Wetouch Technology Inc. 10-K

ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of December 31, 2021, pursuant to Exchange Act Rule 13a-15(b). We concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 59 Management Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed under the supervision of our principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with GAAP. Material Weaknesses in Internal Control over Financial Reporting Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2021 was not effective. A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses: ● Inadequate segregation of duties consistent with control objectives; ● Lack of formal policies and procedures; ● Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. Management believes that the material weaknesses that were identified did not have an effect on our financial results. However, management believes that these weaknesses, if not properly remediated, could result in a material misstatement in our financial statements in future periods. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management’s Plan to Remediate the Material Weakness Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include: ● Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and ● Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. 60 We have engaged with a third-party financial consulting firm during the year to assist with the preparation of SEC reporting. We are committed to maintaining a strong internal control environment, and believe that these remediation efforts will deliver improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that exempt smaller reporting companies from this requirement. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during our fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION. None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. PART III ITEM 10. Directors, Executive Officers and Corporate Governance Listed below are the names of the directors and executive officers of the Company, their ages as of the date of this Annual Report, and their positions with the Company. Name Age Position(s) Held Guangde Cai 53 Chairman, Director Zongyi Lian 61 President and Chief Executive Officer Yuhua Huang 46 Chief Financial Officer Jiaying Cai Jin Chen Wei Wang Jeffrey Kone 26 55 36 61 Secretary, Director Director Director Director Guangde Cai - Chairman and Director Mr. Cai has been our Company’s Chairman and Director since October 12, 2020. Mr. Cai has extensive experience in financing and the touchscreen industry. From August 1992 to August 1996, he worked at Hong Kong Lixin Group, first serving as Financial Manager and later as Financial Director of the group. From September 1996 to June 2003, he worked as Financial Director at Guangdong Midea Group. From July 2003 to December 2015, he worked as Project Manager at Mictouch China, responsible for the research, development, production and sales of infrared touchscreens. In 2006, he co-founded Damai and acted as General Manager, focusing on the research, development, production and sales of high-end five-wire resistive screen. By the end of 2007, Damai was relocated to Chengdu and renamed as Chengdu Wetouch where he works as General Manager. In 2011, he co-founded Sichuan Wetouch and in 2012, he founded Meishan Wetouch. Mr. Cai holds a Bachelor’s degree in Accounting from Sun Yat-sen University and a Master’s degree in Economics from Zhongnan University of Economics and Law. Mr. Cai’s management and extensive experience and his role as founder of Sichuan Wetouch led to the conclusion that he should serve as a director. 61 Zongyi Lian - Chief Executive Officer and President Mr. Lian was appointed Chief Executive Officer and President on October 12, 2020. He has served as Chief Executive Officer of Sichuan Wetouch since November 21, 2017. In 2006, he co-founded Chongqing Damai Touchscreen Computer Co., Ltd (“Damai”) (later renamed Chengdu Wetouch) and served as Vice Technique General Manager. In 2011, he co-founded Sichuan Wetouch and served as Vice Technique General Manager. Mr. Lian holds a Master’s degree in Automatic Control from National Chiao Tung University. Yuhua Huang - Chief Financial Officer Mr. Huang was appointed our Chief Financial Officer on October 12, 2020. He concurrently serves as Chief Financial Officer of Sichuan Wetouch, a position he has held since March 2018. From 2010 to 2013, he worked as an accountant at Liugong Group and, from 2014 to 2017, he served as Financial Manager at Shanghai Oriental Pearl Group Co., Ltd. Mr. Huang holds a Bachelor’s degree in accounting from Sichuan Institute of Industrial Technology. He was qualified as a CPA in China in 2004 and as an auditor in 2014, respectively. Jiaying Cai - Secretary and Director Ms. Cai has been our Company’s Secretary and Director since June 2020. She concurrently serves as the Chief Executive Officer and director of BVI Wetouch, our wholly-owned subsidiary, since its inception on August 14, 2020. From February 2017 to May 2019, Ms. Cai worked at Chengdu Wetouch Technology Co., Ltd, an affiliate of Guangde Cai, which specializes in the research, development, manufacturing and sales of capacitive touchscreens widely used in HMI and military industries, where she served as staff within the financial department, human resources department and purchasing department. In April 2020, she joined Chengdu Haobot Technology Co., Ltd and has been serving as its Legal Representative and General Manager until present. Ms. Cai holds a Bachelor’s degree in Music from The Sichuan Conservatory of Music and an EMBA degree from Sichuan University. Mr. Cai’s role at Chengu Wetouch led to the conclusion that she should serve as a director. Jing Chen - Director Ms. Chen was elected to our Company’s Board of Directors, effective November 12, 2021. She serves as the Group Vice President of Future Fintech Group Inc. (Nasdaq: FTFT). From May 2019 to November 2020, Ms. Chen served as the CFO of Future Fintech Group Inc. She served as the CFO of AnZhiXinCheng (Beijing) Technology Co., Ltd. from August 2018 to May 2019. Ms. Chen is an Independent Director of Hello iPayNow (Beijing) Company Ltd. since April 2019. From August 2017 to July 2018, she served as CFO of Beijing Logis Technology Development Co., Ltd., a company listed on The National Equities Exchange and Quotations Co., Ltd. of China, which is a Chinese over-the-counter stock trading system. From June 2016 to July 2017, Ms. Chen served as Group Chief Financial Officer of Beijing AnWuYou Food Co., Ltd. Ms. Chen served as Chief Financial Officer of Beijing DKI Investment Management Co., Ltd. from August 2012 to May 2016. Ms. Chen received a Doctorate of Business Administration from Victoria University, Neuchatel, Switzerland and an MBA degree from City University of Seattle in Washington, U.S. Ms. Chen holds Fellow Membership of CPA Australia (FCPA), Fellow Membership of the Association of International Accountants U.K. (FAIA) and is a Member of the Chartered Institute of Management Accountants (CIMA). She is also a Senior Member of the International Financial Management (SIFM) accredited by the Ministry of Human Resources and Social Security of PRC. The Board believes Ms. Chen’s extensive public company and accounting experience makes her a valuable addition to the board. Wang Wei - Director Mr. Wang was elected to our Company’s Board of Directors, effective November 12, 2021. He has served as Vice Director of the Investment Banking Department of Chengdu Energy Investment Group since 2017. From 2007 to 2017, he has served as the Head of Technology (Touchscreen) of Ofilm Group, specializing in touchscreen R&D and process engineering management. Mr. Wang holds a BS in Engineering from the University of Electronic Science and Technology of China. The Board believes Mr. Wang’s extensive knowledge and background with regard to touchscreen technology and management makes him a valuable addition to the Board. 62 Jeffrey Kone - Director Mr. Kone was elected to our Company’s Board of Directors, effective November 12, 2021. He has served as the founder of The Wall Street Resource, LLC, a podcast platform for public companies since 2019. From 2003 to 2019, Mr. Kone served as the Managing Member of Wall Street Capital Partners, L.P., an investment fund. From 1984 to 1994, he served as a broker at E.F. Hutton & Co., Merrill Lynch, and Roth Capital. Mr. Kone holds a BS in Business from the University of Southern California. The Board believes Mr. Kone’s extensive experience in corporate finance and investment makes him a valuable addition to the Board. Family Relationships Ms. Jiaying Cai, the Secretary and Director of the Company, is the daughter of Mr. Guangde Cai. Mr. Guange Cai, the Chairman and Director of the Company, is the indirect majority shareholder of Qixun Technology (Samoa) Limited and the indirect sole shareholder of Qihong Technology (Samoa) Limited, which together own 7.7% of the issued and outstanding shares of the Company. Except as described above, there are no other family relationships between any of our directors or executive officers. There are no arrangements or understandings between our directors and directors and any other person pursuant to which they were appointed as an officer and director of the Company. Board Committees We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee. Our audit committee consists of Jing Chen, Wei Wang and Jeffrey Kone. Ms. Chen is the chairperson of the audit committee. We have determined that Ms. Chen, Mr, Wang and Mr. Kone each satisfy the “independence” requirements of Nasdaq Listing Rule 5605(a)(2) and meets the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Ms. Chen qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: (a) representing and assisting the Board in its oversight responsibilities regarding the Company’s accounting and financial reporting processes, the audits of the Company’s financial statements, including the integrity of the financial statements, and the independent auditors’ qualifications and independence; (b) overseeing the preparation of the report required by SEC rules for inclusion in the Company’s annual proxy statement; (c) retaining and terminating the Company’s independent auditors; (d) approving in advance all audit and permissible non-audit services to be performed by the independent auditors; and (e) approving related person transactions. Compensation Committee. Our compensation committee consists of Jing Chen, Wei Wang and Jeffrey Kone. Mr. Wang is the chairperson of our compensation committee. We have determined that Ms. Chen, Mr. Wang and Mr. Kone each are “independent,” as such term is defined for directors and compensation committee members in the listing standards of the NASDAQ Stock Market LLC. Additionally, each qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. The Committee has been established to: (a) assist the Board in seeing that a proper system of long-term and short-term compensation is in place to provide performance oriented incentives to attract and retain management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the Company; (b) assist the Board in discharging its responsibilities relating to compensation of the Company’s executive officers; (c) evaluate the Company’s Chief Executive Officer and set his or her remuneration package; and (d) make recommendations to the Board with respect to incentive compensation plans and equity-based plans. 