Wetouch Technology Inc 10-Q for FY2024 Q3
Wetouch Technology Inc. (WETH)
About this 10-Q
Wetouch Technology Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $11.54M
- up 3.7% from $11.12M a year earlier
- Net income
- $2.66M
- down 6.9% from net income of $2.86M a year earlier
- Diluted EPS
- $0.22
- down 24.1% from $0.29 a year earlier
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)
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| | ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s 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 | ||
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 was required to submit
such files).
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 November 12, 2024, there were
WETOUCH TECHNOLOGY INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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 of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (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. |
| ● | Dismissing BF Borgers may cause significant expenses or delays in financings or SEC filings, affecting our stock price and market access. |
| ● | You are unlikely to collect judgments or exercise remedies against BF Borgers for their work as our auditor. |
| ● | 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 . |
| ● | 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 13 of this Quarterly Report and our other filings with the Securities and Exchange Commission. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with. 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. The forward-looking statements made in this Quarterly Report relate only to events or information as of the date of this Quarterly Report. Except as required by law, 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, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
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
(Currency expressed in United States Dollars (“US”), except for number of shares)
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to related parties | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Convertible promissory notes payable | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Common stock purchase warrants liability | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 13) | ||||||||
| 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 INCOME
(Currency expressed in United States Dollars(“US”),except for number of shares)
(Unaudited)
| Three-Month Period Ended | Nine-Month Period Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OPERATING EXPENSES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME FROM OPERATIONS | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income | ||||||||||||||||
| Gain (loss)on changes in fair value of common stock purchase warrants liability | ( | ) | ( | ) | ||||||||||||
| TOTAL OTHER INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME BEFORE INCOME TAX EXPENSE | ||||||||||||||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME | $ | $ | $ | $ | ||||||||||||
| OTHER COMPREHENSIVE INCOME | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| COMPREHENSIVE INCOME | $ | $ | $ | $ | ||||||||||||
| 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
(Currency expressed in United States Dollars(“US”),except for number of shares)
(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 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Shares issued to private placement | ||||||||||||||||||||||||||||
| Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 | ( | ) | ||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Fraction shares issued due to reverse stock split | ( | ) | ||||||||||||||||||||||||||
| Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 | ( | ) | ||||||||||||||||||||||||||
| Stock issuance for convertible promissory notes payable | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| 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 June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of September 30, 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
(Currency expressed in United States Dollars(“US”),except for number of shares)
(Unaudited)
| For the Nine Months Ended September, 30 | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash (used in) provided by operating activities | ||||||||
| Depreciation | ||||||||
| Amortization of discounts and issuance cost of the notes | ||||||||
| (Gain) loss on changes in fair value of common stock purchase warrants liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Amounts due from related parties | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Amounts due to related parties | ( | ) | ||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activity | ||||||||
| Purchase of property, plant and equipment | ( | ) | ||||||
| Net cash used in investing activity | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock, net of issue costs | ||||||||
| Proceeds from stock issuance of private placement | ||||||||
| Proceeds from advances from related parties | ||||||||
| Repayments of convertible promissory notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of changes of foreign exchange rates on cash | ( | ) | ||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Issue costs charged to additional paid-in capital | $ | $ | ||||||
| Exercise of warrant shares | $ | $ | ||||||
| Cashless stock issuance for convertible promissory notes payable | $ | $ | ||||||
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 — 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
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.
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 stockholder meeting.
Sichuan Wetouch was formed
on May 6, 2011 in the PRC and became a wholly foreign-owned enterprise (“WFOE”) in the 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 subject to a 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 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, 2023 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, 2023, and the related consolidated statements of income and comprehensive income (loss), changes in stockholders’ 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 September 30, 2024, the results of operations and cash flows for the nine months ended September 30, 2024 and 2023 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 Sichuan Wetouch 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.
| 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 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, and revenue recognition. 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 2023 audited consolidated financial statements. Other than the revised accounting policy on property, plant and equipment, net, as below, during the nine months ended September 30, 2024, there were no significant changes made to Wetouch significant accounting policies.
Property, plant and equipment, net
| Useful life | ||||
| Buildings | ||||
| Machinery and equipment | ||||
| Vehicles |
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 Company’s 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 first quarter of 2025 and will transfer construction in progress to property, plant and equipment to start depreciation.
F-7
NOTE 3 — ACCOUNTS RECEIVABLE
| September 30, 2024 |
December 31, 2023 |
|||||||
| Accounts receivable | $ | $ | ||||||
The Company’s accounts receivable primarily includes balance due from customers when the Company’s products are sold and delivered to customers.
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
| September 30, 2024 |
December 31, 2023 |
|||||||
| 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-8
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET
| September 30, 2024 | December 31, 2023 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense was $
Pursuant to local PRC government guidelines on
local environment issues and the national overall plan, Sichuan Wetouch was subject to a government directed relocation order to relocate
by no later than December 31, 2021 with corresponding compensation. On March 18, 2021, pursuant to the agreement with the local government
and an appraisal report issued by a mutual agreed appraiser, Sichuan Wetouch received a compensation 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
As of September 30, 2024, the Company had commitment of RMB
F-9
NOTE 6 — RELATED PARTY TRANSACTIONS
| Relationship | September 30, 2024 | December 31, 2023 | Note | |||||||||
| Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. | $ | $ | Payable to affiliate for expenses paid on behalf of the Company | |||||||||
| Chengdu Frejoo Enterprise Management Co., Ltd. | Payable to affiliate for expenses paid on behalf of the Company | |||||||||||
| Total | $ | $ | ||||||||||
Chengdu Wetouch Intelligent Optoelectronics Co.,
Ltd. was incorporated on
Chengdu Frejoo Enterprise Management Co., Ltd.
was incorporated on March 20, 2018 in Chengdu, Sichuan Province under the laws of PRC, with Ms. Jiaying Cai, a director of the Company
as its major shareholder holding
NOTE 7 — 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 stockholders.
Hong Kong
HK Wetouch is subject to profit taxes in Hong
Kong at a progressive rate of
PRC
Sichuan Vtouch files income tax returns in the
PRC. Effective from January 1, 2008, the PRC statutory income tax rate is
Sichuan Vtouch is subject to a
The effective income
tax rates for the nine months ended September 30, 2024 and 2023 were
The estimated effective income tax rate for the year ending December 31, 2024 would be similar to actual effective tax rate of the nine months ended September 30, 2024.
