Item 1. Business
Item
1.
BUSINESS.
Overview
We
were originally incorporated under the laws of the state of Nevada on August 31, 1992. On October 9, 2020, we entered into a share exchange
agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited, a British Virgin Islands company incorporated
on August 14, 2020 under the laws of the British Virgin Islands (“BVI Wetouch”), and all the shareholders of BVI
Wetouch (each a “Shareholder” and collectively the “Shareholders”), to acquire all the issued and outstanding
capital stock of BVI Wetouch in exchange for the issuance to the Shareholders an aggregate of 28 million shares of our common stock (the
“Reverse Merger”). The Reverse Merger closed on October 9, 2020. Immediately after the closing of the Reverse Merger, we
had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned
subsidiary.
Through
our wholly-owned subsidiaries, we are engaged in the research, development, manufacturing, sales and servicing of medium to large sized
projected capacitive touchscreens. We specialize in large-format touchscreens, which are developed and designed for a wide variety of
markets and used in the financial terminals, automotive, Point of Sales, gaming, lottery, medical, HMI, and other specialized industries.
Our
product portfolio comprises medium to large sized projected capacitive touchscreens ranging from 7.0 inch to 42 inch screens. In terms
of the structures of touch panels, we offer (i) Glass-Glass (“GG”), primarily used in GPS/car entertainment panels in mid-size
and luxury cars, industrial HMI, financial and banking terminals, POS and lottery machines; (ii) Glass-Film-Film (“GFF”),
mostly used in high-end GPS and entertainment panels, industrial HMI, financial and banking terminals, lottery and gaming industry; (iii)
Plastic-Glass (“PG”), typically adopted by touchscreens in GPS/entertainment panels motor vehicle GPS, smart home, robots
and charging stations; and (iv) Glass-Film (“GF”), mostly used in industrial HMI.
Maintaining
the industry standards for product quality and sustainability is one of our core values. Touchscreens produced by us not only have long
life span with low maintenance, but also have strong anti-interference and anti-corrosion solutions, coupled with multi-touch capability
and high light-transmittance ratio and stability. As a high technology company, our PRC subsidiary has received certifications from domestic
and international institutions, such as ISO9001 Quality Management Systems (QMS) Certification of Registration, ISO 14001 Environmental
Management System (EMS) Certification of Registration, and RoHS SGS Certification (Restriction of Hazardous Substance Testing Certification).
We
generate revenues through sales of our various touchscreen products. For the twelve months ended December 31, 2021 and 2020, we recognized
approximately $40.8 million and $31.3 million, respectively, in revenues.
We
sell our touchscreen products both domestically in China and internationally, covering major areas in China, including but not limited
to the eastern, southern, northern and southwest regions of China, Taiwan, South Korea, and Germany. We have established a strong and
diversified client base. For the years ended December 31, 2021 and 2020, our domestic sales accounted for 66.7% and 68.4%, respectively,
of our revenues, and our international sales accounted for 33.3% and 31.6%, respectively, of our revenues.
Corporate
History
We
were originally incorporated under the laws of the state of Nevada on August 31, 1992 as Gulf West Investment Properties, Inc, and were
dormant and had no operations for many years.
On
February 26, 2019, the Eighth Judicial District Court in and for Clark County, Nevada, Case No. A-19-787151-B, appointed Custodian Ventures
LLC, an affiliate of David Lazar, as custodian of the Company (the “Custodian”). Mr. Lazar was appointed as the sole officer
and director of the Company. On March 11, 2019, 1,714,286 shares of common stock of the Company were issued to the Custodian in consideration
for the payment of cash and the issuance of a promissory note by the Custodian to the Company. Effective as of June 11, 2019, the court
discharged the Custodian’s duties.
1
On
June 18, 2020, we consummated the transactions contemplated by a Stock Purchase Agreement among the Company, the Custodian, Qixun Samoa
and Qihong Samoa (Qixun Samoa and Qixun Samoa are referred to as the “Buyers”). Pursuant to the Stock Purchase Agreement,
the Buyers acquired all of the 1,714,286 shares of the Company owned by the Custodian, representing 50.47% of the issued and outstanding
shares of the Company. The Custodian and the Company agreed to indemnify the Buyers from any liabilities of the Company occurring prior
to June 18, 2020, and the promissory note issued by the Custodian to the Company was canceled. Immediately following the closing, David
Lazar resigned as the sole officer and director of the Company and Jiaying Cai was appointed as president, secretary and treasurer of
the Company and as the sole director.
Name
Change/Reverse Stock Split
Effective
September 30, 2020, we changed our name from Gulf West Investment Properties, Inc. to Wetouch Technology Inc. by filing an Amended and
Restated Articles of Incorporation with the Nevada Secretary of State to give effect to a name change. The Amended and Restated Articles
also effectuated a reverse split of our authorized, issued and outstanding shares of common stock on a 70 for 1 new basis whereby each
70 shares of outstanding common stock was exchanged for one (1) share of new common stock (the “Reverse Split” and, for avoidance
of doubt, all share amounts set forth herein shall be post Reverse Split unless otherwise specified) and, consequently, our authorized
common stock increased to 300,000,000 shares of common stock and 10,000,000 shares of preferred stock, and our then issued and outstanding
common shares decreased from 237,742,066 to 3,396,394 shares, all with a par value of $0.001. All share and per share numbers relating
to our common stock prior to the effectiveness of the Reverse Split have been adjusted to give effect to the Reverse Split.
As
a result of the name change, we changed our trading symbol from “GLFW” to “WETH,” effective November 3, 2020.
Acquisition
of BVI Wetouch
On
October 9, 2020, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with BVI Wetouch and all of
the BVI Wetouch Shareholders to acquire
all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Shareholders an aggregate of 28,000,000
shares of our common stock. In the Reverse Merger, each ordinary share of BVI Wetouch was exchanged for 560 shares of common stock of
Wetouch. Immediately after the closing of the Reverse Merger on October 9, 2020, we had a total of 31,396,394 issued and outstanding
shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary.
On
October 12, 2020, Guangde Cai was appointed as an additional director and Chairman of the Company. On October 12, 2020, Mr. Zongyi Lian
was appointed as president and chief executive officer of the Company, and Mr. Yuhua Huang was appointed as chief financial officer of
the Company. On the same day, Jiaying Cai resigned from the capacity of president and treasurer of the Company, but remains the secretary
and director of the Company.
BVI
Wetouch was established under the laws of British Virgin Islands on August 14, 2020 to acquire all the shares of Hong Kong Wetouch Electronics
Technology Limited (“Hong Kong Wetouch”). On September 11, 2020, BVI Wetouch acquired all the outstanding shares of Hong
Kong Wetouch from the shareholders of Hong Kong Wetouch in consideration of HK$10,000 pursuant to instruments of transfer in accordance
with Hong Kong law. As a result of the acquisition, Hong Kong Wetouch became a wholly-owned subsidiary of BVI Wetouch. The shareholders
of Hong Kong Wetouch became the shareholders of BVI Wetouch in said transaction, and therefore the shareholders who controlled Hong Kong
Wetouch became the controlling shareholders of BVI Wetouch.
Hong
Kong Wetouch was incorporated on May 5, 2016 under the laws of Hong Kong. On July 19, 2016, Hong Kong Wetouch acquired all the shares
of Sichuan Wetouch Technology Co., Ltd, a PRC company established in Meishan, Sichuan on May 6, 2011 (“Sichuan Wetouch”).
As a result of the acquisition, Sichuan Wetouch became a wholly owned subsidiary of Hong Kong Wetouch.
2
As
BVI Wetouch owns all the outstanding shares of Hong Kong Wetouch, which, in turn, owns all the outstanding shares of Sichuan Wetouch,
the Company owns indirectly all the business of Sichuan Wetouch. As a result of the Reverse Merger in which the Company acquired all
the outstanding shares of BVI Wetouch, Hong Kong Wetouch and Sichuan Wetouch become our indirect wholly-owned subsidiaries.