63 Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Jing Chen, Wei Wang and Jeffrey Kone. Mr. Kone is the chairperson of our nominating and corporate governance committee. We have determined that each of Ms. Chen, Mr. Wang and Mr. Kone qualify as “independent” as that term is defined by Nasdaq Listing Rule 5605(a)(2). The Committee is responsible for: (a) assisting the Board in determining the desired experience, mix of skills and other qualities to provide for appropriate Board composition, taking into account the current Board members and the specific needs of the Company and the Board; (b) identifying qualified individuals meeting those criteria to serve on the Board; (c) proposing to the Board the Company’s slate of director nominees for election by the shareholders at the Annual Meeting of Shareholders and nominees to fill vacancies and newly created directorships; (d) reviewing candidates recommended by shareholders for election to the Board and shareholder proposals submitted for inclusion in the Company’s proxy materials; (e) advising the Board regarding the size and composition of the Board and its committees; (f) proposing to the Board directors to serve as chairpersons and members on committees of the Board; (g) coordinating matters among committees of the Board; (h) proposing to the Board the slate of corporate officers of the Company and reviewing the succession plans for the executive officers; (i) recommending to the Board and monitoring matters with respect to governance of the Company; and (j) overseeing the Company’s compliance program. Code of Ethics We have adopted a written code of ethics and business conduct that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Involvement in Certain Legal Proceedings To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has: ● Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. ● Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses. ● Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. ● Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. ● Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% percent of our equity securities (“Reporting Persons”) to file reports of ownership and changes in ownership with the SEC. Based solely on our review of copies of such reports and representations from the Reporting Persons, we believe that during the fiscal year ended December 31, 2021, the Reporting Persons timely filed all such reports, except that (i) Jing Chen, Wei Wang, and Jeffrey Kone, directors of the Company, failed to timely file Forms 3 as newly appointed directors of the Company. No securities of the Company are beneficially owned by Ms. Chen, Mr. Wang, or Mr. Kone, and such Forms 3 were subsequently filed; (ii) Mr. Guangde Cai, the Chairman of our Board and the indirect majority shareholder of Qixun Technology (Samoa) Limited (“Qixun Samoa”) and indirect sole shareholder of Qihong Technology (Samoa) Limited (“Qihong Samoa”), failed to timely file Forms 4 to report the transfer without consideration to certain former shareholders of Wetouch Holding Group Limited, a limited company organized under the laws of British Virgin Islands, of 2,799,088 shares of the Company’s common stock owned by Qihong Samoa and 1,490,792 shares of the Company’s common stock owned by Qixun Samoa, which Forms 4 were subsequently filed, and (iii) Jiaying Cai, our secretary and director, failed to timely file a Form 4 to report the acquisition of 839,204 shares of the Company’s common stock. 64 ITEM 11. Executive Compensation The following table sets forth total compensation paid to our named executive officers for the years ended December 31, 2021 and 2020. Name and principal position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) All other compensation ($) Total ($) Zongyi Lian(1), President, Chief Executive Officer 2021 $ 40,960 — — — 15,932 $ 56,892 2020 $ 8,533 — — — 3,319 $ 11,852 Yuhua Huang, Chief Financial Officer 2021 $ — — — — — $ — 2020 $ — — — — — $ — David Lazar(2), Previous Sole Officer and Director 2021 — — — — — — 2020 $ 0 — — — — $ 0 (1) Mr. Lian was appointed Chief Executive Officer and President on October 12, 2020. (2) Mr. Lazar resigned as the sole officer and director of the Company on June 18, 2020. Employment Agreements Zongyi Lian On November 21, 2017, Sichuan Wetouch entered into an employment agreement with its Chief Executive Officer, Zongyi Lian, pursuant to which he receives an annual base salary of approximately $23,890 (equivalent to RMB168,000) plus other annual remuneration, including but not limited to position salary of approximately $17,070 (equivalent to RMB120,000), confidentiality fee of approximately $6,828 (equivalent to RMB48,000) and subsidies of approximately $9,104 (equivalent to RMB64,000). Mr. Lian’s employment is for an initial term of three (3) years and may be renewed by the parties within 30 days prior to the expiration of the employment agreement. On November 13, 2020, the employment agreement with Mr. Lian was renewed for another three (3) years until November 20, 2023, with the similar terms and conditions. Amount reflects salary paid to Mr. Lian for services rendered to our former operating subsidiary, Sichuan Wetouch. Such employment agreement has been assigned to our PRC subsidiary, Sichuan Vtouch. Yuhua Huang On November 1, 2017, Sichuan Wetouch entered into an employment agreement with its Chief Financial Officer, Yuhua Huang, pursuant to which he receives an annual base salary of approximately $11,945 (equivalent to RMB84,000) plus other annual remuneration, including but not limited to position salary of approximately $8,535 (equivalent to RMB60,000), confidentiality fee of approximately $3,414 (equivalent to RMB24,000) and subsidies of approximately $4,552 (equivalent to RMB32,000). Mr. Huang’s employment is for an initial term of three (3) years and may be renewed by the parties within 30 days prior to the expiration of the employment agreement. On November 11, 2020, the employment agreement with Mr, Huang was renewed for another three (3) years until October 31, 2023, with the similar terms and conditions. Amount reflects salary paid to Mr. Huang for services rendered to our former operating subsidiary, Sichuan Wetouch. Such employment agreement has been assigned to our PRC subsidiary, Sichuan Vtouch. 65 Under these agreements, each of the individuals is employed for a specified time period and is entitled to receive annual salary plus other remuneration, pension insurance, medical insurance, maternity insurance, unemployment insurance, work-related injury insurance, housing provident funds and other benefits pursuant to PRC law. We and the individuals may terminate the employment upon mutual agreement. Provided that the individuals propose earlier termination and the agreement is terminated upon mutual agreement. The persons are not entitled to compensation. The persons may terminate the employment by giving thirty days advance written notice. We may terminate their employment for cause, at any time, without notice or remuneration, for certain acts of the person, such as serious violation of Sichuan Vtouch’s rules and regulations, and gross neglect of duty and misconduct resulting in large economic losses to Sichuan Vtouch. We may also terminate the employment for cause, with thirty days advance written notice and one month’s salary, for certain acts of the executive officer, such as illness or non-work related injury resulting in inability to work in the previous position or newly assigned position after recovery, inability to perform the assigned work and after training or adjustment of position, still failure to perform the assigned work. The employment agreements will be terminated upon (1) expiry of the employment, (2) the entitlement of the named executive officers to the pension insurance, (3) the death of the named executive officers, (4) the bankruptcy of Sichuan Vtouch, and (5) other circumstances regulated by laws and regulations. Each individual is not permitted to (1) hold any side job during the employment, and (2) operate on their own or on behalf of other individuals or enterprises any business providing same or similar competitive products or services. Confidentiality and Non-Competition We have entered into confidentiality and non-competition agreements with each of Mr. Lian and Mr. Huang in November 2017, which were renewed in November 2020. Such agreements have been assigned to our PRC subsidiary, Sichuan Vtouch. Each individual has agreed (1) to keep all confidential information confidential and return them together with any copy to Sichuan Vtouch upon termination of employment; (2) not to disclose the confidential information of Sichuan Vtouch to any third party; (3) not to allow any third party to use or acquire the confidential information of Sichuan Vtouch, except as required in the performance of his or her duties in connection with the employment or pursuant to the instruction of the Company; (4) not to use the confidential information of Sichaun Vtouch for its own benefits; and (4) to keep other confidential obligations. As compensation, each individual is entitled to receive a monthly confidentiality fee at a different rate. Each individual has also agreed to hold, after the termination or expiry of his employment agreement, in strict confidence, any of our confidential information without any extra compensation. Each officer has agreed to be bound by non-competition restrictions during the term of his employment and for two years following termination of the employment. The executive officers are not allowed to (1) directly or indirectly invest, establish, or be hired by, any individual or enterprises engaging in the same or similar business, or competitive business, (2) directly or indirectly persuade, induce, encourage, or cause any employee of the Company to terminate the employment with Sichuan Vtouch or its subsidiaries; and (3) directly or indirectly persuade, induce, encourage, or cause any customers of Sichuan Vtouch to terminate the business relationship with Sichuan Vtouch or its subsidiaries. Each officer is obligated to pay $7,110 to $14,220 (equivalent to RMB50,000 to RMB100,000) as a penalty, together with any earnings generated from the use or disclose of the confidential information, to Sichuan Vtouch for violation of the confidentiality and non-competition agreements. 66 Outstanding Equity Awards at Fiscal Year-End There are no current outstanding equity awards to our executive officers as of December 31, 2021. Long-Term Incentive Plans There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Director Compensation The table below shows the compensation paid to our non-employee directors during 2021 and 2020. Name Year Fees Earned or Paid in Cash Stock Awards Option Awards Non-Equity Incentive Plan Compensation Nonqualified Deferred Compensation Earnings All other Compensation Total Guangde Cai 2021 0 — — — — 0 — 2020 0 — — — — 0 — Jiaying Cai 2021 0 — — — — 0 — 2020 0 — — — — 0 — Jin Chen 2021 0 — — — — 0 — 2020 0 — — — — 0 — Jeffrey Kone 2021 0 — — — — 0 — 2020 0 — — — — 0 — David Lazar 2021 — — — — — — — 2020 0 — — — — 0 — Ms. Jiaying Cai became a director of the Company on June 18, 2020 and Mr. Guangde Cai became a director of the Company on October 12, 2020. Mr. David Lazar resigned as a director on June 18, 2020. 67 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table lists, as of April 15, 2022, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors (iii) each of our Named Executive Officers and (iv) all executive officers and directors as a group. The percentages below are calculated based on 31,811,523 shares of common stock issued and outstanding as of the date of this Form 10-K. Shares Beneficially Owned Prior to the Offerings Shares Beneficially Owned After the Offerings Name of Beneficial Owner Shares Percentage Shares Percentage Executive Officers and Directors: Guangde Cai(1) 2,464,406 7.7 % Jiaying Cai(2) 839,204 2.6 Zongyi Lian 0 0 Yuhua Huang 0 0 Jing Chen 0 0 Wei Wang 0 0 Jeffrey Kone 0 0 All officers and directors as a group (7 persons) 3,303,610 10.3 % 5% or Greater Holders: Qihong Technology (Samoa) Limited(1) 1,698,055 5.3 % Qixun Technology (Samoa) Limited(1) 766,351 2.4 % (1) Mr. Guangde Cai, the Chairman of our Board, is the indirect majority shareholder of Qixun Technology (Samoa) Limited and indirect sole shareholder of Qihong Technology (Samoa) Limited. The number indicated includes the shares of the Company owned by each of Qixun Technology (Samoa) Limited and Qihong Technology (Samoa) Limited. (2) Ms. Jiaying Cai, our director and secretary, owns 839,204 shares in the Company. Her father, Mr. Guangde Cai, is the indirect majority shareholder of Qixun Technology (Samoa) Limited and indirect sole shareholder of Qihong Technology (Samoa) Limited. Ms. Cai disclaims beneficial ownership of the shares owned by Qixun Technology (Samoa) Limited and Qihong Technology (Samoa) Limited. Changes in Control Agreements As of the date of this annual report, we are not aware of any arrangements that may result in “changes in control,” as that term is defined by the provisions of Item 403(c) of Regulation S-K. ITEM 13. Certain Relationships and Related Transactions, and Director Independence The following is a description of transactions since January 1, 2021 to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of (A) $120,000 or (B) one percent of our average total assets at year end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, who had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive Compensation.” 