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What changed in Wetouch Technology Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Wetouch Technology Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+486 added−474 removedSource: 10-K (2024-04-17) vs 10-K (2023-04-17)

Top changes in Wetouch Technology Inc.'s 2023 10-K

486 paragraphs added · 474 removed · 270 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

126 edited+32 added−74 removed66 unchanged
Biggest changeAccording to the Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for initial public offering and listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted. 22 On the same day, the CSRC held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that (1) a six-month transition period will be granted to domestic companies which, prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, such as completion of registration in the market of the United States, but have not completed the indirect overseas listing; and (2) domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges on or prior to the effective date of the Trial Measures, may reasonably arrange the timing for submitting their filing applications with the CSRC, and shall complete the filing before the completion of their overseas offering and listing.
Biggest changeAccording to the Trial Administrative Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) its major operational activities are carried out in Mainland China or its main places of business are located in Mainland China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in Mainland China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for initial public offering and listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted.
In order to the maintain product safety and a high standard of product quality, the Company implements a strict set of quality control policies and inspection protocols. These policies and protocols are enforced by the Company’s senior management and officers along every step of the production to post-production process.
In order to maintain product safety and a high standard of product quality, the Company implements a strict set of quality control policies and inspection protocols. These policies and protocols are enforced by the Company’s senior management and officers along every step of the production to post-production process.
Industry Since inception, we have positioned ourselves in the professional touchscreen industry. Touchscreen is an input and output device and layered on top of an electronic visual display of an information processing system, allowing individuals to access information and interact with the device simply by touching the device’s screen with a finger or a specialized tool.
Industry Since inception, we have positioned ourselves in the professional touchscreen display industry. Touchscreen is an input and output device and layered on top of an electronic visual display of an information processing system, allowing individuals to access information and interact with the device simply by touching the device’s screen with a finger or a specialized tool.
Therefore, upon submission of all required documentation, we are registered under the new system by filling in Stationary Pollution Source Registration Form. Regulations on Consumer Rights Protection Our business is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, which was amended in 2013 and became effective on March 15, 2014.
Therefore, upon submission of all required documentation, we are registered under the new system by filling in Stationary Pollution Source Registration Form. 15 Regulations on Consumer Rights Protection Our business is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, which was amended in 2013 and became effective on March 15, 2014.
On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023.
On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Administrative Measures, and five supporting guidelines, which came into effect on March 31, 2023.
Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have met the relevant conditions and requirements under this arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%.
Pursuant to the Arrangement Between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent Mainland China tax authority to have met the relevant conditions and requirements under this arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a Mainland China resident enterprise may be reduced to 5%.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in China, including, among others, that local governments must abide by their commitments to the foreign investors; FIEs are allowed to issue stocks and corporate bonds; expropriation or requisition of the investment of foreign investors is prohibited except for special circumstances, in which case statutory procedures must be followed and fair and reasonable compensation must be made in a timely manner; mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors in China may be freely remitted inward and outward in Renminbi or foreign currencies.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in Mainland China, including, among others, that local governments must abide by their commitments to the foreign investors; FIEs are allowed to issue stocks and corporate bonds; expropriation or requisition of the investment of foreign investors is prohibited except for special circumstances, in which case statutory procedures must be followed and fair and reasonable compensation must be made in a timely manner; mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors in Mainland China may be freely remitted inward and outward in Renminbi or foreign currencies.
On October 25, 2019, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, which, among other things, allows all FIEs to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment.
On October 25, 2019, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, which, among other things, allows all FIEs to use Renminbi converted from foreign currency-denominated capital for equity investments in Mainland China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment.
The Implementation Rules of Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides that, among others, (i) if the legal form or the governing structure of an FIE established prior to the effective date of the Foreign Investment Law does not comply with the compulsory provisions of the PRC Company Law or the PRC Partnership Enterprises Law, such FIE should complete amendment registration accordingly no later than January 1, 2025; if it fails to do so, the enterprise registration authority will not process other registration matters of the FIE and may publicize such non-compliance; and (ii) the provisions regarding transfer of equity interests, distribution of profits and remaining assets as stipulated in the joint venture contracts of an existing FIE may survive the Foreign Investment Law during its joint venture term. 17 Regulations on Environmental Protection Environmental Protection Law The Environmental Protection Law of the PRC, or the Environmental Protection Law, was promulgated and effective on December 26, 1989, and most recently amended on April 24, 2014, which amendments became effective January 1, 2015.
The Implementation Rules of Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides that, among others, (i) if the legal form or the governing structure of an FIE established prior to the effective date of the Foreign Investment Law does not comply with the compulsory provisions of the PRC Company Law or the PRC Partnership Enterprises Law, such FIE should complete amendment registration accordingly no later than January 1, 2025; if it fails to do so, the enterprise registration authority will not process other registration matters of the FIE and may publicize such non-compliance; and (ii) the provisions regarding transfer of equity interests, distribution of profits and remaining assets as stipulated in the joint venture contracts of an existing FIE may survive the Foreign Investment Law during its joint venture term. 14 Regulations on Environmental Protection Environmental Protection Law The Environmental Protection Law of the PRC, or the Environmental Protection Law, was promulgated and effective on December 26, 1989, and most recently amended on April 24, 2014, which amendments became effective January 1, 2015.
The Notice of the State Administration of Foreign Exchange on Policies for Reforming and Regulating the Control over Foreign Exchange Settlement under the Capital Account, which was promulgated and became effective on June 9, 2016, provides that enterprises registered in China may also convert their foreign debts from foreign currency into Renminbi on a self-discretionary basis.
The Notice of the State Administration of Foreign Exchange on Policies for Reforming and Regulating the Control over Foreign Exchange Settlement under the Capital Account, which was promulgated and became effective on June 9, 2016, provides that enterprises registered in Mainland China may also convert their foreign debts from foreign currency into Renminbi on a self-discretionary basis.
The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside China for capital account items, such as direct equity investments, loans, and repatriation of investment, requires the prior approval from the SAFE or its local office. Payments for transactions that take place in China must be made in Renminbi.
The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside Mainland China for capital account items, such as direct equity investments, loans, and repatriation of investment, requires the prior approval from the SAFE or its local office. Payments for transactions that take place in Mainland China must be made in Renminbi.
Corporate History We were originally incorporated under the laws of the state of Nevada on August 31, 1992 as Gulf West Investment Properties, Inc, and were dormant and had no operations for many years. On February 26, 2019, the Eighth Judicial District Court in and for Clark County, Nevada, Case No.
Corporate History and Structure We were originally incorporated under the laws of the state of Nevada on August 31, 1992 as Gulf West Investment Properties, Inc, and were dormant and had no operations for many years. On February 26, 2019, the Eighth Judicial District Court in and for Clark County, Nevada, Case No.
On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective on January 1, 2008 and amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementation regulations, both resident enterprises and non-resident enterprises are subject to tax in China.
On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective on January 1, 2008 and amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementation regulations, both resident enterprises and non-resident enterprises are subject to tax in Mainland China.
Renewed registrations are valid for ten years. In April 2014, the State Council issued the revised Implementation of the Trademark Law, which specified the requirements of applying for trademark registration and review. As of the date of this Annual Report, we had 1 registered trademark in China.
Renewed registrations are valid for ten years. In April 2014, the State Council issued the revised Implementation of the Trademark Law, which specified the requirements of applying for trademark registration and review. As of the date of this Annual Report, we had 1 registered trademark in Mainland China.
This circular also provides an integrated standard for conversion of foreign exchange under capital account items (including, but not limited to, foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all enterprises registered in China.
This circular also provides an integrated standard for conversion of foreign exchange under capital account items (including, but not limited to, foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all enterprises registered in Mainland China.
Our products’ areas of common application are set out below. Point of Sale (“POS”) Machines POS machines, or point of sale machines, are used in a variety of retailers, including in department stores, supermarkets, convenience stores, boutiques, restaurants, hotels, banks, logistics, telecommunication and other service industries.
Our products’ areas of common application are set out below. Point of Sale (“POS”) Machines POS machines are used in a variety of retailers, including in department stores, supermarkets, convenience stores, boutiques, restaurants, hotels, banks, logistics, telecommunication and other service industries.
Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside China, but have established institutions or premises in China, or have no such established institutions or premises but have income generated from inside China.
Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside Mainland China, but have established institutions or premises in Mainland China, or have no such established institutions or premises but have income generated from inside Mainland China.
Regulations on Dividend Distribution The principal laws and regulations regulating the distribution of dividends by FIEs in China include the PRC Company Law, as amended in 2004, 2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules.
Regulations on Dividend Distribution The principal laws and regulations regulating the distribution of dividends by FIEs in Mainland China include the PRC Company Law, as amended in 2004, 2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules.
The Trademark Office of the SAMR is responsible for the registration and administration of trademarks and the Trademark Review and Adjudication Committee established by the SAMR is responsible for resolving trademark disputes in China. Registered trademarks are valid for ten years from the date the registration is approved.
The Trademark Office of the SAMR is responsible for the registration and administration of trademarks and the Trademark Review and Adjudication Committee established by the SAMR is responsible for resolving trademark disputes in Mainland China. Registered trademarks are valid for ten years from the date the registration is approved.
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.
In terms of the structures of touch panels, we offer (i) Glass-Glass (“GG”), primarily used in GPS/car entertainment panels in mid-size and luxury cars, industrial HMI, financial and banking terminals, POS and lottery machines; (ii) Glass-Film-Film (“GFF”), mostly used in high-end GPS and entertainment panels, industrial HMI, financial and banking terminals, and the lottery and gaming industry; (iii) Plastic-Glass (“PG”), typically adopted by touchscreens in GPS/entertainment panels, motor vehicle GPS, smart home, robotics and charging stations; and (iv) Glass-Film (“GF”), mostly used in industrial HMI.
Compared with us, although it has a longer history and geographical advantages, it mainly focuses on resistive touch panels and recently started production of capacitive touchscreens mostly applicable to the industrial HMI and medical industries, while our products are more widely used in a variety of industries. 15 ● Elo Touch Systems Inc., based and headquartered in the United States, has a history of over 40 years for the production of touchscreens.
Compared with us, although it has a longer history and geographical advantages, it mainly focuses on resistive touch panels and recently started production of capacitive touchscreens mostly applicable to the industrial HMI and medical industries, while our products are more widely used in a variety of industries. ● Elo Touch Systems Inc., based and headquartered in the United States, has a history of over 40 years in the production of touchscreens.
The Company has in place quantitative standards with respect to each of these areas to determine the level of cosmetic acceptability. 11 ● Function tests: all products undergo functionality testing.
The Company has in place quantitative standards with respect to each of these areas to determine the level of cosmetic acceptability. ● Function tests: all products undergo functionality testing.
Regulations Overview We operate our business in the PRC under a legal regime consisting of the National People’s Congress, which is the country’s highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority, including the Ministry of Industry and Information Technology, State Administration for Market Regulation (“SAMR”) and their respective local offices.
Regulations Overview We operate our business in Mainland China under a legal regime consisting of the National People’s Congress, which is the country’s highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority, including the Ministry of Industry and Information Technology, the State Administration for Market Regulation (“SAMR”) and their respective local offices.
Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within China.
Resident enterprises are defined as enterprises that are established in Mainland China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within Mainland China.
The touchscreens need to have high-endurance capacities as they are used by the general public and are often located outdoors, such that these screens must withstand weathering. Wetouch’s products are particularly suited to use in these machines as they are highly durable. Industrial Equipment Touchscreens in the industrial sector have broad application, and play an important role in industrial HMI.
The touchscreens need to have high-endurance capacities as they are used by the general public and are often located outdoors, such that these screens must withstand weathering. Our products are particularly suited to use in these machines as they are highly durable. Industrial Equipment Touchscreens in the industrial sector have broad application, and play an important role in industrial HMI.
The production team adheres to the following criteria when making its product standard assessment: Item Industry Standards Wetouch’s Standards Reaction time Less than or equal to 5 milliseconds Less than or equal to 5 milliseconds Surface hardness 6H 7H~9H Operational temperature 0~70 degrees Celsius -30~80 degrees Celsius EsD requirement 6~12KV 8~15KV Transparency 86% 88% Touch conditions Normal touch and ordinary conditions Waterproof and anti-saline solution and anti-corrosion and Anti interference The products are inspected before they are delivered and sold to our customers.
The production team adheres to the following criteria when making its product standard assessment: Item Industry Standards Our Standards Reaction time Less than or equal to 5 milliseconds Less than or equal to 5 milliseconds Surface hardness 6H 7H~9H Operational temperature 0~70 degrees Celsius -30~80 degrees Celsius EsD requirement 6~12KV 8~15KV Transparency 86% 88% Touch conditions Normal touch and ordinary conditions Waterproof and anti-saline solution and anti-corrosion and Anti interference 10 The products are inspected before they are delivered to our customers.
Failure to comply with the registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
Failure to comply with the registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant Mainland China residents to penalties under Mainland China foreign exchange administration regulations.
Immediately following the closing, David Lazar resigned as the sole officer and director of the Company and Jiaying Cai was appointed as president, secretary and treasurer of the Company and as the sole director. 1 Name Change/Reverse Stock Split Effective September 30, 2020, we changed our name from Gulf West Investment Properties, Inc. to Wetouch Technology Inc. by filing an Amended and Restated Articles of Incorporation with the Nevada Secretary of State to give effect to a name change.
Immediately following the closing, David Lazar resigned as the sole officer and director of the Company and Jiaying Cai was appointed as president, secretary and treasurer of the Company and as the sole director. 1 Name Change Effective September 30, 2020, we changed our name from Gulf West Investment Properties, Inc. to Wetouch Technology Inc. by filing an Amended and Restated Articles of Incorporation with the Nevada Secretary of State to give effect to a name change.
Their management guidelines along with key company quality policies are set out below: The Company has strict production standards in place that governs what constitutes acceptable quality for its products. This ensures that the Company’s products fulfill product certification standards.
Their management guidelines along with key company quality policies are set out below: The Company has strict production standards in place that govern what constitutes acceptable quality for its products. This ensures that the Company’s products fulfill product certification standards.
The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign- and domestic-invested enterprises in China.
The Foreign Investment Law embodies an expected Mainland China regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign- and domestic-invested enterprises in Mainland China.