Hong
Kong Wetouch Technology Limited, a limited company organized under the laws of Hong Kong (“HK Wetouch”), an affiliate of
Guangde Cai, our Chairman and Director, was incorporated on December 3, 2020 under the laws of Hong Kong. HK Wetouch was established
to own all the outstanding shares of Sichuan Vtouch Technology Co., Ltd., which was incorporated on December 30, 2020 (“Sichuan
Vtouch”) in Chengdu, Sichuan, under the laws of The People’s Republic of China (“PRC”).
On
March 12, 2021, BVI Wetouch, the Company’s wholly owned subsidiary, acquired all
the outstanding shares of HK Wetouch from the sole shareholder of HK Wetouch, Guangde Cai, in consideration of the payment of HK$10,000
pursuant to instruments of transfer in accordance with Hong Kong law. As a result of the acquisition, HK Wetouch became a wholly-owned
subsidiary of BVI Wetouch. BVI Wetouch owns (i) all the outstanding shares of Hong Kong Wetouch, which, in turn, owns all the outstanding
shares of Sichuan Wetouch and (ii) all of the outstanding shares of HK Wetouch, which owns all the shares of Sichaun Vtouch Technology
Co., Ltd., a company incorporated under the laws of PRC
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 (“Compensation Agreement”) with 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 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 guidelines (the “Guidelines”) published by the local government of with respect to local environmental issues and a national
overall 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 the manufacturing facilities and properties of the Company are
located. As a result, Sichuan Wetouch must relocate. In consideration for such relocation, the owner of the buildings on the state-owned
land will be compensated.
In
order to minimize the interruption of our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16,
2021. The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly
rent of RMB300,000 (approximately $46,154), which period has been extended to October 31, 2022.
On
March 18, 2021, Sichuan Wetouch received a total amount of RMB115.2 million (approximately $17.7 million) as the total amount of compensation
from Sichuan Renshou, including RMB100.2 million ($15.4 million) based upon the appraised value of the Properties plus an extra 15% relocation
bonus of RMB15.0 million ($2.3 million).
We
are actively searching for an appropriate parcel in Chengdu Medicine City (Technology Park), Wenjiang District, Chengdu for the construction
of our new production facilities and office buildings. As of the date of this annual report, we estimate that our capital needs for this
acquisition and construction will be approximately RMB170.0 million (approximately $26.2 million), but there is no assurance that the
estimated amount is sufficient to achieve our goals. We may need additional financing for our business development. In addition, we expect
that this acquisition and construction will be completed prior to December 31, 2021, but there is no assurance and we may need extended
time to achieve our business plan. Pursuant to local PRC government guidelines on local environment issues and the national overall plan,
Sichuan Wetouch was under the government directed relocation order to relocate no later than December 31, 2021 and was compensated for
RMB115.2 million ($17.8 million) from the local government for the withdrawal of the right to use of state-owned land and the demolition
of all buildings, facilities, equipment and all other appurtenances on the land.
3
On
March 2, 2021, HK Wetouch acquired all shares of Hong Kong Wetouch. On June 18, 2021, Hong Kong Wetouch submitted its application for
dissolution, which requires approximately one year for governmental approval. During such period, Hong Kong Wetouch is no longer engaged
in any operations. In addition, as of March 31, 2021, Sichuan Wetouch’s business and operations have been assumed by Sichuan Vtouch.
We
filed a Form S-1 registration statement with respect to the resale by 44 selling stockholders identified in the annual report for an
aggregate of 15,889,371 shares of common stock of the Company. The registration statement was declared effective by the Commission on
January 7, 2021 (Registration No. 333-251845).
Effects
of COVID-19
The
COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and suppliers. To
serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of
our logistics, transportation, supply chain, purchasing, and after-sale processes. Beginning in Q1 2020, we made numerous process updates
across our operations worldwide, and adapted our fulfillment network, to implement employee and customer safety measures, such as enhanced
cleaning and physical distancing, personal protective gear, disinfectant spraying, and temperature checks. We will continue to prioritize
employee and customer safety and comply with evolving state and local standards as well as to implement standards or processes that we
determine to be in the best interests of our employees, customers, and communities.
Due
to the COVID-19 pandemic, our subsidiary Sichuan Wetouch was temporarily shut down from early February 2020 to early March 2020 in accordance
with the requirement of the local governments. Our business was negatively impacted and generated lower revenue and net income in 2020.
The Company has taken proactive measures to promote products to new customers and entering more regions during the twelve-month period
ended December 31, 2021. The extent of the impact of COVID-19 on the Company’s results of operations and financial condition will
depend on the virus’ future developments, including the duration and spread of the outbreak and the impact on the Company’s
customers, which are still uncertain and cannot be reasonably estimated at this point of time.
Products
We
offer medium to large sized projected capacitive touchscreens, which can be categorized as set forth below:
Product
Type
Description
Application
Product
type G+G
This
is a double glass layer product, with a Solid clear adhesive (SCA) between a layer of conductive glass and a layer of tempered glass.
This type of touch screen has the advantage of being able to be easily manufactured, with relatively low cost. However, products
of this type in large sizes will require a greater degree of signal penetration and long distance transmission technology which will
be more technically challenging to achieve.
Medium
and high end GPS/car entertainment, finance, POS and lottery machines.
Product
type G+F+F
This
product uses a double layer of conductive films, with an optically clear adhesive (OCA) between a layer of a tempered glass. The
product’s functionality comes from the interaction between the multiple layers of conductive film and glass, which does not
require extensive coating, lithography and etching. This type of product is anti- explosive and has relatively low manufacturing
cost. However, products of this type in large sizes will require greater degree of signal penetration and long distance transmission
technology which will be more technically challenging to achieve.
Financial,
gaming and lottery, and medical industries
Product
type P+G
This
product uses a layer of conductive glass, with an optically clear adhesive (OCA) between a layer of surface intensify PMMA (Poly
Methyl methacrylate acid). The product’s functionality relies on the interaction between the layers of conductive glass. Like
the G+F+F type, this product does not require extensive coating, lithography and etching and has relatively low manufacturing cost.
Motor
vehicle GPS, smart home, robots and charging stations
Product
type G+F
This
product uses a layer of conductive film, with an optically clear adhesive (OCa) between a layer of tempered glass. The product’s
functionality relies on the interaction between the layers of conductive glass. Like the G+F+F type, this product does not require
extensive coating, lithography and etching and has relatively low manufacturing cost.
Industrial
HMI
4
As
of December 31, 2021, product types G+F+F and G+G constitute our main stream products, accounting for approximately an average
of 40.8% and 52.4%, respectively, of our total revenues, with product types G+F and P+G and other raw materials accounting
for 2,2%, 4.2% and 0.4%, respectively, of our total revenues. As of December 31, 2020, product types G+F+F and G+G constitute
our main stream products, accounting for approximately an average of 42.08% and 51.53%, respectively, of our total revenues, with product
types P+G and G+F and other raw materials accounting for 4.26%, 2.10% and 0.03%, respectively, of our total revenues. As of December
31, 2019, product types G+F+F and G+G constitute our main stream products, accounting for approximately an average of 42.93% and 47.96%,
respectively, of our total revenues, with product types P+G and G+F accounting for an average of 6.27% and 2.84%, respectively, of our
total revenues.
Applications
of the Company’s Products
Our
products are used and applied in the production of a variety of products in a wide range of industries. Our products’ areas of
common application are set out below.
Point
of Sale (“POS”) Machines
POS
machines, or point of sale machines, are used in a variety of retailers, including in department stores, supermarkets, convenience
stores, boutiques, restaurants, hotels, banks, logistics, telecommunication and other service industries. Due to the frequent use
of touchscreens on POS machines, Wetouch has adopted the use of high-end materials which give its products’ a competitive advantage
through their anti-scratch, high temperature resistance and long use life qualities.
Car
Navigators and Entertainment Systems
Touchscreen
products for car navigation and entertainment systems take advantage of the popularity of touchscreen consoles in motor vehicles.
Wetouch touchscreens are particularly suitable for motor vehicles GPS and entertainment systems, due to their resistance to temperature
variation. These touchscreens may be used in both inbuilt and external car systems.