68 Sales of Products to Related Parties Meishan Wetouch Technology Co., Ltd (“Meishan Wetouch”) Sichuan Wetouch sells capacitive touchscreens to Meishan Wetouch from time to time. For the years ended December 31, 2021 and 2020, sales from Sichuan Wetouch to Meishan Wetouch were approximately $87,367 and nil, respectively. There are no written agreements between Sichuan Wetouch and Meishan Wetouch. Mr. Guangde Cai, Chairman and director of the Company and our indirect majority shareholder, owns 95% of Meishan Wetouch. Chengdu Wetouch Technology Co., Ltd. (“Chengdu Wetouch”) Sichuan Wetouch sells capacitive touchscreens to Chengdu Wetouch from time to time. For the twelve-month period ended December 31, 2021, sales from Sichuan Wetouch to Chengdu Wetouch were approximately $10,483. There are no written agreements between Sichuan Wetouch and Chengdu Wetouch. Mr. Guangde Cai, Chairman and director of the Company and our indirect majority shareholder, owns 94% of Chengdu Wetouch. Amounts due from Related Parties For the years ended December 31, 2021 and 2020, the total amounts due from related parties were nil and $76,619, respectively. These advances are non-interest bearing and due on demand. The breakdown of the amount due from related parties are as below: Mr. Guangde Cai As of June 30, 2020, there were $43,453 employee advances granted by the Company to Mr. Guangde Cai, our Chairman. Said advances were the Company’s expenses given to Mr. Cai who utilized such funds on behalf of the Company for international payments to third-party consultants of the Company. Since the employee advances are not loans from the Company to Mr. Cai, no payments are due to the Company from Mr. Cai for these advances. As of December 31, 2021 and December 31, 2020, there is no amount due from Mr. Guangde Cai to the Company. Mr. Shengyong Li Mr. Shengyong Li is the general manager of Sichuan Wetouch. For the years ended December 31, 2021 and 2020, the employee advances due from Mr. Shengyong Li were nil and $72, respectively. These employee advances are non-interest bearing and due on demand. Vision Touch Technology AG For the years ended December 31, 2021 and 2020, the operating expense advances due from Vision Touch Technology AG were $nil and $76,619, respectively. These operating expense advances are non-interest bearing and due on demand. Vision Touch Technology is solely owned by Mr. Yong Yang, a sales director of Sichuan Wetouch. Amounts due to Related Parties For the years ended December 31, 2021 and 2020, the total amounts due to related parties were $34,669 and $529,060, respectively. These advances are non-interest bearing and due on demand, with the details provided below: Chengdu Wetouch Technology Co., Ltd (“Chengdu Wetouch”) For the years ended December 31, 2021 and 2020, the operating expenses advanced by Chengdu Wetouch to Sichuan Wetouch were $nil and $134,616, respectively. These advances are non-interest bearing and due on demand. Chengdu Wetouch specializes in the research, development, manufacturing and sales of resistive touchscreens widely used in HMI and military industries. There are no written agreements between Sichuan Wetouch and Chengdu Wetouch. Mr. Guangde Cai is the majority shareholder of Chengdu Wetouch. 69 Meishan Wetouch For the years ended December 31, 2021 and 2020, the operating expenses advanced by Meishan Wetouch to Sichuan Wetouch were $nil and $68,402, respectively. These advances are non-interest bearing and due on demand. Mr. Guangde Cai, Chairman and director of the Company and our indirect majority shareholder, owns 95% of Meishan Wetouch. Mr. Guangde Cai For the years ended December 31, 2021 and 2020, Sichuan Wetouch owed Mr. Guangde Cai $32,867 and $326,042, respectively. These advances are non-interest bearing and due on demand. Mr. Zongyi Lian For the years ended December 31, 2021 and 2020, Sichuan Wetouch owed Mr. Zongyi Lian $1,802 and nil, respectively. These advances are non-interest bearing and due on demand. Acquisition of HK Wetouch HK Wetouch, an affiliate of Guangde Cai, our chairman and director, was incorporated on December 3, 2020 under the laws of Hong Kong, which in turn owns all the outstanding shares of Sichuan Vtouch. Sichuan Vtouch was incorporated on December 30, 2020 in Chengdu, Sichuan, under the laws of PRC. On March 12, 2021, BVI Wetouch 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. As BVI Wetouch owns all the outstanding shares of HK Wetouch, which, in turn, owns all the outstanding shares of Sichuan Vtouch, HK Wetouch and Sichuan Vtouch became our indirect wholly-owned subsidiaries. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Audit Fees For each fiscal year of 2021 and 2020, we incurred aggregate fees and expenses of $105,000 and $105,000, respectively, from B F Borgers CPA PC for works completed for our annual audits and quarterly reviews. Audit-Related Expenses Audit-related expenses for 2021 and 2020 were $0 and $15,000, respectively. 70 Tax Fees We incurred aggregate fees and expenses of $0 and $0 for each fiscal year of 2021 and 2020, respectively. All Other Fees We incurred other fees of $0 for each fiscal year of 2021 and 2020. ITEM 15. Exhibits and Financial Statements Schedules 1. Consolidated Financial Statements Our financial statements and the notes thereto, together with the report of our independent registered public accounting firm on those financial statements, are hereby filed as part of this report beginning on page F-1. 2. Financial Statement Schedules All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. 3. Exhibits The following is a complete list of exhibits filed as part of this Form 10-K. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. Exhibit Number Description of Document 3.1 (1) Amended and Restated Articles of Incorporation of the Company, dated September 30, 2020. 3.2 (1) Bylaws of the Company. 3.3 (1) Certificate of Incorporation of Wetouch Holding Group Limited, dated August 14, 2020. 3.4 (1) Memorandum of Association and Articles of Association of Wetouch Holding Group Limited, dated August 14, 2020. 3.5.1 (1) Certificate of Incorporation of Hong Kong Vtouch Electronics Technology Limited, dated May 5, 2016. 3.5.2 (1) Certificate of Change of Name of Hong Kong Wectouch Electronics Technology Limited, dated August 13, 2020. 3.5.3 (1) Certificate of Change of Name of Hong Kong Wetouch Electronics Technology Limited, dated September 8, 2020. 3.6.1 (1) Articles of Association of Hong Kong Vtouch Electronics Technology Limited, dated May 5, 2016. 3.6.2 (1) Amended Articles of Association of Hong Kong Wetouch Electronics Technology Limited. 3.7 (1) English Translation of Business License of Sichuan Wetouch Technology Co., Ltd, dated January 23, 2017. 3.8 (1) English Translation of Articles of Association of Sichuan Wetouch Technology Co., Ltd, dated July 19, 2016. 71 3.9 (3) English Translation of Business License of Sichuan Vtouch Technology Co., Ltd., dated December 30, 2020. 3.10 (3) English Translation of Articles of Association of Sichuan Vtouch Technology Co., Ltd, dated December 29, 2020. 3.11 (3) Certificate of Incorporation of Hong Kong Wetouch Holding Group Limited, dated December 3, 2020. 3.12 (3) Certificate of Change of Name of Hong Kong Wetouch Technology Limited, dated December 9, 2020. 3.13 (3) Articles of Association of Hong Kong Wetouch Holding Group Limited, dated December 3, 2020. 3.14 (3) Articles of Association of Hong Kong Wetouch Technology Limited, dated March 12, 2021. 4.1 (3) Specimen Common Stock Certificate. 4.2 (3) Description of Registrant’s Securities. 4.3 (6) Promissory Note dated October 27, 2021 issued by Wetouch Technology Inc. to Talos Victory Fund, LLC 4.4 (6) Common Stock Purchase Warrant dated October 27, 2021issued by Wetouch Technology Inc. 4.5 (7) Promissory Note dated November 5, 2021 issued by Wetouch Technology Inc. to Mast Hill Fund, L.P. 4.6 (7) Common Stock Purchase Warrant dated November 5, 2021 issued by Wetouch Technology Inc. 4.7 (8) Promissory Note dated November 16, 2021 issued by Wetouch Technology Inc. to FirstFire Global Opportunities Fund, LLC. 4.8 (8) Common Stock Purchase Warrant dated November 16, 2021 issued by Wetouch Technology Inc. 4.9 (8) Promissory Note dated November 24, 2021 issued by Wetouch Technology Inc. to LGH Investments, LLC. 4.10 (8) Common Stock Purchase Warrant dated November 24, 2021 issued by Wetouch Technology Inc. 4.11 (9) Promissory Note dated November 29, 2021 issued by Wetouch Technology Inc. to Fourth Man, LLC. 4.12 (9) Common Stock Purchase Warrant dated November 29, 2021 issued by Wetouch Technology Inc. 4.13 (9) Promissory Note dated December 2, 2021 issued by Wetouch Technology Inc. to Jefferson Street Capital LLC. 4.14 (9) Common Stock Purchase Warrant dated December 2, 2021 issued by Wetouch Technology Inc. 4.15 (9) Promissory Note dated December 2, 2021 issued by Wetouch Technology Inc. to Blue Lake Partners, LLC. 72 4.16 (9) Common Stock Purchase Warrant dated December 2, 2021 issued by Wetouch Technology Inc. 10.1.1 (1) English Translation of Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian. 10.1.2 (1) English Translation of Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian. 10.2.1 (1) English Translation of Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Yuhua Huang. 10.2.2 (1) English Translation of Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Yuhua Huang. 10.3.1 (1) English Translation of Form of Sichuan Wetouch Technology Co., Ltd. Sales Framework Agreement. 10.4 (1) English Translation of Form of Sichuan Wetouch Technology Co., Ltd. Purchase Order with Suppliers. 10.5 (2) English Translation of Form of Loan Agreement between Sichuan Wetouch Technology Co., Ltd and Shareholder of Australia Vtouch Technology Co., Ltd. 10.6 (2) English Translation of Form of Supplemental Agreement to Loan Agreement between Sichuan Wetouch Technology Co., Ltd and Shareholder of Australia Vtouch Technology Co., Ltd. 10.7 (2) English Translation of Renewed Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian dated November 13, 2020. 10.8 (2) English Translation of Renewed Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Zongyi Lian dated November 13, 2020. 10.9 (2) English Translation of Renewed Employment Agreement between Sichuan Wetouch Technology Co., Ltd and Yuhua Huang dated November 11, 2020. 10.10 (2) English Translation of Renewed Confidentiality and Non-Competition Agreement between Sichuan Wetouch Technology Co., Ltd and Yuhua Huang dated November 11, 2020. 10.11 (2) English Translation of Form of Sichuan Wetouch Technology Co., Ltd. Supplemental Agreement to Sales Framework Agreement. 10.12 (4) English Translation of Agreement of Compensation on Demolition between Sichuan Wetouch Technology Co., Ltd and Sichuan Renshou Shigao Tianfu Investment Co., Ltd dated March 16, 2021. 10.13 (4) English Translation of Leaseback Agreement between Sichuan Vtouch Technology Co., Ltd and Sichuan Renshou Shigao Tianfu Investment Co., Ltd dated March 16, 2021. 