Filed 2025-09-11 · Period ending 2024-12-31 · 74,295 words · SEC EDGAR
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# Wetouch Technology Inc. (WETH) — 10-K
**Filed:** 2025-09-11
**Period ending:** 2024-12-31
**Accession:** 0001213900-25-086651
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1826660/000121390025086651/)
**Origin leaf:** 2d46177fe1cd039ae3d08ea9453d4436f2b4060f951e55f09c161115d339e6b7
**Words:** 74,295
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**
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**
**ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934**
****
**For the fiscal year ended December 31, 2024**
**TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For the transition period from _______ to __________**
**Commission File Number: 001-41957**
**Wetouch Technology Inc.**
**(Exact Name of Registrant as Specified in Its
Charter)**
| Nevada | | 20-4080330 | |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) | |
| | | |
| No. 29, Third Main Avenue Shigao Town, Renshou County Meishan, Sichuan, China | | 620500 | |
| (Address of Principal Executive Offices) | | (Zip Code) | |
**(86) 28-37390666**
(Registrants telephone number, including
area code)
Securities registered pursuant to Section 12(b)
of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | |
| Common Stock, par value $0.001 per share | | WETH | | The Nasdaq Stock Market LLC | |
Securities registered pursuant to Section 12(g)
of the Act: **None.**
Indicate by check mark if the Registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the Registrant is not
required to file Reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Note - Checking the box above will not relieve
any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the Registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes
No
Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small Reporting company, or an emerging growth company.
See the definitions of large accelerated filer, accelerated filer, smaller Reporting company
or an emerging growth company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | | Accelerated filer | | |
| Non-accelerated filer | | Smaller reporting company | | |
| | Emerging growth company | | |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial
Reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrants
executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the voting and non-voting
common stock held by non-affiliates of the registrant as of June 28, 2024 (the last business date of the registrants most recently
completed second fiscal quarter), based on the last sale price of the registrants common stock on such date, was $31,379,934.
As of September 8, 2025, there were
11,931,534 shares of common stock of the registrant issued and outstanding.
****
**WETOUCH TECHNOLOGY INC.**
**ANNUAL REPORT ON FORM 10-K**
**FOR THE YEAR ENDED DECEMBER 31, 2024**
**TABLE OF CONTENTS**
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COMMONLY USED DEFINED TERMS |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
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PART I |
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ITEM 1. BUSINESS |
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ITEM 1A. RISK FACTORS |
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ITEM 1B. UNRESOLVED STAFF COMMENTS |
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ITEM 1C. CYBERSECURITY |
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ITEM 2. PROPERTIES |
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ITEM 3. LEGAL PROCEEDINGS |
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ITEM 4. MINE SAFETY DISCLOSURES |
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PART II |
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ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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ITEM 6. [RESERVED] |
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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ITEM 9A. CONTROLS AND PROCEDURES |
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ITEM 9B. OTHER INFORMATION |
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
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PART III |
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
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ITEM 11. EXECUTIVE COMPENSATION |
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
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PART IV |
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
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ITEM 16. FORM 10-K SUMMARY |
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SIGNATURES |
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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F-1 | |
i
**COMMONLY USED DEFINED TERMS**
Unless otherwise indicated
or the context requires otherwise, references in this Annual Report on Form 10-K (the Annual Report) to:
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China, Chinese, or the PRC are to the Peoples Republic of China, including the special administrative regions of Hong Kong and Macau, and, for the purposes of this annual report only, excluding Taiwan; | |
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BVI are to the British Virgin Islands; | |
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BVI Wetouch are to Wetouch Holding Group Limited, a limited company organized under the laws of British Virgin Islands and a wholly owned subsidiary of Wetouch; | |
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Hong Kong Wetouch are to Hong Kong Wetouch Electronics Technology Limited (), a limited company organized under the laws of Hong Kong and a wholly owned subsidiary of BVI Wetouch. On June 18, 2021, Hong Kong Wetouch submitted its application for dissolution and was dissolved on March 18, 2022. | |
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HK Wetouch are to Hong Kong Wetouch Technology Limited (), a limited company organized under the laws of Hong Kong and a wholly owned subsidiary of BVI Wetouch; | |
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Mainland China are to the mainland of the Peoples Republic of China; excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only; | |
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PRC laws and regulations or PRC laws are to the laws and regulations of Mainland China; | |
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Sichuan Wetouch are to Sichuan Wetouch Technology Co., Ltd (), a limited liability company organized under the PRC laws and prior wholly foreign owned subsidiary of Hong Kong Wetouch. Sichuan Wetouchs business and operations have been assumed by Sichuan Vtouch; | |
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Sichuan Vtouch are to Sichuan Vtouch Technology Co., Ltd (), a limited liability company organized under the PRC laws and a wholly foreign owned subsidiary of HK Wetouch; | |
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Shares, shares or shares of common stock are to the shares of common stock of Wetouch Technology Inc., with par value of $0.001 per share; | |
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Renminbi, RMB or Chinese Yuan are to the legal currency of Mainland China; and | |
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U.S. dollars, dollars, USD or $ are to the legal currency of the United States. | |
ii
**CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS**
This Annual Report, including,
without limitation, statements under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations,
includes forward-looking statements within the meaning of Section 27A of the Securities Act (as defined below) and Section 21E of the
Exchange Act (as defined below). Forward-looking statements generally relate to future events or our future financial or operating performance
and may include statements concerning, among other things, financial results; business plans; future liabilities and other obligations;
impairments and amortization; estimates of the financial impact of certain items, accounting treatment, events or circumstances; and capital
allocation. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including
the reasons described in our Business, Risk Factors, and Management Discussion and Analysis of Financial
Condition and Result of Operations sections, as well as those discussed elsewhere in this Annual Report. In some cases, you can
identify these forward-looking statements by terms such as anticipate, believe, continue, could,
depends, estimate, expects, intend, may, ongoing,
plan, potential, predict, project, should, will, would,
assumption or judgment or the negative of those terms or other similar expressions, although not all forward-looking
statements contain those words.
These forward-looking statements
present our estimates and assumptions only as of the date of this Annual Report and are subject to several known and unknown risks, uncertainties,
and assumptions. Accordingly, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the
dates on which they are made. There can be no assurance that actual results will not materially differ from expectations. These statements
are based on managements current expectations, but actual results may differ materially due to various factors, including, but
not limited to:
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Our reliance on our top customers is significant. Failure to attract new customers or retain existing ones cost-effectively could materially and adversely impact our business, financial condition, and results of operations. | |
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We hold a substantial amount of accounts receivable, which may become uncollectible. | |
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Our capacity to uphold the quality and safety standards of our products. | |
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Our ability to compete effectively within the touchscreen display industry. | |
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Without substantial additional financing, our ability to execute our business plan will be compromised. | |
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Failure to secure the certificate of land use right for a new parcel from the local PRC government, as well as acquiring and installing new production lines on the new parcel, could materially and adversely affect our business, financial condition, and results of operations. | |
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Revocation or unavailability of preferential tax treatments and government subsidies, or successful challenges to our tax liability calculation by PRC tax authorities, may necessitate payment of tax, interest, and penalties exceeding our tax provisions. | |
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Significant interruptions in the operations of our third-party suppliers could potentially disrupt our operations. | |
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Risks associated with fluctuations in the cost, availability, and quality of raw materials may adversely affect our results of operations. | |
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We are reliant on key executives and highly qualified managers, and retention cannot be assured. | |
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Absence of long-term contracts with our suppliers allows them to reduce order quantities or terminate sales to us at any time. | |
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Failure to adopt new technologies to evolving customer needs or emerging industry standards may materially and adversely affect our business. | |
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Lack of business liability or disruption insurance exposes us to significant costs and business disruption. | |
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Adverse regulatory developments in Mainland China may subject us to additional regulatory review, restrictions, disclosure requirements, and regulatory scrutiny by the SEC, increasing compliance costs and hindering future securities offerings. | |
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Our common stock may be prohibited from trading in the U.S. under the Holding Foreign Companies Accountable Act if PCAOB inspection of our auditor is incomplete, leading to delisting or prohibition and potential decline in stock value. | |
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Changes in Chinas economic, political, or social conditions or government policies may adversely affect our business and operations. | |
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Uncertainties regarding the PRC legal system, including enforcement and sudden changes in laws and regulations, could adversely affect us and limit legal protections. | |
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Fluctuations in exchange rates could materially and adversely affect our results of operations and your investment value. | |
The forward-looking statements
contained in this Annual Report are based on our current expectations and beliefs concerning future developments and their potential effects
on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of
risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize,
or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking
statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
iv
**PART I**
**ITEM 1. BUSINESS**
**Overview**
Through our wholly-owned subsidiaries,
we are engaged in the research, development, manufacturing, sales and servicing of medium- to large-sized projected capacitive touchscreens.
We specialize in large-format touchscreens, which are developed and designed for a wide variety of markets and used in the financial terminals,
automotive, Point of Sales, gaming, lottery, medical, Human-Machine Interface (HMI), and other specialized industries.
Our product portfolio comprises
medium- to large-sized projected capacitive touchscreens ranging from 7.0 inch to 42-inch screens. In terms of the structures of touch
panels, we offer (i) Glass-Glass (GG), primarily used in GPS/car entertainment panels in mid-size and luxury cars, industrial
HMI, financial and banking terminals, POS and lottery machines; (ii) Glass-Film-Film (GFF), mostly used in high-end GPS
and entertainment panels, industrial HMI, financial and banking terminals, and the lottery and gaming industry; (iii) Plastic-Glass (PG),
typically adopted by touchscreens in GPS/entertainment panels, motor vehicle GPS, smart home, robotics and charging stations; and (iv)
Glass-Film (GF), mostly used in industrial HMI.
Maintaining the industry standards
for product quality and sustainability is one of our core values. Touchscreens produced by us not only have long life span with low maintenance,
but also have strong anti-interference and anti-corrosion solutions, coupled with multi-touch capability and high light-transmittance
ratio and stability. As a technology company, Sichuan Vtouch Technology Co., Ltd., our subsidiary in Mainland China (Sichuan Vtouch)
has received certifications from domestic and international institutions, such as ISO9001 Quality Management Systems (QMS) Certification
of Registration, ISO 14001 Environmental Management System (EMS) Certification of Registration, and RoHS SGS Certification (Restriction
of Hazardous Substance Testing Certification).
We generate revenues through
sales of our various touchscreen products. For the years ended December 31, 2024 and 2023, we recognized approximately $42.3 million and
$39.7 million, respectively, in revenues.
We sell our touchscreen products
both domestically in China and internationally, covering major areas in Mainland China, including but not limited to the eastern, southern,
northern and southwest regions of Mainland China, Taiwan, South Korea, Germany and other countries. We believe that we have established
a strong and diversified client base. For the years ended December 31, 2024 and 2023, our domestic sales accounted for approximately 64.7%
and 69.7%, respectively, of our revenues, and our international sales accounted for approximately 35.3% and 30.3%, respectively, of our
revenues.
**Corporate History and Structure**
We were originally incorporated
under the laws of the state of Nevada on August 31, 1992 as Gulf West Investment Properties, Inc, and were dormant and had no operations
for many years.
On February 26, 2019, the
Eighth Judicial District Court in and for Clark County, Nevada, Case No. A-19-787151-B, appointed Custodian Ventures LLC, an affiliate
of David Lazar, as custodian of the Company (the Custodian). Mr. Lazar was appointed as the sole officer and director of
the Company. On March 11, 2019, 85,715 shares of common stock of the Company were issued to the Custodian in consideration for the payment
of cash and the issuance of a promissory note by the Custodian to the Company. Effective as of June 11, 2019, the court discharged the
Custodians duties.
1
On June 18, 2020, we consummated
the transactions contemplated by a Stock Purchase Agreement among the Company, the Custodian, Qixun
Technology (Samoa) Limited (Qixun Samoa) and Qihong Technology (Samoa) Limited
(Qihong Samoa, Qixun Samoa and Qixun Samoa are referred to as the Buyers). Pursuant to the Stock Purchase
Agreement, the Buyers acquired all of the 85,715 shares of the Company owned by the Custodian, representing 50.47% of the issued and outstanding
shares of the Company. The Custodian and the Company agreed to indemnify the Buyers from any liabilities of the Company occurring prior
to June 18, 2020, and the promissory note issued by the Custodian to the Company was canceled. Immediately following the closing, David
Lazar resigned as the sole officer and director of the Company and Jiaying Cai was appointed as president, secretary and treasurer of
the Company and as the sole director.
**Name Change**
Effective September 30, 2020,
we changed our name from Gulf West Investment Properties, Inc. to Wetouch Technology Inc. by filing an Amended and Restated Articles of
Incorporation with the Nevada Secretary of State to give effect to a name change. As a result of the name change, we changed our trading
symbol from GLFW to WETH, effective November 3, 2020.
**Reverse Merger**
On October 9, 2020, we entered
into a share exchange agreement (the Share Exchange Agreement) with Wetouch Holding Group Limited, a British Virgin Islands
company incorporated on August 14, 2020 under the laws of the British Virgin Islands (BVI Wetouch), and all the shareholders
of BVI Wetouch (each a BVI Wetouch Shareholder and collectively the BVI Wetouch Shareholders), to acquire
all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Wetouch Shareholders an aggregate
of 28 million shares of our common stock (the Reverse Merger). The Reverse Merger closed on October 9, 2020.
BVI Wetouch was formed to
acquire Hong Kong Wetouch Electronics Technology Limited (Hong Kong Wetouch), which it acquired on September 11, 2020. As
a result, Hong Kong Wetouch became a wholly owned subsidiary of BVI Wetouch.
Hong Kong Wetouch was incorporated
on May 5, 2016 and, on July 19, 2016, acquired all the shares of Sichuan Wetouch Technology Co., Ltd., a PRC company established on May
6, 2011 (Sichuan Wetouch). As a result, Sichuan Wetouch became a wholly owned subsidiary of Hong Kong Wetouch.
Through BVI Wetouchs
ownership of Hong Kong Wetouch (later dissolved) and Sichuan Wetouch, we indirectly owned the business of Sichuan Wetouch. Following the
Reverse Merger, Sichuan Wetouch became our indirect wholly owned subsidiary.
2
**Acquisition of HK Wetouch**
Hong Kong Wetouch Technology
Limited, a limited company organized under the laws of Hong Kong (HK Wetouch), was incorporated on December 3, 2020 to hold
all the shares of Sichuan Vtouch Technology Co., Ltd., which was incorporated on December 30, 2020 in Chengdu, Sichuan, under the laws
of The Peoples Republic of China (China, or the PRC).
On March 12, 2021, BVI Wetouch,
our wholly owned subsidiary, acquired all the shares of HK Wetouch from its sole shareholder, Guangde Cai (our former Chairman and Director).
As a result, HK Wetouch became a wholly-owned subsidiary of BVI Wetouch. Immediately following the acquisition of HK Wetouch, BVI Wetouch
owned (i) all the outstanding shares of Hong Kong Wetouch, which, in turn, owned all the outstanding shares of Sichuan Wetouch and (ii)
all of the outstanding shares of HK Wetouch, which owned all the shares of Sichuan Vtouch.
On March 2, 2021, HK Wetouch
acquired all shares of Hong Kong Wetouch. Hong Kong Wetouch was dissolved on March 18, 2022. In addition, as of March 31, 2021, Sichuan
Wetouchs business and operations were assumed by Sichuan Vtouch.
On March 30, 2023, an independent
third party acquired all the shares of Sichuan Wetouch for a nominal amount.
**Corporate Structure**
The diagram below sets forth
our corporate structure as of the date of this Annual Report.
*
3
**Private Placement**
On
January 19, 2023, we entered into a securities purchase agreement with certain investors, pursuant to which we sold an aggregate of 160,000,000
shares of common stock of the Company for an aggregate purchase price of $40,000,000, or $0.25 per share. The net proceeds of the offering
(after deducting legal and accounting fees and expenses) were used by the Company for working capital and general corporate purposes and
the repayment of debt. The issuance of the shares in the private placement was exempted from registration pursuant to Section 4(a)(2)
and/or Regulation S as promulgated by the U.S. Securities and Exchange Commission under the Securities Act. The securities are subject
to transfer restrictions, and the certificates evidencing the shares will contain an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
**Private Placement
Consent Agreement**
On
March 18, 2023, the Company entered into a private placement consent agreement with a third-party investment bank firm (see Note 10) on
the agent fees of US$1.2 million, payable only on the completion of a private placement. If the private placement is not completed by
November 1, 2023, the representatives under the agreement reserve their rights to pursue any and all claims, actions or remedies available
to them under the engagement between the Company and the private placement representatives. The Company made the full payment in February
2024.
**Reverse Stock Splits**
Since
our incorporation, we have effected two reverse stock splits of our common stock.
2020
Reverse Stock Split:*
Effective
September 30, 2020, in connection with our name change from Gulf West Investment Properties, Inc. to Wetouch Technology Inc., we effected
a 1-for-70 reverse stock split of our common stock. As a result, every 70 shares of outstanding common stock were exchanged for one share
of new common stock. Our issued and outstanding shares decreased from 11,887,103 to 169,820, while the authorized common stock was adjusted
to 300,000,000 shares and preferred stock to 10,000,000 shares, all with a par value of $0.001 per share.
*2023
Reverse Stock Split:*
On
February 17, 2023, our board of directors (the Board) authorized a reverse stock split of our common stock at a ratio of
not less than one to five (1:5) and not more than one to eighty (1:80), with the exact ratio and the timing of the reverse stock split
to be determined by the Chairman of the Board. Upon effectiveness of such reverse stock split, the number of authorized shares of common
stock of the Company will also be decreased in the same ratio.
On
July 16, 2023, the Companys board of directors approved the reverse stock split of the Companys common stock at a ratio
of 1-for-20. On July 16, 2023, the Company filed a certificate of change (with an effective date of July 16, 2023) with the Nevada Secretary
of State pursuant to Section 78.209 of the Nevada Revised Statutes to effectuate a 1-for-20 reverse stock split of its common stock. On
September 11, 2023, the reverse stock split was approved by the Financial Industry Regulatory Authority and took effect on September 12,
2023. All share information included in this annual report has been retroactively adjusted as if the reverse stock split had occurred
as of the earliest period presented.
4
**2024 Uplisting Offering**
On
February 20, 2024, we entered into an underwriting agreement with WestPark Capital, Inc. and Craft Capital Management LLC, as representatives
(the 2024 Uplisting Offering Representatives) of the underwriters listed in the underwriting agreement (the Underwriters),
pursuant to which we agreed to sell to the Underwriters in a firm commitment underwritten public offering (the 2024 Uplisting Offering)
of an aggregate of 2,160,000 shares of our common stock, par value $0.001 per share, at a public offering price of $5.00 per share.
The 2024 Uplisting Offering was conducted pursuant to a Registration Statement on Form S-1, as amended (SEC filed No. 333-270726), which
was declared effective on February 14, 2024. In connection with the 2024 Uplisting Offering, our common stock began trading on the Nasdaq
Capital Market under the symbol WETH on February 21, 2024. The 2024 Uplisting Offering closed on February 23, 2024 and generated gross
proceeds of $10.8 million. We paid a total of approximately $0.8 million in underwriting discounts and commissions, and approximately
$0.8 million for other costs and expenses related to the 2024 Uplisting Offering. Our net proceeds from the 2024 Uplisting Offering, after
deducting the underwriting discount, the Underwriters fees and expenses, and our 2024 Uplisting Offering expenses, was approximately
$9.2 million. We also issued the Representatives Warrants (the 2024 Uplisting Offering Representatives Warrants)
to the 2024 Uplisting Offering Representatives to purchase 43,200 shares of common stock at an exercise price equal to 125.0% of the public
offering price.
Recent Development
Since
December 31, 2024, the Company has reported several material events in Current Reports on Form 8-K, including changes to the management
of the Company; correspondence from Nasdaq regarding late periodic filings and the acceptance of our plan to regain compliance; a notice
of deficiency with the $1.00 minimum bid price requirement; and a change in our independent registered public accounting firm. The Company
submitted compliance plans to Nasdaq as requested and is working diligently to rectify the deficiencies as promptly as practicable to
regain compliance with the Listing Rule.
The
brief summaries that follow are qualified in their entirety by, and should be read together with, the Companys Current Reports
on Form 8-K filed since December 31, 2024.
*Board
changes*. On April 29, 2025, Jing Chen resigned from the Board and its committees. Effective May 1, 2025, Jing Guo was appointed to
the Board; committee roles were reconstituted as described in the Current Report on Form 8-K filed on May 2, 2025.
*Nasdaq
compliance - late filings*. On May 27, 2025, Nasdaq notified the Company that it was not in compliance with Listing Rule 5250(c)(1)
due to the delayed Form 10-K for the year ended December 31, 2024 and Form 10-Q for the quarter ended March 31, 2025. On June 26, 2025,
Nasdaq accepted the Companys plan of compliance and granted an exception through October 13, 2025 to file the outstanding Form
10-K (FY 2024) and Form 10-Qs for the quarters ended March 31 and June 30, 2025.
*Auditor
changes*. On June 27, 2025, the Audit Committee dismissed Enrome LLP as the Companys independent registered public accounting
firm. The Company disclosed there were no disagreements or reportable events within the meaning of Item 304. On June 27, 2025, the Company
appointed ST & Partners PLT as its independent registered public accounting firm.
*Nasdaq
compliance - bid-price notice*. On July 15, 2025, Nasdaq notified the Company that it was not in compliance with the $1.00 minimum
bid price requirement and provided a 180-day compliance period ending January 12, 2026.
For
additional details, see the Companys Current Reports on Form 8-K filed May 2, 2025; May 30, 2025; June 26, 2025; June 30, 2025;
and July 15, 2025.
5
****
**Our Products**
We
offer medium- to large-sized projected capacitive touchscreens, which can be categorized as set forth below:
|
Product Type |
|
Description |
|
Application | |
|
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|
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| |
|
Product type GG
|
|
This is a double glass layer product, with a solid clear adhesive (SCA) between a layer of conductive glass and a layer of tempered glass. This type of touchscreen has the advantage of being able to be easily manufactured, with relatively low cost. However, products of this type in large sizes will require a greater degree of signal penetration and long distance transmission technology which will be more technically challenging to achieve. |
|
Medium and high end GPS/car entertainment, finance, POS and lottery machines. | |
|
|
|
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|
| |
|
Product type GFF
|
|
This product uses a double layer of conductive films, with an optically clear adhesive (OCA) between a layer of tempered glass. The products functionality comes from the interaction between the multiple layers of conductive film and glass, which does not require extensive coating, lithography and etching. This type of product is anti- explosive and has relatively low manufacturing cost. However, products of this type in large sizes will require greater degree of signal penetration and long distance transmission technology which will be more technically challenging to achieve. |
|
Financial, gaming and lottery, and medical industries | |
|
|
|
|
|
| |
|
Product type PG
|
|
This product uses a layer of conductive glass, with an optically clear adhesive (OCA) between a layer of surface intensify PMMA (Poly Methyl methacrylate acid). The products functionality relies on the interaction between the layers of conductive glass. Like the GFF type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost. |
|
Motor vehicle GPS, smart home, robots and charging stations | |
|
|
|
|
|
| |
|
Product type GF
|
|
This product uses a layer of conductive film, with an optically clear adhesive (OCa) between a layer of tempered glass. The products functionality relies on the interaction between the layers of conductive glass. Like the GFF type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost. |
|
Industrial HMI | |
As
of December 31, 2024, product types GFF and GG constitute our main stream products, accounting for approximately an average of 38.5% and
52.7%, respectively, of our total revenues, with product types GF and PG accounting for 2.6%, 4.4% and 1.9%%, respectively, of our total
revenues. As of December 31, 2023, product types GFF and GG constitute our main stream products, accounting for approximately an average
of 41.8% and 51.7%, respectively, of our total revenues, with product types GF and PG and other raw materials accounting for 2.0%, 2.4%
and 2.1%, respectively, of our total revenues.
6
**Applications of the Companys Products**
Our products are used and
applied in the production of a variety of products in a wide range of industries. Our products areas of common application are
set out below.
Point of Sale (POS) Machines
|
|
|
POS machines are used in a variety of retailers, including in department stores, supermarkets, convenience stores, boutiques, restaurants, hotels, banks, logistics, telecommunication and other service industries. Due to the frequent use of touchscreens on POS machines, Wetouch has adopted the use of high-end materials which give its products a competitive advantage through their anti-scratch, high temperature resistance and long use life qualities. | |
Car Navigators and Entertainment Systems
|
|
|
Touchscreen products for car navigation and entertainment systems take advantage of the popularity of touchscreen consoles in motor vehicles. Wetouch touchscreens are particularly suitable for motor vehicles GPS and entertainment systems, due to their resistance to temperature variation. These touchscreens may be used in both inbuilt and external car systems. | |
ATM Machines and Other Financial Machines
|
|
|
ATMs and other similar machines use touchscreens or have a touchscreen function. The touchscreens need to have high-endurance capacities as they are used by the general public and are often located outdoors, such that these screens must withstand weathering. Our products are particularly suited to use in these machines as they are highly durable. | |
Industrial Equipment
|
|
|
Touchscreens in the industrial sector have broad application, and play an important role in industrial HMI. Industrial HMI systems and equipment often require touchscreen functions. These touchscreens must be resistant to interference, stable and have good touch sensitivity. Our products fully meet these requirements, being temperature variation resistant, dustproof and waterproof. | |
7
Gaming Machines
|
|
|
The new generation of gambling machines are commonly adopting a touchscreen function. Gaming machines with a touchscreen function provide an enhanced experience for uses via multi-touch sensory touch systems. Our products are therefore popular amongst gambling machine manufacturers. | |
Lottery Machines
|
|
|
The self-service lottery ticket vending machine is provided with an operator-oriented touch display device, an input device, a modem, a cash register, printer and security authentication function. The touchscreen display facilitates easy and user-friendly operation of the lottery machine. | |
Ticket Machines and Kiosks
|
|
|
Self-service ticket machines and kiosks contain touchscreen interfaces which are durable and have a long use life. These self-service machines are used in daily lives, and as such there is a continuous demand for high quality and effective touchscreens. Our products are widely used in these ticketing machines and kiosks. | |
For the year ended December
31, 2024, we had approximately $11.5 million in revenues generated from the sales of automotive touchscreens, accounting for 27.2% of
our total revenues, with industrial HMI touchscreens accounting for 19.4%, gaming touchscreens for 15.3%, medical touchscreens for 14.9%,
POS touchscreens for 14.8%, and multi-functional printer touchscreens for 8.4%, respectively, of our total revenues.
For the year ended December
31, 2023, we had approximately $9.8 million in revenues generated from the sales of automotive touchscreens, accounting for 24.6% of our
total revenues, with industrial HMI touchscreens accounting for 19.9%, POS touchscreens for 16.7%, gaming touchscreens accounting for
14.1%, medical touchscreens for 14.6%, and multi-functional printer touchscreens for 10.1%, respectively, of our total revenues.
**Our Customers**
A
sound customer base is critical to our success.We had five and six customers, each accounting for more than 10% of our revenues,
for the years ended December 31, 2024 and 2023, respectively.
For the year ended December
31, 2024, each of our top five customers accounted for approximately 22.0%, 19.1%, 15.3%, 14.5% and 11.5%of our total revenues, representing
82.4% in the aggregate.
For the year ended December
31, 2023, each of our top six customers accounted for approximately 22.5%, 16.5%, 15.6%, 14.1%, 11.3% and 10.1% of our total revenues,
representing 90.1% in the aggregate.
8
As Sichuan Wetouchs
business and operations have been assumed by Sichuan Vtouch, Sichuan Vtouch entered into sales framework agreements, which were entered
into by Sichuan Wetouch previously with our top customers on December 31, 2021. The material terms of the sales framework agreements with
our top customers provide:
|
|
|
The term of each sales framework agreement is four years, which may be renewed by a separate agreement upon expiration. | |
|
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| |
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The customer shall purchase an annual minimum purchase amount for period from January 1 to December 31 each year as specified in the agreement. If the customer fails to purchase the minimum purchase amount in the applicable agreement, the customer will be deprived of the most favorable price treatment for the following year and rebate rewards for the current year. | |
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We will send the price list to the customers at the beginning of each year. The specific execution price is subject to the order signed by the parties. | |
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We have the right to adjust the price due to the market or other factors. When there is any adjustment, we shall send a written notice of such adjustment with 30 days in advance. Upon receipt of this notice, the customer may choose to accept the price adjustment or terminate the sales frame agreement. | |
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For the first year, we grant the customers a credit limit of $1.5 million and a credit term of 3 months. During supply, the portion of payment that exceeds the credit line shall be paid before goods are delivered. In the next year, the credit will be increased according to the sales of the previous year, which shall be subject to the negotiation of both parties. | |
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The customers shall make payment in full and on time according to the payment method and time of the purchase order and shall not delay or refuse to pay. If the customers fail to make payment within the agreed period of the purchase order and still fail to make payment after being urged by us, we may stop the supply and have the right to demand payment of a late fee of 0.3% of the contract amount per day from the customers; If the customers still refuse to make payment after 30 days of notice from us, we have the right to file a lawsuit with the court. The customers shall bear the litigation costs, lawyers fees, and other debt recovery costs. | |
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We are required to provide products to customers pursuant to the delivery date and quantity, requirements included in the purchase orders and shall negotiate with customers if we are unable to so provide. | |
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The customers are entitled to compensation of losses due to our failure to provide after-sale services. | |
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Any violation of the terms of the agreements may result in the termination of the agreements and the breaching party shall be responsible for all business and economic losses and legal liabilities arising therefrom. | |
9
We do not typically enter into
sales framework agreements with other customers but sell products to them through purchase orders.
The key terms of our purchase order typically include
the following:
|
|
|
The product name, specification, quantity, price, order amount and delivery date are specified in each order. | |
|
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| |
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Delivery method and packaging requirements are specified in each order | |
|
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Payment terms are specified in each order. | |
|
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|
Breach of order terms by customers in some orders. | |
|
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| |
|
|
|
Guaranty terms in some orders. | |
Sichuan Vtouch is obligated
to provide 1) products per the specific requirements of the orders, and 2) unconditional defect warranty for our products generally for
a term of one year. Any violation of the order terms may result in termination of the orders or replacement of our products.
For the years ended December
31, 2024 and 2023, we did not provide any extended payment terms to any of our customers. Our customers are required to make full payment
within three to six months from the delivery date.
**Sales and Marketing**
We source our customers through
multiple channels: (i) our own research through Search Engine Optimization (SEO) and outreach, (ii) referrals from our existing
customers, (iii) our websites, which provide product information for sale, as well as telephone and email contact information; and (iv)
industry exhibitions/expos.
Our main target markets are
economically developed countries and regions, including Eastern, Southern, Northern and Southwest Mainland China, Taiwan, South Korea,
and Germany. We believe that we have established a strong client base, including globally well-known institutional customers. Overseas
sales were approximately $14.9 million in 2024 as compared to $12.1 million in 2023.
We target these overseas customers
mainly via our online marketing efforts. In order to market our products, increase our market share, and secure more quality customers,
we frequently participate in, and promote our products at, specific touchscreen technology exhibitions held internationally.
Our products are produced
to order and are marketed directly by our own sales personnel. We do not rely on distributors to sell our products.
10
For the year ended December
31, 2024, the revenue from our domestic customers accounted for approximately 64.7% of our total revenues, with overseas customers accounting
for approximately 35.3%of our total revenues.
For the year ended December
31, 2023, the revenue generated from our domestic customers accounted for approximately 69.7% of our total revenues, with overseas customers
accounting for approximately 30.3% of our total revenues.
**Our Suppliers**
Sichuan Vtouch does not typically
enter into supply agreements with suppliers. We can utilize any supplier we choose, and there are no minimum purchase requirements for
orders.
We place purchase orders with
suppliers of raw materials for the production of our products. The general terms of the purchase order include specifications for product
name, quantity, price, order amount, and delivery date, as well as delivery methods, packaging, inspection procedures, breach terms, and
dispute resolution, all tailored to each order. Payment terms are also specified in each order. Additionally, all products must meet nationally
or industry-prescribed quality standards, with each order requiring a suppliers quality certification. The supplier must unconditionally
accept returns and either refund the purchase price in full or provide replacements if the products do not meet the required quality standards,
are damaged, or significantly differ from what was ordered.
We do not consider any of
our suppliers to be material to our business, and we can utilize any supplier we choose at our sole discretion. Although we can utilize
any supplier, we believe that we have established healthy and stable relationships with our significant suppliers.
We purchase our raw materials
through various suppliers. For the year ended December 31, 2024, our top three suppliers, the only suppliers from whom our purchases individually
exceeded 10% of our total raw material purchases, accounted for approximately 15.5%, 12.2% and 11.5%, respectively.For the year
ended December 31, 2023, our top one supplier, the only supplier from whom our purchases individually exceeded 10% of our total raw material
purchases, accounted for approximately 13.3%.
The general terms of the purchase
order include specifications for product name, quantity, price, order amount, and delivery date, as well as delivery methods, packaging,
inspection procedures, breach terms, and dispute resolution, all tailored to each order. Payment terms are also specified in each order.
Additionally, all products must meet nationally or industry-mandated quality standards, with each order requiring a suppliers quality
certification. The supplier must unconditionally accept returns and either refund the purchase price in full or provide replacements if
the products do not meet the required quality standards, are damaged, or significantly differ from what was ordered.
11
****
**Production and Quality Control**
The Company has adopted a
made-to-order production model as follows:
*
This process is subject to
continuous review and monitoring by the management team in consultation with engineers, electricians and other technical experts to ensure
that finished products are of the highest quality and meet customer requirements and ISO9001 Quality Management Systems (QMS) standards.
In order to maintain product
safety and a high standard of product quality, the Company implements a strict set of quality control policies and inspection protocols.
These policies and protocols are enforced by the Companys senior management and officers through every stage of the production
to post-production process. Their management guidelines along with key company quality policies are set out below:
The Company has strict production
standards in place that govern what constitutes acceptable quality for its products. This ensures that the Companys products meet
product certification standards. The production team adheres to the following criteria when assessing product standards:
|
Item |
|
Industry Standards |
|
Our Standards | |
|
Reaction time |
|
Less than or equal to 5 milliseconds |
|
Less than or equal to 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 | |
12
The products are inspected
before they are delivered to our customers. All products must pass the following inspections:
|
|
|
Cosmetic inspection: conducted under optimum temperatures (20-22 degrees Celsius) and white fluorescent lighting. The product is observed by the naked eye to detect any defects, scratches and cracks, panel discoloration, opacity, foreign fibers and spots. The Company maintains quantitative standards with respect to each of these areas to determine the level of cosmetic acceptability. | |
|
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Function tests: all products undergo functionality testing. Touchscreen products are connected electronically via standard cabling systems to computers, to measure functionality and identify abnormalities. | |
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Stress testing: all products undergo stress testing for humidity, temperature, and corrosion resistance The products are tested for functionality in high- and low-humidity environments as well as extreme temperatures to determine whether exposure causes damage or physical change. | |
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Hazardous substances testing: internal teams conduct independent testing for hazardous substances and for corrosive resistance to saline solutions. | |
****
**Seasonality**
There is no significant seasonality
in our business.
**Research and Development (R&D)**
We are committed to both internal
R&D projects and collaborative initiatives to continuously upgrade our touchscreen technology. As of the date of this Annual Report,
we have 11 employees in our R&D department, all of whom obtained at least a bachelors
degree, with average R&D work experience of at least three years. For the years ended December 31, 2024 and 2023, our R&D expenses
were approximately $nil and $84,551, respectively.
In
the future, we expect R&D expenses to increase as we continue to accelerate the development of new products and functions, and to
enhancing and upgrading existing products and functions.