F-10
NOTE 8 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| September 30, 2024 |
December 31, 2023 |
|||||||
| Advance from customers (i) | $ | $ | ||||||
| Accrued payroll and employee benefits | ||||||||
| Accrued interest expenses | ||||||||
| Accrued private placement agent fees (ii) | ||||||||
| Accrued consulting fees (iii) | ||||||||
| Accrued litigation charges (iv) | ||||||||
| Accrued professional fees | ||||||||
| Accrued director fees | ||||||||
| Other payable | ||||||||
| Other tax payables (v) | ||||||||
| Others (vi) | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
| (i) | |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
F-11
NOTE 9 — 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 $
The details of the Notes are as follows:
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 two amendments to the Notes extending the term of the Notes for a total of 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 $
F-12
On February 23, 2024, immediately upon the closing of the public offering
(the “2024 Public Offering”), the Company made a full payment of $
During the nine months ended September 30, 2024
and 2023, amortization of discounts and issuance cost of the notes were $
For
the three months ended September 30, 2024 and 2023, the Company recognized interest expenses
of the Notes in the amount of and $
For the
nine months ended September 30, 2024 and 2023, the Company recognized interest expenses of the Notes in the amount of $
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 nine months
ended September 30, 2024, one lender exercised the Note Warrants cashlessly for
F-13
| September 30, 2024 | ||||||||||||||||||||||||||||
| Volatility (%) | Expected dividends yield (%) | Weighted average expected life (year) | Risk-free interest rate (%) (per annum) | Common stock purchase warrants liability as of December 31, 2023 ($) | Changes in fair value of common stock purchase warrants liability (+ loss/(- (gain) ($) | Common stock purchase warrants liability as of September 30, 2024 ($) | ||||||||||||||||||||||
| Convertible Note - Talos Victory (Note 9 (a)) | % | % | % | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Convertible Note - First Fire (Note 9 (a)) | % | % | % | ( | ) | |||||||||||||||||||||||
| Convertible Note - LGH (Note 9 (a)) | % | % | % | ( | ) | |||||||||||||||||||||||
| Convertible Note - Fourth Man (Note 9 (a)) | % | % | % | ( | ) | |||||||||||||||||||||||
| Convertible Note - Jeffery Street (Note 9 (a)) | % | % | % | ( | ) | |||||||||||||||||||||||
| Convertible Note - Blue Lake (Note 9 (a)) | % | % | % | ( | ) | |||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||||||||||||||
(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.
NOTE 10 — 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
F-14
During the year ended December 31, 2023, the Company issued
During the year ended December 31, 2023, the Company issued
On February
20, 2024, the Company issued
As of September 30,
2024, there were
2) Reverse Stock Split
On February 17, 2023,
On July 16, 2023,
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 $
F-15
NOTE 11 — 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 nine months ended September 30, 2024,
warrants for
As of September 30, 2024 and 2023, the Company recognized relevant share-based compensation expense of and for the vested shares, and and for the warrants, respectively.
F-16
NOTE 12 — 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 months ended September 30, 2024, five customers accounted for approximately
For the nine months ended September 30, 2024,
five customers accounted for approximately
The Company’s top ten customers aggregately
accounted for
The Company purchases its raw materials through various suppliers.
Raw material purchases from these suppliers which individually exceeded
F-17
NOTE 13 — COMMITMENTS AND CONTINGENCIES
Contingencies
The Company’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “WETH” on February 21, 2024. The Company failed to timely complete the filing procedures with China Securities Regulatory Commission (“CSRC”) on overseas offering and transfer of listing pursuant to the regulations below:
| 1) | Pursuant to Article 13 and Article 8 and Article 25 of CSRC Announcement (2023) No. 43 -Trial Measures for the Administration of Overseas Issuance and Listing of Securities for Domestic Enterprises” (the “Trial Measures”), which was effective on March 31, 2023 ( http://www.csrc.gov.cn/csrc/c101954/c7124478/content.shtml), when an issuer conducts an overseas offering or listing, it shall submit overseas issuance and listing application documents to CSRC within three working days of submitting its application documents for transfer and listing overseas; when a domestic enterprise transfers its listing overseas, it shall comply with the requirements of the overseas first public listing requirements for issuance and listing, and shall file with the CSRC within 3 working days, after its submitting application documents for transfer and listing overseas. |
| 2) | Article 27 of Trial Measures stipulates that if a domestic enterprise violates the provisions of Article 13 of these Measures and fails to perform the filing procedures, or violates the provisions of Articles 8 and 25 of these Measures for overseas issuance and listing, CSRC shall order it to make corrections and give a warning, and impose a fine of not less than RMB |
As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from the CSRC.
Legal Proceedings
From time to time, the Company and its subsidiaries are parties to various legal actions arising in the ordinary course of business. Although Hong Kong Wetouch, Sichuan Wetouch, the deconsolidated subsidiary of the Company (see Note 2-(a) - Deconsolidation of Sichuan Wetouch), Sichuan Vtouch and Mr. Guangde Cai, the former Chairman and director of the Company, were named as defendants in several litigation matters, as of the date of this Quarterly Report, some of which have been settled and Sichuan Wetouch, Hong Kong Wetouch and Mr. Guangde Cai were unconditionally and fully discharged and released therefrom. Below is a summary of the above-mentioned litigation.
| i) | A share transfer dispute case with Yunqing Su for a disputed amount of RMB |
On June 22, 2017, Yunqing Su, a former shareholder
of Sichuan Wetouch, entered into an Equity Investment Agreement with Sichuan Wetouch and Guangde Cai, pursuant to which Yunqing Su would
invest RMB
On May 9, 2022, pursuant to a civil mediation
statement issued by the Renshou County People’s Court of Sichuan Province, Sichuan Wetouch and Guangde Cai agreed to repay Yunqing
Su the remaining principal balance plus interest in the total amount of RMB
| ii) | Legal case with Chengdu SME Credit Guarantee Co., Ltd. on a court acceptance fee of RMB |
On July 5, 2013, Sichuan Wetouch obtained a one-year
loan of RMB
On July 31, 2014, Sichuan Wetouch repaid RMB
F-18
Chengdu SME applied to the Chengdu High-tech Court
for enforcement of the above-mentioned loan default penalties of RMB
On September 16, 2020, Sichuan Wetouch made a
full repayment of RMB
On March 16, 2023, pursuant to an Enforcement
Settlement Agreement entered among Chengdu SME, Sichuan Wetouch and Chengdu Wetouch, Chengdu Wetouch agreed to pay the court acceptance
fee of RMB
| iii) | Legal case with Lifan Financial Leasing (Shanghai) Co., Ltd. and Sichuan Wetouch, Chengdu Wetouch, Meishan Wetouch and Xinjiang Wetouch Electronic Technology Co., Ltd. on a court acceptance fee of RMB |
On November 20, 2014, Lifan Financial Lease (Shanghai)
Co., Ltd. (“Lifan Financial”) and Chengdu Wetouch entered into a Financial Lease Contract (Sale and Leaseback), which stipulated
that Lifan Financial shall lease the equipment to Chengdu Wetouch after the purchase of the production equipment owned by Chengdu Wetouch
at a purchase price lease principal of RMB
On August 9, 2021, Lifan Financial filed a lawsuit
against Chengdu Wetouch, Guangde Cai, Sichuan Wetouch, Meishan Wetouch and Xinjiang Wetouch in the Chengdu Intermediate People’s
Court. The court ruled that: 1) the Financial Lease Contract (Sale and Leaseback) was terminated; 2) the leased property was owned by
Lifan Financial; 3) Chengdu Wetouch shall pay Lifan Financial all outstanding rent and interest thereon in the total amount of RMB
The parties executed a settlement agreement on
March 7, 2023, pursuant to which the parties confirmed that the outstanding balance of RMB
| iv) | Legal case with Sichuan Renshou Shigao Tianfu Investment Co., Ltd and Renshou Tengyi Landscaping Co., Ltd. on a court acceptance fee of RMB |
On March 19, 2014, Chengdu Wetouch, a related
party, obtained a two- and half-year loan of RMB
Upon the loan due in January 2017, Chengdu Wetouch defaulted the loan, thus, CDHT Investment filed a lawsuit against Chengdu Wetouch, Sichuan Wetouch, and Hong Kong Wetouch demanding a full repayment of such debts.
