What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-04-13 compared with 2025-09-11 · 468 added, 320 removed, 333 unchanged (70% of the section changed)

8 unchanged sentences

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.

We 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.

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

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

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We are specialized in large-format touchscreens, which

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

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

HMI, and other specialized industries.

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of our revenues, and our international sales accounted for approximately 31.5% and 35.3%, 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.

Construction of our new facility

have been actively engaged in the construction of our new production facilities and office buildings in Chengdu Medicine City (Technology

Park), Wenjiang District, Chengdu, Sichuan Province, People’s Republic of China since the summer of 2023.

The Company has planned

to increase the scope of facility construction by adding a touch machine construction area.

Due to the delayed supply of construction

materials, the project has been progressed slowly than expected.

As of the date of this Annual

Report, the Company estimated the construction to be completed by the first half of 2027 and commence production by the end of 2027.

total capital requirements for the new facility construction totaled approximately $14.4 million and $13.3 million have been recorded

in the construction in progress as of December 31, 2025.

The Company primarily fund the project with our existing cash on hand and cash

flows generated from operations, and we may seek additional financing if needed to support the timely completion of the project.

Highlights for the Year Ended December 31,

Revenues were $45.1 million, an increase of 6.6% from $42.3 million for the year ended December 31, 2024.

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

Gross profit was $14.4 million, an increase of 5.9% from $13.6 million for the year ended December 31, 2024.

Gross profit margin was 31.8%, as compared to 32.2% for the year ended December 31, 2024.

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

Net income was $7.2 million, an increase of 20.0% from $6.0 million for the year ended December 31, 2024.

Total volume of touchscreens shipped was 2,195,542 units, an increase of 6.5% from 2,060,870 units of touchscreens for the year ended December 31, 2024.

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Operating income

Total other expense, net

Total other income (expenses), net

Income before income taxes

Income tax expense

Income tax expenses

For the Years Ended

December 31, 2024 and 2025

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.

Revenues were $45.1 million

for the year ended December 31, 2025, representing an increase of $2.8 million, or 6.6%, compared with $42.3 million for the same period

This was mainly due to the increase of 6.5% in sales volume, and an increase of 0.1% in the average selling price of our products

in RMB, and 0.1% positive impact from exchange rate due to appreciation of RMB against US dollars, as compared with those of the same

period in 2024.

For the Years Ended December 31,

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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,

31, 2025, revenue from the PRC domestic market increased by $3.6 million or 13.1%, as a combined result of (i) an increase of 13.7%

in sales volume, particularly in medical touchscreens, multi-functional printer touchscreens, industrial control computer touchscreens,

automotive touchscreens, POS touchscreens and POS touchscreens, (ii) 0.1% positive impact from exchange rate due to appreciation of RMB

against US dollars partially offset by (iii) a decrease of 0.6% in the average RMB selling price of our products in the domestic market,

and (iii), compared with those of the same period in 2024.

As for the RMB selling price,

the decrease of 0.6% was mainly due to the lower demand of higher selling priced products of touchscreen machines in the PRC domestic

market, including the decreased average RMB selling price of 4.9% in medical touchscreens and 1.7% in automotive touchscreens, partially

offset by the increased average RMB selling price of 7.0% in POS touchscreens during the year ended December 31, 2025.

The Company has taken proactive

efforts to market new models and efforts to obtain new customers in existing markets, our sales increased by 9.7% in South China, and

10.6% in East China, and 17.9% in Southwest China during the year ended December 31, 2025.

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.

ended December 31, 2025, revenues from overseas market was $14.2 million as compared to $14.9 million of the same period of 2024, representing

a decrease by $0.7 million, or 4.9%, mainly due to i) a decrease of 6.0% in sales volume due to decreased sales in gaming touchscreens

and industrial control computer touchscreens, partially offset by (ii) an increase of 1.0% in average selling price in RMB, and (iii)

0.1% positive impact from exchange rate due to appreciation of RMB against US dollars, compared with those of the same period of 2024.

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)

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Industrial Control Computer Touchscreens

Gaming Touchscreens

Medical Touchscreens

POS Touchscreens

Medical Touchscreens

Gaming Touchscreens

Multi-Functional Printer Touchscreens

Total Revenues

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.

* 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 such as automotive touchscreens to high-end products such as industrial control computer touchscreens, gaming touchscreens, POS

touchscreens, and multi-functional printer touchscreens, primarily due to (i) greater growth potential of computer screen models in China,

(ii) the stronger demand on higher-end touch screens made with better materials and better quality.

Gross Profit and Gross Profit Margin

Years Ended December 31,

(in millions, except percentage)

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Gross profit was $14.4 million

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

during the year ended December 31, 2025, compared to $13.6 million in the same period in 2024.