**Intellectual Property**
Our business relies on a combination
of trademarks, patents, domain names, trade names, trade secrets and other proprietary rights to protect our intellectual property. As
of the date of this Annual Report, Sichuan Vtouch has one registered trademark in Mainland China and five pending patent applications.
13
**Trademarks**
Set forth below is a detailed
description of our current trademark:
|
Country | |
Trademark | |
Application Date | |
Registration Number | |
Registration Date | |
Classes | |
Assignment Application Number | |
Owner | |
Status | |
|
China | |
WeTouch | |
09/28/2011 | |
10019079 | |
01/28/2013 | |
9 | |
20210000091399 | |
SichuanVtouch | |
Registered | |
**Patents**
Sichuan Vtouch has applied
for five patents with the Patent Office of China National Intellectual Property Administration. As of the date of this Annual Report,
the five patent applications are still pending. Patents registered in Mainland China cannot be enforced in other jurisdictions to which
the Company supplies its products.
Set forth below is a detailed
description of our pending patent applications:
|
Patent Application No. |
|
Patent Name |
|
Patent Application
Date |
|
Patent Type |
|
Patent Applicant |
|
Status | |
|
202120500187.7 |
|
Low cost anti-rupture projected capacitive touchscreen |
|
03/09/2021 |
|
Utility Model |
|
Sichuan Vtouch |
|
Pending | |
|
202120500188.1 |
|
High performance and anti-electromagnetic radiation projected capacitive touchscreen |
|
03/09/2021 |
|
Utility Model |
|
Sichuan Vtouch |
|
Pending | |
|
202120500155.7 |
|
Full-lamination projected capacitive touchscreen |
|
03/09/2021 |
|
Utility Model |
|
Sichuan Vtouch |
|
Pending | |
|
202110256476.1 |
|
Anti-scratch glass structure capacitive touchscreen |
|
03/09/2021 |
|
Invention |
|
Sichuan Vtouch |
|
Pending | |
|
202111206650.8 |
|
An enhanced anti-static projection capacitive screen |
|
10/17/2021 |
|
Invention |
|
Sichuan Vtouch |
|
Pending | |
**Environmental Matters**
Our business in Mainland China
is subject to various pollution control regulations in Mainland China with respect to noise, water and air pollution and the disposal
of waste. Specifically, the major environmental regulations applicable to us include the PRC Environmental Protection Law, the PRC Law
on the Prevention and Control of Water Pollution, the PRC Law on the Prevention and Control of Air Pollution, the PRC Law on the Prevention
and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution.
Pursuant to a Statement on
Change of Pollutant Discharge Permit to Stationary Pollution Source Registration Form dated September 1, 2020, the environmental protection
system in Renshou County, Sichuan, was changed from permission to registration due to local administrative division change. Sichuan Vtouch
is currently registered under the new system and holds the Stationary Pollution Source Registration Form as of the date of this Annual
Report.
The Company is not aware of
any investigations, prosecutions, disputes, claims or other proceedings relating to environmental protection, nor has the Company been
punished or foresees any punishment from any environmental administration authorities of the PRC.
**Competition**
****
The
markets for touchscreen products are highly competitive and subject to rapid technological change. The Company believes that the principal
competitive factors in its markets are product characteristics such as touch performance, durability, optical clarity and price, as well
as supplier characteristics such as quality, service, delivery time and reputation. The Company believes that it competes favorably with
respect to these factors, although there can be no assurance that the Company will be able to continue to compete successfully in the
future.
****
14
Despite touchscreen products
being highly competitive as a whole, we face fewer competitors, because we produce medium- to large-sized touchscreens specially tailored
to certain industries, such as industrial HMI, gaming, financial services, lottery, automotive, medical, and POS, among others, and that
require more stable supply and longer guaranty and life span, compared with small size touchscreens, which are characterized by shorter
life cycles and guaranty but more demand in quantity.
We believe the following companies
may be our competitors:
|
|
|
Apex Material Technology Corp., founded in 1998, is committed to the development and innovation of resistive and projected capacitive (PCI or PCAP) total touch solutions. With its headquarters in Keelung, Taiwan and a subsidiary located in Milwaukee, Wisconsin, it designs and manufactures advanced high-performance touch products for industrial and medical applications. Compared with us, although it has a longer history and geographical advantages, it mainly focuses on resistive touch panels and recently started production of capacitive touchscreens primarily for the industrial HMI and medical industries, while our products are more widely used in a variety of industries. | |
|
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| |
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|
Elo Touch Systems Inc., based and headquartered in the United States, has a history of over 40 years in the production of touchscreens. Its product portfolio includes a broad selection of interactive touchscreen displays from 10-70 inches, all-in-one touchscreen computers, OEM touchscreens and touchscreen controllers and touchscreen monitors. Compared with us, although it has a longer history and geographical advantages in competing for U.S. customers and other international customers, it recently started the production of capacitive touchscreens primarily for POS and inquiry machines, while our products are more widely used in a variety of industries. | |
|
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| |
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|
AbonTouch System Inc, established in 2005, mainly focuses on manufacturing and sales of mid to large size (7~86) Projective Capacitive Sensors, (7~21.5) Five-Wire Resistive Zero-Bezel Touch Panels and (5~21.5) Five-Wire Resistive Touch Panels. Compared with us, although it has a longer history and geographical advantages, it mainly focuses on resistive touch panels and recently started production of capacitive touchscreens primarily for POS, inquiry machines and industrial HMI, while our products are more widely used in a variety of industries. | |
**Industry**
Since inception, we have
positioned ourselves in the professional touchscreen display industry. A touchscreen is an input and output device and layered on top
of an electronic visual display of an information processing system, allowing individuals to access information and interact with the
device simply by touching the devices screen with a finger or a specialized tool. Accordingly, the ease of use offered by touchscreen-based
systems makes them well suited for both applications for the general public and for specialized applications for institutional users and
trained computer users.
Although touchscreens have
become mainstream only over the last decade, the concept of a touch-sensitive computer display was developed as early as 1965. Since the
introduction of Apples iPhone in 2007, touchscreen technology has made rapid inroads into various electronics markets, with a number
of other significant companies also incorporating this technology into their products (as opposed to using a mouse, keyboard, keypad or
trackball). Viewed today as the most important tool to facilitate interaction between individuals and machines, touchscreen technology
is now an integral part of a wide range of computing products.
**Regulations**
**Overview**
We operate our business in
Mainland China under a legal regime consisting of the National Peoples Congress, which is the countrys highest legislative
body, the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries
and agencies under its authority, including the Ministry of Industry and Information Technology, the State Administration for Market Regulation
(SAMR) and their respective local offices.
This section sets forth a
summary of the most significant rules and regulations that affect our business activities in Mainland China.
15
**Regulations Relating to Foreign Investment
in Mainland China**
On March 15, 2019, the National
Peoples Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced three existing
laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law, and the Wholly
Foreign-Owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies
an expected Mainland China regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international
practice and the legislative efforts to unify the corporate legal requirements for both foreign- and domestic-invested enterprises in
Mainland China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection, and administration
of foreign investments in view of investment protection and fair competition.
Pursuant to the Foreign Investment
Law, foreign investment refers to investment activities directly or indirectly conducted by one or more natural persons,
business entities, or otherwise organizations of a foreign country within Mainland China, or foreign investors, and the investment activities
include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes an Foreign Investment
Entity (FIE) in Mainland China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other
similar rights and interests of an enterprise within Mainland China; (iii) a foreign investor, individually or collectively with other
investors, invests in a new project in Mainland China; and (iv) investments in other means as provided by laws, administrative regulations,
or the State Council.
Investment activities in Mainland
China by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment*, or the Catalogue,
which was promulgated and is amended from time to time by the Ministry of Commerce, or the MOFCOM, and the National Development and Reform
Commission, or the NDRC. Restricted and prohibited industries are listed in the Catalogue. The Catalogue sets out a unified basis for
the special administrative measures for foreign investment access. Fields not mentioned in the list for foreign investment access, including
touchscreen manufacturing, are administered under the principle of equal treatment for domestic and foreign capital.
Industries not listed in the
Catalogue are generally deemed as constituting a permitted category. According to the Catalogue, touchscreen manufacturing
is classified as industry where foreign investments are permitted.
Furthermore, the Foreign Investment
Law provides that FIEs established according to the existing laws regulating foreign investment may maintain their structure and corporate
governance within five years after the implementation of the Foreign Investment Law.
In addition, the Foreign Investment
Law also provides several protective rules and principles for foreign investors and their investments in Mainland China, including, among
others, that local governments must abide by their commitments to the foreign investors; FIEs are allowed to issue stocks and corporate
bonds; expropriation or requisition of the investment of foreign investors is prohibited except for special circumstances, in which case
statutory procedures must be followed and fair and reasonable compensation must be made in a timely manner; mandatory technology transfer
is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property
rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors in Mainland China may be
freely remitted inward and outward in Renminbi or foreign currencies. Also, foreign investors or FIEs should be imposed legal liabilities
for failing to report investment information in accordance with the requirements.
On December 26, 2019, the
PRC State Council approved the Implementation Rules of Foreign Investment Law, which came into effect on January 1, 2020. The Implementation
Rules of Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides that, among others, (i)
if the legal form or the governing structure of an FIE established prior to the effective date of the Foreign Investment Law does not
comply with the compulsory provisions of the PRC Company Law or the PRC Partnership Enterprises Law, such FIE should complete amendment
registration accordingly no later than January 1, 2025; if it fails to do so, the enterprise registration authority will not process other
registration matters of the FIE and may publicize such non-compliance; and (ii) the provisions regarding transfer of equity interests,
distribution of profits and remaining assets as stipulated in the joint venture contracts of an existing FIE may survive the Foreign Investment
Law during its joint venture term.
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**Regulations
on Environmental Protection**
**Environmental Protection
Law**
The *Environmental Protection
Law* of the PRC, or the Environmental Protection Law, was promulgated and effective on December 26, 1989, and most recently amended
on April 24, 2014, which amendments became effective January 1, 2015. This Environmental Protection Law has been formulated for the purpose
of protecting and improving both the living environment and the ecological environment, preventing and controlling pollution, other public
hazards and safeguarding peoples health.
According to the provisions
of the *Environmental Protection Law*, in addition to other relevant laws and regulations of the PRC, the Ministry of Environmental
Protection and its local counterparts take charge of administering and supervising said environmental protection matters. Pursuant to
the *Environmental Protection Law*, the environmental impact statement on any construction project must assess the pollution that
the project is likely to produce and its impact on the environment, and stipulate preventive and curative measures; the statement shall
be submitted to the competent administrative department of environmental protection for approval. Installations for the prevention and
control of pollution in construction projects must be designed, built and commissioned together with the principal part of the project.
Permission to commence production
at or utilize any construction project shall not be granted until its installations for the prevention and control of pollution have been
examined and confirmed to meet applicable standards by the appropriate administrative department of environmental protection that examined
and approved the environmental impact statement. Installations for the prevention and control of pollution shall not be dismantled or
left idle without authorization. Where it is absolutely necessary to dismantle any such installation or leave it idle, prior approval
shall be obtained from the competent local administrative department of environmental protection.
The *Environmental Protection
Law* makes it clear that the legal liabilities of any violation of said law include warning, fine, rectification within a time limit,
compulsory cease operation, compulsory reinstallation of dismantled installations of the prevention and control of pollution or compulsory
reinstallation of those left idle, compulsory shutout or closedown, or even criminal punishment.
**Order on Ecosystem by
The Ministry of Ecology and Environment 2019 Classification-based Management on Fixed Pollutant Source**
Pursuant to the Order on Ecosystem
by The Ministry of Ecology and Environment, which was issued on July 28, 2017 and most recently amended on December 20, 2019, The Ministry
of Ecology and Environment implements a classification-based management on the environmental impact assessment, or EIA, of pollutants
according to pollutant amount and the impact of the pollutants on the environment as below
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The touchscreen manufacturing
is classified as to fill in a Registration Form. Pursuant to a Statement on Change of Pollutant Discharge Permit to Stationary Pollution
Source Registration Form by the local government dated September 1, 2020, the environmental protection system in Renshou County, Sichuan,
was changed from permission to registration due to local administrative division change. Therefore, upon submission of all required documentation,
we are registered under the new system by filling in Stationary Pollution Source Registration Form.
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**Regulations on Consumer Rights Protection**
Our business is subject to
a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, which was amended in 2013 and became
effective on March 15, 2014. It imposes stringent requirements and obligations on business operators. Failure to comply with these consumer
protection laws could subject us to administrative sanctions, such as the issuance of a warning, confiscation of illegal income, imposition
of fines, an order to cease business operations, revocation of business licenses, and potential civil or criminal liabilities.
As of the date of this Annual
Report, we are not aware of any warning, investigations, prosecutions, disputes, claims or other proceedings in respect of customer rights
protection, nor have we been punished or can foresee any punishment to be made by any government authorities of the PRC.
**Regulations on Intellectual Property Rights**
*Regulations on Trademark*
Trademarks are protected by
the PRC Trademark Law adopted in 1982 and subsequently amended as well as the Implementation Regulations for the Trademark Law of the
PRC in 2002 and subsequently amended in 2014 and 2019. The Trademark Office of the SAMR is responsible for the registration and administration
of trademarks and the Trademark Review and Adjudication Committee established by the SAMR is responsible for resolving trademark disputes
in Mainland China. Registered trademarks are valid for ten years from the date the registration is approved. A registrant may apply to
renew a registration within twelve months before the expiration date of the registration. If the registrant fails to apply in a timely
manner, a grace period of six additional months may be granted. If the registrant fails to apply before the grace period expires, the
registered trademark shall be deregistered. Renewed registrations are valid for ten years. In April 2014, the State Council issued the
revised Implementation of the Trademark Law, which specified the requirements of applying for trademark registration and review. As of
the date of this Annual Report, we had 1 registered trademark in Mainland China.
*Regulations on Patent
Law*
According to the PRC Patent
Law, which was issued by the Standing Committee of the National Peoples Congress in 1984 and last amended on October 17, 2020,
effective on June 1, 2021, and Implementation Rules of the Patent Law of the Peoples Republic of China, which were promulgated
by the State Council in 2001 and last amended on January 9, 2010. Draft amendments to the Implementation Rules of the Patent Law are currently
under review. The Patent Law and its implementation rules provide for three types of patents: invention, utility
model and design. Invention refers to any new technical solution relating to a product, a process or
improvement thereof; utility model refers to any new technical solution relating to the shape, structure, or their combination,
of a product, which is suitable for practical use; and design refers to any new design of the whole or partial shape, pattern,
color or the combination of any two of them, of a product, that creates an aesthetical feeling and is suitable for industrial application.
Invention patents are valid for 20 years, while design patents and utility model patents are valid for 15 years and 10 years, respectively,
each calculated from the date of application. To be patentable, invention or utility models must meet three criteria: novelty, inventiveness
and practicability. Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper
license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights. As of the date of
this Annual Report, we had five pending patent applications.
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**Regulations on Foreign Exchange**
*General Administration
of Foreign Exchange*
Under the PRC Foreign Currency
Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by the
SAFE, and other relevant PRC government authorities, Renminbi is convertible into other currencies for current account items, such as
trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance
of the converted foreign currency outside Mainland China for capital account items, such as direct equity investments, loans, and repatriation
of investment, requires the prior approval from the SAFE or its local office.
Payments for transactions
that take place in Mainland China must be made in Renminbi. Unless otherwise approved, Mainland China companies may not repatriate foreign
currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign
exchange banks under the current account items subject to a cap set by the SAFE or its local branch. Foreign exchange proceeds under the
current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant
to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally
required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
Pursuant to the Circular of
the SAFE on Notice of State Administration of Foreign Exchange on Further Improvements and Adjustments to Foreign Exchange Control Policies
for Direct Investment, which was promulgated on November 19, 2012, became effective on December 17, 2012, and was further amended on May
4, 2015, October 10, 2018, and December 30, 2019, approval of the SAFE is not required for opening a foreign exchange account and depositing
foreign exchange into the accounts relating to the direct investments. This circular also simplifies foreign exchange-related registration
required for foreign investors to acquire equity interests of PRC companies and further improve the administration on foreign exchange
settlement for FIEs.
The Notice of the State Administration
of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment, or SAFE Circular
13, which became effective on June 1, 2015 and was amended on December 30, 2019, cancels the administrative approvals of foreign exchange
registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration.
Pursuant to SAFE Circular 13, investors should register with banks for direct domestic investment and direct overseas investment.
The Notice of the State Administration
of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, which was
promulgated on March 30, 2015, became effective on June 1, 2015, and was amended on December 30, 2019, provides that an FIE may, according
to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant
foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered
the injection of the monetary capital contribution into the account). Pursuant to this circular, for the time being, FIEs are allowed
to settle 100% of their foreign exchange capital on a discretionary basis; an FIE should truthfully use its capital for its own operational
purposes within the scope of its business; where an ordinary FIE makes domestic equity investment with the amount of foreign exchanges
settled, the FIE must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement
pending payment with the foreign exchange administration or the bank at the place where it is registered.
The Notice of the State Administration
of Foreign Exchange on Policies for Reforming and Regulating the Control over Foreign Exchange Settlement under the Capital Account, which
was promulgated and became effective on June 9, 2016, provides that enterprises registered in Mainland China may also convert their foreign
debts from foreign currency into Renminbi on a self-discretionary basis. This circular also provides an integrated standard for conversion
of foreign exchange under capital account items (including, but not limited to, foreign currency capital and foreign debts) on a self-discretionary
basis, which applies to all enterprises registered in Mainland China.
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On January 26, 2017, SAFE
promulgated the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and Compliance to further Promote
Foreign Exchange Control, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic
entities to offshore entities, including: (i) banks should check board resolutions regarding profit distribution, the original version
of tax filing records, and audited financial statements pursuant to the principle of genuine transactions; and (ii) domestic entities
should hold income to account for previous years losses before remitting the profits. Moreover, pursuant to this circular, domestic
entities should make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts,
and other proof when completing the registration procedures in connection with an outbound investment.
On October 25, 2019, the SAFE
promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and
Investment, which, among other things, allows all FIEs to use Renminbi converted from foreign currency-denominated capital for equity
investments in Mainland China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative
list on foreign investment. However, since this circular is newly promulgated, it is unclear how the SAFE and competent banks will carry
it out in practice.
According to the Regulations
of the PRC on Administration of Company Registration, which were promulgated by the State Council on June 24, 1994, became effective on
July 1, 1994, and were amended on February 6, 2016, and other laws and regulations governing FIEs and company registrations, the establishment
of an FIE and any capital increase and other major changes in an FIE should be registered with the State Administration for Market Regulation
or its local counterparts and filed via the enterprise registration system.
Pursuant to SAFE Circular
13 and other laws and regulations relating to foreign exchange, when setting up a new FIE, the enterprise should register with the bank
located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating
to the basic information of the FIE, including, without limitation, any increase in its registered capital or total investment, the FIE
must register such changes with the bank located at its registered place after obtaining approval from or completing the filing with relevant
authorities. Pursuant to the relevant foreign exchange laws and regulations, such foreign exchange registration with the banks will typically
take less than four weeks upon the acceptance of the registration application.
Based on the foregoing, if
we intend to provide funding to our wholly foreign-owned subsidiaries through capital injection at or after their establishment, we must
register the establishment of and any follow-on capital increase in our wholly foreign-owned subsidiaries with the State Administration
for Market Regulation or its local counterparts, file such via the enterprise registration system, and register such with the local banks
for the foreign exchange related matters.
**Regulations on Offshore Financing**
Under the Circular of the
SAFE on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-Trip Investment by
Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37, effective on July 4, 2014, Mainland China residents are required
to register with the local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, which is defined
as an offshore enterprise directly established or indirectly controlled by Mainland China residents for investment and financing purposes,
with the enterprise assets or interests Mainland China residents hold in Mainland China or overseas. The term control means
to obtain the operation rights, right to proceeds, or decision-making power of a special purpose vehicle through acquisition, trust, holding
shares on behalf of others, voting rights, repurchase, convertible bonds, or other means. At the same time, the SAFE has issued the Operation
Guidance for the Issues Concerning Foreign Exchange Administration over Round-Trip Investment regarding the procedures for SAFE registration
under SAFE Circular 37, which became effective on July 4, 2014 as an attachment of SAFE Circular 37.
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The Mainland China residents
are also required to amend the registration or filing with the local SAFE branch any material change in the offshore company, such as
any change of basic information (including change of such Mainland China residents, name and operation term), increase or decreases in
investment amount, transfers or exchanges of shares, or merger or divisions. On February 28, 2015, SAFE promulgated the Notice on Further
Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June
1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment
and overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for such foreign
exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision
of SAFE, will directly examine the applications and conduct the registration.
Failure to comply with the
registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested
enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities
of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to
its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant Mainland China residents
to penalties under Mainland China foreign exchange administration regulations. Mainland China residents who directly or indirectly hold
any shares in our company from time to time are required to register with SAFE in connection with their investments in us. We have requested
Mainland China residents holding direct or indirect interest in our company to our knowledge to make the necessary applications, filings
and amendments as required under the SAFE Circular 37 and other related rules.
As of the date of this Annual
Report, the Mainland China residents have either not completed, or have not applied for, foreign exchange registration under the SAFE
Circular 37 and other related rules. Although they are either in the process of making foreign exchange registration or plan to make foreign
exchange registrations, they may still be faced with the above possible fines in accordance with the PRC Laws.
**Regulations on Dividend Distribution**
The principal laws and regulations
regulating the distribution of dividends by FIEs in Mainland China include the PRC Company Law, as amended in 2004, 2005, 2013, and 2018,
and the 2019 PRC Foreign Investment Law and its Implementation Rules. Under the current regulatory regime in Mainland China, FIEs in Mainland
China may pay dividends only out of their retained earnings, if any, determined in accordance with Mainland China accounting standards
and regulations. A Mainland China company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until
the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise.
A Mainland China company cannot distribute any profits until any losses from prior fiscal years have been offset. Profits retained from
prior fiscal years may be distributed together with distributable profits from the current fiscal year.
We currently intend to retain
most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do
not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as
a source for any future dividend income.
**Regulations on M&A and Overseas Listing**
In August 2006, six PRC governmental
agencies jointly promulgated the Provisions on Foreign-funded Mergers and Acquisitions of Domestic Enterprises, or the M&A Rule, as
most recently amended in 2009. The M&A Rule requires offshore special purpose vehicles formed to pursue overseas listing of equity
interests in Mainland China companies and controlled directly or indirectly by Mainland China companies or individuals to obtain the approval
of the China Securities Regulatory Commission (CSRC) prior to the listing and trading of such special purpose vehicles
securities on any stock exchange overseas.
The
M&A Rule further requires that the Ministry of Commerce, or MOFCOM, be notified in advance of any change-of-control transaction in
which a foreign investor acquires control of a Mainland China domestic enterprise or a foreign company with substantial Mainland China
operations, if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued
by the State Council, are triggered. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the NPC requires that transactions
which are deemed concentrations and involve parties with specified turnover thresholds be cleared by the MOFCOM before they can be completed.
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On February 17, 2023, with
the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Administrative Measures, and five supporting guidelines, which came into effect on March 31, 2023. According
to the Trial Administrative Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly,
should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions,
the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the
total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts
for more than 50% of the corresponding figure in the issuers audited consolidated financial statements for the same period; (ii)
its major operational activities are carried out in Mainland China or its main places of business are located in Mainland China, or the
senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in Mainland China; and
(3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic
operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for initial public offering
and listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is
submitted. According to the relevant provisions of the Trial Administrative Measures and its supporting guidelines, the Company is required
to fulfill the filing procedures with the CSRC within three days of the closing of the 2024 Uplisting Offering. According to the Trial
Administrative Measures, the Company has submitted the filing materials to the CSRC, but the materials were not complete due to lack of
a commitment letter from the Companys lead underwriter for the 2024 Uplisting Offering, and the Company withdrew the filing from
the CSRC. The Company will submit the filing materials again when the materials are ready. However, given that the Trial Administrative
Measures were recently promulgated, there remain substantial uncertainties as to their interpretation, application, and enforcement and
there is no guarantee that the relevant PRC government agencies, including the CSRC, would reach the same conclusion that we and our PRC
counsel have reached. If the CSRC has determined that we have failed to comply with the post-offering filing obligations imposed by the
Trial Administrative Measures or make a misrepresentation, misleading statement or material omission in the materials we submit to the
CSRC, the CSRC would have the right to order rectification, issue a warning and impose a fine on us of between RMB 1 million and RMB 10
million and issuing a warning to the parties responsible for such failure, misrepresentation or material omission and impose a fine on
each of such individuals ranging from RMB 500,000 to RMB 5 million.
On February 17, 2023, the
CSRC held a press conference for the release of the Trial Administrative Measures and issued the Notice on Administration for the Filing
of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that (1) a six-month transition period will be
granted to domestic companies which, prior to the effective date of the Trial Administrative Measures, have already obtained the approval
from overseas regulatory authorities or stock exchanges, such as completion of registration in the market of the United States, but have
not completed the indirect overseas listing; and (2) domestic companies that have already submitted valid applications for overseas offering
and listing but have not obtained approval from overseas regulatory authorities or stock exchanges on or prior to the effective date of
the Trial Administrative Measures, may reasonably arrange the timing for submitting their filing applications with the CSRC, and shall
complete the filing before the completion of their overseas offering and listing.
**Regulations on Taxation**
*Enterprise Income Tax*
On March 16, 2007, the National
Peoples Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24, 2017 and December 29, 2018. On
December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective
on January 1, 2008 and amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementation regulations, both
resident enterprises and non-resident enterprises are subject to tax in Mainland China. Resident enterprises are defined as enterprises
that are established in Mainland China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries
but are actually or in effect controlled from within Mainland China. Non-resident enterprises are defined as enterprises that are organized
under the laws of foreign countries and whose actual management is conducted outside Mainland China, but have established institutions
or premises in Mainland China, or have no such established institutions or premises but have income generated from inside Mainland China.
Under the Enterprise Income Tax Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However,
if non-resident enterprises have not formed permanent establishments or premises in Mainland China, or if they have formed permanent establishment
or premises in Mainland China but there is no actual relationship between the relevant income derived in Mainland China and the established
institutions or premises set up by them, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside
Mainland China.
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*Value-Added Tax*
The PRC Provisional Regulations
on Value-Added Tax were promulgated by the State Council on December 13, 1993, which became effective on January 1, 1994 and were subsequently
amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on Value-Added Tax (2011 Revision)
was promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011. On
November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending
the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals
engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property,
and the importation of goods within Mainland China territory are VAT taxpayers. On March 21, 2019, the Ministry of Finance, the SAT, and
the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepen the Reform of Value-Added Tax. Sales
revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, starting
from May 1, 2018, VAT rate was lowered to 16%, and starting from April 1, 2019, VAT rate was further lowered to 13%.
*Dividend Withholding
Tax*
The Enterprise Income Tax
Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-Mainland China
resident investors that do not have an establishment or place of business in Mainland China, or that have such establishment or place
of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends
are derived from sources within Mainland China.
Pursuant to the Arrangement
Between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident enterprise is determined
by the competent Mainland China tax authority to have met the relevant conditions and requirements under this arrangement and other applicable
laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a Mainland China resident enterprise may
be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties
issued on February 20, 2009, if the relevant Mainland China tax authorities determine, in their discretions, that a company benefits from
such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such Mainland China tax authorities may adjust
the preferential tax treatment. Pursuant to the Circular on Several Questions regarding the Beneficial Owner in Tax Treaties,
which was issued on February 3, 2018 by the SAT and became effective on April 1, 2018, when determining the applicants status as
the beneficial owner regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties,
several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve
months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities,
and whether the counterparty country or region to the tax treaties does not levy any tax or grant any tax exemption on relevant incomes
or levy tax at an extremely low rate, will be taken into account, and such factors will be analyzed according to the actual circumstances
of the specific cases. This circular further provides that an applicant who intends to prove his or her status as the beneficial
owner must submit the relevant documents to the relevant tax bureau pursuant to the Announcement on Issuing the Measures for the
Administration of Non-Resident Taxpayers Enjoyment of the Treatment under Tax Agreements.
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**Regulations on Employment Laws**
In accordance with the PRC
National Labor Law, which became effective in January 1995 and amended from time to time, and the PRC Labor Contract Law, which became
effective in January 2008, as amended subsequently, employers must execute written labor contracts with full-time employees in order to
establish an employment relationship. All employers must compensate their employees equal to at least the local minimum wage standards.
All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide
employees with appropriate workplace safety training. In addition, employers in Mainland China are obliged to pay contributions to the
social insurance plan and the housing fund plan for employees.
On
December 28, 2021, the Measures for Cybersecurity Review (2021 version) were promulgated and became effective on February 15, 2022 (the
Measures), which iterates that any online platform operators controlling personal information of more than
one million users that seeks to list on a foreign stock exchange shall also be subject to cybersecurity review. As we are neither an operator
of critical information infrastructure nor a data processor carrying out data processing activities that affect or
may affect national security, we believe that the Measures are not applicable to us even after they take effect in current form. The PRC
government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated
by several US-listed Chinese companies and prohibiting these apps from registering new users during the review period. There are great
uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations regarding data and privacy security. We
may be required to change our data and other business practices and be subject to regulatory investigations, penalties, and increased
cost of operations as a result of these laws and policies.
**Employees**
As of the date of this Annual
Report, we had 131 employees. We have no part time employees or independent contractors.
As required by regulations
in China, Sichuan Vtouch participates in various employee social security plans that are organized by local governments, including pension,
unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. Sichuan Vtouch is
required under Chinese law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain
allowances of our employees, up to a maximum amount specified by the local government from time to time.
Our employees are not represented
by a labor organization or covered by a collective bargaining agreement. We believe that we maintain a good working relationship with
our employees and to date, we have not experienced any significant labor disputes.
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**ITEM 1A. RISK FACTORS**
*Investing in our securities
involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other
information contained in this Annual Report, before deciding to invest in our securities. If any of the following risks materialize, our
business, financial condition, results of operation and prospects will likely be materially and adversely affected. In that event, the
market price of our common stock could decline, and you could lose all or part of your investment.*
**Summary of Risks Affecting Our Company**
****
The following summarizes key
risks and uncertainties that could materially adversely affect us. You should read this summary together with the more detailed description
of each risk factor contained below.
**Risks Related to Our Business and Industry**
****
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Weaknesses identified in our financial reporting during audits could impair our ability to accurately report financial results. | |
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Dependency on major customers presents risks if we cannot retain or attract new customers effectively. | |
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Our operating history may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth rates. | |
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Failure to secure the certificate of land use right for a new parcel from the local PRC government could severely impact our operations and financial health. | |
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We are subject to risks related to construction of our factory in Sichuan Province, China. | |
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Economic recessions could have a significant adverse impact on our business. | |
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Intellectual property infringement claims could be costly and disrupt business operations. | |
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A significant amount of accounts receivable could become uncollectible, affecting financial stability. | |
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Cyclical industry dynamics could lead to harmful price fluctuations. | |
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Failure to maintain product quality and safety could damage our reputation and financial standing. | |
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Intense competition in the touchscreen display industry could reduce market share and profitability. | |
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Inadequate financing could restrict our ability to execute our business plan. | |
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Adjustments in related party transaction pricing could lead to significant tax liabilities. | |
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Revocation of tax treatments or government subsidies could necessitate paying additional taxes. | |
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Interruptions from third-party suppliers could disrupt operations. | |
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Fluctuations in the cost and availability of raw materials could negatively affect results. | |
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Dependency on key executives and the lack of long-term supplier contracts pose risks. | |
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Failure to adopt new technologies might affect competitiveness. | |
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Liability claims or adverse publicity could impact customer confidence and business results. | |
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Losses on inventories and lack of business insurance could expose us to significant costs. | |
****
25
**Risks Related to Doing Business in China**
****
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Regulatory changes in China could increase compliance costs and complicate capital raising. | |
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The HFCAA could lead to delisting of our common stock if audits are not inspected properly. | |
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We may be subject to substantial fine if the CSRC has determined that we have failed to comply with the post-offering filing obligations. | |
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Changes in U.S.-China trade policies could adversely impact our business operations. | |
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PRC regulation of loans and currency conversion could delay or prevent capital usage, affecting liquidity. | |
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Labor laws in the PRC might negatively impact our operational flexibility and financial results. | |
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Liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law could lead to penalties. | |
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Bankruptcy or liquidation of our PRC subsidiary could significantly disrupt operations. | |
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Economic and policy changes in China could limit our ability to offer securities. | |
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Uncertainties in the PRC legal system could limit legal protections. | |
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Difficulties in enforcing foreign judgments in China could undermine contractual protections. | |
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Government control of currency conversion and fluctuations in exchange rates could impact financial results and investments. | |
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The Chinese governments substantial influence over business operations could lead to significant operational changes. | |
****
**Risks Related to Our Common Stock**
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Volatility in the price of our common stock may not reflect our operating performance. | |
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By-laws limiting the judicial forum for disputes could restrict stockholder litigation options. | |
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Manipulative short selling could drive down our stock price. | |
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Direct exposure to negative publicity involving U.S.-listed Chinese companies could harm our business and reputation. | |
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Large volumes of our common stock being sold could negatively affect the market price. | |
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Non-payment of dividends means stockholders must rely on stock price appreciation for returns. | |
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Deteriorating U.S.-China relations could lower our stock price and complicate access to capital markets. | |
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We may be subject to delisting from Nasdaq if we
fail to timely file periodic reports with the SEC or to maintain Nasdaqs minimum bid price, which could materially and adversely
affect the liquidity and value of our common stock. | |
26
**Risks Related to
Our Business and Industry**
**COVID-19 as well
as other epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt our delivery and operations,
which could materially and adversely affect our business, financial condition, and results of operations .**
The
COVID-19 pandemic had a significant global impact on businesses and financial markets, and although its most severe effects have passed,
future outbreaks of COVID-19 or other contagious diseases could again disrupt economic activity and our operations. Epidemics in Mainland
China or elsewhere in the world, or the fear of such outbreaks, may disrupt our supply chain, reduce or restrict our ability to deliver
products and services, increase costs to protect employees and facilities, or result in regional or global economic distress.
In
addition, natural disasters such as hurricanes, earthquakes, tsunamis, floods, and typhoons, as well as actual or threatened war, terrorist
activities, political unrest, civil strife, and other geopolitical events, could also materially disrupt our business operations. We are
also vulnerable to other calamities, including fire, power loss, telecommunications failures, break-ins, riots, and system or internet
failures. Any of these events may cause interruptions, damage to property, production delays, or loss of data, which could materially
and adversely impact our business, financial condition, and results of operations.
**In connection with
the audits of our consolidated financial statements as of and for the years ended December 31, 2024 and 2023, we identified certain material
weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control
over financial reporting, we may be unable to accurately report our financial results or prevent fraud.**
The
SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management
report on such companys internal controls over financial reporting, which contains managements assessment of the effectiveness
of internal controls over financial reporting.
Our
reporting obligations as a public company place a significant strain on our management and operational and financial resources and systems.
Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports
and are important to prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting
may result in the loss of investor confidence in the reliability of our financial statements, which in turn may harm our business and
negatively impact the trading price of our stock. Furthermore, we anticipate that we will continue to incur considerable costs and use
significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
In
connection with the auditing of our consolidated financial statements as of and for the years ended December 31, 2024 and 2023, we identified
the following material weaknesses in our internal control over financial reporting:
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Lack of competent financial reporting and accounting personnel with appropriate understanding of U.S.GAAP and financial reporting requirements to design and implement key controls over financial reporting process | |
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Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. | |
As
defined in the rules and regulations adopted by the SEC, a material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis.