Upon the expiration of the guarantee, Chengdu
Wetouch still defaulted on repayment. As a result, CDHT Investment levied this collateral of RMB
F-19
On December 2, 2019, pursuant to the reconciling agreement issued by
Chengdu Intermediate People’s Court, the parties agreed to cancel the demand to seize property of Sichuan Wetouch rather than the
property of Chengdu Wetouch, and to waive freezing Guangde Cai’s
On October 9, 2020, pursuant to a settlement and release agreement, Sichuan Wetouch, Hong Kong Wetouch and Guangde Cai are fully discharged and released from any and all obligations under the outstanding debts, and from all liabilities under guarantee with Chengdu Wetouch being responsible for the outstanding debts by December 31, 2020.
On October 27, 2020, Chengdu Wetouch made a full payment of the above debts.
The settlement and release agreement did not specify
which party shall pay the court acceptance fee. On March 10, 2023, pursuant to an enforcement settlement agreement entered among Sichuan
Renshou, Renshou Tengyi, Sichuan Wetouch, Chengdu Wetouch, and other relevant parties, Sichuan Wetouch agreed to pay the court acceptance
fee of RMB
| v) | Legal case with Chengdu High Investment Financing Guarantee Co. on a court acceptance fee of RMB |
On March 22, 2019, Chengdu High Investment Financing
Guarantee Co., Ltd, (“Chengdu High Investment”) filed a lawsuit against Hong Kong Wetouch in the Chengdu Intermediate People’s
Court, claiming that Hong Kong Wetouch was jointly liable as a guarantor for the debt payable by Chengdu Wetouch. On May 21, 2020, the
court rendered a judgment ordering Hong Kong Wetouch to pay compensation of RMB
On March 16, 2023, Chengdu Wetouch, Sichuan Wetouch
and Chengdu High Investment entered into a settlement enforcement agreement, confirming that Chengdu High Investment had received RMB
| vi) | Legal case with Hubei Lai’en Optoelectronics Technology Co., Ltd. on a product payment of RMB |
Sichuan Wetouch purchased products from Hubei
Lai’en Optoelectronics Technology Co., Ltd. (“Hubei Lai’en) multiple times from March to June 2019, but failed to pay
the corresponding amount of RMB
| vii) | Legal case with Chengdu Hongxin Shunda Trading Co., Ltd. on settlement of accounts payable and related fund interests totaling RMB |
In March 2022, Sichuan Vtouch purchase steel products from Chengdu
Hongxin Shunda Trading Co., Ltd. (“Chengdu Hongxin”) for facility construction, but failed to settle the accounts payable
on time. In July 2023, Chengdu Hongxin filed a lawsuit with Chengdu Wuhou District People’s Court against the Company and its new
facility constructors (the “three defendants”), of which Sichuan Chunqiu Development & Construction Group Co. Ltd. (“Chunqiu
Co.”) as the primary contractor, requesting the settlement of the remaining accounts payable and the corresponding fund interests,
penalties and legal fees, totaling of RMB
| viii) | Legal case with Mr. Guangchang Liu on a refund of equity transfer price and related interests totaling RMB |
In July 2022, Mr. Liu entered into an equity transfer
agreement with Mr. Guangde Cai and Sichuan Vtouch with the intention to subscribe the Company’s shares of
F-20
| ix) | Legal case with Sichuan Yali Cement Manufacturing Co., Ltd. and Sichuan Chunqiu Development & Construction Group Co. Ltd. on a debt payable of RMB RMB |
On August 10, 2021, Sichuan Yali Cement Manufacturing Co., Ltd. (“Yali Co.”) and Chunqiu Co. entered into construction materials purchase contract for Sichuan Vtouch’s new facility. Under this contract, Sichuan Vtouch was jointly liable for the payment settlement between Yali Co. and Chunqiu Co.
On February 15, 2023, Yali Co. filed a lawsuit
against Chunqiu Co. with the Chengdu Wenjiang District People’s Court, claiming that Chunqiu Co. should pay the remaining debt of
RMB RMB
On August 22, 2023, Chunqiu Co. appealed to Chengdu
Municipal Intermediate People’s Court against Yali Co. and Sichuan Vtouch, requesting Sichuan Vtouch to be responsible for this
debt payable. On October 30, 2023, the court ordered Chunqiu Co. to repay all the debts, and Sichuan Vtouch to bear the joint and several
liability for the above debts of Chunqiu Co. including a court fee of RMB
Capital Expenditure Commitment
As of September 30, 2024, the Company had commitment
of RMB
NOTE 14 — REVENUES
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sales in PRC | $ | $ | $ | $ | ||||||||||||
| Sales in Overseas | ||||||||||||||||
| -Republic of China (ROC, or Taiwan) | ||||||||||||||||
| -South Korea | ||||||||||||||||
| -Others | ||||||||||||||||
| Sub-total | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
F-21
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. See “Cautionary Note Regarding Forward Looking Statement.”
Overview
We were originally incorporated under the laws of the state of Nevada in August 1992. On October 9, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with BVI Wetouch and all the shareholders of BVI Wetouch, to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to such shareholders an aggregate of 28 million shares of our common stock (the “Reverse Merger”). The Reverse Merger closed on October 9, 2020. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary.
Through our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, Sichuan Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing, sales and servicing of medium to large sized projected capacitive touchscreens, which constitutes our source of revenues. We are specialized in large-format touchscreens, which are developed and designed for a wide variety of markets and used in by 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. 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, lottery and gaming industry; (iii) Plastic-Glass (“PG”), typically adopted by touchscreens in GPS/entertainment panels motor vehicle GPS, smart home, robots and charging stations; and (iv) Glass-Film (“GF”), mostly used in industrial HMI.
On July 16, 2023, the Company’s board of directors approved a reverse stock split of the Company’s 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 Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of its outstanding common stock. On September 11, 2023, the Company received a notice from FINRA/OTC Corporate Actions the reverse split would take effect at the open of business on September 12, 2023, and the reverse stock that split took effect on that date. All share information included in this Quarterly Report has been reflected as if the reverse stock splits occurred as of the earliest period presented.
