What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-15 · 283 added, 144 removed, 148 unchanged (74% of the section changed)

7 unchanged sentences

Actual results could differ significantly from those expressed, implied or anticipated in these

forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the

Securities and Exchange Commission.

forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with

the Securities and Exchange Commission.

For more information regarding the risks and uncertainties of our business, See

“Risk Factors”, “Cautionary Note Regarding Forward Looking Statement.”

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.

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.

8 unchanged sentences

Related to Doing Business in China.”

As of March 31, 2026, the Company has contributed

RMB 348.0 million (US $50.4 million ) to its PRC subsidiary through intermediate holding companies,

which were accounted for as long-term investments.

As of June 30, 2026, the Company has contributed

RMB 348.0 million (US$51.3 million) to its PRC subsidiary through intermediate holding companies, which were accounted for as long-term

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.

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.

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

9 unchanged sentences

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.

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.

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.

Through our wholly owned subsidiaries, BVI Wetouch,

5 unchanged sentences

We generate revenues through sales of our various touchscreen products.

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 client base, although our revenues remain concentrated

among a limited number of major customers, as described in Note 13 to the condensed consolidated financial statements.

For the three months

ended March 31, 2026 and 2025, our domestic sales accounted for approximately 67.5% and 67.4%, respectively, of our revenues, and our

international sales accounted for approximately 32.5% and 32.6%, respectively, of our revenues.

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 Quarterly Report has been retroactively adjusted to reflect these

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 client base, although

our revenues remain concentrated among a limited number of major customers, as described in Note 13 to the condensed consolidated financial

For the three months ended June 30, 2026 and 2025, our domestic sales accounted for approximately 68.6% and 67.7%, respectively,

of our revenues, and our international sales accounted for approximately 31.4% and 32.3%, respectively, of our revenues.

months ended June 30, 2026 and 2025, our domestic sales accounted for approximately 68.0% and 67.5%, respectively, of our revenues,

and our international sales accounted for approximately 32.0% and 32.5%, respectively, of our revenues..

Since 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 Quarterly Report has been retroactively adjusted to reflect these actions.

For more details, see “ Item

Business - Corporate History and Structure - Reverse Stock Splits ” of

the 2025 Form 10-K.

Business - Corporate History and Structure - Reverse Stock Splits ” of the 2025 Form 10-K.

Construction of our new facility

6 unchanged sentences

than expected.

As of the date of this Quarterly report, the Company estimated the

construction to be completed by the first half of 2027 and commence production by the end of 2027.

The total capital requirements for

the new facility construction totaled approximately $36.7 million (RMB253 million) and $13.7 million (RMB 94.6 million) have been recorded

in the construction in progress as of March 31, 2026.

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.

As of the date of this Quarterly report, the

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

The total capital

requirements for the new facility construction totaled approximately $14.8 million and $9.1 million have been recorded in the construction

in progress as of June 30, 2026.

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 three-month period ended

March 31, 2026 include:

Revenues were $16.3 million, an increase of 6.5% compared to $15.3 million in the first quarter of 2025

Gross profit was $5.8 million, an increase of 1.8% compared to $5.7

million in the first quarter of 2025

Gross profit margin was 35.7%, compared to 36.9% in the first quarter of 2025

Net income was $3.9 million, an increase of 50.0% compared to $2.6 million in the first quarter of 2025

Total volume shipped was 763,325 units, an increase of 0.1% compared to 762,545 units in the first quarter of 2025

June 30, 2026 include:

Revenues were $14.0 million, an increase of 12.9%

compared to $12.4 million in the second quarter of 2025

Gross profit was $4.9 million, an increase of 19.5%

compared to $4.1 million in the second quarter of 2025

Gross profit margin was 34.9 %, compared

to 33.1% in the second quarter of 2025

Net income stayed flat at $2.2 million in the second

quarter of 2026 and 2025

Total volume shipped was 663,555 units, an increase

of 7.8% compared to 615,742 units in the second quarter of 2025

Results of Operations

1 unchanged sentence

indicated, statements of income data:

For the Three Months Ended

For the Six Months Ended

(in US Dollar millions, except percentage)

Three-Month Period Ended

Cost of revenues

Total operating expenses

-Share-based compensation expenses

Operating income

1 unchanged sentence

Income tax expense

Three Months Ended March 31, 2026 Compared

to Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Compared

to Three Months Ended June 30, 2025

We generated revenue of $14.0 million for the

three months ended March 31, 2026, an increase of $1.0 million, or 6.5%, compared to $15.3 million in the same period of last year.

was due to an increase of 0.1% in sales volume, an increase of 1.5% in the average selling price of our products , and 4.8% positive impact

from exchange rate due to appreciation of RMB against US dollars, compared with that of the same period of last year.

