What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-09-11 compared with 2024-04-17 · 574 added, 604 removed, 79 unchanged (94% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part

II, Item 8 of this Annual Report.

The following discussion contains forward-looking statements that involve risks and uncertainties about

our business and operations.

Our actual results and the timing of selected events may differ materially from those anticipated in these

forward-looking statements as a result of various factors, including those we describe under Item 1A.

Risk Factors” and

elsewhere in this Annual Report.

See “Special Note Regarding Forward-Looking Statements.”

were originally incorporated under the laws of the state of Nevada in August 1992.

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.

As a result of the Reverse Merger, BVI Wetouch became our wholly-owned subsidiary.

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.

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.

Note Regarding Forward-Looking Statements.”

The Company is a Nevada holding

company with no material operations of its own.

We conduct substantially all of our operations through our subsidiary in mainland China,

which we control through BVI Wetouch.

Business – Corporate History and Structure” for more details.

Because our operations are

primarily in China, we are subject to complex and evolving PRC laws and regulations.

These include restrictions on capital flows, dividend

payments, currency conversion, cybersecurity and data privacy, and governmental discretion over overseas securities offerings.

could materially affect our ability to transfer funds, conduct offerings, or continue operations in their current form.

Risk Factors—Risks Related to Doing Business in China.”

As of March 31, 2025, the

Company has contributed RMB 348.0 million (US$47.7 million) to its PRC subsidiary through intermediate holding companies, which were accounted

for as long-term investments.

These funds have been used by our PRC subsidiary in its operations.

To date, no dividends or other distributions

have been made by our PRC subsidiary to the Company.

We may rely on future distributions from our PRC subsidiary to fund our holding company

obligations, subject to PRC law and restrictions.

For more details, see “ Item 1A.

Risk Factors—Risks Related to Doing Business

in China—As a holding company, we conduct our operations primarily through our PRC subsidiary and face risks and uncertainties associated

with this structure.

Under current PRC law, dividend

payments by our PRC subsidiary are limited to accumulated profits determined in accordance with PRC accounting standards and are subject

to statutory reserve requirements.

Dividends to the Company are also subject to withholding tax, generally 10%, but reduced to 5% if treaty

conditions are met.

There is no assurance that the reduced rate will apply.

For more details, see “ Item 1A.

Risk Factors—Risks

Related to Doing Business in China—Uncertainties with respect to the PRC legal system, including the enforcement of laws and changes

in laws and regulations, could adversely affect us and limit the legal protections available .”

We currently do not have cash management policies

dictating how funds are transferred between the Company and its subsidiaries.

Most of our cash is maintained in Renminbi in mainland China

and may be subject to PRC restrictions on outbound transfers.

For details, see “ Item 1A.

Risk Factors - Risks Related to Doing

Business in China - Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the

value of your investment.

our wholly owned subsidiaries, BVI Wetouch, HK Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing,

1 unchanged sentence

We are specialized in large-format touchscreens, which

are developed and designed for a wide variety of markets and used in by the financial terminals, automotive, POS, gaming, lottery, medical,

are developed and designed for a wide variety of markets and used in the financial terminals, automotive, POS, gaming, lottery, medical,

HMI, and other specialized industries.

1 unchanged sentence

from 7.0 inch to 42 inch screens.

July 16, 2023, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of

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.

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.

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.

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.

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.

Since the end of 2022, the Chinese government

has eased the COVID-19 restrictions.

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.

Company has several shutdowns during the first quarter of 2023.

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.

World Health Organization (WHO) announced on May 5, 2023 that COVID-19 is no longer a public health emergency of international concern.

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.

This would likely adversely affect demand on some of our products or services,

which may, in turn negatively impact our results of operations.

for the Year Ended December 31, 2023

were $39.7 million, an increase of 4.7% from $37.9 million for the year ended December 31, 2022

profit was $17.2 million, an increase of 22.8% from $14.0 million for the year ended December 31, 2022

profit margin was 43.3%, as compared to 37.0% for the year ended December 31, 2022

income was $8.3 million, a decrease of 4.6% from $8.7 million for the year ended December 31, 2022

volume shipped was 1,967,316 units, an increase of 2.6% from 1,916,976 units for the year ended December 31, 2022

of Operations

following table sets forth, for the periods indicated, statements of income data:

(in US Dollar millions,

except percentage)

For the Years Ended December 31,

We generate revenues through

sales of our various touchscreen products.

For the years ended December 31, 2024 and 2023, we recognized approximately $42.3 million and

$39.7 million, respectively, in total revenues.

We sell our touchscreen products

both domestically in China and internationally, covering major areas in Mainland China, including but not limited to the eastern, southern,

northern and southwest regions of Mainland China, Taiwan, South Korea, and Germany.

We believe that we have established a strong and diversified

For the years ended December 31, 2024 and 2023, our domestic sales accounted for approximately 64.7% and 69.6%, respectively,

of our revenues, and our international sales accounted for approximately 35.3% and 30.3%, respectively, of our revenues.

our incorporation, we have effected two reverse stock splits of our common stock, including a 1-for-70 reverse split in 2020 and a 1-for-20

reverse split in 2023, and all share and per share information in this Annual Report has been retroactively adjusted to reflect these

For more details, see “ Item 1.

Business - Corporate History and Structure - Reverse Stock Splits.

Highlights for the Year Ended December 31,

Revenues were $42.3 million, an increase of 6.5% from $39.7 million for the year ended December 31, 2023.

Gross profit was $13.6 million, a decrease of 20.9% from $17.2 million for the year ended December 31, 2023.

Gross profit margin was 32.2%, as compared to 43.3% for the year ended December 31, 2023.

Net income was $6.0 million, a decrease of 27.7% from $8.3 million for the year ended December 31, 2023.

Total volume of touchscreens shipped was 2,060,870 units, an increase of 4.8% from 1,967,316 units of touchscreens for the year ended December 31, 2023.

Results of Operations

The following

table sets forth, for the periods indicated, statements of income data:

For the Years Ended

(in US Dollar millions, except percentage)

Cost of revenues

1 unchanged sentence

Operating income

Total other income (expense), net

Total other expense, net

Income before income taxes

Income tax expense

the Years Ended December 31, 2023 and 2022

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.