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.
As of the date of this Quarterly Report, we anticipate completing the building construction, including the newly planned touch machine construction area by the end of the first quarter of 2025 and commence production in the third quarter of 2025.
2
Highlights for the three months ended September 30, 2024 include:
| ● | Revenues were $11.5 million, an increase of 3.6% from $ 11.1 million in the third quarter of 2023 |
| ● | Gross profit was $4.4 million, a decrease of 8.3% from $ 4.8 million in the third quarter of 2023 |
| ● | Gross profit margin was 38.4% as compared to 42.9% in the third quarter of 2023 |
| ● | Net income was $2.7 million, a decrease of 6.9% from $ 2.9 million in the third quarter of 2023 |
| ● | Total volume shipped was 548,335 units, a decrease of 1.6% from 557,503 units in the third quarter of 2023 |
Results of Operations
The following table sets forth, for the periods indicated, statements of income data:
| (in US Dollar millions, except percentage) | For the Three Months Ended September 30, | Change | For the Nine Months Ended September 30, | Change | ||||||||||||||||||||
| 2024 | 2023 | % | 2024 | 2023 | % | |||||||||||||||||||
| Revenues | $ | 11.5 | $ | 11.1 | 3.6 | % | $ | 38.6 | $ | 37.3 | 3.5 | % | ||||||||||||
| Cost of revenues | (7.1 | ) | (6.3 | ) | 12.7 | % | (26.0 | ) | (20.2 | ) | 28.7 | % | ||||||||||||
| Gross profit | 4.4 | 4.8 | (8.3 | )% | 12.6 | 17.1 | (26.3 | )% | ||||||||||||||||
| Total operating expenses | (0.9 | ) | (0.5 | ) | 80.0 | % | (3.1 | ) | (2.4 | ) | 29.2 | % | ||||||||||||
| Operating income | 3.5 | 4.3 | (18.6 | )% | 9.5 | 14.7 | (35.4 | )% | ||||||||||||||||
| Total other income (expenses) | 0.1 | (0.3 | ) | (133.3 | )% | (0.9 | ) | (0.3 | ) | 200.0 | % | |||||||||||||
| Interest expense | 0.0 | 0.1 | (100.0 | )% | (1.2 | ) | (0.2 | ) | 500.0 | % | ||||||||||||||
| Income before income taxes | 3.6 | 4.0 | (10.0 | )% | 8.6 | 14.4 | (40.3 | )% | ||||||||||||||||
| Income tax expense | (0.9 | ) | (1.1 | ) | (18.2 | )% | (2.7 | ) | (4.1 | ) | (34.1 | )% | ||||||||||||
| Net income | $ | 2.7 | $ | 2.9 | (6.9 | )% | $ | 5.9 | $ | 10.3 | (42.7 | )% | ||||||||||||
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Revenues
We generated revenue of $11.5 million for the three months ended September 30, an increase of $0.4 million, or 3.6%, compared to $11.1 million in the same period of last year. This was due to an increase of 3.6% in the average selling price of our products, and 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by a decrease of 1.6% in sales volume compared with that of the same period of last year.
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| (in US Dollar millions except percentage) | ||||||||||||||||||||||||
| Revenue from sales to customers in Mainland China | $ | 7.4 | 64.3 | % | $ | 7.4 | 66.7 | % | $ | 0.0 | 0.0 | % | ||||||||||||
| Revenue from sales to customers overseas | 4.1 | 35.7 | % | 3.7 | 33.3 | % | 0.4 | 10.8 | % | |||||||||||||||
| Total Revenues | $ | 11.5 | 100 | % | $ | 11.1 | 100 | % | $ | 0.4 | 3.6 | % | ||||||||||||
3
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Unit | % | Unit | % | Unit | % | |||||||||||||||||||
| (in UNIT, except percentage) | ||||||||||||||||||||||||
| Units sold to customers in Mainland China | 349,960 | 63.8 | % | 365,623 | 65.6 | % | (15,663 | ) | (4.3 | )% | ||||||||||||||
| Units sold to customers overseas | 198,375 | 36.2 | % | 191,880 | 34.4 | % | 6,495 | 3.4 | % | |||||||||||||||
| Total Units Sold | 548,335 | 100 | % | 557,503 | 100 | % | (9,168 | ) | (1.6 | )% | ||||||||||||||
(i) PRC market
For the three months ended September 30, 2024, we recorded the same revenue of $7.4 million in the domestic market compared to the same period of last year. During the third quarter of 2024, the Company had an increase of $3.0% in the average RMB selling price of our products, and 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by a decrease of 4.3% in sales volume, primarily due to lower sales volume of industrial control computer touchscreens, POS touchscreens, and gaming touchscreens, compared with those of the same period of last year.
As for the RMB selling price, the increase of 3.0% was mainly due to the higher selling price of new models of higher-end products such as medical touchscreen and automotive touchscreens in the domestic market during the three months ended September 30, 2023.
The macroeconomic conditions in China in 2024 continued to be exacerbated from the impact of three years of zero-COVID lockdowns since 2020, resulted in overall weaker market demand and reduced sales orders in the touchscreen business. Despite of sales decreased by 4.7% in South China and 5.6% in Eastern China, we achieved 6.4% sales increase in Southwest China during the three months ended September 30, 2024 as compared to that of last year.
(ii) Overseas market
For the three months ended September 30, 2024, revenues from the overseas market were $4.1 million as compared to $3.7 million of the same period of 2023, representing an increase by $0.4 million, or 10.8%, mainly due to (i) an increase of 3.4% sales volume, particularly in gaming touchscreens and automotive touchscreens, (ii) an increase of 4.9% in average RMB selling price mainly in industrial control computer touchscreens and automotive touchscreens products, and (iii) 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, as compared with those of the same period of last year.
