WETH 10-Q
Wetouch Technology Inc. (WETH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For
the quarterly period ended
OR
For the transition period from ________ to __________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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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.
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
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No
As of October,
07, 2025, there were
WETOUCH TECHNOLOGY INC.
QUARTERLY REPORT ON FORM 10-Q
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded by, or contain, words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “predict,” “potential,” “might,” “could,” “would,” “should” or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, without limitation, statements about our future business operations and results, our strategy and competition. These statements represent our current expectations or beliefs concerning various future events and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations, including, but not limited to:
| ● | 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. |
| ● | We hold a substantial amount of accounts receivable, which may become uncollectible. |
| ● | We face fines and penalties from the Chinese government for not completing required filings. |
| ● | Our capacity to uphold the quality and safety standards of our products. |
| ● | Our ability to compete effectively within the touchscreen display industry. |
| ● | Without substantial additional financing, our ability to execute our business plan will be compromised. |
| ● | Failure to secure a new parcel for constructing our new buildings and facilities, 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. |
| ● | 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. |
| ● | Significant interruptions in the operations of our third-party suppliers could potentially disrupt our operations. |
| ● | Risks associated with fluctuations in the cost, availability, and quality of raw materials may adversely affect our results of operations. |
| ● | We are reliant on key executives and highly qualified managers, and retention cannot be assured. |
ii
| ● | Absence of long-term contracts with our suppliers allows them to reduce order quantities or terminate sales to us at any time. |
| ● | Failure to adopt new technologies to evolving customer needs or emerging industry standards may materially and adversely affect our business. |
| ● | Lack of business liability or disruption insurance exposes us to significant costs and business disruption. |
| ● | 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. |
| ● | 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. |
| ● | Changes in China’s economic, political, or social conditions or government policies may adversely affect our business and operations. |
| ● | Uncertainties regarding the PRC legal system, including enforcement and sudden changes in laws and regulations, could adversely affect us and limit legal protections. |
| ● | Fluctuations in exchange rates could materially and adversely affect our results of operations and your investment value. |
| ● | The other risks and uncertainties discussed under the section titled “Risk Factors” beginning on page 12 of this Quarterly Report and our other filings with the Securities and Exchange Commission. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in the foregoing documents by these cautionary statements.
iii
Item 1. Financial Statements
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March
31, 2025 | December
31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to a related party | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities- current | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Operating lease liabilities- non current | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ | $ | $ | ||||||
| Additional paid in capital* | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| REVENUES | $ | $ | ||||||
| Cost of revenues | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Research and development expenses | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ||||
| INCOME FROM OPERATIONS | ||||||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ||||||
| Other income | ||||||||
| Gain on changes in fair value of common stock purchase warrants liability | ||||||||
| TOTAL OTHER INCOME (EXPENSES) | ( | ) | ||||||
| INCOME BEFORE INCOME TAX EXPENSE | ||||||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ||||
| NET INCOME | $ | $ | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | ||||
| EARNINGS PER COMMON SHARE | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| 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 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
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* | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Issuance of common stock from the 2024 Public Offering, net of issuance costs | ||||||||||||||||||||||||||||
| Exercise of warrants issued in conjunction with legal/consultant services in 2020 and 2021 | ( | ) | ||||||||||||||||||||||||||
| Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 | ( | ) | ||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, |
||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities | ||||||||
| Allowance for credit loss | ||||||||
| Reversal of provision for obsolete inventory | ( |
) | ||||||
| Depreciation | ||||||||
| Amortization of discounts and issuance cost of the notes | ||||||||
| Amortization of operating Right-of-use assets | ||||||||
| (Gain) on changes in fair value of common stock purchase warrants liability | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ( |
) | ||||
| Inventories | ( |
) | ||||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Deferred tax assets | ( |
) | ||||||
| Accounts payable | ( |
) | ||||||
| Amounts due to related parties | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ( |
) | ||||||
| Operating lease liabilities | ( |
) | ||||||
| Net cash provided by (used in) operating activities | ( |
) | ||||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant and equipment | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock, net of issue costs | ||||||||
| Repayment of interest-free advances to a third party | ( |
) | ||||||
| Repayments of convertible promissory notes payable | ( |
) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of changes of foreign exchange rates on cash | ( |
) | ||||||
| Net increase (decrease) in cash | ( |
) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Interest paid | $ | $ | ||||||
| Issue costs charged to additional paid-in capital | $ | $ | ||||||
| Exercise of warrant shares | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BUSINESS DESCRIPTION
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
BVI
Wetouch is a holding company whose only asset, held through a subsidiary, is
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.