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.

For the Years Ended

December 31, 2024 and 2023

were $42.3 million for the year ended December 31, 2024, representing an increase of $2.6 million, or 6.5%, compared with $39.7 million

for the same period in 2023.

This was mainly due to the increase of 4.8% in sales volume, and an increase of 3.2% in the average selling

price of our products in RMB, and 1.6% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with

those of the same period in 2023.

For the Years Ended December 31,

8 unchanged sentences

Total Units Sold

Dom estic Market

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

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.

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 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.

The Company had more pricing control capability due to the

higher demand during the year ended December 31, 2023.

following table summarizes the breakdown of revenues by categories in US dollars:

For the Years Ended December 31,

PRC Domestic Market

For the year ended December

31, 2024, revenue from the PRC domestic market decreased by $0.3 million or 1.2%, as a combined result of (i) the decrease of 1.6% in

sales volume, primarily attributable to weakened market demand, consistent with the overall macroeconomic conditions in China in 2024,

and (ii) 1.6% negative impact from exchange rate due to depreciation of RMB against US dollars, partially offset by (iii) an increase

of 2.0% in the average sales price of our products in RMB, and as compared with those of the same period in 2023.

of 2.0% in sales price of our products in RMB was mainly due to the marketing initiatives to enhance sales of new models of higher-end

products such as medical touchscreens, automotive touchscreen, and multi-functional printer touchscreens during the year ended December

During the year ended December

31, 2024, the Company undertook proactive marketing initiatives for new models and sought to obtain new customers in order to reduce the

impact the weakening macroeconomic conditions in China.

Our sales increased by 6.0% in Southwest China, partially offset by a decrease

of 2.4% in East China, and 0.8% in South China during the year ended December 31, 2024,

Overseas Market

ended December 31, 2024, revenue from overseas markets was $14.9 million as compared to $12.1 million of the same period of 2023, representing

an increase of $2.8 million, or 24.1%, primarily due to i) an increase of 17.9% in sales volume, particularly driven by higher demand

for the automotive touchscreens, gaming touchscreens, and industrial control touchscreens, (ii) 6.8% increase in average RMB selling price

of the products, particularly in the product of industrial control touchscreens and automotive touchscreens, as the Company had greater

pricing power due to the higher demand for the products during the year ended December 31, 2024, partially offset by (iii) the 1.6% negative

impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period in 2023.

The following

table summarizes the breakdown of revenues by categories in US dollars:

Revenues For the Years Ended December 31,

(in US Dollars, except percentage)

2 unchanged sentences

Industrial Control Computer Touchscreens

POS Touchscreens

Gaming Touchscreens

Medical Touchscreens

POS Touchscreens

Multi-Functional Printer Touchscreens

Total Revenues

include applications in self-service kiosks, ticket vending machines and financial terminals.

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.

Profit and Gross Profit Margin

Years Ended December 31,

Others include applications in self-service kiosks, ticket vending machines and financial terminals.

The Company continued

to shift production mix from traditional lower-end products to high-end touchscreens used in automotive touchscreens, gaming touchscreens,

medical touchscreens, and industrial control computer touchscreens, primarily due to (i) greater growth potential of computer screen models

in China and overseas, and (ii) stronger demand for higher-end touchscreens made with better materials and better quality.

Gross Profit and Gross Profit Margin

(in millions, except percentage)

Gross Profit Margin

profit was $17.2 million during the year ended December 31, 2023, compared to $14.0 million in the same period of 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.

Years Ended December 31,

Gross profit was $13.6 million

during the year ended December 31, 2024, compared to $17.2 million in the same period of 2023.

Our gross profit margin decreased to 32.2%

during the year ended December 31, 2024 as compared to 43.3% for the same period of 2023, primarily due to i) an increase of 29.9% in

cost of goods sold, and ii) sales discount to certain long-term customers at year-end.

During the year ended December 31, 2024, we had

an increase of 31.8% in costs of raw materials, among which the chip cost accounted for 43%, and the increase of 24.3% of labor costs

due to additional hiring of technicians.

Chip costs increased starting in the first quarter of 2024 and stabilized by the third quarter

Selling Expenses

(in millions, except percentage)

1 unchanged sentence

as a percentage of revenues

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%.

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.

and Administrative Expenses

Years Ended December 31,

Selling expenses were $0.8

million for the year ended December 31, 2024, compared to $0.6 million in the same period in 2023, representing

an increase of $0.2 million, or 133.3%, primarily due to an increase in traveling and transportation expenses of our selling and marketing

team to visit customers and attend exhibitions in order to promote the increase of sales during the year ended December 31, 2024.

General and Administrative Expenses

(in millions, except percentage)

1 unchanged sentence

as a percentage of revenues

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%.

The increase was primarily due to the increase in accrued underwriting fees of $2.5

million in connection with a private placement.

On March 18, 2023, the Company entered into a private placement consent agreement with

Representatives of the private placement taken place on January 19, 2023 on the agent fees of US$1.2 million, payable

only on the completion of the underwriting offering.

The Company made the full payment in February, 2024 (see Note 8).

In May, 2023, the Company entered into two third-party consulting service agreements for a fee of $1.35 million and $3.1 million respectively,

payable only on the completion of the underwriting offering.

The Company made the full payment in February, 2024 (see Note 8).

and Development Expenses

Years Ended December 31,

General and administrative

expenses were $3.5 million for the year ended December 31, 2024, compared to $3.8 million in the same period in 2023, representing a decrease

of $0.3 million, or 7.9%.

The decrease was primarily due to i) accrued placement agent fees of $1.2 million related to the private placement

consent agreement with representatives of the private placement that took place on January 19, 2023, partially offset by only ii) increase

of amortized consulting fees of $0.6 million (see NOTE 4- PREPAID EXPENSES AND OTHER CURRENT ASSETS of the accompanying financial statements),

and $0.1 million of miscellaneous expenses including $44,862 allowance for credit losses of advance to vendors and $54,873 provision for

obsolete inventory.

Research and Development Expenses

(in US dollars, except percentage)

1 unchanged sentence

as a percentage of revenues

and development expenses were $84,551 for the year ended December 31, 2023 compared to $85,251 in the same period in 2022.

