281](index=281&type=chunk) - The company faces **delisting from Nasdaq** due to late periodic filings (Form 10-K for 2024, Form 10-Q for Q1/Q2 2025) and failure to meet the $1.00 minimum bid price requirement[282](index=282&type=chunk)[283](index=283&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=57&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company has no unresolved staff comments to report - No unresolved staff comments[286](index=286&type=chunk) [ITEM 1C. CYBERSECURITY](index=57&type=section&id=ITEM%201C.%20CYBERSECURITY) Wetouch faces significant cybersecurity risks to its business, confidential information, and personnel data, maintaining robust governance and oversight to assess, identify, and mitigate these evolving threats - The company faces **significant cybersecurity risks** to its business, confidential information, and personnel data[286](index=286&type=chunk) - **Robust governance and oversight** are maintained, with mechanisms and processes to assess, identify, and mitigate cybersecurity risks, including regular employee training[286](index=286&type=chunk)[288](index=288&type=chunk) - **No cybersecurity threats or incidents materially affected** the company's business, strategy, results of operations, or financial condition during the year ended December 31, 2024[289](index=289&type=chunk) - The company remains **vulnerable to known or unknown threats** and acknowledges increasing regulatory requirements for cybersecurity incident responses[287](index=287&type=chunk) [ITEM 2. PROPERTIES](index=58&type=section&id=ITEM%202.%20PROPERTIES) Wetouch operates from leased facilities in Sichuan, China, and is acquiring land use rights for a new facility in Chengdu as part of a government-directed relocation, with construction expected to complete by end of 2025 - Operates from approximately **40,126.9 sq. ft. across nine leased buildings** in Shigao Town, Renshou County, Meishan, Sichuan, for offices, R&D, and manufacturing[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk) - Current leases expire on **October 31, 2025**, with expected renewal on commercially reasonable terms[291](index=291&type=chunk) - In the process of obtaining land use rights for a new **131,010 sq. ft. parcel in Chengdu, Sichuan**, for a new facility, with the certificate expected in Q1 2026[296](index=296&type=chunk)[301](index=301&type=chunk) - New facility construction is estimated to be **completed by the end of 2025**, with production commencing in Q1 2026, but delays are possible[170](index=170&type=chunk)[171](index=171&type=chunk)[302](index=302&type=chunk) - Received approximately **$17.7 million in compensation** for the withdrawal of land use rights and demolition of previous facilities due to government-directed relocation[299](index=299&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=60&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Wetouch is not aware of any material, active, pending, or threatened legal or administrative claims or proceedings against the company or its subsidiaries - No material, active, pending, or threatened legal or administrative claims or proceedings against the company or its subsidiaries[304](index=304&type=chunk)[662](index=662&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=60&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to Wetouch Technology Inc - Not applicable[305](index=305&type=chunk) [PART II](index=61&type=section&id=PART%20II) Part II covers Wetouch's common equity market, stockholder matters, and issuer purchases, alongside a detailed management discussion and analysis of financial condition, operational results, critical accounting policies, market risk disclosures, and internal controls [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=61&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Wetouch's common stock trades on Nasdaq under "WETH," with 11,931,534 shares outstanding as of September 8, 2025, and the company does not anticipate paying cash dividends in the foreseeable future - Common stock trades on Nasdaq under the symbol **"WETH"**[308](index=308&type=chunk) - **Stock Information (as of September 8, 2025):** | Metric | Value | | :----- | :---- | | Closing Price per Share | $1.1500 | | Shares Outstanding | 11,931,534 | | Stockholders of Record | ~448 | - The company **does not anticipate paying cash dividends** in the foreseeable future, intending to retain all available funds and future earnings for business development and expansion[309](index=309&type=chunk) - No equity compensation plans, recent sales of unregistered securities, or issuer purchases of equity securities[310](index=310&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) [ITEM 6. [RESERVED]](index=61&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information - Item is reserved[313](index=313&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=62&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides an overview of Wetouch's financial condition and operational results for 2024 and 2023, detailing revenue, profit, and cash flow performance, critical accounting policies, and internal controls - Wetouch is a Nevada holding company with primary operations in China through its subsidiary Sichuan Vtouch, subject to complex PRC laws and regulations[315](index=315&type=chunk)[316](index=316&type=chunk) - **Key Financial Highlights (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | Change (%) | | :----- | :--------- | :--------- | :--------- | | Revenues | $42.3 million | $39.7 million | 6.5% | | Gross Profit | $13.6 million | $17.2 million | (20.9)% | | Gross Profit Margin | 32.2% | 43.3% | (11.1) pts | | Net Income | $6.0 million | $8.3 million | (27.7)% | | Total Volume Shipped | 2,060,870 units | 1,967,316 units | 4.8% | - **Gross profit margin decreased to 32.2% in 2024 from 43.3% in 2023**, primarily due to a **29.9% increase in cost of goods sold** (31.8% increase in raw materials, 24.3% in labor costs) and sales discounts[331](index=331&type=chunk) - Strong liquidity with **$103.7 million in cash as of December 31, 2024**, largely from a **$40.0 million private placement in 2023** and **$9.0 million net proceeds from the 2024 Uplisting Offering**[344](index=344&type=chunk)[350](index=350&type=chunk) - Capital expenditure commitment of **$0.7 million for construction in progress** of new facilities as of December 31, 2024[353](index=353&type=chunk) [Overview](index=62&type=section&id=Overview) Wetouch Technology Inc., a Nevada holding company, conducts operations through its PRC subsidiary Sichuan Vtouch, specializing in medium- to large-sized projected capacitive touchscreens, subject to evolving PRC laws and regulations - Wetouch is a Nevada holding company with primary operations in China through its subsidiary Sichuan Vtouch, specializing in **medium- to large-sized projected capacitive touchscreens**[315](index=315&type=chunk)[317](index=317&type=chunk) - Operations are subject to complex and evolving PRC laws and regulations, including **restrictions on capital flows, dividend payments, currency conversion, cybersecurity**, and governmental discretion over overseas securities offerings[316](index=316&type=chunk) - As of March 31, 2025, **$47.7 million has been contributed to the PRC subsidiary**, with no dividends or other distributions made to the Company to date[316](index=316&type=chunk) - **Revenue Breakdown (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | | :----- | :--------- | :--------- | | Total Revenues | $42.3 million | $39.7 million | | Domestic Sales | 64.7% | 69.6% | | International Sales | 35.3% | 30.3% | [Highlights for the Year Ended December 31, 2024](index=63&type=section&id=Highlights%20for%20the%20Year%20Ended%20December%2031,%202024) For the year ended December 31, 2024, Wetouch reported revenues of $42.3 million, a 6.5% increase, but gross profit decreased by 20.9% to $13.6 million, and net income declined by 27.7% to $6.0 million - **Key Financial Highlights (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | Change (%) | | :----- | :--------- | :--------- | :--------- | | Revenues | $42.3 million | $39.7 million | 6.5% | | Gross Profit | $13.6 million | $17.2 million | (20.9)% | | Gross Profit Margin | 32.2% | 43.3% | (11.1) pts | | Net Income | $6.0 million | $8.3 million | (27.7)% | | Total Volume Shipped | 2,060,870 units | 1,967,316 units | 4.8% | [Results of Operations](index=64&type=section&id=Results%20of%20Operations) Wetouch's revenues increased by 6.5% to $42.3 million in 2024, but gross profit decreased by 20.9% to $13.6 million, and net income declined by 27.7% to $6.0 million, primarily due to increased cost of goods sold and sales discounts - **Consolidated Statements of Income Data (2024 vs. 2023):** | Metric (in US Dollar millions, except percentage) | 2024 | 2023 | % Change | | :------------------------------------------------ | :--- | :--- | :--------- | | Revenues | 42.3 | 39.7 | 6.5% | | Cost of revenues | (28.7) | (22.5) | 27.6% | | Gross profit | 13.6 | 17.2 | (20.9)% | | Total operating expenses | (4.3) | (4.5) | (4.4)% | | Operating income | 9.3 | 12.7 | (26.8)% | | Total other expense, net | (0.6) | (0.3) | 100.0% | | Income before income taxes | 8.7 | 12.4 | (29.8)% | | Income tax expense | (2.7) | (4.1) | (34.1)% | | Net income | 6.0 | 8.3 | (27.7)% | - **Gross profit margin decreased to 32.2% in 2024 from 43.3% in 2023**, primarily due to a **29.9% increase in cost of goods sold** (31.8% increase in raw materials, 24.3% in labor costs) and sales discounts[331](index=331&type=chunk) - **Selling expenses increased by 33.3% to $0.8 million in 2024**, mainly due to increased traveling and transportation for sales and marketing[332](index=332&type=chunk) - **General and administrative expenses decreased by 7.9% to $3.5 million in 2024**, primarily due to the payment of $1.2 million in accrued private placement agent fees from 2023, partially offset by increased amortized consulting fees[333](index=333&type=chunk) - **Research and development expenses were nil in 2024**, a **100% decrease** from $84,551 in 2023[335](index=335&type=chunk) - **Operating income decreased by 26.8% to $9.3 million in 2024**, driven by lower gross profit and higher selling expenses[336](index=336&type=chunk) - A **gain of $378,371 was recognized on changes in the fair value of common stock purchase warrants in 2024**, compared to a loss of $121,413 in 2023, as warrants expired[337](index=337&type=chunk)[338](index=338&type=chunk) - **Net income for 2024 was $6.0 million**, a **27.7% decrease** from $8.3 million in 