27
Management
has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness
are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
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Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and | |
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Continue to cooperate with operation teams
to ensure control environment in place, and monitor the effectiveness of operations on existing controls and procedures. | |
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Establish assessment of Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) compliance requirements and improvement of overall internal control. | |
We
are committed to maintaining a strong internal control environment, and believe that these remediation efforts will deliver improvements
in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness
of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow.
**We are heavily
dependent on our top customers. If we fail to acquire new customers or retain existing customers in a cost-effective manner, our business,
financial condition and results of operations may be materially and adversely affected.**
We are heavily dependent on
our top customers, each of which accounted for 10% or more of our revenues. We currently sell our products primarily to customers in the
PRC and to a lesser extent, to overseas customers in Europe and East Asia, including South Korea and Taiwan.
For the year ended December
31, 2024, our top five customers accounted for approximately 22.0%, 19.1%, 15.3%, 14.5% and 11.5%, respectively, of our total revenues.
For the year ended December 31, 2023, our top six customers accounted for approximately 22.5%, 16.5%, 15.6%, 14.1%, 11.3% and 10.1%, respectively,
of our total revenues.
Our
ability to attract new customers and retain existing customers cost-effectively, especially our top customers, is crucial to driving net
revenues growth and achieving profitability. We have invested significantly in branding, sales and marketing to acquire and retain customers
since our inception. For example, we attend domestic and international expos and exhibitions to market our products and attract new customers.
We also expect to continue to invest significantly to acquire new customers and retain existing ones, especially our top customers. There
can be no assurance that new customers will stay with us, or that the net revenues from new customers we acquire will ultimately exceed
the cost of acquiring those customers. In addition, if our existing customers, especially our top customers no longer find our products
appealing, or if our competitors offer more attractive products, prices, discounts or better customer service, our existing customers
may lose interest in us, decrease their orders or even stop ordering from us. If we are unable to retain our existing customers, especially
our top customers or to acquire new customers in a cost-effective manner, our revenues may decrease and our results of operations may
be adversely affected.
**Our operating history
may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth rates.**
Our
operating history may not be indicative of our future growth or financial results. There is no assurance that we will be able to grow
in future periods. Our growth rates may decline for any number of possible reasons and some of them are beyond our control, including
decreasing customer demand, increasing competition, declining growth of the touchscreen display industry in general, emergence of alternative
business models, or changes in government policies or general economic conditions. We will continue to expand our sales network and product
offerings to bring greater convenience to our customers and to increase our customer base and number of transactions. However, the execution
of our expansion plan is subject to uncertainty and the total number of items sold and number of transacting customers may not grow at
the rate we expect for the reasons stated above. If our growth rates decline, investors perceptions of our business and prospects
may be adversely affected and the market price of our common stock could decline.
28
**Failure to secure
the certificate of land use right for a new parcel from the local PRC government for the construction of our new buildings and facilities,
and failure to acquire and install new production lines on the new parcel may materially and adversely affect our business, financial
condition and results of operations.**
On August 6, 2021, Sichuan
Vtouch entered into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use
right for a parcel of land spanning 131,010 square feet, for a consideration of approximately RMB3,925,233 (equivalent to $537,755) for
the Companys new facility. The Company paid the consideration in full on November 18, 2021. We are in the process of obtaining
the certificate of land use right for the new parcel and expect to receive the certificate from the local government in the first quarter
of 2026. However, there is no assurance that we will be able to obtain the required certificate of land use right in a timely manner,
or at all. The failure of obtaining the certificate will adversely affect our business operations. Additionally, the development of this
site is subject to various regulatory approvals, including construction land planning permit (received in January 2022), construction
project planning permit (received in January 2022), and construction engineering license (received July 2022). Failure to obtain additional
approvals from the local government, if required, will subject us to fines or suspension of the projects in accordance with relevant PRC
laws and regulations.
In addition, our ability to
install and operate new production lines on this parcel is contingent upon the successful acquisition and setup of equipment, compliance
with applicable environmental, construction, and safety regulations, and the availability of sufficient financing and human resources.
Any failure or significant delay in obtaining the land use rights, completing construction, or acquiring and installing production lines
may materially and adversely affect our ability to expand our operations, meet growing customer demand, and achieve our strategic objectives.
Such delays or failures could have a material adverse effect on our business, financial condition, and results of operations.
As of the date of this Annual
Report, we estimate to complete the building construction by the end of 2025 and commence production in the first quarter of 2026, assuming
we have obtained the land use right by then, but there is no assurance and we may need extended time to achieve our business plan. If
we fail to complete such construction prior to estimated period and the extended period, if any, we will have to cease all or part of
our operations, and as a result, our business, financial condition and results of operations may be materially and adversely affected.
**We are subject to risks related to construction of our factory
in Sichuan Province, China.**
We are constructing new facilities
and office buildings on the new parcel located in Sichuan Province, China. As of the date of this Annual Report, we estimate receiving
the certificate of land use right from the local government in the first quarter of 2026. We plan to complete the building construction
by the end of 2025 and commence production in the first quarter of 2026.
The construction could experience
delays or other difficulties, and will require significant capital. We may not generate sufficient cash flow to satisfy our capital expenditure
commitments. We may need to raise additional capital to fund a portion of our capital expenditures, and such capital may not be available
when needed or on terms favorable to our company. The construction may not be completed on schedule due to various reasons, such as supply
chain issues and increased difficulty for workforce recruitment, which could result in increased expenses and construction costs, and
may result in reduced profitability of the project. Any failure to complete the construction plan on schedule and within budget could
adversely affect our financial condition and results of operations.
29
The construction may be subject
to legal claims and proceedings instituted by contractors, workers and other parties involved in such project from time to time. Such
claims and proceedings may include claims in respect of personal injuries and labor compensation in relation to the construction project.
The construction of a factory is also subject to risks related to health and safety incidents and site accidents and any non-compliance
with building codes and other local regulations. If any of the aforementioned incidents or accidents were to occur, it could have a substantial
negative impact on our success and result in a material adverse effect on our financial condition or results of operations.
**Economic recessions
could have a significant, adverse impact on our business.**
Our revenues are generated
from sales of our capacitive touchscreen products both domestically and internationally and we anticipate that revenues from such sales
will continue to represent the substantial portion of our total revenues in the near future. Our sales and earnings can also be affected
by changes in the general economy.
The touchscreen display industry
historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our
customers, interest rate fluctuations, and other economic factors beyond our control. Deterioration in the economic environment subjects
our business to various risks, which may have a material and adverse impact on our operating results and cause us to not reach our long-term
growth goals. For example, a downturn in the economy could directly affect the discretionary spending power of our customers and in turn,
depress the number of orders for our products.
**We may be subject
to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.**
We cannot be certain that
our operations or any aspects of our business do not or will not infringe upon or otherwise violate intellectual property rights held
by third parties. We have not but in the future may be, subject to legal proceedings and claims relating to the intellectual property
rights of others. There could also be existing intellectual property of which we are not aware that our products may inadvertently infringe.
We cannot assure you that holders of intellectual property purportedly relating to some aspect of our technology or business, if any such
holders exist, would not seek to enforce such intellectual property against us in China, or any other jurisdictions. If we are found to
have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited
from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we
may incur significant expenses, and may be forced to divert managements time and other resources from our business and operations
to defend against these infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may
result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use
of the intellectual property in question, and our business, financial position and results of operations could be materially and adversely
affected.
Further, the application and
interpretation of Chinas patent laws and the procedures and standards for granting patents in China are still evolving and are
uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis.
**We have a significant
amount of accounts receivable, which could become uncollectible***.*
As of December 31, 2024, we
had approximately $7.5 million in accounts receivable. Our accounts receivable primarily include balance due from customers when our products
are sold and delivered to customers. Our customers are required to make full payment within three to six months from delivery date, although
our industry typical payment term is 180 days from delivery. For the years ended December 31, 2024 and 2023, we did not provide any extended
payment terms to any of our customers. Deteriorating conditions in, bankruptcies, or financial difficulties of a customer or within their
industries generally may impair the financial condition of our customers and hinder their ability to pay us on a timely basis or at all,
and accounts receivable are written off against allowances only after exhaustive collection efforts. The failure or delay in payment by
one or more of our customers could reduce our cash flows and adversely affect our liquidity and results of operations.
30
**Our industry is
cyclical, with recurring periods of capacity increases. As a result, price fluctuations in response to supply and demand imbalances could
harm our results of operations.**
The touchscreen display industry
in general is characterized by cyclical market conditions. From time to time, the industry has been subject to imbalances between excess
supply and a slowdown in demand, and in certain periods, resulting in declines in selling prices. In addition, capacity expansion anticipated
in the touchscreen display industry may lead to excess capacity. Capacity expansion in the industry may be due to scheduled ramp-up of
new manufacturing facilities, and any large increases in capacity as a result of such expansion could further drive down the selling prices
of our products, which would affect our results of operations. We cannot assure you that any continuing or further decrease in selling
prices or future downturns resulting from excess capacity or other factors affecting the industry will not be severe or that any such
continuation, decrease or downturn would not seriously harm our business, financial condition and results of operations.
Our ability to maintain or
increase our revenues will primarily depend upon our ability to maintain market share, increase unit sales of existing products and introduce
and sell new products that offset the anticipated fluctuation and long-term declines in the selling prices of our existing products. We
cannot assure you that we will be able to maintain or expand market share, increase unit sales, and introduce and sell new products, to
the extent necessary to compensate for market oversupply.
**Failure to maintain
the quality and safety of our products could have a material and adverse effect on our reputation, financial condition and results of
operations.**
The
quality and safety of our products are critical to our success. We pay close attention to quality control, monitoring each step in the
process from procurement to production and from warehouse to delivery. Yet, maintaining consistent product quality depends significantly
on the effectiveness of our quality control system, which in turn depends on a number of factors, including but not limited to, the design
of our quality control system, employee training to ensure that our employees adhere to and implement our quality control policies and
procedures and the effectiveness of monitoring any potential violation of our quality control policies and procedures. There can be no
assurance that our quality control system will always prove to be effective.
In
addition, the quality of the products or services provided by our suppliers or service providers is subject to factors beyond our control,
including the effectiveness and the efficiency of their quality control system, among others. There can be no assurance that our suppliers
or service providers may always be able to adopt appropriate quality control systems and meet our stringent quality control requirements
in respect of the products or services they provide. Any failure of our suppliers or service providers to provide satisfactory products
or services could harm our reputation and adversely impact our operations. In addition, we may be unable to receive sufficient compensation
from suppliers and service providers for the losses caused by them.
**We face intense
competition in the touchscreen display industry in general. If we fail to compete effectively, we may lose market share and customers,
and our business, financial condition and results of operations may be materially and adversely affected.**
The
touchscreen display industry is intensely competitive in general. We face less competition as we produce medium- to large-sized capacitive
touchscreens which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical,
and POS, and requires more stable supply, longer guaranty and life span, compared with small size touchscreens which are characteristic
with shorter life cycle and guaranty but more demand in quantity. However, we still have some competitors competing in China and globally
with us. Our competitors may have more financial, technical, geographical advantage, marketing and other resources than we do and may
be more experienced and able to devote greater resources to the development, promotion and support of their business. Some competitors
are well-established in China and globally and any defensive measures they take in response to our expansion could hinder our growth and
adversely affect our sales and results of operations.
Furthermore,
increased competition may reduce our market share and profitability and require us to increase our sales and marketing efforts and capital
commitment in the future, which could negatively affect our results of operations or force us to incur further losses. Although we have
accumulated some and continuously growing our customer base, there is no assurance that we will be able to continue to do so in the future
against current or future competitors, and such competitive pressures may have a material adverse effect on our business, financial condition
and results of operations.
31
**If we do not obtain
substantial additional financing, our ability to execute our business plan may be impaired.**
Due
to the withdrawal of the land use right to the Property and cancellation of our ownership certificates pertaining to the buildings on
the Property by the local government pursuant to the Guidelines and the Compensation Agreement, on August 6, 2021, Sichuan Vtouch entered
into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use right for a parcel
of land spanning 131,010 square feet, for a consideration of approximately RMB3,925,233 (equivalent to $537,755) for the Companys
new facility. The Company paid the consideration in full on November 18, 2021. We are in the process of obtaining the certificate of land
use right for the new parcel and expect to receive the certificate from the local government in the first quarter of 2026.
As
of the date of this Annual Report, we estimate to finish the building construction by the end of 2025 and commence production in the first
quarter of 2026, but there is no assurance and we may need extended time to achieve our business plan. If we fail to complete such acquisition
and construction within the estimated period, if any, we will have to cease all or part of our operations, and as a result, our business,
financial condition and results of operations may be materially and adversely affected.
In
addition, our plans may call for significant new investments in research and development, marketing, expanded productions capacity, and
working capital for raw materials and other items. Should our capital needs be higher than our estimation, we will be required to seek
additional investments, loans or debt financing to fully pursue our business plans. Such additional investment may not be available to
us on terms which are favorable or acceptable. Should we be unable to meet our full capital needs, our ability to fully implement our
business plan will be impaired.
**Any adjustment
of related party transaction pricing could lead to additional taxes, and therefore substantially reduce our consolidated net income and
the value of your investment.**
The
tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted
in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries owe and/or are required to pay additional
taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions
among related parties may be subject to audit or challenge by the PRC tax authorities. If the PRC tax authorities determine that any contractual
arrangements were not entered into on an arms length basis and therefore constitute a favorable transfer pricing, the PRC tax liabilities
of the relevant subsidiaries could be increased, which could increase our overall tax liabilities. In addition, the PRC tax authorities
may impose late payment interest. Our net income may be materially reduced if our tax liabilities increase.
**If our preferential
tax treatments and government subsidies are revoked or become unavailable or if the calculation of our tax liability is successfully challenged
by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions.**
The
Chinese government has provided tax incentives to our former subsidiary in Mainland China, Sichuan Wetouch, including reduced enterprise
income tax rates. For example, under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax
rate is 25%. However, the income tax of an enterprise that has been determined to be a qualified enterprise located in western region
of Mainland China can be reduced to a preferential rate of 15%. The qualification of preferential tax rate is effective for a renewable
three-year permitted. As we have dissolved Sichuan Wetouch, and its business and operations have been assumed by Sichuan Vtouch, Sichuan
Vtouch is planning to apply for the preferential rate of 15% as a qualified enterprise with the PRC tax authorities. As of the date of
this Annual Report, we have not applied for the preferential rate of 15%. If Sichuan Vtouch later applies but its application for the
qualification of preferential tax rate benefit is not approved, our PRC subsidiary will still be subject to the statutory enterprise income
tax rate of 25%. Further, in the ordinary course of our business, we are subject to complex income tax and other tax regulations, and
significant judgment is required in the determination of a provision for income taxes. Although we believe our tax provisions are reasonable,
if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest, and penalties in excess of our
tax provisions, our financial condition and results of operations would be materially and adversely affected.
32
**A significant interruption
in the operations of our third-party suppliers could potentially disrupt our operations.**
We
have limited control over the operations of our third-party suppliers and other business partners and any significant interruption in
their operations may have an adverse impact on our operations. For example, a significant interruption in the operations of our suppliers
manufacturing facilities could cause delays or termination of shipments of the raw materials to us, which may cause delays or termination
of shipments of our products to our customers, thus resulting in penalties or fines due to our breach of contract. If we could not solve
the impact of the interruptions of operations of our third-party suppliers, our business operations and financial results may be materially
and adversely affected.
**We face the risk
of fluctuations in the cost, availability and quality of our raw materials, which could adversely affect our results of operations.**
The
cost, availability and quality of the raw materials, such as indium tin oxide glasses and panels, are important to our operations. If
the cost of raw materials increases due to large market price fluctuation or due to any other reason, our business and results of operations
could be adversely affected. Lack of availability of these raw materials, whether due to shortages in supply, delays or interruptions
in processing, failure of timely delivery or otherwise, could interrupt our operations and adversely affect our financial results.
**We are dependent
upon key executives and highly qualified managers and we cannot assure their retention.**
Our
success depends, in part, upon the continued services of key members of our management. Our executives and managers knowledge
of the market, our business and our Company represents a key strength of our business, which cannot be easily replicated. The success
of our business strategy and our future growth also depend on our ability to attract, train, retain and motivate skilled managerial, sales,
administration, development and operating personnel.
There
can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy and operations, or that we will
be able to hire or retain experienced, qualified employees to carry out our strategy and operations. The loss of one or more of our key
management or operating personnel, or the failure to attract and retain additional key personnel, could have a material adverse effect
on our business, financial condition and results of operations.
**We do not have
long-term contracts with our suppliers and they can reduce order quantities or terminate their sales to us at any time.**
Our
PRC subsidiary does not have long term contracts with our suppliers. At any time, our suppliers can reduce the quantities of products
they sell to us, or cease selling products to us altogether. Such reductions or terminations could have a material adverse impact on our
revenues, profits and financial condition.
33
**If we fail to adopt
new technologies to evolving customer needs or emerging industry standards, our business may be materially and adversely affected.**
To
remain competitive, we must continue to stay abreast of the constantly evolving industry trends and to enhance and improve our technology
accordingly. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in
our business. There can be no assurance that we will be able to use new technologies effectively or meet customers requirements.
If we are unable to adapt in a cost-effective and timely manner in response to changing market conditions or customer preferences, whether
for technical, legal, financial or other reasons, our business may be materially and adversely affected.
**We may experience
significant liability claims or complaints from customers, or adverse publicity involving our products and our services.**
We
face an inherent risk of liability claims or complaints from our customers. We take our customers complaints seriously and endeavor
to reduce such complaints by implementing various remedial measures. Nevertheless, we cannot assure you that we can successfully prevent
or address all customer complaints.
Any
complaints or claims against us, even if meritless and unsuccessful, may divert management attention and other resources from our business
and adversely affect our business and operations. Customers may lose confidence in us and our brand, which may adversely affect our business
and results of operations. Furthermore, negative publicity including but not limited to negative online reviews on social media and crowd-sourced
review platforms, industry findings or media reports related to safety and quality of our products, whether or not accurate, and whether
or not concerning our products, can adversely affect our business, results of operations and reputation.
**We may experience
losses on inventories.**
Frequent
new product introductions in the technology industry can result in a decline in the selling prices of our products and the obsolescence
of our existing inventory. This can result in a decrease in the stated value of our inventory, which we value at the lower of cost or
net realizable value.
We
manage our inventory based on our customers and our own forecasts. Although we regularly make adjustments based on market conditions,
we typically deliver our goods to our customers several weeks after a firm order is placed. While we maintain open channels of communication
with our top customers to avoid unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory
levels, such actions by our customers may have a material adverse effect on our inventory management and our results of operations.
**We have no business
liability or disruption insurance, which could expose us to significant costs and business disruption.**
The
insurance industry in China is still at an early stage of development, and insurance companies in China currently offer limited business-related
insurance products. We do not have any business liability or disruption insurance to cover our operations. We have determined that the
costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make
it impractical for us to have such insurance. Any uninsured risks may result in substantial costs and the diversion of resources, which
could adversely affect our results of operations and financial condition.
34
**We may incur liabilities
that are not covered by insurance.**
While
we seek to maintain appropriate levels of insurance, not all claims are insurable and we may experience major incidents of a nature that
are not covered by insurance. We do not have any insurance that cover, among other things, employee-related accidents and injuries, product
or business liability and other property damage and liability deriving from our activities. Furthermore, insurance companies in China
currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. We have determined
that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms
make it impractical for us to have such insurance. We maintain an amount of insurance protection that we believe is adequate, but there
can be no assurance that such insurance will continue to be available on acceptable terms or that our insurance coverage will be sufficient
or effective under all circumstances and against all liabilities to which we may be subject. If we were to incur substantial losses or
liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations
could be materially and adversely affected. We could, for example, be subject to substantial claims for damages upon the occurrence of
several events within one calendar year. In addition, our insurance costs may increase over time in response to any negative development
in our claims history or due to material price increases in the insurance market in general.
**We may not be able
to adequately protect and maintain our intellectual property.**
Our
success will depend on our ability to continue to develop and market our products. We have five pending patent applications as of the
date of this Annual Report. No assurance can be given that such patents will not be challenged, invalidated, infringed or circumvented,
or that such intellectual property rights will provide a competitive advantage to us. Also, litigation may be necessary to enforce our
intellectual property rights or determine the validity and scope of the proprietary rights of others. The outcome of such potential litigation
may not be in our favor and any success in litigation may not be able to adequately protect our rights. Such litigation may be costly
and divert management attention away from our business. An adverse determination in any such litigation would impair our intellectual
property rights and may harm our business, prospects and reputation. Enforcement of judgments in China is uncertain and even if we are
successful in such litigation it may not provide us with an effective remedy.
****
**Our introduction
of new technologies and products may increase the likelihood that third parties will assert claims that our products infringe upon their
proprietary rights.**
The
rapid technological changes that characterize our industry require that we quickly implement new processes and components with respect
to our products. Often with respect to recently developed processes and components, a degree of uncertainty exists as to who may rightfully
claim ownership rights in such processes and components. Uncertainty of this type increases the risk that claims alleging that such components
or processes infringe upon third party rights may be brought against us. Although we take and will continue to take steps to ensure that
our new products do not infringe upon third party rights, if our products or manufacturing processes are found to infringe upon third
party rights, we may be subject to significant liabilities and be required to change our manufacturing processes or be prohibited from
manufacturing certain products, which could have a material adverse effect on our operations and financial condition.
We
may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although patent and
other intellectual property disputes in our industry have often been settled through licensing or similar arrangements, such defense could
require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result
in our loss of rights to develop or make certain products or require us to pay monetary damages or royalties to license proprietary rights
from third parties. Furthermore, we cannot be certain that the necessary licenses would be available to us on acceptable terms, if at
all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling certain of our products. Any such litigation, whether successful or unsuccessful, could result in substantial
costs to us and diversions of our resources, either of which could adversely affect our business.
35
**Risks Related to
Doing Business in China**
**Adverse regulatory
developments in China may subject us to additional regulatory review and expose us to government restrictions, and additional disclosure
requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China
may impose additional compliance requirements for companies with significant China-based operations, all of which could increase our compliance
costs, subject us to additional disclosure requirements, and/or suspend or terminate our future securities offerings, making capital-raising
more difficult.**
As
substantially all of our operations are based in China, we are subject to a wide range of relevant PRC laws. The recent regulatory developments
in China, in particular with respect to restrictions on China-based companies raising capital offshore and the government-led cybersecurity
reviews of certain companies, may lead to additional regulatory review in China over our financing and capital raising activities in the
United States. In addition, we may become subject to industry-wide regulations that may be adopted by the relevant PRC authorities, which
may have the effect of limiting our product and service offerings, restricting the scope of our operations in China, or causing the suspension
or termination of our business operations in China entirely, all of which will materially and adversely affect our business, financial
condition and results of operations. We may have to adjust, modify, or completely change our business operations in response to adverse
regulatory changes or policy developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely,
cost-efficient, or liability-free manner or at all.
On
July 6, 2021, the relevant PRC government authorities published the Opinions on Strictly Cracking Down Illegal Securities Activities in
Accordance with the Law. These opinions call for strengthened regulation over illegal securities activities and supervision on overseas
listings by China-based companies and propose to take effective measures, such as promoting the construction of relevant regulatory systems
to deal with the risks and incidents faced by China-based overseas-listed companies. Pursuant to the Opinions, Chinese regulators are
required to accelerate rulemaking related to the overseas issuance and listing of securities, and update the existing laws and regulations
related to data security, cross-border data flow, and management of confidential information. Numerous regulations, guidelines and other
measures are expected to be adopted under the umbrella of or in addition to the Cybersecurity Law, Data Security Law and Personal Information
Protection Law. As of the date of this Report, no official guidance or related implementation ruleshave been issued yet and the
interpretation of these opinions remains unclear at this stage. On February 17, 2023, the CSRC promulgated the Trial Administrative Measures,
which took effect on March 31, 2023. The Trial Administrative Measures further stipulate the rules and requirements for overseas offering
and listing conducted by PRC domestic companies.
On
July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the
Measures, for public comments, which propose to authorize the relevant government authorities to conduct cybersecurity review on a range
of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal
data of more than one million users. On December 28, 2021, the Measures for Cybersecurity Review (2021 version) were promulgated and became
effective on February 15, 2022 (the Measures), which iterates that any online platform operators controlling
personal information of more than one million users that seeks to list on a foreign stock exchange shall also be subject to cybersecurity
review. As we are neither an operator of critical information infrastructure nor a data processor carrying
out data processing activities that affect or may affect national security, we believe that the Measures are not applicable to us even
after they take effect in current form. The PRC government is increasingly focused on data security, recently launching cybersecurity
review against a number of mobile apps operated by several US-listed Chinese companies and prohibiting these apps from registering new
users during the review period. There are great uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations
regarding data and privacy security. We may be required to change our data and other business practices and be subject to regulatory investigations,
penalties, and increased cost of operations as a result of these laws and policies.
36
On
July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the
SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating
companies before their registration statements will be declared effective, including whether the China-based operating company and the
issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such
approval could be denied or rescinded. On August 1, 2021, the China Securities Regulatory Commission stated in a statement that it had
taken note of the new disclosure requirements announced by the SEC regarding the listings of Chinese companies and the recent regulatory
development in China, and that both countries should strengthen communications on regulating China-related issuers. We are subject to
a variety of PRC laws and may be subject to tightened regulatory review and exposed to government restrictions in China. In light of the
recent regulatory and policy developments in China and government actions taken by the PRC government, including possible imposition of
restrictions and/or approval requirements on China-based companies raising capital offshore, the offering of our securities may be subject
to additional disclosure requirements and review that the SEC or other regulatory authorities in the United States may adopt for companies
with China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements, and/or
suspend or terminate our future securities offerings, making capital-raising more difficult.
**We are subject
to the Trial Administrative Measures, as the Company has: (i) 50% or more of the issuers operating revenue, total profit, total
assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for
by PRC domestic companies; and (ii) the main parts of the issuers business activities are conducted in mainland China, or its main
places of business are located in mainland China, or the senior managers in charge of its business operation and management are mostly
Chinese citizens or domiciled in mainland China; and, if required, we cannot assure you that we will be able to complete such process
on time or at all.**
On
February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies
(the Trial Administrative Measures), which took effect on March 31, 2023. Compared to the Draft Rules, the Trial Administrative
Measures further clarified and emphasized several aspects, including: (i) comprehensive determination of the indirect overseas
offering and listing by Mainland China domestic companies in compliance with the principle of substance over form
and particularly, an issuer will be required to go through the filing procedures under the Trial Administrative Measures if the following
criteria are met at the same time: a) 50% or more of the issuers operating revenue, total profit, total assets or net assets as
documented in its audited consolidated financial statements for the most recent accounting year is accounted for by Mainland China domestic
companies, and b) the main parts of the issuers business activities are conducted in Mainland China, or its main places of business
are located in Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or
domiciled in Mainland China; (ii) exemptions from immediate filing requirements for issuers that a) have already been listed or registered
but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Administrative Measures,
and b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas stock
exchange, c) whose such overseas securities offering or listing shall be completed before September 30, 2023. However, such issuers shall
carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the
CSRC; (iii) a negative list of types of issuers banned from listing overseas, such as issuers under investigation for bribery and corruption;
(iv) regulation of issuers in specific industries; (v) issuers compliance with national security measures and the personal data
protection laws; and (vi) certain other matters such as: an issuer must file with the CSRC within three business days after it submits
an application for initial public offering to competent overseas regulators; and subsequent reports shall be filed with the CSRC on material
events, including change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.Our
PRC counsel has advised that because our common stock currently trades in the U.S., we were not required to submit filings to the CSRC
before the Offering was completed and the Offering was not conditioned on CSRC approval. Rather, within three days of the closing of the
Offering, we are required to submit filings to the CSRC in accordance with the Trial Administrative Measures. According to the relevant
provisions of the Trial Administrative Measures and its supporting guidelines, the Company is required to fulfill the filing procedures
with the CSRC within three days of the closing of the 2024 Uplisting Offering. According to the Trial Administrative Measures, the Company
has submitted the filing materials to the CSRC, but the materials were not complete due to lack of a commitment letter from the lead underwriter
for the Offering, and the Company withdrew the filing from the CSRC. The Company will submit the filing materials again when the materials
are ready. However, given that the Trial Administrative Measures were recently promulgated, there remain substantial uncertainties as
to their interpretation, application, and enforcement and there is no guarantee that the relevant PRC government agencies, including the
CSRC, would reach the same conclusion that we and our PRC counsel have reached. If the CSRC has determined that we have failed
to comply with the post-offering filing obligations imposed by the Trial Administrative Measures or make a misrepresentation, misleading
statement or material omission in the materials we submit to the CSRC, the CSRC would have the right to order rectification, issue a warning
and impose a fine on us of between RMB 1 million and RMB 10 million and issuing a warning to the parties responsible for such failure,
misrepresentation or material omission and impose a fine on each of such individuals ranging from RMB 500,000 to RMB 5 million.
37
**Our common stock will be prohibited from
trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended, if it is later determined
that the PCAOB is unable to inspect and investigate completely our auditor. The delisting of and prohibition from trading of our common
stock, or the threat of their being delisted and prohibited from trading, may cause the value of our common stock to significantly decline
or be worthless.**
Pursuant to the HFCAA, if
the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections
by the PCAOB for two consecutive years, the SEC will prohibit our shares from being traded on a national securities exchange or in the
over-the-counter trading market in the United States.
On December 18, 2020, the
HFCAA was signed into law. The HFCAA has since then been subject to amendments by the U.S. Congress and interpretations and rulemaking
by the SEC. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the AHFCAA),
which proposes to reduce the period of time for foreign companies to comply with PCAOB audits from three to two consecutive years, thus
reducing the time period before the securities of such foreign companies may be prohibited from trading or delisted.
On December 16, 2021, the
PCAOB issued a report to notify the SEC of its determination relating to the PCAOBs inability to inspect or investigate completely
registered public accounting firms headquartered in mainland China and Hong Kong. The inability of the PCAOB to conduct inspections of
auditors in China made it more difficult to evaluate the effectiveness of these accounting firms audit procedures or quality control
procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential
investors in issuers operating in China to lose confidence in such issuers procedures and reported financial information and the
quality of financial statements.
On December 15, 2022, the
PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public accounting firms headquartered
in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to vacate its precious determinations to the contrary.
The PCAOB is continuing to demand complete access, and it will act immediately to reconsider such determinations should China obstruct,
or otherwise fail to facilitate the PCAOBs access, at any time.
Our auditor, ST & Partners
PLT (STP), is headquartered in Malayia, subject to PCAOB inspection. Our auditor was not subject to the determinations announced
by the PCAOB on December16, 2021, which were vacated on December15, 2022. Our auditor, the independent registered public accounting
firm that issues the audit report, as an auditor of companies that are traded publicly in the United States and a firm registered with
the PCAOB, is subject to laws in the United States.
On December29,
2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i)to reduce the number of consecutive
non-inspectionyears required for triggering the prohibitions under the HFCAA from threeyears to two, and (ii)so that
any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a companys auditor.
As it was originally enacted, the HFCAA applied only if the PCAOBs inability to inspect or investigate was due to a position taken
by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations
Act, 2023, the HFCAA now also applies if the PCAOBs inability to inspect or investigate the relevant accounting firm is due to
a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is
located. If the PCAOB determines in the future that it is unable to completely inspect or investigate our auditor and we continue to use
such auditor to issue an audit report on our financial statements filed with the SEC, our securities will be delisted from the stock exchange.
The delisting of our common stock or the threat of their being delisted, may materially and adversely affect the value of your investment.
These risks could result in a material adverse change in our operations and the value of our common stock, significantly limit or completely
hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline
or become worthless.
Further
developments related to the HFCAA could add uncertainties to our future offerings. We cannot assure you what further actions the SEC,
the PCAOB or the stock exchanges will take to address these issues and what impact such actions will have on companies that have significant
operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter
stock market). In addition, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory
access to audit information could create uncertainty for investors, the market price of our common stock could be adversely affected,
and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement. Such a delisting would substantially
impair your ability to sell or purchase our common stock when you wish to do so, and would have a negative impact on the price of our
shares.
38
**We may be subject to substantial fine if
the CSRC has determined that we have failed to comply with the post-offering filing obligations imposed by the Trial Administrative Measure.**
****
On
February 17, 2023, the CSRC promulgated the Trial Administrative Measures that require issuers to carry out filing procedures as required
if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (iii) a negative list of types of
issuers banned from listing overseas, such as issuers under investigation for bribery and corruption; (iv) regulation of issuers in specific
industries; (v) issuers compliance with national security measures and the personal data protection laws; and (vi) certain other
matters such as: an issuer must file with the CSRC within three business days after it submits an application for initial public offering
to competent overseas regulators; and subsequent reports shall be filed with the CSRC on material events, including change of control
or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
Our
PRC counsel has advised that because our common stock currently trades in the U.S., we were not required to submit filings to the CSRC
before our 2024 Uplisting Offering was completed and the 2024 Uplisting Offering was not conditioned on CSRC approval. However, within
three days of the closing of the 2024 Uplisting Offering, we are required to submit filings to the CSRC in accordance with the Trial Administrative
Measures. We have submitted the filing materials to the CSRC, but the materials were not complete due to lack of a commitment letter from
the lead underwriter for the 2024 Uplisting Offering, and we withdrew the filing from the CSRC. We will submit the filing materials again
when the materials are ready. However, given that the Trial Administrative Measures were recently promulgated, there remain substantial
uncertainties as to their interpretation, application, and enforcement and there is no guarantee that the relevant PRC government agencies,
including the CSRC, would reach the same conclusion that we and our PRC counsel have reached. If the CSRC has determined that we
have failed to comply with the post-offering filing obligations imposed by the Trial Administrative Measures or make a misrepresentation,
misleading statement or material omission in the materials we submit to the CSRC, the CSRC would have the right to order rectification,
issue a warning and impose a fine on us of between RMB 1 million and RMB 10 million and issuing a warning to the parties responsible for
such failure, misrepresentation or material omission and impose a fine on each of such individuals ranging from RMB 500,000 to RMB 5 million.
Our operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand
our business.
**Changes in U.S.
and international trade policies, particularly with regard to China, may adversely impact our business and operating results.**
There
have recently been significant changes to international trade policies and tariffs affecting imports and exports. Any significant increases
in tariffs on goods or materials or other changes in trade policy could negatively affect our search for a target and/or our ability to
complete our initial business combination.
Recently,
the U.S. has implemented a range of new tariffs and increases to existing tariffs. In response to the tariffs announced by the U.S., other
countries have imposed, are considering imposing, and may in the future impose new or increased tariffs on certain exports from the United
States. There is currently significant uncertainty about the future relationship between the United States and other countries with respect
to trade policies, taxes, government regulations and tariffs. and we cannot predict whether, and to what extent, current tariffs will
continue or trade policies will change in the future.
Tariffs,
or the threat of tariffs or increased tariffs, could have a significant negative impact on certain businesses (either due to domestic
businesses reliance on imported goods or dependence on access to foreign markets, or foreign businesses reliance on sales
into the United States). In addition, retaliatory tariffs could have a significant negative impact on foreign businesses that rely on
imports from the United States, and domestic businesses that rely on exporting goods internationally. Among other things, historical financial
performance of companies affected by trade policies and/or tariffs may not provide useful guidance as to the future performance of such
companies, because future financial performance of those companies may be materially affected by new U.S. tariffs or foreign retaliatory
tariffs, or other changes to trade policies.
39
Trade tensions between China
and the UnitedStates may intensify in the future, resulting in the imposition of more tariffs or other trade restrictions. Although
cross-border business is currently not an area of our focus, if we plan to sell products internationally in the future, any unfavorable
government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services,
impact the competitive position of our products or prevent us from being able to sell products in certain countries. If any new tariffs,
legislation and/or regulations are implemented, or if existing trade agreements are renegotiated, such changes could have an adverse effect
on our business, financial condition, or results of operations. In addition, future actions or escalations by either the UnitedStates
or China that affect trade relations may cause global economic turmoil and potentially have a negative impact on our business.