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 stockholder 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
On December 30, 2020, Sichuan Vtouch was incorporated in Chengdu, Sichuan, under the PRC laws.
F-5
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 stockholder of Sichuan Vtouch.
The following diagram illustrates the Company’s current corporate structure:
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The condensed consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements of Wetouch. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2024, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended.
In the opinion of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2025, the results of operations and cash flows for the three-month periods ended March 31, 2025 and 2024 have been made. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
F-6
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.
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 gain or loss from the deconsolidation in the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2023. The disposal of Sichuan Wetouch did not represent a strategic shift and did not have a major effect on the Company’s operation. There was no cash outflow for the disposal for the three months ended March 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, 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) Significant Accounting Policies
For a detailed discussion about Wetouch’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Wetouch’s consolidated financial statements included in Company’s 2024 audited consolidated financial statements. Other than the revised accounting policies on lease and segment reporting as below, during the three-month periods ended March 31, 2025, there were no significant changes made to Wetouch significant accounting policies.
F-7
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 12 months 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 Company’s 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 Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s 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 Company’s incremental borrowing rate (“IBR”), because the interest rate implicit in most of the Company’s leases is not readily determinable. The IBR is a hypothetical rate based on the Company’s 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 Company’s 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.
Segment reporting
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) or decision-making group, in deciding how to allocate resources and in assessing performance. The Company evaluated its portfolio of service to determine whether certain services exhibit similar characteristics, such that they should be grouped together in the Company’s disclosure. The Company derives revenue primarily from projects performed under: (i) master and general service contract with customers for electric power supply solutions, mainly for the design and installation of low voltage outlet cable and bridge, power distribution box and electric vehicle power station; (2) installation of power wires, power poles and electricity distribution equipment and facilities for power supply system upgrade for both residential and commercial projects. The Company’s services have similar economic characteristics with respect to construction project nature, raw materials and supplies to be used in the projects, vendors, marketing and promotions, customers and methods of distribution. The Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer (“CEO”), who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The CODM confers regularly to review trends in operating metrics, revisit, assess, and adjust significant strategic and operational matters, and make resource adjustments as needed. These discussions include exploring opportunities for project acquisition, responding immediately and effectively to operational adjustments, aligning ongoing business activities with corporate-level objectives, improving customer satisfaction, and enhancing corporate culture, among other management concerns. The primary measure of segment revenue and profitability for the Company’s operating segment is considered to be consolidated revenue and net income. Certain financial information, such as revenue, can be disaggregated, whereas cost of revenues, selling and marketing expenses, general and administrative expenses, research and development expenses and other income (expenses), are mixed and not disaggregated. Hence, with respect to costs of revenues and operating expenses and other income (expenses), no discrete financial information beyond the consolidated results is prepared and presented to the CODM.
As all of the Company’s assets are all located in the PRC, no geographical segment information of assets is presented. The CODM does not review any information regarding total assets on a reportable segment basis. Through the evaluation, the CODM determined that the Company has only one reporting segment.
F-8
Recent accounting pronouncements
On November 27, 2023, FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in ASU 2023-07 are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
On December 14, 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that entities disclose specific categories in their rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The new standard is effective for the Company beginning December 15, 2024, with early adoption permitted effective for fiscal years beginning January 1, 2024. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the consolidated financial statements to provide enhanced transparency into the expense captions presented on the face of the statement of income and comprehensive income. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, with early adoption permitted, and may be applied either prospectively or retrospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements. On January 6, 2025, FASB issued ASU 2025-01 that clarifies for non-calendar year-end entities the interim effective date of Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. Public business entities are required to adopt the guidance in Update 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of ASU 2024-03 will have on its related disclosures.
In March 2025, the FASB issued ASU 2025-02—Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122. The amendments in this Update are effective immediately and on a fully retrospective basis to annual periods beginning after December 15, 2024. The Company is currently evaluating the effect of adoption of this standard to its consolidated financial statements and disclosures.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
F-9
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
| March
31, 2025 | December 31,
2024 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit losses | ||||||||
| Accounts receivable, net | $ | $ | ||||||
The Company’s accounts receivable primarily includes balance due from customers when the Company’s products are sold and delivered to customers.