ATM
Machines and Other Financial Machines
ATMs
and other similar machines use touchscreens or have a touchscreen function. The touchscreens need to have high-endurance capacities
as they are used by the general public and are often located outdoors, such that these screens must withstand weathering. Wetouch’s
products are particularly suited to use in these machines as they are highly durable.
Industrial
Equipment
Touchscreens
in the industrial sector have broad application, and play an important role in industrial HMI. Industrial HMI systems and equipment
often require touchscreen functions. These touchscreens must be resistant to interference, stable and have good touch sensitivity.
Wetouch’s products fully meet these requirements, being temperature variation resistant, dustproof and waterproof.
Gaming
Machines
The
new generation of gambling machines are commonly adopting a touchscreen function. Gaming machines with a touchscreen function provide
an enhanced experience for uses via multi-touch sensory touch systems. Wetouch’s products are therefore popular amongst gambling
machine manufacturers.
Lottery
Machines
The
self-service lottery ticket vending machine is provided with an operator-oriented touch display device, an input device, a modem,
a cash register, printer and security authentication function. The touchscreen display facilitates easy and user-friendly operation
of the lottery machine.
Ticket
Machines and Kiosks
Self-service
ticket machines and kiosks contain touchscreen interfaces which are durable and have a long use life. These self-service machines
are used in daily lives, and as such there is a continuous demand for high quality and effective touchscreens. Wetouch’s products
are widely used in these ticketing machines and kiosks.
5
For
the year ended December 31, 2021, we had approximately $11.6 million in revenues generated from the sales of automotive
touchscreens, accounting for 28.4% of our total revenues, with industrial HMI touchscreens accounting for 19.6%, gaming
touchscreens accounting for 14.3%, POS touchscreens for 15.4%, multi-functional printer touchscreens for 9.2%, medical
touchscreens for 12.8% and other touchscreen products (applied in financial terminals, ticket vending machines, and self-service
kiosks, etc.) accounting for 0.3% of our total revenues. For the year ended December 31, 2020, we had approximately $10.2 million in
revenues generated from the sales of automotive touchscreens, accounting for 32.7% of our total revenues, with industrial HMI touchscreens
accounting for 20.1%, gaming touchscreens accounting for 14.9%, POS touchscreens for 13.2%, multi-functional printer touchscreens for
9.3%, medical touchscreens for 9.7% and other touchscreen products (applied in financial terminals, ticket vending machines, and self-service
kiosks, etc.) accounting for 0.1% of our total revenues. For the year ended December 31, 2019, we had approximately $15.8 million in
revenues generated from the sales of automotive touchscreens, accounting for 39.6% of our total revenues, with industrial HMI touchscreens
accounting for 18.6%, gaming touchscreens accounting for 17.6%, POS touchscreens accounting for 9.9%, multi-functional printer touchscreens
accounting for 8.2%, medical touchscreens for 5.5% and other touchscreen products (applied in financial terminals, ticket vending machines,
and self-service kiosks, etc.) accounting for 0.6% of our total revenues.
Customers
We
have five (5) customers each accounting for more than 10% of our revenues in both 2019 and 2020. For the year ended December 31, 2020,
we had a total number of 32 customers. Our top five customers, namely (1) Siemens Industrial Automation Products (Chengdu) Co., Ltd.,
(2) E-Lead Electronic Co. Ltd., (3) MultimediaLink Inc., Shenzhen Soling Industrial Co., Ltd., (4) Shanghai Sigang Electronics Co., Ltd.,
and (5) Suzhou Weinview Co., Ltd., accounted for 17.84%, 15.94%, 14.63%, 12.74% and 12.16%, respectively, of our total revenues. For
the year ended December 31, 2019, we have a total number of 35 customers, and our top five customers, namely (1) MultimediaLink Inc.,
(2) E-Lead Electronic Co. Ltd., (3) Siemens Industrial Automation Products (Chengdu) Co., Ltd., (4) Shenzhen Soling Industrial Co., Ltd.,
and (5) Suzhou Weinview Co., Ltd., accounted for 16.69%, 16.58%, 13.02%, 12.53% and 11.54%, respectively, of our total revenues. Each
of our agreements with these customers is subject to the similar terms of the framework agreements described below.
The
material terms of the sales framework agreements with our top five customers provide:
●
The
term of each sales framework agreement is five (5) years, which may be renewed by a separate agreement upon expiration.
●
Annual
minimum purchase amount for period from January 1 to December 31 each year.
●
Due
to the annual increase of labor costs and other factors that may affect the Company’s business, the unit price of the same
product will be increased by 5% annually.
●
Customer
payment period is within 3 months upon delivery of the products and shall make full payments of previous purchase order first before
our delivery of products included in their next purchase order. We are entitled to suspend delivery of products and receive a late
fee of 0.3% per day for each and every day delays of payment by customer after their receipt of payment notice. If customer refuses
to make payments after thirty (30) days of receipt of payment notice, we have the right to bring a lawsuit against customer in the
competent court.
6
●
Customer’s
obligation to provide technique requirements for the purchased products and except for quality issues, no returns of the products
in line with customers designated techniques are allowed.
●
We
are required to provide products to customers pursuant to the delivery date, quantity and technique, requirements included in the
purchase orders and shall negotiate with customers if we are unable to so provide. Failure to make prior negotiation thus causing
losses to customers, we are responsible for a late charge of 0.3% per day for each and every day delay of delivery.
●
Customers
are entitled to compensation of losses due to our failure to provide after-sale services.
●
Any
violation of the terms of the agreements may result in the termination of the agreements and the breaching party shall be responsible
for all economic losses.
Minimum
Purchase Requirements
Although
the material terms of our sales framework agreements with our major customers are identical, the minimum purchase amounts differ depending
on the particular customer. If the customer fails to purchase the minimum purchase amount in the applicable agreement, the price charged
for our products will increase by at least 10% when the agreements are renewed after the term. For MultimediaLink Inc. and E-Lead Electronic
Co. Ltd., the minimum purchase amounts are as follows: $6 million for 2019, $7.5 million for 2020, $8.5 million for 2021, $9.5 million
for 2022, and $10.5 million for 2023. For Shenzhen Soling Industrial Co., the minimum purchase amounts are approximately $7.8 million
for 2019, $9.2 million for 2020, $10.7 million for 2021, $11.4 million for 2022, and $12.1 million for 2023. For Suzhou Weinview Co.,
Ltd., the minimum purchase amounts are approximately $5.0 million for 2019, $6.4 million for 2020, $7.8 million for 2021, $9.0 million
for 2022, and $10.0 million for 2023. For Siemens Industrial Automation Products (Chengdu) Co., Ltd. the minimum purchase amounts are
approximately $5.7 million for 2019, $7.1 million for 2020, $8.3 million for 2021, $9.2 million for 2022, and $10.2 million for 2023.
For Shanghai Sigang Electronics Co., Ltd., the minimum purchase amounts are approximately $5.7 million for 2019, $7.1 million for 2020,
$8.3 million for 2021, $9.2 million for 2022, and $10.0 million for 2023.
In
2019, our PRC subsidiary has supplemental agreements to our sales framework agreements with five (5) customers, namely (1) MultimediaLink
Inc., (2) Shenzhen Soling Industrial Co., Ltd., (3) E-Lead Electronic Co. Ltd., (4) Suzhou Weinview Co., Ltd. and (5) Omron (Guangzhou)
Automotive Electronics Co., Ltd. Pursuant to these supplemental agreements, the above five customers were entitled to receive 5% concessions
from the total purchases they made to us. As a result of these concessions, the above customers received concessions totaling an aggregate
of approximately $0.75 million for the year ended December 31, 2019.
In
2020, our PRC subsidiary has supplemental agreements to our sales framework agreements with four (4) customers, namely (1) MultimediaLink
Inc., (2) E-Lead Electronic Co. Ltd., (3) Suzhou Weinview Co., Ltd. and (4) Omron (Guangzhou) Automotive Electronics Co., Ltd. Pursuant
to these supplemental agreements, the above four customers were entitled to receive 5% concessions from the total purchases they made
to us. As a result of these concessions, the above customers received concessions totaling an aggregate of approximately $0.95 million
for the year ended December 31, 2020.