In addition, recent economic
and trade sanctions threatened and/or imposed by the U.S.government on a number of China-based companies have raised concerns as
to whether, in the future, there may be additional regulatory challenges or enhanced restrictions involving other China-based companies
in areas such as data security, information technology or other business activities. Similar or more expansive restrictions, including
relating to export controls, that may be imposed by the UnitedStates or other jurisdictions in the future, may materially and adversely
affect our ability to acquire technologies, systems or products that may be important to our technology infrastructure, product and service
offerings and business operations.
Furthermore, we may also face
export controls or sanctions-related or other trade-related restrictions on transactions with certain
customers, business partners and other persons. The Entity List maintained by the U.S.Department of Commerce identifies foreign
parties that are prohibited from acquiring whether by export, reexport, or transfer in-country some or all items subject
to the U.S.Export Administration Regulations (EAR), unless the exporter secures a license. Licenses, and exceptions
to the license requirement, are rarely granted to exporters. Exporting, reexporting or transferring items subject to the EAR in violation
of licensing requirements could result in criminal and/or civil penalties. These restrictions, and similar or more expansive restrictions
or sanctions that may be imposed by the UnitedStates or other jurisdictions in the future, may adversely affect our ability to work
with certain future customers and business partners, which would harm our business. Furthermore, our association with customers or business
partners that are or become subject to U.S.regulatory scrutiny or export controls- or sanctions-related restrictions could subject
us to actual or perceived reputational harm among current or prospective investors, suppliers or customers, other parties doing business
with us, or the general public. Any such reputational harm could result in the loss of investors, suppliers or customers, which could
harm our business, financial conditions or prospects.
**PRC regulation
of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay
or prevent us from using the proceeds of any offerings or financings to make loans or additional capital contributions to our Chinese
subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.**
We
conduct substantially all of our operations in China. We may make loans to our PRC subsidiary, subject to the approval, registration,
and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned
subsidiary in China. Any loans to our wholly foreign-owned subsidiary in China, which is treated as a foreign-invested enterprise under
PRC law, are subject to foreign exchange loan registrations. In addition, a foreign invested enterprise shall use its capital pursuant
to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used
for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited
by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks
principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises,
except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that
is not for self-use (except for the foreign-invested real estate enterprises).
In
light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies,
we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals
or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions
by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from
any future offerings and to capitalize or otherwise fund our Chinese operations may be negatively affected, which could materially and
adversely affect our liquidity and our ability to fund and expand our business.
40
**PRC regulations
relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or
our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary
ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.**
In
July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents Offshore
Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant
Issues Concerning Foreign Exchange Administration for Domestic Residents Financing and Roundtrip Investment Through Offshore Special
Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires
PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their
direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be
applicable to any offshore acquisitions that we make in the future.
Under
SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments
in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition,
any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch
of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the
PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make
the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing
its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from
making additional capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying
and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015.
Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct
investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks
will directly examine the applications and accept registrations under the supervision of SAFE.
We
may not be fully informed of the identities of all our beneficial owners who are PRC residents. For example, because the investment in
or trading of our shares will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts,
it is unlikely that we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over
any of our future beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and
registration procedures required by the Administrative Measures on Individual Foreign Exchange.
Some
of our shareholders that we are aware of are subject to SAFE regulations, and we expect all of these shareholders will have completed
all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however,
that all of these shareholders may continue to make required filings or updates in a timely manner, or at all. We can provide no assurance
that we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in our
company. Any failure or inability by such shareholders to comply with SAFE regulations may subject us to fines or legal sanctions, such
as restrictions on our cross-border investment activities or our PRC subsidiary ability to distribute dividends to, or obtain foreign
exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations
and our ability to make distributions to you could be materially and adversely affected.
Furthermore,
as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving,
it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted,
amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval
process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings,
which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company,
we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete
the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition
strategy and could adversely affect our business and prospects.
41
As
of the date of this Annual Report, the PRC residents have either not completed, or have not applied for, foreign exchange registration
under the SAFE Circular 37 and other related rules. Although they are either in the process of making foreign exchange registration or
plan to make foreign exchange registrations, they may still face with the above said possible fines in accordance with the PRC Laws.
**Labor laws in the
PRC may adversely affect our results of operations.**
The
PRC National Peoples Congress promulgated the Labor Contract Law which became effective on January 1, 2008 and was amended on December
28, 2012 (the Labor Contract Law), and the State Council promulgated implementing regulations for the labor contract law
on September 18, 2008. The Labor Contract Law and the implementing regulations impose requirements concerning, among others, the execution
of written contracts between employers and employees, the time limits for probationary periods, and the length of employment contracts.
The interpretation and implementation of these regulations are still evolving, our employment practices may violate the Labor Contract
Law and related regulations and we could be subject to penalties, fines or legal fees as a result. If we are subject to severe penalties
or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results
of operations may be adversely affected.
Further,
the Labor Contract Law requires certain terminations be based upon seniority and not merit. In the event that we decide to significantly
change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is
most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition
and results of operations.
**We may be exposed
to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.**
We
are subject to the U.S. Foreign Corrupt Practices Act (the FCPA) and other laws that prohibit improper payments or offers
of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for
the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment
of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption.
Our activities in China may create the risk of unauthorized payments or offers of payments by one or more of the employees of our company,
because such employees might act against our policies, outside of our control. Violations of the FCPA or Chinese anti-corruption laws
may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA
violations committed by companies in which we invest or that we acquire.
**Our business may
be materially and adversely affected if our PRC subsidiary declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.**
The
Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise
will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprises assets are, or
are demonstrably, insufficient to clear such debts.
Our
PRC subsidiary holds certain assets that are important to our business operations. If our PRC subsidiary undergoes a voluntary or involuntary
liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability
to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
According
to the SAFEs Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration
Policies for Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to
Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if our PRC subsidiary undergoes a voluntary or involuntary liquidation
proceeding, prior approval from the SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still
need to conduct a registration process with the SAFE local branch. It is not clear whether registration is a mere formality
or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
42
**Changes in Chinas
economic, political or social conditions or government policies could have a material adverse effect on our business and operations. The
PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital
markets activities and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or in extreme cases, become worthless.**
Substantially
all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and prospects
may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differs
from the economies of most developed countries in many respects, including the level of government involvement, level of development,
growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing
the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government.
In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies.
The
PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business,
accept foreign investments or list on an U.S. or other foreign exchanges. For example, we face risks associated with regulatory approvals
of offshore offerings, anti-monopoly regulatory actions, as well as oversight on cybersecurity and data privacy. Such risks or any actions
by the PRC government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based
issuers could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely
hinder our ability to offer or continue to offer our common stock and/or other securities to investors and cause the value of such securities
to significantly decline or be worthless. The PRC government has significant authority, oversight and discretion over the conduct of our
business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal
goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and
internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry
that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently
indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign
investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely
hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline
or in extreme cases, become worthless.
The
Chinese government also exercises significant control over Chinas economic growth through allocating resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or
companies.
While
the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various
sectors of the economy. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws
and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely
affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.
The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these
measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results
of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in
the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic
growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.
**Uncertainties with
respect to the PRC legal system, including uncertainties regarding the enforcement of laws and sudden and unexpected changes in laws and
regulations in China, could adversely affect us and limit the legal protections available to you and us.**
Our
operations in China are governed by PRC laws and regulations. Our wholly foreign-owned PRC operating subsidiary Sichuan Vtouch is subject
to laws and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes.
Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential
value. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment
and our ability to operate our business in China.
43
Since
the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules are not always uniform and enforcement
of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. Uncertainties due to evolving
laws and regulations could also impede the ability of a China-based company, such as our company, to obtain or maintain permits or licenses
required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material
sanctions or penalties on us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently
applied by other PRC government authorities (including local government authorities), thus making strict compliance with all regulatory
requirements impractical, or in some circumstances impossible. From time to time, we may have to resort to administrative and court proceedings
to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion
of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and
implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court
proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability
to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.
The
PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all
and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after
the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede
our ability to continue our operations.
Furthermore,
if China adopts more stringent standards with respect to environmental protection or corporate social responsibilities, we may incur increased
compliance costs or become subject to additional restrictions in our operations. Intellectual property rights and confidentiality protections
in China may also not be as effective as in the United States or other countries. In addition, we cannot predict the effects of future
developments in the PRC legal system on our business operations, including the promulgation of new laws, or changes to existing laws or
the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including
you. Moreover, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management
attention.
**You may experience
difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management
based on foreign laws.**
We
are a company incorporated under the laws of the United States and we conduct substantially all of our operations in China. In addition,
our officers and directors reside within China and are PRC nationals. As a result, it may be difficult for you to effect service of process
upon us or those persons inside mainland China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S.
courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors as none of
them currently resides in the United States or has substantial assets located in the United States. In addition, there is uncertainty
as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the
civil liability provisions of the securities laws of the United States or any state.
The
recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce
foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country
where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written
arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according
to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide
that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain
whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
**Government control
of currency conversion may affect the value of your investment.**
The
PRC government imposes controls on the convertibility of the Renminbi, or RMB, into foreign currencies and, in certain cases,
the remittance of currency out of China. We receive some revenue and incur some expenses in U.S. dollars but incur other expenses primarily
in RMB. Although our main business is based in mainland China with our Chinese operating subsidiary, some of our business may require
us to use U.S. dollars. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions,
interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE,
by complying with certain procedural requirements. Approval from appropriate government authorities is required where Renminbi is to be
converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of loans denominated in foreign
currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions
and if this occurs in the future, we may not be able to pay in foreign currencies, and our business and operations may be adversely affected.
44
**Fluctuations in
exchange rates could have a material and adverse effect on our results of operations and the value of your investment.**
The
value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions in China and by Chinas foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over
the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the
U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly
and unpredictably. On November 30, 2015, the Executive Board of IMF completed the regular five-year review of the basket of currencies
that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a
freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese
yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S.
dollar and persistent capital outflows of China. This depreciation halted in 2017, and the RMB appreciated approximately 7% against the
U.S. dollar during this one-year period. With the development of the foreign exchange market and progress towards interest rate liberalization
and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot
assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult
to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in
the future.
Significant
revaluation of the Renminbi may have a material and adverse effect on our operations. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the
Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose
of making payments for dividends on our shares of Common Stock or for other business purposes, appreciation of the U.S. dollar against
the Renminbi would have a negative effect on the U.S. dollar amount available to us.
Very
limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into
any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge
our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our
ability to convert Renminbi into foreign currency.
**Governmental control
of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.**
The
PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our revenues in Renminbi. Under existing PRC foreign exchange regulations, payments
of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions,
can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under
the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiary in China
may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required
where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans
denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiary
to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure
payments outside China in a currency other than Renminbi.
In
light of the flood of capital outflows of China, the PRC government may from time to time impose more restrictive foreign exchange policies
and step up scrutiny of major outbound capital movement. More restrictions and substantial vetting process may be required by SAFE or
other government authorities to regulate cross-border transactions falling under the capital account. The PRC government may at its discretion
restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents
us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign
currencies to our shareholders, including holders of our Common Stock.
45
**The Chinese government
exerts substantial influence over the manner in which we must conduct our business activities and may intervene or influence our operations
at any time, which could result in a material change in our operations and/or the value of our common stock**.
The
Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those
relating to taxation, environmental regulations, land use rights, property and other matters. The central or respective local governments
may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts
on our part to ensure our compliance with such regulations or interpretations. The Chinese government may intervene or influence our operations
at any time, which could result in a material change in our operations and/or the value of our common stock.
**If we are classified as a PRC resident enterprise
for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders
and the common stockholders.**
Under
the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its *de facto*management body within the PRC is considered a resident enterprise and will be subject to the enterprise income
tax on its global income at the rate of 25%. The implementation rules define the term *de facto* management body as
the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties
of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, which provides certain
specific criteria for determining whether the *de facto* management body of a PRC-controlled enterprise that is incorporated
offshore is located in China. Although this circular applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise
groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SATs general
position on how the *de facto* management body text should be applied in determining the tax resident status of all
offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise
group will be regarded as a PRC tax resident by virtue of having its *de facto* management body in China, and will
be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location
of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprises financial and human resource
matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprises primary assets, accounting
books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of
voting board members or senior executives habitually reside in the PRC.
We
believe our Company, excluding our PRC subsidiary, is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status
of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of
the term de facto management body. If the PRC tax authorities determine that our company is a PRC resident enterprise for
enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore,
we would be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident
enterprise shareholders (including the common stockholders) may be subject to PRC tax on gains realized on the sale or other disposition
of the common stock, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise,
dividends paid to our non-PRC individual shareholders (including the common stockholders) and any gain realized on the transfer of the
common stock or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may
be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of
our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that
we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our common stock.
46
**Risks Related to
Our Common Stock**
**The price of our
common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or
above the purchase price.**
An
active trading market for our common stock may not be sustained. The lack of an active market may impair your ability to sell your shares
at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise
capital by selling shares of common stock and may impair our ability to acquire other businesses or technologies using our shares of common
stock as consideration, which, in turn, could materially adversely affect our business. The market price of our common stock may fluctuate
significantly in response to numerous factors, many of which are beyond our control, including:
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In
the past, shareholders of public companies have often brought securities class action suits against those companies following periods
of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount
of our managements attention and other resources from our business and operations and require us to incur significant expenses
to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be
required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
47
**Since our By-laws
provide that the courts in the State of Nevada are the sole and exclusive forum for substantially all disputes between us and our shareholders,
this could limit our shareholders ability to obtain a favorable judicial forum for disputes with us or our directors or officers,
or employees.**
Our
Amended and Restated By-laws provide that, unless we consent in writing to the selection of an alternative forum, the appropriate state
and federal courts in the State of Nevada shall be the sole and exclusive forum for any derivative action or proceeding brought on behalf
of the Company, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company
to the Company or the Companys shareholders, any action asserting a claim arising pursuant to any provision of the Nevada Revised
Statutes, or any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision would not apply to
suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange
Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the
rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all
suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Any person or entity
purchasing or otherwise acquiring any interest in our Company shall be deemed to have notice of and consented to these provisions.
These
exclusive-forum provisions may limit a shareholders ability to bring a claim in a judicial forum of its choosing for disputes with
us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
Moreover,
if a court were to find the choice of forum provision contained in our Amended and Restated By-laws to be inapplicable or unenforceable
in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management and other employees.
**Short sellers of
our stock may be manipulative and may drive down the market price of our common stock.**
Short
selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party
with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline
in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller
expects to pay less in that purchase than it received in the sale. As it is therefore in the short sellers interest for the price
of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant
issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to
obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes
and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks.
The
publication of any such commentary regarding us by a short seller may bring about a temporary, or possibly long term, decline in the market
price of our common stock. No assurances can be made that we will not become a target of such commentary and declines in the market price
of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.
48
**If we become directly
subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources
to investigate and resolve the matter which could harm our business, operations and reputations, which could result in a loss of your
investment in our common stock.**
U.S.
public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative
publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative
publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting,
inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny,
criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and,
in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions
and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism
and negative publicity will have on our business. If we become the subject of any unfavorable allegations, whether such allegations are
proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This
situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business
operations will be severely hampered and your investment in our shares could be rendered worthless.
**The sale or availability
for sale of substantial amounts of our common stock could adversely affect their market price.**
Sales
of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect
the market price of our common stock and could materially impair our ability to raise capital through equity offerings in the future.
Shares held by our existing shareholders may be sold in the public market in the future subject to the restrictions in Rule 144 and Rule
701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or
any other shareholder or the availability of these securities for future sale will have on the market price of our common stock.
**Because we do not
expect to pay dividends in the foreseeable future, you must rely on a price appreciation of our common stock for return on your investment.**
We
currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment
in our common stock as a source for any future dividend income.
Our
board of directors has complete discretion as to whether to distribute dividends., Even if our board of directors decides to declare and
pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow,
our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition,
contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our
common stock will likely depend entirely upon any future price appreciation of our common stock. There is no guarantee that our common
stock will appreciate in value, or even maintain the price at which you purchased the common stock. You may not realize a return on your
investment in our common stock and you may even lose your entire investment in our common stock.
49
**If relations between
the United States and China worsen, our stock price may decrease and could lead to our loss of access or increased difficulty in accessing
U.S. capital markets.**
At
various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies
may arise in the future between these two countries. Any political or trade conflicts between the United States and China could adversely
affect the market price of our common stock and could potentially impede our access to, or increase the difficulty of accessing, U.S.
capital markets.
**We may be subject to delisting from Nasdaq if we fail to timely
file periodic reports with the SEC or to maintain Nasdaqs minimum bid price, which could materially and adversely affect the liquidity
and value of our common stock**.
Nasdaq Listing Rule 5250(c)(1) requires timely
filing of periodic reports with the SEC. Between April and August in 2025, we received Nasdaq notices for late filings of our Form 10-K
for the year ended December 31, 2024 and our Forms 10-Q for the quarters ended March 31 and June 30, 2025. At Nasdaqs request,
we submitted a compliance plan on June 18, 2025; Nasdaq accepted the plan on June 26, 2025 and granted us an extended compliance period
through October 13, 2025 to file all outstanding reports. Following Nasdaqs delinquency notice relating to the June 30, 2025 Form
10-Q, we submitted an updated compliance plan on August 28, 2025, reaffirming the steps in our original plan. We are working diligently
with our auditors, legal counsel, and finance team to complete the required filings as promptly as practicable and remain committed to
regaining and maintaining compliance. If we do not complete the required filings within the compliance period, however, our common stock
may be delisted, subject to our right to appeal to a Nasdaq Hearings Panel.
Separately, on July 15, 2025, we received a Nasdaq
notice that our bid price had closed below $1.00 for 30 consecutive business days, triggering noncompliance with Nasdaqs minimum
bid price requirement. Nasdaq has provided us a 180-calendar-day period to regain compliance, which generally requires a closing bid price
of at least $1.00 for a minimum of ten consecutive business days during that period. We are monitoring the bid price closely and diligently
considering available options, including potential corporate actions, to regain compliance within the allotted period. If we do not regain
compliance (and are not granted additional time), our securities may be subject to delisting, also subject to appeal rights.
Although these notices had no immediate effect
on the listing or trading of our common stock, there can be no assurance that we will regain or maintain compliance within the permitted
time frames. Any delisting would likely reduce the liquidity of our common stock, impair our ability to raise capital, and negatively
impact investor confidence and our business, financial condition, and results of operations.
50
**ITEM 1B. UNRESOLVED STAFF COMMENTS**
None.
**ITEM 1C. CYBERSECURITY**
**Risk Management**
We
face significant and persistent cybersecurity risks due to the need to protect our business, our confidential information and information
concerning our personnel and others with whom we conduct business. As with other technology companies, we occasionally face threats from
actors who seek to disrupt our business as well as others who are engaging in malicious activities for profit, to make a political point
or for no particular reason other than creating disruption. Disclosure of certain information as a result of a cybersecurity breach may
result is a breach of privacy laws. The substantial level of harm that could occur to us and our suppliers and customers were we to suffer
impacts of a material cybersecurity incident; and our use of third-party products, services and components requires us to maintain robust
governance and oversight of these risks and to implement mechanisms, technologies and processes designed to help us assess, identify,
and eliminate these risks.
While
we have not, as of the date of this Annual Report, experienced a cybersecurity threat or incident that resulted in a material adverse
impact to our business or operations, we cannot assure you that we will not experience such an incident in the future. Any cybersecurity
incidents, whether or not successful, could result in our incurring additional costs related to, for example, rebuilding our internal
systems, implementing additional threat protection measures, responding to regulatory inquiries or actions, paying damages or making payments
to obtain access to our computer systems, or taking other remedial steps with respect to third parties, as well as incurring significant
reputational harm. We have seen an increase in cyberattack volume, frequency, and sophistication. We seek to detect and investigate unauthorized
attempts and attacks against our network, products, and services, and to prevent their occurrence and recurrence where practicable through
changes or updates to our internal processes and tools and changes or updates to our products and services; however, we remain potentially
vulnerable to known or unknown threats. In some instances, we, our suppliers, our customers, and the users of our products and services
can be unaware of a threat or incident or its magnitude and effects. Further, there are increasing regulation requirements regarding responses
to cybersecurity incidents, including reporting to regulators, which could subject us to additional liability and reputational harm.
**Governance**
Following
these risk assessments, we evaluate whether and how to re-design, implement, and maintain reasonable safeguards to mitigate identified
risks and reasonably address any identified gaps in existing safeguards. Our IT leadership reports to our Chief Executive Officer (CEO)
periodically and on an as-needed basis to manage our risk assessment and mitigation process. We monitor and test our safeguards and regularly
conduct training for our employees on these safeguards, in collaboration with human resources, IT, and management. We are committed to
promoting a company-wide culture of cybersecurity risk management.
We
have not encountered cybersecurity risks, threats or incidents that have materially affected or are reasonably likely to materially affect
the Company, our business strategy, results of operations, or financial condition during the financial year ended December 31, 2024.
51
**ITEM 2. PROPERTIES AND FACILITIES**
We operate our business in
approximately nine separate leased buildings covering a total area of approximately 40,126.9 square feet at No. 29, Third Main Avenue,
Shigao Town, Renshou County, Meishan City, Sichuan, China (previously known as 22 Xingan Ave., Section 2, Shigao Town, Sichuan, China
) where we maintain our executive offices, research and development facilities, factories and other facilities.
Our principal physical properties
are used in connection with our [manufacturing/administrative/R&D/distribution] operations. We believe that our facilities are generally
suitable and adequate for their current and anticipated future uses. The following table summarizes our material properties:
|
Location(City,Country) | |
Segment(s) Using Property | |
General Character of Property (e.g., Office, Manufacturing, Warehouse) | |
Ownership/Lease Status | |
Approx. Size (sq. ft./sq. m.) | |
Lease Expiration (if leased) | |
Encumbrances (if any) | |
|
Shigao Town, Renshou County, Meishan City, Sichuan Province, China | |
Touchscreen business | |
Offices building | |
Leased | |
8,085.0. sq. m | |
31-Oct-25 | |
None | |
|
same as above | |
Touchscreen business | |
Experimental building( testing and experimenting of samples and products | |
Leased | |
1,069.6 sq. m | |
31-Oct-25 | |
None | |
|
same as above | |
Touchscreen business | |
Manufacturing/warehousebuilding No. | |
Leased | |
30,879.3 sq. m | |
31-Oct-25 | |
None | |
|
same as above | |
Touchscreen business | |
Security gate | |
Leased | |
92.98 sq.m | |
31-Oct-25 | |
None | |
As of
the date of this Annual Report, we lease approximately 8,085.0 sq.m of office space for R&D, sales and other corporate functions
in Shigao Town, Renshou County, Meishan City , Sichuan Province, China, which serves as our corporate headquarter. The lease expires on
October 31, 2025 and we believe it can be renewed on commercially reasonable terms.
We also lease 30,879.3 sq.m facility with three
manufacturing wards for principal manufacturing operations in Shigao Town, Renshou ,County, Meishan City, Sichuan Province, China, at
which production of, assembly, packaging, warehousing of our touchscreen products. We believe these facilities are adequate to meet our
current production requirements and provide room for moderate expansion.
In addition, space of 1069.6 sq. m in Shigao Town,
Renshou County, Meishan City, Sichuan Province, China was used for testing and experimenting of samples and products by our engineering
teams.
None of our properties are subject to material encumbrances
that would adversely affect their use.
52
As of
the date of this Annual Report, we do not own any real property. However, we are in the process of obtaining a certificate of land
use right for a new parcel located at Tianfu Avenue, Youjiadu Community in Chengdu, Sichuan province, China, and expect to receive the
certificate from the local government in the first quarter of 2026.
We believe the above properties
are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available
to accommodate any such expansion of our operations.
**Leaseback Agreement**
Pursuant to local PRC government
guidelines on local environmental issues and the national overall plan, Sichuan Wetouch is under the government-directed relocation order
to relocate no later than December 31, 2021 and received compensation accordingly.
On March 16, 2021, Sichuan
Wetouch entered into an Agreement of Compensation on Demolition (the Compensation Agreement) with Meishan Huantian Industrial
Co., Ltd, formerly named Sichuan Renshou Shigao Tianfu Investment Co., Ltd, a limited company owned by the local government (Sichuan
Renshou), for the withdrawal of our right to use of a parcel of state-owned land and the demolition of all buildings, facilities
and equipment on such land where we maintain our executive offices, research and development facilities and factories at No.29, Third
Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (the Property). The Property, all buildings, facilities,
equipment and all other appurtenances on the Property are collectively referred to as Properties. The Compensation Agreement
was executed and delivered as a result of the guidelines (the Guidelines) published by the local government with respect
to local environmental issues and a national plan on Tianfu New District, Meishan City, Sichuan, PRC. In accordance with the Guidelines,
a project named Chaisang River Ecological Wetland Park is under construction in the areas where our manufacturing facilities
and properties are located. In consideration for such relocation, as an owner of the buildings on the state-owned land, we will be compensated.
On March 18, 2021, Sichuan Wetouch received a total amount of RMB115.2 million (approximately $17.7 million) as the total amount of compensation
from Sichuan Renshou, including RMB100.2 million ($15.4 million) based upon the appraised value of the Properties plus an extra 15% relocation
bonus of RMB15.0 million ($2.3 million).
In order to minimize the interruption
to our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16, 2021. The Leaseback Agreement entitles
us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB300,000 (approximately
$46,154), which period was extended to October 31, 2022. On October 16, 2022, October 30, 2023, Sichuan Vtouch twice entered an extension
to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties until October
31, 2024, at a monthly rent of RMB 400,000 ($56,339). On August 9, 2024, in order to incorporate the new facility construction schedule,
the lease was renewed and extended till October 31, 2025, with a monthly rent of RMB400,000($54,800).
53
**New Facilities**
On August 6, 2021, Sichuan
Vtouch entered into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use
right for a parcel of land spanning 131,010 square feet, for a consideration of approximately RMB3,925,233 (equivalent to $537,755) for
the Companys new facility. The Company paid the consideration in full on November 18, 2021. We are in the process of obtaining
the certificate of land use right for the new parcel and expect to receive the certificate from the local government in the first quarter
of 2026.
On July 27, 2021, Sichuan
Vtouch and Sichuan Chunqiu Development and Construction Group Co., Ltd. entered into a construction contract for a project to build the
capacitive touchscreen and touch machine research and development production base. The project was initially scheduled to commence on
August 15, 2021, and reach completion by August 15, 2022, with a provisional contract value of RMB76,000,000 (approximately $11.9 million),
subject to adjustment based on the final completion settlement. However, the construction project was subsequently suspended due to the
outbreak of Covid-19 and government-ordered shutdowns in China. As a result, the parties have agreed to extend the term of the contract
to December 31, 2024. On April 11, 2025, Sichuan Vtouch entered into a supplemental construction contract with Sichuan Chunqiu Development
& Construction Group Co. Ltd. for an additional consideration of RMB4,633,118 (equivalent to $0.6 million) regarding the completion
of the Companys facility construction project on the capacitive touchscreen and touch machine research and development, which extended
the original contract term to December 31, 2025. As of the date of this Annual Report, we estimate that our capital needs for this acquisition
and construction will be approximately RMB170.0 million (approximately $26.2 million), but there is no assurance that the estimated amount
is sufficient to achieve our goals. We may need additional financing for our new facilities. In addition, we expect that this the construction
of buildings and affixtures will be completed by end of 2025 and our production at the new facilities will commence in the second half
of 2026, but there is no assurance and we may need extended time to achieve our business plan.
**ITEM 3. LEGAL PROCEEDINGS**
We may from time to time be
subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other
legal or administrative proceeding, regardless of the outcome, can result in substantial cost and the diversion of our resources, including
our managements time and attention.
As of the date of this Report,
we are not aware of any material, active, pending or threatened to which the Company or any of its subsidiaries is a party, or to which
any of their property is subject.
**ITEM 4. MINE SAFETY DISCLOSURES**
Not applicable.
54
**PART II**
**ITEM 5. MARKET FOR REGISTRANTS COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**
**Trading Market**
Our common stock is currently
traded on the Nasdaq under the symbol WETH.
**Holders of Record**
On September 8, 2025, the closing price per share of our common stock
was $1.1500. We had approximately 448 stockholders of record as of September 5, 2025. On September 5, 2025, there were 11,931,534 shares
of our common stock issued and outstanding.
**Dividend Policy**
We do not anticipate declaring
or paying, in the foreseeable future, any cash dividends on our capital stock. We intend to retain all available funds and future earnings,
if any, to fund the development and expansion of our business. Any future determination regarding the declaration and payment of dividends,
if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition,
operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem
relevant.
**Securities Authorized for Issuance Under Equity
Compensation Plan**
The Company does not have
any equity compensation plans.
**Recent Sales of Unregistered Securities**
None.
**Purchases of Equity Securities by the Company
and Affiliated Purchasers**
None.
**ITEM 6. [RESERVED]**
****
55
****
**ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
The following discussion should
be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Annual Report.
The following discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our
actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those we describe under Item 1A. Risk Factors and elsewhere in this Annual Report. See Special
Note Regarding Forward-Looking Statements.
**Overview**
The Company is a Nevada holding
company with no material operations of its own. We conduct substantially all of our operations through our subsidiary in mainland China,
which we control through BVI Wetouch. See Item 1. Business Corporate History and Structure for more details.
Because our operations are
primarily in China, we are subject to complex and evolving PRC laws and regulations. These include restrictions on capital flows, dividend
payments, currency conversion, cybersecurity and data privacy, and governmental discretion over overseas securities offerings. These risks
could materially affect our ability to transfer funds, conduct offerings, or continue operations in their current form. See Item
1A. Risk FactorsRisks Related to Doing Business in China.
As of March 31, 2025, the
Company has contributed RMB 348.0 million (US$47.7 million) to its PRC subsidiary through intermediate holding companies, which were accounted
for as long-term investments. These funds have been used by our PRC subsidiary in its operations. To date, no dividends or other distributions
have been made by our PRC subsidiary to the Company. We may rely on future distributions from our PRC subsidiary to fund our holding company
obligations, subject to PRC law and restrictions. For more details, see *Item 1A. Risk FactorsRisks Related to Doing Business
in ChinaAs a holding company, we conduct our operations primarily through our PRC subsidiary and face risks and uncertainties associated
with this structure.*
Under current PRC law, dividend
payments by our PRC subsidiary are limited to accumulated profits determined in accordance with PRC accounting standards and are subject
to statutory reserve requirements. Dividends to the Company are also subject to withholding tax, generally 10%, but reduced to 5% if treaty
conditions are met. There is no assurance that the reduced rate will apply. For more details, see *Item 1A. Risk FactorsRisks
Related to Doing Business in ChinaUncertainties with respect to the PRC legal system, including the enforcement of laws and changes
in laws and regulations, could adversely affect us and limit the legal protections available*.
We currently do not have cash management policies
dictating how funds are transferred between the Company and its subsidiaries. Most of our cash is maintained in Renminbi in mainland China
and may be subject to PRC restrictions on outbound transfers. For details, see *Item 1A. Risk Factors - Risks Related to Doing
Business in China - Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the
value of your investment.*
56
Through
our wholly owned subsidiaries, BVI Wetouch, HK Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing,
sales and servicing of medium- to large-sized projected capacitive touchscreens. We are specialized in large-format touchscreens, which
are developed and designed for a wide variety of markets and used in the financial terminals, automotive, POS, gaming, lottery, medical,
HMI, and other specialized industries. Our product portfolio comprises medium- to large-sized projected capacitive touchscreens ranging
from 7.0 inch to 42 inch screens.
We generate revenues through
sales of our various touchscreen products. For the years ended December 31, 2024 and 2023, we recognized approximately $42.3 million and
$39.7 million, respectively, in total revenues.
We sell our touchscreen products
both domestically in China and internationally, covering major areas in Mainland China, including but not limited to the eastern, southern,
northern and southwest regions of Mainland China, Taiwan, South Korea, and Germany. We believe that we have established a strong and diversified
client base. For the years ended December 31, 2024 and 2023, our domestic sales accounted for approximately 64.7% and 69.6%, respectively,
of our revenues, and our international sales accounted for approximately 35.3% and 30.3%, respectively, of our revenues.
Since
our incorporation, we have effected two reverse stock splits of our common stock, including a 1-for-70 reverse split in 2020 and a 1-for-20
reverse split in 2023, and all share and per share information in this Annual Report has been retroactively adjusted to reflect these
actions. For more details, see *Item 1. Business - Corporate History and Structure - Reverse Stock Splits.*
**Highlights for the Year Ended December 31,
2024**
|
|
|
Revenues were $42.3 million, an increase of 6.5% from $39.7 million for the year ended December 31, 2023. | |
|
|
|
| |
|
|
|
Gross profit was $13.6 million, a decrease of 20.9% from $17.2 million for the year ended December 31, 2023. | |
|
|
|
| |
|
|
|
Gross profit margin was 32.2%, as compared to 43.3% for the year ended December 31, 2023. | |
|
|
|
| |
|
|
|
Net income was $6.0 million, a decrease of 27.7% from $8.3 million for the year ended December 31, 2023. | |
|
|
|
| |
|
|
|
Total volume of touchscreens shipped was 2,060,870 units, an increase of 4.8% from 1,967,316 units of touchscreens for the year ended December 31, 2023. | |
57
**Results of Operations**
The following
table sets forth, for the periods indicated, statements of income data:
|
| |
For the Years Ended December 31, | | |
Change | | |
|
(in US Dollar millions, except percentage) | |
2024 | | |
2023 | | |
% | | |
|
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 | )% | |
**For the Years Ended
December 31, 2024 and 2023**
**Revenues**
Revenues
were $42.3 million for the year ended December 31, 2024, representing an increase of $2.6 million, or 6.5%, compared with $39.7 million
for the same period in 2023. This was mainly due to the increase of 4.8% in sales volume, and an increase of 3.2% in the average selling
price of our products in RMB, and 1.6% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with
those of the same period in 2023.
|
| |
For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
Change | | |
Change | | |
|
| |
Amount | | |
% | | |
Amount | | |
% | | |
Amount | | |
% | | |
|
| |
(in US Dollar except percentage) | | |
|
Revenue from sales to customers in the PRC | |
$ | 27,340,555 | | |
| 64.7 | % | |
$ | 27,668,985 | | |
| 69.7 | % | |
$ | (328,430 | ) | |
| (1.2 | )% | |
|
Revenue from sales to customers overseas | |
| 14,939,818 | | |
| 35.3 | % | |
| 12,036,954 | | |
| 30.3 | % | |
| 2,902,864 | | |
| 24.1 | % | |
|
Total Revenues | |
$ | 42,280,373 | | |
| 100 | % | |
$ | 39,705,939 | | |
| 100 | % | |
$ | 2,574,434 | | |
| 6.5 | % | |
|
| |
For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
Change | | |
Change | | |
|
| |
Unit | | |
% | | |
Unit | | |
% | | |
Unit | | |
% | | |
|
| |
(in Unit, except percentage) | | |
|
Units sold to customers in the PRC | |
| 1,309,240 | | |
| 63.5 | % | |
| 1,330,013 | | |
| 67.6 | % | |
| (20,773 | ) | |
| (1.6 | )% | |
|
Units sold to customers overseas | |
| 751,630 | | |
| 36.5 | % | |
| 637,303 | | |
| 32.4 | % | |
| 114,327 | | |
| 17.9 | % | |
|
Total Units Sold | |
| 2,060,870 | | |
| 100 | % | |
| 1,967,316 | | |
| 100 | % | |
| 93,554 | | |
| 4.8 | % | |
58
PRC Domestic Market
For the year ended December
31, 2024, revenue from the PRC domestic market decreased by $0.3 million or 1.2%, as a combined result of (i) the decrease of 1.6% in
sales volume, primarily attributable to weakened market demand, consistent with the overall macroeconomic conditions in China in 2024,
and (ii) 1.6% negative impact from exchange rate due to depreciation of RMB against US dollars, partially offset by (iii) an increase
of 2.0% in the average sales price of our products in RMB, and as compared with those of the same period in 2023.
