Wetouch(WETH) - 2025 Q1 - Quarterly Report

Filing Information 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] - The registrant is classified as a non-accelerated filer, smaller reporting company, and emerging growth company[4] - As of October 7, 2025, there were 11,931,534 shares of common stock outstanding[4] Cautionary Note Regarding Forward-Looking Statements 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][10] - 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] - Other risks involve adverse regulatory developments in Mainland China, potential delisting under the Holding Foreign Companies Accountable Act, and fluctuations in exchange rates[12] PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion for Q1 2025 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Wetouch Technology Inc. and its subsidiaries for Q1 2025 Condensed Consolidated Balance Sheets 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) 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 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 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 This section provides detailed disclosures for financial statements, covering accounting policies, related party transactions, and risks NOTE 1 — BUSINESS DESCRIPTION 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] - 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] - 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][31][37] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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][39] - The company adopted ASU 2016-02 (Leases), recognizing right-of-use assets and lease liabilities[42][43] - The company operates in one reporting segment, focusing on touchscreen business, with all assets located in the PRC[46][130][131] - Recent FASB ASUs (2023-07, 2023-09, 2024-03, 2025-02) are being evaluated for their impact on future financial statements and disclosures[47][48][49][50] NOTE 3 — ACCOUNTS RECEIVABLE 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 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 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 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] | 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 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 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][69][70][71] | 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 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 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] | 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] NOTE 11 — STOCKHOLDERS' EQUITY 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] - A 1-for-20 reverse stock split was effective on September 12, 2023[104] - In February 2024, a public offering of 2,160,000 shares generated $10.8 million gross proceeds[105] | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :---------------- | :------------- | :---------------- | | Statutory reserve | $8,073,968 | $8,073,968 | NOTE 12 — SHARE BASED COMPENSATION 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] - Warrants related to legal and consulting services were exercised or expired by December 31, 2024[116] NOTE 13 — WEIGHTED AVERAGE NUMBER OF SHARES 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] NOTE 14 — RISKS AND UNCERTAINTIES 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][122] - High customer concentration: top ten customers accounted for 99.7% of total revenue in Q1 2025[124] - High supplier concentration: four suppliers accounted for 48.2% of raw material purchases in Q1 2025[125] NOTE 15 — COMMITMENTS AND CONTINGENCIES 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] - Capital expenditure commitment of $0.7 million for construction in progress as of March 31, 2025[128] NOTE 16 — SEGMENT REPORTING 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] - Substantially all long-lived assets are located in the PRC[131] | 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 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][133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, liquidity, and capital resources for Q1 2025, highlighting key operational aspects 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] - Domestic sales in China accounted for 67.3% of revenues in Q1 2025, up from 63.1% in Q1 2024[139] - New production facility construction expected to finish by end of 2025, with production commencing in Q2 2026[142] | 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 The company achieved a 2.7% revenue increase and a 316.7% net income surge in Q1 2025, driven by improved margins 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] | 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] Gross Profit and Gross Profit Margin 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] Selling Expenses 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] General and Administrative Expenses 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] Research and Development Expenses 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 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 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] Income Taxes 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 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 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] | 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] - Days Sales Outstanding (DSO) decreased to 55 days in Q1 2025 from 64 days in FY 2024[170] - Company expects to meet liquidity needs for the next 12 months with existing cash and operating cash flows[172] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements as of March 31, 2025 - No off-balance sheet arrangements as of March 31, 2025[176] Critical Accounting Policies 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[178] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses, but management believes financial statements are fairly presented Evaluation of Disclosure Controls and Procedures 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] - Despite material weaknesses, management believes financial statements fairly represent the company's financial condition[180] Material Weakness 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] - Material weaknesses also include lack of risk assessment procedures on internal controls[185] Management's Plan to Remediate the Material Weakness 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][190] - Remediation efforts are ongoing, and effectiveness cannot be assured until controls operate for a sufficient period and are tested[187] Changes in Internal Control over Financial Reporting 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] PART II OTHER INFORMATION This section provides disclosures on legal, equity, and other corporate matters, along with a list of filed exhibits Item 1. Legal Proceedings 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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][194] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the quarter ended March 31, 2025 - No defaults upon senior securities[195] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[196] Item 5. Other Information No other information is reported under this item - Not applicable[197] Item 6. Exhibits 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] 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]