Our gross profit margin decreased to 31.8%

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

during the year ended December 31, 2025 as compared to 32.2% for the same period of 2024, primarily due to i) an increase of 7.0% in cost

of goods sold, mainly in an increase of 3.9% in labor costs due to additional hiring of technicians, and an increase of 5.7% in costs

of materials, among which the chip cost accounted for 11.1%, and ii) sales discount of $1.2 million (accounted for 2.6% of the revenues)

to certain long-term customers at year-end of 2025, partially offset by the increase of revenue by 6.8%, particularly high-end products

such as industrial control computer touchscreens, POS touchscreens, medical touchscreens, and multi functional printer touchscreens

during the year ended December 31, 2025.

Selling Expenses

Years Ended December 31,

(in millions, except percentage)

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Selling expenses were $0.6

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.

million for the years ended December 31, 2025, compared to $0.8 million in the same period in 2024, representing

a decrease of $0.2 million, or 25.0%, primarily due to the continued decrease in traveling and transportation expenses as our selling

and marketing team continued the practice of online client communications to promote sales since end of 2024.

General and Administrative Expenses

Years Ended December 31,

(in millions, except percentage)

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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)

Research and development expenses

as a percentage of revenues

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.

expenses were $3.8 million for the year ended December 31, 2025, compared to $3.5 million in the same period in 2024, representing an

increase of $0.3 million, or 8.6%.

The increase was primarily due to the increase of $0.3 million in professional fees, $0.1 million

in allowance for credit loss, $0.2 million in impairment loss of construction in progress, and $0.4 million in amortization of right-of-use

assets, and $0.1 million of payroll expenses, partially offset by the decrease of $0.9 million of amortization of prepaid marketing research

fees (see Note 4 of the accompanying financial statements).

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.

Total operating income was $10.0 million for the year ended December

31, 2025 as compared to $9.3 million of the same period in 2024, primarily due to higher

gross profit and lower selling expenses, partially offset by higher general & administration expenses

Gain (loss) on Changes in Fair Value of

Common Stock Purchase Warrants

Years Ended December 31,

(in US dollars, except percentage)

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

Gain on changes in fair value of common stock purchase warrants

as a percentage of revenues

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 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 11 — CONVERTIBLE PROMISSORY NOTES PAYABLE- b) Warrants).

Note Warrant was valid for three years and expired during the year ended December 31, 2024.

We recorded gain of $378,371

on changes in fair value of common stock purchase warrants for the year ended December 31, 2024.

Years Ended December 31,

(in millions, except percentage)

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Effective income tax rate

Under PRC CIT Law, domestic

enterprises and foreign investment enterprises (the “FIEs”) are usually subject to a unified 25% enterprise income tax rate.

The Company’s PRC subsidiary Sichuan Vtouch is subject to a 25% income tax rate.

The effective income

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

tax rate for the year ended December 31, 2025 and 2024 stayed at 29.5% and 30.6%, 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.

had $118.4 million of cash of December 31, 2025, which are planned to be indefinitely reinvested in our business operations in the PRC.

The distributions from our PRC subsidiary to our stockholders 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 subsidiary.

As a result of the above factors,

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Liquidity and Capital Resources

Historically, our primary

uses of cash have been to finance working capital needs.

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

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

We may, however, require additional

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

If these sources are insufficient to satisfy our cash

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

The sale of additional equity or equity-linked

securities could result in additional dilution to stockholders.

The incurrence of indebtedness would result in increased debt service

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

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

As of 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.

Historically, our primary uses of cash have been

to finance working capital needs.

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

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

We may, however, require additional cash resources

due to changes in business conditions or other future developments.

If these sources are insufficient to satisfy our cash requirements,

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

The sale of additional equity or equity-linked securities

could result in additional dilution to stockholders.

The incurrence of indebtedness would result in increased debt service obligations

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

Financing may not be available in amounts or on

terms acceptable to us, or at all.

As of December 31, 2025, we had current assets

of $126.1 million, consisting of $118.4 million in cash, $6.5 million in accounts receivable, $45,202 in inventories, and $1.2 million

in prepaid expenses and other current assets Our current liabilities as of December 31, 2025 were $3.2 million, which is comprised of

$1.1 million in accounts payable, $0.3 million in amounts due to a related party, $1.4 million in accrued expenses and other current liabilities.

$0.5 million in operating lease liabilities, current portion.

The following is a summary

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2025 and 2024:

Years Ended December 31,

(in US Dollar millions)

7 unchanged sentences

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.

Net cash provided by operating activities was

$7.4 million for the year ended December 31, 2025, as compared to $1.1 million provided by operating activities for the same period in

2024, representing an increase of $6.3 million, or 572.7%.