The increase
of 2.0% in sales price of our products in RMB was mainly due to the marketing initiatives to enhance sales of new models of higher-end
products such as medical touchscreens, automotive touchscreen, and multi-functional printer touchscreens during the year ended December
31, 2024.
During the year ended December
31, 2024, the Company undertook proactive marketing initiatives for new models and sought to obtain new customers in order to reduce the
impact the weakening macroeconomic conditions in China. Our sales increased by 6.0% in Southwest China, partially offset by a decrease
of 2.4% in East China, and 0.8% in South China duringthe year ended December 31, 2024,
Overseas Market
For the year
ended December 31, 2024, revenue from overseas markets was $14.9 million as compared to $12.1 million of the same period of 2023, representing
an increase of $2.8 million, or 24.1%, primarily due to i) an increase of 17.9% in sales volume, particularly driven by higher demand
for the automotive touchscreens, gaming touchscreens, and industrial control touchscreens, (ii) 6.8% increase in average RMB selling price
of the products, particularly in the product of industrial control touchscreens and automotive touchscreens, as the Company had greater
pricing power due to the higher demand for the products during the year ended December 31, 2024, partially offset by (iii) the 1.6% negative
impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period in 2023.
The following
table summarizes the breakdown of revenues by categories in US dollars:
|
| |
Revenues For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
Change | | |
Change | | |
|
| |
Amount | | |
% | | |
Amount | | |
% | | |
Amount | | |
Margin% | | |
|
| |
(in US Dollars, except percentage) | | |
|
Product categories by end applications | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Automotive Touchscreens | |
$ | 11,513,813 | | |
| 27.2 | % | |
$ | 9,780,713 | | |
| 24.6 | % | |
$ | 1,733,100 | | |
| 17.7 | % | |
|
Industrial Control Computer Touchscreens | |
| 8,212,232 | | |
| 19.4 | % | |
| 7,884,224 | | |
| 19.9 | % | |
| 328,008 | | |
| 4.2 | % | |
|
Gaming Touchscreens | |
| 6,462,723 | | |
| 15.3 | % | |
| 5,619,228 | | |
| 14.1 | % | |
| 843,495 | | |
| 15.0 | % | |
|
Medical Touchscreens | |
| 6,282,892 | | |
| 14.9 | % | |
| 5,799,489 | | |
| 14.6 | % | |
| 483,402 | | |
| 8.3 | % | |
|
POS Touchscreens | |
| 6,255,175 | | |
| 14.8 | % | |
| 6,613,501 | | |
| 16.7 | % | |
| (358,325 | ) | |
| (5.4 | )% | |
|
Multi-Functional Printer Touchscreens | |
| 3,559,538 | | |
| 8.4 | % | |
| 4,008,784 | | |
| 10.1 | % | |
| (455,246 | ) | |
| (11.4 | )% | |
|
Total Revenues | |
$ | 42,280,373 | | |
| 100.0 | % | |
$ | 39,705,939 | | |
| 100.0 | % | |
$ | 2,574,434 | | |
| 6.5 | % | |
|
* |
Others include applications in self-service kiosks, ticket vending machines and financial terminals. | |
The Company continued
to shift production mix from traditional lower-end products to high-end touchscreens used in automotive touchscreens, gaming touchscreens,
medical touchscreens, and industrial control computer touchscreens, primarily due to (i) greater growth potential of computer screen models
in China and overseas, and (ii) stronger demand for higher-end touchscreens made with better materials and better quality.
59
**Gross Profit and Gross Profit Margin**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in millions, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
Gross Profit | |
$ | 13.6 | | |
$ | 17.2 | | |
$ | (3.6 | ) | |
| (20.9 | )% | |
|
Gross Profit Margin | |
| 32.2 | % | |
| 43.3 | % | |
| | | |
| (11.1 | )% | |
Gross profit was $13.6 million
during the year ended December 31, 2024, compared to $17.2 million in the same period of 2023. Our gross profit margin decreased to 32.2%
during the year ended December 31, 2024 as compared to 43.3% for the same period of 2023, primarily due to i) an increase of 29.9% in
cost of goods sold, and ii) sales discount to certain long-term customers at year-end. During the year ended December 31, 2024, we had
an increase of 31.8% in costs of raw materials, among which the chip cost accounted for 43%, and the increase of 24.3% of labor costs
due to additional hiring of technicians. Chip costs increased starting in the first quarter of 2024 and stabilized by the third quarter
of 2024.
**Selling Expenses**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in millions, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
Selling Expenses | |
$ | 0.8 | | |
$ | 0.6 | | |
$ | 0.2 | | |
| 33.3 | % | |
|
as a percentage of revenues | |
| 1.9 | % | |
| 1.5 | % | |
| | | |
| 0.4 | % | |
Selling expenses were $0.8
million for the year ended December 31, 2024, compared to $0.6 million in the same period in 2023, representing
an increase of $0.2 million, or 133.3%, primarily due to an increase in traveling and transportation expenses of our selling and marketing
team to visit customers and attend exhibitions in order to promote the increase of sales during the year ended December 31, 2024.
**General and Administrative Expenses**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in millions, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
General and Administrative Expenses | |
$ | 3.5 | | |
$ | 3.8 | | |
$ | (0.3 | ) | |
| (7.9 | )% | |
|
as a percentage of revenues | |
| 8.3 | % | |
| 9.6 | % | |
| | | |
| (1.3 | )% | |
General and administrative
expenses were $3.5 million for the year ended December 31, 2024, compared to $3.8 million in the same period in 2023, representing a decrease
of $0.3 million, or 7.9%. The decrease was primarily due to i) accrued placement agent fees of $1.2 million related to the private placement
consent agreement with representatives of the private placement that took place on January 19, 2023, partially offset by only ii) increase
of amortized consulting fees of $0.6 million (see NOTE 4- PREPAID EXPENSES AND OTHER CURRENT ASSETS of the accompanying financial statements),
and $0.1 million of miscellaneous expenses including $44,862 allowance for credit losses of advance to vendors and $54,873 provision for
obsolete inventory.
60
**Research and Development Expenses**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in US dollars, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
Research and development expenses | |
$ | - | | |
$ | 84,551 | | |
$ | (84,551 | ) | |
| (100.0 | )% | |
|
as a percentage of revenues | |
| 0.0 | % | |
| 0.2 | % | |
| | | |
| (0.2 | )% | |
Research and development (R&D)
expenses were nil and $84,551 for the years ended December 31, 2024 and 2023, respectively. The Company did not incur any research and
development expenses during the year ended December 31, 2024.
**Operating Income**
Total operating income was
$9.3 million for the year ended December 31, 2024 as compared to $12.7 million for the same period in 2023, a decrease of $3.4 million
or 26.8%. The decrease was primarily due to lower gross profit, higher selling expenses,
partially offset by lower general & administration expenses, andlower research and development expenses.
**Gain (loss) on Changes in Fair Value of
Common Stock Purchase Warrants**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in US dollars, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
Gain (loss) on changes in fair value of common stock purchase warrants | |
$ | 378,371 | | |
$ | (121,413 | ) | |
$ | 499,784 | | |
| (411.6 | )% | |
|
as a percentage of revenues | |
| 0.9 | % | |
| (0.3 | )% | |
| | | |
| 1.2 | % | |
In connection with the issuance
of convertible promissory notes in October, November and December, 2021, the Company also issuedseven (7) three-year warrant
(the Note Warrants) to purchase an aggregate of1,800,000shares of the Companys common stock (the Warrant
Shares) (see NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE).
Gain on changes in fair value
of common stock purchase warrants was $378,371 for the year ended December 31, 2024, as compared to a loss of $121,413 in the same period
of 2023.
61
**Income Taxes**
|
| |
Years Ended
December 31, | | |
Change | | |
|
(in millions, except percentage) | |
2024 | | |
2023 | | |
Amount | | |
% | | |
|
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 | )% | |
The effective income
tax rate for the years ended December 31, 2024 and 2023 was 30.6% and 33.1%, respectively.
Our PRC subsidiary
had $103.7 million of cash as of December 31, 2024, which is planned to be indefinitely reinvested in our business operations in the PRC.
Distributions from our PRC subsidiary to our stockholders would be subject to the U.S. federal income tax at 21%, less any applicable
foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred
income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiary.
**Net Income**
As a result of the above factors,
we had a net income of $6.0 million in the year ended December 31, 2024 compared to a net income of $8.3 million in the same period of
2023.
**Liquidity and Capital Resources**
Historically, our primary
uses of cash have been to finance working capital needs. We expect that we will be able to meet our needs to fund operations, capital
expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.
We may, however, require additional
cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash
requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked
securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financial covenants that would restrict operations.
Financing may not be available in amounts or on terms acceptable to us, or at all.
As of December 31, 2024, we
had current assets of $114.1 million, consisting of $103.7 million in cash, $7.5 million in accounts receivable, $0.1 million in inventories,
and $2.8 million in prepaid expenses and other current assets. Our current liabilities as of December 31, 2024 were $3.0 million, which
comprised of $1.3 million in accounts payable, $0.1 million due to related parties, $1.0 million in accrued expenses and other current
liabilities and $0.6 million in operating lease liabilities, current portion. We also had $0.5 million in operating lease liabilities,
non- current as of December 31, 2024.
The following is a summary
of our cash flows provided by (used in) operating, investing, and financing activities for the years ended December 31,
2024 and 2023:
|
| |
Years Ended
December 31, | | |
|
(in US Dollar 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 on cash and cash equivalents | |
| (2.7 | ) | |
| (3.6 | ) | |
|
Net increase in cash and cash equivalents | |
| 5.7 | | |
| 46.8 | | |
|
Cash and cash equivalents at the beginning of period | |
| 98.0 | | |
| 51.2 | | |
|
Cash and cash equivalents at the end of period | |
$ | 103.7 | | |
$ | 98.0 | | |
62
**Operating Activities**
Net cash provided by operating
activities was $1.1 million for the year ended December 31, 2024, as compared to $12.7 million provided by operating activities for the
same period in 2023, representing a decrease of $11.6 million, or 91.3%.
The positive cash flow for
the year ended December 31, 2024 was primarily due to i) $6.0 million net income during the year ended December 31, 2024, ii) the increase
of $0.6 million in accounts payable and $0.1 million in amounts due to a related party, partially offset by iii) the increase of $0.4
million gain on changes in fair value of common stock purchase warrants liability, $0.2 million in accounts receivable and $1.8 million
in prepaid expenses and other current assets (mainly in prepaid $0.9 million of consulting service fees and $1.0 million in market research
fees) , and iv) the decrease of $3.3 million in accrued expenses and other current liabilities.
The positive cash flow for
the year ended December 31, 2023 was primarily due to i) $8.3 million net income during the year ended December 31, 2023; ii) the decrease
of $1.2 million in accounts receivable, $0.2 in inventory and $0.3 million in prepaid expenses and other current assets, iii) the increase
of $3.1 million in accrued expenses and other current liabilities, and partially offset by iv) the decrease of $0.7 million in accounts
payable.
**Investing Activities**
Net cash used in investing
activities for the year ended December 31, 2024 was $0.3 million for the purchase of property, plant and equipment
and construction in progress.
Net cash used in investing
activities for the year ended December 31, 2023 was $2.3 million for the purchase of property, plant and equipment.
**Financing Activities**
Net cash provided by financing
activities for the year ended December 31, 2024 was $7.6 million, including $9.0 million in net proceeds from
the 2024 Uplisting Offering, partially offset by $1.4 million repayment of convertible promissory notes.
Net cash provided by financing
activities was $40.0 million for the year ended December 31, 2023, consisting of $40.0 million proceeds from a private placement, partially
offset by the repayment of $55,000 in convertible promissory note payable.
Our Days Sales Outstanding
(DSO) decreased to 64 days for the year ended December 31, 2024 from 75 days for the year ended December 31, 2023 due to
our faster collection of accounts receivables.
The majority of the Companys
revenues and expenses were denominated primarily in RMB, the currency of the Peoples Republic of China. There is no assurance that
exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has not had a material impact on the Companys
business.
63
**COMMITMENTS AND CONTINGENCIES**
**Capital Expenditure
Commitment**
****
As of December
31, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.
****
**Off-Balance Sheet Arrangements**
We had no off-balance
sheet arrangements as of December 31, 2024.
**Critical Accounting
Policies**
An accounting policy is considered
critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such
estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
We prepare our financial statements
in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates
and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we
believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process,
actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher
degree of judgment than others in their application and require us to make significant accounting estimates.
The following descriptions
of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and
accompanying notes and other disclosures included in this registration statement. When reviewing our financial statements, you should
consider (i) our selection of critical accounting policies, (ii) the judgments and other
uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
**Revenue recognition**
The Company adopted Accounting
Standards Codification (ASC) 606 using the modified retrospective approach. The adoption
of this standard did not have a material impact on the Companys consolidated financial statements. Therefore, no adjustments to
opening retained earnings were necessary.
ASC 606, Revenue from Contracts
with Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash
flows arising from the entitys contracts to provide goods or services to customers.
The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that
reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance
obligations are satisfied.
ASC 606 requires the use of
a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company
(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate
the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies
the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result
in significant changes in the way the Company records its revenue. The Company has assessed the impact of the guidance by reviewing its
existing customer contracts and current accounting policies and practices to identify differences that would result from applying the
new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and
principal versus agent considerations. Based on the assessment, the Company concluded that there was no change to the timing and pattern
of revenue recognition for its current revenue streams.
64
In accordance with ASC 606,
the Company recognizes revenue when it transfers its goods or services to customers in an amount that reflects the consideration to which
the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales of its products primarily
to its customers in PRC and overseas, as the Company is acting as a principal in these transactions, is subject to inventory risk, has
latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods, because it has
control of the goods and the ability to direct their use to obtain substantially all the benefits. All of the Companys contracts
have one single performance obligation as the promise is to transfer the individual goods
to customers, and there is no separately identifiable other promises in the contracts. The Companys revenue streams are recognized
at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. The Companys
products are sold with no right of return and the Company does not provide other credits or sales incentive to customers. The Companys
sales are net of value added tax (VAT) and business tax and surcharges collected on behalf of tax authorities in respect
of product sales.
*Contract Assets and
Liabilities*
Payment terms are established
based on the Companys pre-established credit requirements after an evaluation of customers credit quality. Contract assets
are recognized as related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance
of delivery. The contract liability balance can vary significantly depending on the timing
of when an order is placed and when shipment or delivery occurs. As of December 31, 2024 and 2023, other than accounts receivable and
advances from customers, the Company had no other material contract assets, contract liabilities or deferred contract costs recorded on
its consolidated balance sheet. Costs of fulfilling customers purchase orders, such as shipping, handling and delivery, which occur
prior to the transfer of control, are recognized in selling, general and administrative expense when incurred.
The Company generally
warrants that its products will substantially conform to the agreed-upon specifications for three years from the date of shipment. The
Companys liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns, after
sales services and technical support under warranty have historically been immaterial. As such, the Company does not record a specific
warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.
*Disaggregation of
Revenues*
The Company disaggregates
its revenue from contracts by geography, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the
revenue and cash flows are affected by economic factors. The Companys disaggregation
of revenues for the years ended December 31, 2024 and 2023 is disclosed in Note 16 to the financial statements.
**Use of estimates**
In preparing the consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP),
management makes estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates are based on information available at the date of the consolidated
financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated
uncollectible receivables, inventory valuations, useful lives of property, plant and equipment, intangible assets, operating leases, the
recoverability of long-lived assets, provisions necessary for contingent liabilities, revenue recognition and realization of deferred
tax assets. Actual results could differ from those estimates.
65
**Inventories**
Inventory consists of raw materials, work-in-process
and finished goods and is stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. For
work-in-process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Companys
production overhead. The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions
about future demand and market conditions. For finished goods and work-in-process, if the estimated net realizable value for an inventory
item, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs to completion and disposal,
is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw
materials is based on replacement cost. Provisions for inventory write-downs are included in the cost of revenues in the consolidated
statements of operations. Inventories are carried at this lower cost basis until sold or scrapped.
$54,873 and nil inventory write-off was recorded
for the years ended December 31, 2024 and 2023, respectively.
**Convertible Promissory
Notes**
The Company accounts for its
convertible promissory notes in according with guidance of ASU 2020-06, DebtDebt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging Contracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entitys Own Equity, which simplifies the accounting for
convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion
features are not required to be accounted for as derivatives under Topic 815.
The Company analyzes the convertible
notes for the existence of a beneficial conversion feature. The Company considered the three
characteristics of a derivative instrument listed in ASC 815-10-15-83: (i) having one or more underlyings and one or more notional
amounts or payment provisions or both; (ii) requiring no initial net investment; and (iii) permitting net settlement.
Since the Companys
notes have a fixed interest rate, specified notional principal and settlement date, with no other events affecting settlement, and because
the Company received net proceeds after issuance costs and discount (recorded as net proceeds or net settled investment), management assessed
that the Notes do not meet the definition of derivative instruments and that any embedded feature would not be bifurcated. The discounts
on the convertible notes, were amortized to interest expense, using the effective interest method, over the terms of the related convertible
notes.
On February 23, 2024, immediately
upon the closing of the 2024 Public Offering, the Company made a full payment on the remaining five outstanding promissory notes. (see
details in NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE-a) Convertible promissory notes). There were no convertible promissory
notes as of December 31, 2024.
**Common stock purchase
warrants**
The Company also analyzed
the warrants in accordance with ASC 815, to determine whether the warrants meet the definition of a derivative and, if so, whether the
warrants meet the scope exception of ASC 815-40, which provides hat contracts issued or held by the reporting entity that are both (1)
indexed to its own stock and (2) classified in stockholders equity shall not be considered derivative instruments for purposes
of ASC 815-40.
The Company concluded that
the Note Warrants (as defined in NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE ii) Warrants) issued in October, November
and December 2021 financings should be treated as a derivative liability because the Warrants are entitled to a price adjustment provision
that allows the exercise price to be adjusted if the Company issues or sells any additional shares of common stock at a price per share
more or less than the then-applicable exercise price or without consideration, which is typically referred to as a down-round protection
or anti-dilution provision. According to ASC 815-40, the down-round protection provision is not considered
an input to the fair value of a fixed-for-fixed option on equity shares which causes the Warrants to fail to qualify as indexed to the
Companys own stock and therefore fail to meet the scope exceptions of ASC 815. Therefore, the Company accounted for the Warrants
as derivative liabilities under ASC 815. Pursuant to ASC 815, derivatives are measured at fair value and remeasured at fair value with
changes in fair value recorded in earnings for each reporting period.
66
The Company used a Black-Scholes
pricing model to estimate the fair values of common stock purchase warrants at the balance sheet dates.
The Note Warrant (see details
in NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE-b) Note Warrant) was issued in 2021 and was valid for three years and expired
during the year ended December 31, 2024.
As of December 31, 2024 and
2023, the Company recorded nil and $378,371 of common stock purchase warrant liability, respectively, and a $378,371 gain and a $121,413
loss on changes in the fair value of common stock purchase warrant liability for the year ended December 31, 2024 and 2023, respectively.
**Income taxes**
The Company accounts for current
income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences
exist between the tax bases of assets and liabilities and their reported amounts in the consolidated
financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position
is recognized only if it is more likely than not that the tax position would be sustained in a tax examination. The
amount recognized is the largest amount of tax benefit that is greater than 50% likely to beg realized upon examination. For tax positions
not meeting the more likely than not test, no tax benefit is recorded. Penalties and interest incurred related to underpayment
of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes
were incurred during the years ended December 31, 2024 and 2023. The Company believes that there were no uncertain tax positions as of
December 31, 2024 and 2023.
The Companys operating
subsidiaries in China are subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the fiscal
years ended December 31, 2024 and 2023. As of December 31, 2024 and 2023, all of the Companys tax returns for its PRC Subsidiaries
remain open for statutory examination by PRC tax authorities.
**Property, plant and equipment, net**
Property, plant and equipment
are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property
and equipment is provided using the straight-line method over their expected useful lives, as follows:
|
| |
| Useful life | | |
|
Buildings | |
| 20 years | | |
|
Machinery and equipment | |
| 10 years | | |
|
Vehicles | |
| 4 years | | |
Expenditures for maintenance
and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major
renewals and betterments which substantially extend the useful life of assets are capitalized.
The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss
is recognized in the consolidated statements of income and other comprehensive income (loss) as other income or expenses.
Construction in progress,
funded by the Companys working capital, represents manufacturing facilities and office buildings under construction. It is stated
at cost and transferred to property, plant and equipment when it is substantially ready for its intended use. No depreciation is recorded
for construction in progress. Management estimates that construction in progress for our new facilities will be completed by the end of
the fourth quarter of 2025, at which time it will be transferred to property, plant and equipment and depreciation will begin.
67
**Fair value measurement**
****
Fair value is the price that
would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact as well as assumptions that market participants would use
when pricing the asset or liability.
Authoritative literature provides
a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. An asset or liability categorization within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement as follows:
Level 1
Level 1 applies to assets
or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets
or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data.
Level 3
**
Level 3 applies to assets
or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair
value of the assets or liabilities.
****
Accounting guidance also describes
three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach, and (3) cost approach.
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
68
When available, the Company
uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company
measures fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters,
such as interest rates and currency rates.
**Impairment of
long-lived Assets**
Long-lived assets, such as
property, plant and equipment, and land use rights, are reviewed for impairment when events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured
by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated
by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized for the amount that the carrying value exceeds the estimated fair value of the asset or asset group. Fair
value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent
appraisals, as considered necessary. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to
sell, and are no longer depreciated. No impairment of long-lived assets was recognized for the years ended December 31, 2024 and 2023.
**Lease**
The Company adopted ASU No.
2016-02, Leases (Topic 842) (ASU 2016-02) for all periods presented. The Company elected the short-term lease exemption
for all contracts with lease terms of 12months or less.
Under the guidance of ASU
2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information
about leasing arrangements.
The Companys lease
terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. The Company determines
if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of
an identified asset that the Company does not own and whether it has the right to direct the use of an identified asset in exchange for
consideration. Right of use (ROU) assets represent the Companys right to use an underlying asset for the lease term
and lease liabilities represent the Companys obligation to make lease payments arising from the lease. ROU assets are recognized
as the amount of the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of
the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments
is the Companys incremental borrowing rate (IBR), because the interest rate implicit in most of the Companys
leases is not readily determinable. The IBR is a hypothetical rate based on the Companys understanding of what its credit rating
would be and the resulting interest it would pay to borrow an amount equal to the lease payments in a similar economic environment over
the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed
payments are included in the Companys lease liability calculation. Variable lease payments are recognized in operating expenses
in the period in which the obligation for those payments is incurred.
The lease right-of-use assets
are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining
balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Lease
expense for minimum lease payments exclusive of value-added tax is recognized on a straight-line basis over the lease term The new standard
provides a number of optional practical expedients at transition. The Company elected certain practical expedients that must be elected
as a package, which permit the Company to not reassess, under the new standard, prior conclusions about (1) lease identification, (2)
lease classification and (3) initial direct costs. Additionally, the Company elected a short-term lease exception policy, which allows
entities to not apply Topic 842 to short-term leases (i.e. leases with terms of 12 months or less) and a hindsight policy, which allows
an entity to include current considerations for existing leases when determining initial lease terms. The Company has also elected to
account for lease and non-lease components as a single component for all leases and elected to utilize an IBR (incremental borrowing rate)
that equals the risk free rate plus premium for all leases when calculating the lease liability.
69
**Comprehensive income**
Comprehensive income (loss)
consists of two components, net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting
from translating the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated
statements of income and comprehensive income.
**Recently issued accounting
guidance**
The Company considers the
applicability and impact of all accounting standards updates (ASUs). Management periodically reviews new accounting standards
issued.
In March 2020, the FASB issued
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
which provides optional expedients and exceptions for applying U.S. GAAP on contract modifications and hedge accounting to contracts,
hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference
rate reform, if certain criteria are met. These optional expedients and exceptions provided in ASU No. 2020-04 are effective for the Company
as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral
of the Sunset Date of Topic 848 (ASU 2022-06), which deferred the application dates of Topic 848 to December 31, 2024. The
Company currently does not have any financial instrument that reference to LIBOR and does not anticipate the adoption will have a material
impact to the Companys combined and consolidated financial statements.
In December 2023, the FASB
issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting
entitys effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective
basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have
not yet been issued or made available for issuance. The Company is evaluating this ASU and expects to add additional disclosures to our
combined and consolidated financial statements, once adopted.
**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
As a smaller reporting
company as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA**
Please see the financial statements
beginning on page F-1 following the signature pages in this Annual Report on Form 10-K and incorporated herein by reference.
**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE**
Not Applicable.
70
**ITEM 9A. CONTROLS AND PROCEDURES**
**Evaluation of Disclosure Controls and Procedures**
Our management, with the participation
of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of December 31, 2024, pursuant to Exchange
Act Rule 13a-15(b). We concluded that our disclosure controls and procedures were not effective as of such date to ensure that information
required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and
reported within the time periods specified in the SECs rules and forms and that our disclosure controls are not effectively designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated
and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
**Management Report on Internal Control over
Financial Reporting**
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined
in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed under the supervision of our principal executive
and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting
purposes in accordance with GAAP.
*Material Weaknesses in Internal Control over
Financial Reporting*
Management assessed the effectiveness
of the Companys internal control over financial reporting as of December 31, 2024 based on the framework established in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management determined that the Companys internal control over financial reporting as of December 31, 2024 was not effective.
A material weakness, as defined
in the standards established by the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), is a deficiency, or a combination
of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement
of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the
Companys internal control over financial reporting was due to the following material weaknesses:
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Lack of competent financial reporting and accounting personnel with appropriate understanding of U.S.GAAP and financial reporting requirements to design and implement key controls over financial reporting process; | |
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Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner. | |
Management
believes that the material weaknesses that were identified did not have an effect on our financial results. However, management believes
that these weaknesses, if not properly remediated, could result in a material misstatement in our financial statements in future periods.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements
may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
71
*Managements Plan to Remediate the Material
Weakness*
Management
has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness
are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
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Identify gaps in the Companys skills base and the expertise of its staff required to meet the financial reporting requirements of a public company; and | |
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Continue to cooperate with operation teams
to ensure a control environment in place, and monitor the effectiveness of operations on existing controls and procedures. | |
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Establish procedures to assess compliance requirements under the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) and improve overall internal control. | |
We are committed to maintaining
a strong internal control environment, and believe that these remediation efforts will deliver improvements in our control environment.
Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls
and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements
or improvements, as necessary and as funds allow.
This Annual Report does not
include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Managements
report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that exempt smaller reporting
companies from this requirement.
**Changes in Internal Control over Financial
Reporting**
There have been no changes
in our internal control over financial reporting that occurred during our fourth quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
**ITEM 9B. OTHER INFORMATION.**
We have adopted an insider
trading policy and clawback policy. Our insider trading policy clawback policy are available on our website and are filed as exhibits
to this Annual Report.
**ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.**
Not applicable.
72
**PART III**
**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
Listed below are the names
of the directors and executive officers of the Company, their ages as of the date of this Annual Report, and their positions with the
Company.
|
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 | |
|
Jing Chen* |
|
59 |
|
Director | |
|
Jiaxing Huang |
|
25 |
|
Director | |
|
Guijun Gan |
|
56 |
|
Director | |
|
Jing Guo** |
|
35 |
|
Director | |
|
* | Jing Chen served from November 12, 2021 untill April 29,
2025 |
|
|
** | Jing Guo served from May 1, 2025 |
|
**Guangrong Cai - Chairman and Director**
Mr.
Guangrong Cai has served as our Chairman and Director since June 2024. Mr. Cai has served as a legal representative and director of the
strategic planning department of Sichuan Vtouch Technology Co., Ltd since 2020. Mr. Cai has served as a legal representative and general
manager of Frejoo Enterprise Management (Chengdu) Co., Ltd. since January 2019, a company specializing in helping Chinese enterprises
go public on Nasdaq. From January 2013 to December 2016, Mr. Cai served as the founder and established a project center for the research
and development of industrial capacitive screens. In 2020, he transformed the project center into Sichuan Vtouch Technology Co., Ltd.
From January 2003 to December 2012, he served as the Chief Financial Officer at Hong Kong Zhentai Toy Group.Mr. Cai received a masters
degree in Economics from Sun Yat-sen University in 1992 and a bachelors degree in Economics from Sun Yat sen University in 1989.
He received an EMBA degree from Tsinghua University in 2002. We believe that Mr. Cai is qualified to serve as our Chairman and Director
due to his extensive knowledge and background in economics and management.
**Zongyi Lian - Chief Executive Officer and
President**
Mr. Lian has served as our
Chief Executive Officer and President since October 12, 2020. He has also served as Chief Executive Officer of Sichuan Wetouch since November
21, 2017. In 2006, he co-founded Chongqing Damai Touchscreen Computer Co., Ltd (Damai) (later renamed Chengdu Wetouch) and
served as Vice Technique General Manager, where he was responsible for overseeing the product technology department. In 2011, he co-founded
Sichuan Wetouch and served as Vice Technique General Manager. Mr. Lian holds a masters degree in Automatic Control from National
Yang Ming Chiao Tung University in 1982.
**Xing Tang - Chief Financial Officer**
Ms.
Xing Tang has served as our Chief Financial Officer since July 2024. From August 2013 to June 2024, Ms. Tang served as Chief Financial
Officer of Elong Power Holdings Ltd. (Nasdaq: ELPW), a company focusing on high-power lithium-ion batteries for energy storage
systems. From August 2010 to May 2023, Ms. Tang served as Finance Director of China XD Plastics
Co., Ltd. From March 2010 to August 2010, she served as a director of Audit Coordination Department of Ashir Capital, Inc. Mrs. Tang obtained
the Association of Chartered Certified Accountants certificate in June 1998. Ms. Tang received a bachelors degree in arts from
Sichuan University in 1988 and a bachelors degree in law from Foreign Affairs College in 1990. She received an MBA with a concentration
in Accounting from Seton Hall University in 2003. She has extensive experience in financial reporting in US GAAP and internal controls.
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**Jing Chen - Director**
Ms. Chen has served as our
director since November 12, 2021. Since November 2024, Ms. Chen has served as the Chief Financial Officer of Shanxi Yansen New Energy
Co., Ltd. Ms. Chen also has served as an independent director and the chairperson of the audit committee of Erayak Power Solution Group
Inc. (Nasdaq: RAYA) since November 2021, and Bon Natural Lift Limited (Nasdaq: BON) since October 2023. Ms. Chen served as an independent
director and the chairperson of the audit committee of Jin Medical International Ltd. (Nasdaq: ZJYL) from August 2021 to December 2023.
She also served as the Vice President of Future Fintech Group Inc. (Nasdaq: FTFT), a FinTech company, where she was responsible for the
companys internal control and merger and acquisition from December 2020 to April 2023. From May 2019 to November 2020, Ms. Chen
served as the CFO of Future Fintech Group Inc. She served as the CFO of AnZhiXinCheng (Beijing) Technology Co., Ltd. from August 2018
to May 2019. Ms. Chen also served as an independent director of Hello iPayNow (Beijing) Company Ltd. from April 2019 to March 2021. From
August 2017 to July 2018, she served as CFO of Beijing Logis Technology Development Co., Ltd., a company listed on The National Equities
Exchange and Quotations Co., Ltd. of China, which is a Chinese over-the-counter stock trading system. From June 2016 to July 2017, Ms.
Chen served as Group Chief Financial Officer of Beijing AnWuYou Food Co., Ltd. Ms. Chen also served as Chief Financial Officer of Beijing
DKI Investment Management Co., Ltd. from August 2012 to May 2016. Ms. Chen received a Doctorate of Business Administration from Victoria
University, Neuchatel, Switzerland and an MBA degree from City University of Seattle in Washington, U.S. Ms. Chen holds Fellow Membership
of CPA Australia (FCPA) and is a Member of the Chartered Institute of Management Accountants (CIMA). She is also a Senior Member of the
International Financial Management (SIFM) accredited by the Ministry of Human Resources and Social Security of the PRC. We believe Ms.
Chen is qualified to serve as our director due to her extensive knowledge and background in accounting and management.
On April 29, 2025, Ms. Chen
resigned as a Board director and no longer served as a member of the Audit Committee, the Compensation Committee, and the Nominating and
Corporate Governance Committee of the Board, including as the Chairperson of the Audit Committee.
**Jiaxing Huang -
Director**
****
Mr.
Jiaxing Huang has served as our director since June 2024. Mr. Huang has served as an administrative
personnel specialist and manager of Chengdu Tianfu Investment Co., Ltd since July 2021. Since November 2022, he has also served as an
independent director of Shenzhen Fushiyuan Intelligent Fire Protection Co., Ltd, responsible for supervising the formulation and implementation
of personnel recruitment, assessment, reward and other systems in the company. Mr. Huang received a bachelors degree in administration
management from University of Electronic Science and Technology of China in 2021. We believe Mr. Huang is qualified to serve as our director
due to his knowledge and background in the management field.
**Guijun Gan - Director**
Mr.
Gan has served as our director since June 2024, Mr. Gan has also served as a director of Chengdu Qili Water Treatment Technology Co. since
2019. From July 1998 to October 2018, he served as the Chief Financial Officer of Zhongtu Chemical (Guangdong) Co., Ltd., a wholly-owned
company of China Coatings Co., Ltd., a Japanese listed company. Mr. Gan received a masters degree in Statistics from Sun Yat-sen
University in 1992 and a bachelors degree in Statistics from Sun Yat-sen University in 1989. We believe Mr. Gan is qualified to
serve as our director due to his extensive knowledge and background in accounting and management.
****
**Jing Guo - Director**
Ms.
Jing Guo, age 35, has served as the Human Resources Director (Vice President level) of All Home Furnishings Limited since December 2020.
Ms. Guo received a bachelors degree in Electronic Information Engineering from the University of Electronic Science and Technology
of China in 2012. The Board believes Ms. Guos extensive knowledge and background in the fields of human resources management and
corporate administration will make her a valuable addition to the Board.
**Family Relationships**
There
are no other family relationships between any of our directors or executive officers, except that former
director Ms. Jiaying Cai is the niece of Mr. Guangrong Cai. There are no
arrangements or understandings between our directors and any other person pursuant to which they were appointed as an officer or
director of the Company.
****
**Board Committees**
We
have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate
governance committee. We have adopted a charter for each of the three committees. Each committees members and functions are described
below.
**Audit
Committee.** Our audit committee consists of Jing Chen, Jiaxing Huang and Guijun
Gan. Ms. Chen is the chairperson of the audit committee. We have determined that Ms. Chen, Mr. Huang and Mr. Gan each satisfy the
independence requirements of Nasdaq Listing Rule 5605(a)(2) and meet the independence standards under Rule 10A-3 under the
Exchange Act. We have determined that Ms. Chen qualifies as an audit committee financial expert.