The following table provides an analysis of the aging of accounts receivable as of March 31, 2025 and December 31, 2024:
| March
31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Current | $ | $ | ||||||
| 1-3 months past due | ||||||||
| 4-6 months past due | ||||||||
| Total accounts receivable | $ | $ | ||||||
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| March
31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Advance to suppliers | $ | $ | ||||||
| Issuance cost related to convertible promissory notes | ||||||||
| Prepayment for land use right (i) | ||||||||
| Security deposit (ii) | ||||||||
| Prepaid consulting service fees (iii) | ||||||||
| Prepaid market research fees (iv) | ||||||||
| Others receivable (v) | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| (i) |
| (ii) | |
| (iii) | |
| (iv) | |
| (v) |
F-10
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET
| March
31, 2025 | December 31,
2024 | |||||||
| (Unaudited) | ||||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense was $
As
of March 31, 2025, the Company had commitment of RMB
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 RMB
On
March 16, 2021, in order to minimize interruption of the Company’s business, Sichuan Vtouch entered 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 RMB
The Company’s 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 three months ended March 31, 2025, 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 three months ended March 31, 2025.
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 three months ended March 31, 2025 and 2024 were as follows:
| For
the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Lease expense | (Unaudited) | (Unaudited) | ||||||
| Operating lease expense | $ | $ | ||||||
| Short-term lease expense | ||||||||
| Total lease expense | $ | $ | ||||||
F-11
The balances for the operating leases where the Company is the lessee are presented as follows:
| March
31, 2025 | December
31, 2024 | |||||||
| (Unaudited) | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Lease liabilities – current | ||||||||
| Lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2025:
| Operating lease | ||||
| (Unaudited) | ||||
| 2025 lease payment (from April 1, 2025 to December 31, 2025) | $ | |||
| 2026 lease payment | ||||
| Less: imputed interest | ||||
| Present value of lease liabilities | $ | |||
Lease term and discount rate:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Weighted-average remaining lease term (years) | (Unaudited) | |||||||
| Operating lease | ||||||||
| Weighted-average discount rate | ||||||||
| Operating lease | % | |||||||
Supplemental cash flow information related to leases where the Company was the lessee for the three months ended March 31, 2025 was as follows:
| For
the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Cash payments for operating lease | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | ||||||||
F-12
NOTE 7 — RELATED PARTY TRANSACTIONS
Amounts due to a related party are as follows:
| Relationship | March 31, 2025 | December 31, 2024 | Note | |||||||||
| (Unaudited) | ||||||||||||
| Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. | $ | $ | Payable to affiliate for expenses paid on behalf of the Company | |||||||||
| Total | $ | $ | ||||||||||
Chengdu Wetouch Intelligent Optoelectronics Co.,
Ltd., was incorporated on December 30, 2020 in Chengdu, Sichuan Province under the laws of PRC, with Ms. Jiaying Cai, a director of the
Company as its sole shareholder holding
NOTE 8 — INCOME TAXES
Wetouch
Wetouch
is subject to a tax rate of
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
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
Under
PRC CIT Law, domestic enterprises and foreign investment enterprises (the “FIEs”) are usually subject to a unified
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
F-13
Sichuan
Vtouch is subject to a
The
CIT Law and its implementation rules impose a withholding income tax at
The Company’s provision for income taxes credit (expenses) consisted of:
| For
the Three Months Ended March 31, | ||||||||
| PRC income tax | 2025 | 2024 | ||||||
| (Unaudited) | ||||||||
| Income tax provision | $ | $ | ||||||
| Deferred income tax expenses | ( | ) | ||||||
| Total | $ | $ | ||||||
| US | ||||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| Income tax provision | $ | $ | ||||||
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three months March 31, 2025 and 2024:
| For
the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| PRC statutory income tax rate | % | % | ||||||
| Income tax computed at PRC statutory corporate income tax rate of | % | % | ||||||
| Tax rate differential on entities not subject to PRC income | ( | )% | ( | )% | ||||
| R&D additional deduction | % | ( | )% | |||||
| Change in valuation allowance | % | % | ||||||
| Temporary differences | ( | )% | % | |||||
| Non-deductible expenses | % | % | ||||||
| Effective tax rate | % | % | ||||||
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-14
The Company’s deferred tax assets consisted of the following components:
| As of March 31, 2025 | As of December 31, 2024 | |||||||
| Deferred tax assets: | (Unaudited) | |||||||
| Credit loss on advance to vendors | $ | $ | ||||||
| Provision of obsolete inventory | ||||||||
| Leasing liabilities | ||||||||
| Total gross deferred tax assets | ||||||||
| Less valuation allowance | ||||||||
| Deferred tax assets net of valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Right-of-use assets | ( | ) | ( | ) | ||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of March 31, 2025 and December 2024, 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:
| March 31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Advance from customers | $ | $ | ||||||
| Accrued payroll and employee benefits | ||||||||
| Accrued legal compensation charges (i) | ||||||||
| Accrued professional fees | ||||||||
| Accrued director fees | ||||||||
| Other payable to third parties | ||||||||
| Other tax payables (ii) | ||||||||
| Others (v) | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
| (i) |
| (ii) | Others mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses. |
F-15
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 $
Unless
the Notes are converted, the principal amounts of the Notes, and accrued interest at the rate of
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 $
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
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.