The positive cash flow

of $7.4 million for the year ended December 31, 2025 was primarily due to i) $7.2 million net income, ii) $0.2 million impairment

loss of construction in progress and $0.6 million of amortization of operating right-of-use assets, iii) the decrease of $1.3

million in accounts receivable, net, $1.6 million in prepaid expenses and current assets, iii) the increase of $0.1 million in

amounts due to a related party, $0.4 million in accrued expenses and current liabilities, and $0.6 million in operating lease

liabilities, partially offset by iv) the increase of $4.4 million in long-term prepayment, reclassified from construction in

progress due to delayed schedule, and the decrease of $0.2 million in accounts payable.

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 decrease of $0.4 million gain on changes

in fair value of common stock purchase warrants liability, $0.3 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 iv) the decrease of $3.3 million in accrued expenses

and other current liabilities.

Investing Activity

Net cash used in investing activities for the

year ended December 31, 2025 and 2024 stayed at $0.3 million, respectively, representing the purchase of property, plant and equipment and

construction in progress.

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.

There was no cash flow in financing activities

for the year ended December 31, 2025.

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.

As of December 31, 2025, our cash and cash equivalents

were $118.4 million, as compared to $103.8 million at December 31, 2024.

Days Sales Outstanding (“DSO”) has

decreased to 56 days for the year ended December 31, 2025 from 64 days for the year ended December 31, 2024.

The majority of the Company’s revenues and

expenses were denominated in Renminbi (“RMB”), the currency of the People’s Republic of China.

There is no assurance

that exchange rates between the RMB and the U.S.

Dollar will remain stable.

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

Based on past performance and current expectations,

we believe our cash and cash equivalents provided by operating activities and financing activities will satisfy our working capital needs,

capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months.

The majority of the Company’s revenues and expenses were denominated

in Renminbi (“RMB”), the currency of the People’s Republic of China.

There is no assurance that exchange rates between

the RMB and the U.S.

Dollar will remain stable.

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

Holding Company Structure

Wetouch is a holding 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.

We 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.

These risks 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 in China .”

The 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 .”

Risks 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 .”

Cash and Other Assets Transfers between the

Holding Company and Its Subsidiaries

As of March 31, 2026, Wetouch made cumulative capital contributions

of RMB348.0 million (US$ 49.8 million) to its

PRC subsidiary through intermediate holding companies and were accounted as long-term investments of Wetouch.

As of the date of this Annual

Report, these funds have been used by the Company’s PRC subsidiary for its operations.

To date, there have not been

any dividends or other distributions from our PRC subsidiary to Wetouch.

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 Nevada law, or to service any expenses and other

obligations it may incur.

Within 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

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.

For 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 .”

The 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%.

However, 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.

There is no assurance that

the PRC government will not intervene or impose restrictions on the ability of us or our subsidiary to transfer cash.

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.

regarding the restrictions on our ability to transfer cash between us, and our subsidiaries, 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 .” We currently do not have cash management policies that dictate how funds are transferred

between our holding company and our subsidiaries.

Restrictions on Our Ability to Transfer Cash

Out of China and to U.S.

Our 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.

To 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, if any.

COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company

is a party to various legal actions arising in the ordinary course of business.

The Company accrues costs associated with these matters

when they become probable and the amount can be reasonably estimated.

Legal costs incurred in connection with loss contingencies are expensed

Capital Expenditure

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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

In 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.

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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.

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

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Payment terms are established

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

on the Company’s pre-established credit requirements based upon 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.

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, 2025 and 2024, 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

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The Company’s disaggregation

of revenues for the years ended December 31, 2024 and 2023 is disclosed in Note 16 to the financial statements.

of revenues for the years ended December 31, 2025 and 2024 are disclosed in Note 16 to the financial statements.

Use of estimates

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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.

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.

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, operating lease, the recoverability of long-lived

assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets.

Actual results could

differ from those estimates.

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 a weighted

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 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.

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

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

Reversal of obsolete inventory

and write-off inventory were $36,971 and $54,873 were recorded for the years ended December 31, 2025 and 2024, 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

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):

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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

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.

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.

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

details in NOTE 11 – CONVERTIBLE PROMISSORY NOTES PAYABLE-a) Convertible promissory notes).

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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.

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

The Company concluded that

the Note Warrants (as defined in NOTE 11 – 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.

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.

According 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.

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

Pursuant 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.

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

in NOTE 11 – CONVERTIBLE PROMISSORY NOTES PAYABLE-b) Note Warrant) was issued in 2021 which 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 recorded nil and

$378,371 gain on changes of fair value of common stock purchase warrant liability for the year ended December 31, 2025 and 2024, respectively.

The Company accounts for current

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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.

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.

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.

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

For tax positions

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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.

have been incurred during the years ended December 31, 2025 and 2024.

The Company believes that there were no uncertain tax positions

as of December 31, 2025 and 2024.

The Company’s operating subsidiary Sichuan Vtouch in China is

subject to the income tax laws of the PRC.