74
We
have adopted an audit committee charter, which details the principal responsibilities of the audit committee, including:
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To assist board oversight of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) our independent auditors qualifications and independence, and (iv) the performance of our internal audit function and independent auditors; and the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us; | |
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To (i) approve all audit engagement fees and terms and (ii) pre-approve all audit and permitted non-audit and tax services that may be provided by the Companys independent auditors or other registered public accounting firms. | |
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At least annually, to evaluate the qualifications, performance and independence of the Companys independent auditors, including an evaluation of the lead audit partner; and to assure the regular rotation of the lead audit partner at the Companys independent auditors and consider regular rotation of the accounting firm serving as the Companys independent auditors. | |
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To review and discuss with the Companys independent auditors and management the Companys quarterly financial statements and the disclosure under Managements Discussion and Analysis of Financial Condition and Results of Operations to be included in the Companys Quarterly Report on Form 10-Q before such Form 10-Q is filed; and to review and discuss the Form 10-Q for filing with the SEC. | |
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To review, approve and oversee any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K promulgated by the SEC) and any other potential conflict of interest situations on an ongoing basis, in accordance with Company policies and procedures, and to develop policies and procedures for the Committees approval of related party transactions. | |
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To review with management and the Companys independent auditors: (i) any major issues regarding accounting principles and financial statement presentation, including any significant changes in the Companys selection or application of accounting principles; (ii) any significant financial reporting issues and judgments made in connection with the preparation of the Companys financial statements, including the effects of alternative GAAP methods; and (iii) the effect of regulatory and accounting initiatives and off-balance sheet structures on the Companys financial statements. | |
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To assist and advise the Board and the Compensation Committee in enforcing the Companys executive compensation clawback policy and related laws, rules and regulations. | |
The
audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The
audit committee is responsible for, among other things: (a) representing and assisting the Board in its oversight responsibilities regarding
the Companys accounting and financial reporting processes, the audits of the Companys financial statements, including the
integrity of the financial statements, and the independent auditors qualifications and independence; (b) overseeing the preparation
of the report required by SEC rules for inclusion in the Companys annual proxy statement; (c) retaining and terminating the Companys
independent auditors; (d) approving in advance all audit and permissible non-audit services to be performed by the independent auditors;
and (e) approving related person transactions.
**Compensation
Committee.** Our compensation committee consists of Jing Chen, Jiaxing Huang and Guijun
Gan. Mr. Huang is the chairperson of our compensation committee. We have determined that Ms. Chen, Mr. Huang and Mr. Gan each are
independent, as such term is defined for directors and compensation committee members in the listing standards of the NASDAQ
Stock Market LLC. Additionally, each qualifies as non-employee directors for purposes of Rule 16b-3 under the Securities
Exchange Act of 1934 and as outside directors for purposes of Section 162(m) of the Internal Revenue Code.
We
have adopted a compensation committee charter, which details the principal responsibilities of the compensation committee, including:
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To review and approve the Companys compensation programs and arrangements applicable to its executive officers, including without limitation salary, incentive compensation, equity compensation and perquisite programs, and amounts to be awarded or paid to individual officers under those programs and arrangements, or make recommendations to the Board regarding approval of the same. | |
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To determine the objectives of the Companys executive officer compensation programs, identify what the programs are designed to reward, and modify (or recommend that the Board modify) the programs as necessary and consistent with such objectives and intended rewards. | |
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To ensure appropriate corporate performance measures and goals regarding executive officer compensation are set and determine the extent to which they are achieved and any related compensation earned. | |
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To at least annually review and approve the Companys goals and objectives relevant to CEO compensation, evaluate the CEOs performance in light of such goals and objectives, and determine and approve the CEOs compensation level based on this evaluation. | |
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To review and approve any new equity compensation plan or any material change to an existing plan where stockholder approval has not been obtained. | |
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To assist management in complying with our proxy statement and annual report disclosure requirements; | |
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To implement and enforce the Companys executive compensation clawback policy and related laws, rules and regulations, including determining what constitutes incentive-based compensation and, if a clawback is triggered due to a financial statement restatement, the amount of any clawback. | |
The
charter also provides that the compensation committee may select, retain and terminate independent legal counsel and other experts or
consultants, as it deems appropriate, without seeking approval of the Board or management, including the authority to approve the fees
payable to such counsel, experts or consultants and any other term of retention. However, before engaging or receiving advice from a compensation
consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser,
including the factors required by Nasdaq and the SEC.
**Nominating
and Corporate Governance Committee.** Our nominating and corporate governance committee consists of Jing Chen, Jiaxing
Huang and Guijun Gan. Mr. Gan is the chairperson of our nominating and corporate governance
committee. We have determined that each of Ms. Chen, Mr. Huang and Mr. Gan qualifies as independent as that term is defined
by Nasdaq Listing Rule 5605(a)(2).
We
have adopted a nominating and corporate governance committee charter, which details the principal responsibilities of the nominating and
corporate governance committee, including:
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The identification, evaluation and recommendation of qualified candidates to become Board members. | |
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The oversight of the implementation of and monitoring compliance with the Companys Code of Ethics (other than with respect to complaints regarding accounting or auditing issues). | |
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Coordinating and overseeing Board, committee, and director evaluations. | |
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Periodic review of the Companys governance documents as appropriate. | |
The
charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice
of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search
firms fees and other retention terms.
**Code of Ethics**
We have adopted a written
code of ethics and business conduct that applies to our directors, officers and employees, including our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code of
ethics and business conduct will be provided to any person, without charge, upon written request sent to Wetouch Technology Inc., No.
29, Third Main Avenue, Shigao Town, Renshou County, Meishan, Sichuan, China; Attention: Corporate Secretary. Any amendments to or waivers
of the code of ethics and business conduct will be promptly reported in a Current Report on Form 8-K, as required by applicable laws.
76
**Trading Policies**
On April 16, 2024, we adopted
insider trading policies and procedures governing the purchase, sale, and/or other disposition of our securities by directors, officers
and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable Nasdaq
listing standards (the Insider Trading Policy).
The foregoing description
of the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and conditions of the Insider
Trading Policy, a copy of which is attached hereto as Exhibit 19 and is incorporated herein by reference.
**Involvement in Certain Legal Proceedings**
To our knowledge, during the
last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
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Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. | |
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Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses. | |
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Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities. | |
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Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commody Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. | |
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Been subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. | |
**Delinquent Section
16(a) Reports**
Section 16(a) of the Securities
Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities
(Reporting Persons) to file reports of ownership and changes in ownership with the SEC. Based solely on our review of copies
of such reports and representations from the Reporting Persons, we believe that during the fiscal year ended December 31, 2024, the Reporting
Persons timely filed all such reports, except that Ms. Xing Tang, our CFO, Mr. Guangrong Cai, our Chairman, and Mr. Jiaxing
Huang and Mr. Guijun Gan, our directors, failed to timely file Forms 3 as officers and directors of the Company. No securities
of the Company are beneficially owned by Ms. Xing Tang, Mr. Jiaxing Huang and Mr. Guijun
Gan.
**ITEM 11. EXECUTIVE COMPENSATION**
The following table sets forth
total compensation paid to our named executive officers for the years ended December 31, 2024 and 2023.
|
Name and principal position | |
Year | |
Salary
($) | | |
Bonus ($) | | |
Stock awards ($) | | |
Option awards ($) | | |
All other compensation ($) | | |
Total ($) | | |
|
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Zongyi Lian, President, Chief Executive Officer | |
2023 | |
$ | 20,336 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 20,336 | | |
|
| |
2024 | |
$ | 12,857 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 12,857 | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Yuhua Huang, Chief Financial Officer (1) | |
2023 | |
$ | 18,642 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 18,642 | | |
|
| |
2024 | |
$ | 7,500 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 7,500 | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Xing Tang, Chief Financial Officer (2) | |
2023 | |
$ | - | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | - | | |
|
| |
2024 | |
$ | 28,150 | | |
| | | |
| | | |
| | | |
| | | |
$ | 28,150 | | |
|
(1) |
Yuhua Huang resigned as Chief Financial Officer of the Company on July 8, 2024. | |
|
(2) |
Xing Tang was appointed as Chief Financial Officer of the Company on July 8, 2024. | |
77
**Employment Agreements**
*Zongyi Lian*
On
November 21, 2017, Sichuan Wetouch entered into an employment agreement with its Chief Executive Officer, Zongyi Lian, pursuant to which
he receives an annual base salary of approximately $23,890 (equivalent to RMB168,000) plus other annual remuneration, including but not
limited to position salary of approximately $17,070 (equivalent to RMB120,000), confidentiality fee of approximately $6,828 (equivalent
to RMB48,000) and subsidies of approximately $9,104 (equivalent to RMB64,000). Mr. Lians employment is for an initial term of three
(3) years and may be renewed by the parties within 30 days prior to the expiration of the employment agreement. On November 13, 2020,
the employment agreement with Mr. Lian was renewed for another three (3) years until November 20, 2023, with similar terms and conditions.
Amount reflects salary paid to Mr. Lian for services rendered to our former operating subsidiary, Sichuan Wetouch. Such employment agreement
has been assigned to our PRC subsidiary, Sichuan Vtouch. On April 16, 2024, our board of directors ratified and approved the extension
of the term of employment of Mr. Lian as our CEO for another three years from November 21, 2023 under the same terms and conditions. We
expect to enter into a new agreement with Mr. Lian to memorialize the terms and conditions and expect to file with the SEC upon execution.
Under
these agreements with Zongyi Lian, he is employed for a specified time period and is entitled to receive annual salary plus other remuneration,
pension insurance, medical insurance, maternity insurance, unemployment insurance, work-related injury insurance, housing provident funds
and other benefits pursuant to PRC law. We and the individual may terminate the employment upon mutual agreement. Provided that the individual
proposes earlier termination and the agreement is terminated upon mutual agreement. The individual is not entitled to compensation. The
individual may terminate the employment by giving thirty days advance written notice. We may terminate his employment for cause,
at any time, without notice or remuneration, for certain acts by the individual, such as serious violation of Sichuan Vtouchs rules
and regulations, and gross neglect of duty and misconduct resulting in large economic losses to Sichuan Vtouch. We may also terminate
the employment for cause, with thirty days advance written notice and one months salary, for certain acts of the executive officer,
such as illness or non-work related injury resulting in inability to work in the previous position or newly assigned position after recovery,
inability to perform the assigned work and after training or adjustment of position, still failure to perform the assigned work. The employment
agreements will be terminated upon (1) expiry of the employment, (2) the entitlement of the named executive officers to the pension insurance,
(3) the death of the named executive officers, (4) the bankruptcy of Sichuan Vtouch, and (5) other circumstances regulated by laws and
regulations.
Zongyi
Lian is not permitted to (1) hold any side job during the employment, and (2) operate on his own or on behalf of other individuals or
enterprises any business providing same or similar competitive products or services.
*Yuhua Huang*
On
November 1, 2017, Sichuan Wetouch entered into an employment agreement with our former Chief Financial Officer, Yuhua Huang, pursuant
to which he received an annual base salary of approximately $11,945 (equivalent to RMB84,000) plus other annual remuneration, including
but not limited to position salary of approximately $8,535 (equivalent to RMB60,000), confidentiality fee of approximately $3,414 (equivalent
to RMB24,000) and subsidies of approximately $4,552 (equivalent to RMB32,000). Mr. Huangs initial employment was for an initial
term of three (3) years, which was renewed by the parties for another three (3) years until October 31, 2023, with similar terms and conditions.
On April 16, 2024, our board of directors ratified and approved the extension of the term of employment of Mr. Huang as our Chief
Financial Officer for another three years starting from November 1, 2023 under the same terms and conditions. On July
8, 2024, Yuhua Huang resigned as Chief Financial Officer of the Company and ceased to be
employed by us.
*Xing Tang*
On
July 8, 2024, the Company and Xing Tang entered into an executive officer agreement. The term of the agreement is three years, effective
as of July 8, 2024. Pursuant to this agreement, Xing Tang serves as our Chief Financial Officer and is entitled to receive $5,630 per
month (which shall accrue on a daily basis). The agreement contains customary restrictive
covenants related to non-conflict and non-competition, confidentiality covenants restricting disclosures of trade secrets and other confidential
information. The agreement may be terminated by the Company at any time, without notice or
remuneration (unless notice or remuneration is specifically required by applicable law, in which case notice or remuneration will be provided
in accordance with applicable law) for cause (including but not limited to gross negligence, willful
misconduct or failure to perform duties), or due to death or disability, or without cause by providing one-month prior written notice.
Xing Tang may terminate the employment at any time with a one-month prior written notice to the Company if (1) there is a material
reduction in her authority, duties and responsibilities, or (2) there is a material reduction in her annual salary.
78
*Confidentiality
and Non-Competition*
We
entered into confidentiality and non-competition agreements with Mr. Lian in November 2017, which were renewed in November 2020. Such
agreements have been assigned to our PRC subsidiary, Sichuan Vtouch. Each individual has agreed (1) to keep all confidential information
confidential and return it, together with any copies, to Sichuan Vtouch upon termination of employment; (2) not to disclose the confidential
information of Sichuan Vtouch to any third party; (3) not to allow any third party to use or acquire the confidential information of Sichuan
Vtouch, except as required in the performance of his or her duties in connection with the employment or pursuant to the instruction of
the Company; (4) not to use the confidential information of Sichuan Vtouch for his own benefit; and (4) to keep other confidential obligations.
As compensation, each individual is entitled to receive a monthly confidentiality fee at a different rate. Each individual has also agreed
to hold, after the termination or expiry of his employment agreement, in strict confidence, any of our confidential information without
any extra compensation.
Each
officer has agreed to be bound by non-competition restrictions during the term of his employment and for two years following termination
of the employment. The executive officers may not (1) directly or indirectly invest, establish, or be hired by, any individual or enterprises
engaging in the same or similar business, or competitive business, (2) directly or indirectly persuade, induce, encourage, or cause any
employee of the Company to terminate employment with Sichuan Vtouch or its subsidiaries; and (3) directly or indirectly persuade, induce,
encourage, or cause any customers of Sichuan Vtouch to terminate the business relationship with Sichuan Vtouch or its subsidiaries.
Each
officer is obligated to pay $7,110 to $14,220 (equivalent to RMB50,000 to RMB100,000) as a penalty, together with any earnings generated
from the use or disclosure of the confidential information, to Sichuan Vtouch for violation of the confidentiality and non-competition
agreements.
**Clawback Policy**
Our board of
directors adopted a clawback policy covering our executive officers. An executive officer is our chief executive officer, president, principal
financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge
of a significant principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs
a policy-making function, or any other person who performs similar policy-making functions for us. As of the date of this Annual Report,
our only executive officers are our chief executive officer and our chief financial officer. The clawback policy relates to incentive-based
compensation, which is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting
measure. The clawback policy covers the recovery of incentive-based compensation from an executive officer only in the event that we are
required to prepare an accounting restatement due to the material noncompliance of our financial reporting requirements under the United
States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that
is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected
in the current period or left uncorrected in the current period. Questions as to materiality will be determined by the Compensation
Committee in coordination with the Audit Committee.
The incentive-based
compensation subject to recovery is the incentive-based compensation received during the three completed fiscal years immediately preceding
the date that we are required to prepare an accounting restatement as described above, provided that the person served as an executive
officer at any time during the performance period applicable to the incentive-based compensation in question provided that the clawback
policy shall only apply if the incentive-based compensation is received while we have a class of securities listed on Nasdaq and on or
after October 2, 2023. None of our officers employment agreements provide incentive-based compensation during the year ended December
31, 2024.
79
**Outstanding Equity Awards at Fiscal Year-End**
There
are no outstanding equity awards to our executive officers as of December 31, 2024.
**Long-Term Incentive
Plans**
There
are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers as of December
31, 2024.
**Director Compensation**
The
table below shows the compensation paid to our non-employee directors during 2024.
|
Name | |
Year | |
Fees
Earned
or Paid
in
Cash | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive Plan
Compensation | | |
Nonqualified Deferred Compensation
Earnings | | |
All other
Compensation | | |
Total | | |
|
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Fei Bai (1) | |
2024 | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 17,143 | | |
|
| |
| |
$ | 17,143 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Xiaojin Tang(2) | |
2024 | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,571 | | |
|
| |
| |
$ | 8,571 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Congjin Wang(3) | |
2024 | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,571 | | |
|
| |
| |
$ | 8,571 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Jiaxing Huang (4) | |
2024 | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,429 | * | |
|
| |
| |
$ | 6,429 | * | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Jing Chen | |
2024 | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 20,571 | * | |
|
| |
| |
$ | 20,571 | * | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Guijun Gan (5) | |
2024 | |
$ | 6,429 | * | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,429 | | |
|
* |
Accrued and not paid, except Jing Chens. | |
|
(1) |
Fei Bai resigned as Chairman and a director of the Company on June 3, 2024. | |
|
(2) |
Xiaojin Tang resigned as a director of the Company on June 3, 2024. | |
|
(3) |
Congjin Wang resigned as a director of the Company on June 3, 2024. | |
|
(4) |
Jiaxing Huang was appointed as a director of the Company on June 28, 2024, effective July 1, 2024. | |
|
(5) |
Guijun Gan was appointed as a director of the Company on June 28, 2024, effective July 1, 2024. | |
80
**ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**
The
following table lists, as of September 8, 2025, the number of shares of common stock beneficially owned by (i) each person, entity or
group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner
of more than 5% of the outstanding common stock; (ii) each of our directors (iii) each of our Named Executive Officers and (iv) all executive
officers and directors as a group.
All
information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, directors or executive
officers, as the case may be. Unless otherwise noted, the mailing address of each listed beneficial owner is No. 29, Third Main Avenue,
Shigao Town, Renshou County, Meishan, Sichuan, China.
The
percentages below were calculated based on 11,931,534 shares of common stock issued and outstanding as of September 8, 2025.
|
| |
Shares
Beneficially Owned | | |
|
Name
of Beneficial Owner | |
Shares | | |
Percentage | | |
|
Executive
Officers and Directors: | |
| | |
| | |
|
| |
| | |
| | |
|
Guangrong Cai
(1) | |
| 9,576 | | |
| * | | |
|
Zongyi Lian (2) | |
| 5,657 | | |
| * | | |
|
Jian Feng | |
| - | | |
| - | | |
|
Guijun Gan | |
| - | | |
| - | | |
|
Jiaxing Huang | |
| - | | |
| - | | |
|
Jing Guo | |
| - | | |
| - | | |
|
Xing Tang | |
| - | | |
| - | | |
|
All officers and directors
as a group (7 persons) | |
| 15,233 | | |
| * | | |
|
| |
| | | |
| | | |
|
5% or
Greater Holders: | |
| | | |
| | | |
|
* |
Less than 1% | |
|
(1) |
Represents 9,576 shares
of common stock held of record by Guangrong Cai, Chairman of the Company. | |
|
|
| |
|
(2) |
Represents 5,657 shares
of common stock held of record by Zongyi Lian, Chief Executive Officer of the Company. | |
*Changes
in Control Agreements*
As
of the date of this Annual Report, we are not aware of any arrangements that may result in changes in control, as that
term is defined by Item 403(c) of Regulation S-K.
81
On
September 4, 2025, Jiaying Cai resigned as a member of the Board of Directors (the Board). Ms. Jiaying Cais decision
to resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Companys
operations, policies or practices.
On
April 29, 2025, Jing Chen resigned as a member of the Board of Directors (the Board). Ms. Jing Chens decision to
resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Companys
operations, policies or practices.
On
July 8, 2024, Mr. Yuhua Huang resigned as a Chief Financial Officer of Wetouch Technology Inc. (the Company). Mr. Huangs
decision to resign was not the result of any disagreement with the Company, the Board of Directors (the Board), management,
or any matter relating to the Companys operations, policies or practices.
On
June 3, 2024, Mr. Fei Bai resigned as a member of the Board of Directors (the Board) and as the Chairman of the Board.
Mr. Bais decision to resign was not the result of any disagreement with the Company, the Board, management, or any matter relating
to the Companys operations, policies or practices.
On
June 3, 2024, Mr. Xiaojin Tang resigned as a member of the Board and the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee of the Board, including as chairperson of the Compensation Committee. Mr. Tangs decision to
resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Companys
operations, policies or practices.
On
June 3, 2024, Mr. Congjin Wang resigned as a member of the Board and the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee of the Board, including as chairperson of the Nominating and Corporate Governance Committee. Mr. Wangs
decision to resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Companys
operations, policies or practices.
On
September 5, 2025, the Board appointed Jian Feng to serve as a member of the Board.
On
May 1, 2025, the Board appointed Jing Guo to serve as a member of the Board, the Audit Committee, the Compensation Committee, and the
Nominating and Corporate Governance Committee of the Board, including as the Chairperson of the Nominating and Corporate Governance Committee.
On
May 1, 2025, the Board appointed Guijun Gan to serve as the Chairperson of the Audit Committee of the Board and removed him from his
position as the Chairperson of the Nominating and Corporate Governance Committee of the Board.
On
July 8, 2024. the Board of Company appointed Xing Tang to serve as the Chief Financial Officer of the Company.
On
June 28, 2024, the Board of Directors (the Board) appointed Guangrong Cai to serve as a member of the Board and Chairman
of the Board.
On
June 28, 2024, the Board of Directors (the Board) appointed Jiaxing Huang to serve as a member of the Board, the Audit
Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee of the Board, including as chairperson of
the Compensation Committee.
On
June 28, 2024, the Board of Directors (the Board) appointed Guijun Gan to serve as a member of the Board, the Audit Committee,
the Compensation Committee, and the Nominating and Corporate Governance Committee of the Board, including as chairperson of the Nominating
and Corporate Governance Committee.
82
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE**
*Related Party Transactions*
Since January 1, 2024, the
Company has engaged in the following related person transaction in which the amount involved exceeded the lesser of $120,000 or one percent
of the Companys average total assets at year-end for the last two completed fiscal years, and in which a related person had a material
interest:
As of December 31, 2024,
the Company had an outstanding payable of approximately $149,211 due to Chengdu Wetouch Intelligent Optoelectronics Co., Ltd., an
affiliate of Ms. Jiaying Cai, a former director and secretary of the Company. The balance was nil as of December 31, 2023. These
advances were unsecured, non-interest bearing, and due on demand.
The Companys Audit
Committee is responsible for reviewing and approving related party transactions. Any such transaction is evaluated to ensure it is on
terms comparable to those available with unrelated third parties and in the best interests of the Company and its shareholders. Other
than the transaction described above, the Company is not aware of any related person transactions since January 1, 2024, requiring disclosure
under Item 404.
*Family Relationships*
The only family relationship among the Companys directors and
executive officers was that Ms. Jiaying Cai, a former Director and secretary of the Company, is the niece of Mr. Guangrong Cai, Chairman
of the Company.
*Director Independence*
The Board of Directors has
reviewed the independence of its members under the independence standards of the Nasdaq Stock Market (the Nasdaq Rules),
which the Company has adopted as its definition of independence for purposes of determining director independence generally and committee
independence specifically. The Nasdaq Rules require that a majority of the board be independent and that members of the audit, compensation,
and nominating committees meet additional independence requirements.
Based on this review, the
Board has determined that each of Jing Chen, Jiaxing Huang, and Guijun Gan qualifies as an independent director under Nasdaq Listing Rule
5605(a)(2). In addition, the Board determined that these directors meet the heightened independence standards applicable to audit committee
members under Rule 10A-3 of the Exchange Act and Nasdaq rules, and to compensation and nominating committee members under Nasdaq rules.
Ms. Chen also qualifies as an audit committee financial expert as defined by SEC rules.
The remaining directors, Guangrong Cai, Zongyi Lian, Jian Feng, and
Jing Guo, are not considered independent because of their current roles as executive officers of the Company or family relationship, as
described above.
83
**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.**
**Audit Fees**
For fiscal year 2024, we incurred
aggregate fees and expenses of $250,000 from Enrome LLP for work completed related to our
annual audit and quarterly reviews.
For fiscal year 2023, we incurred
aggregate fees and expenses of $275,000 from B F Borgers CPA PC for work completed related to our annual audits and quarterly reviews.
**Audit-Related Expenses**
Audit-related expenses for
2024 and 2023 were $0 and $0, respectively.
**Tax Fees**
We incurred aggregate fees
and expenses of $0 and $0 for each fiscal year 2024 and 2023, respectively.
**All Other Fees**
We incurred other fees of
$0 and $0 for each fiscal year 2024 and 2023.
84
**PART IV**
****
**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
|
1. |
Consolidated Financial Statements | |
Our financial statements and
the notes thereto, together with the report of our independent registered public accounting firm on those financial statements, are hereby
filed as part of this Annual Report beginning on page F-1.
|
2. |
Financial Statement Schedules | |
All financial statement schedules
have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated financial statements and notes thereto.
|
3. |
Exhibits | |
The following is a complete
list of exhibits filed as part of this Form 10-K. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation
S-K.
|
Exhibit
Number |
|
Description
of Document | |
|
2.1(1) |
|
Share Exchange Agreement dated October 9, 2020 among Wetouch Technology Inc. f/k/a Gulf West Investment Properties, Inc., Wetouch Holding Group Limited, the shareholders of Wetouch Holding Group Limited, Hong Kong Wetouch Electronics Technology Limited and Fengfei Zhang, as administrative agent for the sellers. | |
|
|
|
| |
|
3.1(1) |
|
Amended and Restated Articles of Incorporation of the Company, dated September 30, 2020. | |
|
|
|
| |
|
3.2(1) |
|
Bylaws of the Company. | |
|
|
|
| |
|
4.1(1) |
|
Specimen Common Stock Certificate. | |
|
|
|
| |
|
4.2* |
|
Description of Registrants Securities. | |
85
|
4.3(1) |
|
Form of Underwriters Warrants. | |
|
|
|
| |
|
4.4(1) |
|
Common Stock Purchase Warrant dated October 27, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.5(1) |
|
Common Stock Purchase Warrant dated November 5, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.6(1) |
|
Common Stock Purchase Warrant dated November 16, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.7(1) |
|
Common Stock Purchase Warrant dated November 24, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.8(1) |
|
Common Stock Purchase Warrant dated November 29, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.9 (1) |
|
Common Stock Purchase Warrant dated December 2, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
4.10(1) |
|
Common Stock Purchase Warrant dated December 2, 2021 issued by Wetouch Technology Inc. | |
|
|
|
| |
|
10.1.1(1) |
|
English Translation of Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian. | |
|
|
|
| |
|
10.1.2(1) |
|
English Translation of Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian. | |
|
|
|
| |
|
10.2.1(2) |
|
Executive Officer Agreement between Wetouch Technology Inc. and Xing Tang. | |
|
|
|
| |
|
10.3.1(1) |
|
English Translation of Form of Sichuan Vtouch Technology Co., Ltd. Sales Framework Agreement. | |
|
|
|
| |
|
10.4(1) |
|
English Translation of Form of Sichuan Vtouch Technology Co., Ltd. Purchase Order with Suppliers. | |
|
|
|
| |
|
10.5(1) |
|
English Translation of Form of Loan Agreement between Sichuan Wetouch Technology Co., Ltd and Shareholder of Australia Vtouch Technology Co., Ltd. | |
|
|
|
| |
|
10.6(1) |
|
English Translation of Form of Supplemental Agreement to Loan Agreement between Sichuan Wetouch Technology Co., Ltd and Shareholder of Australia Vtouch Technology Co., Ltd. | |
|
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|
| |
|
10.7(1) |
|
English Translation of Renewed Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian dated November 13, 2020. | |
|
|
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| |
|
10.8(1) |
|
English Translation of Renewed Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian dated November 13, 2020. | |
|
|
|
| |
|
10.9(1) |
|
English
Translation of Form of Sichuan Wetouch Technology Co., Ltd. Supplemental Agreement to Sales Framework Agreement dated April
2024. | |
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|
|
| |
|
10.10(1) |
|
English Translation of Leaseback Agreement between Sichuan Vtouch Technology Co., Ltd and Sichuan Renshou Shigao Tianfu Investment Co., Ltd dated March 16, 2021. | |
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|
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| |
|
10.11(4) |
|
English Translation of Leaseback Agreement between Sichuan Vtouch Technology Co., Ltd and Meishan Huantian Industrial Co., Ltd. (formerly known as Sichuan Renshou Shigao Tianfu Investment Co., Ltd) dated October 30, 2023. | |
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|
|
| |
|
10.12(1) |
|
Securities Purchase Agreement, dated as of October 27, 2021, between Wetouch Technology Inc. and Talos Victory Fund, LLC | |
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| |
|
10.13(1) |
|
Registration Rights Agreement dated as of October 27, 2021, between Wetouch Technology Inc. and Talos Victory Fund, LLC | |
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|
|
| |
|
10.14(1) |
|
Securities Purchase Agreement, dated as of November 5, 2021, between Wetouch Technology Inc. and Mast Hill Fund, L.P. | |
86
|
10.15(1) |
|
Registration Rights Agreement dated as of November 5, 2021, between Wetouch Technology Inc. and Mast Hill Fund, L.P. | |
|
|
|
| |
|
10.16(1) |
|
Securities Purchase Agreement, dated as of November 16, 2021, between Wetouch Technology Inc. and FirstFire Global Opportunities Fund, LLC. | |
|
|
|
| |
|
10.17(1) |
|
Registration Rights Agreement dated as of November 16, 2021, between Wetouch Technology Inc. and FirstFire Global Opportunities Fund, LLC. | |
|
|
|
| |
|
10.18(1) |
|
Securities Purchase Agreement, dated as of November 24, 2021, between Wetouch Technology Inc. and LGH Investments, LLC. | |
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| |
|
10.19(1) |
|
Registration Rights Agreement dated as of November 24, 2021, between Wetouch Technology Inc. and LGH Investments, LLC. | |
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|
|
| |
|
10.20(1) |
|
Securities Purchase Agreement, dated as of November 29, 2021, between Wetouch Technology Inc. and Fourth Man, LLC. | |
|
|
|
| |
|
10.21(1) |
|
Registration Rights Agreement dated as of November 29, 2021, between Wetouch Technology Inc. and Fourth Man, LLC. | |
|
|
|
| |
|
10.22(1) |
|
Securities Purchase Agreement, dated as of December 2, 2021, between Wetouch Technology Inc. and Jefferson Street Capital LLC. | |
|
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|
| |
|
10.23(1) |
|
Registration Rights Agreement dated as of December 2, 2021, between Wetouch Technology Inc. and Jefferson Street Capital LLC. | |
|
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|
| |
|
10.24(1) |
|
Securities Purchase Agreement, dated as of December 2, 2021, between Wetouch Technology Inc. and Blue Lake Partners, LLC. | |
|
|
|
| |
|
10.25(1) |
|
Registration Rights Agreement dated as of December 2, 2021, between Wetouch Technology Inc. and Blue Lake Partners LLC. | |
|
|
|
| |
|
10.26(1) |
|
Form of Securities Purchase Agreement. | |
|
|
|
| |
|
10.27(4) |
|
English Translation of State-owned Construction Land Use Rights Transfer Contract, dated as of August 6, 2021, between Sichuan Vtouch Technology Co., Ltd and Wenjiang District, Chengdu City Co., Ltd. | |
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|
|
| |
|
10.28(4) |
|
English Translation of Construction Contract, dated as of July 27, 2021, between Sichuan Vtouch Technology Co., Ltd and Sichuan Chunqiu Development and Construction Group Co. Ltd. | |
|
|
|
| |
|
10.29(3) |
|
Form of Director Offer Letter | |
|
|
|
| |
|
10.30** |
|
English Translation of Lease Agreement, dated August 9, 2024, between Sichuan Vtouch Technology Co., Ltd and Sichuan Renshou Shigao Tianfu Investment Co., Ltd. | |
|
|
|
| |
|
14 |
|
Code of
Ethics (incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2022) | |
|
|
|
| |
|
19(4) |
|
Insider Trading Policy. | |
|
|
|
| |
|
21.1(1) |
|
List of subsidiaries of the Company. | |
87
|
31.1* |
|
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. | |
|
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|
| |
|
31.2* |
|
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Sarbanes-Oxley Act. | |
|
|
|
| |
|
32.1** |
|
Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
|
|
| |
|
32.2** |
|
Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
|
|
| |
|
97(4) |
|
Executive Compensation Recovery Policy | |
|
|
|
| |
|
99.1(4) |
|
Audit Committee Charter | |
|
|
|
| |
|
99.2(4) |
|
Compensation Committee Charter | |
|
|
|
| |
|
99.3(4) |
|
Nominating and Corporate Governance Committee Charter | |
|
|
|
| |
|
101.INS |
|
Inline XBRL Instance Document* | |
|
|
|
| |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document* | |
|
|
|
| |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
|
|
|
| |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
|
|
|
| |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document* | |
|
|
|
| |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
|
|
|
| |
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
|
* |
filed herewith | |
|
** |
Furnished herewith | |
|
|
| |
|
(1) |
Filed as an exhibit to the registrants registration statement on Form S-1, File No. 333-270726 and incorporated herein by reference. | |
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|
| |
|
(2) |
Filed as an exhibit to the registrants current report on Form 8-K, filed with the SEC onJuly 12, 2024. | |
|
|
| |
|
(3) |
Filed as an exhibit to the registrants current report on Form 8-K, filed with the SEC onJuly 1, 2024. | |
|
|
| |
|
(4) |
Filed as an exhibit to the registrants annual report on Form 10-K, filed with the SEC onApril 16, 2024. | |
**ITEM 16. FORM 10-K SUMMARY**
None.
88
**SIGNATURES**
Pursuant to the requirements of Section 13 or
15(d) of the Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: September 10, 2025
|
|
WETOUCH TECHNOLOGY INC. | |
|
|
| |
|
|
By: |
/s/ Zongyi Lian | |
|
|
|
Zongyi Lian | |
|
|
|
President and Chief Executive Officer | |
|
|
|
(Principal Executive Officer) | |
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|
| |
|
|
By: |
/s/ Xing Tang | |
|
|
|
Xing Tang | |
|
|
|
Chief Financial Officer | |
|
|
|
(Principal Financial and Accounting Officer) | |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
/s/ Zongyi Lian |
|
President |
|
September 10, 2025 | |
|
Zongyi Lian |
|
Chief Executive Officer and
Chairman(Principal Executive Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Xing Tang |
|
Chief Financial Officer |
|
September 10, 2025 | |
|
Xing Tang |
|
(Principal Financial and Accounting Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Guangrong Cai |
|
Chairman and Director |
|
September 10, 2025 | |
|
Guangrong Cai |
|
|
|
| |
|
|
|
|
|
| |
|
/s/
Jian Feng |
|
Director |
|
September 10, 2025 | |
|
Jian Feng |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Jing Guo |
|
Director |
|
September 10, 2025 | |
|
Jing Guo |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Jiaxing Huang |
|
Director |
|
September 10, 2025 | |
|
Jiaxing Huang |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Guijun Gan |
|
Director |
|
September 10, 2025 | |
|
Guijun Gan |
|
|
|
| |
89
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**
|
Report of Independent Registered
Public Accounting Firm |
|
F-2 | |
|
|
|
| |
|
Consolidated Balance Sheets as of December 31, 2024
and 2023 |
|
F-3 | |
|
|
|
| |
|
Consolidated Statements of Income and Comprehensive
Income for the Years Ended December 31, 2024 and 2023 |
|
F-4 | |
|
|
|
| |
|
Consolidated Statements of Changes in Stockholders
Equity for the Years Ended December 31, 2024 and 2023 |
|
F-5 | |
|
|
|
| |
|
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2024 and 2023 |
|
F-6 | |
|
|
|
| |
|
Notes to Consolidated Financial Statements as of December
31, 2024 and 2023 |
|
F-7 - F-28 | |
F-1
**Report of Independent Registered Public Accounting
Firm**
To the Board of Directors and Shareholders of
Wetouch Technology Inc.
**Opinion on the Financial Statements**
We have audited the accompanying consolidated
balance sheets of Wetouch Technology Inc. and its subsidiaries (collectively, the Company) as of December 31, 2024 and 2023,
and the related consolidated statements of income and comprehensive income, changes in shareholders equity (deficit), and cash
flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America (U.S.