During
the year ended December 31, 2023, principal and default charges totaling $
During
the year ended December 31, 2023, principal, accrued and unpaid interest and default charges totaling $
On February 23, 2024,
immediately upon the closing of the 2024 Public Offering, the Company made a full payment of $
During
the three months ended March 31, 2025 and 2024, amortization of discounts and issuance cost of the notes were and $
For
the three-month period ended March 31, 2025 and 2024, and US$
F-16
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
The
Note Warrants issued to the lenders granted the holders the rights to purchase up to
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
During
the year ended December 31, 2023, two lenders exercised the Note Warrants cashlessly for
During
the three months ended March 31, 2024, one lender exercised the Note Warrants cashlessly for
As
the Note Warrant was issued in 2021 and was valid for
During
the three months ended March 31, 2024, the Company recorded $
(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-17
NOTE 11 — STOCKHOLDERS’ EQUITY
1) Common Stock
The Company’s authorized shares of common
stock was
On December 22, 2020, the Company issued
On January 1, 2021, the Company issued an aggregate
of
On April 14, April 27 and September 1, 2022, the
Company issued
During the year ended
December 31, 2022, the Company issued
During the year ended
December 31, 2022, the Company issued
On January 19, 2023,
the Company sold an aggregate of
During the year ended December 31, 2023, the Company issued
On February
20, 2024, the Company issued
As of March
31, 2025 and December 31, 2024, there were
2) Reverse Stock Split
On February 17, 2023,
On July 16, 2023,
F-18
3) Closing of the 2024 Public Offering
On
February 23, 2024, the Company closed its offering of
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 $
4) Statutory Reserve and Restricted Net Assets
Under
PRC rules and regulations, all companies in the PRC are required to appropriate
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.
As of March 31, 2025
and December 31, 2024, the Company had reserve fund of US and US$
F-19
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
On
January 1, 2021, the board of directors of the Company authorized the issuance of an aggregate of
The
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
During
the year ended December 31, 2024, warrants for
As of March 31, 2025 and December 31, 2024, the Company recognized relevant share-based compensation expense of and for the vested shares, and and for the warrants, respectively.
F-20
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 Company’s 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 customer’s financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded management’s 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 RMB
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 Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company’s 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 People’s 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 to 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 three-month period ended March 31, 2025 and 2024, five customers accounted for
The
Company’s top ten customers aggregately accounted for an aggregate of
As
of March 31, 2025, six customers accounted for
The
Company purchases its raw materials through various suppliers. Raw material purchases from these suppliers which individually exceeded
10% of the Company’s total raw material purchases, accounted for an aggregate of approximately
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 management’s 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 March 31, 2025, the Company had commitment of RMB
F-21
NOTE 16 — SEGMENT REPORTING
The
Company determined that it operated in
The Company primarily operates in People’s Republic of China (“PRC”). and substantially all of the Company’s long-lived assets are located in the PRC.
| 1) |
| Three-Month
Period Ended March 31 | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Sales in PRC | $ | $ | ||||||
| Sales in Overseas | ||||||||
| -Republic of China (ROC, or Taiwan) | ||||||||
| -South Korea | ||||||||
| -Others | ||||||||
| Sub-total | ||||||||
| Total revenues | $ | $ | ||||||
| 2) |
| Three-Month
Period Ended March 31 | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Revenues | $ | $ | ||||||
| Less: | ||||||||
| Cost of revenues | ||||||||
| Allowance for credit losses | ||||||||
| Reversal of provision of obsolete inventory | ( | ) | ||||||
| Staff cost | ||||||||
| (Gain) on changes in fair value of common stock purchase warrants liability. | ( | ) | ||||||
| Amortization of discounts and issue cost of the notes | ||||||||
| Depreciation expense | ||||||||
| Lease expense | ||||||||
| Interest expense | ||||||||
| Income tax expense | ||||||||
| Other segment items* | ||||||||
| Segment net income | ||||||||
| Consolidated net income | $ | $ | ||||||
| Consolidated total assets | $ | $ | ||||||
| * |
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
RMB
F-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion should be read in conjunction with the Company’s consolidated financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from those expressed, implied or anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission. For more information regarding the risks and uncertainties of our business, See “Risk Factors”, “Cautionary Note Regarding Forward Looking Statement.”
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 Factors—Risks 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 Factors—Risks Related to Doing Business in China—As 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 Factors—Risks Related to Doing Business in China—Uncertainties 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.”