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.

Years Ended December 31,

Research and development (“R&D”)

expenses were nil and $84,551 for the years ended December 31, 2024 and 2023, respectively.

The Company did not incur any research and

development expenses during the year ended December 31, 2024.

Operating Income

Total operating income was

$9.3 million for the year ended December 31, 2024 as compared to $12.7 million for the same period in 2023, a decrease of $3.4 million

The decrease was primarily due to lower gross profit, higher selling expenses,

partially offset by lower general & administration expenses, andlower research and development expenses.

Gain (loss) on Changes in Fair Value of

Common Stock Purchase Warrants

(in US dollars, except percentage)

Other expenses

as a percentage of revenues

the year ended December 31, 2023, the Company accrued litigation compensation of RMB324,501 ($45,828) and court fee of RMB10,627 ($1,500).

on Conversion of Notes Payable

Years Ended December 31,

(in millions, except percentage

Loss on conversion of notes payable

as a percentage of revenues

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.

As a result, the Company recorded a loss on the conversion of notes payable of $0.1 million accordingly.

(loss) on Changes in Fair Value of Common Stock Purchase Warrants

Years Ended December 31,

(in millions, except percentage)

Gain (loss) on changes in fair value of common stock purchase warrants

as a percentage of revenues

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.

Years Ended December 31,

In connection with the issuance

of convertible promissory notes in October, November and December, 2021, the Company also issued seven (7) three-year warrant

(the “ Note Warrants”) to purchase an aggregate of 1,800,000 shares of the Company’s common stock (the “Warrant

Shares”) (see NOTE 10 — CONVERTIBLE PROMISSORY NOTES PAYABLE).

Gain on changes in fair value

of common stock purchase warrants was $378,371 for the year ended December 31, 2024, as compared to a loss of $121,413 in the same period

(in millions, except percentage)

2 unchanged sentences

Effective income tax rate

effective income tax rate for the year ended December 31, 2023 and 2022 was 25.4% and 27.7%, respectively.

PRC subsidiary had $98.0 million of cash and cash equivalents of December 31, 2023, which are planned to be indefinitely reinvested in

The distributions from our PRC subsidiary are subject to the U.S.

federal income tax at 21%, less any applicable foreign

Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income

tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries.

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.

and Capital Resources

Historically,

our primary uses of cash have been to finance working capital needs.

We expect that we will be able to meet our needs to fund operations,

capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and

bank borrowings.

may, however, require additional cash resources due to changes in business conditions or other future developments.

If these sources

are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility.

The sale of additional equity or equity-linked securities could result in additional dilution to stockholders.

The incurrence of indebtedness

would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations.

The effective income

tax rate for the years ended December 31, 2024 and 2023 was 30.6% and 33.1%, respectively.

Our PRC subsidiary

had $103.7 million of cash as of December 31, 2024, which is planned to be indefinitely reinvested in our business operations in the PRC.

Distributions from our PRC subsidiary to our stockholders would be subject to the U.S.

federal income tax at 21%, less any applicable

foreign tax credits.

Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred

income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiary.

As a result of the above factors,

we had a net income of $6.0 million in the year ended December 31, 2024 compared to a net income of $8.3 million in the same period of

Liquidity and Capital Resources

Historically, our primary

uses of cash have been to finance working capital needs.

We expect that we will be able to meet our needs to fund operations, capital

expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.

We may, however, require additional

cash resources due to changes in business conditions or other future developments.

If these sources are insufficient to satisfy our cash

requirements, we may seek to sell additional equity or debt securities or obtain a credit facility.

The sale of additional equity or equity-linked

securities could result in additional dilution to stockholders.

The incurrence of indebtedness would result in increased debt service

obligations and could result in operating and financial covenants that would restrict operations.

Financing may not be available in amounts or on terms acceptable to us, or at all.

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.

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.

following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the years ended December

As of December 31, 2024, we

had current assets of $114.1 million, consisting of $103.7 million in cash, $7.5 million in accounts receivable, $0.1 million in inventories,

and $2.8 million in prepaid expenses and other current assets.

Our current liabilities as of December 31, 2024 were $3.0 million, which

comprised of $1.3 million in accounts payable, $0.1 million due to related parties, $1.0 million in accrued expenses and other current

liabilities and $0.6 million in operating lease liabilities, current portion.

We also had $0.5 million in operating lease liabilities,

non- current as of December 31, 2024.

The following is a summary

of our cash flows provided by (used in) operating, investing, and financing activities for the years ended December 31 ,

2024 and 2023:

Years Ended December 31,

(in US Dollar millions)

1 unchanged sentence

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign currency exchange rate changes on cash and cash equivalents

2 unchanged sentences

Cash and cash equivalents at the end of period

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

cash used in investing activities for the year ended December 31, 2023 was $2.3 million for the purchase of property, plant and equipment.

were nil investing activities for the year ended December 31, 2022.

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.

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.

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.

following table provides an analysis of the aging of accounts receivable as of December 31, 2023 and 2022:

1-3 months past due

4-6 months past due

7-12 months past due

greater than 1 year past due

Total accounts receivable

majority of the Company’s revenues and expenses were denominated primarily in RMB, the currency of the People’s Republic

There is no assurance that exchange rates between the RMB and the U.S.

Operating Activities

Net cash provided by operating

activities was $1.1 million for the year ended December 31, 2024, as compared to $12.7 million provided by operating activities for the

same period in 2023, representing a decrease of $11.6 million, or 91.3%.

The positive cash flow for

the year ended December 31, 2024 was primarily due to i) $6.0 million net income during the year ended December 31, 2024, ii) the increase

of $0.6 million in accounts payable and $0.1 million in amounts due to a related party, partially offset by iii) the increase of $0.4

million gain on changes in fair value of common stock purchase warrants liability, $0.2 million in accounts receivable and $1.8 million

in prepaid expenses and other current assets (mainly in prepaid $0.9 million of consulting service fees and $1.0 million in market research

fees) , and iv) the decrease of $3.3 million in accrued expenses and other current liabilities.