10.14 (6) Securities Purchase Agreement, dated as of October 27, 2021, between Wetouch Technology Inc. and Talos Victory Fund, LLC 10.15 (6) Registration Rights Agreement dated as of October 27, 2021, between Wetouch Technology Inc. and Talos Victory Fund, LLC 10.16 (7) Securities Purchase Agreement, dated as of November 5, 2021, between Wetouch Technology Inc. and Mast Hill Fund, L.P. 73 10.17 (7) Registration Rights Agreement dated as of November 5, 2021, between Wetouch Technology Inc. and Mast Hill Fund, L.P. 10.18 (8) Securities Purchase Agreement, dated as of November 16, 2021, between Wetouch Technology Inc. and FirstFire Global Opportunities Fund, LLC. 10.19 (8) Registration Rights Agreement dated as of November 16, 2021, between Wetouch Technology Inc. and FirstFire Global Opportunities Fund, LLC. 10.20 (8) Securities Purchase Agreement, dated as of November 24, 2021, between Wetouch Technology Inc. and LGH Investments, LLC. 10.21 (8) Registration Rights Agreement dated as of November 24, 2021, between Wetouch Technology Inc. and LGH Investments, LLC. 10.22 (9) Securities Purchase Agreement, dated as of November 29, 2021, between Wetouch Technology Inc. and Fourth Man, LLC. 10.23 (9) Registration Rights Agreement dated as of November 29, 2021, between Wetouch Technology Inc. and Fourth Man, LLC. 10.24 (9) Securities Purchase Agreement, dated as of December 2, 2021, between Wetouch Technology Inc. and Jefferson Street Capital LLC. 10.25 (9) Registration Rights Agreement dated as of December 2, 2021, between Wetouch Technology Inc. and Jefferson Street Capital LLC. 10.26 (9) Securities Purchase Agreement, dated as of December 2, 2021, between Wetouch Technology Inc. and Blue Lake Partners, LLC. 10.27 (9) Registration Rights Agreement dated as of December 2, 2021, between Wetouch Technology Inc. and Blue Lake Partners LLC. 14.1* Code of Ethics 21.1 (5) List of subsidiaries of the Company. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. * 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Sarbanes-Oxley Act. * 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act* 32.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act* 101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Taxonomy Extension Schema Document* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) *filed herewith 74 (1) Incorporated by reference to the Company’s Registration Statement on Form 10 filed with the SEC on October 15, 2020. (2) Incorporated by reference to the Company’s Registration Statement on Form 10/A filed with the SEC on November 30, 2020. (3) Incorporated by reference to the Company’s Registration Statement on Form 10-K filed with the SEC on March 24, 2021. (4) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2021. (5) Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on September 13, 2021. (6) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 5, 2021. (7) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 15, 2021. (8) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2021. (9) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2021. ITEM 16. FORM 10–K SUMMARY None. 75 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 15, 2022 WETOUCH TECHNOLOGY INC. By: /s/ Zongyi Lian Zongyi Lian President and Chief Executive Officer (Principal Executive Officer) By: /s/ Yuhua Huang Yuhua Huang Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Zongyi Lian President April 15, 2022 Zongyi Lian Chief Executive Officer and Chairman\(Principal Executive Officer) /s/ Yuhua Huang Chief Financial Officer April 15, 2022 Yuhua Huang (Principal Financial and Accounting Officer) /s/ Guangde Cai Chairman and Director April 15, 2022 Guangde Cai /s/ Jiaying Cai Director April 15, 2022 Jiaying Cai /s/ Jing Chen Director April 15, 2022 Jing Chen /s/ Wei Wang Director April 15, 2022 Wei Wang /s/ Jeffrey Kone Director April 15, 2022 Jeffrey Kone 76 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (AUDITED) WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 5041 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2021 and 2020 F-4 Consolidated Statements of Changes in Shareholders’ Equity for years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-6 Notes to Consolidated Financial Statements as of December 31, 2021and 2020 F-7- F-23 F- 1 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Wetouch Technology Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Wetouch Technology Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Legal Proceedings over Guarantee Obligations As described in Note 13 to the financial statements, management disclosed legal proceedings over the Company’s guarantee obligations where liability is not probable or the amount of the liability is not estimable, or both, if management believes there is at least a reasonable possibility that the Company has fulfilled the guarantee obligation or a loss may be incurred when the guarantee obligations were not discharged. Our principal considerations to determine that the legal proceedings over guarantee obligations is a critical audit matter as there was significant judgment by management when assessing the likelihood of a loss being incurred and when estimating the loss or range of loss for each claim, which in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assessment of the liabilities and disclosures related to legal proceedings on guarantee obligations. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, obtaining and evaluating the letters of audit inquiry with external legal counsel, reviewing public accessible information regarding the Company’s litigation cases, evaluating the reasonableness of management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company’s disclosures related to legal proceedings over guarantee obligations. /s/ B F Borgers CPA PC We have served as the Company’s auditor since 2019. Lakewood, Colorado April 15, 2022 PCAOB ID: 5041 F- 2 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, As of December 31, 2021 2020 ASSETS CURRENT ASSETS Cash $ 46,163,704 $ 23,963,861 Accounts receivable, net 7,991,037 11,926,835 Inventories 244,381 402,050 Due from related parties - 76,619 Prepaid expenses and other current assets 2,445,894 228,443 TOTAL CURRENT ASSETS 56,845,016 36,597,808 Property, plant and equipment, net 11,833,302 9,491,195 Intangible assets, net - 974,696 TOTAL ASSETS $ 68,678,318 $ 47,063,699 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 800,586 $ 891,848 Due to related parties 34,669 529,060 Income tax payable 65,463 107,137 Accrued expenses and other current liabilities 310,407 503,455 Deferred grants - 245,211 Convertible promissory notes payable 2,030,550 - TOTAL CURRENT LIABILITIES 3,241,675 2,276,711 Deferred grants-non current - 433,206 Common stock purchase warrants liability 1,128,635 - TOTAL LIABILITIES $ 4,370,310 $ 2,709,917 COMMITMENTS AND CONTINGENCIES (Note 13) - - STOCKHOLDERS’ EQUITY Common stock, $ 0.001 par value, 300,000,000 shares authorized, 31,811,523 and, 31,500,693 issued and outstanding as of December 31, 2021 and 2020, respectively* (*) $ 31,812 $ 31,501 Additional paid in capital 2,333,621 1,072,932 Statutory reserve 5,067,243 3,062,159 Retained earnings 54,610,164 39,229,282 Accumulated other comprehensive income 2,265,168 957,908 TOTAL STOCKHOLDERS’ EQUITY 64,308,008 44,353,782 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 68,678,318 $ 47,063,699 * Retrospectively restated for effect of recapitalization, see Note 1 The accompanying notes are an integral part of these consolidated financial statements. F- 3 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the years ended December 31, 2021 2020 REVENUES Revenue from customers $ 40,687,624 $ 31,345,951 Revenues from related parties 97,850 - Total Revenues 40,785,474 31,345,951 COST OF REVENUES Cost of revenues from customers ( 22,256,642 ) ( 15,736,080 ) Cost of revenues related parties ( 97,850 ) - Total Cost of revenues ( 22,354,492 ) ( 15,736,080 ) GROSS PROFIT 18,430,982 15,609,871 OPERATING EXPENSES Selling expenses ( 630,503 ) ( 264,553 ) General and administrative expenses ( 1,937,374 ) ( 2,322,055 ) Research and development expenses ( 89,477 ) ( 77,997 ) Share-based compensation ( 3,149,106 ) ( 1,064,358 ) Total operating expenses ( 5,806,460 ) ( 3,728,963 ) INCOME FROM OPERATIONS 12,624,522 11,880,908 OTHER INCOME (EXPENSES) Interest income 95,534 81,537 Interest expense ( 27,450 ) ( 1,728,961 ) Government grant 695,055 246,227 Gain on asset disposal 7,648,423 - Gain on changes in fair value of common stock purchase warrants liability 759,471 - TOTAL OTHER (EXPENSES), NET 9,171,033 ( 1,401,197 ) INCOME BEFORE INCOME TAX EXPENSE 21,795,555 10,479,711 INCOME TAX EXPENSE ( 4,409,589 ) ( 1,549,333 ) NET INCOME $ 17,385,966 $ 8,930,378 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment 1,307,260 2,692,896 COMPREHENSIVE INCOME $ 18,693,226 $ 11,623,274 EARNINGS PER COMMON SHARE Basic $ 0.55 $ 0.31 Diluted $ 0.55 $ 0.31 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* Basic 31,811,523 28,774,886 Diluted 32,653,163 28,985,246 * Retrospectively restated for effect of recapitalization, see Note 1 The accompanying notes are an integral part of these consolidated financial statements. F- 4 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 Common stock at Par value $0.001 Additional paid-in Statutory Retained Accumulated other comprehensive Total stockholders’ Shares Amount capital reserve Earnings (income) loss equity Balance at December 31, 2019 * 28,000,000 $ 28,000 $ 14,034 $ 2,003,569 $ 31,357,494 $ ( 1,734,988 ) $ 31,668,109 Recapitalization -10/9/2020 3,396,394 3,396 ( 5,355 ) - - - ( 1,959 ) Fraction shares issued due to stock split 689 1 ( 1 ) - - - - Appropriation to statutory reserve - - - 1,058,590 ( 1,058,590 ) - - Share-based compensation 103,610 104 1,064,254 - - 1,064,358 Net income 8,930,378 8,930,378 Foreign currency translation adjustment - - - - - 2,692,896 2,692,896 Balance at December 31 2020 31,500,693 $ 31,501 $ 1,072,932 $ 3,062,159 $ 39,229,282 $ 957,908 $ 44,353,782 * Retrospectively restated for effect of recapitalization, see Note 1 Common stock at Par value $0.001 Additional paid-in Statutory Retained Accumulated other comprehensive Total stockholders’ Shares Amount capital reserve Earnings (income) loss equity Balance at December 31, 2020 31,500,693 $ 31,501 $ 1,072,932 $ 3,062,159 $ 39,229,282 $ 957,908 $ 44,353,782 Appropriation to statutory reserve - - 2,005,084 ( 2,005,084 ) - - Share-based compensation 310,830 311 3,148,795 - - 3,149,106 Warrants issued to third parties in conjunction with debt issuance ( 1,888,106 ) ( 1,888,106 ) Net income 17,385,966 17,385,966 Foreign currency translation adjustment - - - - - 1,307,260 1,307,260 Balance at December 31 2021 31,811,523 $ 31,812 $ 2,333,621 $ 5,067,243 $ 54,610,164 $ 2,265,168 $ 64,308,008 The accompanying notes are an integral part of these consolidated financial statements. F- 5 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2021 2020 For the years ended December 31, 2021 2020 Cash flows from operating activities Net income $ 17,385,966 $ 8,930,378 Adjustments to reconcile net income to cash provided by operating activities Bad debts reversal ( 76,492 ) - Inventory write-off - 66,944 Depreciation and amortization 381,167 1,056,139 Asset disposal gain ( 7,648,423 ) - Loss of input VAT credits 356,073 - Share-based compensation 3,149,106 1,064,358 Amortization of discounts and issuance cost of the notes 8,550 - Gain on changes in fair value of common stock purchase warrants liability ( 759,471 ) - Changes in operating assets and liabilities: Accounts receivable 4,994,861 4,911,580 Amounts due from related parties 83,849 1,242 Inventories 190,490 ( 241,435 ) Prepaid expenses and other current assets ( 2,258,602 ) 69,448 Accounts payable ( 167,186 ) 40,749 Amounts due to related parties ( 575,329 ) ( 273,250 ) Income tax payable ( 50,424 ) ( 547,080 ) Accrued expenses and other current liabilities ( 233,882 ) ( 1,884,578 ) Deferred grants ( 728,818 ) ( 231,742 ) Net cash provided by operating activities 14,051,434 12,962,753 Cash flows from investing activities Purchase of property and equipment ( 11,695,448 ) - Proceeds from assets disposal 17,859,076 Net cash provided by investing activities 6,163,628 - Cash flows from financing activities Proceeds from issuance of convertible promissory notes payable 2,025,000 - Payments of issue costs of convertible promissory note ( 162,000 ) - Repayment of bank borrowings - ( 434,519 ) Repayment of advances from related parties - ( 4,269,277 ) Net cash provided by (used in) financing activities 1,863,000 ( 4,703,796 ) Effect of changes of foreign exchange rates on cash 121,781 1,425,107 Net increase in cash 22,199,843 9,684,064 Cash, beginning of year 23,963,861 14,297,797 Cash, end of year $ 46,163,704 $ 23,963,861 Supplemental disclosures of cash flow information Interest paid $ - $ 1,766,399 Income taxes paid $ 3,774,917 $ 2,999,802 Non-cash investing activities Net liabilities acquired due to recapitalization $ - $ 1,959 Warrants issued to third parties in conjunction with debt issuance $ 1,888,106 