Wetouch Technology Inc. 10-K

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-26 None same as above Touchscreen business Experimental building( testing and experimenting of samples and products Leased 1,069.6 sq. m 31-Oct-26 None same as above Touchscreen business Manufacturing/warehouse building No. Leased 30,879.3 sq. m 31-Oct-26 None same as above Touchscreen business Security gate Leased 92.98 sq.m 31-Oct-26 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, 2026 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. 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 2027. 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. 51 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 $16.5 million) as the total amount of compensation from Sichuan Renshou, including RMB100.2 million ($14.3 million) based upon the appraised value of the Properties plus an extra 15% relocation bonus of RMB15.0 million ($2.1 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 $42,899), which period was extended to October 31, 2022. On October 16, 2022, October 30, 2023, August 9, 2024, and September 29, 2025, Sichuan Vtouch entered an extension to the Leaseback Agreement with Sichuan Renshou four times to extend the period to lease back the Properties until October 31, 2026 at a monthly rent of RMB 400,000 ($57,199) in order to incorporate the new facility construction schedule 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 RMB3,925,234 (equivalent to $561,301) 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 by the first half of 2027. 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 $10.9 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 $0.7 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 RMB253 million (approximately $36.2 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 first half of 2027 and our production at the new facilities will commence by the end of 2027, but there is no assurance and we may need extended time to achieve our business plan.