No significant income was generated outside the PRC for the fiscal years ended December 31,

2025 and 2024.

As of December 31, 2025 and 2024, all of the Company’s tax returns of its PRC Subsidiaries remain open for statutory

examination by PRC tax authorities.

Property, plant and equipment, net

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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.

funded by Company’s working capital, represents manufacturing facilities and office building under construction, is stated at cost

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

No depreciation is recorded for

construction in progress.

The management estimate that construction in progress for our new facilities will be completed by the first

half of 2027 and will transfer construction in progress to property, plant and equipment to start depreciation.

Land use right, net

A land use right in the PRC

represents an exclusive right to occupy, use and develop a piece of land during the contractual term of the land use right.

Land use right

is usually paid in one lump sum at the date the right is granted or at the date of the prepayment pursuant to the land use right transfer

contract with the local government.

The prepayment usually covers the entire duration period of the land use right.

The lump sum advance

payment is capitalized and recorded as land use right and then charged to expense on a straight-line basis over the period of the right.

On August 6, 2021, Sichuan

Vtouch entered into a contract with Chengdu Wenjiang District Planning and Natural Resources Bureau (“Wenjiang Bureau”) for

the purchase of a land use right of a parcel of land of 131,010 square feet (12,171.

28 square meters) for a consideration of RMB3,925,234

(equivalent to $561,301) for the Company’s new facility.

The Company paid the consideration in full by November 18, 2021 and recorded

in the prepayment.

Pursuant to the contract,

Sichuan Vtouch will construct a new facility on this parcel according to the specifications.

Once the Project is fully completed, Wenjiang

Bureau shall transfer the title of land use right to Sichuan Vtouch for 20 years.

The Company’s new facility

started in August 2021 yet was delayed and suspended due to the outbreak of Covid-19 and government-ordered shutdowns in China.

has rescheduled and extended the completion by first half of 2027 with the production at the new facilities will commencing by the end

During the years ended December

31, 2025, management assessed the probability of the obtaining the land use right upon the completion of the new facility, reclassified

prepayment of RMB3,925,234 (equivalent to $561,301) to land use right, started the amortization by a useful life of approximately 16 years.

The amortization expense of

land use rights was US$16,718 for the years ended December 31, 2025, and included in general and administrative expenses.

Fair value measurement

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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.

When determining the 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 and it considers assumptions that market participants

would use when pricing the asset or liability.

Authoritative literature provides

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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.

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 will measure 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

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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.

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

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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.

impairment charge is recognized by 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.

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

and are no longer depreciated.

There was $175,426 and nil impairment of construction in progress recognized for the years ended December

31, 2025 and 2024, respectively.

The Company adopts ASU No.

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

The Company elected the short-term lease exemption

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

Under the guidance of ASU

The Company elects the short-term lease exemption for

all contracts with lease terms of 12 months or less.

Under the guidance of AUS

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

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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

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

consideration.

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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.

would be to borrow and resulting interest the Company 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

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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)

expense for minimum lease payments exclusive of the value-added tax are recognized on 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.

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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.

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

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

Comprehensive income

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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

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.

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Management periodically reviews new accounting standards

In March 2020, the FASB issued

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 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.

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.

that are issued.

In October 2023, the FASB

issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements—codification amendments in response to SEC’s

disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10

Statement of Cash Flows—Overall, 250-10 Accounting Changes and Error Corrections—Overall, 260-10 Earnings Per Share—Overall,

270-10 Interim Reporting—Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10

Derivatives and Hedging—Overall, 860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities—Oil

and Gas—Notes to Financial Statements, 946-20 Financial Services—Investment Companies—Investment Company Activities,

and 974-10 Real Estate—Real Estate Investment Trusts—Overall.

The amendments represent changes to clarify or improve disclosure

and presentation requirements of above subtopics.

Many of the amendments allow users to more easily compare entities subject to the SEC’s

existing disclosures with those entities that were not previously subject to the SEC’s requirements.

Also, the amendments align

the requirements in the Codification with the SEC’s regulations.

For entities subject to existing SEC disclosure requirements or

those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective

date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K.

Early adoption is not allowed.

For all other entities, the amendments will be effective two years later from the date of the SEC’s removal.

ASU 2023-09, Income Taxes

Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the

effective tax rate reconciliation and income taxes paid.

This standard is effective for fiscal years beginning after December 15, 2024,

and requires prospective application with the option to apply it retrospectively.

The Company adopted ASU 2023-09 beginning January 1,

The adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2024, the FASB

issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation

of Income Statement Expenses,” requiring public entities to disclose additional information about specific expense categories in

the notes to the financial statements on an interim and annual basis.

ASU 2024-03 is effective for fiscal years beginning after December

15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating

the impact of adopting ASU 2024-03.

Management does not believe

that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on

the Company’s consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

8 unchanged sentences

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