GAAP).
**Basis for Opinion**
These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statement. We believe that our audits provide
a reasonable basis for our opinion.
**/s/ ST & PARTNERS PLT (PCAOB ID
7261)**
We have served as the Companys auditor
since 2025.
Petaling Jaya, Malaysia
September 10, 2025
F-2
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**CONSOLIDATED BALANCE SHEETS**
**(Currency expressed in United States Dollars(US),
except for number of shares)**
|
| |
As of December 31, | | |
|
| |
2024 | | |
2023 | | |
|
| |
| | |
| | |
|
ASSETS | |
| | |
| | |
|
CURRENT ASSETS | |
| | |
| | |
|
Cash | |
$ | 103,760,324 | | |
$ | 98,040,554 | | |
|
Accounts receivable, net | |
| 7,504,630 | | |
| 7,455,252 | | |
|
Inventories | |
| 112,327 | | |
| 222,102 | | |
|
Prepaid expenses and other current assets | |
| 2,762,580 | | |
| 1,063,627 | | |
|
TOTAL CURRENT ASSETS | |
| 114,139,861 | | |
| 106,781,535 | | |
|
| |
| | | |
| | | |
|
Property, plant and equipment, net | |
| 12,782,997 | | |
| 12,859,863 | | |
|
Operating right-of-use assets | |
| 1,055,208 | | |
| - | | |
|
Deferred tax assets | |
| 41,397 | | |
| - | | |
|
TOTAL ASSETS | |
$ | 128,019,463 | | |
$ | 119,641,398 | | |
|
| |
| | | |
| | | |
|
LIABILITIES AND STOCKHOLDERS EQUITY | |
| | | |
| | | |
|
CURRENT LIABILITIES | |
| | | |
| | | |
|
Accounts payable | |
$ | 1,263,981 | | |
$ | 640,795 | | |
|
Due to related parties | |
| - | | |
| 469,591 | | |
|
Due to a related party | |
| 149,211 | | |
| - | | |
|
Accrued expenses and other current liabilities | |
| 966,461 | | |
| 3992,905 | | |
|
Convertible promissory notes payable | |
| - | | |
| 1,239,126 | | |
|
Operating lease liabilities- current | |
| 571,539 | | |
| - | | |
|
TOTAL CURRENT LIABILITIES | |
| 2,951,192 | | |
| 6,342,417 | | |
|
| |
| | | |
| | | |
|
Common stock purchase warrants liability | |
| - | | |
| 378,371 | | |
|
Operating lease liabilities- non current | |
| 482,606 | | |
| - | | |
|
TOTAL LIABILITIES | |
$ | 3,433,798 | | |
$ | 6,720,788 | | |
|
| |
| | | |
| | | |
|
COMMITMENTS AND CONTINGENCIES (Note 13) | |
| | | |
| | | |
|
STOCKHOLDERS EQUITY | |
| | | |
| | | |
|
Common stock, $0.001 par value, 15,000,000 shares authorized, 11,931,534 and 9,732,948 issued and outstanding as of December 31, 2024 and 2023, respectively* | |
$ | 11,932 | | |
$ | 9,733 | | |
|
Additional paid in capital* | |
| 52,501,680 | | |
| 43,514,125 | | |
|
Statutory reserve | |
| 8,073,968 | | |
| 7,195,092 | | |
|
Retained earnings | |
| 74,629,374 | | |
| 69,477,092 | | |
|
Accumulated other comprehensive loss | |
| (10,631,289 | ) | |
| (7,275,432 | ) | |
|
TOTAL STOCKHOLDERS EQUITY | |
| 124,585,665 | | |
| 112,920,610 | | |
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | |
$ | 128,019,463 | | |
$ | 119,641,398 | | |
|
* | Retrospectively
restated for effect of reverse stock split (1-for-20), see Note 10 (2) |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME**
**(Currency expressed in United States Dollars(US),
except for number of shares)**
|
| |
The Years Ended
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
| |
| | |
| | |
|
REVENUES | |
$ | 42,280,373 | | |
$ | 39,705,939 | | |
|
COST OF REVENUES | |
| (28,673,574 | ) | |
| (22,515,219 | ) | |
|
GROSS PROFIT | |
| 13,606,799 | | |
| 17,190,720 | | |
|
| |
| | | |
| | | |
|
OPERATING EXPENSES | |
| | | |
| | | |
|
Selling expenses | |
| (752,795 | ) | |
| (608,524 | ) | |
|
General and administrative expenses | |
| (3,536,597 | ) | |
| (3,847,361 | ) | |
|
Research and development expenses | |
| - | | |
| (84,551 | ) | |
|
OPERATING EXPENSES | |
| (4,289,392 | ) | |
| (4,540,436 | ) | |
|
| |
| | | |
| | | |
|
INCOME FROM OPERATIONS | |
| 9,317,407 | | |
| 12,650,284 | | |
|
| |
| | | |
| | | |
|
Interest income | |
| 152,336 | | |
| 117,719 | | |
|
Interest expense | |
| (1,169,974 | ) | |
| (252,325 | ) | |
|
Other income (expense) | |
| 10,708 | | |
| (47,328 | ) | |
|
Gain (loss)on changes in fair value of common stock purchase warrants liability | |
| 378,371 | | |
| (121,413 | ) | |
|
TOTAL OTHER EXPENSE, NET | |
| (628,559 | ) | |
| (303,347 | ) | |
|
| |
| | | |
| | | |
|
INCOME BEFORE INCOME TAX EXPENSE | |
| 8,688,848 | | |
| 12,346,937 | | |
|
| |
| | | |
| | | |
|
INCOME TAX EXPENSE | |
| (2,657,690 | ) | |
| (4,082,606 | ) | |
|
| |
| | | |
| | | |
|
NET INCOME | |
$ | 6,031,158 | | |
$ | 8,264,331 | | |
|
| |
| | | |
| | | |
|
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | | |
|
Foreign currency translation adjustment | |
| (3,355,857 | ) | |
| (4,297,908 | ) | |
|
COMPREHENSIVE INCOME | |
$ | 2,675,301 | | |
$ | 3,966,423 | | |
|
| |
| | | |
| | | |
|
EARNINGS PER COMMON SHARE* | |
| | | |
| | | |
|
Basic | |
$ | 0.52 | | |
$ | 0.89 | | |
|
Diluted | |
$ | 0.52 | | |
$ | 0.89 | | |
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* | |
| | | |
| | | |
|
Basic | |
| 11,630,358 | | |
| 9,285,815 | | |
|
Diluted | |
| 11,681,063 | | |
| 9,375,105 | | |
|
* | Retrospectively
restated for effect of reverse stock split (1-for-20), see Note 10 (2) |
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY**
**FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023**
**(Currency expressed in United States Dollars(US),except
for number of shares)**
|
| |
Common stock at Par value $0.001 | | |
Additional paid-in | | |
Statutory | | |
Retained | | |
Accumulated other comprehensive | | |
Total stockholders | | |
|
| |
Shares | | |
Amount | | |
capital | | |
reserve | | |
Earnings | | |
loss | | |
equity | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance at December 31 2022* | |
| 1,680,248 | | |
$ | 1,680 | | |
$ | 3,402,178 | | |
$ | 6,040,961 | | |
$ | 62,366,892 | | |
$ | (2,977,524 | ) | |
$ | 68,834,187 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Appropriation to statutory reserve | |
| - | | |
| - | | |
| - | | |
| 1,154,131 | | |
| (1,154,131 | ) | |
| - | | |
| - | | |
|
Shares issued to private placement | |
| 8,000,000 | | |
| 8,000 | | |
| 39,992,000 | | |
| - | | |
| - | | |
| - | | |
| 40,000,000 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Fraction shares issued due to reverse stock split | |
| 5,362 | | |
| 6 | | |
| (6 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 | |
| 22,338 | | |
| 22 | | |
| (22 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Stock issuance for convertible promissory notes payable | |
| 25,000 | | |
| 25 | | |
| 119,975 | | |
| - | | |
| - | | |
| - | | |
| 120,000 | | |
|
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,264,331 | | |
| - | | |
| 8,264,331 | | |
|
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,297,908 | ) | |
| (4,297,908 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance at December 31, 2023 | |
| 9,732,948 | | |
$ | 9,733 | | |
$ | 43,514,125 | | |
$ | 7,195,092 | | |
$ | 69,477,092 | | |
$ | (7,275,432 | ) | |
$ | 112,920,610 | | |
|
| |
Common stock at Par value $0.001 | | |
Additional paid-in | | |
Statutory | | |
Retained | | |
Accumulated other comprehensive | | |
Total stockholders | | |
|
| |
Shares | | |
Amount | | |
capital | | |
reserve | | |
Earnings | | |
loss | | |
equity | | |
|
Balance as of December 31 2023* | |
| 9,732,948 | | |
$ | 9,733 | | |
$ | 43,514,125 | | |
$ | 7,195,092 | | |
$ | 69,477,092 | | |
$ | (7,275,432 | ) | |
$ | 112,920,610 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Issuance of common stock from the 2024 Public Offering, net of issuance costs | |
| 2,160,000 | | |
| 2,160 | | |
| 8,987,594 | | |
| - | | |
| - | | |
| - | | |
| 8,989,754 | | |
|
Exercise of warrants issued in conjunction with legal/consultant services in 2020 and 2021 | |
| 35,861 | | |
| 36 | | |
| (36 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 | |
| 2,725 | | |
| 3 | | |
| (3 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Appropriation to statutory reserve | |
| - | | |
| - | | |
| - | | |
| 878,876 | | |
| (878,876 | ) | |
| - | | |
| - | | |
|
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,031,158 | | |
| - | | |
| 6,031,158 | | |
|
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,355,857 | ) | |
| (3,355,857 | ) | |
|
Balance as of December 31, 2024 | |
| 11,931,534 | | |
$ | 11,932 | | |
$ | 52,501,680 | | |
$ | 8,073,968 | | |
$ | 74,629,374 | | |
$ | (10,631,289 | ) | |
$ | 124,585,665 | | |
|
* | Retrospectively
restated for effect of reverse stock split (1-for-20), see Note 10 (2) |
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(Currency expressed in United States Dollars(US),except
for number of shares)**
|
| |
For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
| |
| | |
| | |
|
Cash flows from operating activities | |
| | |
| | |
|
Net income | |
$ | 6,031,158 | | |
$ | 8,264,331 | | |
|
Adjustments to reconcile net income to cash provided by operating activities | |
| | | |
| | | |
|
Allowance forcredit losses | |
| 44,862 | | |
| - | | |
|
Provision for obsolete inventory | |
| 54,873 | | |
| - | | |
|
Depreciation | |
| 9,805 | | |
| 9,403 | | |
|
Amortization of discounts and issuance cost of the notes | |
| 5,715 | | |
| 33,655 | | |
|
(Gain) loss on changes in fair value of common stock purchase warrants liability | |
| (378,371 | ) | |
| 121,413 | | |
|
Amortization of operating Right-of-use assets | |
| 98,387 | | |
| - | | |
|
| |
| | | |
| | | |
|
Changes in operating assets and liabilities: | |
| | | |
| | | |
|
Accounts receivable | |
| (256,681 | ) | |
| 1,347,497 | | |
|
Inventories | |
| 50,328 | | |
| 187,532 | | |
|
Due from a related party | |
| - | | |
| (51 | ) | |
|
Prepaid expenses and other current assets | |
| (1,771,602 | ) | |
| 333,415 | | |
|
Deferred tax assets | |
| (41,993 | ) | |
| - | | |
|
Accounts payable | |
| 649,915 | | |
| (704,696 | ) | |
|
Loans from a third party | |
| (135,000 | ) | |
| 84,025 | | |
|
Amounts due to related parties | |
| 149,211 | | |
| (1,665 | ) | |
|
Income tax payable | |
| - | | |
| (21,578 | ) | |
|
Accrued expenses and other current liabilities | |
| (3,343,142 | ) | |
| 3,071,108 | | |
|
Operating lease liabilities | |
| (98,387 | ) | |
| - | | |
|
Net cash provided by operating activities | |
| 1,069,078 | | |
| 12,724,389 | | |
|
| |
| | | |
| | | |
|
Cash flows from investing activities | |
| | | |
| | | |
|
Purchase of property, plant and equipment | |
| (271,830 | ) | |
| (2,263,549 | ) | |
|
Net cash used in investing activities | |
| (271,830 | ) | |
| (2,263,549 | ) | |
|
| |
| | | |
| | | |
|
Cash flows from financing activities | |
| | | |
| | | |
|
Proceeds from issuance of public offerings, net of expenses | |
| 8,989,754 | | |
| - | | |
|
Proceeds from stock issuance of private placement | |
| - | | |
| 40,000,000 | | |
|
Repayments of convertible promissory notes payable | |
| (1,400,750 | ) | |
| (55,000 | ) | |
|
Net cash provided by (used in) financing activities | |
| 7,589,004 | | |
| 39,945,000 | | |
|
| |
| | | |
| | | |
|
Effect of changes of foreign exchange rates on cash | |
| (2,666,482 | ) | |
| (3,615,791 | ) | |
|
Net increase in cash | |
| 5,719,770 | | |
| 46,790,049 | | |
|
Cash, beginning of year | |
| 98,040,554 | | |
| 51,250,505 | | |
|
Cash, end of year | |
$ | 103,760,324 | | |
$ | 98,040,554 | | |
|
Supplemental disclosures of cash flow information | |
| | | |
| | | |
|
Interest paid | |
$ | 1,186,210 | | |
$ | - | | |
|
Income taxes paid | |
$ | 2,890,222 | | |
$ | 4,104,184 | | |
|
| |
| | | |
| | | |
|
Supplemental disclosures of non-cash flow information | |
| | | |
| | | |
|
Cashless stock issuance for convertible promissory notes payable | |
$ | - | | |
$ | 22,338 | | |
|
Issue costs charged to additional paid-in capital | |
$ | 1,810,246 | | |
$ | - | | |
|
Exercise of warrant shares | |
$ | 38,586 | | |
$ | - | | |
|
Lease liabilities arising from obtaining right-of-use assets | |
$ | 1,168,788 | | |
| - | | |
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
**WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
**NOTE 1 ORGANIZATION AND BUSINESS**
Wetouch Technology Inc.
(Wetouch, or the Company), formerly known as Gulf West Investment Properties, Inc., was originally incorporated
in August 1992, under the laws of the state of Nevada.
On October 9, 2020, the
Company entered into a share exchange agreement (the Share Exchange Agreement) with Wetouch Holding Group Limited (BVI
Wetouch) and all the shareholders of BVI Wetouch (each, a BVI Shareholder and collectively, the BVI Shareholders),
to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Shareholders an aggregate
of 28,000,000 shares (1,400,000 shares post-Reverse Stock Split) of the Companys common stock (the Reverse Merger).
In the Reverse Merger, each ordinary share of BVI Wetouch was exchanged for 2,800 shares (140 shares post-Reverse Stock Split) of common
stock of Wetouch. Immediately after the closing of the Reverse Merger on October 9, 2020, the Company had a total of 31,396,394 (1,569,820
shares post-Reverse Stock Split) issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch became
a wholly-owned subsidiary of the Company.
BVI Wetouch is a holding
company whose only asset, held through a subsidiary, is 100% of the registered capital of Sichuan Wetouch Technology Co., Ltd. (Sichuan
Wetouch), a limited liability company organized under the laws of the Peoples Republic of China (China or
the PRC). Sichuan Wetouch is primarily engaged in the business of research and development, manufacture, and distribution
of touchscreen displays to customers both in the PRC and overseas. The touchscreen products, which are manufactured by the Company, are
primarily for use financial terminals, automotive, Point of Sales, gaming, lottery, medical, Human-Machine Interface (HMI),
and other specialized industries
The Reverse Merger was
accounted for as a recapitalization effected by a share exchange, wherein BVI Wetouch is considered the acquirer for accounting and financial
reporting purposes. The assets and liabilities of BVI Wetouch have been brought forward at their book value and no goodwill has been recognized.
The number of shares, par value amount, and additional paid-in capital in the prior years are retrospectively adjusted accordingly.
Through its
wholly-owned subsidiaries, the Company is engaged in the research, development, manufacturing, sales and servicing of medium to
large sized projected capacitive touchscreens. The Company specializes in large-format touchscreens, which are developed and
designed for a wide variety of markets and used in the financial terminals, automotive, Point of Sales, gaming, lottery, medical,
Human-Machine Interface (HMI), and other specialized industries.
**Corporate History
of BVI Wetouch**
BVI Wetouch was incorporated
under the laws of British Virgin Islands on August 14, 2020. It became the holding company of Hong Kong Wetouch Electronics Technology
Limited (Hong Kong Wetouch) on September 11, 2020.
Hong Kong Wetouch Technology
Limited (HK Wetouch), was incorporated as a holding company under the laws of Hong Kong Special Administrative Region (the
SAR) on December 3, 2020. On March 2, 2021, HK Wetouch acquired all shares of Hong Kong Wetouch. Due to the fact that Hong
Kong Wetouch and HK Wetouch are both under the same sole stockholder, the acquisition is accounted for under common control.
In June 2021, Hong Kong
Wetouch completed its dissolution process pursuant to the minutes of its special shareholder meeting.
Sichuan Wetouch was formed
on May 6, 2011 in the PRC and became a Wholly Foreign-Owned Enterprise (WFOE) in PRC on February 23, 2017. On July 19, 2016, Sichuan
Wetouch was 100% held by HK Wetouch.
On December 30, 2020,
Sichuan Vtouch was incorporated in Chengdu, Sichuan, under the PRC laws.
F-7
In March 2021, pursuant
to local PRC government guidelines on local environmental issues and the national plan, Sichuan Wetouch was under the government directed
relocation order. Sichuan Vtouch took over the operating business of Sichuan Wetouch.
On March 30, 2023, an independent third party
acquired all shares of Sichuan Wetouch for a nominal amount.
As a result of the above
restructuring, HK Wetouch became the sole shareholder of Sichuan Vtouch.
The following diagram illustrates the Companys
current corporate structure:
*
**Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES**
**(a) Basis of Presentation and Principles
of Consolidation**
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)
and pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The accompanying consolidated
financial statements include the financial statements of Wetouch and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated upon consolidation.
**Deconsolidation of Sichuan Wetouch**
On March 30, 2023, upon transferring Sichuan Wetouch
to a third-party individual for a nominal value, the Company was no longer able to operate and exert control over this subsidiary whose
operation has been taken over by Sichuan Vtouch since the first quarter of 2021. As a result, Sichuan Wetouch was deconsolidated accordingly
since the disposal date.
F-8
The deconsolidated Sichuan
Wetouch had assets, liabilities and the non-controlling interest on disposal date as the following:
|
| |
| March 30,
2023 | | |
|
Total assets as of deconsolidated date | |
$ | - | | |
|
Total liabilities as of deconsolidated date | |
| - | | |
|
Total gain or loss from deconsolidation | |
$ | - | | |
Upon the deconsolidation,
the Company was no longer entitled to the assets and also legally released from the liabilities previously held by the deconsolidated
Sichuan Wetouch, derived nil gain or loss from the deconsolidation in the consolidated statements of operations and comprehensive income
for the year ended December 31, 2023. The disposal of Sichuan Wetouch did not represent a strategic shift and did not have a major effect
on the Companys operation. There was no cash outflow for the disposal for the year ended December 31, 2023.
**(b) Uses of estimates**
In preparing the consolidated financial statements
in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant
estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, fair
values of financial instruments, inventory valuations, useful lives of property, plant and equipment, intangible assets, operating lease,
the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred
tax assets. Actual results could differ from those estimates.
**(c) Cash and cash equivalents**
Cash includes currency on hand and deposits held
by banks that can be added or withdrawn without limitation.
**(d) Accounts receivables, net**
Accounts receivable primarily consists of receivables
from customers, which are recognized and carried at the original invoice amount less an allowance for credit losses.
The Company adopted ASC 326,Financial
InstrumentsCredit Loss*on January 1, 2023 using the modified retrospective approach. Upon adoption of
ASC 326 starting from January 1, 2023, the provision of credit losses for accounts receivable is based upon the current expected credit
losses (CECL) model. The CECL model requires an estimate of the credit losses expected over the life of accounts receivable
since initial recognition, and accounts receivable with similar risk characteristics are grouped together when estimating CECL. In assessing
the CECL, the Company considers both quantitative and qualitative information that is reasonable and supportable, including historical
credit loss experience, adjusted for relevant factors impacting collectability and forward-looking information indicative of external
market conditions. While the Company uses the best information available in making determination, the ultimate recovery of recorded receivables
is also dependent upon future economic events and other conditions that may be beyond the Companys control. Accounts receivable
which are deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. There is a time lag between when the Company estimates a portion of or the entire account balances
to be uncollectible and when a write off of the account balances is taken. The Company does not have any off-balance sheet credit exposure
related to its customers.
F-9
**(e) Inventory**
Inventory consists of raw materials, work-in-process
and finished goods and is stated at the lower of cost or net realizable value. Cost is determined using a weighted average. For work-in-process
and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Companys production
overhead. The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions about future
demand and market conditions. For finished goods and work-in-process, if the estimated net realizable value for an inventory item, which
is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower
than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials
is based on replacement cost. Provisions for inventory write-downs are included in the cost of revenues in the consolidated statements
of operations. Inventories are carried at this lower cost basis until sold or scrapped. $54,873 and nil inventory write-off were recorded
for the years ended December 31, 2024 and 2023, respectively.
**(f) Property, plant and equipment, net**
Property, plant and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is provided using the straight-line
method over their expected useful lives, as follows:
| | | Useful life | |
| Buildings | | 20 years | |
| Machinery and equipment | | 10 years | |
| Vehicles | | 4 years | |
Expenditures for maintenance and repairs, which
do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments
which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired
or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other
comprehensive income in other income or expenses.
Construction in progress, funded by Companys
working capital, represents manufacturing facilities and office building under construction, is stated at cost and transferred to property,
plant and equipment when it is substantially ready for its intended use. No depreciation is recorded for construction in progress. The
management estimate that construction in progress for our new facilities will be completed by the end of fourth quarter of 2026 and will
transfer construction in progress to property, plant and equipment to start depreciation.
**(g) Convertible Promissory Notes**
The Company accounts for its convertible promissory
notes according to guidance of ASU 2020-06, DebtDebt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging Contracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entitys Own Equity, which simplifies the accounting for convertible instruments by eliminating the requirement to separate
embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under
Topic 815.
We analyze the convertible notes for the existence
of a beneficial conversion feature. the Company considered the three characteristics of a derivative instrument listed in ASC 815-10-15-83:
(i) having one or more underlyings and one or more notional amounts or payment provisions or both; (ii) requiring no initial net investment;
(iii) permitting net settlement;
Since the Companys
notes have fixed interest rate, specified notional principal and settlement date, which no other events would affect specified settlement,
and the Company received net proceeds after issuance costs and discount, which the Company recorded as the net proceeds or net settled
investment, the management assessed that the Notes did not meet the definition of a derivative instruments and an embedded feature would
not be bifurcated. The discounts on the convertible notes, are amortized to interest expense, using the effective interest method, over
the terms of the related convertible notes.
On February 23, 2024,
immediately upon the closing of the 2024 Public Offering, the Company made a full payment to the remaining five outstanding promissory
notes. (see details in NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE-a) Convertible promissory notes). There were no convertible
promissory notes as of December 31, 2024.
F-10
**(h) Common stock purchase warrants**
The Company also analyzed
the Warrants in accordance with ASC 815, to determine whether the Warrants meet the definition of a derivative and, if so, whether the
Warrants meet the scope exception of ASC 815-40, which is that contracts issued or held by the reporting entity that are both (1) indexed
to its own stock and (2) classified in stockholders equity shall not be considered to be derivative instruments for purposes of
ASC 815-40.
The Company concluded
that the warrants issued in the financings in November and December 2021 should be treated as a derivative liability because these warrants
are entitled to a price adjustment to allow the exercise price to be increased or reduced in the event the Company issues or sells any
additional shares of common stock at a price per share other than the then-applicable exercise price or without consideration, which is
typically referred to as a Down-round protection or anti-dilution provision. According to ASC 815-40, the
Down-round protection provision is not considered to be an input to the fair value of a fixed-for-fixed option on equity
shares which leads the warrants to fail to be qualified as indexed to the Companys own stock and then to fail to meet the scope
exceptions of ASC 815. Therefore, the Company accounted for the warrants as derivative liabilities under ASC 815. Pursuant to ASC 815,
derivatives are measured at fair value and re-measured at fair value with changes in fair value recorded in earnings at each reporting
period.
The Company used a black-scholes-pricing
model to estimate the fair values of common stock purchase warrants at the balance sheet dates.
The Note Warrant (see
details in NOTE 10 CONVERTIBLE PROMISSORY NOTES PAYABLE-b) Note Warrant) was issued in 2021 which was valid for three years and
expired during the year ended December 31, 2024.
As of December 31, 2024
and 2023, the Company recorded nil and $378,371 common stock purchase warrant liability, respectively, and $378,371 gain and $$121,413
loss on changes of fair value of common stock purchase warrant liability for the year ended December 31, 2024 and 2023, respectively.
**(i) Fair value of financial instruments**
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize
the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as
follows:
|
|
|
Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
|
|
|
| |
|
|
|
Level 2inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. | |
|
|
|
| |
|
|
|
Level 3inputs to the valuation methodology are unobservable. | |
Unless otherwise disclosed, the fair value of
the Companys financial instruments, including cash, accounts receivable, prepaid expenses and other current assets, accounts payable,
short-term bank loans, accrued expenses and other current liabilities, taxes payable and due to related parties, common stock purchase
warrants liability, approximate the fair value of the respective assets and liabilities as of December 31, 2023 and 2022 based upon the
nature of the assets and liabilities.
**(j) Fair value measurement**
****
Fair value is the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers
the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when
pricing the asset or liability.
F-11
Authoritative literature provides a fair value
hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. An asset or liability categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the fair value measurement as follows:
*Level 1*
Level 1 applies to assets or liabilities for which
there are quoted prices in active markets for identical assets or liabilities.
*Level 2*
Level 2 applies to assets or liabilities for which
there are inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data.
*Level 3*
**
Level 3 applies to assets or liabilities for which
there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
****
Accounting guidance also describes three main
approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The
market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
When available, the Company uses quoted market
prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will measure fair
value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest
rates and currency rates.
**(k) Impairment of long-lived Assets**
Long-lived assets, such as property, plant and
equipment, land use rights, are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparison of
the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or
asset group. If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge
is recognized by the amount that the carrying value exceeds the estimated fair value of the asset or asset group. Fair value is determined
through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals,
as considered necessary. Assets to be disposed are reported at the lower of carrying amount or fair value less costs to sell, and are
no longer depreciated. There was nil impairment of intangible assets recognized for the years ended December 31, 2024 and 2023.
F-12
**(l) Foreign Currency Translation**
The Company uses US dollars as the reporting currency.
The Companys subsidiary HK Wetouchs functional currency for HK Wetouch is Hong Kong dollar. The functional currency of Sichuan
Vtouch is the Chinese Yuan (RMB). The Companys consolidated financial statements have been translated into US$. Assets
and liabilities accounts are translated using the exchange rate at each reporting period end date. Equity accounts are translated at historical
rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation
adjustments are reported under other comprehensive income (loss). Gains and losses resulting from the translations of foreign currency
transactions and balances are reflected in the results of operations. During the years ended December 31, 2024 and 2023, the Company recorded
gains of $52,211 and $230,844 on foreign currency transactions in the line of general & administration expenses, respectively.
The RMB is not freely convertible into foreign
currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at the rates used in translation.
The following table outlines the currency exchange
rates that were used in creating the consolidated financial statements in this report:
|
|
|
|
December 31,
2024 |
|
|
|
December 31,
2023 |
| |
|
Year-end spot rate |
|
|
US$1=RMB 7.2993 |
|
|
|
US$1=RMB 7.0999 |
| |
|
Average rate |
|
|
US$1=RMB 7.1957 |
|
|
|
US$1=RMB 7.0809 |
| |
**(m) Revenue Recognition**
The Company adopted Accounting Standards Codification
(ASC) 606 using the modified retrospective approach. The adoption of this standard did not have a material impact on the
Companys consolidated financial statements. Therefore, no adjustments to opening retained earnings were necessary.
ASC 606, Revenue from Contracts with customers,
establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from
the entitys contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to
depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive
in exchange for those goods or services recognized as performance obligations are satisfied.
ASC 606 requires the use of a five-step model
to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to
the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective
performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The
application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the
way the Company records its revenue. The Company has assessed the impact of the guidance by reviewing its existing customer contracts
and current accounting policies and practices to identify differences that would result from applying the new requirements, including
the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations.
Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current
revenue streams.
F-13
In accordance with ASC 606, the Company recognizes
revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects
to be entitled in such exchange. The Company accounts for the revenue generated from sales of its products primarily to its customers
in PRC and overseas, as the Company is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing
prices, and is responsible for fulfilling the promise to provide customers the specified goods, which the Company has control of the goods
and has the ability to direct the use of goods to obtain substantially all the benefits. All of the Companys contracts have one
single performance obligation as the promise is to transfer the individual goods to customers, and there is no separately identifiable
other promises in the contracts. The Companys revenue streams are recognized at a point in time when title and risk of loss passes
and the customer accepts the goods, which generally occurs at delivery. The Companys products are sold with no right of return
and the Company does not provide other credits or sales incentive to customers. The Companys sales are net of value added tax (VAT)
and business tax and surcharges collected on behalf of tax authorities in respect of product sales.
*Contract Assets and Liabilities*
Payment terms are established on the Companys
pre-established credit requirements based upon an evaluation of customers credit quality. Contract assets are recognized for in
related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery.
The contract liability balance can vary significantly depending on the timing when an order is placed and when shipment or delivery occurs.
As of December 31, 2024 and 2023, other than accounts receivable and advances from customers, the Company had no other material contract
assets, contract liabilities or deferred contract costs recorded on its consolidated balance sheet. Costs of fulfilling customers
purchase orders, such as shipping, handling and delivery, which occur prior to the transfer of control, are recognized in selling, general
and administrative expense when incurred.
*Disaggregation of Revenues*
The Company disaggregates its revenue from contracts
by geography, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are
affected by economic factors. The Companys disaggregation of revenues for the years ended December 31, 2024 and 2023 are disclosed
in Note 14 to the financial statements.
**(n) Selling, General and Administrative
Expenses**
Selling expenses represents
primarily costs of payroll, benefits, commissions for sales representatives and advertising expenses. General and administrative expenses
represent primarily payroll and benefits costs for administrative employees, rent and operating costs of office premises, depreciation
and amortization of office facilities, professional fees and other administrative expenses.
**(o) ) Lease**
The Company adopts ASU
No. 2016-02, Leases (Topic 842) (ASU 2016-02) for all periods presented. The Company elects the short-term lease exemption
for all contracts with lease terms of 12months or less.
Under the guidance of AUS 2016-02, an entity is
required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.
F-14
The Companys lease
terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. The Company determines
if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of
an identified asset which the Company does not own and whether it has the right to direct the use of an identified asset in exchange for
consideration. Right of use (ROU) assets represent the Companys right to use an underlying asset for the lease term
and lease liabilities represent the Companys obligation to make lease payments arising from the lease. ROU assets are recognized
as the amount of the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of
the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments
is the Companys incremental borrowing rate (IBR), because the interest rate implicit in most of the Companys
leases is not readily determinable. The IBR is a hypothetical rate based on the Companys understanding of what its credit rating
would be to borrow and resulting interest the Company would pay to borrow an amount equal to the lease payments in a similar economic
environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments or in-substance
fixed payments are included in the Companys lease liability calculation. Variable lease payments are recognized in operating expenses
in the period in which the obligation for those payments is incurred.
The lease right-of-use assets are initially measured
at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives
received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Lease expense for minimum lease
payments exclusive of the value-added tax are recognized on straight-line basis over the lease term The new standard provides a number
of optional practical expedients at transition. The Company elected certain practical expedients that must be elected as a package, which
permit the Company to not reassess, under the new standard, prior conclusions about (1) lease identification, (2) lease classification
and (3) initial direct costs. Additionally, the Company elected a short-term lease exception policy, which allows entities to not apply
Topic 842 to short-term leases (i.e. leases with terms of 12 months or less) and a hindsight policy, which allows an entity to include
current considerations for existing leases when determining initial lease terms. The Company has also elected to account for lease and
non-lease components as a single component for all leases, and elected to utilize an IBR (incremental borrowing rate) that is risk free
rate plus premium for all leases when calculating the lease liability.
**(p) Share-Based Compensation**
The Company awards share options and other equity-based
instruments to its employees, directors and third party service providers (collectively share-based payments). Compensation
cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation
cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The
amount of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be
performed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition,
the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions
that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the
cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is
vested at that date.
**(q) Income taxes**
The Company accounts for income taxes in accordance
with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences
between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected
to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. A valuation allowance is established, as needed, to reduce the amount of deferred tax
assets if it is considered more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the effect of uncertain
income tax positions only if those positions are more-likely-than-not of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period
in which the change in judgment occurs. The Companys policy is to record interest and penalties related to uncertain tax positions
as a component of income tax expense. There were no such interest or penalty for the years ended December 31, 2024 and 2023.
On December 22, 2017, the Tax Cut and Jobs Act
of 2017 (the Tax Act) was signed into law, which among other effects, reduces the U.S. federal corporate income tax rate
to 21% from 34% (or 35% in certain cases) beginning in 2018, and requires companies to pay a one-time transition tax on certain unrepatriated
earnings from non-U.S. subsidiaries that is payable over eight years. No tax was due under this provision. The Tax Act also makes the
receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings
of non-U.S. subsidiaries relating to the parents deductions for payments to the subsidiaries.
On July 4, 2025, the One Big Beautiful Bill Act
("the Act") was signed into law. The Act makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation
and domestic research cost expensing, increases the Advanced Manufacturing Investment Credit to 35 percent from 25 percent, and makes
modifications to the international tax framework. We are currently evaluating the impact of the Act upon our future effective tax rate,
tax liabilities, and cash taxes.
F-15
**(r) Value added tax (VAT)**
Sales revenue represents the invoiced value of
goods, net of VAT. The VAT is based on gross sales price. Since April 1, 2019, VAT rate was lowered from 16% to 13%. The VAT may be offset
by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products.
The Company recorded a VAT payable or recoverable net of VAT payments in the accompanying consolidated financial statements.
For export sales, VAT is not imposed on gross
sales price, but the VAT related to purchasing raw materials is refunded after the export is completed.
**(s) Earnings per Share**
The Company computes earnings per share (EPS)
in accordance with ASC 260, Earnings per Share (ASC 260). ASC 260 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding
for the period. Diluted presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares
that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation
of diluted EPS. As of December 31, 2024 and 2023, warrants were included for the dilutive EPS calculation, respectively.
**(t) Comprehensive income (loss)**
Comprehensive income (loss) consists of two components,
net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial
statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of income and comprehensive
income.
**(u) Recent Accounting Pronouncements**
The Company considers the applicability and impact
of all accounting standards updates (ASUs). Management periodically reviews new accounting standards that are issued.
**
**Recently issued accounting pronouncements
not yet adopted**
**
In March 2020, the FASB issued
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
which provides optional expedients and exceptions for applying U.S. GAAP on contract modifications and hedge accounting to contracts,
hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference
rate reform, if certain criteria are met. These optional expedients and exceptions provided in ASU No. 2020-04 are effective for the Company
as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral
of the Sunset Date of Topic 848 (ASU 2022-06), which deferred the application dates of Topic 848 to December 31, 2024. The
Company currently does not have any financial instrument that reference to LIBOR and does not anticipate the adoption will have a material
impact to the Companys combined and consolidated financial statements.