2023[341](index=341&type=chunk) [Revenues](index=64&type=section&id=Revenues) Total revenues increased by 6.5% to $42.3 million in 2024, driven by higher sales volume and average selling prices, despite negative exchange rate impacts, with overseas revenue growing significantly due to demand for higher-end products - **Revenue Growth Drivers (2024 vs. 2023):** | Factor | Change | | :----- | :----- | | Sales Volume | +4.8% | | Average Selling Price (RMB) | +3.2% | | Exchange Rate Impact (RMB depreciation) | -1.6% | - **Revenue by Geography (2024 vs. 2023):** | Geography | 2024 (USD) | 2023 (USD) | Change (USD) | Change (%) | | :-------- | :--------- | :--------- | :----------- | :--------- | | PRC Domestic | $27,340,555 | $27,668,985 | $(328,430) | (1.2)% | | Overseas | $14,939,818 | $12,036,954 | $2,902,864 | 24.1% | - **Units Sold by Geography (2024 vs. 2023):** | Geography | 2024 (Units) | 2023 (Units) | Change (Units) | Change (%) | | :-------- | :----------- | :----------- | :------------- | :--------- | | PRC Domestic | 1,309,240 | 1,330,013 | (20,773) | (1.6)% | | Overseas | 751,630 | 637,303 | 114,327 | 17.9% | - Overseas revenue growth was particularly driven by **higher demand for automotive, gaming, and industrial control touchscreens**, where the company had greater pricing power[328](index=328&type=chunk) - The company shifted production mix towards **higher-end touchscreens** (automotive, gaming, medical, industrial control) due to greater growth potential and stronger demand for quality products[330](index=330&type=chunk) [Gross Profit and Gross Profit Margin](index=66&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Gross profit decreased by 20.9% to $13.6 million in 2024, with the margin declining to 32.2% due to a significant increase in the cost of goods sold, including raw material and labor costs, and sales discounts - **Gross Profit and Margin (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | Gross Profit | $13.6 | $17.2 | $(3.6) | (20.9)% | | Gross Profit Margin | 32.2% | 43.3% | (11.1) pts | N/A | - Decrease in gross profit margin primarily due to a **29.9% increase in cost of goods sold**, including a **31.8% increase in raw material costs** (43% from chip costs) and a **24.3% increase in labor costs**[331](index=331&type=chunk) [Selling Expenses](index=66&type=section&id=Selling%20Expenses) Selling expenses increased by 33.3% to $0.8 million in 2024, primarily due to higher traveling and transportation costs for sales and marketing activities aimed at promoting sales growth - **Selling Expenses (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | Selling Expenses | $0.8 | $0.6 | $0.2 | 33.3% | | As % of Revenues | 1.9% | 1.5% | 0.4% pts | N/A | - Increase primarily due to **higher traveling and transportation expenses** for sales and marketing activities[332](index=332&type=chunk) [General and Administrative Expenses](index=66&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses decreased by 7.9% to $3.5 million in 2024, mainly due to the payment of accrued private placement agent fees from 2023, partially offset by increased consulting and miscellaneous expenses - **General and Administrative Expenses (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | G&A Expenses | $3.5 | $3.8 | $(0.3) | (7.9)% | | As % of Revenues | 8.3% | 9.6% | (1.3)% pts | N/A | - Decrease primarily due to the **$1.2 million accrued private placement agent fees in 2023 being paid in 2024**, partially offset by increased amortized consulting fees and miscellaneous expenses[333](index=333&type=chunk) [Research and Development Expenses](index=67&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses were nil in 2024, representing a 100% decrease from $84,551 in 2023, as the company incurred no R&D expenses during the year - **R&D Expenses (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | Change (USD) | Change (%) | | :----- | :--------- | :--------- | :----------- | :--------- | | R&D Expenses | $0 | $84,551 | $(84,551) | (100.0)% | [Operating Income](index=67&type=section&id=Operating%20Income) Operating income decreased by 26.8% to $9.3 million in 2024, primarily due to lower gross profit and higher selling expenses, partially offset by reduced general & administrative and research & development expenses - **Operating Income (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | Operating Income | $9.3 | $12.7 | $(3.4) | (26.8)% | - Decrease primarily due to **lower gross profit and higher selling expenses**, partially offset by lower G&A and R&D expenses[336](index=336&type=chunk) [Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants](index=67&type=section&id=Gain%20%28loss%29%20on%20Changes%20in%20Fair%20Value%20of%20Common%20Stock%20Purchase%20Warrants) The company recognized a gain of $378,371 on changes in the fair value of common stock purchase warrants in 2024, a significant improvement from a loss of $121,413 in 2023, as derivative liabilities related to expired warrants were re-measured - **Gain (Loss) on Warrants (2024 vs. 2023):** | Metric | 2024 (USD) | 2023 (USD) | Change (USD) | Change (%) | | :----- | :--------- | :--------- | :----------- | :--------- | | Gain (loss) on changes in fair value of common stock purchase warrants | $378,371 | $(121,413) | $499,784 | (411.6)% | - The gain in 2024 reflects the **re-measurement of derivative liabilities for warrants issued in 2021**, which expired during the year[338](index=338&type=chunk)[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) [Income Taxes](index=68&type=section&id=Income%20Taxes) Income tax expense decreased by 34.1% to $2.7 million in 2024, with an effective income tax rate of 30.6%, and no deferred income tax liabilities were provided for PRC withholding tax on undistributed earnings due to indefinite reinvestment plans - **Income Taxes (2024 vs. 2023):** | Metric (in US$ millions) | 2024 | 2023 | Change (USD millions) | Change (%) | | :----------------------- | :--- | :--- | :-------------------- | :--------- | | Income before Income Taxes | $8.7 | $12.4 | $(3.7) | (29.8)% | | Income Tax Expense | $(2.7) | $(4.1) | $(1.4) | (34.1)% | | Effective income tax rate | 30.6% | 33.1% | (2.5)% pts | N/A | - PRC subsidiary's **$103.7 million cash is planned for indefinite reinvestment**, so no deferred income tax liabilities for PRC withholding tax on undistributed earnings[340](index=340&type=chunk) [Net Income](index=68&type=section&id=Net%20Income) As a result of various factors, Wetouch reported a net income of $6.0 million for the year ended December 31, 2024, representing a 27.7% decrease compared to $8.3 million in 2023 - **Net Income (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | Net Income | $6.0 | $8.3 | $(2.3) | (27.7)% | [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) Wetouch expects to meet its short-term operational and capital expenditure needs using existing cash, operating cash flows, and bank borrowings, demonstrating strong liquidity with $103.7 million in cash as of December 31, 2024 - Expects to meet short-term cash needs with **existing cash, operating cash flows, and bank borrowings**, but may require additional financing for future developments[342](index=342&type=chunk)[343](index=343&type=chunk) - **Current Assets and Liabilities (as of Dec 31, 2024):** | Metric | Amount (USD millions) | | :----- | :-------------------- | | Current Assets | $114.1 | | Cash | $103.7 | | Accounts Receivable, net | $7.5 | | Inventories | $0.1 | | Prepaid Expenses and Other Current Assets | $2.8 | | Current Liabilities | $3.0 | | Accounts Payable | $1.3 | | Due to Related Parties | $0.1 | | Accrued Expenses and Other Current Liabilities | $1.0 | | Operating Lease Liabilities-Current | $0.6 | - **Cash Flow Summary (2024 vs. 2023):** | Cash Flow Activity (in US$ millions) | 2024 | 2023 | | :---------------------------------- | :--- | :--- | | Net cash provided by operating activities | $1.1 | $12.7 | | Net cash used in investing activities | $(0.3) | $(2.3) | | Net cash provided by financing activities | $7.6 | $40.0 | | Effect of foreign currency exchange rate changes | $(2.7) | $(3.6) | | Net increase in cash | $5.7 | $46.8 | | Cash and cash equivalents at end of period | $103.7 | $98.0 | - **Days Sales Outstanding (DSO) decreased to 64 days in 2024 from 75 days in 2023**, indicating faster collection of accounts receivables[351](index=351&type=chunk) [Operating Activities](index=69&type=section&id=Operating%20Activities) Net cash provided by operating activities significantly decreased by 91.3% to $1.1 million in 2024, primarily due to net income and increases in accounts payable, partially offset by a gain on warrants and increases in accounts receivable and prepaid expenses - **Net Cash Provided by Operating Activities (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | Change (USD millions) | Change (%) | | :----- | :------------------ | :------------------ | :-------------------- | :--------- | | Net cash provided by operating activities | $1.1 | $12.7 | $(11.6) | (91.3)% | - Positive cash flow in 2024 driven by **$6.0 million net income**, increased accounts payable (**$0.6 million**), and amounts due to a related party (**$0.1 million**)[347](index=347&type=chunk) - Offsetting factors included a **$0.4 million gain on warrants**, increased accounts receivable (**$0.2 million**) and prepaid expenses (**$1.8 million**), and a **$3.3 million decrease in accrued expenses**[347](index=347&type=chunk) [Investing Activities](index=69&type=section&id=Investing%20Activities) Net cash used in investing activities decreased to $0.3 million in 2024 from $2.3 million in 2023, primarily for the purchase of property, plant, and equipment and construction in progress - **Net Cash Used in Investing Activities (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | | :----- | :------------------ | :------------------ | | Net cash used in investing activities | $(0.3) | $(2.3) | - Cash used for **purchase of property, plant, and equipment and construction in progress**[349](index=349&type=chunk) [Financing Activities](index=69&type=section&id=Financing%20Activities) Net cash provided by financing activities was $7.6 million in 2024, primarily from the 2024 Uplisting Offering, compared to $40.0 million in 2023 from a private placement - **Net Cash Provided by Financing Activities (2024 vs. 2023):** | Metric | 2024 (USD millions) | 2023 (USD millions) | | :----- | :------------------ | :------------------ | | Net cash provided by financing activities | $7.6 | $40.0 | - 2024 cash flow from financing includes **$9.0 million net proceeds from the 2024 Uplisting Offering**, partially offset