As
of December 31, 2021, other than as provided above, we did not provide any concession to any other customers.
For
the years ended December 31, 2020 and 2019, we did not provide any extended payment terms to any of our customers. Our customers are
required to make full payment within three to five months from delivery date, although our typical payment term is 180 days from delivery.
As a result of the COVID-19 outbreak in January 2020, collection activities from some of our customers affected by the pandemic resulted
in longer payment terms. We impliedly granted extended payment terms until December 31, 2020 to some of our customers. As of December
31, 2020, we collected all overdue accounts receivable by the end of this year and resumed our typical payment term.
7
We
source our customers through multiple channels: (i) from our own research through Search Engine Optimization (“SEO”) and
outreach, (ii) through referrals from our present customers, (iii) through our websites; and (iv) through industry exhibitions/expos.
Our
main target markets are economically developed countries and regions, including eastern, southern, northern and southwest regions of
China, South Korea, and Germany. We believe that we have established a strong client base, including global well-known institutional
customers. Overseas sales were $9.9 million in 2020 as compared to $13.5 million in 2019.
We
target these overseas customers mainly via our online marketing efforts. In order to market our products, occupy more market share and
secure more quality customer, we frequently participate in, and promote our products at, specific touchscreen technology exhibitions
held internationally.
In
addition to the top five (5) customers, we also have sales framework agreements with our major customers and direct purchase orders with
our other customers. In the past three years, we have entered into approximately 893 orders under both sales framework agreements and
through direct purchase orders.
The
key terms of the framework agreements with our major customers have similar terms with our top five (5) customers as above mentioned.
The key terms of the purchase order provide the following:
○
The
product name, specification, quantity, price, order amount and delivery date are specified in each order.
○
Delivery
method and packaging requirements are specified in each order
○
Payment
terms are specified in each order.
○
Breach
of order terms by customers in some orders.
○
Guaranty
terms in some orders.
Pursuant
to the purchaser orders, either through frame agreements or direct orders, our PRC subsidiary is obligated to provide 1) products per
the specific requirements of the orders, and 2) unconditional defect guaranty for our products. Any violation of the order terms may
result in termination of the orders or replacement of our products.
As
of the date of this annual report, our PRC subsidiary has never violated any framework agreements or purchase orders and therefore never
incurred any economic losses as a result of our agreements; no penalty has ever been incurred by us due to our delay of delivering products
and our PRC subsidiary has always complied with all terms set forth in the frame agreements and purchase orders.
For
the year ended December 31, 2021, the revenues generated from our domestic customers amounted to approximately $27.2 million,
constituting approximately 66.7% of our total revenues, with overseas customers accounting for approximately $13.6 million,
constituting approximately 33.3% of our total revenues, respectively. For the year ended December 31, 2020, the revenues
generated from our domestic customers amounted to approximately $21.4 million, constituting approximately 68.4% of our total
revenues, with overseas customers accounting for approximately $9.9 million, constituting approximately 31.6% of our total revenues,
respectively. For the year ended December 31, 2019, the revenues generated from our domestic customers amounted to approximately
$26.5 million, constituting approximately 66.2% of our total revenues. Revenues generated from our overseas customers amounted to
approximately $13.5 million, constituting approximately 33.8% of our total revenues.
8
Our
Suppliers
Our
PRC subsidiary has no supply agreements with our suppliers. We can utilize any supplier we determine and there are no minimum purchase
requirements when we place orders with our suppliers.
We
place purchase orders with suppliers of raw materials for the production of our products. In the past two and a half years, our PRC subsidiary
has entered into over twelve thousand purchase orders. The general terms of the purchase order include:
○
The
product name, specification, quantity, price, order amount and delivery date are specified in each order.
○
Delivery
method, packaging, inspection, breach terms and dispute resolution are determined in accordance with each order.
○
Payment
terms are specified in each order.
○
The
products supplied must adhere to the nationally prescribed quality standards or industry standards. Each product order must be accompanied
by the supplier’s product quality certification.
○
The
supplier will unconditionally accept returns and refund in full the purchase price for the products or make replacements if the products
supplied do not meet industry or nationally prescribed quality standards, are damaged or significantly different than the same product.
As
of December 31, 2021, we have a total number of 113 suppliers. We do not consider any of our suppliers to be material to our business
and we can utilize any supplier we determine at our sole discretion. Although we can utilize any supplier we determine, we believe that
we established healthy and stable relationships with our significant suppliers. These suppliers, in the aggregate, accounted for over
30% of our raw material purchases both for the year ended December 31, 2021 and the year ended December 31, 2020. For the
years ended December 31, 2021 and 2020, three suppliers, Sichuan Jiahai Trading Co., Ltd, Xiamen Baijun Photoelectric Technology Co., Ltd, and Zhuhai Super-Win Electronics
Technology Co., Ltd, in the aggregate accounted for approximately 37.5% of our total raw material purchases. Our PRC subsidiary does
not have supply agreements with any of them and all of our raw material procurement with them are processed through our PRC subsidiary’s
purchase orders. There are no minimum purchase requirements with any of our suppliers, including these three significant ones.
These
purchase order forms with our significant suppliers contain the following identical material terms:
○
The
product name, specification, quantity, price, order amount and delivery date are specified in each order.
○
Delivery
method, location and transportation fee arrangements, packaging, payment terms, breach terms and dispute resolution are specified
in each order.
○
Suppliers
are responsible for shipment fees and all risks of products in transit.
○
Inspection
standards are specified in each order. The products supplied must adhere to the nationally prescribed quality standards or industry
standards, or sample specifications confirmed by the parties. The Company is entitled to request replacement or order cancellation
if the supplied raw materials fail to pass the inspection.
○
Except
for force majeure, any party in breach of the order terms is obligated to pay 20% of the contract amount as liquidated damages.
Marketing
and Sales
The
Company has adopted a made-to-order production model as follows:
This
process is subject to continuous review and monitoring by the management team in consultation with engineers, electricians and other
technical experts to ensure that finished products are of the highest quality and meet customer requirements and ISO9001 Quality Management
Systems (QMS) standard.
9
In
order to the maintain product safety and a high standard of product quality, the Company implements a strict set of quality control policies
and inspection protocols. These policies and protocols are enforced by the Company’s senior management and officers along every
step of the production to post-production process. Their management guidelines along with key company quality policies are set out below:
The
Company has strict production standards in place that governs what constitutes acceptable quality for its products. This ensures that
the Company’s products fulfill product certification standards. The production team adheres to the following criteria when making
its product standard assessment:
Item
Industry
Standards
Wetouch’s
Standards
Reaction
time
Less
than or equal to 5 milliseconds
Less
than or equal to 5 milliseconds
Surface
hardness
6H
7H~9H
Operational
temperature
0~70
degrees Celsius
-30~80
degrees Celsius
EsD
requirement
6~12KV
8~15KV
Transparency
86%
88%
Touch
conditions
Normal
touch and ordinary conditions
Waterproof
and anti-saline solution and anti-corrosion and Anti interference
The
products are inspected before they are delivered and sold to our customers. All products must pass the following inspections:
●
Cosmetic
inspection: conducted under optimum temperatures (20-22 degrees Celsius) and white fluorescent lighting. The product is observed
by the naked eye to spot for any defects, scratches and cracks, panel discoloration, opacity, foreign fibers and spots. The Company
has in place quantitative standards with respect to each of these areas to determine the level of cosmetic acceptability.
●
Function
tests: all products undergo functionality testing. Touchscreen products are connected electronically via standard cabling systems
to computers, to measure and test for effective functionality and to screen for any abnormalities.
●
Stress
testing: all products undergo product stress testing by being subject to humidity, temperature and corrosion stress testing. The
products are tested for their functionality in high and low humidity environments as well as in extreme temperatures. The products
are inspected to determine whether damage or physical change is caused by exposure to high and low temperatures.
●
Third
party organizations are engaged to conduct independent testing for hazardous substances. The products are also tested for their corrosive
resistance to saline solutions.
The
Company’s products are produced to order and are marketed directly by its own sales personnel. The Company does not rely on distributors
to sell its products.