For the Three-Month Ended March 31,

three months ended June 30, 2026, an increase of $1.6 million, or 12.9%, compared to $12.4 million in the same period of last year.

was due to an increase of 7.8% in sales volume, and 6.0% positive impact from exchange rate due to appreciation of RMB against US dollars,

partially offset by a decrease of 1.7% in the average selling price of our products in RMB compared with that of the same period of last

For the Three-Month Ended June 30,

(in US Dollar millions except percentage)

2 unchanged sentences

Total Revenue

For the Three-Month Ended March 31,

For the Three-Month Ended June

(in UNIT, except percentage)

3 unchanged sentences

(i) PRC Domestic Market

For the three months ended March 31, 2026, revenue from the PRC domestic

market increased by $0.7 million, or 6.8%, as a combined result of:

(i) an increase of 2.7% in the average RMB selling price of our products,

and 4.8% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by (iii) a decrease of 1.1%

in sales volume due to higher pricing offset by the lower demand in broader types of touchscreens exclusive of the medial touchscreens,

compared with that of the same period of last year.

As for the RMB selling price, the increase of 2.7% was mainly due to

the higher demand of higher selling priced products of touchscreen machines in the PRC domestic market, average RMB selling price of 10.8%

in medical touchscreens and 1.0% in automotive computer touchscreens during the three-month period ended March 31, 2026.

Due to our proactive efforts to market new models and efforts to obtain

new customers and penetrate into new regions, our sales increased by 9.1% in Southwest China, partially offset by a decrease of 1.8% in

South China and 1.8% in East China during the three months ended March 31, 2026.

For the three months ended June 30, 2026, revenue

from the PRC domestic market increased by $1.2 million, or 14.3%, as a combined result of (i) an increase of 7.3% in sales volume in

all types of touchscreen products in the PRC market, (ii) an increase of 0.3% in the average selling price of our products in RMB, and

(iii) 6.0% positive impact from exchange rate due to appreciation of RMB against US dollars, compared with that of the same period of

As for the RMB selling price, the increase of

0.3% was mainly due to the higher demand of higher selling priced products of touchscreen machines such as automotive touchscreens and

industrial control computer touchscreens in the PRC market, yet the overall price change was not significant during the three-month period

ended June 30, 2026, as compared to the same period of last year.

Due to our proactive efforts to market new models

and efforts to obtain new customers and penetrate into new regions, our sales increased by 8.6% in East China, 7.1% in South China and

6.3% in Southwest China, during the three months ended June 30, 2026, as compared to the same period of last year.

(ii) Overseas Market

For the three-month period ended March 31, 2026, revenues from the

overseas market were $5.3 million as compared to $5.0 million of the same period of 2025, representing an increase by $0.3 million, or

6.0%, primarily due to (i) 2.4% increase in sales volume because of higher demand on automotive computer touchscreens and gaming touchscreens,

(ii) 4.8% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by (iii) a decrease of 1.0%

in average selling price in RMB (mainly in medical touchscreens and gaming touchscreens), compared to the same period of last year.

The following table summarizes the breakdown of

revenues by categories in US dollars:

Revenues For the Three-Month Ended March 31,

For the three-month period ended June 30, 2026,

revenues from the overseas market were $4.4 million as compared to $4.0 million of the same period of 2025, representing an increase

by $0.4 million, or 10.0%, primarily due to (i) 8.8% increase in sales volume because of higher demand on automotive touchscreens and

gaming touchscreens, and (ii) 6.0% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset

by a decrease of 5.8% in the average selling price of our products in RMB compared with that of the same period of last year.

to the same period of last year.

