Item 2. Properties
ITEM 2. PROPERTIES AND FACILITIES
We operate our business in
approximately nine separate leased buildings covering a total area of approximately 40,126.9 square feet at No. 29, Third Main Avenue,
Shigao Town, Renshou County, Meishan City, Sichuan, China (previously known as 22 Xingan Ave., Section 2, Shigao Town, Sichuan, China
) where we maintain our executive offices, research and development facilities, factories and other facilities.
Our principal physical properties
are used in connection with our [manufacturing/administrative/R&D/distribution] operations. We believe that our facilities are generally
suitable and adequate for their current and anticipated future uses. The following table summarizes our material properties:
Location (City, Country)
Segment(s)
Using
Property
General Character of
Property (e.g., Office,
Manufacturing, Warehouse)
Ownership/Lease
Status
Approx.
Size (sq.
ft./sq. m.)
Lease
Expiration
(if leased)
Encumbrances
(if any)
Shigao Town, Renshou County, Meishan City, Sichuan Province, China
Touchscreen business
Offices building
Leased
8,085.0. sq. m
31-Oct-25
None
same as above
Touchscreen business
Experimental building( testing and experimenting of samples and products
Leased
1,069.6 sq. m
31-Oct-25
None
same as above
Touchscreen business
Manufacturing/warehouse building No.
Leased
30,879.3 sq. m
31-Oct-25
None
same as above
Touchscreen business
Security gate
Leased
92.98 sq.m
31-Oct-25
None
As of
the date of this Annual Report, we lease approximately 8,085.0 sq.m of office space for R&D, sales and other corporate functions
in Shigao Town, Renshou County, Meishan City , Sichuan Province, China, which serves as our corporate headquarter. The lease expires on
October 31, 2025 and we believe it can be renewed on commercially reasonable terms.
We also lease 30,879.3 sq.m facility with three
manufacturing wards for principal manufacturing operations in Shigao Town, Renshou ,County, Meishan City, Sichuan Province, China, at
which production of, assembly, packaging, warehousing of our touchscreen products. We believe these facilities are adequate to meet our
current production requirements and provide room for moderate expansion.
In addition, space of 1069.6 sq. m in Shigao Town,
Renshou County, Meishan City, Sichuan Province, China was used for testing and experimenting of samples and products by our engineering
teams.
None of our properties are subject to material encumbrances
that would adversely affect their use.
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As of
the date of this Annual Report, we do not own any real property. However, we are in the process of obtaining a certificate of land
use right for a new parcel located at Tianfu Avenue, Youjiadu Community in Chengdu, Sichuan province, China, and expect to receive the
certificate from the local government in the first quarter of 2026.
We believe the above properties
are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available
to accommodate any such expansion of our operations.
Leaseback Agreement
Pursuant to local PRC government
guidelines on local environmental issues and the national overall plan, Sichuan Wetouch is under the government-directed relocation order
to relocate no later than December 31, 2021 and received compensation accordingly.
On March 16, 2021, Sichuan
Wetouch entered into an Agreement of Compensation on Demolition (the “Compensation Agreement”) with Meishan Huantian Industrial
Co., Ltd, formerly named Sichuan Renshou Shigao Tianfu Investment Co., Ltd, a limited company owned by the local government (“Sichuan
Renshou”), for the withdrawal of our right to use of a parcel of state-owned land and the demolition of all buildings, facilities
and equipment on such land where we maintain our executive offices, research and development facilities and factories at No.29, Third
Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (the “Property”). The Property, all buildings, facilities,
equipment and all other appurtenances on the Property are collectively referred to as “Properties”. The Compensation Agreement
was executed and delivered as a result of the guidelines (the “Guidelines”) published by the local government with respect
to local environmental issues and a national plan on Tianfu New District, Meishan City, Sichuan, PRC. In accordance with the Guidelines,
a project named “Chaisang River Ecological Wetland Park” is under construction in the areas where our manufacturing facilities
and properties are located. In consideration for such relocation, as an owner of the buildings on the state-owned land, we will be compensated.
On March 18, 2021, Sichuan Wetouch received a total amount of RMB115.2 million (approximately $17.7 million) as the total amount of compensation
from Sichuan Renshou, including RMB100.2 million ($15.4 million) based upon the appraised value of the Properties plus an extra 15% relocation
bonus of RMB15.0 million ($2.3 million).
In order to minimize the interruption
to our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16, 2021. The Leaseback Agreement entitles
us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB300,000 (approximately
$46,154), which period was extended to October 31, 2022. On October 16, 2022, October 30, 2023, Sichuan Vtouch twice entered an extension
to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties until October
31, 2024, at a monthly rent of RMB 400,000 ($56,339). On August 9, 2024, in order to incorporate the new facility construction schedule,
the lease was renewed and extended till October 31, 2025, with a monthly rent of RMB 400,000 ($54,800).
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New Facilities
On August 6, 2021, Sichuan
Vtouch entered into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use
right for a parcel of land spanning 131,010 square feet, for a consideration of approximately RMB3,925,233 (equivalent to $537,755) for
the Company’s new facility. The Company paid the consideration in full on November 18, 2021. We are in the process of obtaining
the certificate of land use right for the new parcel and expect to receive the certificate from the local government in the first quarter
of 2026.
On July 27, 2021, Sichuan
Vtouch and Sichuan Chunqiu Development and Construction Group Co., Ltd. entered into a construction contract for a project to build the
capacitive touchscreen and touch machine research and development production base. The project was initially scheduled to commence on
August 15, 2021, and reach completion by August 15, 2022, with a provisional contract value of RMB76,000,000 (approximately $11.9 million),
subject to adjustment based on the final completion settlement. However, the construction project was subsequently suspended due to the
outbreak of Covid-19 and government-ordered shutdowns in China. As a result, the parties have agreed to extend the term of the contract
to December 31, 2024. On April 11, 2025, Sichuan Vtouch entered into a supplemental construction contract with Sichuan Chunqiu Development
& Construction Group Co. Ltd. for an additional consideration of RMB 4,633,118 (equivalent to $0.6 million) regarding the completion
of the Company’s facility construction project on the capacitive touchscreen and touch machine research and development, which extended
the original contract term to December 31, 2025. As of the date of this Annual Report, we estimate that our capital needs for this acquisition
and construction will be approximately RMB170.0 million (approximately $26.2 million), but there is no assurance that the estimated amount
is sufficient to achieve our goals. We may need additional financing for our new facilities. In addition, we expect that this the construction
of buildings and affixtures will be completed by end of 2025 and our production at the new facilities will commence in the second half
of 2026, but there is no assurance and we may need extended time to achieve our business plan.