Seasonality
of Business
There
is no significant seasonality in our business.
Inventory
Inventory
consists of raw materials, work-in-process and finished goods. Because a large percentage of the Company’s orders require products
to be shipped in the same quarter in which the order was received, and because orders in the inventory may be canceled and delivery schedules
may be changed, the Company’s inventory at any particular date is not necessarily indicative of actual sales for any succeeding
period.
10
Research
and Development
We
are committed to our own research and development projects as well as partnership initiatives in order to continuously and systematically
upgrade our touchscreen technology. As of the date of this annual report, we have 6 employees in our R&D department.
Intellectual
Property
Our
business is dependent on a combination of trademarks, patents, domain names, trade names, trade secrets and other proprietary rights
in order to protect our intellectual property rights. As of the date of this annual report, we have one registered trademark in mainland
China and ten registered patents in the PRC under our former PRC subsidiary, Sichuan Wetouch.
Trademarks
Set
forth below is a detailed description of our current trademarks:
Country
Trademark
Application
Date
Registration
Number
Registration
Date
Classes
Assignment
Application
Number
Assignor
Assignee
Status
China
WeTouch
*
09/28/2011
10019079
01/28/2013
9
20210000091399
Sichuan
Wetouch
Sichuan
Vtouch
Registered
*On
February 24, 2021, the trademark “WeTouch” registered with the Trademark Office of China National Intellectual Property Administration
(“Trademark Office”) was assigned from Sichuan Wetouch to Sichuan Vtouch with the Application No.20210000091399, pending
assignment approval of Trademark Office.
Patents
Set
forth below is a detailed description of our registered patents under our former PRC subsidiary, Sichuan Wetouch, which we are currently
in the process of assigning to our PRC subsidiary, Sichuan Vtouch:
Patent
Certificate No.
Patent
No.
Patent
Name
Patent
Application Date
Patent
Type
Patent
Term
Owner
Status
2223457
ZL201120357438.7
Low
cost capacitive touchscreen
09/22/2011
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
2235518
ZL201120357365.1
Capacitive
touchscreen uneasily affected by external interference
09/22/2011
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
3700175
ZL201420086995.3
Dispenser
tube support structure
02/28/2014
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
3701522
ZL201420084742.2
Antistatic
capacitive touchscreen
02/27/2014
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
3703829
ZL201420084735.2
Anti-electromagnetic
interference capacitive touchscreen
02/27/2014
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
3704079
ZL201420084741.8
High
sensitive and projected capacitive touchscreen
02/27/2014
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
3704825
ZL201420087006.2
Compression
panels of screen laminating machines
02/28/2014
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
6146599
ZL201620733872.3
Cooling
capacitive touchscreen
July
13, 2016
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
6204352
ZL201620734173.0
OGS
Touchscreen
July
13, 2016
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
6387677
ZL201620733760.8
Size-adjustable
universal type capacitive touchscreen
July
13, 2016
Utility
Model
10
years from Patent Application Date
Sichuan
Wetouch
Registered
On
March 9, 2021, we applied for four (4) patents with the Patent Office of China National Intellectual Property Administration (“Patent
Office”). As of the date of this annual report, they are still pending.
11
Set
forth below is a detailed description of our pending patents:
Patent
Application No.
Patent
Name
Patent
Application Date
Patent
Type
Patent
Applicant
Status
202120500187.7
Low
cost anti-rupture projected capacitive touchscreen
03/09/2021
Utility
Model
Sichuan
Vtouch
Pending
202120500188.1
High
performance and anti-electromagnetic radiation projected capacitive touchscreen
03/09/2021
Utility
Model
Sichuan
Vtouch
Pending
202120500155.7
Full-lamination
projected capacitive touchscreen
03/09/2021
Utility
Model
Sichuan
Vtouch
Pending
202110256476.1
Anti-scratch
glass structure capacitive touchscreen
03/09/2021
Invention
Sichuan
Vtouch
Pending
Patents
registered in China cannot be enforced in other jurisdictions to which the Company supplies its products. We currently have registered
patents only in China. We plan to submit patent registration applications in our target market jurisdictions including United States,
Europe, Australia, Japan, Korea, Taiwan, India and Russia. The estimated costs for these patent registrations would be approximately
$160,000. We estimate that it may take two to three years to obtain the patent registrations in the above countries.
Environmental
Issues
Our
business in China is subject to various pollution control regulations in China with respect to noise, water and air pollution and the
disposal of waste. Specifically, the major environmental regulations applicable to us include the PRC Environmental Protection Law, the
PRC Law on the Prevention and Control of Water Pollution, the PRC Law on the Prevention and Control of Air Pollution, the PRC Law on
the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution.
Our
PRC subsidiary originally received Pollutant Discharge Permit from Renshou County environmental protection agency, which expired on May
15, 2019. Pursuant to a Statement on Change of Pollutant Discharge Permit to Stationary Pollution Source Registration Form dated September
1, 2020, the environmental protection system in Renshou County, Sichuan, was changed from permission to registration due to local administrative
division change. Therefore, upon submission of all required documentation, our PRC subsidiary is registered under the new system by issuance
of the Stationary Pollution Source Registration Form.
The
Company is not aware of any investigations, prosecutions, disputes, claims or other proceedings in respect of environmental protection,
nor has the Company been punished or can foresee any punishment to be made by any environmental administration authorities of the PRC.
Competitive
Strengths
We
are dedicated to the production of high quality products that are tailored to customers’ requirements and commercial needs. Our
competitive strengths include:
●
Our
economy of scale lowers our cost and appeals to big clients with large quantity purchase orders;
●
Our
centralized manufacturing facility enables us to produce all different products within the
same location with batch consistency and quality assurance;
●
Our
proprietary technology allows us to produce touchscreens with high light-transmittance ratio
and stability, low maintenance with minimal or no need of recalibration after production,
long life span, anti-interference, anti-corrosion and multi-touch capability, supporting
up to 20 points of contact with the screen and 20 gestures, and in different structures and
sizes for a wide range of different applications.
Our
Growth Strategies
We
will continue to adhere to our business principles of providing high quality and safe products to our consumers and promoting social
responsibility. We believe that our pursuit of these goals will lead to sustainable growth driven by our capacity expansion based on
market demand, solidify our position in the industry, and create long-term value for our shareholders, employees and other stakeholders.
12
●
Improve
existing technology. We intend to improve our existing technology and occupy more market share. Our products are categorized
into the following three main structures: GG (Glass + Glass), GFF (Glass + Film + Film), and PG(Plastic Glass). GG is mainly used
in the automobile and banking and finance industries. We plan to make technological improvements on GG structure and mainly focus
on improving its production capability and delivering quality products for brand customers. GFF is mostly applied in industrial HMI
and lottery and gaming industries. We plan to continue to concentrate on high-end industrial HMI products. PG is primarily employed
in smart home, robotics and charging stations industries. We plan to upgrade the production line of PG to improve its production
capability and create greater adaptability to changes in product size. We have developed the industry 4.0 intelligent system, which
is still under testing as of the date of this annual report. Upon successfully passing the testing phase and registering the patent,
we plan to apply it to various manufacturing industries. As of the date of this annual report, we have sufficient funds to effectuate
our plans.
●
Solidify
our industry position by gaining additional market share . Our goal is to strengthen our market position and accelerate our
expansion by expanding our scale and gaining additional market share. We plan to increase investment in our business and expand our
production capacity through horizontal or vertical acquisitions, strategic partnerships and joint ventures. We plan to invest additional
capital in technology research and development and acquiring new equipment to increase production capacity. In addition, we plan
to participate in more expos or exhibitions domestically and internationally. With more exposure and promotion, we believe our product
and brand will be better recognized. Currently we have no agreements or letters of intent for any acquisitions, partnerships or ventures.
●
Uphold
our commitment to product quality. We intend to uphold our commitment to product quality to ensure consistently high standards
throughout our operations. We intend to achieve greater traceability of our products and maintain the highest quality standards in
all of our business units. To this end, we plan to continue to maintain our quality monitoring systems across the entire operation
by strictly selecting suppliers and meeting clients’ technology requirements, closely monitoring quality, keeping records of
everyday operations, and complying with national and local laws and regulations on product quality, employees, and environment sustainability.