The following table summarizes the breakdown

of revenues by categories in US dollars:

For the Three-Month Ended June 30,

(in US Dollars, except percentage)

7 unchanged sentences

Total Revenue

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 products such as medical touchscreens, automotive touchscreens, POS touchscreens, industrial

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

models in China and overseas market, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.

from traditional lower-end products to high-end products such as medical touchscreens, gaming touchscreen, automotive touchscreens, POS

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

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

Gross Profit and Gross Profit Margin

Three-Month Period Ended

For the Three-Month Ended

(in millions, except percentage)

Gross Profit Margin

Gross profit was $5.8 million in the first quarter ended March 31,

2026, compared to $5.7 million in the same period of 2025.

Our gross profit margin decreased to 35.7% for the first quarter ended March

31, 2026, as compared to 36.9% for the same period of 2025, primarily due to an increase of 8.7% in cost of goods sold, consisting of

an increase of 10.5% in labor costs due to additional hiring of technicians, and an increase of 2.7% in costs of materials, and partially

offset by the increase of revenue by 6.5%, particularly high-end products as stated above during the three months ended March 31, 2026.

Gross profit was $4.9 million in the second quarter

ended June 30, 2026, compared to $4.1 million in the same period of 2025.

Our gross profit margin increased to 34.9% for the second quarter

of 2026, as compared to 33.1% for the same period of 2025, primarily due to the increase of sales of 12.9%, particularly high-end products

such as the profit margin increased by 3.33% in industrial computer control touchscreens sold in PRC market, and partially

offset by an increase of 3.4% in labor costs due to additional hiring of technicians, and an increase of 2.2% in costs of materials

(mainly in the price of chip costs) during the three months ended June 30, 2026.

Selling Expenses

Three-Month Period Ended

For the Three-Month Ended

(in millions, except percentage)

2 unchanged sentences

Selling expenses were $0.2 million for the three-month

period ended March 31, 2026, compared to $0.1 million in the same period in 2025, representing an increase of $0.1 million.

was primarily due to the traveling expenses visiting clients during the three months ended March 31, 2026.

period ended June 30, 2026, compared to $0.1 million in the same period in 2025, representing an increase of $0.1 million.

was primarily due to the increase of traveling expenses visiting clients during the three months ended June 30, 2026.

General and Administrative Expenses

Three-Month Period Ended

For the Three-Month Ended

(in millions, except percentage)

2 unchanged sentences

General and administrative expenses were $0.5

million for the three-month period ended March 31, 2026, compared to $1.6 million in the same period in 2025, representing a decrease

million for the three-month period ended June 30, 2026, compared to $0.9 million in the same period in 2025, representing a decrease

of $0.4 million, or 44.4%.

The decrease was primarily due to the absence in the first quarter of 2026 of approximately $0.5 million

of amortization expense related to prepaid three-year consulting service fees that was recorded during the first quarter of 2025, partially

offset by an increase of approximately $0.4 million in professional fees during the first quarter of 2026.

Operating Income

Total operating income was $5.1 million for the three-month period

ended March 31, 2026 as compared to $4.1 million of the same period of last year, primarily due to higher revenues and gross profit, and

lower general and administrative expenses, partially offset by the higher selling expenses for the three-month period ended March 31,

Three-Month Period Ended

The decrease was primarily due to the absence in the second quarter of 2026 of approximately $0.4 million

of amortization expense related to prepaid three-year consulting service fees that was expired on May 31, 2025, partially offset by an

increase of approximately $0.1 million in professional fees during the second quarter of 2026.

Share-based Compensation Expenses

For the Three-Month Ended

(in millions, except percentage)

Share-based Compensation Expenses

as a percentage of revenues

Share-based compensation expenses were $1.0 million

for the three-month period ended June 30, 2026, compared to nil in the same period in 2025, representing an increase of $1.0 million.

On May 11, 2026, the Compensation Committee of

the Board approved the grant of 600,000 common stock to three independent consultants who contribute to the success of the Company’s

operations in overseas market.

The Award vested immediately upon grant, with the fair value of vested shares determined by the market

closing price of common stock at the grant date.

Accordingly, the Company recorded share-based compensation expenses of $1,032,000 for

the three and three months ended June 30, 2026 (see Note 12).

Total operating income was $3.2 million for the

three-month period ended June 30, 2026 as compared to $3.1 million of the same period of last year, primarily due to higher revenues

and gross profit, and lower general and administrative expenses, partially offset by the higher selling expenses and share-based compensation

expenses for the three-month period ended June 30, 2026.