The positive cash flow for

the year ended December 31, 2023 was primarily due to i) $8.3 million net income during the year ended December 31, 2023;

ii) the decrease

of $1.2 million in accounts receivable, $0.2 in inventory and $0.3 million in prepaid expenses and other current assets, iii) the increase

of $3.1 million in accrued expenses and other current liabilities, and partially offset by iv) the decrease of $0.7 million in accounts

Investing Activities

Net cash used in investing

activities for the year ended December 31, 2024 was $0.3 million for the purchase of property, plant and equipment

and construction in progress.

Net cash used in investing

activities for the year ended December 31, 2023 was $2.3 million for the purchase of property, plant and equipment.

Financing Activities

Net cash provided by financing

activities for the year ended December 31, 2024 was $7.6 million, including $9.0 million in net proceeds from

the 2024 Uplisting Offering, partially offset by $1.4 million repayment of convertible promissory notes.

Net cash provided by financing

activities was $40.0 million for the year ended December 31, 2023, consisting of $40.0 million proceeds from a private placement, partially

offset by the repayment of $55,000 in convertible promissory note payable.

Our Days Sales Outstanding

(“DSO”) decreased to 64 days for the year ended December 31, 2024 from 75 days for the year ended December 31, 2023 due to

our faster collection of accounts receivables.

The majority of the Company’s

revenues and expenses were denominated primarily in RMB, the currency of the People’s Republic of China.

There is no assurance that

exchange rates between the RMB and the U.S.

Dollar will remain stable.

Inflation has not had a material

impact on the Company’s business.

Company Structure

is a holding company and a company incorporated in Nevada with no material operations of its own.

We conduct substantially all of our

operations through our subsidiary established in mainland China.

Our equity structure is a direct holding structure, that is, Wetouch,

a Nevada corporation listed in the U.S., controls Sichuan Vtouch though BVI Wetouch.

Business – Corporate

History and Structure ” for more details.

face various risks and uncertainties relating to doing business in China.

Our business operations are primarily conducted in China, and

we are subject to complex and evolving PRC laws and regulations.

For example, we face risks associated with regulatory approvals on offshore

offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct

certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange.

could result in a material adverse change in our operations and the value of our common stock, significantly limit or completely hinder

our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline.

For a detailed

description of risks relating to doing business in China, see “ Item 1.A.

Risk Factors—Risks Related to Doing Business

PRC government’s significant discretion and authority in regulating our operations and its oversight and control over offerings

conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer

or continue to offer securities to investors.

Implementation of industry-wide regulations in this nature may cause the value of our securities

to significantly decline or become worthless.

For more details, see “ Item 1.A.

Risk Factors—Risks Relating to Doing Business

in China— Changes in China’s economic, political or social conditions or government policies could have a material adverse

effect on our business and operations.

The PRC government has recently indicated an intent to exert more oversight and control over overseas

securities offerings and other capital markets activities and foreign investment in China-based companies like us.

Any such action, once

taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors

and cause the value of such securities to significantly decline or in extreme cases, become worthless .”

and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly

evolving rules and regulations in China, could result in a material adverse change in our operations and cause our Common Stock to decrease

in value or become worthless.

For more details, see “ Item 1.A.

Risk Factors—Risks Relating to Doing Business in China—

Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws and sudden and unexpected

changes in laws and regulations in China, could adversely affect us and limit the legal protections available to you and us .”

and Other Assets Transfers between the Holding Company and Its Subsidiaries

of March 31, 2024, Wetouch had made cumulative capital contributions of RMB346.0 million

(US$ 51.9 million) to its PRC subsidiary through intermediate holding companies, and were

accounted as long-term investments of Wetouch.

These funds have been used by the Company’s PRC subsidiary for its operations.

date, there have not been any dividends or other distributions from our PRC subsidiary to Wetouch, both of which are located outside

of mainland China.

Wetouch, as a holding company, may rely on dividends and other distributions on equity paid by its PRC subsidiary

for its cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to its stockholders,

subject to Wetouch’s charter and M&A and Nevada law or to service any expenses and other obligations it may incur.

our direct holding structure, the cross-border transfer of funds from Wetouch to its PRC subsidiary is permitted under laws and regulations

of the PRC currently in effect.

Specifically, Wetouch is permitted to provide funding to its PRC subsidiary in the form of shareholder

loans or capital contributions, subject to satisfaction of applicable government registration, approval and filing requirements in China.

There are no quantity limits on Wetouch’s ability to make capital contributions to its PRC subsidiary under the PRC law and regulations.

However, the PRC subsidiary may only procure stockholder loans from HK Wetouch in an amount equal to the difference between its registered

capital and total investment amount as recorded in the Chinese Foreign Investment Comprehensive Management Information System or 2.5

times of its net assets, at the discretion of such PRC subsidiary.

additional information, see “ Item 1.A.

Risk Factors—Risks Related to Doing Business in China 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 .”

PRC Enterprise Income Tax Law (the “EIT Law”) and its implementation rules provide that a withholding tax at a rate of 10%

will be applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless reduced under treaties or arrangements

between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident.

Pursuant to the tax agreement between mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect

to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.

if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax

treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

Accordingly, there is no assurance that

the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from our PRC subsidiaries.

This withholding

tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

is no assurance that the PRC government will not intervene or impose restrictions on the ability of us or our subsidiary to transfer

Most of our cash is in Renminbi, and the PRC government could prevent the cash maintained in our bank accounts in mainland China

from leaving mainland China, could restrict deployment of the cash into the business of our subsidiaries and restrict the ability to

pay dividends.

For details regarding the restrictions on our ability to transfer cash between us, and our subsidiaries, see “ Item

Risk Factors—Risks Related to Doing Business in China — “Governmental control of currency conversion may limit

our ability to utilize our revenues effectively and affect the value of your investment .” We currently do not have cash management

policies that dictate how funds are transferred between our holding company and our subsidiaries.

on Our Ability to Transfer Cash Out of China and to U.S.

PRC subsidiary’s ability to distribute dividends is based upon its distributable earnings.

Current PRC regulations permit our PRC

subsidiary to pay dividends to its shareholders only out of its accumulated profits, if any, as determined in accordance with PRC accounting

standards and regulations.

In addition, under PRC law, our PRC subsidiary is required to set aside at least 10% of its after-tax profits

each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.