by **$1.4 million repayment of convertible promissory notes**[350](index=350&type=chunk) - 2023 cash flow from financing was primarily **$40.0 million from a private placement**[350](index=350&type=chunk) [COMMITMENTS AND CONTINGENCIES](index=70&type=section&id=COMMITMENTS%20AND%20CONTINGENCIES) As of December 31, 2024, Wetouch had a capital expenditure commitment of $0.7 million for construction in progress of its new facility and no off-balance sheet arrangements - **Capital Expenditure Commitment (as of Dec 31, 2024):** | Commitment Type | Amount (USD equivalent) | | :-------------- | :---------------------- | | Construction in progress | $0.7 million (RMB5.0 million) | - **No off-balance sheet arrangements** as of December 31, 2024[354](index=354&type=chunk) [Critical Accounting Policies](index=70&type=section&id=Critical%20Accounting%20Policies) Wetouch's critical accounting policies involve significant judgments and estimates in revenue recognition, inventory valuation, accounting for convertible promissory notes and warrants, income taxes, property, plant, and equipment, fair value measurement, impairment, and lease accounting - Critical accounting policies require **significant judgment and estimates**, including allowance for uncollectible receivables, inventory valuations, useful lives of assets, and contingent liabilities[355](index=355&type=chunk)[356](index=356&type=chunk)[365](index=365&type=chunk)[538](index=538&type=chunk) - Revenue is recognized under **ASC 606 at the point in time when title and risk of loss pass** and the customer accepts the goods, typically at delivery[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[569](index=569&type=chunk) - Inventories are stated at the **lower of cost or net realizable value**, with a **$54,873 write-off** recorded in 2024 for obsolete inventory[366](index=366&type=chunk)[367](index=367&type=chunk)[542](index=542&type=chunk) - Convertible promissory notes are accounted for as debt, with embedded conversion features **not bifurcated as derivatives** due to fixed interest rates and specified settlement[368](index=368&type=chunk)[370](index=370&type=chunk)[545](index=545&type=chunk)[546](index=546&type=chunk) - Common stock purchase warrants are treated as **derivative liabilities under ASC 815** due to "down-round protection" provisions, requiring fair value re-measurement[373](index=373&type=chunk)[548](index=548&type=chunk)[549](index=549&type=chunk) - Lease accounting follows **ASU 2016-02 (Topic 842)**, recognizing right-of-use (ROU) assets and lease liabilities on the balance sheet, with a weighted-average remaining lease term of **1.8 years** and a discount rate of **1.06% in 2024**[389](index=389&type=chunk)[390](index=390&type=chunk)[601](index=601&type=chunk) - The company is evaluating new ASUs on **Reference Rate Reform (ASU 2022-06, deferred to Dec 31, 2024)** and **Improvements to Income Tax Disclosures (ASU 2023-09, effective after Dec 15, 2024)**[395](index=395&type=chunk)[396](index=396&type=chunk)[588](index=588&type=chunk)[589](index=589&type=chunk)[590](index=590&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=76&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a "smaller reporting company," Wetouch is not required to provide the information typically required by this item - Not required to provide information as a **"smaller reporting company"**[397](index=397&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=76&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This item refers to the consolidated financial statements and supplementary data, which are incorporated by reference and begin on page F-1 of the Annual Report - Financial statements and supplementary data are included starting on **page F-1**[398](index=398&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=76&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This item is not applicable to Wetouch Technology Inc - Not applicable[399](index=399&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=77&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Wetouch's management concluded that its disclosure controls and procedures were not effective as of December 31, 2024, due to material weaknesses in internal control over financial reporting, for which remediation measures are being implemented - **Disclosure controls and procedures were not effective** as of December 31, 2024[401](index=401&type=chunk) - **Material weaknesses in internal control over financial reporting** include lack of competent financial reporting and accounting personnel with U.S. GAAP understanding and insufficient risk assessment procedures[405](index=405&type=chunk)[407](index=407&type=chunk) - Management is implementing remediation plans, including identifying skill gaps, cooperating with operations teams to ensure control environment, and establishing **Sarbanes-Oxley Act compliance procedures**[408](index=408&type=chunk)[413](index=413&type=chunk) - **No material changes in internal control over financial reporting** occurred during the fourth quarter[410](index=410&type=chunk) [ITEM 9B. OTHER INFORMATION](index=78&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) Wetouch has adopted an insider trading policy and a clawback policy, which are available on its website and filed as exhibits to this Annual Report - Adopted an **insider trading policy and a clawback policy**, filed as exhibits[411](index=411&type=chunk) [ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=78&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to Wetouch Technology Inc - Not applicable[412](index=412&type=chunk) [PART III](index=79&type=section&id=PART%20III) Part III outlines Wetouch's corporate governance structure, including directors, executive officers, board committees, compensation, security ownership, related party transactions, and ethical policies [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=79&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section lists Wetouch's directors and executive officers, including recent changes, and details the structure of its Audit, Compensation, and Nominating and Corporate Governance Committees, along with the company's Code of Ethics and Trading Policies - **Directors and Executive Officers (as of report date):** | Name | Age | Position(s) Held | | :--- | :-- | :--------------- | | Guangrong Cai | 62 | Chairman, Director | | Zongyi Lian | 60 | President and Chief Executive Officer | | Xing Tang | 58 | Chief Financial Officer | | Jian Feng | 30 | Secretary, Director | | Jiaxing Huang | 25 | Director | | Guijun Gan | 56 | Director | | Jing Guo | 35 | Director | - Recent changes include **Guangrong Cai appointed Chairman (June 2024), Xing Tang appointed CFO (July 2024)**, and Jing Chen resigned (April 2025), with Jing Guo appointed (May 2025)[417](index=417&type=chunk)[419](index=419&type=chunk)[421](index=421&type=chunk)[477](index=477&type=chunk)[479](index=479&type=chunk) - The Board has **three committees: Audit, Compensation, and Nominating and Corporate Governance**, with independent directors meeting Nasdaq and Exchange Act requirements[426](index=426&type=chunk)[427](index=427&type=chunk)[430](index=430&type=chunk)[434](index=434&type=chunk) - The company has adopted a written **Code of Ethics and Business Conduct** applicable to directors, officers, and employees[436](index=436&type=chunk) - An **insider trading policy was adopted on April 16, 2024**, governing securities transactions by directors, officers, and employees[439](index=439&type=chunk) - **Delinquent Section 16(a) reports** were noted for Ms. Xing Tang (CFO), Mr. Guangrong Cai (Chairman), Mr. Jiaxing Huang, and Mr. Guijun Gan (directors) for Forms 3[441](index=441&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=84&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) This section details the compensation of Wetouch's named executive officers and non-employee directors for 2024 and 2023, including salaries, employment agreements, a clawback policy, and cash fees for directors - **Executive Compensation (2024 vs. 2023):** | Name and Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All other compensation ($) | Total ($) | | :---------------- | :--- | :--------- | :-------- | :--------------- | :---------------- | :------------------------- | :-------- | | Zongyi Lian, President, CEO | 2023 | 20,336 | - | - | - | - | 20,336 | | | 2024 | 12,857 | - | - | - | - | 12,857 | | Yuhua Huang, Former CFO | 2023 | 18,642 | - | - | - | - | 18,642 | | | 2024 | 7,500 | - | - | - | - | 7,500 | | Xing Tang, CFO | 2023 | - | - | - | - | - | - | | | 2024 | 28,150 | - | - | - | - | 28,150 | - Employment agreements for executive officers include **annual salaries, remuneration, and social security benefits**, with non-competition clauses[446](index=446&type=chunk)[447](index=447&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk) - A **clawback policy covers incentive-based compensation** for executive officers in the event of an accounting restatement due to material noncompliance with financial reporting requirements[454](index=454&type=chunk)[455](index=455&type=chunk) - **No outstanding equity awards or long-term incentive plans** for executive officers as of December 31, 2024[456](index=456&type=chunk)[457](index=457&type=chunk) - **Non-Employee Director Compensation (2024):** | Name | Fees Earned or Paid in Cash ($) | Total ($) | | :--- | :----------------------------- | :-------- | | Fei Bai | 17,143 | 17,143 | | Xiaojin Tang | 8,571 | 8,571 | | Congjin Wang | 8,571 | 8,571 | | Jiaxing Huang | 6,429* | 6,429 | | Jing Chen | 20,571* | 20,571 | | Guijun Gan | 6,429* | 6,429 | *Accrued and not paid, except Jing Chen's [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=89&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section details the beneficial ownership of Wetouch's common stock as of September 8, 2025, for executive officers, directors, and 5% or greater holders, noting that all officers and directors as a group own less than 1% of outstanding shares - **Beneficial Ownership (as of September 8, 2025):** | Name of Beneficial Owner | Shares | Percentage | | :----------------------- | :----- | :--------- | | Guangrong Cai (Chairman) | 9,576 | <1% | | Zongyi Lian (CEO) | 5,657 | <1% | | Jian Feng | - | - | | Guijun Gan | - | - | | Jiaxing Huang | - | - | | Jing Guo | - | - | | Xing Tang | - | - | | All officers and directors as a group (7 persons) | 15,233 | <1% | - **No arrangements that may result in "changes in control" are known**[470](index=470&type=chunk) - Recent board and executive changes include **resignations of Jiaying Cai, Jing Chen, Yuhua Huang, Fei Bai, Xiaojin Tang, and Congjin Wang**, and **appointments of Jian Feng, Jing Guo, Guijun Gan, Guangrong Cai, and Xing Tang**[471](index=471&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk)[477](index=477&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk)[481](index=481&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=91&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) This section discloses related party transactions, including an outstanding payable to an affiliate of a former director, and confirms the independence of certain directors under Nasdaq rules - As of December 31, 2024, an **outstanding payable of $149,211 was due to Chengdu Wetouch Intelligent Optoelectronics Co., Ltd.