4
The following table summarizes the breakdown of revenues by categories in US dollars:
| Revenues For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | Margin% | |||||||||||||||||||
| (in US Dollars, except percentage) | ||||||||||||||||||||||||
| Product categories by end applications | ||||||||||||||||||||||||
| Automotive Touchscreens | $ | 3,193,024 | 27.7 | % | $ | 2,945,460 | 26.5 | % | $ | 247,564 | 8.4 | % | ||||||||||||
| Industrial Constrol Computer Touchscreens | 2,243,509 | 19.4 | % | 2,297,924 | 20.7 | % | (54,415 | ) | (2.4 | )% | ||||||||||||||
| Gaming Touchscreens | 1,830,671 | 15.9 | % | 1,742,589 | 15.7 | % | 88,082 | 5.1 | % | |||||||||||||||
| POS Touchscreens | 1,661,568 | 14.4 | % | 1,738,935 | 15.6 | % | (77,367 | ) | (4.4 | )% | ||||||||||||||
| Medical Touchscreens | 1,647,650 | 14.3 | % | 1,398,203 | 12.6 | % | 249,447 | 17.8 | % | |||||||||||||||
| Multi-Functional Printer Touchscreens | 961,567 | 8.3 | % | 1,000,494 | 9.0 | % | (38,927 | ) | (3.9 | )% | ||||||||||||||
| Total Revenues | $ | 11,537,989 | 100.0 | % | $ | 11,123,605 | 100.0 | % | $ | 414,384 | 3.6 | % | ||||||||||||
The Company continued to shift production mix from traditional lower-end products to high-end products such as medical touchscreens and automotive 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
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Gross Profit | $ | 4.4 | $ | 4.8 | $ | (0.4 | ) | (8.3 | )% | |||||||
| Gross Profit Margin | 38.4 | % | 42.9 | % | (4.5 | )% | ||||||||||
Gross profit was $4.4 million in the third quarter ended September 30, 2024, compared to $4.8 million in the same period of 2023. Our gross profit margin decreased to 38.4% for the third quarter ended September 30, 2024, as compared to 42.9% for the same period of 2023, primarily due to the increase of cost of goods sold by 11.9%, including the increase of 11.9% in cost of materials, 12.2% in utility cost, and 25.5% in labor costs due to new hiring of technicians since the first quarter of 2024. The rising chip cost has stabilized in the third quarter ended September 30, 2024 compared to the first quarter of 2024.
Selling Expenses
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Selling Expenses | $ | 0.2 | $ | 0.3 | $ | (0.1 | ) | (33.3 | )% | |||||||
| as a percentage of revenues | 1.7 | % | 2.7 | % | (1.0 | )% | ||||||||||
Selling expenses were $0.2 million for the three months ended September 30, 2024, compared to $0.3 million in the same period in 2023, representing a decrease of $0.1 million, or 33.3%. The decrease was primarily due to a decrease in traveling expenses, as the sales department increasingly utilized online communications for sales forecasting and marketing evaluations during the three months ended September 30, 2024.
General and Administrative Expenses
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| General and Administrative Expenses | $ | 0.7 | $ | 0.2 | $ | 0.5 | 250.0 | % | ||||||||
| as a percentage of revenues | 6.1 | % | 1.8 | % | 4.3 | % | ||||||||||
General and administrative expenses were $0.7 million for the three months ended September 30, 2024, compared to $0.2 million in the same period in 2023, representing an increase of $0.7 million, or 250.0%. The increase was primarily due to amortized $0.6 million consulting service fees (see Note 4 (iii) of the accompanying financial statements) and the increase of $0.1 million professional fees during the three months ended September 30, 2024.
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Research and Development Expenses
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in US dollars, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Research and Development Expenses | $ | 43,859 | $ | 20,580 | $ | 23,279 | 113.1 | % | ||||||||
| as a percentage of revenues | 0.4 | % | 0.2 | % | 0.2 | % | ||||||||||
Research and development expenses were $43,859 for the three months ended September 30, 2024 compared to $20,580 in the same period in 2023, representing an increase of $23,279, or 113.1%, due to the increased R&D material consumption.
Operating Income
Total operating income was $3.5 million for the three months ended September 30, 2024 as compared to $4.3 million of the same period of last year, primarily due to lower gross margin and higher general and administrative expenses and research & development expenses, partially offset by lower selling expenses for the three months ended September 30, 2024.
Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Gain (loss) on changes in fair value of common stock purchase warrants | $ | 0.1 | $ | (0.2 | ) | $ | 0.3 | (150.0 | )% | |||||||
| as a percentage of revenues | 0.9 | % | 1.8 | % | (0.9 | )% | ||||||||||
Gain on changes in fair value of common stock purchase warrants for the three months ended September 30, 2024 was $0.1 million as compared to loss of $0.2 million on changes in fair value of common stock purchase warrants in the same period of 2023, respectively.
Income Taxes
| For the Three Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Income before Income Taxes | $ | 3.6 | $ | 4.0 | $ | (0.4 | ) | (10.0 | )% | |||||||
| Income Tax (Expense) | (0.9 | ) | (1.1 | ) | 0.2 | (18.2 | )% | |||||||||
| Effective income tax rate | 26.9 | % | 28.7 | % | 3.9 | % | ||||||||||
The effective income tax rates for the three months ended September 30, 2024 and 2023 were 26.9% and 28.7%, respectively.
Net Income
As a result of the above factors, we had a net income of $2.7 million in the third quarter of 2024 compared to a net income of $2.9 million in the same quarter of 2023.
6
Results of Operations - Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Revenues
We generated revenue of $38.6 million for the nine months ended September 30, 2024, an increase of $1.3 million, or 3.5%, compared to $37.3 million in the same period of last year. This was mainly due to an increase of 1.8% in sales volume, and an increase of 4.0% in the average RMB selling price of our products, partially offset by 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year.
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| (in US Dollar millions except percentage) | ||||||||||||||||||||||||
| Revenue from sales to customers in PRC | $ | 24.7 | 64.0 | % | $ | 25.8 | 69.2 | % | $ | (1.1 | ) | (4.3 | )% | |||||||||||
| Revenue from sales to customers overseas | 13.9 | 36.0 | % | 11.5 | 30.8 | % | 2.4 | 20.9 | % | |||||||||||||||
| Total Revenues | $ | 38.6 | 100 | % | $ | 37.3 | 100 | % | $ | 1.3 | 3.5 | % | ||||||||||||
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Unit | % | Unit | % | Unit | % | |||||||||||||||||||
| (in UNIT, except percentage) | ||||||||||||||||||||||||
| Units sold to customers in PRC | 1,153,140 | 63.5 | % | 1,207,931 | 66.5 | % | (54,791 | ) | (4.5 | )% | ||||||||||||||
| Units sold to customers overseas | 662,270 | 36.5 | % | 574,988 | 33.5 | % | 87,282 | 15.2 | % | |||||||||||||||
| Total Units Sold | 1,815,410 | 100 | % | 1,782,919 | 100 | % | 32,491 | 1.8 | % | |||||||||||||||
(i) PRC market
For the nine months ended September 30, 2024, revenue from PRC market decreased by $1.1 million or 4.3% as a combined result of (i) a decrease of 4.5% in sales volume, particularly in multi-functional printer touchscreens, medical touchscreens and automotive touchscreens, (ii) 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars, and partially offset by (iii) an increase of 2.6% in the average RMB selling price of our products, compared with those of the same period of last year.
As for the RMB selling price, the increase of 2.6% was mainly due to the increased sales of new models of higher-end products such as medical touchscreens and automotive touchscreens with higher selling prices in the domestic market during the nine months ended September 30, 2024
The macroeconomic conditions in China in 2024 continued to be exacerbated from the impact of three years of zero-COVID lockdowns since 2020, resulted in overall weaker market demand and reduced sales orders in the touchscreen business. Despite of sales decreased by 6.0% in South China and 5.2% in East China, we achieved sales increase by 4.4% in Southwest China during the nine months ended September 30, 2024 as compared to that of last year.