We believe such practice largely conforms with the industry’s best practices in China.
●
Expand
our sales and distribution network. We hope to expand our sales and distribution network to penetrate new geographic markets,
further gaining market share in existing markets and accessing a broader range of customers. We will continue to expand our sales
network, leveraging our local resources to quickly enter new markets, while also minimizing requirements for capital outlay. We plan
to focus on brand clients and concentrate on high-end industry such as industrial HMI, banking and finance, medical instruments,
military, aviation, and POS and increase our presence in both new and existing markets.
●
Enhance
our ability to attract, incentivize and retain talented professionals . We believe our success greatly depends on our ability
to attract, incentivize and retain talented professionals. With a view to maintaining and improving our competitive advantage in
the market, we plan to implement a series of initiatives to attract additional and retain mid- to high-level personnel, including
formulating a market-oriented employee compensation structure and implementing a standardized multi-level performance
review mechanism.
Competition
The
markets for touchscreen products are highly competitive and subject to rapid technological change. We believe that the principal competitive
factors in its markets are product characteristics such as touch performance, durability, optical clarity and price, as well as supplier
characteristics such as quality, service, delivery time and reputation. We believe that we compete favorably with respect to these factors,
although there can be no assurance that the Company will be able to continue to compete successfully in the future.
Despite
that touchscreen products are highly competitive as a whole, we face fewer competitors, as we produce medium to large size touchscreens
which are specially tailored to certain industries, such as industrial HMI, gaming, financing, lottery, automotive, medical, and POS,
among others, and require more stable supply and longer guaranty and life span, compared with small size touchscreens, which are characterized
by shorter life cycles and guaranty but more demand in quantity.
13
We
believe the following companies may be our competitors:
●
Apex
Material Technology Corp., founded in 1998, is committed to the development and innovation of resistive and projected capacitive
(PCI or PCAP) total touch solutions. With its headquarter based in Keelung, Taiwan and a subsidiary located in Milwaukee, Wisconsin,
it designs and manufactures advanced high-performance touch products for industrial and medical applications. Compared with us, although
it has a longer history and geographical advantages, it mainly focuses on resistive touch panels and recently started production
of capacitive touchscreens mostly applicable to the industrial HMI and medical industries, while our products are more widely used
in a variety of industries.
●
Elo
Touch Systems Inc., based and headquartered in the United States, has a history of over 40 years for the production of touchscreens.
Its product portfolio includes a broad selection of interactive touchscreen displays from 10-70 inches, all-in-one touchscreen computers,
OEM touchscreens and touchscreen controllers and touchscreen monitors. Compared with us, although it has a longer history and geographical
advantages when it comes to the competition for U.S. customers and other international customers, it recently started the production
of capacitive touchscreens mostly applicable to POS and inquiry machines, while our products are more widely used in a variety of
industries.
●
AbonTouch
System Inc, established in 2005, mainly focuses on manufacturing and sales of mid to large size (7”~86”) “Projective
Capacitive Sensors,” (7”~21.5”) “Five-Wire Resistive Zero-Bezel Touch Panels” and (5”~21.5”)
“Five-Wire Resistive Touch Panels.” Compared with us, although it has a longer history and geographical advantages, it
mainly focuses on resistive touch panels and recently started production of capacitive touchscreens mostly applicable to POS, inquiry
machines and industrial HMI, while our products are more widely used in a variety of industries.
Industry
Since
inception, we have positioned ourselves in the professional touchscreen industry. Touchscreen is an input and output device and layered
on top of an electronic visual display of an information processing system, allowing individuals to access information and interact with
the device simply by touching the device’s screen with a finger or a specialized tool. Accordingly, the ease of use offered by
touchscreen-based systems makes the systems well suited both for applications for the general public and for specialized applications
for institutional users and trained computer users.
Although
touchscreen has become mainstream only over the last decade, the concept of a touch-sensitive computer display was developed as early
as 1965. Since the introduction of Apple’s iPhone in 2007, touchscreen technology has made rapid inroads into various electronics
markets, with a number of other significant companies also incorporating this technology into their products (as opposed to using a mouse,
keyboard, keypad or trackball). Viewed today as the most important tool to facilitate interaction between the individual and machine,
touchscreen technology is now an integral part of a wide range of computing products.
Regulations
Overview
We
operate our business in the PRC under a legal regime consisting of the National People’s Congress, which is the country’s
highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC central government, and
several ministries and agencies under its authority, including the Ministry of Industry and Information Technology, State Administration
for Industry and Commerce (“SAIC”), the State Administration for Market Regulation and their respective local offices.
This
section sets forth a summary of the most significant rules and regulations that affect our business activities in the PRC.
14
Regulations
Relating to Foreign Investment in China
On
March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020
and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint
Venture Law, and the Wholly Foreign-Owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign
Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing
international practice and the legislative efforts to unify the corporate legal requirements for both foreign- and domestic-invested
enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection, and
administration of foreign investments in view of investment protection and fair competition.
Pursuant
to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one
or more natural persons, business entities, or otherwise organizations of a foreign country within China, or foreign investors, and the
investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes
an Foreign Investment Entity (“FIE”) in China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets,
or other similar rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other
investors, invests in a new project in China; and (iv) investments in other means as provided by laws, administrative regulations, or
the State Council.
Investment
activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment ,
or the Catalogue, which was promulgated and is amended from time to time by the Ministry of Commerce, or the MOFCOM, and the National
Development and Reform Commission, or the NDRC. Restricted and prohibited industries are listed in the Catalogue. The Catalogue sets
out a unified basis for the special administrative measures for foreign investment access. Fields not mentioned in the list for foreign
investment access, including touchscreen manufacturing, are administered under the principle of equal treatment for domestic and foreign
capital.
Industries
not listed in the Catalogue are generally deemed as constituting a “permitted” category. According to the Catalogue, touchscreen
manufacturing is classified as industry where foreign investments are permitted.
Furthermore,
the Foreign Investment Law provides that FIEs established according to the existing laws regulating foreign investment may maintain their
structure and corporate governance within five years after the implementation of the Foreign Investment Law.
In
addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments
in China, including, among others, that local governments must abide by their commitments to the foreign investors; FIEs are allowed
to issue stocks and corporate bonds; expropriation or requisition of the investment of foreign investors is prohibited except for special
circumstances, in which case statutory procedures must be followed and fair and reasonable compensation must be made in a timely manner;
mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing
fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors
in China may be freely remitted inward and outward in Renminbi or foreign currencies. Also, foreign investors or FIEs should be imposed
legal liabilities for failing to report investment information in accordance with the requirements.
On
December 26, 2019, the PRC State Council approved the Implementation Rules of Foreign Investment Law, which came into effect on January
1, 2020. The Implementation Rules of Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides
that, among others, (i) if the legal form or the governing structure of an FIE established prior to the effective date of the Foreign
Investment Law does not comply with the compulsory provisions of the PRC Company Law or the PRC Partnership Enterprises Law, such FIE
should complete amendment registration accordingly no later than January 1, 2025; if it fails to do so, the enterprise registration authority
will not process other registration matters of the FIE and may publicize such non-compliance; and (ii) the provisions regarding transfer
of equity interests, distribution of profits and remaining assets as stipulated in the joint venture contracts of an existing FIE may
survive the Foreign Investment Law during its joint venture term.
15
Regulations
on Environmental Protection
Environmental
Protection Law
The
Environmental Protection Law of the PRC, or the Environmental Protection Law, was promulgated and effective on December 26, 1989,
and most recently amended on April 24, 2014, which amendments became effective January 1, 2015. This Environmental Protection Law has
been formulated for the purpose of protecting and improving both the living environment and the ecological environment, preventing and
controlling pollution, other public hazards and safeguarding people’s health.
According
to the provisions of the Environmental Protection Law , in addition to other relevant laws and regulations of the PRC, the Ministry
of Environmental Protection and its local counterparts take charge of administering and supervising said environmental protection matters.