A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A PRC company cannot distribute any profits until any losses from prior fiscal years have been offset.
A Mainland China company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A Mainland China company cannot distribute any profits until any losses from prior fiscal years have been offset.
However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009, if the relevant PRC tax authorities determine, in their discretions, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment.
However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009, if the relevant Mainland China tax authorities determine, in their discretions, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such Mainland China tax authorities may adjust the preferential tax treatment.
Gaming machines with a touchscreen function provide an enhanced experience for uses via multi-touch sensory touch systems. Wetouch’s products are therefore popular amongst gambling machine manufacturers. 6 Lottery Machines The self-service lottery ticket vending machine is provided with an operator-oriented touch display device, an input device, a modem, a cash register, printer and security authentication function.
Gaming machines with a touchscreen function provide an enhanced experience for uses via multi-touch sensory touch systems. Our products are therefore popular amongst gambling machine manufacturers. Lottery Machines The self-service lottery ticket vending machine is provided with an operator-oriented touch display device, an input device, a modem, a cash register, printer and security authentication function.
Industrial HMI systems and equipment often require touchscreen functions. These touchscreens must be resistant to interference, stable and have good touch sensitivity. Wetouch’s products fully meet these requirements, being temperature variation resistant, dustproof and waterproof. Gaming Machines The new generation of gambling machines are commonly adopting a touchscreen function.
Industrial HMI systems and equipment often require touchscreen functions. These touchscreens must be resistant to interference, stable and have good touch sensitivity. Our products fully meet these requirements, being temperature variation resistant, dustproof and waterproof. 5 Gaming Machines The new generation of gambling machines are commonly adopting a touchscreen function.
The PRC residents are also required to amend the registration or filing with the local SAFE branch any material change in the offshore company, such as any change of basic information (including change of such PRC residents, name and operation term), increase or decreases in investment amount, transfers or exchanges of shares, or merger or divisions.
The Mainland China residents are also required to amend the registration or filing with the local SAFE branch any material change in the offshore company, such as any change of basic information (including change of such Mainland China residents, name and operation term), increase or decreases in investment amount, transfers or exchanges of shares, or merger or divisions.
Under the current regulatory regime in China, FIEs in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations.
Under the current regulatory regime in Mainland China, FIEs in Mainland China may pay dividends only out of their retained earnings, if any, determined in accordance with Mainland China accounting standards and regulations.
Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local branch.
Unless otherwise approved, Mainland China companies may not repatriate foreign currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local branch.
Product type G+F+F This product uses a double layer of conductive films, with an optically clear adhesive (OCA) between a layer of a tempered glass. The product’s functionality comes from the interaction between the multiple layers of conductive film and glass, which does not require extensive coating, lithography and etching.
Product type GFF This product uses a double layer of conductive films, with an optically clear adhesive (OCA) between a layer of tempered glass. The product’s functionality comes from the interaction between the multiple layers of conductive film and glass, which does not require extensive coating, lithography and etching.
Financial, gaming and lottery, and medical industries Product type P+G This product uses a layer of conductive glass, with an optically clear adhesive (OCA) between a layer of surface intensify PMMA (Poly Methyl methacrylate acid). The product’s functionality relies on the interaction between the layers of conductive glass.
Financial, gaming and lottery, and medical industries Product type PG This product uses a layer of conductive glass, with an optically clear adhesive (OCA) between a layer of surface intensify PMMA (Poly Methyl methacrylate acid). The product’s functionality relies on the interaction between the layers of conductive glass.
With its headquarter based in Keelung, Taiwan and a subsidiary located in Milwaukee, Wisconsin, it designs and manufactures advanced high-performance touch products for industrial and medical applications.
With its headquarters based in Keelung, Taiwan and a subsidiary located in Milwaukee, Wisconsin, it designs and manufactures advanced high-performance touch products for industrial and medical applications.
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment , or the Catalogue, which was promulgated and is amended from time to time by the Ministry of Commerce, or the MOFCOM, and the National Development and Reform Commission, or the NDRC.
Investment activities in Mainland China by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment , or the Catalogue, which was promulgated and is amended from time to time by the Ministry of Commerce, or the MOFCOM, and the National Development and Reform Commission, or the NDRC.
Our PRC subsidiary originally received Pollutant Discharge Permit from Renshou County environmental protection agency, which expired on May 15, 2019. Pursuant to a Statement on Change of Pollutant Discharge Permit to Stationary Pollution Source Registration Form dated September 1, 2020, the environmental protection system in Renshou County, Sichuan, was changed from permission to registration due to local administrative division change.
Sichuan Vtouch originally received the Pollutant Discharge Permit from Renshou County environmental protection agency, which expired on May 15, 2019. Pursuant to a Statement on Change of Pollutant Discharge Permit to Stationary Pollution Source Registration Form dated September 1, 2020, the environmental protection system in Renshou County, Sichuan, was changed from permission to registration due to local administrative division change.
Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within the PRC territory are VAT taxpayers.
Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within Mainland China territory are VAT taxpayers.
Like the G+F+F type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost. Motor vehicle GPS, smart home, robots and charging stations Product type G+F This product uses a layer of conductive film, with an optically clear adhesive (OCa) between a layer of tempered glass.
Like the GFF type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost. Motor vehicle GPS, smart home, robots and charging stations Product type GF This product uses a layer of conductive film, with an optically clear adhesive (OCa) between a layer of tempered glass.
The product’s functionality relies on the interaction between the layers of conductive glass. Like the G+F+F type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost.
The product’s functionality relies on the interaction between the layers of conductive glass. Like the GFF type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost.
Therefore, you should not rely on an investment in our common stock as a source for any future dividend income. Regulation on M&A Rules and Overseas Listings In August 2006, six PRC governmental agencies jointly promulgated the Provisions on Foreign-funded Mergers and Acquisitions of Domestic Enterprises, or the M&A Rule, as most recently amended in 2009.
Therefore, you should not rely on an investment in our common stock as a source for any future dividend income. Regulations on M&A and Overseas Listing In August 2006, six PRC governmental agencies jointly promulgated the Provisions on Foreign-funded Mergers and Acquisitions of Domestic Enterprises, or the M&A Rule, as most recently amended in 2009.
On October 9, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited, a British Virgin Islands company incorporated on August 14, 2020 under the laws of the British Virgin Islands (“BVI Wetouch”), and all the shareholders of BVI Wetouch (each a “Shareholder” and collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the Shareholders an aggregate of 28 million shares of our common stock (the “Reverse Merger”).
Reverse Merger On October 9, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited, a British Virgin Islands company incorporated on August 14, 2020 under the laws of the British Virgin Islands (“BVI Wetouch”), and all the shareholders of BVI Wetouch (each a “BVI Wetouch Shareholder” and collectively the “BVI Wetouch Shareholders”), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Wetouch Shareholders an aggregate of 28 million shares of our common stock (the “Reverse Merger”).
PRC residents who directly or indirectly hold any shares in our company from time to time are required to register with SAFE in connection with their investments in us.
Mainland China residents who directly or indirectly hold any shares in our company from time to time are required to register with SAFE in connection with their investments in us.
The key terms of the purchase order provide the following: ○ The product name, specification, quantity, price, order amount and delivery date are specified in each order. ○ Delivery method and packaging requirements are specified in each order ○ Payment terms are specified in each order. ○ Breach of order terms by customers in some orders. ○ Guaranty terms in some orders.
The key terms of our purchase order typically include the following: ○ The product name, specification, quantity, price, order amount and delivery date are specified in each order. ○ Delivery method and packaging requirements are specified in each order ○ Payment terms are specified in each order. ○ Breach of order terms by customers in some orders. ○ Guaranty terms in some orders.
As of the date of this Annual Report, they are still pending. Set forth below is a detailed description of our pending patents: Patent Application No.
As of the date of this Annual Report, the patent applications are still pending. Set forth below is a detailed description of our pending patent applications: Patent Application No.
Reverse Stock Split On February 17, 2023, the Board authorized a reverse stock split with a ratio of not less than one to five (1:5) and not more than one to eighty (1:80), with the exact amount and the timing of the reverse stock split to be as determined by the Chairman of the Board.
Reverse Stock Split On February 17, 2023, our board of directors (the “Board”) authorized a reverse stock split of our common stock at a ratio of not less than one to five (1:5) and not more than one to eighty (1:80), with the exact amount and the timing of the reverse stock split to be as determined by the Chairman of the Board.
We believe that the principal competitive factors in its markets are product characteristics such as touch performance, durability, optical clarity and price, as well as supplier characteristics such as quality, service, delivery time and reputation.
The Company believes that the principal competitive factors in its markets are product characteristics such as touch performance, durability, optical clarity and price, as well as supplier characteristics such as quality, service, delivery time and reputation.
On March 11, 2019, 1,714,286 shares of common stock of the Company were issued to the Custodian in consideration for the payment of cash and the issuance of a promissory note by the Custodian to the Company. Effective as of June 11, 2019, the court discharged the Custodian’s duties.
On March 11, 2019, 85,715 shares of common stock of the Company were issued to the Custodian in consideration for the payment of cash and the issuance of a promissory note by the Custodian to the Company. Effective as of June 11, 2019, the court discharged the Custodian’s duties.
HK Wetouch was established to own all the outstanding shares of Sichuan Vtouch Technology Co., Ltd., which was incorporated on December 30, 2020 (“Sichuan Vtouch”) in Chengdu, Sichuan, under the laws of The People’s Republic of China (“PRC”).
HK Wetouch was established to own all the outstanding shares of Sichuan Vtouch Technology Co., Ltd., which was incorporated on December 30, 2020 in Chengdu, Sichuan, under the laws of The People’s Republic of China (“China,” or the “PRC”).
The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection, and administration of foreign investments in view of investment protection and fair competition. 16 Pursuant to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country within China, or foreign investors, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes an Foreign Investment Entity (“FIE”) in China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other similar rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project in China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
Pursuant to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country within Mainland China, or foreign investors, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes an Foreign Investment Entity (“FIE”) in Mainland China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other similar rights and interests of an enterprise within Mainland China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project in Mainland China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
Our main target markets are economically developed countries and regions, including eastern, southern, northern and southwest regions of China, South Korea, and Germany. We believe that we have established a strong client base, including global well-known institutional customers. Overseas sales were $11.5 million in 2022 as compared to $13.6 million in 2021.
Our main target markets are economically developed countries and regions, including eastern, southern, northern and southwest regions of Mainland China, South Korea, and Germany. We believe that we have established a strong client base, including global well-known institutional customers. Overseas sales were approximately $12.1 million in 2023 as compared to $11.5 million in 2022.
On June 18, 2020, we consummated the transactions contemplated by a Stock Purchase Agreement among the Company, the Custodian, Qixun Samoa and Qihong Samoa (Qixun Samoa and Qixun Samoa are referred to as the “Buyers”).
On June 18, 2020, we consummated the transactions contemplated by a Stock Purchase Agreement among the Company, the Custodian, Qixun Technology (Samoa) Limited (“Qixun Samoa”) and Qihong Technology (Samoa) Limited (“Qihong Samoa”, Qixun Samoa and Qixun Samoa are referred to as the “Buyers”).
On March 12, 2021, BVI Wetouch, the Company’s wholly owned subsidiary, acquired all the outstanding shares of HK Wetouch from the sole shareholder of HK Wetouch, Guangde Cai, in consideration of the payment of HK$10,000 pursuant to instruments of transfer in accordance with Hong Kong law.
On March 12, 2021, BVI Wetouch, the Company’s wholly owned subsidiary, acquired all the outstanding shares of HK Wetouch from the sole shareholder of HK Wetouch, Guangde Cai, who was our former Chairman and Director in consideration of the payment of HK$10,000 pursuant to the instruments of transfer in accordance with Hong Kong law.
The customers shall bear the litigation costs, lawyer’s fees, and other debt recovery costs. ● We are required to provide products to customers pursuant to the delivery date and quantity, requirements included in the purchase orders and shall negotiate with customers if we are unable to so provide. ● The customers are entitled to compensation of losses due to our failure to provide after-sale services. ● Any violation of the terms of the agreements may result in the termination of the agreements and the breaching party shall be responsible for all business and economic losses and legal liabilities arising therefrom.
The customers shall bear the litigation costs, lawyer’s fees, and other debt recovery costs. ● We are required to provide products to customers pursuant to the delivery date and quantity, requirements included in the purchase orders and shall negotiate with customers if we are unable to so provide. ● The customers are entitled to compensation of losses due to our failure to provide after-sale services. ● Any violation of the terms of the agreements may result in the termination of the agreements and the breaching party shall be responsible for all business and economic losses and legal liabilities arising therefrom. 7 We do not typically enter into sales framework agreements with other customers but sell products to them through purchase orders.
The Amended and Restated Articles also effectuated a reverse split of our authorized, issued and outstanding shares of common stock on a 70 for 1 new basis whereby each 70 shares of outstanding common stock was exchanged for one (1) share of new common stock (the “Reverse Split” and, for avoidance of doubt, all share amounts set forth herein shall be post Reverse Split unless otherwise specified) and, consequently, our authorized common stock increased to 300,000,000 shares of common stock and 10,000,000 shares of preferred stock, and our then issued and outstanding common shares decreased from 237,742,066 to 3,396,394 shares, all with a par value of $0.001.
The Amended and Restated Articles also effectuated a reverse split of our authorized, issued and outstanding shares of common stock on a 70 for 1 new basis whereby each 70 shares of outstanding common stock was exchanged for one (1) share of new common stock (the “Reverse Split” and, for avoidance of doubt, all share amounts set forth herein shall be post Reverse Split unless otherwise specified) and, consequently, our authorized common stock increased to 300,000,000 shares of common stock and 10,000,000 shares of preferred stock, and our then issued and outstanding common shares decreased from 11,887,103 to 169,820 shares, all with a par value of $0.001 per share.
As a result of the Reverse Merger in which the Company acquired all the outstanding shares of BVI Wetouch, Hong Kong Wetouch and Sichuan Wetouch become our indirect wholly-owned subsidiaries.
As BVI Wetouch owns all the outstanding shares of Hong Kong Wetouch, which, in turn, owns all the outstanding shares of Sichuan Wetouch, the Company owns indirectly all the business of Sichuan Wetouch. As a result of the Reverse Merger, Hong Kong Wetouch and Sichuan Wetouch become our indirect wholly-owned subsidiaries.