For the Three-Month Ended

(in millions, except percentage)

Income before Income Taxes

2 unchanged sentences

The effective income tax rates for the three-month

period ended March 31, 2026 and 2025 were 24.3% and 36.5%, respectively.

As a result of the above factors, we had a net income of $3.9 million

in the first quarter of 2026 compared to a net income of $2.6 million in the same quarter of 2025.

period ended June 30, 2026 and 2025 were 32.1% and 28.1%, respectively.

As a result of the above factors, our net income

stayed flat at $2.2 million for the second quarter of 2026 and 2025, respectively.

Results of Operations - Six Months Ended June 30, 2026 Compared

to Six Months Ended June 30, 2025

We generated revenue of $30.3 million for the

six months ended June 30, 2026, an increase of $2.6 million, or 9.4%, compared to $27.7 million in the same period of last year.

was mainly due to an increase of 3.5% in sales volume, an increase of 3.5% in the average RMB selling price of our products, and 5.4%

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

For the Six Months Ended June

(in US Dollar millions except percentage)

Revenue from sales to customers in PRC

Revenue from sales to customers overseas

Total Revenues

For the Six Months Ended June 30,

(in UNIT, except percentage)

Units sold to customers in PRC

Units sold to customers overseas

Total Units Sold

(i) PRC market

For the six months ended

June 30, 2026, revenue from PRC market increased by $1.9 million or 10.2% as a combined result of (i) an increase of 2.7% in sales

volume, particularly in industrial control computer touchscreens, POS touchscreens, multi-function printer touchscreens and multi-functional

printer touchscreens, (ii) an increase of 1.6% in the average RMB selling price of our products, and (iii) 5.4% positive impact from

exchange rate due to appreciation of RMB against US dollars, compared with those of the same period of last year.

As for the RMB selling price, the increase of

1.6% was mainly due to the higher demand of higher selling priced products of touchscreen machines in the PRC domestic market, including

the increase in average RMB selling price of 5.6% in medical touchscreens, 0.9% in automotive touchscreens, and partially offset by the

decrease in average RMB selling price of 0.1% in POS touchscreens and multi-functional printer touchscreens during the six-month period

ended June 30, 2026.

The Company has taken proactive efforts to market

new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 7.8% in Southwest China, and 2.8%

in East China, and 2.2% in South China during the six-month period ended June 30, 2026.

(ii) Overseas market

For the six months ended June

30, 2026, revenues from the overseas market were $9.7 million as compared to $9.0 million of the same period of 2025, representing an

increase by $0.7 million, or 7.8%, primarily due to (i) 5.3% increase in sales volume because of higher demand on automotive touchscreens

and gaming touchscreens, partially offset by the decrease in medical touchscreens, and (ii) 5.4% positive impact from exchange rate due

to appreciation of RMB against US dollars, partially offset by a decrease of 3.2% in the average selling price of our products in RMB

compared with that of the same period of last year.

compared to the same period of last year

The following table summarizes the breakdown of revenues by categories

in US dollars :

For the Six Months Ended June 30,

(in US Dollars, except percentage)

Product categories by end applications

Automotive Touchscreens

Industrial Control Computer Touchscreens

POS Touchscreens

Gaming Touchscreens

Medical Touchscreens

Multi-Functional Printer Touchscreens

Total Revenues

The Company continued to shift production mix

from traditional lower-end products such as touchscreens used in industrial control computer industries to high-end products such as

medical touchscreens, automotive touchscreens and POS 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

For the Six Months Ended

(in millions, except percentage)

Gross Profit Margin

Gross profit was $10.7

million during the six months ended June 30, 2026, compared to $9.7 million in the same period of 2025.

Our gross profit margin increased

to 35.3% for the six months ended June 30, 2026, as compared to 35.2% for the same period of 2025, primarily due to the increase of revenues

by 8.4%, particularly high-end products such as the increase of growth margin of 1.8% in automotive touchscreens, and 1.7%

in industrial control computer touchscreens, partially offset by the increase in cost of goods sold by 2.4% for the six months ended

June 30, 2026.

Selling Expenses

For the Six Months Ended

(in millions, except percentage)

Selling Expenses

as a percentage of revenues

Selling expenses were

$0.3 million for the six-month period ended June 30, 2026, compared to $0.2 million in the same period in 2025, representing an increase

of $0.1 million, or 50.0%.