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 6 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — BUSINESS DESCRIPTION Business Wetouch Technology Inc. (“Wetouch”, or the “Company”), formerly known as Gulf West Investment Properties, Inc., was originally incorporated in August 1992, under the laws of the state of Nevada. On October 9, 2020, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited (“BVI Wetouch”) and all the shareholders of BVI Wetouch (each, a “BVI Shareholder” and collectively the “BVI 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 (the “Reverse Merger”). In the Reverse Merger, each ordinary share of BVI Wetouch was exchanged for 2,800 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. Wetouch Holding Group Limited (“BVI Wetouch”), is a holding company whose only asset, held through a subsidiary, is 100 % of the registered capital of Sichuan Wetouch Technology Co. Ltd. (“Sichuan Wetouch”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”). Sichuan Wetouch is primarily engaged in the business of research development, manufacture, distribution of touchscreen displays to customers both in PRC and overseas. The touchscreen products, which are manufactured by the Company, are primarily for use in the computer components. The Reverse Merger was accounted for as a recapitalization effected by a share exchange, wherein BVI Wetouch is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of BVI Wetouch have been brought forward at their book value and no goodwill has been recognized. The number of shares, par value amount, and additional paid-in capital in the prior years are retrospectively adjusted according. Corporate History of BVI Wetouch Wetouch Holding Group Limited (“BVI Wetouch”) was incorporated under the laws of British Virgin Islands on August 14, 2020. It became the holding company of Hong Kong Wetouch Electronics Technology Limited (“Hong Kong Wetouch”) on September 11, 2020. Hong Kong Wetouch Technology Limited (“HK Wetouch”), was incorporated as a holding company under the laws of Hong Kong Special Administrative Region (“SAR”) on December 3, 2020. On March 2, 2021, HK Wetouch acquired all shares of Hong Kong Vtouch. Due to the fact that Hong Kong Wetouch and HK Wetouch are both under the same sole stockholder, the acquisition is accounted for under common control. In June, 2021, Hong Kong Wetouch completed its dissolution process pursuant to the minutes of its special shareholder meeting. Sichuan Wetouch Technology Co. Ltd. (“Sichuan Wetouch”) was formed on May 6, 2011 in the People’s Republic of China (“PRC”) and became Wholly Foreign-Owned Enterprise in PRC on February 23, 2017. On July 19, 2016, Sichuan Wetouch was 100 % held by HK Wetouch. On December 30, 2020, Sichuan Vtouch Technology Co., Ltd. (“Sichuan Vtouch”) was incorporated in Chengdu, Sichuan, under the laws of the People’s Republic of China. In March 2021, pursuant to local PRC government guidelines on local environmental issues and the national overall plan, Sichuan Wetouch was under the government directed relocation order, and started its dissolution process which is estimated to be completed by the second quarter of 2022. Sichuan Vtouch took over the operating business of Sichuan Wetouch. As a result of the above restructuring, HK Wetouch became the sole shareholder of Sichuan Vtouch. F- 7 Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the financial statements of the Wetouch and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. (b) Uses of estimates In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, fair values of financial instruments, inventory valuations, useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates. (c) Cash and cash equivalents Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. (d) Accounts receivables, net Accounts receivables are presented net of allowance for doubtful accounts. The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the collection is not probable. (e) Inventory Inventory consists of raw materials, work-in-process and finished goods and is stated at the lower of cost or net realizable value. Cost is determined using a weighted average. For work-in-process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Company’s production overhead. The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions about future demand and market conditions. For finished goods and work-in-process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write-downs are included in the cost of revenues in the consolidated statements of operations. Inventories are carried at this lower cost basis until sold or scrapped. Nil and US$ 66,944 inventory write-off was recorded for the years ended December 31, 2021 and 2020, respectively. F- 8 (f) Convertible Promissory Notes The Company accounts for its convertible promissory notes according to guidance of ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815. We analyze the convertible notes for the existence of a beneficial conversion feature. the Company considered the three characteristics of a derivative instrument listed in ASC 815-10-15-83: (i) having one or more underlyings and one or more notional amounts or payment provisions or both; (ii) requiring no initial net investment; (iii) permitting net settlement; Since the Company’s notes have fixed interest rate, specified notional principal and settlement date, which no other events would affect specified settlement, and the Company received net proceeds after issuance costs and discount, which the Company recorded as the net proceeds or net settled investment, the management assessed that the Notes did not do not meet the definition of a derivative instruments and an embedded feature would not be bifurcated. The discounts on the convertible notes, are amortized to interest expense, using the effective interest method, over the terms of the related convertible notes. (g) Common stock purchase warrants The Company also analyzed the Warrants in accordance with ASC 815, to determine whether the Warrants meet the definition of a derivative and, if so, whether the Warrants meet the scope exception of ASC 815-40, which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC 815-40. The Company concluded that the Warrants issued in November and December 2021 financing should be treated as a derivative liability because the Warrants are entitled to a price adjustment provision to allow the exercise price to be increased or reduced in the event the Company issues or sells any additional shares of common stock at a price per share more or less than the then-applicable exercise price or without consideration, which is typically referred to as a “Down-round protection” or “anti-dilution” provision. According to ASC 815-40, the “Down-round protection” provision is not considered to be an input to the fair value of a fixed-for-fixed option on equity shares which leads the Warrants to fail to be qualified as indexed to the Company’s own stock and then to fail to meet the scope exceptions of ASC 815. Therefore, the Company accounted for the Warrants as derivative liabilities under ASC 815. Pursuant to ASC 815, derivatives are measured at fair value and re-measured at fair value with changes in fair value recorded in earnings at each reporting period. The Company used an black-scholes-pricing model to estimate the fair values of common stock purchase warrants at the balance sheet dates. As of December 31, 2021, the Company recorded $ 1,128,635 common stock purchase warrants liability and $ 759,471 gain on changes of fair value of common stock purchase liability warrants for the year ended December 31, 2021. (h) Fair value of financial instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: ● Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. ● Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. ● Level 3 — inputs to the valuation methodology are unobservable. Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other current assets, accounts payable, short-term bank loans, accrued expenses and other current liabilities, taxes payable and due to related parties, common stock purchase warrants liability, approximate the fair value of the respective assets and liabilities as of December 31, 2021 and 2020 based upon the nature of the assets and liabilities. (i) Property, plant and equipment, net Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is provided using the straight-line method over their expected useful lives, as follows: SCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY PLANT AND EQUIPMENT Useful life Buildings 20 years Machinery and equipment 10 years Office and electric equipment 3 years Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses. F- 9 (l) Intangible assets, net The Company’s intangible assets primarily includes land use rights and patent right. A land use right in the PRC represents an exclusive right to occupy, use and develop a piece of land during the contractual term of the land use right. The cost of a land use right is usually paid in one lump sum at the date the right is granted. The prepayment usually covers the entire period of the land use right. The lump sum advance payment is capitalized and recorded as land use right and then charged to expense on a straight-line basis over the period of the right, which is normally 50 years. Patents are recognized at cost of acquisition. They have a finite life and are carried at cost less any accumulated amortization and any impairment losses. SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS Useful life Land use right 50 years Patents 10 years (m) Impairment of long-lived Assets Long-lived assets, such as property, plant and equipment, land use rights, are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount that the carrying value exceeds the estimated fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Assets to be disposed are reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated. There were nil impairment of intangible assets recognized for the years ended December 31, 2021 and 2020. (n) Foreign Currency Translation The Company uses US dollars as the reporting currency. The Company’s subsidiary HK Wetouch’s functional currency for HK Wetouch is Hong Kong dollar. The functional currency of Sichuan Wetouch is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements have been translated into US$. Assets and liabilities accounts are translated using the exchange rate at each reporting period end date. Equity accounts are translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income (loss). Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations. The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report: SCHEDULE OF CURRENT EXCHANGE RATES December 31, 2021 December 31, 2020 Year-end spot rate US$1=RMB 6.3726 US$1=RMB 6.5250 Average rate US$1=RMB 6.4505 US$1=RMB 6.9042 (o) Revenue recognition The Company adopted Accounting Standards Codification (“ASC”) 606 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Therefore, no adjustments to opening retained earnings were necessary. F- 10 ASC 606, Revenue from Contracts with customers, establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. ASC 606 requires the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. The Company has assessed the impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences that would result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams. In accordance with ASC 606, the Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales of its products primarily to its customers in PRC and overseas, as the Company is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods, which the Company has control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. All of the Company’s contracts have one single performance obligation as the promise is to transfer the individual goods to customers, and there is no separately identifiable other promises in the contracts. The Company’s revenue streams are recognized at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. The Company’s products are sold with no right of return and the Company does not provide other credits or sales incentive to customers. The Company’s sales are net of value added tax (“VAT”) and business tax and surcharges collected on behalf of tax authorities in respect of product sales. Contract Assets and Liabilities Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contract assets are recognized for in related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing when an order is placed and when shipment or delivery occurs. As of December 31, 2021 and 2020, other than accounts receivable and advances from customers, the Company had no other material contract assets, contract liabilities or deferred contract costs recorded on its consolidated balance sheet. Costs of fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur prior to the transfer of control, are recognized in selling, general and administrative expense when incurred. Disaggregation of Revenues The Company disaggregates its revenue from contracts by geography, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the years ended December 31, 2021 and 2020 are disclosed in Note 16 to the financial statements. F- 11 (p) Selling, General and Administrative Expenses Selling expenses represents primarily costs of payroll, benefits, commissions for sales representatives and advertising expenses. General and administrative expenses represents primarily payroll and benefits costs for administrative employees, rent and operating costs of office premises, depreciation and amortization of office facilities, professional fees and other administrative expenses. (q) Research and Development Expense Research and development costs are expensed as incurred. (r) Share-Based Compensation The Company awards share options and other equity-based instruments to its employees, directors and third party service providers (collectively “share-based payments”). Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be performed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date. (s) Government grant The Company follows other authoritative accounting guidance since there is no clear guidance with regard to government grants. Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognized as income over the periods necessary to match the grant to the costs it is compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis. (t) Income taxes The Company accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, as needed, to reduce the amount of deferred tax assets if it is considered more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The Company recognizes the effect of uncertain income tax positions only if those positions are more-likely-than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company’s policy is to record interest and penalties related to uncertain tax positions as a component of income tax expense. There were no such interest or penalty for the years ended December 31, 2021 and 2020. On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Tax Act”) was signed into law, which among other effects, reduces the U.S. federal corporate income tax rate to 21% from 34 % (or 35% in certain cases) beginning in 2018 , and requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years. No tax was due under this provision. The Tax Act also makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. F- 12 (u) Value added tax (“VAT”) Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price. Since April 1, 2019, VAT rate was lowered from 16 % to 13 %. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company recorded a VAT payable or recoverable net of VAT payments in the accompanying consolidated financial statements. For export sales, VAT is not imposed on gross sales price, but the VAT related to purchasing raw materials is refunded after the export is completed. (v) Earnings per Share The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of December 31, 2021, warrants were included for the dilutive EPS calculation. (w) Comprehensive income (loss) Comprehensive income (loss) consists of two components, net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of income and comprehensive income. (x) Recent Accounting Pronouncements The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting, and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as additional paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years . The Company adopted ASU 2020-06 effective January 1, 2021. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The pronouncement will be effective for public business entities that are SEC filers in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendment simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes. It also clarifies certain aspects of the existing guidance to promote more consistent application, among other things. The guidance is effective for interim and annual reporting periods beginning within 2021 with early adoption permitted. From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of ASUs. Unless otherwise discussed, the Company believes that the recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on its consolidated financial statements upon adoption. F- 13 NOTE-3 - ACCOUNTS RECEIVABLE Accounts receivable consists of the following: SCHEDULE OF ACCOUNTS RECEIVABLE December 31, 2021 December 31 2020 Accounts receivable $ 7,991,037 $ 12,002,454 Allowance for doubtful accounts - ( 75,619 ) Accounts receivable, net $ 7,991,037 $ 11,926,835 The Company’s accounts receivable primarily includes balance due from customers when the Company’s products are sold and delivered to customers. NOTE-4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consists of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2021 December 31, 2020 Advance to suppliers $ 244,758 $ 117,819 VAT input credits 307,575 - Issue cost related to convertible promissory notes 159,000 - Deferred marketing expenses 1,000,000 - Prepayment for land use right/ (i) 615,955 - Security deposit (ii) 61,670 - Others receivable (iii) 56,936 110,624 Prepaid expenses and other current assets $ 2,445,894 $ 228,443 (i) On July 23, 2021, Sichuan Vtouch entered into a contract with Chengdu Wenjiang District Planning and Natural Resources Bureau for purchasing a land use right of 131,010 square feet with a consideration of RMB 3,925,233 (equivalent to $ 615,955 ) for the new facility. The Company made a full prepayment by November 18, 2021 . Upon a certificate of land use right issued by the local government, which is estimated to be obtained by the fourth quarter of 2022, the Company will reclassify this prepayment to intangible assets accordingly. (ii) On July 28, 2021, Sichuan Vtouch made a security deposit of RMB 393,000 (equivalent to $ 61,670 ) to Chengdu Cross-Strait Science and Technology Industry Development Park Management Committee to obtain a construction license for new facility. This deposit will be refunded upon the issuance of the construction license by end of April, 2022. (iii) Other receivables are mainly employee advances, and prepaid expenses. NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT December 31, 2021 December 31, 2020 Buildings $ 13,514 $ 10,330,767 Machinery, equipment and furniture 45,948 5,830,470 Construction in progress 11,778,957 - Subtotal 11,838,419 16,161,237 Less: accumulated depreciation ( 5,117 ) ( 6,670,042 ) Property, plant and equipment, net $ 11,833,302 $ 9,491,195 Depreciation expense was $ 5,117 and $ 979,999 for the years ended December 31, 2021 and 2020, respectively. Pursuant to local PRC government guidelines on local environment 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 18, 2021, pursuant to the agreement with the local government and an appraisal report issued by a mutual agreed appraiser, Sichuan Wetouch received a compensation of RMB 115.2 million ($ 18.1 million) (“Compensation Funds”) 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. During the year ended December 31, 2021, the Company recorded a gain of $ 7,648,423 for the asset disposal including $ 872,045 loss of asset disposal of intangible assets (see Note 6). On March 16, 2021, in order to minimize interruption of our business, Sichuan Vtouch entered into a leasing agreement with Sichuan Renshou Shigao Tianfu Investment Co., Ltd., a limited company owned by the local government, to lease the property, and all buildings, facilities and equipment thereon (“Demised Properties) of Sichuan Wetouch, commencing from April 1, 2021 until December 31, 2021, at a monthly rent of RMB 300,000 ($ 47,076 ) for the use of the Demised Properties. F- 14 NOTE 6 – INTANGIBLE ASSETS, NET Intangible assets, net mainly consist of the following: SCHEDULE OF INTANGIBLE ASSETS December 31, 2021 December 31, 2020 Land use rights $ - $ 1,016,215 Patents - 417,919 Subtotal - 1,434,134 Less: accumulated amortization for patents - ( 310,393 ) Accumulated amortization for land use right - ( 149,045 ) Subtotal - ( 459,438 ) Intangible assets, net $ - $ 974,696 Amortization expense was $ 113,908 and $ 76,141 for the years ended December 31, 2021 and 2020, respectively. Due to the relocation pursuit to the Compensation Fund agreement with the local government (See Note 6), the Company accelerated the amortization expense and recorded a loss of $ 872,045 for the asset disposal of intangible assets during the three-month period ended March 31, 2021, as the Company plans to deregister Sichuan Wetouch and the newly set up Sichuan Vtouch will use new techniques with new equipment, as a result, the Company estimates no remaining useful life for the existing patents. NOTE 7 – RELATED PARTY TRANSACTIONS The related party transactions are summarized as follows: SCHEDULE OF REVENUES FROM RELATED PARTY TRANSACTIONS Years Ended December 31, 2021 2020 US$ US$ Revenues resulting from related parties: Sales to Chengdu Wetouch Technology Co., Ltd (“Chengdu Wetouch”) 10,483 - Sales to Meishan Wetouch Electronics Technology Co., Ltd. (“Meishan Wetouch”) 87,367 - Total revenue $ 97,850 $ - The Company sells capacitive touchscreens to Chengdu Wetouch and Meishan Wetouch from time to time. There are no written agreements between the Company and Meishan Wetouch. Mr. Guangde Cai, Chairman and director of the Company and our indirect majority shareholder, owns 94 % and 95 % of Chengdu Wetouch and Meishan Wetouch, respectively. SCHEDULE OF RELATED PARTY TRANSACTIONS Amounts due from related parties are as follows: Amounts due from related parties Relationship December 31, 2021 December 31, 2020 Note Vision Touch Technology AG 100% owned by Mr. Yong Yang, Sales Director of Sichuan Wetouch $ - $ 76,619 Operating expense paid on behalf of the related party/Company Amounts due to related parties are as follows : Relationship December 31, 2021 December 31, 2020 Note Chengdu Wetouch Technology Co., Ltd (“Chengdu Wetouch”) 94% owned by Mr. Guangde Cai & 2% by Mr. Shengyong Li $ - $ 134,616 Operating expense paid on behalf of the Company Meishan Vtouch Electronics Technology Co., Ltd. 95% owned by Mr. Guangde Cai and 5% by Chengdu Wetouch - 68,402 Operating expense paid on behalf of the Company Chengdu Vtouch Intelligence Science & Technology Co., Ltd. 100% owned by HK Vtouch Holding Group Co., Ltd. - - Operating expenses paid on behalf of the Company Mr. Zongyi Lian President and CEO of the Company 1,802 - Payable to employee Mr. Guangde Cai Chairman of the Company 32,867 326,042 Payable to employee Total $ 34,669 $ 529,060 F- 15 NOTE 8 — INCOME TAXES Wetouch Wetouch Technology Inc. is subject to a tax rate of 21 % per beginning 2018, and files a U.S. federal income tax return. No provision for income tax for Wetouch has been made as it incurred losses for the years ended December 31, 2021 and 2020. BVI Wetouch Under the current laws of the British Virgin Islands, BVI Wetouch, subsidiaries of Wetouch, is not subject to tax on its income or capital gains. In addition, no British Virgin Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders. Hong Kong HK Wetouch is incorporated in Hong Kong and is subject to profit taxes in Hong Kong at a progressive rate of 16.5 %. HK Wetouch did not generate any assessable profits derived from Hong Kong sources for the fiscal years ended December 31, 2021 and 2020, and accordingly no provision for Hong Kong profits tax has been made in these periods. PRC Sichuan Wetouch and Sichuan Vtouch files income tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25 % according to the Corporate Income Tax (“CIT”) Law which was passed by the