Wetouch’s products are widely used in these ticketing machines and kiosks.
Our products are widely used in these ticketing machines and kiosks.
Patent Name Patent Application Date Patent Type Patent Applicant Status 202120500187.7 Low cost anti-rupture projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202120500188.1 High performance and anti-electromagnetic radiation projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202120500155.7 Full-lamination projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202110256476.1 Anti-scratch glass structure capacitive touchscreen 03/09/2021 Invention Sichuan Vtouch Pending 13 Patents registered in China cannot be enforced in other jurisdictions to which the Company supplies its products.
Patent Name Patent Application Date Patent Type Patent Applicant Status 202120500187.7 Low cost anti-rupture projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202120500188.1 High performance and anti-electromagnetic radiation projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202120500155.7 Full-lamination projected capacitive touchscreen 03/09/2021 Utility Model Sichuan Vtouch Pending 202110256476.1 Anti-scratch glass structure capacitive touchscreen 03/09/2021 Invention Sichuan Vtouch Pending 202111206650.8 An enhanced anti-static projection capacitive screen 10/17/2021 Invention Sichuan Vtouch Pending Patents registered in Mainland China cannot be enforced in other jurisdictions to which the Company supplies its products.
The products are tested for their functionality in high and low humidity environments as well as in extreme temperatures. The products are inspected to determine whether damage or physical change is caused by exposure to high and low temperatures. ● Third party organizations are engaged to conduct independent testing for hazardous substances.
The products are tested for their functionality in high and low humidity environments as well as in extreme temperatures. The products are inspected to determine whether damage or physical change is caused by exposure to high and low temperatures. ● Internal teams will conduct independent testing for hazardous substances.
The Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, which was promulgated on March 30, 2015, became effective on June 1, 2015, and was amended on December 30, 2019, provides that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account).
Pursuant to SAFE Circular 13, investors should register with banks for direct domestic investment and direct overseas investment. 16 The Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, which was promulgated on March 30, 2015, became effective on June 1, 2015, and was amended on December 30, 2019, provides that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account).
Pursuant to the Stock Purchase Agreement, the Buyers acquired all of the 1,714,286 shares of the Company owned by the Custodian, representing 50.47% of the issued and outstanding shares of the Company.
Pursuant to the Stock Purchase Agreement, the Buyers acquired all of the 85,715 shares of the Company owned by the Custodian, representing 50.47% of the issued and outstanding shares of the Company.
For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange. 19 Pursuant to the Circular of the SAFE on Notice of State Administration of Foreign Exchange on Further Improvements and Adjustments to Foreign Exchange Control Policies for Direct Investment, which was promulgated on November 19, 2012, became effective on December 17, 2012, and was further amended on May 4, 2015, October 10, 2018, and December 30, 2019, approval of the SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments.
Pursuant to the Circular of the SAFE on Notice of State Administration of Foreign Exchange on Further Improvements and Adjustments to Foreign Exchange Control Policies for Direct Investment, which was promulgated on November 19, 2012, became effective on December 17, 2012, and was further amended on May 4, 2015, October 10, 2018, and December 30, 2019, approval of the SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments.
We target these overseas customers mainly via our online marketing efforts. In order to market our products, occupy more market share and secure more quality customer, we frequently participate in, and promote our products at, specific touchscreen technology exhibitions held internationally.
We target these overseas customers mainly via our online marketing efforts. In order to market our products, occupy more market share and secure more quality customers, we frequently participate in, and promote our products at, specific touchscreen technology exhibitions held internationally. Our products are produced to order and are marketed directly by our own sales personnel.
The Reverse Merger closed on October 9, 2020. Immediately after the closing of the Reverse Merger, we had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary.
The Reverse Merger closed on October 9, 2020. Immediately after the closing of the Reverse Merger, we had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary. On October 12, 2020, Guangde Cai was appointed as an additional director and Chairman of the Company.
However, since this circular is newly promulgated, it is unclear how the SAFE and competent banks will carry it out in practice. 20 According to the Regulations of the PRC on Administration of Company Registration, which were promulgated by the State Council on June 24, 1994, became effective on July 1, 1994, and were amended on February 6, 2016, and other laws and regulations governing FIEs and company registrations, the establishment of an FIE and any capital increase and other major changes in an FIE should be registered with the State Administration for Market Regulation or its local counterparts and filed via the enterprise registration system.
According to the Regulations of the PRC on Administration of Company Registration, which were promulgated by the State Council on June 24, 1994, became effective on July 1, 1994, and were amended on February 6, 2016, and other laws and regulations governing FIEs and company registrations, the establishment of an FIE and any capital increase and other major changes in an FIE should be registered with the State Administration for Market Regulation or its local counterparts and filed via the enterprise registration system.
For the year ended December 31, 2022, the revenues generated from our domestic customers amounted to approximately $26.4 million, constituting approximately 69.7% of our total revenues, with overseas customers accounting for approximately $11.5 million, constituting approximately 30.3% of our total revenues, respectively.
For the year ended December 31, 2022, the revenues generated from our domestic customers amounted to approximately $26.4 million, constituting approximately 69.7% of our total revenues, with overseas customers accounting for approximately $11.5 million, constituting approximately 30.3% of our total revenues, respectively. Our Suppliers Sichuan Vtouch does not typically enter into supply agreements with our suppliers.
Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights.
Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights. As of the date of this Annual Report, we had five pending patent applications.
For the years ended December 31, 2022 and 2021, we did not provide any extended payment terms to any of our customers. Our customers are required to make full payment within three to five months from delivery date, although our typical payment term is 180 days from delivery.
For the years ended December 31, 2023 and 2022, we did not provide any extended payment terms to any of our customers. Our customers are required to make full payment within three to six months from the delivery date.
As a result of the COVID-19 outbreak in January 2020, collection activities from some of our customers affected by the pandemic resulted in longer payment terms. We impliedly granted extended payment terms until December 31, 2020 to some of our customers.
As a result of the COVID-19 outbreak in January 2020, collection activities from some of our customers affected by the pandemic resulted in longer payment terms.
The material terms of the sales framework agreements with our top five customers provide: ● The term of each sales framework agreement is four (4) years, which may be renewed by a separate agreement upon expiration. ● Annual minimum purchase amount for period from January 1 to December 31 each year. ● We will send the price list to the customers at the beginning of each year.
The material terms of the sales framework agreements with our top five customers provide: ● The term of each sales framework agreement is four years, which may be renewed by a separate agreement upon expiration. ● The customer shall purchase an annual minimum purchase amount for period from January 1 to December 31 each year as specified in the agreement.
On March 2, 2021, HK Wetouch acquired all shares of Hong Kong Wetouch. On June 18, 2021, Hong Kong Wetouch submitted its application for dissolution and was dissolved on March 18, 2022. In addition, as of March 31, 2021, Sichuan Wetouch’s business and operations have been assumed by Sichuan Vtouch.
On June 18, 2021, Hong Kong Wetouch submitted its application for dissolution and was dissolved on March 18, 2022. In addition, as of March 31, 2021, Sichuan Wetouch’s business and operations have been assumed by Sichuan Vtouch. On March 30, 2023, an independent third party acquired all the shares of Sichuan Wetouch for a nominal amount.
Regulations Relating to Foreign Investment in China On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law, and the Wholly Foreign-Owned Enterprise Law, together with their implementation rules and ancillary regulations.
This section sets forth a summary of the most significant rules and regulations that affect our business activities in Mainland China. 13 Regulations Relating to Foreign Investment in Mainland China On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law, and the Wholly Foreign-Owned Enterprise Law, together with their implementation rules and ancillary regulations.
If the customer fails to purchase the minimum purchase amount in the applicable agreement, the customers will be deprived of the most favorable price treatment for the following year and rebate rewards for the current year. For E-Lead Electronic Co.
If the customer fails to purchase the minimum purchase amount in the applicable agreement, the customer will be deprived of the most favorable price treatment for the following year and rebate rewards for the current year. ● We will send the price list to the customers at the beginning of each year.
Despite that touchscreen products are highly competitive as a whole, we face fewer competitors, as we produce medium to large size touchscreens which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS, among others, and require more stable supply and longer guaranty and life span, compared with small size touchscreens, which are characterized by shorter life cycles and guaranty but more demand in quantity.
The Company believes that it competes favorably with respect to these factors, although there can be no assurance that the Company will be able to continue to compete successfully in the future. 12 Despite that touchscreen products are highly competitive as a whole, we face fewer competitors, as we produce medium to large size touchscreens which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS, among others, and require more stable supply and longer guaranty and life span, compared with small size touchscreens, which are characterized by shorter life cycles and guaranty but more demand in quantity.
The Company is not aware of any investigations, prosecutions, disputes, claims or other proceedings in respect of environmental protection, nor has the Company been punished or can foresee any punishment to be made by any environmental administration authorities of the PRC.
The Company is not aware of any investigations, prosecutions, disputes, claims or other proceedings in respect of environmental protection, nor has the Company been punished or can foresee any punishment to be made by any environmental administration authorities of the PRC. Competition The markets for touchscreen products are highly competitive and subject to rapid technological change.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

89 edited+62 added−82 removed189 unchanged
Biggest changeIn that event, the market price of our common stock could decline, and you could lose all or part of your investment. 24 Risks Related to Our Business and Industry The current COVID-19 pandemic, as well as other epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt our delivery and operations, which could materially and adversely affect our business, financial condition, and results of operations.
Biggest changeRisks Related to Our Common Stock ● Volatility in the price of our common stock may not reflect our operating performance. ● By-laws limiting the judicial forum for disputes could restrict stockholder litigation options. ● Manipulative short selling could drive down our stock price. ● Direct exposure to negative publicity involving U.S.-listed Chinese companies could harm our business and reputation. ● Large volumes of our common stock being sold could negatively affect the market price. ● Non-payment of dividends means stockholders must rely on stock price appreciation for returns. ● Deteriorating U.S.-China relations could lower our stock price and complicate access to capital markets. 22 Risks Related to Our Business and Industry The COVID-19 pandemic, as well as other epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt our delivery and operations, which could materially and adversely affect our business, financial condition, and results of operations .
The cost, availability and quality of the raw materials, such as indium tin oxide glasses, panels, are important to our operations. If the cost of raw materials increases due to large market price fluctuation or due to any other reason, our business and results of operations could be adversely affected.
The cost, availability and quality of the raw materials, such as indium tin oxide glasses and panels, are important to our operations. If the cost of raw materials increases due to large market price fluctuation or due to any other reason, our business and results of operations could be adversely affected.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business.
We are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business.
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 PRC 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 PRC 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.
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.
Lack of availability of these raw materials, whether due to shortages in supply, delays or interruptions in processing, failure of timely delivery or otherwise, could interrupt our operations and adversely affect our financial results. 28 We are dependent upon key executives and highly qualified managers and we cannot assure their retention.
Lack of availability of these raw materials, whether due to shortages in supply, delays or interruptions in processing, failure of timely delivery or otherwise, could interrupt our operations and adversely affect our financial results. We are dependent upon key executives and highly qualified managers and we cannot assure their retention.
In addition, our plans call for significant new investments in research and development, marketing, expanded productions capacity, and working capital for raw materials and other items. Should our capital needs be higher than our estimation, we will be required to seek additional investments, loans or debt financing to fully pursue our business plans.
In addition, our plans may call for significant new investments in research and development, marketing, expanded productions capacity, and working capital for raw materials and other items. Should our capital needs be higher than our estimation, we will be required to seek additional investments, loans or debt financing to fully pursue our business plans.
If we are subject to severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results of operations may be adversely affected. Further, the law requires certain terminations be based upon seniority and not merit.
If we are subject to severe penalties or incur significant legal fees in connection with labor law disputes or investigations, our business, financial condition and results of operations may be adversely affected. Further, the Labor Contract Law requires certain terminations be based upon seniority and not merit.
Our growth rates may decline for any number of possible reasons and some of them are beyond our control, including decreasing customer demand, increasing competition, declining growth of the touchscreen industry in general, emergence of alternative business models, or changes in government policies or general economic conditions.
Our growth rates may decline for any number of possible reasons and some of them are beyond our control, including decreasing customer demand, increasing competition, declining growth of the touchscreen display industry in general, emergence of alternative business models, or changes in government policies or general economic conditions.
For example, a downturn in the economy could directly affect the discretionary spending power of our customers and in turn, depress the number of orders for our products. 46 We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
For example, a downturn in the economy could directly affect the discretionary spending power of our customers and in turn, depress the number of orders for our products. We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
Such reductions or terminations could have a material adverse impact on our revenues, profits and financial condition. If we fail to adopt new technologies to evolving customer needs or emerging industry standards, our business may be materially and adversely affected.
Such reductions or terminations could have a material adverse impact on our revenues, profits and financial condition. 29 If we fail to adopt new technologies to evolving customer needs or emerging industry standards, our business may be materially and adversely affected.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this offering and to capitalize or otherwise fund our Chinese operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from the Offering and to capitalize or otherwise fund our Chinese operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
The Chinese government has provided tax incentives to our former subsidiary in China, Sichuan Wetouch, including reduced enterprise income tax rates. For example, under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%.
The Chinese government has provided tax incentives to our former subsidiary in Mainland China, Sichuan Wetouch, including reduced enterprise income tax rates. For example, under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%.
Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. 44 However, the implementation of these measures may not fully address these weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied.
Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. 24 However, the implementation of these measures may not fully address these weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied.
The touchscreen industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, interest rate fluctuations, and other economic factors beyond our control.
The touchscreen display industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, interest rate fluctuations, and other economic factors beyond our control.
Upon the effectiveness of the Trial Administrative Measures, we could be subject to the Trial Administrative Measures, as the Company has: (i) 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 PRC domestic companies; and (ii) 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; and, if required, we cannot assure you that we will be able to complete such process on time or at all.
We are subject to the Trial Administrative Measures, as the Company has: (i) 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 PRC domestic companies; and (ii) 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; and, if required, we cannot assure you that we will be able to complete such process on time or at all.
These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations. 37 The PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect.
These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations. 38 The PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect.
The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay in foreign currencies, and our business and operations may be adversely affected. 38 Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay in foreign currencies, and our business and operations may be adversely affected. 39 Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our common stock. 45 Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of our common stock for return on your investment.