2
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.”
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.
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 three months ended March 31, 2025 and 2024, our domestic sales accounted for approximately 67.3% and 63.1%, respectively, of our revenues, and our international sales accounted for approximately 32.7% and 36.9%, 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 Quarterly Report has been retroactively adjusted to reflect these actions. For more details, see “Item 1. Business - Corporate History and Structure - Reverse Stock Splits” of the 2024 Form 10-K.
Construction of our new facility
We have been actively engaged in the construction of our new production facilities and office buildings in Chengdu Medicine City (Technology Park), Wenjiang District, Chengdu, Sichuan Province, Peoples’s Republic of China since the summer of 2023. The Company has planned to increase the scope of facility construction by adding a touch machine construction area, to be completed by the end of 2025.
As of the date of this Quarterly Report, we estimate to finish the building construction by the end of 2025 and commence production in the second quarter of 2026. In consideration of the capital requirements for the new facility construction, we plan to fund the project primarily with our existing cash on hand, which totaled approximately $106.4 million as of March 31, 2025, and cash flows generated from operations, and we may seek additional financing if needed to support the timely completion of the project.
Highlights for the three-month period ended March 31, 2025 include:
| ● | Revenues were $15.3 million, an increase of 2.7% compared to $14.9 million in the first quarter of 2024 |
| ● | Gross profit was $5.6 million, an increase of 69.7% compared to $3.3 million in the first quarter of 2024 |
| ● | Gross profit margin was 36.9%, compared to 22.4% in the first quarter of 2024 |
| ● | Net income was $2.5 million, an increase of 316.7% compared to $0.6 million in the first quarter of 2024 |
| ● | Total volume shipped was 762,545 units, an increase of 11.9% compared to 681,370 units in the first quarter of 2024 |
3
Results of Operations
The following table sets forth, for the periods indicated, statements of income data:
| (in US Dollar millions, except percentage) | Three-Month
Period Ended March 31, | Change | ||||||||||
| 2025 | 2024 | % | ||||||||||
| Revenues | $ | 15.3 | $ | 14.9 | 2.7 | % | ||||||
| Cost of revenues | (9.7 | ) | (11.6 | ) | (16.4 | )% | ||||||
| Gross profit | 5.6 | 3.3 | 69.7 | % | ||||||||
| Total operating expenses | (1.6 | ) | (1.0 | ) | (60.0 | )% | ||||||
| Operating income | 4.0 | 2.3 | 73.9 | % | ||||||||
| Total other income (expenses) | 0.0 | (1.1 | ) | (100.0 | )% | |||||||
| Interest expense | 0.0 | (1.2 | ) | (100.0 | )% | |||||||
| Income before income taxes | 4.0 | 1.2 | 233.3 | % | ||||||||
| Income tax expense | (1.5 | ) | (0.6 | ) | 150.0 | % | ||||||
| Net income | $ | 2.5 | $ | 0.6 | 316.7 | % | ||||||
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Revenues
We generated revenue of $15.3 million for the three months ended March 31, 2025, an increase of $0.4 million, or 2.7%, compared to $14.9 million in the same period of last year. This was due to an increase of 11.9% in sales volume, and partially offset by a decrease of 6.9% in the average selling price of our products , and 1.2% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with that of the same period of last year.
| For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| (in US Dollar millions except percentage) | ||||||||||||||||||||||||
| Revenue from sales to customers in Mainland China | $ | 10.3 | 67.3 | % | $ | 9.4 | 63.1 | % | $ | 0.9 | 9.6 | % | ||||||||||||
| Revenue from sales to customers overseas | 5.0 | 32.7 | % | 5.5 | 36.9 | % | (0.5 | ) | (9.1 | )% | ||||||||||||||
| Total Revenue | $ | 15.3 | 100 | % | $ | 14.9 | 100 | % | $ | 0.4 | 2.7 | % | ||||||||||||
| For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||||||||||
| Unit | % | Unit | % | Unit | % | |||||||||||||||||||
| (in UNIT, except percentage) | ||||||||||||||||||||||||
| Units sold to customers in Mainland China | 508,650 | 66.7 | % | 432,050 | 63.4 | % | 76,600 | 17.7 | % | |||||||||||||||
| Units sold to customers overseas | 253,895 | 33.3 | % | 249,320 | 36.6 | % | 4,575 | 1.8 | % | |||||||||||||||
| Total Units Sold | 762,545 | 100 | % | 681,370 | 100 | % | 81,175 | 11.9 | % | |||||||||||||||
(i) PRC Domestic Market
For the three months ended March 31, 2025, revenue from the PRC domestic market increased by $0.9 million, or 9.6%, as a combined result of: (i) an increase of 17.7% in sales volume, partially offset by (ii) a decrease of 5.3% in the average RMB selling price of our products, and partially offset by 1.2% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with that of the same period of last year.