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(ii) Overseas market
For the nine months ended September 30, 2024, revenues from overseas market was $13.9 million as compared to $11.5 million of the same period of 2023, representing an increase by $2.4 million or 20.9% mainly due to i) an increase of 15.2% in sales volume, particularly in industrial control touchscreens, gaming touchscreens and automotive touchscreens (ii) 7.5% increase in average RMB selling price during the nine months ended September 30, 2024, partially offset by (iii) the 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars ,compared with those of the same period of last year.
The following table summarizes the breakdown of revenues by categories in US dollars:
| Revenues For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | Margin% | |||||||||||||||||||
| (in US Dollars, except percentage) | ||||||||||||||||||||||||
| Product categories by end applications | ||||||||||||||||||||||||
| Automotive Touchscreens | $ | 10,769,342 | 27.9 | % | $ | 9,390,350 | 25.2 | % | $ | 1,378,992 | 14.7 | % | ||||||||||||
| Industrial Control Computer Touchscreens | 7,458,806 | 19.3 | % | 7,392,780 | 19.8 | % | 66,026 | 0.9 | % | |||||||||||||||
| Gaming Touchscreens | 5,959,287 | 15.4 | % | 5,387,021 | 14.4 | % | 572,266 | 10.6 | % | |||||||||||||||
| Medical Touchscreens | 5,791,538 | 15.0 | % | 5,380,498 | 14.4 | % | 411,040 | 7.6 | % | |||||||||||||||
| POS Touchscreens | 5,544,124 | 14.3 | % | 6,084,523 | 16.3 | % | (540,399 | ) | (8.9 | )% | ||||||||||||||
| Multi-Functional Printer Touchscreens | 3,126,726 | 8.1 | % | 3,696,326 | 9.9 | % | (569,600 | ) | (15.4 | )% | ||||||||||||||
| Total Revenues | $ | 38,649,823 | 100.0 | % | $ | 37,331,498 | 100.0 | % | $ | 1,318,325 | 3.5 | % | ||||||||||||
The Company continued to shift production mix from traditional lower-end products such as touchscreens used in industrial control computer industries to high-end products such as automotive touchscreens, gaming touchscreen, and medical touchscreens, primarily due to (i) greater growth potential of computer screen models in China, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.
Gross Profit and Gross Profit Margin
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Gross Profit | $ | 12.6 | $ | 17.1 | $ | (4.5 | ) | (26.3 | )% | |||||||
| Gross Profit Margin | 32.7 | % | 45.7 | % | (13.0 | )% | ||||||||||
Gross profit was $12.6 million during the nine months ended September 30, 2023, compared to $17.1 million in the same period of 2023. Our gross profit margin increased to 32.7% for the nine months ended September 30, 2024, as compared to 45.7% for the same period of 2023, primarily due to the increase of cost of goods sold by 33.4%, resulting from the increase of 35.2% in costs of raw materials, including the increase of chip cost by 3.1%, and the increase of 24.4% of labor costs due to additional hiring of technicians, and the increase of 25.4% of utility cost during the nine months ended September 30, 2024. The rising chip cost has stabilized in the third quarter ended September 30, 2024 compared to the first quarter of 2024.
8
Selling Expenses
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Selling Expenses | $ | 0.9 | $ | 0.4 | $ | 0.5 | 125.0 | % | ||||||||
| as a percentage of revenues | 2.3 | % | 1.1 | % | 1.2 | % | ||||||||||
Selling expenses were $0.9 million for the nine months ended September 30, 2024, compared to $0.4 million in the same period in 2023, representing an increase of $0.5 million, or 125.0%, primarily due to an increase in traveling expenses and logistics costs during the nine months ended September 30, 2024.
General and Administrative Expenses
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| General and Administrative Expenses | $ | 2.1 | $ | 1.9 | $ | 0.2 | 10.5 | % | ||||||||
| as a percentage of revenues | 5.4 | % | 5.1 | % | 0.3 | % | ||||||||||
General and administrative (G&A) expenses were $2.1 million for the nine months ended September 30, 2024, compared to $1.9 million in the same period in 2023, representing an increase of $0.2 million or 10.5%. The increase was primarily due to i) the amortized $1.3 million consulting service fees (see Note 4 (iii) of the accompanying financial statements), ii) the increase of $0.1 million professional fees during the nine months ended September 30, 2024, partially offset by iii) the accrued private placement agent fees of $1.2 million related to the private placement consent agreement with representatives of an investment bank firm during the nine months ended September 30, 2023 (see Note 8 (ii) of the accompanying financial statements).
Research and Development Expenses
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in US dollars, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Research and Development Expenses | $ | 129,808 | $ | 61,849 | $ | 67,559 | 109.9 | % | ||||||||
| as a percentage of revenues | 0.3 | % | 0.2 | % | 0.1 | % | ||||||||||
Research and development (R&D) expenses were $129,808 for the nine months ended September 30, 2024 compared to $61,849 in the same period in 2023, due to the increased R&D material consumption.
Operating Income
Total operating income was $9.5 million for the nine months ended September 30, 2024 as compared to $14.7 million of the same period of last year, primarily due to lower gross profit, higher selling expenses, general & administration expenses and research and development expenses.
Gain (loss) on changes in fair value of Common Stock Purchase Warrants
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Gain (loss) on changes in fair value of Common Stock Purchase Warrants | $ | 0.2 | $ | (0.1 | ) | $ | 0.3 | 300.0 | % | |||||||
| as a percentage of revenues | 1.7 | % | 0.9 | % | 0.8 | % | ||||||||||
Gain on changes in fair value of common stock purchase warrants was $0.2 million and loss on changes of $0.1 for the nine months ended September 30, 2024 and 2023, respectively (See Note 9 (b)).
9
Interest Expenses
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Interest Expenses | $ | 1.2 | $ | 0.2 | $ | 1.0 | 500.0 | |||||||||
| as a percentage of revenues | 3.1 | % | 0.6 | % | 2.5 | % | ||||||||||
For the nine months ended September 30, 2024 and 2023, the Company recognized interest expenses from cetain convertible promissory notes in the amount of $1,169,974 (mainly contributable to the default interest charges of $1,145,995 upon the repayment of the notes payable) and $211,383, respectively. (See Note 9 (a) of the accompanying financial statements).
Income Taxes
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| (in millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Income before Income Taxes | $ | 8.6 | $ | 14.4 | $ | (5.8 | ) | (40.3 | )% | |||||||
| Income Tax (Expense) | (2.7 | ) | (4.1 | ) | (1.4 | ) | (34.1 | )% | ||||||||
| Effective income tax rate | 25.4 | % | 28.5 | % | (3.1 | )% | ||||||||||
The effective income tax rates for the nine months ended September 30, 2024 and 2023 were 25.4% and 28.4%, respectively.