National People’s Congress on March 16, 2007. Under PRC CIT Law, domestic enterprises and Foreign Investment Enterprises (“FIEs”) are usually subject to a unified 25 % enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on a case-by-case basis by local government as preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for their HNTE status every three years. Pursuant to an approval from the local tax authority in October 2017, Sichuan Wetouch became a qualified enterprise located in the western region of the PRC, entitled it to a preferential income tax rate of 15% from October 11, 2017 to October 11, 2020. On October 21, 2020, Sichuan Wetouch was granted on a case-by-case basis by Sichuan Provincial government as preferential tax treatment High and New Technology Enterprises (“HNTEs”), entitled to a reduced income tax rate of 15% beginning October 21, 2020 until October 20, 2023 . Sichuan Vtouch is entitled to 25 % of income tax rate. The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax . The components of the income tax provision are as follows: SCHEDULE OF COMPONENTS OF THE INCOME TAX PROVISION (BENEFITS) For the Years Ended December 31, 2021 2020 Current tax provision PRC $ 4,409,589 $ 1,549,333 Total current tax provision $ 4,409,589 $ 1,549,333 Deferred tax provision BVI - - Hong Kong - - China - - Total deferred tax provision - - Income tax provision $ 4,409,589 $ 1,549,333 The following table reconciles the China statutory rates to the Company’s effective tax rate for the years ended December 31, 2021 and 2020: SCHEDULE OF INCOME TAX RATE For the Years Ended December 31, 2021 2020 PRC statutory income tax rate 25.0 % 25.0 % Effect of income tax holiday ( 1.0 )% ( 10.0 )% Tax rate differential on entities not subject to PRC income ( 0.6 )% 0.0 % R&D additional deduction ( 0.5 )% 0.0 % Non-deductible expenses in the PRC ( 2.7 )% ( 0.2 )% Effective tax rate 20.2 % 14.8 % Deferred tax assets The Company’s has no deferred tax assets are as of December 31, 2021 and 2020, respectively. The Company follows ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of December 31, 2021 and 2020, Sichuan Wetouch and Sichuan Vtouch remains open for statutory examination by PRC tax authorities. F- 16 NOTE 9— ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES December 31, 2021 December 31, 2020 Advance from customers $ 59,111 $ 9,493 Accrued payroll and employee benefits 99,342 105,801 Accrued interest expenses 20,795 - Other tax payables (i) - 325,719 Others (ii) 131,159 62,442 Accrued expenses and other current liabilities $ 310,407 $ 503,455 (i) Other tax payables are mainly value added tax payable. (ii) Others mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses. NOTE 10— DEFERRED GRANTS On January 14, 2013 and January 27, 2014, Sichuan Wetouch received RMB 11.2 million (equivalent to US$ 1.8 million) and RMB 4.8 million (equivalent to US$ 0.8 million) government subsidies, respectively, from Sichuan Provincial Government in supporting the initial set-up and construction of its production facility. The Company completed the construction of the plant in June 2013 and there were no other unfulfilled conditions and/or other contingencies attaching to government assistance which has been recognized as income. Since the funding is related to the construction of long-term assets, the amounts were recognized as government grant, which is included in deferred grants on the consolidated balance sheets, and to be recognized as other income in the consolidated statements of comprehensive income (loss) over the periods and in the proportions in which depreciation expense on the long-term assets is recognized. During the year ended December 31, 2021, the Company recognized the remaining balance of deferred grant as income due to the government directed relocation order disclosed in Note 4. F- 17 NOTE 11 – CONVERTIBLE PROMISSORY NOTES PAYABLE a) Convertible promissory notes In October, November, and December 2021, the Company, issued seven (7) convertible promissory notes of US$ 2,250,000 aggregate principal amount, due in one year (the ‘Notes’) with issuance price discounted 90.0 %. The Notes bear interest at a rate of 8.0 % per annum, payable in one year and will mature on October 27, November 5, November 16, November 29 and December 2 of 2022. Net proceeds after debt issuance costs and debt discount were approximately US$ 1,793,000 . Debt issuance costs in the amount of US$ 162,000 are recorded as deferred charges and included in the other current assets on the consolidated balance sheet. The debt discount and debt issuance costs are amortized into interest expense using the effective interest method over the terms of the Notes. The details of convertible notes are as follows: Unless the Notes are converted, the principal amounts of the Notes, and accrued interest at the rate of 8 % per annum, are payable on the one-year anniversary of the issuance of the Notes (the “Maturity Date”). If the Company fails to satisfy its loan obligation by the Maturity Date, the default interest rate will be 16 %. The Lenders have the right to convert any or all of the principal and accrued interest on the Notes into shares of common stock of the Company on the earlier of (i) 180 calendar days after the issuance date of the Notes or (ii) the closing of a listing for trading of the common stock of the Company on a national securities exchange offering resulting in gross proceeds to the Company of $ 15,000,000 or more (an “ Uplist Offering ”). If the Company closes an Uplist Offering on or before the 180 th calendar date after the issuance date of the Notes, the conversion price shall be 70 % of the per share offering price in the Uplist Offering; otherwise, the conversion price is $ 0.75 per share. Subject to customary exceptions, if the Company issues shares or any securities convertible into shares of common stock at an effective price per share lower than the conversion price of the Notes, the conversion rate of the Notes shall be reduced to such lower price. Until the Notes are either paid or converted in their entirety, the Company agreed with the Lenders not to sell any securities convertible into shares of common stock of the Company (i) at a conversion price that is based on the trading price of the stock or (ii) with a conversion price that is subject to being reset at a future date or upon an event directly or indirectly related to the business of the Company or the market for the common stock. The Company also agreed to not issue securities at a future determined price. The Lenders have the right to require the Company to repay the Notes if the Company receives cash proceeds, including proceeds from customers and the issuance of equity (including in the Uplist Offering). If the Company prepays the Notes prior to the Maturity Date, the Company shall pay a 10% prepayment penalty. For the year ended December 31, 2021, the Company recognized interest expenses of the Notes in the amount of US$ 27,447 . The following is the summary of outstanding promissory notes as of December 31, 2021: SUMMARY OF OUTSTANDING PROMISSORY NOTES Interest rate Principal Amount Net Proceeds Warrants Shares Maturity Date Convertible Note- Tarlos Victory (Note 9 (b)) 8 % $ 250,000 $ 197,000 200,000 October 27, 2022 Convertible Note-Mast Hill (Note 9 (b)) 8 % 750,000 601,000 600,000 November 5, 2022 Convertible Note-First Fire (Note 9 (b)) 8 % 250,000 197,000 200,000 November 16, 2022 Convertible Note-LGH Note 9 (b)) 8 % 250,000 207,000 200,000 November 24, 2022 Convertible Note -Fourth Man (Note 9 (b)) 8 % 250,000 197,000 200,000 November 29, 2022 Convertible Note-Jeffery Street Note 9 (b)) 8 % 250,000 197,000 200,000 December 2, 2022 Convertible Note -Blue Lake Note 9 (b)) 8 % 250,000 197,000 200,000 December 2, 2022 Total 2,250,000 1,793,000 1,800,000 Debt Discounts ( 225,000 ) Amortization of discounts for the year ended December 31, 2021 5,550 Convertible Promissory Notes payable as of December 31, 2021 $ 2,030,550 *The Company prepaid $ 10,000 legal deposit for each note till the repayment of the notes. F- 18 b) Warrants Accounting for Warrants In connection with the issuance of a convertible promissory notes (see Note 11 (a) in October, November and December, 2021, the Company also issued seven (7) three-year warrant (the “Warrant”) to purchase an aggregate of 1,800,000 shares of the Company’s common stock (the “Warrant Shares”). The Warrants issued to the Lenders granted each of the Lenders the right to purchase up to 200,000 shares of common stock of the Company at an exercise price of $ 1.25 per share. However, if the Company closes an Uplist Offering on or before the 180 th calendar date after the issuance date of the Warrants, then the exercise price shall be 125 % of the offering price of a share in the Uplist Offering. If the adjusted exercise price as a result of the Uplist Offering is less than $ 1.25 per share, then the number of shares for which the Warrants are exercisable shall be increased such that the total exercise price, after taking into account the decrease in the per share exercise price, shall be equal to the total exercise price prior to such adjustment. The Lenders have the right to exercise the Warrants on a cashless basis if the highest traded price of a share of common stock of the Company during the 150 trading days prior to exercise of the Warrants exceeds the exercise price, unless there is an effective registration statement of the Company which covers the resale of the Lenders. If the Company issues shares or any securities convertible into shares at an effective price per share lower than the exercise price of the Warrants, the exercise price of the Warrants shall be reduced to such lower price, subject to customary exceptions. The Lenders may not convert the Notes or exercise the Warrants if such conversion or exercise will result in each of the Lenders, together with any affiliates, beneficially owning in excess of 4.9 % of the Company’s outstanding common stock immediately after giving effect to such exercise unless the Lenders notify the Company at least 61 days prior to such exercise. The fair values of these warrants as of December 31, 2021 were calculated using the Black-Scholes option-pricing model with the following assumptions: SCHEDULE OF FAIR VALUE OF WARRANTS December 31, 2021 Volatility (%) Expected dividends yield (%) Weighted average expected life (year) Risk-free interest rate (%) (per annum) Initial value of common stock purchase warrants liability (US$) Changes of fair value of common stock purchase warrants liability (- (gains)/+ losses(US$) Common stock purchase sarrants liability as of December 31, 2021(US$) Convertible Note- Tarlos Victory (Note 9 (a)) 187.3 % $ 0.0 % $ 2.8 0.97 % 311,649 ( 186,893 ) 124,756 Convertible Note-Mast Hill (Note 9 (a)) 187.3 % 0.0 % 2.8 0.97 % 576,233 ( 201,077 ) 375,156 Convertible Note-First Fire (Note 9 (a)) 187.3 % 0.0 % 2.9 0.97 % 196,037 ( 70,629 ) 125,408 Convertible Note-LGH Note 9 (a)) 187.3 % 0.0 % 2.9 0.97 % 214,644 ( 88,980 ) 125,664 Convertible Note -Fourth Man (Note 9 (ab)) 187.3 % 0.0 % 2.9 0.97 % 214,867 ( 89,046 ) 125,821 Convertible Note-Jeffery Street Note 9 (a)) 187.3 % 0.0 % 2.9 0.97 % 187,338 ( 61,423 ) 125,915 Convertible Note -Blue Lake Note 9 (a)) 187.3 % 0.0 % 2.9 0.97 % 187,338 ( 61,423 ) 125,915 Total Total 1,888,106 ( 759,471 ) 1,128,635 F- 19 (c) Registration Rights Agreements Pursuant to the terms of the Registration Rights Agreement dated as of contract date of each convertible promissory note, 2021, executed between the Company and Lender, the Registration Rights Agreement dated as of each contract date, executed between the Company and Lenders, the Company agreed to file a registration statement with the Securities and Exchange Commission to register the shares of common stock underlying the Notes and the shares issuable upon exercise of the Warrants within sixty days from the date of each Registration Rights Agreement. The Company also granted the Lenders piggyback registration rights on such shares pursuant to the Purchase Agreements. NOTE 12— SHAREHOLDERS’ EQUITY Ordinary Shares The Company’s authorized number of ordinary shares was 300,000,000 shares with par value of $ 0.001 . On December 22,2020, the Company issued 103,610 shares of common