4
As for the RMB selling price, the decrease of 5.3% was mainly due to the lower demand of higher selling priced products of touchscreen machines in the PRC domestic market, including the decreased average RMB selling price of 25.5% in medical touchscreens and 1.2% in industrial control computer touchscreens during the three-month period ended March 31, 2025.
Due to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 19.7% in South China, and 18.4% in East China, partially offset by a decrease of 1.5% in Southwest China during the three months ended March 31, 2025.
(ii) Overseas Market
For the three-month period ended March 31, 2025, revenues from the overseas market were $5.0 million as compared to $5.5 million of the same period of 2024, representing a decrease by $0.6 million, or 10.9%, mainly due to an decrease of 9.9% in average selling price in RMB due to the lower demand on touchscreen machines in medical touchscreens, industrial control computer touchscreens, and automotive touchscreens, and 1.2% negative impact from exchange rate due to depreciation of RMB against US dollars, partially offset by the increase of 1.8% in sales volume due to increased sales in industrial control computer touch screens and gaming touchscreens,
The following table summarizes the breakdown of revenues by categories in US dollars:
| Revenues For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | Margin% | |||||||||||||||||||
| (in US Dollars, except percentage) | ||||||||||||||||||||||||
| Product categories by end applications | ||||||||||||||||||||||||
| Automotive Touchscreens | $ | 3,960,497 | 25.9 | % | $ | 4,185,270 | 28.1 | % | $ | (224,773 | ) | (5.4 | )% | |||||||||||
| Industrial Control Computer Touchscreens | 3,235,073 | 21.2 | % | 2,847,660 | 19.2 | % | 387,413 | 13.6 | % | |||||||||||||||
| POS Touchscreens | 2,411,031 | 15.8 | % | 2,114,099 | 14.2 | % | 296,932 | 14.0 | % | |||||||||||||||
| Gaming Touchscreens | 2,320,592 | 15.1 | % | 2,172,475 | 14.6 | % | 148,117 | 6.8 | % | |||||||||||||||
| Medical Touchscreens | 1,949,656 | 12.8 | % | 2,414,961 | 16.2 | % | (465,305 | ) | (19.3 | )% | ||||||||||||||
| Multi-Functional Printer Touchscreens | 1,412,727 | 9.2 | % | 1,142,794 | 7.7 | % | 269,933 | 23.6 | % | |||||||||||||||
| Total Revenue | $ | 15,289,578 | 100.0 | % | $ | 14,877,259 | 100.0 | % | $ | 412,319 | 2.7 | % | ||||||||||||
| * | 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 products such as industrial control computer touchscreens POS touchscreens, gaming touchscreens, and multi-functional printer touchscreens, primarily due to (i) greater growth potential of computer screen models in China and overseas market, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.
Gross Profit and Gross Profit Margin
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| Gross Profit | $ | 5.6 | $ | 3.3 | $ | 2.3 | 69.7 | % | ||||||||
| Gross Profit Margin | 36.9 | % | 22.4 | % | 14.5 | % | ||||||||||
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Gross profit was $5.6 million in the first quarter ended March 31, 2025, compared to $3.3 million in the same period of 2024. Our gross profit margin increased to 36.9% for the first quarter ended March 31, 2025, as compared to 22.4% for the same period of 2024, primarily due to the increase of revenues by 2.7% and the decrease of cost of goods sold by 22.1% resulting from the decrease of costs of raw materials of the touch screens machine production, partially offset by the increase of labor costs market during the first three months ended March 31, 2025.
Selling Expenses
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| Selling Expenses | $ | 0.1 | $ | 0.5 | $ | (0.4 | ) | (80.0 | )% | |||||||
| as a percentage of revenues | 0.6 | % | 3.4 | % | (2.8 | )% | ||||||||||
Selling expenses were $0.1 million for the three-month period ended March 31, 2025, compared to $0.5 million in the same period in 2024, representing a decrease of $0.4 million, or 80.0%. The decrease was primarily due to the less traveling expenses as the selling team using online communications to market the products during the three months ended March 31, 2025.