These reserves

are not distributable as cash dividends.

If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing

such debt may restrict its ability to pay dividends to Wetouch.

address persistent capital outflows and the RMB’s depreciation against the U.S.

dollar in the fourth quarter of 2016, the People’s

Bank of China and the State Administration of Foreign Exchange, or SAFE, implemented a series of capital control measures in the subsequent

months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend

payments and shareholder loan repayments.

The PRC government may continue to strengthen its capital controls and our PRC subsidiary’s

dividends and other distributions may be subject to tightened scrutiny in the future.

The PRC government also imposes controls on the

conversion of RMB into foreign currencies and the remittance of currencies out of mainland China.

Therefore, we may experience difficulties

in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits,

AND CONTINGENCIES

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.

a discussion of the Company’s legal proceedings, see Note 14 to the Financial Statements in Item 8.

Expenditure Commitment

of December 31, 2023, the Company has no capital expenditure commitment.

Sheet Arrangements

had no off-balance sheet arrangements as of December 31, 2023.

Accounting Policies

accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are

highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes

in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

prepare our financial statements in conformity with U.S.

Inflation has not had a material impact on the Company’s

COMMITMENTS AND CONTINGENCIES

Capital Expenditure

As of December

31, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.

Off-Balance Sheet Arrangements

We had no off- balance

sheet arrangements as of December 31, 2024.

Critical Accounting

An accounting policy is considered

critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such

estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that

are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

We prepare our financial statements

in conformity with U.S.

GAAP, which requires us to make judgments, estimates and assumptions.

We continually

evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various

other assumptions that we believe to be reasonable under the circumstances.

Since the use of estimates is an integral component of the

financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

Some of our accounting

policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial

statements and accompanying notes and other disclosures included in this registration statement.

When reviewing our financial statements,

you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application

of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Company adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective approach.

The adoption of

this standard did not have a material impact on the Company’s consolidated financial statements.

Therefore, no adjustments to opening

retained earnings were necessary.

606, Revenue from Contracts with customers, establishes principles for reporting information about the nature, amount, timing and uncertainty

of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.

The core principle requires

an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration

that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

606 requires the use of a five-step model to recognize revenue from customer contracts.

We continually evaluate these estimates

and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we

believe to be reasonable under the circumstances.

Since the use of estimates is an integral component of the financial reporting process,

actual results could differ from our expectations as a result of changes in our estimates.

Some of our accounting policies require a higher

degree of judgment than others in their application and require us to make significant accounting estimates.

The following descriptions

of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and

accompanying notes and other disclosures included in this registration statement.

When reviewing our financial statements, you should

consider (i) our selection of critical accounting policies, (ii) the judgments and other

uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Revenue recognition

The Company adopted Accounting

Standards Codification (“ASC”) 606 using the modified retrospective approach.

of this standard did not have a material impact on the Company’s consolidated financial statements.

Therefore, no adjustments to

opening retained earnings were necessary.

ASC 606, Revenue from Contracts

with Customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash

flows arising from the entity’s contracts to provide goods or services to customers .

The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that

reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance

obligations are satisfied.

ASC 606 requires the use of

a five-step model to recognize revenue from customer contracts.

The five-step model requires that the Company

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existing customer contracts and current accounting policies and practices to identify differences that would result from applying the

new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control

and principal versus agent considerations.

Based on the assessment, the Company concluded that there was no change to the timing and

pattern of revenue recognition for its current revenue streams.

accordance to ASC 606, the Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects

the consideration to which the Company expects to be entitled in such exchange.

The Company accounts for the revenue generated from sales

of its products primarily to its customers in PRC and overseas, as the Company is acting as a principal in these transactions, is subject

to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified

goods, which the Company has control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits.

All of the Company’s contracts have one single performance obligation as the promise is to transfer the individual goods to customers,

and there is no separately identifiable other promises in the contracts.

The Company’s revenue streams are recognized at a point

in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery.

new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and

principal versus agent considerations.

Based on the assessment, the Company concluded that there was no change to the timing and pattern

of revenue recognition for its current revenue streams.

In accordance with ASC 606,

the Company recognizes revenue when it transfers its goods or services to customers in an amount that reflects the consideration to which

the Company expects to be entitled in such exchange.

The Company accounts for the revenue generated from sales of its products primarily

to its customers in PRC and overseas, as the Company is acting as a principal in these transactions, is subject to inventory risk, has

latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods, because it has

control of the goods and the ability to direct their use to obtain substantially all the benefits.

All of the Company’s contracts

have one single performance obligation as the promise is to transfer the individual goods

to customers, and there is no separately identifiable other promises in the contracts.

The Company’s revenue streams are recognized

at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery.

The Company’s

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of product sales.

Assets and Liabilities

terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit

Contract assets are recognized for in related accounts receivable.

Contract liabilities are recognized for contracts where payment

has been received in advance of delivery.

The contract liability balance can vary significantly depending on the timing when an order

is placed and when shipment or delivery occurs.

As of December 31, 2022 and 2021, other than accounts receivable and advances from customers,

the Company had no other material contract assets, contract liabilities or deferred contract costs recorded on its consolidated balance

Costs of fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur prior to the transfer

of control, are recognized in selling, general and administrative expense when incurred.

Company generally warrants that its products will substantially conform to the agreed-upon specifications for three years from the date

The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective

Returns, after sales services and technical support under warranty have historically been immaterial.

As such, the Company does

not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.

Disaggregation

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.

preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America

(“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

These estimates are based on information as of the date of the consolidated financial statements.

Significant estimates

required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, inventory valuations,

useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, provision necessary for contingent

liabilities, revenue recognition and realization of deferred tax assets.

Contract Assets and

Payment terms are established

based on the Company’s pre-established credit requirements after an evaluation of customers’ credit quality.

Contract assets

are recognized as related accounts receivable.

Contract liabilities are recognized for contracts where payment has been received in advance

The contract liability balance can vary significantly depending on the timing

of when an order is placed and when shipment or delivery occurs.

As of December 31, 2024 and 2023, other than accounts receivable and

advances from customers, the Company had no other material contract assets, contract liabilities or deferred contract costs recorded on

its consolidated balance sheet.