**, an affiliate of former director Jiaying Cai[483](index=483&type=chunk) - The Audit Committee is responsible for **reviewing and approving related party transactions** to ensure fair terms[484](index=484&type=chunk) - The only family relationship was between former director Jiaying Cai and Chairman Guangrong Cai[485](index=485&type=chunk) - **Jing Chen, Jiaxing Huang, and Guijun Gan are deemed independent directors** under Nasdaq rules, with Ms. Chen also an "audit committee financial expert"[487](index=487&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES](index=92&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) This section outlines the audit fees paid to independent registered public accounting firms for fiscal years 2024 and 2023, with no audit-related, tax, or other fees incurred - **Audit Fees (2024 vs. 2023):** | Year | Auditor | Audit Fees (USD) | | :--- | :------ | :--------------- | | 2024 | Enrome LLP | $250,000 | | 2023 | B F Borgers CPA PC | $275,000 | - **No audit-related, tax, or other fees** were incurred in fiscal years 2024 and 2023[491](index=491&type=chunk)[492](index=492&type=chunk)[493](index=493&type=chunk) [PART IV](index=93&type=section&id=PART%20IV) Part IV details the exhibits and financial statement schedules included in the Annual Report, confirming consolidated financial statements and listing various corporate documents, agreements, and certifications [ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](index=93&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This item lists the consolidated financial statements, financial statement schedules, and a comprehensive list of exhibits filed with the Form 10-K, including corporate governance documents, various agreements, and certifications - Consolida

Core Insights - WeTouch Technology Inc. reported a net income of $6.0 million for the fiscal year 2024, with cash reserves of $103.7 million, equating to $8.7 per share [1] - The company provided guidance for fiscal year 2025, projecting revenue of approximately $46.15 million and net income of approximately $11.88 million, representing a 97% increase [1] - The fiscal year 2024 saw record revenue of $42.3 million, driven by growth in core applications such as automotive and gaming [1]

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that the report contains forward-looking statements subject to various risks and uncertainties that could materially alter actual results - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[6](index=6&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - Key risks include significant reliance on **top customers**, substantial **accounts receivable** that may become uncollectible, and potential expenses or delays due to the **dismissal of BF Borgers as auditor**[6](index=6&type=chunk)[7](index=7&type=chunk) - Other risks include potential **fines from the Chinese government** for uncompleted filings, challenges in **maintaining product quality** and competing effectively, and the need for **substantial additional financing** to execute business plans[7](index=7&type=chunk)[8](index=8&type=chunk) - Risks also encompass the unavailability of **preferential tax treatments**, disruptions in **third-party supplier operations**, fluctuations in **raw material costs**, and reliance on **key executives**[9](index=9&type=chunk)[10](index=10&type=chunk) - **Regulatory developments in Mainland China**, potential **trading prohibitions** under the Holding Foreign Companies Accountable Act, and changes in China's economic/political conditions pose additional risks[11](index=11&type=chunk)[12](index=12&type=chunk) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for periods ended September 30, 2024, and December 31, 2023, prepared under U.S. GAAP - The financial statements are unaudited and prepared in accordance with U.S. GAAP, with certain disclosures condensed or omitted as permitted by SEC rules[37](index=37&type=chunk) - Management believes all necessary adjustments have been made to present a fair statement of financial position, results of operations, and cash flows[38](index=38&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets provide a snapshot of the company's financial position as of September 30, 2024, and December 31, 2023, showing assets, liabilities, and stockholders' equity | Metric | September 30, 2024 (Unaudited) | December 31, 2023 | Change | % Change | | :--------------------------------- | :----------------------------- | :---------------- | :----- | :------- | | **Assets** | | | | | | Cash | $106,737,492 | $98,040,554 | $8,696,938 | 8.87% | | Accounts receivable | $9,732,758 | $7,455,252 | $2,277,506 | 30.55% | | Inventories | $187,408 | $222,102 | $(34,694) | -15.62% | | Prepaid expenses & other current assets | $3,360,770 | $1,063,627 | $2,297,143 | 216.00% | | TOTAL CURRENT ASSETS | $120,018,428 | $106,781,535 | $13,236,893 | 12.39% | | Property, plant and equipment, net | $13,125,448 | $12,859,863 | $265,585 | 2.07% | | **TOTAL ASSETS** | **$133,143,876** | **$119,641,398** | **$13,502,478** | **11.28%** | | **Liabilities** | | | | | | Accounts payable | $1,218,402 | $640,795 | $577,607 | 90.14% | | Due to related parties | $434,576 | $- | $434,576 | N/A | | Income tax payable | $1,000,261 | $- | $1,000,261 | N/A | | Accrued expenses & other current liabilities | $800,612 | $4,462,496 | $(3,661,884) | -82.06% | | Convertible promissory notes payable | $- | $1,239,126 | $(1,239,126) | -100.00% | | TOTAL CURRENT LIABILITIES | $3,453,851 | $6,342,417 | $(2,888,566) | -45.54% | | Common stock purchase warrants liability | $214,679 | $378,371 | $(163,692) | -43.26% | | **TOTAL LIABILITIES** | **$3,668,530** | **$6,720,788** | **$(3,052,258)** | **-45.41%** | | **Stockholders' Equity** | | | | | | Common stock | $11,932 | $9,733 | $2,199 | 22.59% | | Additional paid in capital | $52,501,680 | $43,514,125 | $8,987,555 | 20.65% | | Retained earnings | $75,398,355 | $69,477,092 | $5,921,263 | 8.52% | | Accumulated other comprehensive loss | $(5,631,713) | $(7,275,432) | $1,643,719 | -22.60% | | **TOTAL STOCKHOLDERS' EQUITY** | **$129,475,346** | **$112,920,610** | **$16,554,736** | **14.66%** | | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | **$133,143,876** | **$119,641,398** | **$13,502,478** | **11.28%** | [Condensed Consolidated Statements of Income and Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) This statement details the company's revenues, expenses, and net income, as well as other comprehensive income, for the three and nine months ended September 30, 2024 and 2023 | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | YoY Change | % Change | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | YoY Change | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :------- | :-------------------------- | :-------------------------- | :--------- | :------- | | Revenues | $11,537,989 | $11,123,605 | $414,384 | 3.73% | $38,649,823 | $37,331,498 | $1,318,325 | 3.53% | | Cost of Revenues | $(7,101,645) | $(6,346,079) | $(755,566) | 11.91% | $(26,014,703) | $(20,261,755) | $(5,752,948) | 28.39% | | Gross Profit | $4,436,344 | $4,777,526 | $(341,182) | -7.14% | $12,635,120 | $17,069,743 | $(4,434,623) | -25.98% | | Operating Expenses | $(953,332) | $(492,046) | $(461,286) | 93.75% | $(3,121,916) | $(2,389,043) | $(732,873) | 30.68% | | Income From Operations | $3,483,012 | $4,285,480 | $(802,468) | -18.72% | $9,513,204 | $14,680,700 | $(5,167,496) | -35.20% | | Total Other Income (Loss) | $157,123 | $(278,327) | $435,450 | -156.45% | $(851,326) | $(245,821) | $(605,505) | 246.39% | | Income Before Income Tax Expense | $3,640,135 | $4,007,153 | $(367,018) | -9.16% | $8,661,878 | $14,434,879 | $(5,773,001) | -40.00% | | Income Tax Expense | $(979,436) | $(1,148,185) | $168,749 | -14.70% | $(2,740,615) | $(4,109,679) | $1,369,064

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section details the company's unaudited condensed consolidated financial information and related disclosures [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations - **Forward-looking statements** are subject to **numerous risks and uncertainties** that could cause actual results to differ materially from expectations[4](index=4&type=chunk) - **Key risks** include **significant reliance** on top customers, **substantial accounts receivable** that may become uncollectible, and **potential significant expenses or delays due to the dismissal of BF Borgers as auditor**[4](index=4&type=chunk)[5](index=5&type=chunk) - The company faces **potential fines and penalties** from the Chinese government for not completing required filings and risks associated with adverse regulatory developments in Mainland China, including potential delisting under the Holding Foreign Companies Accountable Act[5](index=5&type=chunk)[7](index=7&type=chunk) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for the company and its subsidiaries, with detailed notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show the company's financial position, highlighting changes in assets, liabilities, and equity Condensed Consolidated Balance Sheets (in USD) | ASSETS (in USD) | June 30, 2024 | December 31, 2023 | | :---------------------- | :------------ | :---------------- | | Cash | $98,374,302 | $98,040,554 | | Accounts receivable | $10,826,787 | $7,455,252 | | Inventories | $179,264 | $222,102 | | Prepaid expenses and other current assets | $3,856,718 | $1,063,627 | | **TOTAL CURRENT ASSETS** | **$113,237,071** | **$106,781,535** | | Property, plant and equipment, net | $12,672,986 | $12,859,863 | | **TOTAL ASSETS** | **$125,910,057** | **$119,641,398** | | LIABILITIES AND STOCKHOLDERS' EQUITY (in USD) | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :---------------- | | Accounts payable | $917,153 | $640,795 | | Due to a related party | $263,956 | - | | Income tax payable | $1,093,839 | - | | Accrued expenses and other current liabilities | $839,781 | $4,462,496 | | Convertible promissory notes payable | - | $1,239,126 | | **TOTAL CURRENT LIABILITIES** | **$3,114,729** | **$6,342,417** | | Common stock purchase warrants liability | $332,799 | $378,371 | | **TOTAL LIABILITIES** | **$3,447,528** | **$6,720,788** | | STOCKHOLDERS' EQUITY (in USD) | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | Common stock | $11,932 | $9,733 | | Additional paid in capital | $52,501,680 | $43,514,125 | | Statutory reserve | $7,195,092 | $7,195,092 | | Retained earnings | $72,737,656 | $69,477,092 | | Accumulated other comprehensive loss | ($9,983,831) | ($7,275,432) | | **TOTAL STOCKHOLDERS' EQUITY** | **$122,462,529** | **$112,920,610** | | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY** | **$125,910,057** | **$119,641,398** | - Total assets **increased by approximately $6.27 million (5.2%)** from December 31, 2023, to June 30, 2024, **primarily driven by** an increase in accounts receivable and prepaid expenses[9](index=9&type=chunk) - Total current liabilities **decreased significantly by approximately $3.23 million (50.9%)** **due to** the repayment of convertible promissory notes and a decrease in accrued expenses and other current liabilities[9](index=9&type=chunk) [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) This statement provides an overview of the company's financial performance, detailing revenues, costs, operating expenses, and net income Metric (in USD) | Metric (in USD) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $12,234,575 | $12,774,432 | $27,111,834 | $26,207,893 | | Cost of Revenues | ($7,373,757) | ($6,521,015) | ($18,913,058) | ($13,915,676) | | Gross Profit | $4,860,818 | $6,253,417 | $8,198,776 | $12,292,217 | | Total Operating Expenses | ($1,135,590) | ($158,651) | ($2,168,473) | ($1,896,997) | | Income From Operations | $3,725,228 | $6,094,766 | $6,030,303 | $10,395,220 | | Total Other Income (Expenses) | $75,797 | $134,312 | ($1,008,560) | $32,506 | | Income Before Income Tax Expense | $3,801,025 | $6,229,078 | $5,021,743 | $10,427,726 | | Income Tax Expense | ($1,099,331) | ($1,556,095) | ($1,761,179) | ($2,961,494) | | **NET INCOME** | **$2,701,694** | **$4,672,983** | **$3,260,564** | **$7,466,232** | | Comprehensive Income (Loss) | $1,923,288 | ($1,531,968) | $552,165 | $580,305 | | Basic EPS | $0.23 | $0.48 | $0.29 | $0.84 | | Diluted EPS | $0.23 | $0.48 | $0.29 | $0.84 | | Basic Weighted Average Shares Outstanding | 11,931,534 | 9,682,721 | 11,325,873 | 8,841,712 | | Diluted Weighted Average Shares Outstanding | 11,982,239 | 9,779,349 | 11,376,578 | 9,034,969 | - Net income for the three months ended June 30, 2024, **decreased by 42.2% to $2.7 million** from **$4.7 million** in the prior year period, **primarily due to higher cost of revenues and operating expenses**[11](index=11&type=chunk) - For the six months ended June 30, 2024, net income **decreased by 56.3% to $3.3 million** from **$7.5 million** in the prior year period, **largely impacted by a significant increase in cost of revenues and interest expenses**[11](index=11&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This statement details changes in stockholders' equity, reflecting common stock issuances, net income, and currency adjustments Stockholders' Equity Item (in USD) | Stockholders' Equity Item (in USD) | Balance as of Dec 31, 2023 | Issuance of common stock from 2024 Public Offering | Exercise of warrants | Net income | Foreign currency translation adjustment | Balance as of June 30, 2024 | | :--------------------------------- | :------------------------- | :------------------------------------------------- | :------------------- | :--------- | :-------------------------------------- | :-------------------------- | | Common Stock (par value) | $9,733 | $2,160 | $39 | - | - | $11,932 | | Additional Paid-in Capital | $43,514,125 | $8,987,594 | ($39) | - |

Core Viewpoint - Wetouch Technologies Inc. has announced a stock buyback program to repurchase up to $15 million of its common stock, reflecting confidence in its business and addressing perceived undervaluation in the market [1][3]. Summary by Sections Stock Buyback Program - The company is authorized to repurchase shares in the open market or through privately negotiated transactions, with the timing and amount depending on various factors such as price and market conditions [2]. - The program does not obligate the company to repurchase a specific number of shares and can be suspended or modified at any time [2]. Financial Position - Wetouch has over $90 million in cash and nearly $8 per share in cash, while its market capitalization is less than $30 million, indicating that the stock is significantly undervalued [3]. - The buyback program is seen as an attractive opportunity to return value to shareholders [3]. Company Overview - Wetouch Technologies Inc. is a leader in the global touch display industry, focusing on innovation and customer satisfaction to provide premium touch display solutions [3].

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This section advises readers that the report contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations[8](index=8&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) - Key risks include significant reliance on top customers, potential uncollectible accounts receivable, and the impact of dismissing BF Borgers as auditor, which may cause expenses, delays, and affect stock price[10](index=10&type=chunk)[203](index=203&type=chunk)[205](index=205&type=chunk) - Operational and strategic risks involve maintaining product quality, effective competition, securing additional financing for business plans and new facilities, and potential disruptions from third-party suppliers and raw material cost fluctuations[10](index=10&type=chunk)[142](index=142&type=chunk) - Regulatory and geopolitical risks include potential fines from the Chinese government for uncompleted filings, adverse regulatory developments in Mainland China, delisting under the Holding Foreign Companies Accountable Act, and uncertainties in the PRC legal system and exchange rate fluctuations[10](index=10&type=chunk)[13](index=13&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[206](index=206&type=chunk)[209](index=209&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements for Wetouch Technology Inc. and its subsidiaries, along with management's discussion and analysis - The financial information includes unaudited condensed consolidated balance sheets, statements of income and comprehensive loss, statements of changes in stockholders' equity, and statements of cash flows[15](index=15&type=chunk) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section provides unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flow statements, with detailed notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$123.1 million** as of March 31, 2024, while total liabilities significantly decreased to **$2.6 million**, driven by debt repayment Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | Change (USD) | | :-------------------------------- | :------------------- | :-------------------- | :----------- | | Total Assets | $123,147,198 | $119,641,398 | $3,505,800 | | Total Current Assets | $110,035,893 | $106,781,535 | $3,254,358 | | Cash | $94,796,450 | $98,040,554 | $(3,244,104) | | Accounts Receivable | $10,937,840 | $7,455,252 | $3,482,588 | | Prepaid Expenses and Other Current Assets | $4,116,860 | $1,063,627 | $3,053,233 | | Total Liabilities | $2,607,957 | $6,720,788 | $(4,112,831) | | Total Current Liabilities | $2,237,407 | $6,342,417 | $(4,105,010) | | Convertible Promissory Notes Payable | $- | $1,239,126 | $(1,239,126) | | Accrued Expenses and Other Current Liabilities | $626,611 | $3,992,905 | $(3,366,294) | | Total Stockholders' Equity | $120,539,241 | $112,920,610 | $7,618,631 | [Condensed Consolidated Statements of Income and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Loss) Net income decreased significantly to **$0.6 million** in Q1 2024 from **$2.8 million** in Q1 2023, due to increased cost of revenues and interest expenses Condensed Consolidated Statements of Income and Comprehensive Loss Highlights | Metric | 3 Months Ended March 31, 2024 (USD) | 3 Months Ended March 31, 2023 (USD) | Change (USD) | Change (%) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | :----------- | :--------- | | Revenues | $14,877,259 | $13,433,461 | $1,443,798 | 10.7% | | Cost of Revenues | $(11,539,301) | $(7,394,661) | $(4,144,640) | 56.1% | | Gross Profit | $3,337,958 | $6,038,800 | $(2,700,842) | (44.7)% | | Total Operating Expenses | $(1,033,054) | $(1,738,346) | $705,292 | (40.6)% | | Income From Operations | $2,304,904 | $4,300,454 | $(1,995,550) | (46.4)% | | Total Other Expenses | $(1,084,186) | $(101,806) | $(982,380) | 965.0% | | Interest Expense | $(1,169,974) | $(33,399) | $(1,136,575) | 3403.8% | | Income Before Income Tax Expense | $1,220,718 | $4,198,648 | $(2,977,930) | (70.9)% | | Net Income | $558,870 | $2,793,249 | $(2,234,379) | (80.0)% | | Basic EPS | $0.04 | $0.35 | $(0.31) | (88.6)% | | Diluted EPS | $0.04 | $0.35 | $(0.31) | (88.6)% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity increased to **$120.5 million** as of March 31, 2024, primarily from a public offering and net income, offset by currency adjustments Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | Change (USD) | | :------------------------------------ | :------------------- | :-------------------- | :----------- | | Total Stockholders' Equity | $120,539,241 | $112,920,610 | $7,618,631 | | Common Stock (Shares) | 11,931,534 | 9,732,948 | 2,198,586 | | Common Stock (Amount) | $11,932 | $9,733 | $2,199 | | Additional Paid-in Capital | $52,501,680 | $43,514,125 | $8,987,555 | | Retained Earnings | $70,035,962 | $69,477,092 | $558,870 | | Accumulated Other Comprehensive Loss | $(9,205,425) | $(7,275,432) | $(1,929,993) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash decreased by **$3.2 million** in Q1 2024, with **$9.2 million** used in operations, partially offset by **$7.5 million** from financing activities Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | 3 Months Ended March 31, 2024 (USD) | 3 Months Ended March 31, 2023 (USD) | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | | Net cash (used in) provided by operating activities | $(9,217,544) | $2,716,539 | | Net cash used in investing activities | $(111,289) | $- | | Net cash provided by financing activities | $7,506,140 | $40,051,735 | | Effect of changes of foreign exchange rates on cash | $(1,421,411) | $(760,531) | | Net (decrease) increase in cash | $(3,244,104) | $42,007,743 | | Cash, beginning of period | $98,040,554 | $51,250,505 | | Cash, end of period | $94,796,450 | $93,258,248 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details the company's business, accounting policies, and specific financial line items, including corporate structure changes and revenue segmentation [NOTE 1 — BUSINESS DESCRIPTION](index=11&type=section&id=NOTE%201%20%E2%80%94%20BUSINESS%20DESCRIPTION) Wetouch Technology Inc. specializes in touchscreen displays for various industries, with Sichuan Wetouch deconsolidated in March 2023 due to a government-directed relocation - Wetouch Technology Inc. acquired BVI Wetouch through a reverse merger in October 2020, making BVI Wetouch a wholly-owned subsidiary[26](index=26&type=chunk) - The company's primary business is the research, development, manufacture, and distribution of touchscreen displays for financial terminals, automotive, POS, gaming, medical, and HMI industries[27](index=27&type=chunk) - Sichuan Wetouch was deconsolidated on March 30, 2023, following a government-directed relocation and its operations being taken over by Sichuan Vtouch[32](index=32&type=chunk)[33](index=33&type=chunk)[37](index=37&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Financial statements adhere to U.S. GAAP, with Sichuan Wetouch deconsolidated in March 2023, and property, plant and equipment depreciation revised - Financial statements are prepared under U.S. GAAP, relying on management estimates for various financial items[35](index=35&type=chunk)[39](index=39&type=chunk) - Sichuan Wetouch was deconsolidated on March 30, 2023, due to loss of operational control, resulting in no gain or loss from the disposal[37](index=37&type=chunk)[38](index=38&type=chunk) - Property, plant and equipment are stated at cost less accumulated depreciation, with construction in progress capitalized and expected to be completed by Q1 2025[41](index=41&type=chunk)[42](index=42&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE](index=14&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE) Accounts receivable increased to **$10.9 million** as of March 31, 2024, from **$7.5 million** at December 31, 2023, primarily from product sales Accounts Receivable | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | | :------------------ | :------------------- | :-------------------- | | Accounts receivable | $10,937,840 | $7,455,252 | [NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=14&type=section&id=NOTE%204%20%E2%80%94%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Prepaid expenses and other current assets significantly increased to **$4.1 million** as of March 31, 2024, driven by new consulting and market research fees Prepaid Expenses and Other Current Assets | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | | :-------------------------------- | :------------------- | :-------------------- | | Prepaid expenses and other current assets | $4,116,860 | $1,063,627 | | Prepaid consulting service fees | $2,138,482 | $- | | Prepaid market research fees | $955,000 | $- | | Prepayment for land use right | $543,638 | $537,998 | - The company advanced **$955,000** in market research fees to two individuals for overseas market research, bearing **3.45%** interest and due February 28, 2025[45](index=45&type=chunk) [NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET](index=15&type=section&id=NOTE%205%20%E2%80%94%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) Net property, plant and equipment slightly decreased to **$12.75 million** as of March 31, 2024, with construction in progress forming the majority Property, Plant and Equipment, Net | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | | :-------------------------------- | :------------------- | :-------------------- | | Property, plant and equipment, net | $12,753,915 | $12,859,863 | | Construction in progress | $12,722,820 | $12,825,896 | | Accumulated depreciation | $(25,264) | $(23,348) | - Depreciation expense for the three months ended March 31, 2024, was **$2,316**[46](index=46&type=chunk) - The company has a construction commitment of **RMB5.0 million** (equivalent to **$0.7 million**) as of March 31, 2024[49](index=49&type=chunk) [NOTE 6 — INCOME TAXES](index=16&type=section&id=NOTE%206%20%E2%80%94%20INCOME%20TAXES) The effective income tax rate decreased to **25.4%** in Q1 2024 from **33.5%** in Q1 2023, reflecting varying tax rates across entities Effective Income Tax Rates | Period | Effective Income Tax Rate | | :-------------------------------- | :------------------------ | | Three Months Ended March 31, 2024 | 25.4% | | Three Months Ended March 31, 2023 | 33.5% | - Sichuan Vtouch is subject to a **25%** income tax rate in the PRC[55](index=55&type=chunk) [NOTE 7 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=17&type=section&id=NOTE%207%20%E2%80%94%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities significantly decreased to **$0.63 million** as of March 31, 2024, due to full payment of various accrued fees Accrued Expenses and Other Current Liabilities | Metric | March 31, 2024 (USD) | December 31, 2023 (USD) | | :------------------------------------ | :------------------- | :-------------------- | | Accrued expenses and other current liabilities | $626,611 | $3,992,905 | | Accrued private placement agent fees | $- | $1,200,000 | | Accrued consulting fees | $- | $1,370,972 | | Accrued litigation charges | $- | $45,828 | - The company made full payments for accrued private placement agent fees and accrued consulting fees in February 2024[59](index=59&type=chunk) [NOTE 8 — CONVERTIBLE PROMISSORY NOTES PAYABLE](index=18&type=section&id=NOTE%208%20%E2%80%94%20CONVERTIBLE%20PROMISSORY%20NOTES%20PAYABLE) The company fully repaid **$2.59 million** in convertible promissory notes in February 2024, leading to a significant increase in interest expenses due to default charges - The company fully repaid **$2,586,960** for the remaining five outstanding convertible promissory notes on February 23, 2024, including **$1,400,750** in principal and **$1,186,210** in accrued interest and default charges[69](index=69&type=chunk) Interest Expenses from Convertible Promissory Notes | Period | Interest Expenses (USD) | | :-------------------------------- | :---------------------- | | Three Months Ended March 31, 2024 | $1,169,974 | | Three Months Ended March 31, 2023 | $33,399 | - One lender exercised Note Warrants cashlessly for **2,725 shares** of common stock during the three months ended March 31, 2024[78](index=78&type=chunk) [NOTE 9 — STOCKHOLDERS' EQUITY](index=20&type=section&id=NOTE%209%20%E2%80%94%20STOCKHOLDERS%27%20EQUITY) Total stockholders' equity increased to **$120.5 million** as of March 31, 2024, following a public offering that generated **$10.8 million** in gross proceeds - On February 23, 2024, the company closed a public offering of **2,160,000 shares** at **$5.00 per share**, generating **$10.8 million** in gross proceeds[85](index=85&type=chunk)[89](index=89&type=chunk) - Issuance costs of **$1,810,246** were charged to additional paid-in capital during the three months ended March 31, 2024[90](index=90&type=chunk) - A 1-for-20 reverse stock split was approved on July 16, 2023, and became effective on September 12, 2023[88](index=88&type=chunk) [NOTE 10 — SHARE BASED COMPENSATION](index=22&type=section&id=NOTE%2010%20%E2%80%94%20SHARE%20BASED%20COMPENSATION) No share-based compensation expense was recognized in Q1 2024 or Q1 2023, with warrants for **35,861 shares** exercised during Q1 2024 - No share-based compensation expense was recognized for the three months ended March 31, 2024, or 2023[96](index=96&type=chunk) - Warrants for **35,861 shares** of common stock related to legal and consulting services were exercised during the three months ended March 31, 2024, and no such warrants remain outstanding[96](index=96&type=chunk) [NOTE 11 — RISKS AND UNCERTAINTIES](index=23&type=section&id=NOTE%2011%20%E2%80%94%20RISKS%20AND%20UNCERTAINTIES) The company faces credit, interest rate, and significant currency risks, alongside high revenue concentration with top ten customers accounting for **98.8%** of Q1 2024 revenue - The company faces significant credit risk from accounts receivable and currency risk due to RMB-denominated transactions and assets[98](index=98&type=chunk)[101](index=101&type=chunk) - Revenue concentration is high, with the top ten customers accounting for **98.8%** of total revenue for the three months ended March 31, 2024[103](index=103&type=chunk) - Raw material purchases are concentrated, with three suppliers accounting for approximately **42.4%** of total raw material purchases in Q1 2024[104](index=104&type=chunk) [NOTE 12 — COMMITMENTS AND CONTINGENCIES](index=24&type=section&id=NOTE%2012%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces potential CSRC fines for untimely Nasdaq listing filings and is involved in two ongoing legal cases, with a construction commitment of **$0.7 million** - The company failed to timely complete CSRC filing procedures for its Nasdaq listing, potentially facing fines of **RMB 1 million** to **RMB 10 million**[106](index=106&type=chunk)[107](index=107&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - All prior material legal proceedings against the company and its former chairman have been settled and discharged[109](index=109&type=chunk) - Two ongoing legal cases involve a claim for **$425,540** for unsettled accounts payable and fund interests, and another for a **$233,310** debt payable where Sichuan Vtouch was ordered joint liability[129](index=129&type=chunk)[132](index=132&type=chunk) - As of March 31, 2024, the company has a construction commitment of **RMB5.0 million** (equivalent to **$0.7 million**)[134](index=134&type=chunk)[185](index=185&type=chunk) [NOTE 13 — REVENUES](index=28&type=section&id=NOTE%2013%20%E2%80%94%20REVENUES) Total revenues increased by **11.2%** to **$14.88 million** for the three months ended March 31, 2024, with overseas sales growing significantly by **34.1%** Geographical Revenue Breakdown | Region | 3 Months Ended March 31, 2024 (USD) | 3 Months Ended March 31, 2023 (USD) | Change (USD) | Change (%) | | :-------------------- | :---------------------------------- | :---------------------------------- | :----------- | :--------- | | Sales in PRC | $9,374,473 | $9,287,566 | $86,907 | 0.9% | | Sales in Overseas | $5,502,786 | $4,145,895 | $1,356,891 | 32.7% | | Total Revenues | $14,877,259 | $13,433,461 | $1,443,798 | 10.7% | [NOTE 14 — SUBSEQUENT EVENT](index=28&type=section&id=NOTE%2014%20%E2%80%94%20SUBSEQUENT%20EVENT) The company's common stock began trading on Nasdaq on February 21, 2024, but it failed to timely complete CSRC filing procedures for its overseas listing - The company's common stock began trading on the Nasdaq Capital Market on February 21, 2024[136](index=136&type=chunk) - The company failed to timely complete CSRC filing procedures for its overseas listing, and management is monitoring potential penalties[136](index=136&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's Q1 2024 financial performance, covering revenues, gross profit, operating expenses, net income, liquidity, and capital resources - The company is engaged in the research, development, manufacturing, sales, and servicing of medium to large-sized projected capacitive touchscreens for various specialized industries[140](index=140&type=chunk) - The company is actively constructing new production facilities and office buildings in Chengdu, China, with building construction estimated to finish by the end of 2024 and production to commence in Q3 2025[142](index=142&type=chunk) [Overview](index=29&type=section&id=Overview) Wetouch Technology Inc. specializes in projected capacitive touchscreens and is expanding production with new facilities in Chengdu, expected to be completed by end of 2024 - Wetouch specializes in medium to large-sized projected capacitive touchscreens (**7.0 to 42 inches**) for various industries, including automotive, industrial HMI, and medical[140](index=140&type=chunk) - The company is constructing new production facilities and office buildings in Chengdu, China, with building construction expected to finish by the end of 2024 and production to commence in Q3 2025[142](index=142&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q1 2024 revenues increased by **11.2%** to **$14.9 million**, but gross profit decreased by **45.0%** and net income fell by **78.6%** due to higher costs and interest Q1 2024 vs Q1 2023 Financial Highlights | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (%) | | :---------------------- | :-------------------- | :-------------------- | :--------- | | Revenues | $14.9 | $13.4 | 11.2% | | Gross Profit | $3.3 | $6.0 | (45.0)% | | Gross Profit Margin | 22.4% | 45.0% | (22.6)% | | Net Income | $0.6 | $2.8 | (78.6)% | | Total Volume Shipped | 681,370 units | 635,276 units | 7.3% | [Revenues](index=30&type=section&id=Revenues) Total revenues for Q1 2024 increased by **11.2%** to **$14.9 million**, driven by higher sales volume and average selling price, with significant overseas growth Revenue Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | Change (%) | | :-------------------------------- | :---------- | :---------- | :------- | :--------- | | Total Revenues (USD Million) | $14.9 | $13.4 | $1.5 | 11.2% | | Total Units Sold | 681,370 | 635,276 | 46,094 | 7.3% | | Revenue from PRC (USD Million) | $9.4 | $9.3 | $0.1 | 1.1% | | Revenue from Overseas (USD Million) | $5.5 | $4.1 | $1.4 | 34.1% | - The increase in revenue was driven by a **7.3%** increase in sales volume and an **8.5%** increase in average selling price, partially offset by a **5.1%** negative impact from RMB depreciation[146](index=146&type=chunk) - The company is shifting its production mix towards higher-end products like automotive, medical, gaming, and industrial control computer touchscreens due to greater growth potential and stronger demand[153](index=153&type=chunk) [Gross Profit and Gross Profit Margin](index=32&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Gross profit decreased by **45.0%** to **$3.3 million** in Q1 2024, with margin falling to **22.4%** due to a **56.7%** increase in cost of revenues Gross Profit and Margin (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change (USD) | Change (%) | | :---------------- | :-------- | :-------- | :----------- | :--------- | | Gross Profit | $3.3 million | $6.0 million | $(2.7) million | (45.0)% | | Gross Profit Margin | 22.4% | 45.0% | (22.6)% | - | - The decrease in gross profit margin was primarily due to a **56.7%** increase in cost of revenues, driven by a **66.9%** rise in raw material costs[154](index=154&type=chunk) - Raw material cost increases were attributed to U.S. export controls on advanced computing and semiconductor manufacturing to China, and production under capacity during the Chinese Spring Festival[154](index=154&type=chunk) [Selling Expenses](index=32&type=section&id=Selling%20Expenses) Selling expenses increased significantly by **806.8%** to **$459,792** in Q1 2024, primarily due to increased traveling and logistic expenses for marketing Selling Expenses (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD) | Q1 2023 (USD) | Change (USD) | Change (%) | | :------------------------ | :------------ | :------------ | :----------- | :--------- | | Selling Expenses | $459,792 | $50,705 | $409,087 | 806.8% | | As a percentage of revenues | 3.4% | 0.0% | 3.4% | - | - The increase in selling expenses was primarily due to a **$0.3 million** increase in traveling expenses and a **$0.1 million** increase in logistic expenses for marketing[156](index=156&type=chunk) [General and Administrative Expenses](index=33&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses decreased by **70.6%** to **$0.5 million** in Q1 2024, mainly due to the full payment of a **$1.2 million** accrued private placement agent fee General and Administrative Expenses (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (USD Million) | Change (%) | | :-------------------------------- | :-------------------- | :-------------------- | :------------------- | :--------- | | General and Administrative Expenses | $0.5 | $1.7 | $(1.2) | (70.6)% | | As a percentage of revenues | 3.4% | 12.7% | (9.3)% | - | - The decrease was primarily due to the full payment of an accrued **$1.2 million** private placement agent fee in February 2024, which was accrued in Q1 2023[158](index=158&type=chunk) [Research and Development Expenses](index=34&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased by **104.6%** to **$42,738** in Q1 2024, primarily due to an increase in material consumption Research and Development Expenses (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD) | Q1 2023 (USD) | Change (USD) | Change (%) | | :------------------------------ | :------------ | :------------ | :----------- | :--------- | | Research and Development Expenses | $42,738 | $20,885 | $21,853 | 104.6% | - The increase was due to an increase in material consumption[159](index=159&type=chunk) [Operating Income](index=34&type=section&id=Operating%20Income) Operating income decreased by **46.5%** to **$2.3 million** in Q1 2024, mainly due to lower gross margin and higher selling expenses Operating Income (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (USD Million) | Change (%) | | :--------------- | :-------------------- | :-------------------- | :------------------- | :--------- | | Operating Income | $2.3 | $4.3 | $(2.0) | (46.5)% | - The decrease was primarily due to lower gross margin and higher selling expenses, partially offset by lower general and administrative expenses[160](index=160&type=chunk) [Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants](index=34&type=section&id=Gain%20%28loss%29%20on%20Changes%20in%20Fair%20Value%20of%20Common%20Stock%20Purchase%20Warrants) The company recorded a gain of **$7,821** on changes in fair value of common stock purchase warrants in Q1 2024, a significant improvement from a prior year loss Gain (Loss) on Changes in Fair Value of Common Stock Purchase Warrants (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD) | Q1 2023 (USD) | Change (USD) | Change (%) | | :---------------------------------------------------- | :------------ | :------------ | :----------- | :--------- | | Gain (loss) on changes in fair value of common stock purchase warrants | $7,821 | $(97,602) | $105,423 | (108.0)% | [Interest Expenses](index=34&type=section&id=Interest%20Expenses) Interest expenses surged to **$1.17 million** in Q1 2024, primarily due to **$1.15 million** in default interest charges from convertible promissory note repayments Interest Expenses (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (USD Million) | Change (%) | | :---------------- | :-------------------- | :-------------------- | :------------------- | :--------- | | Interest Expenses | $1.2 | $0.0 | $1.2 | N/A | - The significant increase in interest expenses was mainly due to **$1,145,995** in default interest charges upon the repayment of convertible promissory notes[163](index=163&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) Income tax expense decreased by **57.1%** to **$0.6 million** in Q1 2024, reflecting a lower effective tax rate of **25.4%** due to reduced income before taxes Income Taxes (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (USD Million) | Change (%) | | :----------------------- | :-------------------- | :-------------------- | :------------------- | :--------- | | Income before Income Taxes | $1.2 | $4.2 | $(3.0) | (71.4)% | | Income Tax (Expense) | $(0.6) | $(1.4) | $0.8 | (57.1)% | | Effective income tax rate | 25.4% | 33.5% | (8.1)% | - | [Net Income](index=34&type=section&id=Net%20Income) Net income for Q1 2024 significantly decreased to **$0.6 million** from **$2.8 million** in Q1 2023, driven by lower gross margin and increased expenses Net Income (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (USD Million) | Q1 2023 (USD Million) | Change (USD Million) | Change (%) | | :--------- | :-------------------- | :-------------------- | :------------------- | :--------- | | Net Income | $0.6 | $2.8 | $(2.2) | (78.6)% | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, the company had **$94.8 million** in cash and **$110.0 million** in current assets, with **$9.2 million** cash used in operating activities Liquidity and Capital Resources Highlights | Metric | March 31, 2024 (USD Million) | December 31, 2023 (USD Million) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Cash and Cash Equivalents | $94.8 | $98.0 | | Total Current Assets | $110.0 | $106.8 | | Total Current Liabilities | $2.2 | $6.3 | - Net cash used in operating activities was **$9.2 million** in Q1 2024, a significant shift from **$2.7 million** provided in Q1 2023[171](index=171&type=chunk) - Financing activities provided **$7.5 million** in Q1 2024, mainly from the 2024 Public Offering, compared to **$40.0 million** in Q1 2023 from a private placement[174](index=174&type=chunk)[175](index=175&type=chunk) - Days