Pursuant to the Environmental Protection Law , the environmental impact statement on any construction project must assess the pollution
that the project is likely to produce and its impact on the environment, and stipulate preventive and curative measures; the statement
shall be submitted to the competent administrative department of environmental protection for approval. Installations for the prevention
and control of pollution in construction projects must be designed, built and commissioned together with the principal part of the project.
Permission
to commence production at or utilize any construction project shall not be granted until its installations for the prevention and control
of pollution have been examined and confirmed to meet applicable standards by the appropriate administrative department of environmental
protection that examined and approved the environmental impact statement. Installations for the prevention and control of pollution shall
not be dismantled or left idle without authorization. Where it is absolutely necessary to dismantle any such installation or leave it
idle, prior approval shall be obtained from the competent local administrative department of environmental protection.
The
Environmental Protection Law makes it clear that the legal liabilities of any violation of said law include warning, fine, rectification
within a time limit, compulsory cease operation, compulsory reinstallation of dismantled installations of the prevention and control
of pollution or compulsory reinstallation of those left idle, compulsory shutout or closedown, or even criminal punishment.
Order
on Ecosystem by The Ministry of Ecology and Environment 2019 Classification-based Management on Fixed Pollutant Source
Pursuant
to the Order on Ecosystem by The Ministry of Ecology and Environment, which was issued on July 28, 2017 and most recently amended on
December 20, 2019, The Ministry of Ecology and Environment implements a classification-based management on the environmental impact assessment,
or EIA, of pollutants according to pollutant amount and the impact of the pollutants on the environment as below
●
For
those pollutant discharge units with large amount of pollutants and significant environmental impacts, the key management on a pollutant
discharge permit is required;
●
For
those pollutant discharge units with small amount of pollutants and small environmental impacts, the simplified management on a pollutant
discharge permit is required; and
●
For
those pollutant discharge units with very small amount of pollutants and very small environmental impacts, the pollutant discharge
registration form is required.
The
touchscreen manufacturing is classified as to fill in a Registration Form. Pursuant to a Statement on Change of Pollutant Discharge Permit
to Stationary Pollution Source Registration Form by the local government dated September 1, 2020, the environmental protection system
in Renshou County, Sichuan, was changed from permission to registration due to local administrative division change. Therefore, upon
submission of all required documentation, we are registered under the new system by filling in Stationary Pollution Source Registration
Form.
Regulations
on Consumer Rights Protection
Our
business is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, which was
amended in 2013 and became effective on March 15, 2014. It imposes stringent requirements and obligations on business operators. Failure
to comply with these consumer protection laws could subject us to administrative sanctions, such as the issuance of a warning, confiscation
of illegal income, imposition of fines, an order to cease business operations, revocation of business licenses, and potential civil or
criminal liabilities.
16
As
of the date of this prospectus, we are not aware of any warning, investigations, prosecutions, disputes, claims or other proceedings
in respect of customer rights protection, nor have we been punished or can foresee any punishment to be made by any government authorities
of the PRC.
Regulations
on Intellectual Property Rights
Regulations
on Trademark
Trademarks
are protected by the PRC Trademark Law adopted in 1982 and subsequently amended as well as the Implementation Regulations for the Trademark
Law of the PRC in 2002 and subsequently amended in 2014. The Trademark Office under the SAIC handles trademark registrations. Trademarks
can be registered for a term of ten years and can be extended for another ten years if requested upon expiry of the first or any renewed
ten-year term. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where
a trademark for which a registration application has been made is identical or similar to another trademark which has already been registered
or been subject to a preliminary examination and approval for use on the same type of or similar commodities or services, the application
for such trademark registration may be rejected. Any person applying for the registration of a trademark may not prejudice the existing
right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has
already gained a “sufficient degree of reputation” through such another party’s use. Trademark license agreements must
be filed with the Trademark Office or its regional offices. As of September 30, 2021, we had 1 registered trademark in China.
Regulations
on Patent Law
According
to the PRC Patent Law (2008 Revision), the State Intellectual Property Office is responsible for administering patent law in China. The
patent administration departments of the provincial, autonomous region, or municipal governments are responsible for administering patent
law within their respective jurisdictions. The PRC patent system adopts a first-to-file principle, which means that when more than one
person files different patent applications for the same invention, only the person who files the application first is entitled to obtain
a patent of the invention. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness, and practicability.
A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs. As of the date
of this prospectus, we had 10 registered patents under our former PRC subsidiary Sichuan Wetouch, which we are in the process of assigning
to our PRC subsidiary Sichuan Vtouch and 4 pending patents in China under our PRC subsidiary Sichuan Vtouch.
Regulations
on Foreign Exchange
General
Administration of Foreign Exchange
Under
the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various
regulations issued by the SAFE, and other relevant PRC government authorities, Renminbi is convertible into other currencies for current
account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other
currencies and remittance of the converted foreign currency outside China for capital account items, such as direct equity investments,
loans, and repatriation of investment, requires the prior approval from the SAFE or its local office.
Payments
for transactions that take place in China must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate foreign
currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign
exchange banks under the current account items subject to a cap set by the SAFE or its local branch. Foreign exchange proceeds under
the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant
to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally
required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
17
Pursuant
to the Circular of the SAFE on Notice of State Administration of Foreign Exchange on Further Improvements and Adjustments to Foreign
Exchange Control Policies for Direct Investment, which was promulgated on November 19, 2012, became effective on December 17, 2012, and
was further amended on May 4, 2015, October 10, 2018, and December 30, 2019, approval of the SAFE is not required for opening a foreign
exchange account and depositing foreign exchange into the accounts relating to the direct investments. This circular also simplifies
foreign exchange-related registration required for foreign investors to acquire equity interests of PRC companies and further improve
the administration on foreign exchange settlement for FIEs.
The
Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Management Policies
for Direct Investment, or SAFE Circular 13, which became effective on June 1, 2015 and was amended on December 30, 2019, cancels the
administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies
the procedure of foreign exchange-related registration. Pursuant to SAFE Circular 13, investors should register with banks for direct
domestic investment and direct overseas investment.
The
Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested
Enterprises, which was promulgated on March 30, 2015, became effective on June 1, 2015, and was amended on December 30, 2019, provides
that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital
account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for
which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to this circular, for the
time being, FIEs are allowed to settle 100% of their foreign exchange capital on a discretionary basis; an FIE should truthfully use
its capital for its own operational purposes within the scope of its business; where an ordinary FIE makes domestic equity investment
with the amount of foreign exchanges settled, the FIE must first go through domestic re-investment registration and open a corresponding
account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is
registered.
The
Notice of the State Administration of Foreign Exchange on Policies for Reforming and Regulating the Control over Foreign Exchange Settlement
under the Capital Account, which was promulgated and became effective on June 9, 2016, provides that enterprises registered in China
may also convert their foreign debts from foreign currency into Renminbi on a self-discretionary basis. This circular also provides an
integrated standard for conversion of foreign exchange under capital account items (including, but not limited to, foreign currency capital
and foreign debts) on a self-discretionary basis, which applies to all enterprises registered in China.
On
January 26, 2017, SAFE promulgated the Notice of State Administration of Foreign Exchange on Improving the Check of Authenticity and
Compliance to further Promote Foreign Exchange Control, which stipulates several capital control measures with respect to the outbound
remittance of profit from domestic entities to offshore entities, including: (i) banks should check board resolutions regarding profit
distribution, the original version of tax filing records, and audited financial statements pursuant to the principle of genuine transactions;
and (ii) domestic entities should hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant
to this circular, domestic entities should make detailed explanations of the sources of capital and utilization arrangements, and provide
board resolutions, contracts, and other proof when completing the registration procedures in connection with an outbound investment.
On
October 25, 2019, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Facilitation
of Cross-border Trade and Investment, which, among other things, allows all FIEs to use Renminbi converted from foreign currency-denominated
capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies
with the negative list on foreign investment. However, since this circular is newly promulgated, it is unclear how the SAFE and competent
banks will carry it out in practice.