In November 2023, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07 (ASC Topic 280),Improvements
to Reportable Segment Disclosures. This ASU expands on existing reportable segment disclosure requirements primarily through enhanced
disclosures about significant segment expenses. This ASU is effective for our annual reporting for 2025 on a retrospective basis. This
standard will impact our disclosures and will not impact our financial statements.
In December 2023, the FASB
issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting
entitys effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective
basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have
not yet been issued or made available for issuance. The Company is evaluating this ASU and expects to add additional disclosures to our
combined and consolidated financial statements, once adopted.
F-16
**NOTE-3 ACCOUNTS
RECEIVABLE**
Accounts receivable and
credit losses consists of the following:
|
| |
December31,
2024 | | |
December31,
2023 | | |
|
Accounts receivable | |
$ | 7,504,630 | | |
$ | 7,455,252 | | |
|
Allowance for credit losses | |
| - | | |
| - | | |
|
Accounts receivable, net | |
$ | 7,504,630 | | |
$ | 7,455,252 | | |
The Companys accounts receivable primarily
includes balance due from customers when the Companys products are sold and delivered to customers.
The following table provides
an analysis of the aging of accounts receivable as of December 31, 2024 and 2023:
|
| |
December31, 2024 | | |
December31, 2023 | | |
|
Current | |
$ | 3,726,124 | | |
$ | 3,740,488 | | |
|
1-3 months past due | |
| 2,536,815 | | |
| 2,635,045 | | |
|
4-6 months past due | |
| 1,241,691 | | |
| 1,079,719 | | |
|
Total accounts receivable | |
$ | 7,504,630 | | |
$ | 7,455,252 | | |
**NOTE-4 PREPAID EXPENSES AND OTHER CURRENT
ASSETS**
Prepaid expenses and other current assets consist
of the following:
|
| |
December31,
2024 | | |
December31, 2023 | | |
|
Advance to suppliers | |
$ | 252,618 | | |
$ | 334,852 | | |
|
Issuance cost related to convertible promissory notes | |
| - | | |
| 64,802 | | |
|
Prepayment for land use right (i) | |
| 537,755 | | |
| 537,998 | | |
|
Security deposit (ii) | |
| 53,840 | | |
| 53,865 | | |
|
Prepaid consulting service fees (iii) | |
| 884,687 | | |
| - | | |
|
Prepaid market research fees (iv) | |
| 955,000 | | |
| - | | |
|
Others receivable (v) | |
| 78,680 | | |
| 72,110 | | |
|
Prepaid expenses and other current assets | |
$ | 2,762,580 | | |
$ | 1,063,627 | | |
|
(i) | On
July 23, 2021, Sichuan Vtouch entered into a contract with Chengdu Wenjiang District Planning and Natural Resources Bureau
for the purchase of a land use right of a parcel of land of 131,010 square feet for a consideration of RMB3,925,233 (equivalent to $537,755)
for the Companys new facility. The Company paid the consideration in full by November 18, 2021. Upon issuance of a certificate
of land use right by the local government, which is estimated to be obtained by the second half of 2026, the Company will reclassify
this prepayment to intangible assets accordingly. |
|
| (ii) | On July 28, 2021, Sichuan Vtouch made a security deposit of RMB393,000 (equivalent to $53,840) to Chengdu Cross-Strait Science and Technology Industry Development Park Management Committee to obtain a construction license for its new facility. This deposit will be refunded upon the issuance of the construction license, which is expected to be by the second half of 2025. | |
| | | |
| (iii) | In May 2023, the Company entered into two third-party consulting service agreements for a fee of $1.35million and $3.1million, respectively, for the three-year consulting services. The total fee would be amortized over the three-year services and reclassified to stock issuance costs accordingly.As of December 31, 2024,$884,687 was recognized as prepaid consulting service fees within one year. | |
| | | |
| (iv) | On February 29, 2024, the Company advanced market research fees $70,000 and $855,000, respectively, to two unrelated individuals, Mr. Chien Hui Chueh and Mr. Cheung Ming Lin, in relation to the Companys market research service overseas. The two individuals signed borrowing contracts with a principal amount of $70,000 and $855,000, respectively, on February 29, 2024.Those contracts were issued to the Company to evidence the advances, bearing 3.45% interest per annum, and payable on February 28, 2025, and extended till August 29, 2026. | |
| | | |
| (v) | Other receivables are mainly employee advances, and prepaid expenses. | |
F-17
**NOTE 5 PROPERTY, PLANT AND EQUIPMENT,
NET**
|
|
|
December31,
2024 |
|
|
December31,
2023 |
| |
|
Buildings |
|
$ |
11,798 |
|
|
$ |
12,130 |
| |
|
Machinery and equipment |
|
|
7,672 |
|
|
|
3,944 |
| |
|
Vehicles |
|
|
40,114 |
|
|
|
41,241 |
| |
|
Construction in progress |
|
|
12,755,791 |
|
|
|
12,825,896 |
| |
|
Subtotal |
|
|
12,815,375 |
|
|
|
12,883,211 |
| |
|
Less: accumulated depreciation |
|
|
(32,378 |
) |
|
|
(23,348 |
) | |
|
Property, plant and equipment, net |
|
$ |
12,782,997 |
|
|
$ |
12,859,863 |
| |
Depreciation expense was $9,805 and $9,403 for
the year ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, the Company had
commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress of our new facility.
****
**NOTE 6 OPERATING LEASE**
In March 2021, pursuant to the local PRC government
guidelines on local environmental issues and the national plan, the Company was under the government directed relocation order to relocate
from a parcel of state-owned land where we maintained our executive offices, research and development facilities and factories. The Company
received a total amount of RMB115.2 million (approximately $17.7 million) from the local government (see ITEM 2. PROPERTIES AND FACILITIES)
to start the construction of the new facility in a neighboring Chengdu Wenjiang District.
On March 16, 2021, in order to minimize interruption
of the Companys business, Sichuan Vtouchentered into a leasing agreement with Sichuan Renshou Shigao Tianfu Investment
Co., Ltd. (later renamed as Meishan Huantian Industrial Co., Ltd.), a limited liability company owned by the local government, to lease
the property, and all buildings, facilities and equipment thereon (the Demised Properties) of Sichuan Wetouch, commencing from
April 1, 2021 until December 31, 2021 at a monthly rent of RMB300,000 ($41,100), which period was extended to October 31, 2022. The lease
was renewed on October 30, 2022, October 30, 2023 and August 9, 2024, respectively, with a monthly rent of RMB 400,000 ($54,800), the
term of which has been extended to October 31, 2025 for the use of the Demised Properties.
The Companys new facility started in August
2021 yet was delayed and suspended due to the outbreak of Covid-19 and government-ordered shutdowns in China. The Company has rescheduled
and extended the completion by end of December 31, 2025 with the production at the new facilities will commencing in the second quarter
of 2026. For the year ended December 31, 2024, management makes estimates and assumptions to use the leasing property till the end of
October 2026, and applies ASU 2016-02 Leases (Topic 842) as practical expedients during the year ended December 31, 2024.
Both operating lease expense and short-term lease
expense are recognized in cost of revenues and general and administrative expenses.
The components of lease
expense for the years ended December 31, 2024 and 2023 were as follows:
|
| |
For the Years Ended
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Lease expense | |
| | |
| | |
|
Operating lease expense | |
$ | 667,065 | | |
$ | - | | |
|
Short-term lease expense | |
| - | | |
| 677,870 | | |
|
Total lease expense | |
$ | 667,065 | | |
$ | 677,870 | | |
F-18
The balances for the operating leases where the
Company is the lessee are presented as follows:
|
| |
AsofDecember 31, | | |
|
| |
2024 | | |
2023 | | |
|
Operating leaseright-of-useassets | |
$ | 1,055,208 | | |
$ | - | | |
|
Lease liabilities current | |
| 571,539 | | |
| - | | |
|
Lease liabilities non-current | |
| 482,606 | | |
| - | | |
|
Total operating lease liabilities | |
$ | 1,054,145 | | |
$ | - | | |
|
| |
| | | |
| | | |
The following is a schedule, by years, of
maturities of lease liabilities as of December 31, 2024:
|
| |
Operating
leases | | |
|
2025 lease payment | |
$ | 482,606 | | |
|
Less: imputed interest | |
| - | | |
|
Present value of lease liabilities | |
$ | 482,606 | | |
Lease term and discount
rate:
| | | For the Years ended December 31, | | |
| | | 2024 | | | 2023 | | |
| Weighted-average remaining lease term (years) | | | | | | | |
| Operating lease | | | 1.8 | | | | - | | |
| | | | | | | | | | |
| Weighted-average discount rate | | | | | | | | | |
| Operating lease | | | 1.06 | % | | | - | | |
****
Supplemental cash flow
information related to leases where the Company was the lessee for the year ended December 31, 2024 was as follows:
|
| |
For the Years ended
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Cash payments for operating leases | |
$ | 98,387 | | |
$ | - | | |
|
Lease liabilities arising from obtaining right-of-use assets | |
| 1,168,788 | | |
| - | | |
**NOTE 7 RELATED PARTY TRANSACTIONS**
Amounts due to a related
party are as follows:
| | | Relationship | | December31, 2024 | | | December31, 2023 | | | Note | |
| Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. | | Affiliateof Ms. Jiaying Cai, director of the Company | | $ | 149,211 | | | $ | - | | | Payable to affiliate for expenses paid on behalf of the Company | |
| | | | | | | | | | | | | | |
| Total | | | | $ | 149,211 | | | $ | - | | | | |
F-19
**NOTE 8 INCOME TAXES**
Wetouch
Wetouch is subject to a tax rate of 21% per beginning
2018, and files a U.S. federal income tax return.
BVI Wetouch
Under the current laws of the British Virgin Islands,
BVI Wetouch, a wholly owned subsidiary of Wetouch, is not subject to tax on its income or capital gains. In addition, no British Virgin
Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
Hong Kong
HK Wetouch is subject to profit taxes in Hong
Kong at a progressive rate of 16.5%.
PRC
Sichuan Wetouch and Sichuan Vtouch files income
tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25% according to the Corporate Income Tax
(CIT) Law which was passed by the National Peoples Congress on March 16, 2007.
Under PRC CIT Law, domestic enterprises and foreign
investment enterprises (the FIEs) are usually subject to a unified 25% enterprise income tax rate while preferential tax
rates, tax holidays and even tax exemption may be granted on a case-by-case basis by local government as preferential tax treatment to
High and New Technology Enterprises (the HNTEs). Under this preferential tax treatment, HNTEs are entitled to an income
tax rate of 15%, subject to a requirement that they re-apply for their HNTE status every three years. Pursuant to an approval from the
local tax authority in October 2017, Sichuan Wetouch became a qualified enterprise located in the western region of the PRC, entitled
it to a preferential income tax rate of 15% from October 11, 2017 to October 11, 2020.
On October 21, 2020, Sichuan Wetouch was granted
on a case-by-case basis by Sichuan Provincial government as an HNTE , entitled to a reduced income tax rate of 15% from October 21, 2020
until October 20, 2023.
Sichuan Vtouch is subject to a 25% income tax
rate.
The CIT Law and its implementation rules impose
a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident
enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends
relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax.
F-20
The Companys provision
for income taxes credit (expenses) consisted of:
|
| |
For the Years Ended December 31, | | |
|
PRC income tax | |
2024 | | |
2023 | | |
|
Income tax provision | |
$ | 2,699,683 | | |
$ | 4,082,606 | | |
|
Deferred income tax expenses (credit) | |
| (41,993 | ) | |
| - | | |
|
Total | |
$ | 2,657,690 | | |
$ | 4,082,606 | | |
|
| |
| | | |
| | | |
|
BVI | |
| - | | |
| - | | |
|
Hong Kong | |
| - | | |
| - | | |
|
China | |
| - | | |
| - | | |
|
| |
| - | | |
| - | | |
|
Income tax provision | |
$ | 2,657,690 | | |
$ | 4,082,606 | | |
The following table reconciles the PRC statutory
rates to the Companys effective tax rate for the years ended December 31, 2024 and 2023:
|
| |
For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
PRC statutory income tax rate | |
| 25.0 | % | |
| 25.0 | % | |
|
Income tax computed at PRC statutory corporate income tax rate of 25% | |
| 32.9 | % | |
| 31.6 | % | |
|
Tax rate differential on entities not subject to PRC income | |
| (1.3 | )% | |
| (1.1 | )% | |
|
R&D additional deduction | |
| - | | |
| (0.2 | )% | |
|
Change in valuation allowance | |
| (1.1 | )% | |
| 0.2 | % | |
|
Temporary differences | |
| (0.5 | )% | |
| 0.1 | % | |
|
Non-deductible expenses | |
| 0.5 | % | |
| 2.5 | % | |
|
Effective tax rate | |
| 30.6 | % | |
| 33.1 | % | |
A reconciliation of the
provision for income taxes determined at the statutory income tax rate to the Companys income taxes is as follows:
|
| |
For the Years Ended
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
| |
| | |
| | |
|
Income before income taxes | |
$ | 8,688,848 | | |
$ | 12,346,937 | | |
|
Income tax computed at PRC statutory corporate income tax rate of 25% | |
| 2,861,613 | | |
| 3,905,978 | | |
|
Reconciling items: | |
| | | |
| | | |
|
Tax rate differential on entities not subject to PRC income tax | |
| (110,304 | ) | |
| (131,079 | ) | |
|
R&D additional deduction | |
| - | | |
| (21,138 | ) | |
|
Change in valuation allowance | |
| (94,593 | ) | |
| 30,353 | | |
|
Temporary differences | |
| (41,993 | ) | |
| 17,610 | | |
|
Non-deductible expenses | |
| 42,967 | | |
| 280,882 | | |
|
Income tax provision | |
$ | 2,657,690 | | |
$ | 4,082,606 | | |
The Company follows ASC 740, Income Taxes,
which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
F-21
The Companys deferred tax assets consisted
of the following components:
|
| |
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Deferred tax assets: | |
| | |
| | |
|
Credit loss on advance to vendors | |
$ | 11,056 | | |
$ | - | | |
|
Provision of obsolete inventory | |
| 30,607 | | |
| - | | |
|
Leasing liabilities | |
| 263,536 | | |
| | | |
|
Total gross deferred tax assets | |
| 305,199 | | |
| - | | |
|
Less valuation allowance | |
| - | | |
| | | |
|
Deferred tax assets net of valuation allowance | |
| 305,199 | | |
| - | | |
|
| |
| | | |
| | | |
|
Deferred tax liabilities: | |
| | | |
| | | |
|
Right-of-use assets | |
| (263,802 | ) | |
| - | | |
|
Deferred tax liabilities | |
| (263,802 | ) | |
| - | | |
|
Deferred tax assets, net | |
$ | 41,397 | | |
$ | - | | |
The Company continually evaluates expiring statutes
of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of December 31, 2024 and 2023, taxes
for Sichuan Vtouch remained open for statutory examination by PRC tax authorities.
**NOTE 9 ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES**
Accrued expenses and other current liabilities
consist of the following:
|
| |
December31,
2024 | | |
December31,
2023 | | |
|
Advance from customers | |
$ | 166,535 | | |
$ | 182,277 | | |
|
Accrued payroll and employee benefits | |
| 81,837 | | |
| 84,280 | | |
|
Accrued interest expenses | |
| - | | |
| 240,805 | | |
|
Accrued private placement agent fees (i) | |
| - | | |
| 1,200,000 | | |
|
Accrued consulting fees (ii) | |
| - | | |
| 1,370,972 | | |
|
Accrued legal compensation charges (iii) | |
| 35,356 | | |
| 45,828 | | |
|
Accrued professional fees | |
| 57,173 | | |
| 330,180 | | |
|
Accrued director fees | |
| 66,734 | | |
| 106,824 | | |
|
Other payable | |
| 147,102 | | |
| 143,035 | | |
|
Other tax payables (iv) | |
| 162,888 | | |
| | | |
|
Others (v) | |
| 248,836 | | |
| 288,704 | | |
|
Accrued expenses and other current liabilities | |
$ | 966,461 | | |
$ | 3,992,905 | | |
|
(i) | On
March 18, 2023, the Company entered into a private placement consent agreement with a third-party investment bank firm on the agent fees
of $1.2 million, payable only on the completion of the private placement. The Company made the full payment in February 2024. |
|
|
(ii) | In May 2023, the Company
entered into two third-party consulting service agreements for a fee of $1.35million and $3.1million, respectively. The Company
made the full payment in February 2024.Due to the service of three-year term, Upon the closing of the 2024 Public
Offering (as defined in Note 1), $316,378 was charged to additional paid-in capital as the closing cost of the
2024 Public Offering, and the remaining was recognized as consulting service fee over the service period. the
Company recorded $1,370,972 as consulting service fee for the year ended December 31, 2024. |
|
|
(iii) | As
of December 31, 2024, the Company accrued litigation compensation charges of RMB258,075 ($35,356). |
|
|
(iv) | Other
tax payable mainly represent value added tax payable. |
|
|
(v) | Others
mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses. |
|
F-22
**NOTE 10
CONVERTIBLE PROMISSORY NOTES PAYABLE**
**a) Convertible promissory
notes**
In October, November,
and December 2021, the Company, issued seven (7) convertible promissory notes (the Notes) of an aggregate principal amount
of $2,250,000, due in one year with discounted issuance price at 90.0%. The Notes bore interest at a rate of 8.0% per annum,
payable in one year and matured on October 27, November 5, November 16, November 29, and December 2, 2022, respectively. Net proceeds
after debt issuance costs and debt discounts were approximately $1,793,000. Debt issuance costs in the amount of $162,000 are recorded
as deferred charges and included in the other current assets on the consolidated balance sheet. The debt discount and debt issuance costs
are amortized into interest expense using the effective interest method over the terms of the Notes.
Unless the Notes
are converted, the principal amounts of the Notes, and accrued interest at the rate of 8% per annum, are payable on the one-year anniversary
of the issuance of the Notes (the Maturity Date). If the Company fails to satisfy its loan obligation by the Maturity Date,
the default interest rate will be 16%.
The Lenders have the
right to convert any or all of the principal and accrued interest on the Notes into shares of common stock of the Company on the earlier
of (i) 180 calendar days after the issuance date of the Notes or (ii) the closing of a listing for trading of the common stock of the
Company on a national securities exchange offering resulting in gross proceeds to the Company of $15,000,000 or more (an Uplist
Offering). If the Company closes an Uplist Offering on or before the 180th calendar date after the issuance date
of the Notes, the conversion price shall be 70% of the per share offering price in the Uplist Offering; otherwise, the conversion price
is $15.0 per share.
Subject to customary
exceptions, if the Company issues shares or any securities convertible into shares of common stock at an effective price per share lower
than the conversion price of the Notes, the conversion rate of the Notes shall be reduced to such lower price.
Until the Notes
are either paid or converted in their entirety, the Company agreed with the Lenders not to sell any securities convertible into shares
of common stock of the Company (i) at a conversion price that is based on the trading price of the stock or (ii) with a conversion price
that is subject to being reset at a future date or upon an event directly or indirectly related to the business of the Company or the
market for the common stock. The Company also agreed to not issue securities at a future determined price.
The Lenders have
the right to require the Company to repay the Notes if the Company receives cash proceeds, including proceeds from customers and the issuance
of equity (including in the Uplist Offering). If the Company prepays the Notes prior to the Maturity Date, the Company shall pay a 10%
prepayment penalty.
From December 28,
2022 to April 6, 2023, the lenders of five outstanding Notes and the Company entered into an amendment to the Notes (Amendment
No. 1 to Promissory Note) extending the term of the Notes for an additional 6 months.
From August 29
to September 9, 2023, the lenders of the outstanding Notes and the Company entered into an amendment to the Notes (Amendment No.
2 to Promissory Note) that upon the listing of the Companys common stock on the Nasdaq Capital Market (the Uplist),
the Company shall within three (3) business days after the Uplist, pay to the Holders amounts equal to 105% of the total outstanding balance
of the Convertible Debenture.
During the year ended
December 31, 2023, principal and default charges totaling $1,200,000 were converted into 25,000 shares of common stock of the Company.
During the year
ended December 31, 2023, principal, accrued and unpaid interest and default charges totaling $1,038,426 were converted into 69,228 shares
of common stock of the Company. Two notes were fully converted.
On February 23, 2024, immediately upon the closing of the 2024 Public
Offering, the Company made a full payment of $2,586,960 under the remaining five outstanding promissory notes, including the principal
of $1,400,750 and the related accrued interests and default charges of $1,186,210.
During the years ended December 31, 2024 and 2023,
amortization of discounts and issuance cost of the notes were $5,715 and $33,655, respectively.
For the
years ended December 31, 2024 and 2023, the Company recognized interest expenses of
the Notes in the amount of $1,169,974and $ 252,325, respectively.
F-23
**b) Warrants**
**Accounting for
Warrants**
In connection with the
issuance of the Notes, the Company also issued to the lenders seven (7) three-year warrants (the Note Warrants) to purchase
an aggregate of 90,000 shares of the Companys common stock (the Warrant Shares).
The Note Warrants issued
to the lenders granted the holders the rights to purchase up to 10,000 shares of common stock of the Company at an exercise price of $25
per share. However, if the Company closes an Uplist Offering on or before the 180th calendar date after the issuance date of
the Note Warrants, then the exercise price shall be 125% of the offering price of a share in the Uplist Offering. If the adjusted exercise
price as a result of the Uplist Offering is less than $25 per share, then the number of shares for which the Warrants are exercisable
shall be increased such that the total exercise price, after taking into account the decrease in the per share exercise price, shall be
equal to the total exercise price prior to such adjustment.
The lenders have
the right to exercise the Note Warrants on a cashless basis if the highest traded price of a share of common stock of the Company during
the 150 trading days prior to exercise of the Note Warrants exceeds the exercise price, unless there is an effective registration statement
of the Company which covers the resale of the Lenders.
If the Company issues
shares or any securities convertible into shares at an effective price per share lower than the exercise price of the Note Warrants, the
exercise price of the Note Warrants shall be reduced to such lower price, subject to customary exceptions.
The lenders may not convert
the Notes or exercise the Note Warrants if such conversion or exercise will result in each of the lenders, together with any affiliates,
beneficially owning in excess of 4.9% of the Companys outstanding shares of common stock immediately after giving effect to such
exercise unless such lender notifies the Company at least 61 days prior to such exercise.
During the year
ended December 31, 2023, two lenders exercised the Note Warrants cashlessly for 22,338 shares of common stock of the Company.
During the year
ended December 31, 2024, one lender exercised the Note Warrants cashlessly for 2,725 shares of common stock of the Company.
As of December 31, 2024, the remaining Note
Warrants of 34,028 were expired and the Company recorded $378,371 gain on changes in the fair value of common stock purchase warrants
liability using the Black-Scholes option-pricing model.
**(c) Registration
Rights Agreements**
Pursuant to the
terms of the Registration Rights Agreements between the Company and lenders of the Notes, the Company agreed to file a registration statement
with the Securities and Exchange Commission to register the shares of common stock underlying the Notes and the shares issuable upon exercise
of the Note Warrants within sixty days from the date of each Registration Rights Agreement. The Company also granted the lenders piggyback
registration rights on such securities pursuant to the Purchase Agreements.
F-24
**NOTE 11 STOCKHOLDERS EQUITY**
**1) Common Stock**
The Companys authorized shares of common
stock was 15,000,000 shares with par value of $0.001as of the date of this annual report.
On December 22, 2020, the Company issued 5,181
shares of common stock to The Crone Law Group, P.C. or its designees for legal services (see Note 11).
On January 1, 2021, the Company issued an aggregate
of 15,541 shares to a third party service provider for consulting services that had been rendered.
On April 14, April 27 and September 1, 2022, the
Company issued 5,777, 5,599 and 2,857 shares of common stock upon cashless exercise of the Note Warrants to three lenders, respectively.
(see Note 9 (b)).
During the year ended
December 31, 2022, the Company issued 6,211 shares of common stock to a third party upon exercise of warrants (see Note 11).
During the year ended
December 31, 2022, the Company issued 69,228 shares of common upon conversion of convertible promissory note payable (see note 9 (a)).
On January 19, 2023,
the Company sold an aggregate of 8,000,000 shares of common stock to purchasers in a private placement for an aggregate purchase price
of $40,000,000, or $5.00 per share. On January 20, 2023, the Company received net proceeds of $40 million accordingly.
During the year ended December 31, 2023, the Company issued 25,000
shares of common stock upon conversion of convertible promissory note payable (see note 9 (a)).During the year ended December 31, 2023,
the Company issued 22,338 shares of common stock to two third parties upon exercise of warrants (see Note 9(b)).
On February
20, 2024, the Company issued 2,160,000 shares of common stock at a public offering price of $5.00 per share. The Companys common
stock began trading on the Nasdaq Capital Market under the ticker symbol WETH on February 21, 2024.
As of the
date of this Annual Report, there were 11,931,534 shares of common stockissuedand outstanding.
**2) Reverse Stock Split**
On February 17, 2023, the Companys
board of directors authorized a reverse stock split of common stock with a ratio of not less than one to five (1:5) and not more than
one to eighty (1:80), with the exact amount and the timing of the reverse stock split to be determined by the Chairman of the Board. Upon
effectiveness of such reverse stock split, the number of authorized shares of the common stock of the Company will also be decreased in
the same ratio. Pursuant to Section 78.209 of the Nevada Revised Statutes, the reverse stock split does not have to be approved by the
stockholders of the Company.
On July 16, 2023, the Companys board of
directors approved the reverse stock split of the Companys common stock at a ratio of 1-for-20. On July 16, 2023, the Company filed
a certificate of change (with an effective date of July 16, 2023) with the Nevada Secretary of State pursuant to Section 78.209 of the
Nevada Revised Statutes to effectuate a 1-for-20 reverse stock split of its common stock. On September 11, 2023, the reverse stock split
was approved by the Financial Industry Regulatory Authority and took effect on September 12, 2023. All share information included in this
report has been adjusted as if the reverse stock split occurred as of the earliest period presented.
F-25
**3) Closing of the 2024 Public Offering**
****
On February
23, 2024, the Company closed its offering of 2,160,000 shares of common stock at a public offering price of $5.00 per share, for aggregate
gross proceeds of $10.8 million before deducting underwriting discounts, and other offering expenses.
****
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, Other Assets and Deferred Costs SEC Materials (ASC 340-10-S99) and SEC
Staff Accounting Bulletin Topic 5A, Expenses of Offering, and charged issuance costs of $1,810,246 to additional paid-in
capital during the year ended December 31, 2024.
**3) Statutory Reserve and Restricted Net
Assets**
Under PRC rules and regulations,
all companies in the PRC are required to appropriate 10% of their net income to a statutory surplus reserve until the reserve balance
reaches 50% of their registered capital. The appropriation to this statutory surplus reserve must be made before distribution of dividends
can be made. The statutory reserve is non-distributable, other than during liquidation, and can be used to fund previous years losses,
if any, and may be converted into share capital by issuing new shares to existing shareholders in proportion to their shareholders or
by increasing the par value of the shares currently outstanding, provided that the remaining balance of the statutory reserve after such
issue is not less than 25% of the registered capital.
Appropriations to the discretionary surplus reserve
are made at the discretion of the board of directors. The statutory reserve may be applied against prior year losses, if any, and may
be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends.
For the years ended December
31, 2024 and 2023, the Company made appropriations to the reserve fund of RMB6,324,130 (equivalent to US$878,876) and RMB 8,172,303 (equivalent
to US$1,154,131), respectively.
**NOTE 12- SHARE BASED COMPENSATION**
The Company applied ASC
718 and related interpretations in accounting for measuring the cost of share-based compensation over the period during which the consultants
are required to provide services in exchange for the issued shares. The fair value of above award was estimated at the grant date using
the Black-Scholes model for pricing the share compensation expenses.
On December 22,
2020, the board of directors of the Company authorized the issuance of an aggregate of 5,181 shares and warrants to purchase an aggregate
of 10,518 shares of common stock to The Crone Law Group, P.C. or its designees for legal services that had been rendered. The five-year
warrants are exercisable at one cent per share.
5,181 shares of
common stock underlying such warrants were vested on December 22, 2020 and 6,211 shares were issued upon exercise of these warrants on
September 21, 2022 and warrant to purchase 4,307 shares remained outstanding for The Crone law Group, P.C. or its designees for legal
services. The fair value of above award was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses.
The fair value of the Black-Scholes model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0%,
volatility of 43.5% and an average interest rate of 0.11%.
On January 1, 2021,
the board of directors of the Company authorized the issuance of an aggregate of 15,541 shares and warrants to purchase 31,554 shares
of common stock to a third party service provider for consulting services that had been rendered. These warrants have a five-year term
and are exercisable at one cent per share.
The 15,541 shares of common stock and warrants
to purchase 31,554 shares of commons stock vested on January 1, 2021.
The fair value of the above warrants was
estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. The fair value of the Black-Scholes
model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0%, volatility of 51.3% and an average
interest rate of 0.12%.
During the year ended December 31, 2024,
warrants for 35,861 shares of common stock related to above mentioned services were exercised. There were no warrants related to services
remaining as of December 31, 2024.
As of December 31, 2024 and 2023, the Company
recognized relevant share-based compensation expense of nil and nil for the vested shares, and nil and nil for the warrants, respectively.
F-26
**NOTE 13. WEIGHTED AVERAGE NUMBER OF SHARES**
In October 2020, the Company entered into a reverse
merger transaction. The Company computes the weighted-average number of shares of common stock outstanding in accordance with ASC 260
states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common
shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number
of shares of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established
in the merger agreement. The number of shares of common stock outstanding from the acquisition date to the end of that period shall be
the actual number of shares of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.
**NOTE 14 RISKS AND
UNCERTAINTIES**
**Credit Risk** The carrying
amount of accounts receivable included in the balance sheet represents the Companys exposure to credit risk in relation to its
financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations
of each customers financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate
have not exceeded managements estimates.
The Company has its cash in bank deposits primarily
at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors
interests. The PRC promulgated a Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation
of measures for the bankruptcy of PRC banks. The bank deposits with financial institutions in the PRC are insured by the government authority
for up to RMB500,000.
**Interest Rate Risk** The Company
is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability
of securing future debt instruments within the PRC.
**Currency Risk -** A majority of the
Companys revenue and expense transactions are denominated in RMB and a significant portion of the Companys assets and liabilities
are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required
by law to be transacted only by authorized financial institutions at exchange rates set by the Peoples Bank of China (PBOC).
Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory
bodies which require certain supporting documentation in order to affect the remittance.
**Concentrations -** The Company sells
its products primarily through direct customers in the PRC and to some extent, the overseas customers in European countries and East Asia
such as South Korea and Taiwan. For the year ended December 31, 2024, five customers accounted for 22.0%, 19.1%, 15.3%, 14.5%, and 11.5%,
respectively, of the Companys revenue. For the year ended December 31, 2023, six customers accounted for 22.5%, 16.5%, 15.6%, 14.1%,
11.3% and 10.1%, respectively, of the Companys revenue.
And the Companys top 10 customers aggregately
accounted for 99.3% and 99.7% of the total revenue for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, five customers accounted
for 26.6%, 24.5%, 12.0%, 11.4% and 10.8% of the total accounts receivable balance, respectively.
As of December 31, 2023, four customers accounted
for 31.7%, 16.2%, 15.8% and 11.5% of the total accounts receivable balance, respectively.
The Company purchases its raw materials through
various suppliers. Raw material purchases from these suppliers which individually exceeded 10% of the Companys total raw material
purchases, accounted for approximately 15.5%, 12.2% and 11.5% (three customers) and 13.3% (one supplier)of the Companys total
raw material purchases for the year ended December 31, 2024 and 2023, respectively.
**NOTE 15 COMMITMENTS AND CONTINGENCIES**
**i) Legal Proceedings**
We may from time to time be subject to various
legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative
proceeding, regardless of the outcome, can result in substantial cost and the diversion of our resources, including our managements
time and attention.
As of the date of this Report, we are not aware
of any material, active, pending or threatened to which the Company or any of its subsidiaries is a party, or to which any of their property
is subject.
**ii) Capital Expenditure Commitment**
As of December 31, 2024, the Company had commitment
of RMB5.0million (equivalent to $0.7million) for construction in progress.
F-27
**NOTE 16 SEGMENT REPORTING**
The Companys chief operating decision maker
has been identified as the Chief Executive Officer (CEO), who reviews financial information of operating segments based
on U.S. GAAP amounts when making decisions about allocating resources and assessing performance of the Company.
The Company determined that it operated in one operating segment of
touch screen business.
The Company primarily operates in Peoples Republic of China
(PRC). and substantially all of the Companys long-lived assets are located in the PRC.
|
1) | The Companys geographical revenue information is set
forth below: |
|
|
| |
For the Years Ended December 31, | | |
|
| |
2024 | | |
2023 | | |
|
Sales in PRC | |
$ | 27,340,555 | | |
$ | 27,668,985 | | |
|
Sales in Overseas | |
| | | |
| | | |
|
-Republic of China (ROC, or Taiwan) | |
| 8,317,810 | | |
| 6,255,602 | | |
|
-South Korea | |
| 6,462,723 | | |
| 5,619,228 | | |
|
-Others | |
| 159,285 | | |
| 162,124 | | |
|
Sub-total | |
| 14,939,818 | | |
| 12,036,954 | | |
|
Total revenues | |
$ | 42,280,373 | | |
$ | 39,705,939 | | |
|
2) | Segment informationis set forth below: |
|
****
|
| |
For the Years Ended
December 31, | | |
|
| |
2024 | | |
2023 | | |
|
| |
| | |
| | |
|
Revenues | |
$ | 42,280,373 | | |
$ | 39,705,939 | | |
|
Less: | |
| | | |
| | | |
|
Cost of revenues | |
| 28,673,574 | | |
| 22,515,219 | | |
|
Allowance for credit losses | |
| 44,862 | | |
| - | | |
|
Provision of obsolete inventory | |
| 54,873 | | |
| - | | |
|
Staff cost | |
| 1,379,481 | | |
| 1,155,617 | | |
|
(Gain) loss on changes in fair value of common stock purchase warrants liability. | |
| (378,371 | ) | |
| 121,413 | | |
|
Amortization of discounts and issue cost of the notes | |
| 5,715 | | |
| 33,655 | | |
|
Depreciation expense | |
| 9,805 | | |
| 9,403 | | |
|
Lease expense | |
| 98,387 | | |
| - | | |
|
Interest expense | |
| 1,169,974 | | |
| 252,325 | | |
|
Charges of contract default penalty expense | |
| 35,865 | | |
| 46,573 | | |
|
Income tax expense | |
| 2,657,690 | | |
| 4,082,606 | | |
|
Other segment items* | |
| 2,497,360 | | |
| 3,224,797 | | |
|
| |
| | | |
| | | |
|
Segment net income | |
| 6,031,158 | | |
| 8,264,331 | | |
|
| |
| | | |
| | | |
|
Consolidated net income | |
$ | 6,031,158 | | |
$ | 8,264,331 | | |
|
| |
| | | |
| | | |
|
Consolidated total assets | |
$ | 128,019,463 | | |
$ | 119,641,398 | | |
****
|
* | Other segment items include remaining selling expense, general
and administration expenses, research & development, and interest income. |
|
**NOTE 17 SUBSEQUENT EVENTS**
On April 11, 2025, Sichuan Vtouch entered into
a supplemental construction contract with Sichuan Chunqiu Development & Construction Group Co. Ltd. for a total consideration of RMB4,633,118
(equivalent to $0.6 million) for completion of the Companys facility construction project on the capacitive touch screen and touch
machine R&D. Pursuant to the contract, the Company is required to prepay 50% of the contract within three months and the remaining
amount payable upon the completion of the project settlement. As of the date of this Annual
Report, the Company has prepaid the 50% of the contract value.
F-28