Our PRC subsidiary Sichuan Vtouch had $106.7 million of cash as of September 30, 2024, which are planned to be indefinitely reinvested in PRC. The distributions from our PRC subsidiary are 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 subsidiaries.
Net Income
As a result of the above factors, we had a net income of $5.9 million for the nine months ended September 30, 2024 compared to a net income of $10.3 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 September 30, 2024, we had current assets of $120.0 million, consisting of $106.7 million in cash, $9.7 million in accounts receivable, $0.2 million in inventories, and $3.4 million in prepaid expenses and other current assets Our current liabilities as of September 30, 2024 were $3.4 million, which is comprised of $1.2 million in accounts payable, $0.4 million due to related parties, $1.0 million in income tax payable, and $0.8 million in accrued expenses and other current liabilities.
10
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023:
| For the Nine Months Ended September 30, | ||||||||
| (in US Dollar millions) | 2024 | 2023 | ||||||
| Net cash (used in) provided by operating activities | $ | (0.7 | ) | $ | 9.0 | |||
| Net cash used in investing activity | (0.1 | ) | - | |||||
| Net cash provided by financing activities | 8.0 | 39.9 | ||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 1.5 | (6.2 | ) | |||||
| Net increase in cash and cash equivalents | 8.7 | 42.7 | ||||||
| Cash and cash equivalents at the beginning of period | 98.0 | 51.2 | ||||||
| Cash and cash equivalents at the end of period | $ | 106.7 | $ | 93.9 | ||||
Operating Activities
Net cash used in operating activities was $0.7 million for the nine months ended September 30, 2024 as compared to $9.0 million provided by operating activities for the same period of the last year, primarily due to (i) the decrease of $4.4 million net income and the increase of $0.3 million of gain on changes in fair value of common stock purchase warrants liability for the nine months ended September 30, 2024 as compared to the same period of 2023, (ii) the decrease of $0.2 million in inventories, and $2.6 million in prepaid and other current assets, (iii) the decrease of $0.2 million in income tax payable and $5.8 million in accrued expenses and other current liabilities, partially offset by (v) the decrease of $3.4 million in accounts receivable and the increase of $0.4 million in accounts payable for the nine months ended September 30, 2024.
Investing Activity
Net cash used in investing activity for the nine months ended September 30, 2024 was $0.1 million for the purchase of property, plant and equipment.
There was no cash flow in investing activities for the nine months ended September 30, 2023.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $8.0 million, including $9.0 million in net proceeds from the 2024 Public Offering and $0.4 million in proceeds of interest-free advances from a related party, partially offset by $1.4 million repayment of convertible promissory notes.
Net cash provided by financing activities for the nine months ended September 30, 2023 was $40.0 million, including $40.0 million in proceeds from stock issuance in a private placement, partially offset by the repayment of $55,000 convertible promissory note payable.
As of September 30, 2024, our cash and cash equivalents were $106.7 million, as compared to $98.0 million at December 31, 2023.
Days Sales Outstanding (“DSO”) has decreased to 60 days for the nine months ended September 30, 2024 from 77 days for the year ended December 31, 2023.
The following table provides an analysis of the aging of accounts receivable as of September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||
| –Current | $ | 3,877,220 | $ | 3,740,488 | ||||
| –1-3 months past due | 3,903,309 | 2,635,045 | ||||||
| –4-6 months past due | 1.952.229 | 1,079,719 | ||||||
| Total accounts receivable | $ | 9,732,758 | $ | 7,455,252 | ||||
11
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.
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 nine months ended September 30, 2024. 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 Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 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 2023 Form 10-K for more details.
Commitments and Contingencies
Contingencies
The Company’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “WETH” on February 21, 2024. The Company failed to timely complete the filing procedures with China Securities Regulatory Commission (“CSRC”) on overseas initial public offering and transfer of listing as regulated below:
| 1) | Per Article 13 and Article 8 and Article 25 of CSRC Announcement (2023) No. 43 -Trial Measures for the Administration of Overseas Issuance and Listing of Securities for Domestic Enterprises” (“Trial Measures” Announcement No. 43), which was implemented on March 31, 2023 (http://www.csrc.gov.cn/csrc/c101954/c7124478/content.shtml), when an issuer conducts an overseas initial public offering or listing, it shall submit overseas issuance and listing application documents to CSRC within three working days; When a domestic enterprise transfers its listing overseas, it shall comply with the requirements of the overseas first public listing requirements for issuance and listing, and shall file with the CSRC within 3 working days, after its submitting application documents for transfer and listing overseas. |
| 2) | Article 27 of Trial Measures Announcement No. 43 stipulates that if a domestic enterprise violates the provisions of Article 13 of these Measures and fails to perform the filing procedures, or violates the provisions of Articles 8 and 25 of these Measures for overseas issuance and listing, CSRC shall order it to make corrections and give a warning, and impose a fine of not less than RMB 1 million but not more than RMB 10 million. |
As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from CSRC.
Capital Expenditure Commitment
As of September 30, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
12
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 2023 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 2023 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 September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024, as a result of the material weaknesses identified below.
In light of the material weaknesses, 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 weaknesses, our 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.
Material Weaknesses
In connection with the audit of the financial year ended December 31, 2023, 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.
13
The material weaknesses related to internal control over financial reporting that were identified in the 2023 Form 10-K and still applied as of September 30, 2024 were:
| ● | Inadequate segregation of duties consistent with control objectives; |
| ● | Lack of formal policies and procedures; and |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. |
As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.
Management’s Plan to Remediate the Material Weaknesses
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
| ● | Identify gaps in our skillset and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures; |
During the nine months ended September 30, 2024, 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 weaknesses noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the nine months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - Other Information
Item 1. Legal Proceedings.
From time to time, we may be subject to other legal proceedings arising in the ordinary course of business. Regardless of the outcome of any existing or future litigation, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
The information required with respect to this item can be found under “Commitments and Contingencies” in Note 13 to our condensed consolidated financial statements included elsewhere in this Form 10-Q and is incorporated by reference into this Item 1.
Item 1A. Risk Factors.
Except for the additional risk factors set forth below, there have been no material changes to our Risk Factors as disclosed in our 2023 Form 10-K and our quarterly reports on Form 10-Q, as filed with the SEC on April 17, 2024, June 14, 2024 and August 19, 2024, respectively.
We may incur material expenses or delays in financings or SEC filings due to the dismissal of BF Borgers and our stock price and access to the capital markets may be affected.