Costs of fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur

prior to the transfer of control, are recognized in selling, general and administrative expense when incurred.

The Company generally

warrants that its products will substantially conform to the agreed-upon specifications for three years from the date of shipment.

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.

Disaggregation of

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, 2024 and 2023 is disclosed in Note 16 to the financial statements.

Use of estimates

In preparing the consolidated

financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”),

management makes estimates and assumptions that affect the reported amounts of assets and

liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period.

These estimates are based on information available at the date of the consolidated

financial statements.

Significant estimates required to be made by management include, but are not limited to, the allowance for estimated

uncollectible receivables, inventory valuations, useful lives of property, plant and equipment, intangible assets, operating leases, the

recoverability of long-lived assets, provisions necessary for contingent liabilities, revenue recognition and realization of deferred

Actual results could differ from those estimates.

consists of raw materials, work-in-process and finished goods and is stated at the lower of cost or net realizable value.

Cost is determined

using a weighted average.

For work-in-process and manufactured inventories, cost consists of raw materials, direct labor and an allocated

portion of the Company’s production overhead.

The Company writes down excess and obsolete inventory to its estimated net realizable

value based upon assumptions about future demand and market conditions.

For finished goods and work-in-process, if the estimated net

realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable

costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable

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.

Inventory consists of raw materials, work-in-process

and finished goods and is stated at the lower of cost or net realizable value.

Cost is determined using the weighted average method.

work-in-process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Company’s

production overhead.

The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions

about future demand and market conditions.

For finished goods and work-in-process, if the estimated net realizable value for an inventory

item, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs to completion and disposal,

is lower than its cost, the specific inventory item is written down to its estimated net realizable value.

Net realizable value for raw

materials is based on replacement cost.

Provisions for inventory write-downs are included in the cost of revenues in the consolidated

statements of operations.

Inventories are carried at this lower cost basis until sold or scrapped.

Nil and $74,100 inventory write-off was recorded for the year ended December 31, 2023 and 2022, respectively.

Promissory Notes

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):

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.

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;

$54,873 and nil inventory write-off was recorded

for the years ended December 31, 2024 and 2023, respectively.

Convertible Promissory

The Company accounts for its

convertible promissory notes in according with 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.

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.

the Company’s notes have fixed interest rate, specified notional principal and settlement date, which no other events would affect

specified settlement, and the Company received net proceeds after issuance costs and discount, which the Company recorded as the net

proceeds or net settled investment, the management assessed that the Notes did not do not meet the definition of a derivative instruments

and an embedded feature would not be bifurcated.

The discounts on the convertible notes, are amortized to interest expense, using the

effective interest method, over the terms of the related convertible notes.

stock purchase warrants

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.

Company concluded that the Warrants issued in November and December 2021 financing should be treated as a derivative liability because

the Warrants are entitled to a price adjustment provision to allow the exercise price to be increased or reduced in the event the Company

issues or sells any additional shares of common stock at a price per share more or less than the then-applicable exercise price or without

consideration, which is typically referred to as a “Down-round protection” or “anti-dilution” provision.

to ASC 815-40, the “Down-round protection” provision is not considered to be an input to the fair value of a fixed-for-fixed

option on equity shares which leads the Warrants to fail to be qualified as indexed to the Company’s own stock and then to fail

to meet the scope exceptions of ASC 815.

Therefore, the Company accounted for the Warrants as derivative liabilities under ASC 815.

to ASC 815, derivatives are measured at fair value and re-measured at fair value with changes in fair value recorded in earnings at each

reporting period.

Company used a Black-Scholes-pricing model to estimate the fair values of common stock purchase warrants at the balance sheet dates.

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.

Company accounts for current income taxes in accordance with the laws of the relevant tax authorities.

Deferred income taxes are recognized

when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years

in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a

change in tax rates is recognized in income in the period including the enactment date.

Valuation allowances are established, when necessary,

to reduce deferred tax assets to the amount expected to be realized.

uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax

The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Penalties and interest incurred

related to underpayment of income tax are classified as income tax expense in the period incurred.

No significant penalties or interest

relating to income taxes 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.

Company’s operating subsidiaries in China are subject to the income tax laws of the PRC.

No significant income was generated outside

the PRC for the fiscal years ended December 31, 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.

plant and equipment, net

plant and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization of property and

equipment is provided using the straight-line method over their expected useful lives, as follows:

and equipment

and electric equipment

for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.

for major renewals and betterments which substantially extend the useful life of assets are capitalized.

The cost and related accumulated

depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated

statements of income and other comprehensive income in other income or expenses.

of long-lived Assets

assets, such as property, plant and equipment, land use rights, are reviewed for impairment when events or changes in circumstances indicate

that the carrying value of such assets may not be recoverable.

Recoverability of a long-lived asset or asset group to be held and used

is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected

to be generated by the asset or asset group.

If the carrying value of an asset or asset group exceeds its estimated undiscounted future

cash flows, an impairment charge is recognized by the amount that the carrying value exceeds the estimated fair value of the asset or

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values

and third party independent appraisals, as considered necessary.

Assets to be disposed are reported at the lower of carrying amount or

fair value less costs to sell, and are no longer depreciated.

No impairment of long-lived assets was recognized for any of the years

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.

issued accounting guidance

Company considers the applicability and impact of all accounting standards updates (“ASUs”).

Management periodically reviews

new accounting standards that are issued.

Company considers the applicability and impact of all accounting standards updates (“ASUs”).

Management periodically reviews

new accounting standards that are issued.

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.

Limiting the accounting

models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are

not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception

from derivative accounting, and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded

as additional paid-in capital.

ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s

own equity to reduce form-over-substance-based accounting conclusions.

For public business entities, the amendments in ASU 2020-06 are

effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods

within those fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years.

Early application

of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2020, including interim periods within

those fiscal years.

The Company adopted ASU 2020-06 effective January 1, 2021.

June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces new guidance for the

accounting for credit losses on instruments within its scope.

The new guidance introduces an approach based on expected losses to estimate

credit losses on certain types of financial instruments.