We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our common stock. 43 Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of our common stock for return on your investment.
In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. 36 The PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on an U.S. or other foreign exchanges.
In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. 37 The PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business, accept foreign investments or list on an U.S. or other foreign exchanges.
While we seek to maintain appropriate levels of insurance, not all claims are insurable and we may experience major incidents of a nature that are not covered by insurance. We do not have other insurances that cover, among other things, employee-related accidents and injuries, product or business liability and other property damage and liability deriving from our activities.
While we seek to maintain appropriate levels of insurance , not all claims are insurable and we may experience major incidents of a nature that are not covered by insurance. We do not have any insurance that cover, among other things, employee-related accidents and injuries, product or business liability and other property damage and liability deriving from our activities.
Any failure or inability by such shareholders to comply with SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends.
Any failure or inability by such shareholders to comply with SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiary’ ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends.
If we do not obtain substantial additional financing, our ability to execute on our business plan may be impaired.
If we do not obtain substantial additional financing, our ability to execute our business plan may be impaired.
On December 28, 2021, the Measures for Cybersecurity Review (2021 version) were promulgated and will become effective on February 15, 2022 (the “Measures”), which iterates that any “online platform operators” controlling personal information of more than one million users that seeks to list on a foreign stock exchange shall also be subject to cybersecurity review.
On December 28, 2021, the Measures for Cybersecurity Review (2021 version) were promulgated and became effective on February 15, 2022 (the “Measures”), which iterates that any “online platform operators” controlling personal information of more than one million users that seeks to list on a foreign stock exchange shall also be subject to cybersecurity review.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our Hong Kong or PRC subsidiaries or with respect to future capital contributions by us to our Hong Kong or PRC subsidiaries.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary.
There can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy, or that we will be able to hire or retain experienced, qualified employees to carry out our strategy.
There can be no assurance that our existing personnel will be adequate or qualified to carry out our strategy and operations, or that we will be able to hire or retain experienced, qualified employees to carry out our strategy and operations.
We face few competition as we produce medium to large size capacitive touchscreens which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS, etc., and requires more stable supply, longer guaranty and life span, compared with small size touchscreens which is characteristic with shorter life cycle and guaranty but more demand in quantity.
We face less competition as we produce medium to large size capacitive touchscreens which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS, and requires more stable supply, longer guaranty and life span, compared with small size touchscreens which are characteristic with shorter life cycle and guaranty but more demand in quantity.
However, the income tax of an enterprise that has been determined to be a qualified enterprise located in western region of PRC can be reduced to a preferential rate of 15%. The qualification of preferential tax rate is effective for a renewable three-year permitted.
However, the income tax of an enterprise that has been determined to be a qualified enterprise located in western region of Mainland China can be reduced to a preferential rate of 15%. The qualification of preferential tax rate is effective for a renewable three-year permitted.
For the years ended December 31, 2022 and 2021, we did not provide any extended payment terms to any of our customers.
For the years ended December 31, 2023 and 2022, we did not provide any extended payment terms to any of our customers.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our supply of products and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations.
In addition, global pandemics, epidemics in Mainland China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, and avian flu, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could also disrupt our business operations, reduce or restrict our supply of products and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations.
General Risk Factors Our operating history may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth rates. Our operating history may not be indicative of our future growth or financial results. There is no assurance that we will be able to grow in future periods.
Our operating history may not be indicative of our future growth or financial results and we may not be able to sustain our historical growth rates. Our operating history may not be indicative of our future growth or financial results. There is no assurance that we will be able to grow in future periods.
Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to foreign exchange loan registrations. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope.
Any loans to our wholly foreign-owned subsidiary in China, which is treated as a foreign-invested enterprise under PRC law, are subject to foreign exchange loan registrations. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope.
On October 16, 2022, Sichuan Vtouch entered an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties until October 31, 2023, at a monthly rent of RMB400,000 (approximately $59,941).
On October 16, 2022, Sichuan Vtouch entered an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties until October 31, 2023, then subsequently extended to October 31, 2024, at a monthly rent of RMB400,000 (approximately $59,941).
If our PRC subsidiary’s application for the qualification of preferential tax rate benefit is not approved, our PRC subsidiary will be subject to the statutory enterprise income tax rate of 25%.
If Sichuan Vtouch’s application for the qualification of preferential tax rate benefit is not approved, our PRC subsidiary will be subject to the statutory enterprise income tax rate of 25%.
For example, a significant interruption in the operations of our supplier’s manufacturing facilities could cause delay or termination of shipment of the raw materials to us, which may cause delay or termination of shipment of our products to our customers, thus resulting in penalties or fines due to our breach of contract.
For example, a significant interruption in the operations of our supplier’s manufacturing facilities could cause delays or termination of shipments of the raw materials to us, which may cause delays or termination of shipments of our products to our customers, thus resulting in penalties or fines due to our breach of contract.
Furthermore, negative publicity including but not limited to negative online reviews on social media and crowd-sourced review platforms, industry findings or media reports related to safety and quality of our products, whether or not accurate, and whether or not concerning our products, can adversely affect our business, results of operations and reputation.
Furthermore, negative publicity including but not limited to negative online reviews on social media and crowd-sourced review platforms, industry findings or media reports related to safety and quality of our products, whether or not accurate, and whether or not concerning our products, can adversely affect our business, results of operations and reputation. We may experience losses on inventories.
We believe our Company, excluding our PRC subsidiaries, is not a PRC resident enterprise for PRC tax purposes.
We believe our Company, excluding our PRC subsidiary, is not a PRC resident enterprise for PRC tax purposes.
Our PRC subsidiaries hold certain assets that are important to our business operations. If our PRC subsidiaries undergo a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Our PRC subsidiary holds certain assets that are important to our business operations. If our PRC subsidiary undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
A significant interruption in the operations of our third-party suppliers could potentially disrupt our operations. We have limited control over the operations of our third-party suppliers and other business partners and any significant interruption in their operations may have an adverse impact on our operations.
We have limited control over the operations of our third-party suppliers and other business partners and any significant interruption in their operations may have an adverse impact on our operations.
Failure to secure a new piece of parcel for the construction of our new buildings and facilities, and failure to acquire and install new production lines on the new parcel, our business, financial condition and results of operations may be materially and adversely affected.
Failure to secure a new parcel of land for the construction of our new buildings and facilities, and failure to acquire and install new production lines on the new parcel may materially and adversely affect our business, financial condition and results of operations.
The global spread of COVID-19 pandemic may result in global economic distress, and the extent to which it may affect our results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
COVID-19 has had a global economic impact on the financial markets. The global spread of COVID-19 pandemic may result in global economic distress, and the extent to which it may affect our results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
As of December 31, 2022, we had approximately $9.1 million in accounts receivable. Our accounts receivable primarily includes balance due from customers when our products are sold and delivered to customers. Our customers are required to make full payment within three to five months from delivery date, although our industry typical payment term is 180 days from delivery.
As of December 31, 2023, we had approximately $7.5 million in accounts receivable. Our accounts receivable primarily include balance due from customers when our products are sold and delivered to customers. Our customers are required to make full payment within three to five months from delivery date, although our industry typical payment term is 180 days from delivery.
The insurance industry in China is still at an early stage of development, and insurance companies in China currently offer limited business-related insurance products. We do not have any business liability or disruption insurance to cover our operations.
We have no business liability or disruption insurance, which could expose us to significant costs and business disruption. The insurance industry in China is still at an early stage of development, and insurance companies in China currently offer limited business-related insurance products. We do not have any business liability or disruption insurance to cover our operations.
As Sichuan Wetouch’s business and operations have been assumed by our PRC subsidiary Sichuan Vtouch, Sichuan Vtouch has reapplied for the preferential rate of 15% as a qualified enterprise. Such application is currently pending with the PRC tax authorities.
As we have dissolved Sichuan Wetouch, and its business and operations have been assumed by Sichuan Vtouch, Sichuan Vtouch has reapplied for the preferential rate of 15% as a qualified enterprise. Such application is currently pending with the PRC tax authorities.
In connection with the auditing of our consolidated financial statements as of and for the years ended December 31, 2021 and 2022, we identified the following material weaknesses in our internal control over financial reporting: ● Inadequate segregation of duties consistent with control objectives; ● Lack of formal policies and procedures; ● Lack of a functioning audit committee and independent directors on the Company’s board of directors to oversee financial reporting responsibilities; and ● Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner.
In connection with the auditing of our consolidated financial statements as of and for the years ended December 31, 2023 and 2022, we identified the following material weaknesses in our internal control over financial reporting: ● Inadequate segregation of duties consistent with control objectives; ● Lack of formal policies and procedures; ● Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner.
Risks Related to Doing Business in China Adverse regulatory developments in China may subject us to additional regulatory review and expose us to government restrictions, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements, and/or suspend or terminate our future securities offerings, making capital-raising more difficult.
Any such litigation, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which could adversely affect our business. 31 Risks Related to Doing Business in China Adverse regulatory developments in China may subject us to additional regulatory review and expose us to government restrictions, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements, and/or suspend or terminate our future securities offerings, making capital-raising more difficult.
If we are unable to retain our existing customers, especially our top customers or to acquire new customers in a cost-effective manner, our revenues may decrease and our results of operations will be adversely affected. We have a significant amount of accounts receivable, which could become uncollectible .
If we are unable to retain our existing customers, especially our top customers or to acquire new customers in a cost-effective manner, our revenues may decrease and our results of operations will be adversely affected.
Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest, and penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected.
Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest, and penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected. 28 A significant interruption in the operations of our third-party suppliers could potentially disrupt our operations.
You may not realize a return on your investment in our common stock and you may even lose your entire investment in our common stock. If relations between the United States and China worsen, our stock price may decrease and we may have difficulty accessing the U.S. capital markets.
You may not realize a return on your investment in our common stock and you may even lose your entire investment in our common stock. If relations between the United States and China worsen, our stock price may decrease and could lead to our loss of access or increased difficulty in accessing U.S. capital markets.
On July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including whether the China-based operating company and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded.
We may be required to change our data and other business practices and be subject to regulatory investigations, penalties, and increased cost of operations as a result of these laws and policies. 32 On July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including whether the China-based operating company and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded.
Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results. The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including recently-imposed tariffs affecting certain products manufactured in China.
The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including recently-imposed tariffs affecting certain products manufactured in China.
Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis.
Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. 26 We have a significant amount of accounts receivable, which could become uncollectible .
In the event that we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.
In the event that we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations. 36 We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
If required, we cannot assure you that we will be able to complete such process on time or at all. 31 On July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the Measures, for public comments, which propose to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users.
On July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the Measures, for public comments, which propose to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users.
Labor laws in the PRC may adversely affect our results of operations. The PRC National People’s Congress promulgated the Labor Contract Law which became effective on January 1, 2008 and was amended on December 28, 2012, and the State Council promulgated implementing regulations for the labor contract law on September 18, 2008.
The PRC National People’s Congress promulgated the Labor Contract Law which became effective on January 1, 2008 and was amended on December 28, 2012 (the “Labor Contract Law”), and the State Council promulgated implementing regulations for the labor contract law on September 18, 2008.
If our growth rates decline, investors’ perceptions of our business and prospects may be adversely affected and the market price of our common stock could decline. Economic recessions could have a significant, adverse impact on our business.
If our growth rates decline, investors’ perceptions of our business and prospects may be adversely affected and the market price of our common stock could decline.
SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. 29 Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches.
Although our main business is based in mainland China or based in Hong Kong with our Chinese operating subsidiary, some of our business may require us to use U.S. dollars. We choose quotations based on price competitiveness.
Although our main business is based in mainland China with our Chinese operating subsidiary, some of our business may require us to use U.S. dollars.
Among other requirements, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation shall be completed within three working days after the overseas listing application is submitted.
Among other requirements, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation shall be completed within three working days after the overseas listing application is submitted. On February 17, 2023, the CSRC promulgated the Trial Administrative Measures, which took effect on March 31, 2023.
If we fail to acquire new customers or retain existing customers in a cost-effective manner, our business, financial condition and results of operations may be materially and adversely affected. We are heavily dependent on our top customers.
Further, it could cause our investors to lose confidence in the information we report, which could adversely affect the price of our shares. We are heavily dependent on our top customers. If we fail to acquire new customers or retain existing customers in a cost-effective manner, our business, financial condition and results of operations may be materially and adversely affected.
We are an offshore holding company conducting our operations in China. We may make loans to our PRC subsidiaries to the approval, registration, and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China.
We conduct substantially all of our operations in China. We may make loans to our PRC subsidiary, subject to the approval, registration, and filing with governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiary in China.
Our auditor is headquartered in Lakewood, Colorado and has been inspected by the PCAOB on a regular basis. 34 PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our Chinese subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of any offerings or financings to make loans or additional capital contributions to our Chinese subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong and voted to vacate the previous Determination Report to the contrary.
On December 15, 2022, the PCAOB released a statement confirming it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and it issued the 2022 HFCAA Determination Report to vacate its precious determinations to the contrary.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees. The trading price of our common stock is likely to be volatile, which could result in substantial losses to investors.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and other employees. Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
There can be no assurance that new customers will stay with us, or the net revenues from new customers we acquire will ultimately exceed the cost of acquiring those customers.
We also expect to continue to invest significantly to acquire new customers and retain existing ones, especially our top customers. There can be no assurance that new customers will stay with us, or the net revenues from new customers we acquire will ultimately exceed the cost of acquiring those customers.
In order to minimize the interruption of our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16, 2021. The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB300,000 (approximately $46,154), which period was extended to October 31, 2022.
The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB300,000 (approximately $46,154), which period has been extended to October 31, 2022.
SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities.
SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
No assurances can be made that we will not become a target of such commentary and declines in the market price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise. 43 In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2021 and 2022, we identified certain material weaknesses in our internal control over financial reporting.
No assurances can be made that we will not become a target of such commentary and declines in the market price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.
In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities.
The PRC tax authorities may assert that we or our subsidiaries owe and/or are required to pay additional taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities.
Any of the foregoing events may give rise to interruptions, damage to our property, delays in production, breakdowns, system failures, technology platform failures, or internet failures, which could cause the loss or corruption of data or malfunctions of our manufacturing facility as well as adversely affect our business, financial condition, and results of operations. 25 We are heavily dependent on our top customers.