Sales Outstanding (DSO) decreased to **56 days** for Q1 2024 from **77 days** for the year ended December 31, 2023[176](index=176&type=chunk) [Operating Activities](index=36&type=section&id=Operating%20Activities) Net cash used in operating activities was **$9.2 million** for Q1 2024, a significant shift from **$2.7 million** provided in Q1 2023, due to decreased net income and increased expenses Net Cash Flow from Operating Activities | Period | Net Cash (Used in) Provided by Operating Activities (USD) | | :-------------------------------- | :------------------------------------------ | | Three Months Ended March 31, 2024 | $(9,217,544) | | Three Months Ended March 31, 2023 | $2,716,539 | - The change was driven by a **$2.2 million** decrease in net income, a **$0.1 million** decrease in gain on fair value of warrants, increases in inventories and prepaid assets, and decreases in various liabilities[171](index=171&type=chunk) [Investing Activities](index=36&type=section&id=Investing%20Activities) Net cash used in investing activities for Q1 2024 was **$0.1 million**, solely for property, plant, and equipment purchases, with no activity in the prior year Net Cash Flow from Investing Activities | Period | Net Cash Used in Investing Activities (USD) | | :-------------------------------- | :-------------------------------- |\ | Three Months Ended March 31, 2024 | $(111,289) | | Three Months Ended March 31, 2023 | $- | - The cash outflow was for the purchase of property, plant, and equipment[172](index=172&type=chunk) [Financing Activities](index=36&type=section&id=Financing%20Activities) Net cash provided by financing activities was **$7.5 million** for Q1 2024, primarily from a public offering, contrasting with **$40.0 million** from a private placement in Q1 2023 Net Cash Flow from Financing Activities | Period | Net Cash Provided by Financing Activities (USD) | | :-------------------------------- | :-------------------------------- |\ | Three Months Ended March 31, 2024 | $7,506,140 | | Three Months Ended March 31, 2023 | $40,051,735 | - Q1 2024 financing cash flow included **$9.0 million** from the 2024 Public Offering, offset by **$1.4 million** in convertible promissory note repayments[174](index=174&type=chunk) - Q1 2023 financing cash flow included **$40.0 million** from a private placement[175](index=175&type=chunk) [Holding Company Structure](index=38&type=section&id=Holding%20Company%20Structure) No changes occurred in the company's holding company structure during the three months ended March 31, 2024 - No changes occurred in the company's holding company structure during Q1 2024[180](index=180&type=chunk) [Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries](index=38&type=section&id=Cash%20and%20Other%20Assets%20Transfers%20between%20the%20Holding%20Company%20and%20Its%20Subsidiaries) For details on cash and other asset transfers, readers are directed to the 2023 Form 10-K, indicating no new material information for the current quarter - For details on cash and other asset transfers, refer to the 2023 Form 10-K[181](index=181&type=chunk) [Commitments and Contingencies](index=38&type=section&id=Commitments%20and%20Contingencies) The company faces potential CSRC fines for untimely Nasdaq listing filings and has a construction commitment of **RMB5.0 million** (**$0.7 million**) - The company failed to timely complete CSRC filing procedures for its Nasdaq listing, potentially facing fines of **RMB 1 million** to **RMB 10 million**[182](index=182&type=chunk)[183](index=183&type=chunk) - As of March 31, 2024, the company has a construction commitment of **RMB5.0 million** (equivalent to **$0.7 million**)[185](index=185&type=chunk) [Off Balance Sheet Arrangements](index=38&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[186](index=186&type=chunk) [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) No material changes to critical accounting estimates have occurred since the 2023 Form 10-K, with financial statement preparation relying on management judgments and estimates - No material changes to critical accounting estimates have occurred since the 2023 Form 10-K[187](index=187&type=chunk) - Financial statement preparation involves management judgments, assumptions, and estimates in conformity with GAAP[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for smaller reporting companies - This item is not applicable for smaller reporting companies[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls were ineffective as of March 31, 2024, due to material weaknesses, with management implementing remediation plans - Disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses[190](index=190&type=chunk) - Material weaknesses include inadequate segregation of duties, lack of formal policies and procedures, and insufficient risk assessment procedures on internal controls[193](index=193&type=chunk)[197](index=197&type=chunk) - Remediation plans include engaging a third-party financial consulting firm, identifying skill gaps, developing internal control policies, and hiring an assistant financial controller[194](index=194&type=chunk)[198](index=198&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective as of March 31, 2024, due to a material weakness, though management believes financial statements are fairly presented - Disclosure controls and procedures were deemed ineffective as of March 31, 2024, due to a material weakness[190](index=190&type=chunk) - Despite the material weakness, management believes the unaudited condensed consolidated financial statements fairly represent the company's financial condition and results[191](index=191&type=chunk) [Material Weakness](index=40&type=section&id=Material%20Weakness) Material weaknesses in internal control over financial reporting include inadequate segregation of duties, lack of formal policies, and insufficient risk assessment - Material weaknesses in internal control over financial reporting were identified, including inadequate segregation of duties, lack of formal policies, and insufficient risk assessment[192](index=192&type=chunk)[193](index=193&type=chunk)[197](index=197&type=chunk) - These deficiencies create a reasonable possibility that material misstatements in financial statements will not be prevented or detected on a timely basis[192](index=192&type=chunk) [Management's Plan to Remediate the Material Weakness](index=40&type=section&id=Management%27s%20Plan%20to%20Remediate%20the%20Material%20Weakness) Management is implementing remediation plans, including engaging financial consulting, identifying skill gaps, developing policies, and hiring an assistant financial controller - Management is implementing remediation plans, including engaging a third-party financial consulting firm and identifying skill gaps[194](index=194&type=chunk)[198](index=198&type=chunk) - Further steps include developing and monitoring internal control policies and procedures, and hiring an assistant financial controller familiar with US GAAP and English[198](index=198&type=chunk) - The company acknowledges that remediation will take time and cannot guarantee immediate success or effectiveness of internal controls[195](index=195&type=chunk) [Changes in Internal Control over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during Q1 2024, apart from ongoing remediation efforts for the identified material weakness - No material changes in internal control over financial reporting occurred during Q1 2024, apart from ongoing remediation efforts for the identified material weakness[197](index=197&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers non-financial information, including legal proceedings, updated risk factors, equity sales, and other regulatory disclosures - This section addresses legal proceedings, risk factors, equity sales, and other regulatory disclosures[199](index=199&type=chunk)[200](index=200&type=chunk)[202](index=202&type=chunk)[210](index=210&type=chunk)[217](index=217&type=chunk) [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company may face adverse impacts from legal actions in the ordinary course of business, with further details provided in Note 12 of the financial statements - The company may face legal proceedings in the ordinary course of business, which can adversely impact operations[200](index=200&type=chunk) - Additional information on legal proceedings is provided in Note 12 of the financial statements[201](index=201&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) New and updated risk factors include potential expenses and delays from auditor dismissal, inability to collect judgments against the former auditor, and possible Chinese government fines for filing failures - Dismissal of BF Borgers as auditor may cause significant expenses, delays in financings/SEC filings, and affect stock price and market access[203](index=203&type=chunk) - There is a risk of being unable to exercise effective remedies or collect judgments against BF Borgers due to their permanent bar from practicing before the SEC[205](index=205&type=chunk) - The company may face fines from the Chinese government (**RMB 1 million** to **RMB 10 million**) for failing to timely complete CSRC filing obligations for its overseas listing, with substantial uncertainties in regulation interpretation[206](index=206&type=chunk)[209](index=209&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not undertake any unregistered sales of equity securities or repurchase any shares of its common stock during the quarter ended March 31, 2024 - No unregistered sales of equity securities occurred during Q1 2024[210](index=210&type=chunk) - The company did not repurchase any shares of its common stock during Q1 2024[211](index=211&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the quarter ended March 31, 2024 - No defaults upon senior securities were reported[212](index=212&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[214](index=214&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company - This item is not applicable[215](index=215&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[217](index=217&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase, and Cover Page Interactive Data File) are filed as exhibits[217](index=217&type=chunk) [Signatures](index=45&type=section&id=Signatures) The Quarterly Report was signed on June 14, 2024, by Zongyi Lian, Chief Executive Officer and President, and Yuhua Huang, Chief Financial Officer - The Quarterly Report was signed by Zongyi Lian (CEO and President) and Yuhua Huang (CFO) on June 14, 2024[220](index=220&type=chunk)