General and Administrative Expenses
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| General and Administrative Expenses | $ | 1.6 | $ | 0.5 | $ | 1.1 | 220.0 | % | ||||||||
| as a percentage of revenues | 10.5 | % | 3.4 | % | 7.1 | % | ||||||||||
General and administrative expenses were $1.6 million for the three-month period ended March 31, 2025, compared to $0.5 million in the same period in 2024, representing an increase of $1.1 million, or 220.0%. The increase was primarily due to the increase of $0.5 million professional fees and $0.5 million of amortization of prepaid marketing research fees (see Note 3 of the accompanying financial statements) and $0.1 million of miscellaneous expenses including $45,739 allowance for credit losses of advance to vendors during the three months ended March 31, 2025.
Research and Development Expenses
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in US dollars, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| Research and Development Expenses | $ | - | $ | 42,738 | $ | (42,738 | ) | (100.0 | )% | |||||||
| as a percentage of revenues | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||
Research and development expenses were nil and $42,738 for three-month period ended March 31, 2025, and 2024, respectively.
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Operating Income
Total operating income was $4.0 million for the three-month period ended March 31, 2025 as compared to $2.3 million of the same period of last year, primarily due to higher gross margin and lower selling expenses, partially offset by higher general and administrative expenses for the three-month period ended March 31, 2025.
Interest Expenses
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| Interest Expenses | $ | 0.0 | $ | 1.2 | $ | (1.2 | ) | (100.0 | )% | |||||||
| as a percentage of revenues | 0.0 | % | 8.1 | % | (8.1 | )% | ||||||||||
For the three-month period ended March 31, 2025 and 2024, interest expenses were nil and $1.2 million respectively. The Company recognized interest expenses of convertible promissory notes in the amount of $1,169,974 (mainly the default interest charges of $1,145,995 upon the repayment of the notes payable) and $33,399, respectively. (See Note 10 (a) of the accompanying financial statements).
Income Taxes
| Three-Month
Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2025 | 2024 | Amount | % | ||||||||||||
| Income before Income Taxes | $ | 4.0 | $ | 1.2 | $ | 2.8 | 233.3 | % | ||||||||
| Income Tax (Expense) | (1.5 | ) | (0.6 | ) | (0.9 | ) | 150.0 | % | ||||||||
| Effective income tax rate | 36.5 | % | 54.2 | % | (17.7 | )% | ||||||||||
The effective income tax rates for the three-month period ended March 31, 2025 and 2024 were 36.5% and 54.2%, respectively.
Net Income
As a result of the above factors, we had a net income of $2.5 million in the first quarter of 2025 compared to a net income of $0.6 million in the same quarter of 2024.
Liquidity and Capital Resources
Historically, our primary uses of cash have been to finance working capital needs. We expect to be able to meet our needs to fund operations, capital expenditures, and other commitments over the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.
However, we may require additional cash resources due to changes in business conditions or other future developments. If these sources prove insufficient to meet our cash requirements, we may seek to raise additional funds through the sale of equity or debt securities or by obtaining a credit facility. Any issuance of additional equity or equity-linked securities could dilute the ownership interests of existing shareholders, while the incurrence of additional indebtedness would increase our debt service obligations and could subject us to operating and financial covenants that may restrict our business activities. There can be no assurance that financing will be available in the necessary amounts, on terms acceptable to us, or at all.
As of March 31, 2025, we had current assets of $119.8 million, consisting of $106.4 million in cash, $11.1 million in accounts receivable, $0.1 million in inventories, and $2.2 million in prepaid expenses and other current assets Our current liabilities as of March 31, 2025 were $5.4 million, which is comprised of $1.6 million in accounts payable, $0.4 million in amounts due to a related party, $1.3 million in income tax payable, $1.6 million in accrued expenses and other current liabilities. and $0.6 million in operating lease liabilities, current portion. We also had $0.4 million in operating lease liabilities, non- current as of March 31, 2025.
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The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the three-month periods ended March 31, 2025 and 2024:
| Three-Month
Period Ended March 31, | ||||||||
| (in US Dollar millions) | 2025 | 2024 | ||||||
| Net cash provided by (used in) provided by operating activities | $ | 2.0 | $ | (9.2 | ) | |||
| Net cash used in investing activities | (0.0 | ) | (0.1 | ) | ||||
| Net cash provided by financing activities | 0.0 | 7.5 | ||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 0.6 | (1.4 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 2.7 | (3.2 | ) | |||||
| Cash and cash equivalents at the beginning of period | 103.7 | 98.0 | ||||||
| Cash and cash equivalents at the end of period | $ | 106.4 | $ | 94.8 | ||||
Operating Activities
Net cash provided by operating activities was $2.0 million for the three months ended March 31, 2025 as compared to net cash used in operating activities of $9.2 million for the same period of the last year.