The increase was primarily due to increase of traveling expenses by sales team visiting

clients to market the products during the six-month period ended June 30, 2026

General and Administrative

For the Six Months Ended

(in millions, except percentage)

General and Administrative Expenses

as a percentage of revenues

General and administrative

(G&A) expenses were $1.1 million for the six months ended June 30, 2026, compared to $2.5 million in the same period in 2025, representing

a decrease of $1.4 million, or 56.0%.

The decrease was primarily due to the absence during the six months of 2026 of approximately $0.9

million of amortization expense related to prepaid three-year consulting service fees that was expired in May, 2025, and an increase

of approximately $0.1 million in professional fees during the first half of 2026.

Share-based Compensation Expenses

For the Six-Month Ended

(in millions, except percentage)

Share-based Compensation Expenses

as a percentage of revenues

Share-based compensation expenses were $1.0 million

for the six-month period ended June 30, 2026, compared to nil in the same period in 2025, representing an increase of $1.0 million.

On May 11, 2026, the Compensation Committee of

the Board approved the grant of 600,000 common stock to three independent consultants who contribute to the success of the Company’s

operations in overseas market.

The Award vested immediately upon grant, with the fair value of vested shares determined by the market

closing price of common stock at the grant date.

Accordingly, the Company recorded share-based compensation expenses of $1,032,000 for

the three and six months ended June 30, 2026 (see Note 12).

Operating Income

Total operating income was $8.3 million for the

six months ended June 30, 2026 as compared to $7.1 million of the same period of last year due to higher gross profit, lower general

and administrative expenses, partially offset by the higher selling expenses and share-based compensation expenses.

For the Six Months Ended

(in millions, except percentage)

Income before Income Taxes

Income Tax (Expense)

Effective income tax rate

The effective income tax rates for the six months ended June 30, 2026

and 2025 were 27.3% and 32.8%, respectively.

As a result of the above factors, we had a net

income of $6.0 million in the six months ended June 30, 2026 as compared to $4.8 million of the same period of last year

Liquidity and Capital Resources

8 unchanged sentences

Any issuance of

additional equity or equity-linked securities could dilute the ownership interests of existing shareholders, while the incurrence of additional

indebtedness would increase our debt service obligations and could subject us to operating and financial covenants that may restrict our

business activities.

There can be no assurance that financing will be available in the necessary amounts, on terms acceptable to us, or

As of March 31, 2026, we had current assets of

additional equity or equity-linked securities could dilute the ownership interests of existing shareholders, while the incurrence of

additional indebtedness would increase our debt service obligations and could subject us to operating and financial covenants that may

restrict our business activities.

There can be no assurance that financing will be available in the necessary amounts, on terms acceptable

to us, or at all.

As of June 30, 2026, we had current assets of

$138.0 million, consisting of $127.5 million in cash and cash equivalent, $9.3 million in accounts receivable, $9,185 in inventories,

and $1.1 million in prepaid expenses and other current assets.

Our current liabilities as of March 31, 2026 were $4.1 million, which is

comprised of $0.9 million in accounts payable, $0.3 million in amounts due to a related party, $1.2 million income tax payable, $1.3 million

in accrued expenses and other current liabilities.

Our current liabilities as of June 30, 2026 were $3.8 million, which is

comprised of $0.9 million in accounts payable, $0.4 million in amounts due to a related party, $0.9 million income tax payable, $1.4

million in accrued expenses and other current liabilities.

and $0.2 million in operating lease liabilities, current portion.

The following is a summary of our cash flows provided by operating,

investing, and financing activities for the three-month periods ended March 31, 2026 and 2025:

Three-Month Period Ended

The following is a summary of our cash flows

provided by (used in) operating, investing, and financing activities for the three-month periods ended June 30, 2026 and 2025:

For the Six-Month Ended

(in US Dollar millions)

8 unchanged sentences

Net cash provided by operating activities was

$0.5 million for the three months ended March 31, 2026 as compared to net cash provided by operating activities of $2.0 million for the

$5.5 million for the six months ended June 30, 2026 as compared to net cash provided by operating activities of $4.7 million for the

same period of the last year.