Any of the foregoing events may give rise to interruptions, damage to our property, delays in production, breakdowns, system failures, technology platform failures, or internet failures, which could cause the loss or corruption of data or malfunctions of our manufacturing facility as well as adversely affect our business, financial condition, and results of operations. 23 In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2022 and 2023, we identified certain material weaknesses in our internal control over financial reporting.
We have invested significantly in branding, sales and marketing to acquire and retain customers since our inception. For example, we attend domestic and international expos and exhibitions in marketing our products and attracting new customers. We also expect to continue to invest significantly to acquire new customers and retain existing ones, especially our top customers.
Our ability to attract new customers and retain existing customers cost-effectively, especially our top customers, is crucial to driving net revenues growth and achieving profitability. We have invested significantly in branding, sales and marketing to acquire and retain customers since our inception. For example, we attend domestic and international expos and exhibitions to market our products and attract new customers.
Although they are either in the process of making foreign exchange registration or plan to make foreign exchange registrations, they may still face with the above said possible fines in accordance with the PRC Laws. We have no business liability or disruption insurance, which could expose us to significant costs and business disruption.
Although they are either in the process of making foreign exchange registration or plan to make foreign exchange registrations, they may still face with the above said possible fines in accordance with the PRC Laws. Labor laws in the PRC may adversely affect our results of operations.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities and may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our common stock .
If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our Common Stock. 40 The Chinese government exerts substantial influence over the manner in which we must conduct our business activities and may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our common stock .
At the year ended December 31, 2021, our use right to the Property was withdrawn by the local government and all ownership certificates pertaining to the buildings on the Property were returned to the local government for cancellation.
During the year ended December 31, 2021, our use right to the Property was withdrawn by the local government and all ownership certificates pertaining to the buildings on the Property were returned to the local government for cancellation. 25 In order to minimize the interruption of our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16, 2021.
At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade conflicts between the United States and China could adversely affect the market price of our common stock and our ability to access U.S. capital markets.
At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries.
In addition, our insurance costs may increase over time in response to any negative development in our claims history or due to material price increases in the insurance market in general.
In addition, our insurance costs may increase over time in response to any negative development in our claims history or due to material price increases in the insurance market in general. We may not be able to adequately protect and maintain our intellectual property. Our success will depend on our ability to continue to develop and market our products.
If any of the following risks materialize, our business, financial condition, results of operation and prospects will likely be materially and adversely affected.
If any of the following risks materialize, our business, financial condition, results of operation and prospects will likely be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment.
Any of these factors may result in large and sudden changes in the volume and price at which our common stock will trade. In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities.
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities.
In addition, we may be unable to receive sufficient compensation from suppliers and service providers for the losses caused by them. 26 We face intense competition in the touchscreen industry in general. If we fail to compete effectively, we may lose market share and customers, and our business, financial condition and results of operations may be materially and adversely affected.
In addition, we may be unable to receive sufficient compensation from suppliers and service providers for the losses caused by them. 27 We face intense competition in the touchscreen display industry in general.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. 35 In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37.
The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries owe and/or are required to pay additional taxes on previous or future revenue or income.
Any adjustment of related party transaction pricing could lead to additional taxes, and therefore substantially reduce our consolidated net income and the value of your investment. The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. Properties and Facilities We own approximately nine separate buildings covering a total area of approximately 735,745 square feet at No.29, Third Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (previously known as 22 Xingan Ave., Section 2, Shigao Town, Sichuan, China) (“Property”) where we maintain our executive offices, research and development facilities, factories and other facilities.
Biggest changeProperties and Facilities We operate our business in approximately nine separate buildings covering a total area of approximately 735,745 square feet at No. 29, Third Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (previously known as 22 Xingan Ave., Section 2, Shigao Town, Sichuan, China ) where we maintain our executive offices, research and development facilities, factories and other facilities.
Removed
We leased back the Property for our business operation. See “ITEM 1 Business - Recent Developments” for recent changes to the Property. We have completed approximately 80% of the construction work on our new high-standard production facility in Chengdu, for which we expect to complete the construction work before October 31, 2023.
Added
Leaseback Agreement Pursuant to local PRC government guidelines on local environmental issues and the national overall plan, Sichuan Wetouch is under the government-directed relocation order to relocate no later than December 31, 2021 and received compensation accordingly.
Removed
We believe that our new high-standard production facility will be sufficient for our current business.
Added
On March 16, 2021, Sichuan Wetouch entered into an Agreement of Compensation on Demolition (the “Compensation Agreement”) with Meishan Huantian Industrial Co., Ltd, formerly named Sichuan Renshou Shigao Tianfu Investment Co., Ltd, a limited company owned by the local government (“Sichuan Renshou”), for the withdrawal of our right to use of a parcel of state-owned land and the demolition of all buildings, facilities and equipment on such land where we maintain our executive offices, research and development facilities and factories at No.29, Third Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (the “Property”).
Added
The Property, all buildings, facilities, equipment and all other appurtenances on the Property are collectively referred to as “Properties”. The Compensation Agreement was executed and delivered as a result of the guidelines (the “Guidelines”) published by the local government with respect to local environmental issues and a national plan on Tianfu New District, Meishan City, Sichuan, PRC.
Added
In accordance with the Guidelines, a project named “Chaisang River Ecological Wetland Park” is under construction in the areas where our manufacturing facilities and properties are located. In consideration for such relocation, as an owner of the buildings on the state-owned land, we will be compensated.
Added
On March 18, 2021, Sichuan Wetouch received a total amount of RMB115.2 million (approximately $17.7 million) as the total amount of compensation from Sichuan Renshou, including RMB100.2 million ($15.4 million) based upon the appraised value of the Properties plus an extra 15% relocation bonus of RMB15.0 million ($2.3 million).
Added
In order to minimize the interruption to our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16, 2021. The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB300,000 (approximately $46,154), which period was extended to October 31, 2022.
Added
On October 16, 2022, Sichuan Vtouch entered an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties until October 31, 2024, at a monthly rent of RMB 400,000 ($56,339).
Added
New Facilities On July 23, 2021, Sichuan Vtouch entered into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use right for a parcel of land spanning 131,010 square feet, for a consideration of RMB3,925,233 (equivalent to $537,998) for the Company’s new facility.
Added
The Company paid the consideration in full on November 18, 2021. The Company estimates receiving the certificate of land use right from the local government in the fourth quarter of 2024.
Added
On July 27, 2021, Sichuan Vtouch and Sichuan Chunqiu Development and Construction Group Co., Ltd. entered into a construction contract for a project to build the capacitive touch screen and touch machine research and development production base.
Added
The contract was estimated to start on August 15, 2021, and to be completed by August 15, 2022, at a provisional price of RMB76,000,000 (approximately $11.9 million). This price is subject to adjustment based on actual completion settlement. However, the construction project has been put on hold due to the outbreak of Covid-19 and government-ordered shutdowns in China.
Added
The parties have agreed to extend the term of the contract to December 31, 2024. As of the date of this Annual Report, we estimate that our capital needs for this acquisition and construction will be approximately RMB170.0 million (approximately $26.2 million), but there is no assurance that the estimated amount is sufficient to achieve our goals.
Added
We may need additional financing for our new facilities. In addition, we expect that this the construction of buildings and affixtures will be completed by end of 2023 and our production at the new facilities will commence in the third quarter of 2025, but there is no assurance and we may need extended time to achieve our business plan. 45

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. Legal Proceedings We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation. From time to time, the Company and its affiliates are parties to various legal actions arising in the ordinary course of business.
Biggest changeITEM 3. Legal Proceedings We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation. From time to time, we are parties to various legal actions arising in the ordinary course of business.
Removed
As of the date of this Annual Report, all actions have been settled and Sichuan Wetouch, Hong Kong Wetouch and Mr. Guangde Cai were unconditionally and fully discharged and released therefrom. See Note 13 to the Financial Statements in Item 8 . Accordingly, there are no pending material legal proceedings against the Company or Mr. Cai. ITEM 4.
Added
For more information, see Note 13 to the Financial Statements in Item 8 . i) An equity dispute case with Yunqing Su with a disputed amount of RMB1,318,604 (equivalent to $185,721) On June 22, 2017, Yunqing Su, a former shareholder, entered an Equity Investment Agreement with Sichuan Wetouch and Guangde Cai, agreed that Yunqing Su would invest RMB1 million (equivalent to $140,847) to purchase 370,370.37 original listed shares of the target company, Sichuan Wetouch, and provided for the exit mechanism in the agreement.
Added
However, the target company failed to be listed prior to December 31, 2017 as agreed. On June 22, 2017, Guangde Cai and Yunqing Su entered into a supplementary agreement, pursuant to which Guangde Cai shall repurchase all of Yunqing Su’s equity interest and pay the interest.
Added
Sichuan Wetouch repaid Yunqing Su the interest of RMB220,000 (equivalent to $30,986) and the principal of RMB128,000 (equivalent to $18,028) in November 2018. The repayment period set forth in the supplementary agreement expired, but Sichuan Wetouch and Guangde Cai failed to pay the principal and interest owed to Yunqing Su.
Added
Yunqing Su sued Sichuan Wetouch and Guangde Cai in the Renshou County People’s Court of Sichuan Province, and the case was filed on February 9, 2022.
Added
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 principal and interest in the total amount of RMB 1,318,604 (equivalent to $185,721).
Added
Sichuan Wetouch fully paid the aforesaid amount on March 15, 2023. ii) Legal case with Chengdu SME Credit Guarantee Co., Ltd. on a court acceptance fee of RMB338,418 (equivalent to $47,665) On July 5, 2013, Sichuan Wetouch obtained a one-year loan of RMB60.0 million (equivalent to $8.5 million) from Bank of Chengdu, at an annual interest rate of 8.61%.
Added
Chengdu SME Credit Guarantee Co., Ltd (“Chengdu SME”), a third party, provided a 70% guarantee and Bank of Chengdu retained 30% of the risk, while Chengdu Wetouch, a related party company, owned by Mr. Guangde Cai and Mr. Guangde Cai provided joint and several liability guarantee for 100% of the loan.
Added
On July 31, 2014, Sichuan Wetouch repaid RMB5.0 million (equivalent to $0.7 million). The remaining loan of RMB55.0 million (equivalent to $7.7 million) was twice extended to be due on August 22, 2018. Upon the loan becoming due, but unpaid by the Company, Chengdu SME paid the outstanding balance of RMB55 million (equivalent to $7.7 million) to Bank of Chengdu.
Added
The Company subsequently repaid RMB55 million (equivalent to $7.7 million) to Chengdu SME; however, Chengdu SME filed two separate lawsuits against the Company to recover loan default penalties from the Company.
Added
The loan default penalties were (a) RMB5.8 million (equivalent to $0.8 million) related to the 30% of the remaining loan balance repaid by Chengdu SME and (b) RMB6.0 million (equivalent to $0.8 million) related to the 70% of the remaining loan balance repaid by Chengdu SME.
Added
During the year ended December 31, 2017, the Company recorded loan default penalties, and related liabilities, of $1.7 million. Chengdu SME applied to the Chengdu High-tech Court for enforcement of the above-mentioned loan default penalties of RMB5.8 million (equivalent to $0.8 million) and RMB6.0 million (equivalent to $0.8 million) on December 30, 2018.
Added
On March 12, 2020, the Enforcement Settlement Agreement issued by the Chengdu High-tech Court confirmed that Sichuan Wetouch still owed RMB5.8 million (equivalent to $0.8 million) and RMB6.0 million (equivalent to $0.8 million) of loan default penalties. The agreement did not specify which party shall pay the court fee.
Added
On September 16, 2020, Sichuan Wetouch made a full repayment of RMB11.8 million (equivalent to $1.7 million) of the above loan default penalties to Chengdu SME. 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 RMB338,418 (equivalent to $47,665).
Added
On March 17, 2023, Chengdu Wetouch made a full payment of the above court fee to Chengdu SME. 46 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 RMB250,470 (equivalent to $35,278) On November 20, 2014, Lifan Financial Lease (Shanghai) Co., Ltd.
Added
(“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, the purchase price/lease principal shall be RMB20 million, the rental interest rate of the leased equipment shall be 8% per year, and the lease term shall be 24 months.
Added
Upon the expiration of the lease term, Lifan Financial shall transfer the leased property to Chengdu Wetouch or a third party designated by Chengdu Wetouch at the price of RMB0 after Chengdu Wetouch has fully fulfilled its obligations, including, without limitation, the payment of the rent, liquidated damages (if any) and other contractual obligations.
Added
Guangde Cai, Sichuan Wetouch, Meishan Wetouch, an affiliated company to Mr. Guangde Cai and Xinjiang Wetouch Electronic Technology Co., Ltd. (“Xinjiang Wetouch”) provided Lifan Financial with joint and several liability guarantee. 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.
Added
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 22,905,807 (equivalent to $3.2 million) as well as the difference between the liquidated damages and the value of the leased property recovered; etc.
Added
The parties executed a settlement agreement on March 7, 2023, in which the parties confirmed that the outstanding payment of RMB 22,905,807 (equivalent to $3.2 million) has been fully paid up on December 23, 2021 and the above cases have been settled.
Added
As for the court acceptance fees that were not previously agreed upon by the parties, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 250,470 (equivalent to $ 35,278 ).
Added
Chengdu Wetouch paid the aforesaid fees to Lifan Financial on March 10, 2023. iv) Legal case with Sichuan Renshou Shigao Tianfu Investment Co., Ltd and Renshou Tengyi Landscaping Co., Ltd. on a court acceptance fee of RMB103,232 (equivalent to $14,540) On March 19, 2014, Chengdu Wetouch, a related party, obtained a two and half-year loan of RMB15.0 million (equivalent to $2.1 million) from Chengdu Bank Co., Ltd.
Added
Gaoxin Branch (“Chengdu Bank Gaoxin Branch”), with Chengdu Hi-tech Investment Group Co., Ltd. (“CDHT Investment”) acting as guarantor to pay off the loan principal and related interests, while Sichuan Wetouch and Hong Kong Wetouch as guarantors, were jointly and severally liable for such debts.
Added
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. To support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment Co., Ltd.
Added
(“Sichuan Renshou”) and Renshou Tengyi Landscaping Co., Ltd. (“Renshou Tengyi”) provided their bank deposits of RMB 12.0 million (equivalent to $1.7 million) as pledge, while Mr. Guangde Cai and Sichuan Wetouch also provided counter-guarantee. Upon the expiration of the guarantee, Chengdu Wetouch still defaulted on repayment of the above pledge.
Added
As a result, CDHT Investment levied this collateral of RMB12.0 million. On November 21, 2019. Subsequently, Sichuan Renshou and Renshou Tengyi filed with Chengdu Intermediate People’s Court a lawsuit demanding an asset recovery of RMB12.0 million (equivalent to $1.7 million) pursuant to the counter guarantee agreement.
Added
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 60% shareholding equity in Xinjiang Wetouch Electronic Technology Co., Ltd. 47 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.
Added
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.
Added
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 RMB103,232 (equivalent to $14,540).
Added
On March 17, 2023, Chengdu Wetouch made a full payment of the above court fee to Sichuan Renshou. v) Legal case with Chengdu High Investment Financing Guarantee Co. on a court acceptance fee of RMB250,000 (equivalent to $35,211) 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 should assume the guarantee liability for the debt payable by Chengdu Wetouch.
Added
On May 21, 2020, the court rendered a judgment ordering Hong Kong Wetouch to pay compensation of RMB17,467,042 (equivalent to $2,460,181), interest, liquidated damages, liquidated damages for late performance, etc.
Added
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 RMB17,547,197 (equivalent to $2,471,471) on October 27, 2020 paid by Chengdu Wetouch, and the above case has been settled.
Added
As for the court acceptance fees that were not previously agreed upon by the parties, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 250,000 (equivalent to $35,211).
Added
Chengdu Wetouch paid the aforesaid fees to Chengdu High Investment on March 20, 2023. vi) Legal case with Hubei Lai’en Optoelectronics Technology Co., Ltd. on a product payment of RMB157,714 (equivalent to $22,213) Sichuan Wetouch purchased products from Hubei Lai’en Optoelectronics Technology Co., Ltd.
Added
(“Hubei Lai’en) multiple times from March to June 2019, but failed to pay the corresponding amount of RMB137,142.7 for the purchased products. On April 6, 2022, Hubei Lai’en filed a lawsuit against Sichuan Wetouch in the Renshou County People’s Court of Sichuan Province, requesting payment of overdue payment for the products and liquidated damages.
Added
On May 31, 2022, the Renshou County People’s Court rendered a judgment that Sichuan Wetouch shall pay Hubei Lai’en the price of goods of RMB137,143 and liquidated damages of RMB 20,571.
Added
Sichuan Wetouch paid the above amount to Hubei Lai’en on March 15, 2023. vi) Legal case with Chengdu Hongxin Shunda Trading Co., Ltd. on settlement of accounts payable and related fund interests totalling RMB3,021,294 ($425,540) In March 2022, Sichuan Vtouch purchase steel products from Chengdu Hongxin Shunda Trading Co., Ltd.
Added
(“Chengdu Hongxin”) for facility construction, but failed to settle the accounts payable on time. In July 2023, Chengdu Hongxin filed a lawsuit to a local district court against the Company and its new facility constructors (“the three defendants”) requesting the settlement of the remaining accounts payable and the corresponding fund interests, penalties and legal fees, totalling of RMB3,021,294 ($425,540).
Added
The court judged Sichuan Vtouch to pay and ordered the freezing of bank accounts of these three defendants. On September 25, 2023, the Company appealed to Chengdu Municipal Intermediate People’s Court, arguing the calculation of fund interests and penalties ordered by the lower court unfair and not in line with the law regulations.
Added
As of the Report date of this 10K, the management assessed that possibility and amount of contingency cannot be estimated given the current status. vii) Legal case with Mr. Guangchuang Liu on a refund of equity transfer price and related interests totalling RMB324,501 ($45,705) In July 2022 Mr. Liu entered into an equity transfer agreement with Mr.
Added
Guangde Cai and Sichuan Vtouch with the intention to subscribe the Company’s shares of 20,000 for RMB315,245 ($44,104). In April, 2023, Mr. Liu filed a lawsuit to Shenzhen Nanshan District People’s Court against Mr. Guangde Cai and Sichuan Vtouch requesting the refund of this equity transfer price and related fund interests totalling RMB324,501 ($45,705).
Added
Per the court decision of December 13, 2023, the defendants were ordered to make the payments by the end of 2023.
Added
As of December 31, 2023, the Company recorded the liabilities of RMB324,501 ($45,705) and subsequently, the Company has made the payment in full in January, 2024. 48 viii) Legal case with Sichuan Yali Cement Manufacturing Co., Ltd. and Sichuan Chunqiu Development & Construction Group Co.
Added
Ltd. on a debt payable of RMB RMB1,656,480 (equivalent to $233,310) and related interest, legal fees and penalties. On August 10, 2022, Sichuan Yali Cement Manufacturing Co., Ltd. (“Yali Co.”) and Sichuan Chunqiu Development & Construction Group Co. Ltd. (“ Chunqiu Co.”) entered into construction materials contract for Sichuan Vtouch’s new facility.
Added
Under this contract, Sichuan Vtouch was listed as the joint responsibility party for the payment settlement between Yali Company and Chunqiu Company.
Added
On February 15, 2023, Yali Co. filed a lawsuit against Chunqiu Co. to the Chengdu Wenjiang District People’s Court, claiming that Chunqiu Co. should pay the remaining debt of RMB RMB1,656,480 (equivalent to $233,310) and related interest, legal fees and penalties, and that Sichuan Vtouch should assume the guaranteed liability for the debt payable by Chunqiu Co.
Added
On August 12, 2023, the court rendered a judgment ordering Chunqiu Co. to pay to Yali Co. for above mentioned amount. Sichuan Vtouch was ordered joint liability of such aforesaid repayment. 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.
Added
On October 30, 2023, the court ordered Chunqiu Co. to pay pack 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 RMB10,627 ($1,497) with Chunqiu liability. As of December 31, 2023, Sichuan Vtouch accrued this court fee of RMB10,627 ($1,497). ITEM 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−1 removed1 unchanged
Biggest changeITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is currently traded on the OTCQB Marketplace operated by the OTC Markets Group, Inc.
Biggest changeITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Trading Market Our common stock is currently traded on the Nasdaq under the symbol “WETH.” Holders of Record On April 15, 2024, the closing price per share of our common stock was $2.01.
Securities Authorized for Issuance Under Equity Compensation Plan The Company does not have any equity compensation plans. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Company and Affiliated Purchasers None. 48 ITEM 6. [Reserved]
Securities Authorized for Issuance Under Equity Compensation Plan The Company does not have any equity compensation plans. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Company and Affiliated Purchasers None. 49 ITEM 6. [Reserved]
Dividend Policy We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business.
We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business.
Removed
(the “OTCQB”) under the symbol “WETH.” Holders of Record On April 14, 2023, the closing price per share of our common stock was $0.235 as reported on OTCQB Marketplace. We had approximately 417 stockholders of record as of April 14, 2023. On April 14, 2023 there were 193,604,965 shares of our common stock issued and outstanding.
Added
We had approximately 417 stockholders of record as of April 15, 2024. On April 15, 2024 there were 11,931,534 shares of our common stock issued and outstanding. Dividend Policy We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 6. [RESERVED] 49 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 49 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 64 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 64 ITEM 9A. CONTROLS AND PROCEDURES 65 ITEM 9B.
Biggest changeITEM 6. [RESERVED] 50 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 50 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 64 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 64 ITEM 9A. CONTROLS AND PROCEDURES 65 ITEM 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

49 edited+61 added−44 removed54 unchanged
Biggest changeYears Ended December 31, (in US Dollar millions) 2022 2021 Net cash provided by operating activities $ 8.6 $ 14.0 Net cash provided by investing activities - 6.2 Net cash provided by (used) in financing activities (0.7 ) 1.9 Effect of foreign currency exchange rate changes on cash and cash equivalents (2.8 ) 0.1 Net increase (decrease) in cash and cash equivalents 5.1 22.2 Cash and cash equivalents at the beginning of period 46.2 24.0 Cash and cash equivalents at the end of period $ 51.3 $ 46.2 56 Operating Activities Net cash provided by operating activities was $8.6 million for the year ended December 31, 2022, as compared to $14.0 million provided by operating activities for for the year ended December 31, 2021, primarily due to (i) the decrease of $8.7 million net income for the year ended December 31, 2022 as compared to the same period of 2021, (ii) the decrease of $3.1 million of share-based compensation during the year ended December 31, 2022 , (iii) ) the increase of $6.5 million account receivable due to slower collection from the impact of the COVID-19 pandemic and Sichuan Wetouch settling customer receivables during the year ended December 31, 2021; partially offset by (iv) the increase of $0.8 million of account payable due to the longer payment period (v) $7.6 million gain on asset disposal for the year ended December 31, 2021, (vi) the decrease of $3.1 million prepaid expenses including amortization of $1.0 million prepaid marketing expenses during the year ended December 31, 2022; (vii) 0.5 million of deferred income due to Sichuan Wetouch write-off government grant in the operating ceasing process for the year ended December 31, 2021.
Biggest changeThe following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the years ended December 31, 2023 and 2022: Years Ended December 31, (in US Dollar millions) 2023 2022 Net cash provided by operating activities $ 12.7 $ 8.6 Net cash used in investing activities (2.3 ) - Net cash provided by (used in) financing activities 40.0 (0.7 ) Effect of foreign currency exchange rate changes on cash and cash equivalents (3.6 ) (2.8 ) Net increase in cash and cash equivalents 46.8 5.1 Cash and cash equivalents at the beginning of period 51.2 46.2 Cash and cash equivalents at the end of period $ 98.0 $ 51.3 Operating Activities Net cash provided by operating activities was $12.7 million for the year ended December 31, 2023, as compared to $8.6 million used in operating activities for the same period of the last year, a change of $4.1 million, primarily due to (i) an increase of $2.4 million in accrued expenses and other current liabilities, a decrease of $2.8 million in accounts receivable and $0.4 million in inventories, and a decrease of $0.1 million in amortization of discounts and issuance cost of the Notes, partially offset by (ii) a decrease of $0.5 million in net income for the year ended December 31, 2023, (iii) a decrease of $1.3 million in accounts payable, an increase of $0.5 million in prepaid expenses and other current assets, and an increase of $1.0 million in loss on changes in fair value of common stock purchase warrant liability. 55 Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $2.3 million for the purchase of property, plant and equipment.
When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. 58 Revenue recognition The Company adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective approach.
When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. Revenue recognition The Company adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective approach.
Depreciation and amortization of property and equipment is provided using the straight-line method over their expected useful lives, as follows: Useful life Buildings 20 years Machinery and equipment 10 years Office and electric equipment 3 years Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Depreciation and amortization of property and equipment is provided using the straight-line method over their expected useful lives, as follows: Useful life Buildings 20 years Machinery and equipment 10 years Office and electric equipment 3 years Vehicles 10 years Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
The Company’s sales are net of value added tax (“VAT”) and business tax and surcharges collected on behalf of tax authorities in respect of product sales. Contract Assets and Liabilities Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contract assets are recognized for in related accounts receivable.
The Company’s sales are net of value added tax (“VAT”) and business tax and surcharges collected on behalf of tax authorities in respect of product sales. 59 Contract Assets and Liabilities Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contract assets are recognized for in related accounts receivable.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. 61 An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination.
No significant penalties or interest relating to income taxes have been incurred during the years ended December 31, 2022 and 2021. The Company does not believe there was any uncertain tax provision at December 31, 2022 and 2021. The Company’s operating subsidiaries in China are subject to the income tax laws of the PRC.
No significant penalties or interest relating to income taxes have been incurred during the years ended December 31, 2023 and 2022. The Company does not believe there was any uncertain tax provision at December 31, 2023 and 2022. The Company’s operating subsidiaries in China are subject to the income tax laws of the PRC.
We analyze the convertible notes for the existence of a beneficial conversion feature. the Company considered the three characteristics of a derivative instrument listed in ASC 815-10-15-83: (i) having one or more underlyings and one or more notional amounts or payment provisions or both; (ii) requiring no initial net investment; and (iii) permitting net settlement.
The Company analyzes the convertible notes for the existence of a beneficial conversion feature. The Company considered the three characteristics of a derivative instrument listed in ASC 815-10-15-83: (i) having one or more underlyings and one or more notional amounts or payment provisions or both; (ii) requiring no initial net investment; and (iii) permitting net settlement.
Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.
Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method on January 1, 2022. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.
ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU No. 2021-08 on January 1, 2023.
Financing Activities Net cash used in the financing activities was $0.7 million for the year ended December 31, 2022, including $1.4 million of repayment of convertible promissory note payable (see Note 9 (a)), partially offset by 0.4 million loan from a third party.
Net cash used in the financing activities was $0.7 million for the year ended December 31, 2022, including $1.4 million of repayment of convertible promissory note payable, partially offset by proceeds of a third party loan of $0.4 million.
Management periodically reviews new accounting standards that are issued. 62 In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.
As a result, the Company recorded a loss on the conversion of notes payable of $0.1 million accordingly (see Note (9 (a)).
As a result, the Company recorded a loss on the conversion of notes payable of $0.1 million accordingly.
Loss on conversion of notes payable Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Loss on conversion of notes payable $ 0.1 $ 0.0 $ 0.1 N/A as a percentage of revenues 0.3 % 0.0 % 0.3 % Loss on conversion of notes payable were $0.1 million for the year ended December 31, 2022, as lenders of convertible promissory note payable converted certain principal, accrued and unpaid interest and default charges totaling $1,038,426 into 1,384,564 shares of common stock of the Company, including two notes fully converted.
Loss on Conversion of Notes Payable Years Ended December 31, Change (in millions, except percentage 2023 2022 Amount % Loss on conversion of notes payable $ 0.0 $ 0.1 $ (0.1 ) (100.0 )% as a percentage of revenues 0.0 % 0.3 % (0.3 )% Loss on conversion of notes payable were $0.1 million for the years ended December 31, 2022, as lenders of convertible promissory notes converted certain principal, accrued and unpaid interest and default charges totaling $1,038,426 into 69,228 shares of common stock of the Company, including two notes fully converted.
Net Income As a result of the above factors, we had a net income of $8.7 million the year ended December 31, 2022 compared to net income of $17.4 million for the year ended December 31, 2021. LIQUIDITY AND CAPITAL RESOURCES Historically, our primary uses of cash have been to finance working capital needs.
Net Income As a result of the above factors, we had a net income of $8.3 million in the year ended December 31, 2023 compared to a net income of $8.7 million in the same period of 2022. Liquidity and Capital Resources Historically, our primary uses of cash have been to finance working capital needs.
The discounts on the convertible notes, are amortized to interest expense, using the effective interest method, over the terms of the related convertible notes. 60 Common stock purchase warrants The Company also analyzed the Warrants in accordance with ASC 815, to determine whether the Warrants meet the definition of a derivative and, if so, whether the Warrants meet the scope exception of ASC 815-40, which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC 815-40.
Common stock purchase warrants The Company also analyzed the Warrants in accordance with ASC 815, to determine whether the Warrants meet the definition of a derivative and, if so, whether the Warrants meet the scope exception of ASC 815-40, which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC 815-40.
Convertible Promissory Notes The Company accounts for its convertible promissory notes according to guidance of ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815.
Nil and $74,100 inventory write-off was recorded for the year ended December 31, 2023 and 2022, respectively. 60 Convertible Promissory Notes The Company accounts for its convertible promissory notes according to guidance of ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815.
This was mainly due to the decrease of 0.3% in sales volume, and a decrease of 2.7% in the average selling price of our products in RMB, and 4.4% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with those of the same period of last year.
This was mainly due to the increase of 2.6% in sales volume, and an increase of 7.1% in the average selling price of our products in RMB, and 5.2% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with those of the same period of last year.
As of December 31, 2022, all of the Company’s tax returns of its PRC Subsidiaries remain open for statutory examination by PRC tax authorities. 61 Property, plant and equipment, net Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
No significant income was generated outside the PRC for the fiscal years ended December 31, 2023 and 2022. As of December 31, 2023, all of the Company’s tax returns of its PRC Subsidiaries remain open for statutory examination by PRC tax authorities. Property, plant and equipment, net Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
Through our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, Sichuan Vtouch and Sichuan Wetouch, 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.
As a result of the Reverse Merger, BVI Wetouch became our wholly-owned subsidiary. Through our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing, sales and servicing of medium to large sized projected capacitive touchscreens.
Net realizable value for raw materials is based on replacement cost. Provisions for inventory write-downs are included in the cost of revenues in the consolidated statements of operations. Inventories are carried at this lower cost basis until sold or scrapped. $74,100 and nil inventory write-off was recorded for the years ended December 31, 2022 and 2021, respectively.
Net realizable value for raw materials is based on replacement cost. Provisions for inventory write-downs are included in the cost of revenues in the consolidated statements of operations. Inventories are carried at this lower cost basis until sold or scrapped.
The following table provides an analysis of the aging of accounts receivable as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31 2021 -Current $ 1,252,152 $ 1,403,187 -1-3 months past due 4,998,596 2,827,048 -4-6 months past due 2,806,973 3,742,732 7-12 months past due 20 18,070 -greater than 1 year past due - - Total accounts receivable $ 9,057,741 $ 7,991,037 57 The majority of the Company’s revenues and expenses were denominated primarily in Renminbi (“RMB”), the currency of the People’s Republic of China.
The following table provides an analysis of the aging of accounts receivable as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Current $ 3,740,488 $ 1,252,152 1-3 months past due 2,635,045 4,998,596 4-6 months past due 1,079,719 2,806,973 7-12 months past due - 20 greater than 1 year past due - - Total accounts receivable $ 7,455,252 $ 9,057,741 The majority of the Company’s revenues and expenses were denominated primarily in RMB, the currency of the People’s Republic of China.
As of December 31, 2022, we had current assets of $62.2 million, consisting of $51.3 million in cash, $9.1 million in accounts receivable, $0.4 million in inventories, and $1.5 million in prepaid expenses other current assets.
As of December 31, 2023, we had current assets of $106.8 million, consisting of $98.0 million in cash, $7.4 million in accounts receivable, $0.2 million in inventories, and $1.1 million in prepaid expenses other current assets.
As of December 31, 2022 and 2021, the Company recorded $256,957 and $1,128,635 common stock purchase warrants liability, respectively, and $871,677 and $759,471 gain on change of fair value of common stock purchase liability warrants for the year ended December 31, 2022 and 2021, respectively.
As of December 31, 2023 and 2022, the Company recorded $378,371 and $256,957 common stock purchase warrant liability, respectively, and loss of $121,413 and gain of $871,677 on change of fair value of common stock purchase warrant liability for the year ended December 31, 2023 and 2022, respectively.
The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns, after sales services and technical support under warranty have historically been immaterial.
The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns, after sales services and technical support under warranty have historically been immaterial. As such, the Company does not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.
Gain on changes in fair value of Common Stock Purchase Warrants Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Gain on changes in fair value of Common Stock Purchase Warrants $ 0.9 $ 0.8 $ 0.1 12.5 % as a percentage of revenues 2.4 % 2.0 % 0.4 % Gain on changes in fair value of common stock purchase warrants was $0.9 million and $0.8 million for the years ended December 31, 2022 and 2021, respectively (See Note 9 (b)).
Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants Years Ended December 31, Change (in millions, except percentage) 2023 2022 Amount % Gain (loss) on changes in fair value of common stock purchase warrants $ (0.1 ) $ 0.9 $ (1.0 ) 111.1 % as a percentage of revenues (0.3 )% 2.4 % (2.7 )% Loss on changes in fair value of common stock purchase warrants was $0.1 million for the year ended December 31, 2023, as compared to a gain of $0.9 million in the same period of 2022.
To serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing, and after-sale processes. The Company has taken proactive measures to promote products to new customers and entering more regions during the year ended December 31, 2022.
The Company has several shutdowns during the first quarter of 2023. To serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing, and after-sale processes.
Results of Operations Highlights for the year ended December 31, 2022 include: ● Revenues were $37.9 million, a decrease of 7.1% from $40.8 million for the year ended December 31, 2021 ● Gross profit was $14.0 million, an decrease of 23.9% from $18.4 million for the year ended December 31, 2021 ● Gross profit margin was 37.0%, as compared to 45.3% for the year ended December 31, 2021 ● Net income was $8.7 million, a decrease of 50.0% from $17.4 million for the year ended December 31, 2021 ● Total volume shipped was 1,916,976 units, a decrease of 0.3% from 1,922,353 units for the year ended December 31, 2021 The following table sets forth, for the periods indicated, statements of income data: (in US Dollar millions, except percentage) For the Years Ended December 31, Change 2022 2021 % Revenues $ 37.9 $ 40.8 (7.1 )% Cost of revenues (23.9 ) (22.4 ) 6.7 % Gross profit 14.0 18.4 (23.9 )% Total operating expenses (2.6 ) (5.8 ) (55.2 )% Operating income 11.4 12.6 (9.5 )% Gain on asset disposal 0.0 7.6 0.0 % Loss on conversion of notes payable (0.1 ) - N/A Gain (loss) on changes of fair values of Common Stock Purchase Warrant 0.9 0.8 12.5 % Income before income taxes 12.1 21.8 (44.5 )% Income tax benefit (expense) (3.4 ) (4.4 ) (22.7 )% Net income $ 8.7 $ 17.4 (50.0 )% 50 For the Years Ended December 31, 2022 and 2021 Revenues Revenues were $37.9 million in the year ended December 31, 2022, a decrease of $2.9 million, or 7.1%, compared with $40.8 million in the same period of last year.
This would likely adversely affect demand on some of our products or services, which may, in turn negatively impact our results of operations. 50 Highlights for the Year Ended December 31, 2023 ● Revenues were $39.7 million, an increase of 4.7% from $37.9 million for the year ended December 31, 2022 ● Gross profit was $17.2 million, an increase of 22.8% from $14.0 million for the year ended December 31, 2022 ● Gross profit margin was 43.3%, as compared to 37.0% for the year ended December 31, 2022 ● Net income was $8.3 million, a decrease of 4.6% from $8.7 million for the year ended December 31, 2022 ● Total volume shipped was 1,967,316 units, an increase of 2.6% from 1,916,976 units for the year ended December 31, 2022 Results of Operations The following table sets forth, for the periods indicated, statements of income data: (in US Dollar millions, except percentage) For the Years Ended December 31, Change 2023 2022 % Revenues $ 39.7 $ 37.9 4.7 % Cost of revenues (22.5 ) (23.9 ) (5.9 )% Gross profit 17.2 14.0 22.8 % Total operating expenses (4.5 ) (2.6 ) 73.1 % Operating income 12.7 11.4 11.4 % Total other income (expense), net (0.3 ) 0.7 142.9 % Income before income taxes 12.4 12.1 2.5 % Income tax expense (4.1 ) (3.4 ) 20.6 % Net income $ 8.3 $ 8.7 (4.6 )% For the Years Ended December 31, 2023 and 2022 Revenues Revenues were $39.7 million in the year ended December 31, 2023, an increase of $1.8 million, or 4.7%, compared with $37.9 million in the same period of last year.
Our current liabilities as of December 31, 2022, were $4.0 million, which is comprised of $1.4 million in accounts payable, $0.9 million in accrued expenses and other current liabilities, $0.4 million loan from a third party, and $1.3 million convertible promissory notes payable. The following table sets forth a summary of our cash flows for the periods indicated.
Our current liabilities as of December 31, 2023, were $6.3 million, which is comprised of $0.6 million in accounts payable, $0.5 million in loans from a third party, $4.0 million in accrued expenses and other current liabilities and $1.2 million in convertible promissory notes payable.
Comprehensive income Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of income and comprehensive income.
The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of income and comprehensive income. Recently issued accounting guidance The Company considers the applicability and impact of all accounting standards updates (“ASUs”).
COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. For a discussion of the Company’s legal proceedings, see Note 14 to the Financial Statements in Item 8.
Recently issued accounting guidance The Company considers the applicability and impact of all accounting standards updates (“ASUs”).
Management periodically reviews new accounting standards that are issued. 62 The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
On October 9, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited, a British Virgin Islands (“BVI”) company incorporated on August 14, 2020 under the laws of the British Virgin Islands (“BVI Wetouch”), and all the shareholders of BVI Wetouch (each a “Shareholder” and collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the Shareholders an aggregate of 28 million shares of our common stock (the “Reverse Merger”).
On October 9, 2020, we entered into 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 closed on October 9, 2020.
Share-based Compensation Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Share-based compensation $ 0.0 $ 3.1 $ (3.1 ) (0.0 )% as a percentage of revenues 0.0 % 7.6 % (7.6 )% Share-based compensation were nil and $3.1 million for the years ended December 31, 2022 and 2021, respectively.
Selling Expenses Years Ended December 31, Change (in millions, except percentage) 2023 2022 Amount % Selling Expenses $ 0.6 $ 1.3 $ (0.7 ) (53.8 )% as a percentage of revenues 1.5 % 3.5 % (2.0 )% Selling expenses were $0.6 million for the years ended December 31, 2023, compared to $1.3 million in the same period in 2022, representing a decrease of $0.7 million, or 53.8%.
The Company is currently evaluating the impact of this ASU on its financial statements and the effects will be based upon the contract assets and liabilities acquired in the future. From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of ASUs.
The ASU is currently not expected to have a material impact on the Company’s financial results or financial position. From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of ASUs.
For the Years Ended December 31, 2022 2021 Change Change Amount % Amount % Amount % (in US Dollar except percentage) Revenue from sales to customers in PRC $ 26,440,376 69.7 % $ 27,213,684 66.7 % $ (773,307 ) (2.8 )% Revenue from sales to customers overseas 11,482,736 30.3 % 13,571,790 33.3 % (2,089,054 ) (15.4 )% Total Revenues $ 37,923,112 100 % $ 40,785,474 100 % $ (2,862,361 ) (7.1 )% 51 For the Years Ended December 31, 2022 2021 Change Change Unit % Unit % Unit % (in UNIT, except percentage) Units sold to customers in PRC 1,295,097 67.6 % 1,244,438 64.7 % 50,659 4.1 % Units sold to customers overseas 621,879 32.4 % 677,915 35.3 % (56,036 ) (8.3 )% Total Units Sold 1,916,976 100 % 1,922,353 100 % (5,377 ) (0.3 )% (i) Domestic market For the year ended December 31, 2022, revenue from domestic market decreased by $0.8 million or 2.8%, as a combined result of (i) a decrease of 2.6% in the average selling price of our products in RMB, and (ii) 4.4% negative impact from exchange rate due to depreciation of RMB against US dollars, and offset by (iii) an increase of 4.1% in sales volume, as compared with those of last year.
For the Years Ended December 31, 2023 2022 Change Change Amount % Amount % Amount % (in US Dollar except percentage) Revenue from sales to customers in the PRC $ 27,646,722 69.6 % $ 26,440,376 69.7 % $ 1,206,346 4.6 % Revenue from sales to customers overseas 12,059,217 30.4 % 11,482,736 30.3 % 576,481 5.0 % Total Revenues $ 39,705,939 100 % $ 37,923,112 100 % $ 1,782,827 4.7 % For the Years Ended December 31, 2023 2022 Change Change Unit % Unit % Unit % (in Unit, except percentage) Units sold to customers in the PRC 1,330,013 67.6 % 1,295,097 67.6 % 34,916 2.7 % Units sold to customers overseas 637,303 32.4 % 621,879 32.4 % 15,424 2.5 % Total Units Sold 1,967,316 100 % 1,916,976 100 % 50,340 2.6 % PRC Dom estic Market For the year ended December 31, 2023, revenue from the PRC domestic market increased by $1.2 million or 4.6%, as a combined result of (i) the increase of 2.7% in sales volume, and an increase of 6.8% in the average sales price of our products in RMB, and (ii) 5.2% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with those of the same period of last year. 51 The increase of 6.8% in sales price in RMB was mainly due to the marketing initiatives to enhance sales of new models of higher-end products such as multi-functional printer touchscreens, industrial control computer touchscreens, medical touchscreens, and POS touchscreens in - Southwest and East China during the year ended December 31, 2023.
Gross Profit and Gross Profit Margin Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Gross Profit $ 14.0 $ 18.4 $ (4.4 ) (23.9 )% Gross Profit Margin 37.0 % 45.3 % (8.3 )% Gross profit was $14.0 million during the year ended December 31, 2022, as compared to $18.4 million in the same period of 2021, representing a decrease of $4.4 million, or 23.9%.