According
to the Regulations of the PRC on Administration of Company Registration, which were promulgated by the State Council on June 24, 1994,
became effective on July 1, 1994, and were amended on February 6, 2016, and other laws and regulations governing FIEs and company registrations,
the establishment of an FIE and any capital increase and other major changes in an FIE should be registered with the State Administration
for Market Regulation or its local counterparts and filed via the enterprise registration system.
18
Pursuant
to SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new FIE, the enterprise should register
with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes
relating to the basic information of the FIE, including, without limitation, any increase in its registered capital or total investment,
the FIE must register such changes with the bank located at its registered place after obtaining approval from or completing the filing
with relevant authorities. Pursuant to the relevant foreign exchange laws and regulations, such foreign exchange registration with the
banks will typically take less than four weeks upon the acceptance of the registration application.
Based
on the foregoing, if we intend to provide funding to our wholly foreign-owned subsidiaries through capital injection at or after their
establishment, we must register the establishment of and any follow-on capital increase in our wholly foreign-owned subsidiaries with
the State Administration for Market Regulation or its local counterparts, file such via the enterprise registration system, and register
such with the local banks for the foreign exchange related matters.
Regulations
on Offshore Financing
Under
the Circular of the SAFE on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-Trip
Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37, effective on July 4, 2014, PRC residents are required
to register with the local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, which is defined
as an offshore enterprise directly established or indirectly controlled by PRC residents for investment and financing purposes, with
the enterprise assets or interests PRC residents hold in China or overseas. The term “control” means to obtain the operation
rights, right to proceeds, or decision-making power of a special purpose vehicle through acquisition, trust, holding shares on behalf
of others, voting rights, repurchase, convertible bonds, or other means. At the same time, the SAFE has issued the Operation Guidance
for the Issues Concerning Foreign Exchange Administration over Round-Trip Investment regarding the procedures for SAFE registration under
SAFE Circular 37, which became effective on July 4, 2014 as an attachment of SAFE Circular 37.
The
PRC residents are also required to amend the registration or filing with the local SAFE branch any material change in the offshore company,
such as any change of basic information (including change of such PRC residents, name and operation term), increase or decreases in investment
amount, transfers or exchanges of shares, or merger or divisions. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying
and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015.
Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and
overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for such foreign
exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision
of SAFE, will directly examine the applications and conduct the registration.
Failure
to comply with the registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers
of foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign
exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other
distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC
residents to penalties under PRC foreign exchange administration regulations. PRC residents who directly or indirectly hold any shares
in our company from time to time are required to register with SAFE in connection with their investments in us. We have requested PRC
residents holding direct or indirect interest in our company to our knowledge to make the necessary applications, filings and amendments
as required under the SAFE Circular 37 and other related rules.
As
of the date of this prospectus, the PRC residents have either not completed, or have not applied for, foreign exchange registration under
the SAFE Circular 37 and other related rules. Although they are either in the process of making foreign exchange registration or plan
to make foreign exchange registrations, they may still be faced with the above possible fines in accordance with the PRC Laws.
19
Regulations
on Dividend Distribution
The
principal laws and regulations regulating the distribution of dividends by FIEs in China include the PRC Company Law, as amended in 2004,
2005, 2013, and 2018, and the 2019 PRC Foreign Investment Law and its Implementation Rules. Under the current regulatory regime in China,
FIEs in China may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and
regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative
amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A PRC
company cannot distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years
may be distributed together with distributable profits from the current fiscal year.
We
currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment
in our common stock as a source for any future dividend income.
Regulation
on M&A Rules
In
August 2006, six PRC governmental agencies jointly promulgated the Provisions on Foreign-funded Mergers and Acquisitions of Domestic
Enterprises, or the M&A Rule, as most recently amended in 2009. The M&A Rule requires offshore special purpose vehicles formed
to pursue overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals
to obtain the approval of the China Securities Regulatory Commission (“CSRC”) prior to the listing and trading of such special
purpose vehicle’s securities on any stock exchange overseas.
The
application of the M&A Rules remains unclear. We believe that, to our understanding, based on the current PRC laws, rules and regulations,
prior approval from the CSRC is not required under the M&A Rules for the listing and trading of our shares because (i) the CSRC currently
has not issued any definitive rule or interpretation concerning whether offerings under the document are subject to the M&A Rules;
(ii) the PRC subsidiary is directly established as wholly foreign-owned enterprises, and the Company has not acquired any equity interest
or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are the Company’s
beneficial owners after the effective date of the M&A Rules. However, uncertainties still exist as to how the M&A Rules will
be interpreted and implemented and our opinions summarized above are subject to any new laws, rules and regulations or detailed implementations
and interpretations in any form relating to the M&A Rules.
Regulations
on Taxation
Enterprise
Income Tax
On
March 16, 2007, the National People’s Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24,
2017 and December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income
Tax Law, which became effective on January 1, 2008 and amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant
implementation regulations, both resident enterprises and non-resident enterprises are subject to tax in China. Resident enterprises
are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the
laws of foreign countries but are actually or in effect controlled from within China. Non-resident enterprises are defined as enterprises
that are organized under the laws of foreign countries and whose actual management is conducted outside China, but have established institutions
or premises in China, or have no such established institutions or premises but have income generated from inside China. Under the Enterprise
Income Tax Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident
enterprises have not formed permanent establishments or premises in China, or if they have formed permanent establishment or premises
in China but there is no actual relationship between the relevant income derived in China and the established institutions or premises
set up by them, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
20
Value-Added
Tax
The
PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, which became effective on
January 1, 1994 and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations
on Value-Added Tax (2011 Revision) was promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended on December
15, 2008 and October 28, 2011. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations
on Business Tax and Amending the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions,
all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services,
intangible assets, real property, and the importation of goods within the PRC territory are VAT taxpayers. On March 21, 2019, the Ministry
of Finance, the SAT, and the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepen the Reform
of Value-Added Tax. Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates
range up to 17%, starting from May 1, 2018, VAT rate was lowered to 16%, and starting from April 1, 2019, VAT rate was further lowered
to 13%.
Dividend
Withholding Tax
The
Enterprise Income Tax Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared
to non-PRC resident investors that do not have an establishment or place of business in China, or that have such establishment or place
of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends
are derived from sources within China.
Pursuant
to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident
enterprise is determined by the competent PRC tax authority to have met the relevant conditions and requirements under this arrangement
and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise
may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax
Treaties issued on February 20, 2009, if the relevant PRC tax authorities determine, in their discretions, that a company benefits from
such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the
preferential tax treatment. Pursuant to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties,
which was issued on February 3, 2018 by the SAT and became effective on April 1, 2018, when determining the applicant’s status
as the “beneficial owner” regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties,
several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve
months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities,
and whether the counterparty country or region to the tax treaties does not levy any tax or grant any tax exemption on relevant incomes
or levy tax at an extremely low rate, will be taken into account, and such factors will be analyzed according to the actual circumstances
of the specific cases. This circular further provides that an applicant who intends to prove his or her status as the “beneficial
owner” must submit the relevant documents to the relevant tax bureau pursuant to the Announcement on Issuing the Measures for the
Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
Regulations
on Employment Laws
In
accordance with the PRC National Labor Law, which became effective in January 1995 and amended from time to time, and the PRC Labor Contract
Law, which became effective in January 2008, as amended subsequently, employers must execute written labor contracts with full-time employees
in order to establish an employment relationship. All employers must compensate their employees equal to at least the local minimum wage
standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards
and provide employees with appropriate workplace safety training. In addition, employers in China are obliged to pay contributions to
the social insurance plan and the housing fund plan for employees.
21
Employees
As
of April 15, 2022, we had 126 full-time employees. We have no part time employees or independent contractors. None of our employees
are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We believe we have good relations
with our employees.
Corporate
Information
We
were incorporated in Nevada on August 31, 1992. Our principal executive offices are located at No. 29, Third Main Avenue, Shigao Town,
Renshou County, Meishan, Sichuan, China. Our telephone number is (86) 028-37390666. Our Websites are www.wetouchinc.com and www.wetouch.com.cn,
the latter of which is only accessible in the PRC.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.