The positive cash flow for the three months ended

March 31, 2026 was primarily due to i) $3.9 million net income, ii) the increase of $1.2 million in income tax payable, and partially o ffset by iii) the increase of $4.4 million in accounts receivable and iv) the decrease of $0.1 million in accounts payable.

The positive cash flow for the three months ended March 31, 2025 was

primarily due to i) $2.5 million net income, ii) the decrease of $0.6 million in prepaid expenses and current assets, iii) the increase

of in $0.3 million accounts payable, $0.3 million due to a related party, $1.3 million in tax payable and $0.6 million in accrued expenses

and current liabilities, partially offset by iv) the increase of $3.5 million in accounts receivable.

The positive cash flow for the six months ended

June 30, 2026 was primarily due to i) $6.0 million net income, adjusted by an increase of $1.0 million share-based compensation expenses

and $0.3 million of amortization of operating right-of-use assets, ii) the increase of $0.9 million in income tax payable and $0.1 million

due to a related party, and partially o ffset by iii) the increase of $2.6 million in accounts receivable and iv) the decrease

of $0.2 million in accounts payable.

The positive cash flow for the six months ended

June 30, 2025 was primarily due to i) $4.8 million net income, ii) $0.3 million of amortization of operating right-of-use assets, iii)

the decrease of $0.9 million in prepaid expenses and current assets, iii) the increase of in $0.2 million accounts payable, $0.5 million

due to related parties, $0.9 million in tax payable and $0.4 million in accrued expenses and current liabilities, partially offset by

iv) the increase of $3.1 million in accounts receivable and v) the decrease of $0.3 million in operating lease liabilities.

Investing Activities

There were no cash flows from investing activities

for the three-month period ended March 31, 2026 and 2025.

for the six-month period ended June 30, 2026 and 2025.

Financing Activities

There were no cash flows from financing activities for the

three-month period ended March 31, 2026 and 2025.

As of March 31, 2026, our cash and cash equivalents

were $120.5 million, as compared to $118.4 million on December 31, 2025.

There were no cash flows from financing activities

for the six-month period ended June 30, 2026, and 2025.

As of June 30, 2026, our cash and cash

equivalents were $127.5 million, as compared to $118.4 million at December 31, 2025.

Days Sales Outstanding (“DSO”) has

decreased to 48 days for the three-month period ended March 31, 2026 from 56 days for the year ended December 31, 2025.

The majority of the Company’s revenues and

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

decreased to 47 days for the six months ended June 30, 2026 from 56 days for the year ended December 31, 2025.

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

7 unchanged sentences

There have been no changes to the Company’s

holding company structure during the three months ended March 31, 2026.

For more details, refer to the Company’s holding company

structure disclosures set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results

of Operations- Holding Company Structure” of the 2025 Form 10-K.

holding company structure during the six months ended June 30, 2026.

For more details, refer to the Company’s holding company structure

disclosures set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-

Holding Company Structure” of the 2025 Form 10-K.

Cash and Other Assets

Transfers between the Holding Company and Its Subsidiaries

Please see “ITEM 7- Management’s Discussion

and Analysis of Financial Condition and Results of Operations- Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries”

of the 2025 Form 10-K for more details.

Please see “ITEM 7- Management’s

Discussion and Analysis of Financial Condition and Results of Operations- Cash and Other Assets Transfers between the Holding Company

and Its Subsidiaries” of the 2025 Form 10-K for more details.

Capital Expenditure

As of March 31, 2026, the Company had commitment

As of June 30, 2026, the Company had commitment

of RMB7.3 million (equivalent to $1.08 million) for construction in progress.

1 unchanged sentence

We had no off-balance sheet arrangements as of

March 31, 2026.

June 30, 2026.

Critical Accounting Policies

The preparation of financial statements and related

disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require

the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

Note 2, “SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2025 Form 10-K describe the significant accounting policies

and methods used in the preparation of the Company’s condensed consolidated financial statements.

There have been no material changes

to the Company’s critical accounting estimates since the 2025 Form 10-K.

disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results

require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

Note 2, “SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly

Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2025 Form 10-K describe the significant accounting

policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

There have been no material

changes to the Company’s critical accounting estimates since the 2025 Form 10-K.

Quantitative and Qualitative Disclosures

2 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-Q

Item 2. Management’s Discussion and Analysis