General and Administrative Expenses Years Ended December 31, Change (in millions, except percentage) 2023 2022 Amount % General and Administrative Expenses $ 3.8 $ 1.3 $ 2.5 192.3 % as a percentage of revenues 9.6 % 3.4 % 6.2 % General and administrative expenses were $3.8 million for the year ended December 31, 2023, compared to $1.3 million in the same period in 2022, representing an increase of $2.5 million, or 192.3%.
Our gross margin was 37.0% during the year ended December 31, 2022, as compared to 45.3% for the year ended December 2021, primarily due to the decrease of sales by 7.1%, and the increase of 13.2% in cost of materials such as the chip cost, partially offset by the decrease of labor cost by 2.2%, depreciation and other overhead cost such as rent and electricity by 9.0% due to the reduced production volume for the year ended December 31, 2022.
Our gross profit margin increased to 43.3% during the year ended December 31, 2023 as compared to 37.0% for the same period of 2022, primarily due to the increase in sales of 4.7%, particularly high-end products such as industrial control computer touchscreens, automotive touchscreens, and gaming touchscreens for the year ended December 31, 2023, the decrease of 1.4% in material costs, partially offset by the increase in labor cost of 9.0% for the year ended December 31, 2023.
Research and Development Expenses Years Ended December 31, Change (in US dollars, except percentage) 2022 2021 Amount % Research and Development Expenses $ 85,251 $ 89,477 $ (4,226 ) (4.7 )% as a percentage of revenues 0.0 % 0.0 % 0.0 % Research and development (R&D) expenses were $85,251 in the year ended December 31, 2022 compared to $89,477 in the same period in 2021, representing a decrease of $4,226, or 0.0, mainly due to the decrease of salary and welfare expenses of R&D personnel.
The Company made the full payment in February, 2024 (see Note 8). 53 Research and Development Expenses Years Ended December 31, Change (in US dollars, except percentage) 2023 2022 Amount % Research and Development Expenses $ 84,551 $ 85,251 $ (700 ) (0.8 )% as a percentage of revenues 0.0 % 0.0 % 0.0 % Research and development expenses were $84,551 for the year ended December 31, 2023 compared to $85,251 in the same period in 2022.
Income Taxes Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Income before Income Taxes $ 12.1 $ 21.8 $ (9.7 ) (44.5 )% Income Tax Benefit (Expense) (3.4 ) (4.4 ) 1.0 (22.7 )% Effective income tax rate 27.7 % 20.2 % (7.5 )% 55 The effective income tax rates for the years ended December 31, 2022 and 2021 were 27.1% and 20.2%, respectively.
Income Taxes Years Ended December 31, Change (in millions, except percentage) 2023 2022 Amount % Income before Income Taxes $ 12.3 $ 12.1 $ 0.2 1.7 % Income Tax (Expense) (4.1 ) (3.4 ) (0.7 ) 20.6 % Effective income tax rate 25.4 % 27.7 % (2.3 )% The effective income tax rate for the year ended December 31, 2023 and 2022 was 25.4% and 27.7%, respectively. 54 Our PRC subsidiary had $98.0 million of cash and cash equivalents of December 31, 2023, which are planned to be indefinitely reinvested in the PRC.
The Company’s disaggregation of revenues for the years ended December 31, 2022 and 2021 are disclosed in Note 14 to the financial statements.
Disaggregation of Revenues The Company disaggregates its revenue from contracts by geography, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the years ended December 31, 2022 and 2021 are disclosed in Note 14 to the financial statements.
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. Our industry typical payment term is 180 days. Accounts receivables are written off against the allowances only after exhaustive collection efforts.
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. Holding Company Structure Wetouch is a holding company and a company incorporated in Nevada with no material operations of its own.
The Company continued to shift production mix from traditional lower-end products such as touchscreens used in automotive to high-end products such as touchscreens used in POS touchscreens and multi-functional printer touchscreens, primarily due to (i) greater growth potential of computer screen models in China, and (ii) the stronger demand and better quality demand from consumers’ recognition of higher-end touchscreens made with better raw materials.
The Company continued to shift production mix from traditional lower-end products to high-end touchscreens used in industrial control computers, gaming machines, and automobiles, primarily due to (i) greater growth potential of computer screen models in China, and (ii) stronger demand and better quality demand from consumers’ recognition of higher-end touchscreens made with better materials. 52 Gross Profit and Gross Profit Margin Years Ended December 31, Change (in millions, except percentage) 2023 2022 Amount % Gross Profit $ 17.2 $ 14.0 $ 3.2 22.8 % Gross Profit Margin 43.3 % 37.0 % 6.3 % Gross profit was $17.2 million during the year ended December 31, 2023, compared to $14.0 million in the same period of 2022.
Operating Income Total operating income was $11.4 million for the year ended December 31, 2022 compared to $12.6 million for the year ended December 31, 2021, representing a decrease of $1.2 million or 9.5% due to lower gross profit and higher selling expenses, partially offset by the lower G&A expenses and share-based compensation expenses. 54 Gain on Asset Disposal Years Ended December 31, Change (in millions, except percentage) 2022 2021 Amount % Gain on asset disposal $ 0.0 $ 7.6 $ (7.6 ) (0.0 )% as a percentage of revenues 0.0 % 20.5 % (20.5 )% Gain on asset disposal was nil for the year ended December 31, 2022 compared to $7.6 million for the year ended December 31, 2021.
Operating Income Total operating income was $12.7 million for the year ended December 31, 2023 as compared to $11.4 million of the same period of last year due to higher gross profit and lower selling expenses, partially offset by higher general and administrative expenses.
As of December 31, 2022, our cash and cash equivalents were $51.3 million, as compared to $46.2 million at December 31, 2021. Days Sales Outstanding (“DSO”) has decreased at 81 days for the year ended December 31, 2022 compared to 88 days for the year ended December 31, 2021.
Our Days Sales Outstanding (“DSO”) decreased to 75 days for the year ended December 31, 2023 from 81 days for the year ended December 31, 2022.
Net cash provided by the financing activities was $1.8 million for the year ended December 31, 2021 as a result of proceeds of $2.0 million from issuance of seven convertible promissory notes, partially offset by the payment of issue cost of $0.2 million related to notes financing (see Note 11).
There were nil investing activities for the year ended December 31, 2022. Financing Activities Net cash provided by financing activities was $40.0 million for the year ended December 31, 2023, consisting of $40.0 million proceeds from a private placement, partially offset by the repayment of $55,000 in convertible promissory note payable.
(ii) Overseas market For the year ended December 31, 2022, revenue from overseas market was $11.5 million as compared to and $13.6 million of the same period of 2021, a decrease of $2.1 million or 15.4%, mainly due to a decrease of 8.3% in sales volume primarily due to 1) the slack overseas orders; 2) negative effects of COVID 19 impact, such as more strict customs inspection in China leading to delayed product shipment during the second half of 2022, and a decrease of 7.8% in average selling price of our products due to the decreased higher pricing medical touchscreens during the year ended December 31, 2022, compared with those of the same period of last year. 52 The following table summarizes the breakdown of revenues by categories in US dollars : Revenues For the Years Ended December 31, 2022 2021 Change Amount % Amount % Amount % (in US Dollars, except percentage) Product categories by end applications Automotive Touchscreens $ 9,293,357 24.5 % $ 11,597,467 28.4 % $ (2,304,110 ) (19.9 )% Industrial Control Computer Touchscreens 7,991,356 21.1 % 7,988,346 19.6 % 3,010 0.0 % POS Touchscreens 6,556,348 17.3 % 6,291,534 15.4 % 264,814 4.2 % Gaming Touchscreens 5,199,118 13.7 % 5,831,529 14.3 % (632,411 ) (10.8 )% Medical Touchscreens 5,050,067 13.3 % 5,205,304 12.8 % (155,237 ) (3.0 )% Multi-Functional Printer Touchscreens 3,822,054 10.1 % 3,748,868 9.2 % 73,186 2.0 % Others* 10,812 0.0 % 122,426 0.3 % (111,614 ) (19.9 )% Total Revenues $ 37,923,112 100.0 % $ 40,785,474 100.0 % $ (2,862,362 ) (7.1 )% *Others include applications in financial terminals, ticket vending machines, and self-service kiosks.
The following table summarizes the breakdown of revenues by categories in US dollars: Revenues For the Years Ended December 31, 2023 2022 Change Change Amount % Amount % Amount Margin% (in US Dollars, except percentage) Product categories by end applications Automotive Touchscreens $ 9,780,713 24.6 % $ 9,293,357 24.5 % $ 487,356 5.2 % Industrial Control Computer Touchscreens 7,884,224 19.9 % 7,991,356 21.1 % (107,132 ) (1.3 )% POS Touchscreens 6,613,501 16.7 % 6,556,348 17.3 % 57,153 0.9 % Gaming Touchscreens 5,619,228 14.2 % 5,199,118 13.7 % 420,110 8.1 % Medical Touchscreens 5,799,489 14.6 % 5,050,067 13.3 % 749,422 14.8 % Multi-Functional Printer Touchscreens 4,008,784 10.1 % 3,822,054 10.1 % 186,730 4.9 % Others* - 0.0 % 10,812 0.0 % (10,812 ) (100.0 )% Total Revenues $ 39,705,939 100.0 % $ 37,923,112 100.0 % $ 1,782,827 4.7 % *Others include applications in self-service kiosks, ticket vending machines and financial terminals.
Unless otherwise discussed, the Company believes that the recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on its consolidated financial statements upon adoption. 63 Quantitative and Qualitative Disclosures about Market Risks Interest Rate Risk Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits.
Unless otherwise discussed, the Company believes that the recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on its consolidated financial statements upon adoption. 63 Recently issued accounting pronouncements not yet adopted In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions for applying U.S.
Although the Company has taken proactive efforts to market new models such as POS touchscreens and obtain new customers and penetrate into new regions with a sales increase of 0.8% in Eastern China, the Company had hard suffering of a decrease of 1.6% in Southwest China, and of 0.5% in Southern China due to the government lockdown in this region during the year ended December 31, 2022.
Due to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 23.3% in Southwest China, and 13.4% in East China, partially offset by a decrease of 23.4% in South China during the year ended December 31, 2023.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the audited consolidated financial statements and related notes elsewhere in this Annual Report on Form 10-K. Overview We were originally incorporated under the laws of the state of Nevada in August 1992.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties about our business and operations.
Removed
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis contains forward-looking statements relating to future events or our future financial performance.
Added
Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under Item 1A. Risk Factors” and elsewhere in this Annual Report.
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In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology.
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See “Special Note Regarding Forward-Looking Statements.” Overview We were originally incorporated under the laws of the state of Nevada in August 1992.
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These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.
Added
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.
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date of this Annual Report.
Added
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.
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These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. You should read this Annual Report on Form 10-K with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements speak only as of the date on which they are made.
Added
On September 11, 2023, the Company received 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.
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We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
Added
All share information included in this Form 10-K has been reflected as if the reverse stock split occurred as of the earliest period presented. Effects of COVID-19 There has been a global pandemic of a novel strain of coronavirus (COVID-19) that first emerged in China in December 2019 and has spread globally.
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Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Added
In March 2020, the World Health Organization declared COVID-19 as a global pandemic. The COVID-19 pandemic has resulted in quarantines, travel restrictions, and the temporary closures of stores and business facilities in China for the first half year of 2020, along with various government-initiated COVID-19 containment measures implemented intermittently.
Removed
The Reverse Merger closed on October 9, 2020. Immediately after the closing of the Reverse Merger, we had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary.
Added
Since the end of 2022, the Chinese government has eased the COVID-19 restrictions.
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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.
Added
Although we are currently fully functional, potential impact on our results of operations will also depend on future developments and information that may emerge regarding the duration and severity of COVID-19 and the actions taken by governmental authorities and other entities to contain COVID-19 or to mitigate its impacts, almost all of which are beyond our control.
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The following discussion and analysis pertain financial condition and results of operations of our subsidiaries Hong Kong Wetouch, Sichuan Wetouch and Sichuan Vtouch for the years ended December 30, 2022 and 2021, respectively. 49 Effects of COVID-19 The COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and suppliers significantly.
Added
The Company has taken proactive measures to promote products to new customers and entering more regions during the year ended December 31, 2022. The World Health Organization (WHO) announced on May 5, 2023 that COVID-19 is no longer a public health emergency of international concern.
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The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact on the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country.
Added
In the long term, the aftermath of the COVID-19 pandemic is likely to adversely affect the economies and financial markets of many countries and may result in a global economic downturn or a recession.
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The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.
Added
Overseas Market For the year ended December 31, 2023, revenue from overseas market was $12.1 million as compared to $11.5 million of the same period of 2022, an increase of $0.6 million, or 5.0%, mainly due to an increase of 2.5% in sales volume and an increase of 7.8% in average selling price in RMB for gaming touchscreens and industrial control computer touchscreens.
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Commencing in the spring of 2021, China began to experience an increase of COVID-19 cases, and to some extent, local and national governments began to take more restrictive measures to stem the spread of the virus, particularly from October to December 2021. The Company has several shutdowns during the year ended December 31, 2022.
Added
The Company had more pricing control capability due to the higher demand during the year ended December 31, 2023.
Removed
The extent of the impact of COVID-19 on the Company’s results of operations and financial condition will depend on the virus’ future developments, including the duration and spread of the outbreak and the impact on the Company’s customers, which are still uncertain and cannot be reasonably estimated at this point of time.
Added
During the year ended December 31, 2022, the Company incurred more marketing expenses to reduce the negative impact of tighter COVID-19 control in China during the second half of 2022.
Removed
As for the RMB selling price, the decrease of 2.6% was mainly due to the marketing initiatives to enhance sales of new models of higher-end products such as touch screens used in POS touchscreens, medical touchscreens and gaming touchscreens in marketing regions such as East China during the year ended December 31, 2022.
Added
The increase was primarily due to the increase in accrued underwriting fees of $2.5 million in connection with a private placement.
Removed
The weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic continued to exacerbate the touch screen business environment. Since April 2022, the Chinese government has imposed strict zero tolerance virus policies and the Company’s business has been negatively impacted and has continued to generate lower revenues during the year ended December 31, 2022.

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