Wetouch(WETH) - 2024 Q4 - Annual Report

COMMONLY USED DEFINED TERMS 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] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 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][17][19] - 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] - 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] PART I 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 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][23] - The company holds ISO9001, ISO 14001, and RoHS SGS certifications, highlighting its commitment to product quality and environmental standards[24] - Top five customers accounted for 82.4% of total revenues in 2024, indicating high customer concentration[64] - R&D expenses were nil in 2024, a significant decrease from $84,551 in 2023, with future increases expected for new product development[84][85] - 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] - 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][99] 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][23] - 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] Corporate History and Structure 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][33] - 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] - Two reverse stock splits were effected: 1-for-70 in September 2020 and 1-for-20 in September 2023, retroactively adjusting share information[44][46] - 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] - 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][49][50][51][52] Our Products 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][53] - 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 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] - 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] - 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] Sales and Marketing 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] - Target markets include Eastern, Southern, Northern, and Southwest Mainland China, Taiwan, South Korea, and Germany[70] - 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] Our Suppliers 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] - 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][78] - 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 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][81] - Strict quality control includes cosmetic, function, stress (humidity, temperature, corrosion), and hazardous substances testing before delivery[83][87] - Product Quality Standards (Company vs. Industry): | Item | Industry Standards | Our Standards | | :--- | :----------------- | :------------ | | Reaction time | ≤ 5 milliseconds | ≤ 5 milliseconds | | Surface hardness | 6H | 7H9H | | Operational temperature | 070 degrees Celsius | -3080 degrees Celsius | | EsD requirement | 612KV | 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") 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] - 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] Intellectual Property 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] - Sichuan Vtouch has one registered trademark in Mainland China and five pending patent applications (utility models and inventions)[86][88][89][90] - Patents registered in Mainland China cannot be enforced in other jurisdictions where the company supplies products[89] Environmental Matters 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] - Sichuan Vtouch holds a Stationary Pollution Source Registration Form under the local environmental protection system[92] - The company is not aware of any environmental investigations, prosecutions, or punishments[93] 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] - Wetouch faces fewer competitors in its niche of medium- to large-sized touchscreens for specialized industries requiring stable supply and longer lifespans[95] - 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] 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][97] - Touchscreen technology is now a crucial component for human-machine interaction across various computing products[97] 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][99] - The Foreign Investment Law (effective Jan 1, 2020) permits foreign investment in touchscreen manufacturing and provides protections for foreign investors[101][103][105] - Environmental Protection Law requires impact assessments and pollution control, with Sichuan Vtouch registered under the Stationary Pollution Source Registration Form[108][109][113] - Intellectual property is protected by PRC Trademark Law (1 registered trademark) and Patent Law (5 pending patent applications)[117][118] - Foreign exchange regulations (SAFE Circulars) govern RMB convertibility, capital contributions, and dividend remittances, requiring registrations and approvals[119][120][122][123][124][126][127][129][130] - Offshore financing by PRC residents through SPVs requires SAFE registration (SAFE Circular 37), with non-compliance potentially leading to restrictions on onshore entities[131][132][133][134] - Dividend distribution by FIEs is limited to retained earnings, subject to statutory reserve funds and withholding tax (10% generally, 5% with treaty)[135][143][144] - 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][139][140] - 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][142][145] - 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] 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] - Sichuan Vtouch contributes to various employee social security plans (pension, unemployment, childbirth, work-related injury, medical, housing insurance) as required by PRC regulations[148] - The company maintains good working relationships with employees and has not experienced significant labor disputes[149] ITEM 1A. RISK FACTORS 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][161] - High customer concentration poses a significant risk, with the top five customers accounting for 82.4% of 2024 revenues[163][164] - Failure to secure land use rights for new facilities and delays in construction could materially and adversely affect business operations and financial condition[168][169] - The company faces risks from fluctuations in raw material costs and availability, and dependency on key executives without long-term supplier contracts[192][193][195] - 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][216][251] - 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][215][223][224] - 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][273][282][283] Summary of Risks Affecting Our Company 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] - Risks specific to operating in China involve regulatory changes, potential delisting under the HFCAA, and uncertainties in the PRC legal system[155] - Risks to common stock include price volatility, potential for manipulative short selling, and delisting from Nasdaq due to non-compliance[155] Risks Related to Our Business and Industry 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][160][161] - 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][164][165] - 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][169][170][171][172] - The company holds $7.5 million in accounts receivable as of December 31, 2024, which could become uncollectible, impacting cash flows and liquidity[179] - 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][193][195][197] - The company lacks business liability or disruption insurance, exposing it to significant costs and business disruption from uninsured risks[202][204] Risks Related to Doing Business in China 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][209][210][211][213] - 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][215][223][224] - 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][221] - 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][232] - 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][241][242] - 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][247][248][249][250][264] - Uncertainties in the evolving PRC legal system, including enforcement and sudden changes in laws, limit legal protections and could adversely affect business[251][252][253][254] - 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][256][257][261][262] - 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][266] Risks Related to Our Common Stock 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][269] - By-laws designate Nevada courts as the exclusive forum for most shareholder disputes, potentially limiting litigation options[270][271] - 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][274][276] - Substantial sales of common stock by existing shareholders could negatively affect the market price[277] - No dividends are expected in the foreseeable future, meaning returns depend entirely on stock price appreciation[278][279] - Worsening U.S.