It also modifies the impairment model for available-for-sale (AFS) debt securities

and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

pronouncement will be effective for public business entities that are SEC filers in fiscal years beginning after December 15, 2022, including

interim periods within those fiscal years.

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.

December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”.

amendment simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes.

It also clarifies certain aspects of the existing guidance to promote more consistent application, among other things.

The guidance is

effective for interim and annual reporting periods beginning within 2021 with early adoption permitted.

October 2021, the FASB issued ASU No.

2021-08, which will require companies to apply the definition of a performance obligation under

ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers

that are acquired in a business combination.

Under current U.S.

GAAP, an acquirer generally recognizes assets acquired and liabilities

assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers,

at fair value on the acquisition date.

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.

2021-08 is effective

for fiscal years beginning after December 15, 2022, with early adoption permitted.

Since the Company’s

notes have a fixed interest rate, specified notional principal and settlement date, with no other events affecting settlement, and because

the Company received net proceeds after issuance costs and discount (recorded as net proceeds or net settled investment), management assessed

that the Notes do not meet the definition of derivative instruments and that any embedded feature would not be bifurcated.

The discounts

on the convertible notes, were amortized to interest expense, using the effective interest method, over the terms of the related convertible

On February 23, 2024, immediately

upon the closing of the 2024 Public Offering, the Company made a full payment on the remaining five outstanding promissory notes.

details in NOTE 10 – CONVERTIBLE PROMISSORY NOTES PAYABLE-a) Convertible promissory notes).

There were no convertible promissory

notes as of December 31, 2024.

Common stock purchase

The Company also analyzed

the warrants in accordance with ASC 815, to determine whether the warrants meet the definition of a derivative and, if so, whether the

warrants meet the scope exception of ASC 815-40, which provides hat contracts issued or held by the reporting entity that are both (1)

indexed to its own stock and (2) classified in stockholders’ equity shall not be considered derivative instruments for purposes

of ASC 815-40.

The Company concluded that

the Note Warrants (as defined in NOTE 10 – CONVERTIBLE PROMISSORY NOTES PAYABLE – ii) Warrants) issued in October, November

and December 2021 financings should be treated as a derivative liability because the Warrants are entitled to a price adjustment provision

that allows the exercise price to be adjusted if the Company issues or sells any additional shares of common stock at a price per share

more or less than the then-applicable exercise price or without consideration, which is typically referred to as a “down-round protection”

or “anti-dilution” provision.

According to ASC 815-40, the “down-round protection” provision is not considered

an input to the fair value of a fixed-for-fixed option on equity shares which causes the Warrants to fail to qualify as indexed to the

Company’s own stock and therefore fail to meet the scope exceptions of ASC 815.

Therefore, the Company accounted for the Warrants

as derivative liabilities under ASC 815.

Pursuant to ASC 815, derivatives are measured at fair value and remeasured at fair value with

changes in fair value recorded in earnings for each reporting period.

The Company used a Black-Scholes

pricing model to estimate the fair values of common stock purchase warrants at the balance sheet dates.

The Note Warrant (see details

in NOTE 10 – CONVERTIBLE PROMISSORY NOTES PAYABLE-b) Note Warrant) was issued in 2021 and was valid for three years and expired

during the year ended December 31, 2024.

As of December 31, 2024 and

2023, the Company recorded nil and $378,371 of common stock purchase warrant liability, respectively, and a $378,371 gain and a $121,413

loss on changes in the fair value of common stock purchase warrant liability for the year ended December 31, 2024 and 2023, respectively.

The Company accounts for current

income taxes in accordance with the laws of the relevant tax authorities.

Deferred income taxes are recognized when temporary differences

exist between the tax bases of assets and liabilities and their reported amounts in the consolidated

financial statements.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in

the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities

of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are established,

when necessary, to reduce deferred tax assets to the amount expected to be realized.

An uncertain tax position

is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination.

amount recognized is the largest amount of tax benefit that is greater than 50% likely to beg realized upon examination.

For tax positions

not meeting the “more likely than not” test, no tax benefit is recorded.

Penalties and interest incurred related to underpayment

of income tax are classified as income tax expense in the period incurred.

No significant penalties or interest relating to income taxes

were incurred during the years ended December 31, 2024 and 2023.

The Company believes that there were no uncertain tax positions as of

December 31, 2024 and 2023.

The Company’s operating

subsidiaries in China are subject to the income tax laws of the PRC.

No significant income was generated outside the PRC for the fiscal

years ended December 31, 2024 and 2023.

As of December 31, 2024 and 2023, all of the Company’s tax returns for its PRC Subsidiaries

remain open for statutory examination by PRC tax authorities.

Property, plant and equipment, net

Property, plant and equipment

are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization of property

and equipment is provided using the straight-line method over their expected useful lives, as follows:

Machinery and equipment

Expenditures for maintenance

and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.

Expenditures for major

renewals and betterments which substantially extend the useful life of assets are capitalized .

The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss

is recognized in the consolidated statements of income and other comprehensive income (loss) as other income or expenses.

Construction in progress,

funded by the Company’s working capital, represents manufacturing facilities and office buildings under construction.

at cost and transferred to property, plant and equipment when it is substantially ready for its intended use.

No depreciation is recorded

for construction in progress.

Management estimates that construction in progress for our new facilities will be completed by the end of

the fourth quarter of 2025, at which time it will be transferred to property, plant and equipment and depreciation will begin.

Fair value measurement

Fair value is the price that

would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement

When determining fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company

considers the principal or most advantageous market in which it would transact as well as assumptions that market participants would use

when pricing the asset or liability.

Authoritative literature provides

a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when

measuring fair value.

An asset or liability categorization within the fair value hierarchy is based upon the lowest level of input that

is significant to the fair value measurement as follows:

Level 1 applies to assets

or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets

or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities

such as quoted prices for similar assets or liabilities in active markets;

quoted prices for identical assets or liabilities in markets

with insufficient volume or infrequent transactions (less active markets);

or model-derived valuations in which significant inputs are

observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets

or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair

value of the assets or liabilities.

Accounting guidance also describes

three main approaches to measuring the fair value of assets and liabilities:

(1) market approach;

(2) income approach, and (3) cost approach.

The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets

or liabilities.