stock to The Crone Law Group, P.C. or its designees for legal services (see Note 11). On January 1, 2021, the Company issued an aggregate of 310,830 shares to a third party service provider for consulting services that had been rendered. As of December 31, 2021, the Company had 31,811,523 issued and outstanding shares. Statutory reserve and restricted net assets Under PRC rules and regulations, all subsidiaries of Wetouch in the PRC are required to appropriate 10% of their net income to a statutory surplus reserve until the reserve balance reaches 50% of their registered capital. The appropriation to this statutory surplus reserve must be made before distribution of dividends can be made. The statutory reserve is non-distributable, other than during liquidation, and can be used to fund previous years losses, if any, and may be converted into share capital by issuing new shares to existing shareholders in proportion to their shareholders or by increasing the par value of the shares currently outstanding, provided that the remaining balance of the statutory reserve after such issue is not less than 25% of the registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends. For the years ended December 31, 2021 and 2020, the Company made appropriations to the reserve fund of RMB 12,933,795 (equivalent to US$ 2,005,084 ) and RMB 6,907,298 (equivalent to US$ 1,058,590 ), respectively. NOTE 13- SHARE BASED COMPENSATION The Company applied ASC 718 and related interpretations in accounting for measuring the cost of share-based compensation over the period during which the consultants are required to provide services in exchange for the issued shares. The fair value of above award was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. On December 22, 2020, the Board of Directors of the Company authorized the issuance of an aggregate of 103,610 shares and 210,360 warrants to The Crone Law Group, P.C. or its designees for legal services that had been rendered. The five -year warrants are exercisable at one cent per share. The shares of 103,610 were vested on December 22, 2020 and no warrants were exercised. The fair value of above award was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. The fair value of the Black-Scholes model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0 %, volatility of 43.5 % and an average interest rate of 0.11 %. On January 1, 2021, the Board of Directors of the Company authorized the issuance of an aggregate of 310,830 shares and 631,080 warrants to a third party service provider for consulting services that had been rendered. The five -year warrants are exercisable at one cent per share. The 310,830 shares of common stock and 631,080 warrants were vested on January 1, 2021 and no warrants were exercised. The fair value of above award was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. The fair value of the Black-Scholes model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0 %, volatility of 51.3 % and an average interest rate of 0.12 %. As of December 31, 2021, the Company had 841,440 warrants outstanding related to above mentioned services with i) weighted average exercise price of $ 0.01 ; ii) weighted average remaining contractual life of 1.5 years; and iii) aggregate intrinsic value of $ 0.6 million For years ended December 31, 2021 and 2020, the Company recognized relevant share-based compensation expense of $ 1,041,281 and $ 351,238 for the vested shares, and $ 2,107,825 and $ 713,120 for the warrants, respectively. F- 20 NOTE 14. WEIGHTED AVERAGE NUMBER OF SHARES In October 2020, the Company entered into a reverse merger transaction. The Company computes the weighted-average number of common shares outstanding in accordance with ASC 260 states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period. NOTE 15- RISKS AND UNCERTAINTIES Credit Risk – The carrying amount of accounts receivable included in the balance sheet represents the Company’s exposure to credit risk in relation to its financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer’s financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded management’s estimates. The Company has its cash in bank deposits primarily at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors’ interests. The PRC promulgated a Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of PRC banks. The bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB 500,000 . Interest Rate Risk – The Company is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability of securing future debt instruments within the PRC. Currency Risk - A majority of the Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance. Concentrations - The Company sells its products primarily through direct customers in the PRC and to some extent, the overseas customers in European countries and East Asia such as South Korea and Taiwan. For the year ended December 31, 2021, five customers accounted for 19.5 %, 17.3 %, 14.5 %, 14.2 %, and 11.1 %, respectively, of the Company’s revenue. For the year ended December 31, 2020, five customers accounted for 17.8 %, 15.9 %, 14.6 %, 12.7 %, and 12.2 %, respectively, of the Company’s revenue . And the Company’s top 10 customers aggregately accounted for 97.5 % and 98.5 % of the total revenue for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, six customers accounted for 25.7 %, 18.6 %, 12.5 %, 11.5 %, 11.3 % and 10.2 % of the total accounts receivable balance, respectively. As of December 31, 2020 three customers accounted for 18.2 %, 16.0 %, and 13.2 % of the total accounts receivable balance, respectively. The Company purchases its raw materials through various suppliers. Raw material purchases from these suppliers which individually exceeded 10 % of the Company’s total raw material purchases, accounted for approximately 11.2 % (one supplier) and 37.5 % (three suppliers) of the Company’s total raw material purchases for the years ended December 31, 2021 and 2020, respectively. F- 21 NOTE 16 — COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. For the year ended December 31, 2020, the Company had several legal claims or litigation that, individually or in aggregate, could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows. i) Legal case with Chengdu SME Credit Guarantee Co., Ltd. on a loan default penalty of RMB 11.8 million (equivalent to $ 1.7 million) On July 5, 2013, Sichuan Wetouch obtained a one-year loan of RMB 60.0 million (equivalent to $ 9.8 million) from Bank of Chengdu, at an annual interest rate of 8.61 %. Chengdu SME Credit Guarantee Co., Ltd (“Chengdu SME”), a third party, provided a 70% guarantee and Bank of Chengdu retained 30% of the risk, while Chengdu Wetouch and Mr. Guangde Cai (related parties, see Note 4) provided joint and several liability guarantee for 100% of the loan. On July 31, 2014, Sichuan Wetouch repaid RMB 5.0 million (equivalent to $ 0.8 million). The remaining loan of RMB 55.0 million (equivalent to $ 8.9 million) was twice extended to be due on August 22, 2018. Upon the loan becoming due, but unpaid by the Company, Chengdu SME paid the outstanding balance of RMB 55 million (equivalent to $ 8.0 million) to Bank of Chengdu. The Company subsequently repaid RMB 55 million (equivalent to $ 8.0 million) to Chengdu SME; however, Chengdu SME filed two separate lawsuits against the Company to recover loan default penalties from the Company. The loan default penalties were (a) RMB 5.8 million (equivalent to $ 0.8 million) related to the 30% of the remaining loan balance repaid by Chengdu SME and (b) RMB 6.0 million (equivalent to $ 0.9 million) related to the 70% of the remaining loan balance repaid by Chengdu SME. During the year ended December 31, 2017, the Company recorded loan default penalties, and related liabilities, of $ 1.7 million. Chengdu SME applied to the Chengdu High-tech Court for enforcement for the above mentioned loan default penalties of RMB 5.8 million (equivalent to $ 0.8 million) and RMB 6.0 million (equivalent to $ 0.9 million) on December 30, 2018. On March 12, 2020, the Enforcement Settlement Agreement issued by the Chengdu High-tech Court confirmed that Sichuan Wetouch still owed RMB 5.8 million (equivalent to $ 0.8 million) and RMB 6.0 million (equivalent to $ 0.9 million) of loan default penalties. On September 16, 2020, Sichuan Wetouch made a full repayment of RMB 11.8 million (equivalent to US$ 1.7 million) of the above loan default penalties to Chengdu SME. ii) Legal case with Sichuan Renshou Shigao Tianfu Investment Co., Ltd and Renshou Tengyi Landscaping Co., Ltd. on an asset recovery of RMB 12.0 million (equivalent to $ 1.7 million) On March 19, 2014, Chengdu Wetouch, a related party, obtained a two and half-year loan of RMB 15.0 million (equivalent to $ 2.2 million) from Chengdu Bank Co., Ltd. Gaoxin Branch (“Chengdu Bank Gaoxin Branch”) , with Chengdu Hi-tech Investment Group Co., Ltd. (“CDHT Investment”) acting as guarantor to pay off the loan principal and related interests, while Sichuan Wetouch and Hong Kong Wetouch as guarantors, were jointly and severally liable for such debts. Upon the loan due in January 2017, Chengdu Wetouch defaulted the loan, thus, CDHT Investment filed a lawsuit against Chengdu Wetouch, Sichuan Wetouch, and Hong Kong Wetouch demanding a full repayment of such debts. To support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment Co., Ltd. (“Shigaotianfu Investment”) and Renshou Tengyi Landscaping Co., Ltd. (“Renshou Tenyi”) provided their bank deposits of RMB 12.0 million (equivalent to US$ 1.7 million) as pledge, while Mr. Guangde Cai and Sichuan Wetouch also provided counter-guarantee. Upon the expiration of the guarantee, Chengdu Wetouch still defaulted repayment of above pledge. As a result, CDHT Investment levied this collateral of RMB12.0 million On November 21, 2019. Subsequently, Shigaotianfu Investment and Renshou Tengyi filed with Chengdu Intermediate People’s Court a lawsuit demanding an asset recovery of RMB 12.0 million (equivalent to $ 1.7 million) pursuant to the counter guarantee agreement. On December 2, 2019, pursuant to the reconciling agreement issued by Chengdu Intermediate People’s Court, the parties agreed to cancel the demand to seize property of Sichuan Wetouch rather than the property of Chengdu Wetouch, and to waive freezing Guangde Cai’s 60% shareholding equity in Xinjiang Wetouch. On October 9, 2020, pursuant to a settlement and release agreement, Sichuan Wetouch, Hong Kong Wetouch and Guangde Cai are fully discharged and released from any and all obligations under the outstanding debts, and from all liabilities under guarantee with Chengdu Wetouch being responsible for the outstanding debts by December 31, 2020. On October 27, 2020, Chengdu Wetouch made a full payment of the above debts. F- 22 Capital expenditure commitment On December 20, 2021, the Company entered into a contract with Shenzhen Municipal Haoyutuo Decoration & Cleaning Engineering Company Limited to purchase a facility decoration contract of RMB 20.0 million (equivalent to US$ 3.1 million ). As of December 31, 2021, the Company has prepaid RMB 15.0 million (equivalent to US$ 2.4 million) and recorded as construction in progress (see Note 6) and had a remaining balance of RMB 5.0 million (equivalent to US$ 0.7 million) to be paid by July 30, 2022. NOTE 17 — REVENUES The Company’s geographical revenue information is set forth below: SCHEDULE OF GEOGRAPHICAL REVENUE INFORMATION 2021 2020 For the Years Ended December 31, 2021 2020 Sales in PRC $ 27,213,684 $ 21,430,226 Sales in Overseas —Republic of China (ROC, or Taiwan) 7,246,592 5,178,407 -South Korea 5,962,067 4,654,133 -Others 363,131 83,185 Sub-total 13,571,790 9,915,725 Total revenues $ 40,785,474 $ 31,345,951 Due to the COVID-19 pandemic, the Company’s subsidiary Sichuan Wetouch was temporarily shut down from early February 2020 to early March 2020 in accordance with the requirement of the local governments. The Company’s business was negatively impacted and generated lower revenue and net income during the period from February to April 2020. Our business was gradually recovered to its normal level during the year ended December 31, 2021, due to our proactive efforts to in marketing new models such as POS touchscreens and penetrate into new customers into new regions. F- 23