The positive cash flow for the three months ended March 31, 2025 was primarily due to i) $2.5 million net income, ii) the decrease of $0.5 million in prepaid expenses and current assets, iii) the increase of in $0.3 million accounts payable, $0.3 million due to a related party, $1.3 million in tax payable and $0.6 million in accrued expenses and current liabilities, partially offset by iv) the increase of $3.5 million in accounts receivable.
The negative cash flow for the three months ended March 31, 2024 was primarily due to i) increase of $3.6 million in accounts receivable, $3.4 million in prepaid expenses and current assets, ii) the decrease of $3.4 million in accrued expenses and current liabilities, partially offset by iii) net income of $0.6 million and iv) the increase of $0.6 million in income tax payable.
Investing Activities
There was no cash flow in investing activities for the three-month period ended March 31, 2025.
Net cash used in investing activities for the three-month period ended March 31, 2024 was $0.1 million for the purchase of property, plant and equipment.
Financing Activities
There was no cash flow in investing activities for the three-month period ended March 31, 2025.
Net cash provided by financing activities for the three months ended March 21, 2024 was $7.5 million, including $9.0 million in net proceeds from the 2024 Public Offering, partially offset by $1.4 million repayment of convertible promissory notes, and $82,864 repayment of interest-free advances to a third party.
As of March 31, 2025, our cash and cash equivalents were $106.4 million, as compared to $103.7 million at December 31, 2024.
Days Sales Outstanding (“DSO”) has decreased to 55 days for the three-month period ended March 31, 2025 from 64 days for the year ended December 31, 2024.
The majority of the Company’s revenues and expenses were denominated in Renminbi (“RMB”), the currency of the People’s 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 Company’s business.
8
Based on past performance and current expectations, we believe our cash and cash equivalents provided by operating activities and financing activities will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months.
Holding Company Structure
There have been no changes to the Company’s holding company structure during the three months ended March 31, 2025. For more details, refer to the Company’s holding company structure disclosures set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Holding Company Structure” of the 2024 Form 10-K.
Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries
Please see “ITEM 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations- Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries” of the 2024 Form 10-K for more details.
Capital Expenditure Commitment
As of March 31, 2025, 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 March 31, 2025.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2024 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2024 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2025, as a result of the material weakness identified below.
9
In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP. Based on such analysis and notwithstanding the identified material weakness, management, including our Chief Executive Officer and Chief Financial Officer, believe the unaudited condensed consolidated financial statements included in this Quarterly Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
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.
Material Weakness
In connection with the audit of the financial year ended December 31, 2024, we identified certain control deficiencies in the design and operation of our internal controls over our financial reporting that constituted a material weakness in aggregation. A “material weakness” 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 company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses related to internal control over financial reporting that was identified during the annual report of 2024 and still applied as of March 31, 2025 were:
| ● | 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; |
| ● | 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.
10
Management’s 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:
| ● | Identify gaps in the Company’s skills base and the expertise of its staff required to meet the financial reporting requirements of a public company; and |
| ● | Continue to cooperate with operation teams to ensure a control environment in place, and monitor the effectiveness of operations on existing controls and procedures. |
| ● | Establish procedures to assess compliance requirements under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and improve overall internal control. |
During the first quarter of 2025, the management has not addressed the material weaknesses on internal control and will continue to implement the above improvement plans to ensure our financial reporting in compliance with US GAAP and SEC filing requirements.
The Company recognizes that the material weaknesses in its internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because the Company’s remediation efforts are ongoing, it cannot provide any assurance that these remediation efforts will be successful or that its internal control over financial reporting will be effective as a result of these efforts.
The Company will continue to evaluate and work to improve its internal control over financial reporting related to the identified material weaknesses, and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. The Company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.
Changes in Internal Control over Financial Reporting
As described above, the Company is taking steps to remediate the material weakness noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
11
PART II - Other Information
Item 1. 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 management’s time and attention.
As of the date of this Quarterly 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously reported in our Current Reports on Form 8-K, we did not undertake any unregistered sales of our equity securities during the quarter ended March 31, 2025.
During the quarter ended March 31, 2025, we did not repurchase any shares of our common stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item
5.
Not applicable.
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Item 6. Exhibits
| * | Filed herewith |
| ** | Furnished herewith |
| (1) | Filed as an exhibit to the Company’s registration statement on Form S-1, File No. 333-270726 and incorporated herein by reference. |
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SIGNATURES
In accordance with the requirements of Securities Exchange Act of 1934, the registrant has caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ Zongyi Lian | |
| Date: October 8, 2025 | Zongyi Lian | |
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| By: | /s/ Xing Tang | |
| Date: October 8, 2025 | Xing Tang | |
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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