As a public company, we are required to file with the SEC financial statements that are audited or reviewed, as applicable, by an independent registered public accountant. Our access to the capital markets and our ability to make timely filings with the SEC will depend on having financial statements audited or reviewed again by a new independent registered public accounting firm. In addition, because the SEC found that BF Borgers CPA PC deliberately failed to conduct audits and quarterly reviews in accordance with applicable PCAOB standards and fraudulently issued audit reports, we will not be able to rely on BF Borgers (as defined herein) to provide other information or documents that would customarily be received by us or underwriters in connection with financings or other transactions, including consents and “comfort” letters. As a result, we may encounter delays, additional expense and other difficulties in future financings. Any resulting delay in accessing or inability to access the public capital markets could be disruptive to our operations and could affect the price and liquidity of our securities. Any negative news about the proceedings against BF Borgers may also adversely affect investor confidence in companies that were previous clients of BF Borgers. All of these factors could materially and adversely affect the market price of our common stock and our ability to access the capital markets.
You are unlikely to be able to exercise effective remedies or collect judgments against BF Borgers relating to their work as our independent registered public accounting firm.
BF Borgers served as our independent registered public accounting firm from 2020 to 2023. On May 3, 2024, the SEC entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC (“Borgers”) and its sole audit partner, Benjamin F. Borgers CPA, permanently, barring Mr. Borgers and Borgers (collectively, “BF Borgers”) from appearing or practicing before the Commission as an accountant (the “Order”). As a result of the Order, BF Borgers may no longer serve as the Company’s independent registered public accounting firm, nor can BF Borgers issue any audit reports included in Commission filings or provide consents with respect to audit reports. In light of the Order, the Audit Committee of the board of directors of the Company (the “Audit Committee”) on May 9, 2024, unanimously approved to dismiss and dismissed BF Borgers as the Company’s independent registered public accounting firm and approved the engagement of Enrome LLP to serve as the Company’s new independent registered public accounting firm. The management has also decided to redo the annual audit for the year of 2023 by the end of 2024. We have no ability to ascertain whether BF Borgers will survive or that adequate assets will be available to satisfy any claims against it. As a result, you may not be able to exercise effective remedies or collection judgements against BF Borgers.
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We may be subject to fines and penalties imposed by the Chinese government for having failed to complete the filing obligations required by the Trial Administrative Measures.
On February 17, 2023, the China Securities Regulatory Commission (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 issuer’s 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 issuer’s 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 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 was advised that it was required to fulfill the filing procedures with the CSRC within three days of the closing of the 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.
On May 7, 2024, the CSRC issued the “Regulatory Rules Application Guidelines, Category 7 for Overseas Issuance and Listing: Regulatory Requirements for Domestic Enterprises Transferring from Overseas OTC Markets to Overseas Stock Exchanges for Overseas Issuance and Listing.” The CSRC stated that, according to Articles 1 and 2 of the Trial Administrative Measures, overseas issuance and listing refer to activities related to issuing and listing on overseas stock exchanges, and the listing of domestic enterprises on overseas OTC markets does not fall within the scope of filing requirements. Article 16 of the Trial Administrative Measures stipulates that “an issuer’s initial public offering or listing overseas shall be filed with the CSRC within three working days after the submission of the application documents for issuance and listing overseas”; domestic enterprises transferring to overseas stock exchanges for listing should file with the CSRC within three working days after submitting the application documents for transfer listing overseas, in accordance with the relevant requirements for the initial public offering and listing overseas. Additionally, according to the “Notice on Filing Management Arrangements for Domestic Enterprises’ Overseas Issuance and Listing,” Mainland China domestic enterprises that submitted transfer listing application documents overseas but have not been approved by overseas regulatory authorities or overseas stock exchanges by March 31, 2023, the effective date of the Trial Administrative Measures, should complete the filing procedures before the overseas listing transfer is completed.
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The CSRC has determined that we have failed to comply with the filing obligations imposed by the Trial Administrative Measures. As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from CSRC. We have engaged a PRC counsel, K&H LAW FIRM, LLP (Chengdu), to complete the required filings with the CSRC and will submit the filing materials when 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 we can complete our filing obligations under the Trial Administrative Measures within a reasonable time. Furthermore, if the CSRC determines that there are 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.
We cannot guarantee that our Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. Repurchases of shares of our common stock could also increase the volatility of the trading price of our common stock and could diminish our cash reserves.
On July 2, 2024, the Board of the Company approved and authorized a stock repurchase program (the “Repurchase Program”), pursuant to which the Company intends to repurchase up to $15 million of its common stock, from time to time, for a purchase price of not less than $1.50 per share and not more than $4 per share, in the open market or privately negotiated transactions, with Westpark Capital, Inc. (“Westpark”) as the exclusive agent for the Repurchase Program. The Repurchase Program commenced on July 1, 2024, and will terminate on the date to be determined by the Board. The Repurchase Program does not have a fixed expiration date and may be suspended or discontinued at any time. The Repurchase Program will be terminated automatically upon the date that the aggregate purchases under the Repurchase Program reach $15 million. Pursuant to the Repurchase Program, the Company is not obligated to repurchase any specific number of shares of its common stock and shall not repurchase more than 25% of the average daily volume of its stock over the previous 20 trading days. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. We cannot guarantee that the Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. The Repurchase Program could also affect the trading price of our common stock and increase volatility, and any announcement of a reduction, suspension or termination of the Repurchase Program may result in a decrease in the trading price of our common stock. In addition, repurchasing our common stock could diminish our cash and cash equivalents and marketable securities available to fund working capital, repayment of debt, capital expenditures, strategic acquisitions, investments, or business opportunities, and other general corporate purposes, which may adversely affect our result of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
| * | Filed herewith |
| ** | Furnished herewith |
| (1) | Incorporated herein by reference to Exhibit 10.31 to the Registrant’s Current Report on Form 8-K filed July 1, 2024. |
| (2) | Incorporated herein by reference to Exhibit 10.31 to the Registrant’s Current Report on Form 8-K filed July 12, 2024. |
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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: November 14, 2024 | Zongyi Lian | |
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| By: | /s/ Xing Tang | |
| Date: November 14, 2024 | Xing Tang | |
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
19
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Zongyi Lian, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Wetouch Technology Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2024 | By: | /s/ Zongyi Lian |
| Name: | Zongyi Lian | |
| Title: | Chief Executive Officer and President | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Xing Tang, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Wetouch Technology Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 14, 2024 | By: | /s/ Xing Tang |
| Name: | Xing Tang | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wetouch Technology Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Zongyi Lian, Chief Executive Officer and Principal Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | the Quarterly Report fully complies with the requirements of Section 13(a), or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Quarterly Report. |
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.
| Date: November 14, 2024 | ||
| /s/ Zongyi Lian | ||
| Name: | Zongyi Lian | |
| Title: | Chief Executive Officer and President | |
| (Principal Executive Officer) | ||
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wetouch Technology Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Xing Tang, as Chief Financial Officer, Principal Financial and Accounting Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | the Quarterly Report fully complies with the requirements of Section 13(a), or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Quarterly Report. |
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.
| Date: November 14, 2024 | ||
| /s/ Xing Tang | ||
| Name: | Xing Tang | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.