-China relations could decrease stock price and complicate access to U.S. capital markets[281] - 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][283] ITEM 1B. UNRESOLVED STAFF COMMENTS The company has no unresolved staff comments to report - No unresolved staff comments[286] ITEM 1C. CYBERSECURITY 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] - Robust governance and oversight are maintained, with mechanisms and processes to assess, identify, and mitigate cybersecurity risks, including regular employee training[286][288] - 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] - The company remains vulnerable to known or unknown threats and acknowledges increasing regulatory requirements for cybersecurity incident responses[287] ITEM 2. PROPERTIES 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][291][292][293] - Current leases expire on October 31, 2025, with expected renewal on commercially reasonable terms[291] - 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][301] - New facility construction is estimated to be completed by the end of 2025, with production commencing in Q1 2026, but delays are possible[170][171][302] - 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] ITEM 3. LEGAL PROCEEDINGS 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][662] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Wetouch Technology Inc - Not applicable[305] PART II 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 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] - 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] - No equity compensation plans, recent sales of unregistered securities, or issuer purchases of equity securities[310][311][312] ITEM 6. [RESERVED] This item is reserved and contains no information - Item is reserved[313] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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][316] - 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] - 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][350] - Capital expenditure commitment of $0.7 million for construction in progress of new facilities as of December 31, 2024[353] 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][317] - 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] - 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] - 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 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 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] - Selling expenses increased by 33.3% to $0.8 million in 2024, mainly due to increased traveling and transportation for sales and marketing[332] - 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] - Research and development expenses were nil in 2024, a 100% decrease from $84,551 in 2023[335] - Operating income decreased by 26.8% to $9.3 million in 2024, driven by lower gross profit and higher selling expenses[336] - 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][338] - Net income for 2024 was $6.0 million, a 27.7% decrease from $8.3 million in 2023[341] 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] - 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] Gross Profit and Gross Profit Margin 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] Selling Expenses 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] General and Administrative Expenses 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] Research and Development Expenses 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 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] Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants 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][373][374][375] Income Taxes 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] Net Income 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 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][343] - 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] Operating Activities 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] - 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] Investing Activities 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] Financing Activities 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] - 2023 cash flow from financing was primarily $40.0 million from a private placement[350] COMMITMENTS AND CONTINGENCIES 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] Critical Accounting Policies 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][356][365][538] - 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][360][361][569] - 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][367][542] - 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][370][545][546] - Common stock purchase warrants are treated as derivative liabilities under ASC 815 due to "down-round protection" provisions, requiring fair value re-measurement[373][548][549] - 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][390][601] - 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][396][588][589][590] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable to Wetouch Technology Inc - Not applicable[399] ITEM 9A. CONTROLS AND PROCEDURES 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] - 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][407] - 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][413] - No material changes in internal control over financial reporting occurred during the fourth quarter[410] ITEM 9B. OTHER INFORMATION 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] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to Wetouch Technology Inc - Not applicable[412] PART III 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 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][419][421][477][479] - The Board has three committees: Audit, Compensation, and Nominating and Corporate Governance, with independent directors meeting Nasdaq and Exchange Act requirements[426][427][430][434] - The company has adopted a written Code of Ethics and Business Conduct applicable to directors, officers, and employees[436] - An insider trading policy was adopted on April 16, 2024, governing securities transactions by directors, officers, and employees[439] - 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] ITEM 11. EXECUTIVE COMPENSATION 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 ($) | | :---------------- | :--- | :--------- | :-------- | :--------------- | :---------------- | :------------------------- | :-------- | | Zongyi Lian, President, CEO | 2023 | 20,336 | - | - | - | - | 20,336 | | | 2024 | 12,857 | - | - | - | - | 12,857 | | Yuhua Huang, Former CFO | 2023 | 18,642 | - | - | - | - | 18,642 | | | 2024 | 7,500 | - | - | - | - | 7,500 | | Xing Tang, CFO | 2023 | - | - | - | - | - | - | | | 2024 | 28,150 | - | - | - | - | 28,150 | - Employment agreements for executive officers include annual salaries, remuneration, and social security benefits, with non-competition clauses[446][447][450][451][452] - A clawback policy covers incentive-based compensation for executive officers in the event of an accounting restatement due to material noncompliance with financial reporting requirements[454][455] - No outstanding equity awards or long-term incentive plans for executive officers as of December 31, 2024[456][457] - Non-Employee Director Compensation (2024): | Name | Fees Earned or Paid in Cash ($) | 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 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] - 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][472][473][474][475][476][477][478][479][480][481] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 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] - The Audit Committee is responsible for reviewing and approving related party transactions to ensure fair terms[484] - The only family relationship was between former director Jiaying Cai and Chairman Guangrong Cai[485] - Jing Chen, Jiaxing Huang, and Guijun Gan are deemed independent directors under Nasdaq rules, with Ms. Chen also an "audit committee financial expert"[487] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 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][492][493] PART IV 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 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