The income approach uses valuation techniques to convert future amounts to a single present value amount.

The measurement

is based on the value indicated by current market expectations about those future amounts.

The cost approach is based on the amount that

would currently be required to replace an asset.

When available, the Company

uses quoted market prices to determine the fair value of an asset or liability.

If quoted market prices are not available, the Company

measures fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters,

such as interest rates and currency rates.

Impairment of

long-lived Assets

Long-lived assets, such as

property, plant and equipment, and land use rights, are reviewed for impairment when events or changes in circumstances indicate that

the carrying value of such assets may not be recoverable.

Recoverability of a long-lived asset or asset group to be held and used is measured

by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated

by the asset or asset group.

If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an

impairment charge is recognized for the amount that the carrying value exceeds the estimated fair value of the asset or asset group.

value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent

appraisals, as considered necessary.

Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to

sell, and are no longer depreciated.

No impairment of long-lived assets was recognized for the years ended December 31, 2024 and 2023.

The Company adopted ASU No.

2021-08 on January 1,

The adoption of ASU No.

2021-08 did not have a material impact on the Company’s consolidated financial statements.

November 2021, the FASB issued ASU No.

2021-10, Government Assistance (Topic 832).

This ASU requires business entities to disclose information

about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting

The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the

balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the

significant terms and conditions of the transactions.

The ASU is effective for annual periods beginning after December 15, 2021.

disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that

are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date

of initial application.

The ASU is currently not expected to have a material impact on the Company’s financial results or financial

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.

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.

issued accounting pronouncements not yet adopted

March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate

Reform on Financial Reporting”, which provides optional expedients and exceptions for applying U.S.

GAAP on contract modifications

and hedge accounting to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected

to be discontinued because of reference rate reform, if certain criteria are met.

These optional expedients and exceptions provided in

2020-04 are effective for the Company as of March 12, 2020 through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06,

2016-02, Leases (Topic 842) (“ASU 2016-02”) for all periods presented.

The Company elected the short-term lease exemption

for all contracts with lease terms of 12 months or less.

Under the guidance of ASU

2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information

about leasing arrangements.

The Company’s lease

terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option.

The Company determines

if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of

an identified asset that the Company does not own and whether it has the right to direct the use of an identified asset in exchange for

consideration.

Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term

and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets are recognized

as the amount of the lease liability, adjusted for lease incentives received.

Lease liabilities are recognized at the present value of

the future lease payments at the lease commencement date.

The interest rate used to determine the present value of the future lease payments

is the Company’s incremental borrowing rate (“IBR”), because the interest rate implicit in most of the Company’s

leases is not readily determinable.

The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating

would be and the resulting interest it would pay to borrow an amount equal to the lease payments in a similar economic environment over

the lease term on a collateralized basis.

Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed

payments are included in the Company’s lease liability calculation.

Variable lease payments are recognized in operating expenses

in the period in which the obligation for those payments is incurred.

The lease right-of-use assets

are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining

balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset.

expense for minimum lease payments exclusive of value-added tax is recognized on a straight-line basis over the lease term The new standard

provides a number of optional practical expedients at transition.

The Company elected certain practical expedients that must be elected

as a package, which permit the Company to not reassess, under the new standard, prior conclusions about (1) lease identification, (2)

lease classification and (3) initial direct costs.

Additionally, the Company elected a short-term lease exception policy, which allows

entities to not apply Topic 842 to short-term leases (i.e.

leases with terms of 12 months or less) and a hindsight policy, which allows

an entity to include current considerations for existing leases when determining initial lease terms.

The Company has also elected to

account for lease and non-lease components as a single component for all leases and elected to utilize an IBR (incremental borrowing rate)

that equals the risk free rate plus premium for all leases when calculating the lease liability.

Comprehensive income

Comprehensive income (loss)

consists of two components, net income and other comprehensive income (loss).

The foreign currency translation gain or loss resulting

from translating the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated

statements of income and comprehensive income.

Recently issued accounting

The Company considers the

applicability and impact of all accounting standards updates (“ASUs”).

Management periodically reviews new accounting standards

In March 2020, the FASB issued

2020-04, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”), which deferred the application

dates of Topic 848 to December 31, 2024.

The Group currently does not have any financial instrument that reference to LIBOR and does

not anticipate the adoption will have a material impact to the Group’s combined and consolidated financial statements.

November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, Improvements to Reportable Segment

Disclosures (Topic 280).

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable

segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported

measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the individual identified

as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance

and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods

within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented

in the financial statements.

Early adoption is also permitted.

This ASU will likely result in the group including the additional required

disclosures when adopted.

The Group is currently evaluating the provisions of this ASU and expect to adopt them for the year ending December

December 2023, the FASB issued ASU No.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”,

which provides optional expedients and exceptions for applying U.S.

GAAP on contract modifications and hedge accounting to contracts,

hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference

rate reform, if certain criteria are met.

These optional expedients and exceptions provided in ASU No.

2020-04 are effective for the Company

as of March 12, 2020 through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

of the Sunset Date of Topic 848 (“ASU 2022-06”), which deferred the application dates of Topic 848 to December 31, 2024.

Company currently does not have any financial instrument that reference to LIBOR and does not anticipate the adoption will have a material

impact to the Company’s combined and consolidated financial statements.

In December 2023, the FASB

issued ASU No.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

The ASU requires disaggregated information

about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial

statements that have not yet been issued or made available for issuance.

The Group has evaluated this ASU and expects to add additional

disclosures to our combined and consolidated financial statements, once adopted.

and Qualitative Disclosure About Market Risk

a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required

by this Item.

Statements and Supplementary Data

see the financial statements beginning on page F-1 following the signature pages in this Annual Report on Form 10-K and incorporated

herein by reference.

in and Disagreements with Accountants on Accounting and Financial Disclosure

The ASU requires disaggregated information about a reporting

entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective

basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have

not yet been issued or made available for issuance.

The Company is evaluating this ASU and expects to add additional disclosures to our

combined and consolidated financial statements, once adopted.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting

company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY

Please see the financial statements

beginning on page F-1 following the signature pages in this Annual Report on Form 10-K and incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis