Wetouch Technology Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 000-56215 WETOUCH TECHNOLOGY INC. (Exact name of registrant as specified in its charter) Nevada 20-4080330 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) No.29, Third Main Avenue , Shigao Town, Renshou County Meishan , Sichuan , China 620500 (Address of principal executive offices) (Zip Code) (86) 028-37390666 (Registrant’s telephone number, including area code ) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None N/A N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ (Do not check if a smaller reporting company) Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of May 22, 2023, the registrant had 193,604,965 shares of common stock issued and outstanding. WETOUCH TECHNOLOGY INC. QUARTERLY REPORT ON FORM 10-Q March 31, 2023 TABLE OF CONTENTS PAGE PART I - FINANCIAL INFORMATION 4 Item 1. Financial Statements 4 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Item 4. Controls and Procedures 12 PART II - OTHER INFORMATION 13 Item 1. Legal Proceedings 13 Item 1A. Risk Factors 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Mine Safety Disclosure 13 Item 5. Other Information 13 Item 6. Exhibits 13 SIGNATURES 14 2 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include, among others, those statements including the words “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans” and words of similar import. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions. A description of these and other risks and uncertainties that could affect our business appears in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 which we filed with the Securities and Exchange Commission (“SEC”) on April 17, 2023 (the “Annual Report”). The risks and uncertainties described under “Risk Factors” are not exhaustive. Given these uncertainties, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 3 PART I – FINANCIAL INFORMATION Item 1. Financial Statements. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC, and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report, as updated in subsequent filings we have made with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2023 INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 (Unaudited) F-1 Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2023 and 2022 (Unaudited) F-2 Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited) F-3 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited) F-4 Notes to Condensed Consolidated Financial Statements F-5 - F-18 4 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) As of March 31, As of December 31, 2023 2022 ASSETS CURRENT ASSETS Cash $ 93,258,248 $ 51,250,505 Accounts receivable, net 13,086,991 9,057,741 Inventories 171,623 423,276 Due from a related party 1,080 - Prepaid expenses and other current assets 1,146,593 1,450,620 TOTAL CURRENT ASSETS 107,664,535 62,182,142 Property, plant and equipment, net 10,968,268 10,923,610 TOTAL ASSETS $ 118,632,803 $ 73,105,752 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 2,088,520 $ 1,383,094 Loan from a third party 472,526 385,791 Due to a related party - 1,665 Income tax payable 1,400,221 22,152 Accrued expenses and other current liabilities 2,124,757 944,624 Convertible promissory notes payable 1,245,760 1,277,282 TOTAL CURRENT LIABILITIES 7,331,784 4,014,608 Common stock purchase warrants liability 354,559 256,957 TOTAL LIABILITIES $ 7,686,343 $ 4,271,565 COMMITMENTS AND CONTINGENCIES (Note 13) - - STOCKHOLDERS’ EQUITY Common stock, $ 0.001 par value, 300,000,000 shares authorized, 193,604,965 and 33,604,965 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively $ 193,605 $ 33,605 Additional paid in capital 43,210,253 3,370,253 Statutory reserve 6,040,961 6,040,961 Retained earnings 65,160,141 62,366,892 Accumulated other comprehensive income ( 3,658,500 ) ( 2,977,524 ) TOTAL STOCKHOLDERS’ EQUITY 110,946,460 68,834,187 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 118,632,803 $ 73,105,752 The accompanying notes are an integral part of these condensed consolidated financial statements. F- 1 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 REVENUES $ 13,433,461 $ 11,994,547 Cost of revenues ( 7,394,661 ) ( 7,683,792 ) GROSS PROFIT 6,038,800 4,310,755 OPERATING EXPENSES Selling expenses ( 50,705 ) ( 485,147 ) General and administrative expenses ( 1,666,756 ) ( 372,338 ) Research and development expenses ( 20,885 ) ( 22,857 ) Total operating expenses ( 1,738,346 ) ( 880,342 ) INCOME FROM OPERATIONS 4,300,454 3,430,413 OTHER INCOME (EXPENSES) Interest income 29,195 29,134 Interest expense ( 33,399 ) ( 56,172 ) Government grant - - Gain (loss) on changes in fair value of common stock purchase warrants liability ( 97,602 ) 160,443 TOTAL OTHER INCOME (EXPENSES) ( 101,806 ) 133,405 INCOME BEFORE INCOME TAX EXPENSE 4,198,648 3,563,818 INCOME TAX EXPENSE ( 1,405,399 ) ( 1,001,305 ) NET INCOME $ 2,793,249 $ 2,562,513 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment ( 680,976 ) 380,194 COMPREHENSIVE INCOME $ 2,112,273 $ 2,942,707 EARNINGS PER COMMON SHARE Basic $ 0.02 $ 0.08 Diluted $ 0.02 $ 0.08 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic 159,827,187 31,811,523 Diluted 162,059,750 32,653,163 The accompanying notes are an integral part of these condensed consolidated financial statements. F- 2 WETOUCH TECHNOLODY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Shares Amount capital reserve Earnings income equity Common stock at Par value $0.001 Additional paid-in Statutory Retained Accumulated other comprehensive Total stockholders’ Shares Amount capital reserve Earnings income equity 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 Net income 2,562,513 2,562,513 Foreign currency translation adjustment - - - - - 380,184 380,184 Balance at March 31, 2022 31,811,523 $ 31,812 $ 2,333,621 $ 5,067,243 $ 57,172,677 $ 2,645,352 $ 67,250,715 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 2022 33,604,965 $ 33,605 $ 3,370,253 $ 6,040,961 $ 62,366,892 $ ( 2,977,524 ) $ 68,834,187 Shares issued to private placement 160,000,000 160,000 39,840,000 - - 40,000,000 Net income 2,793,249 2,793,249 Foreign currency translation adjustment - - - - - ( 680,976 ) ( 680,976 ) Balance at March 31, 2023 193,604,965 $ 193,605 $ 43,210,253 $ 6,040,961 $ 65,160,141 $ 3,658,500 $ 110,946,460 The accompanying notes are an integral part of these condensed consolidated financial statements. F- 3 WETOUCH TECHNOLODY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2023 2022 For the three-months ended March 31, 2023 2022 Cash flows from operating activities Net income $ 2,793,249 $ 2,562,513 Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization 2,433 2,622 Amortization of discounts and issuance cost of the notes 6,941 12,655 Gain (loss) on changes in fair value of common stock purchase warrants liability 97,602 ( 160,443 ) Changes in operating assets and liabilities: Accounts receivable ( 4,004,967 ) ( 6,350,920 ) Amounts due from related parties ( 1,076 ) - Inventories 254,727 ( 11,620 ) Prepaid expenses and other current assets 307,380 741,854 Accounts payable 702,052 429,214 Amounts due to related parties ( 1,344 ) ( 53,472 ) Income tax payable 1,383,069 933,794 Accrued expenses and other current liabilities 1,176,473 456,056 Net cash provided by (used in) operating activities 2,716,539 ( 1,437,747 ) Cash flows from investing activities Net cash provided by investing activities - - Cash flows from financing activities Proceeds from stock issuance of private placement 40,000,000 - Proceeds from interest-free advances from a third party 86,735 - Repayments of convertible promissory notes payable ( 35,000 ) - Net cash used in financing activities 40,051,735 - Effect of changes of foreign exchange rates on cash ( 760,531 ) 94,476 Net increase in cash 42,007,743 ( 1,343,271 ) Cash, beginning of period 51,250,505 46,163,704 Cash, end of period $ 93,258,248 $ 44,820,433 Supplemental disclosures of cash flow information Income tax paid $ 22,330 $ 1,001,305 The accompanying notes are an integral part of these condensed consolidated financial statements. F- 4 WETOUCH TECHNOLOGY INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 1 — BUSINESS DESCRIPTION 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, and 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 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 Wetouch. 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. Sichuan Vtouch took over the operating business of Sichuan Wetouch. On March 30, 2023 an independent third party acquired all shares of Sichuan Wetouch. As a result of the above restructuring, HK Wetouch became the sole shareholder of Sichuan Vtouch. F- 5 Note 2 — BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements of Wetouch. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended. In the opinion of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2023, the results of operations and cash flows for the three-month periods ended March 31, 2023 and 2022 have been made. However, the results of operations included in such financial statements may not necessarily be indicative of annual results. Use of Estimates The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, management evaluates the Company’s estimates, including those related to the bad debt allowance, fair values of financial instruments, intangible assets and property and equipment, income taxes, and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Significant Accounting Policies For a detailed discussion about Wetouch’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Wetouch’s consolidated financial statements included in Company’s 2022 audited consolidated financial statements. During the three-month periods ended March 31, 2023, there were no significant changes made to Wetouch significant accounting policies. F- 6 NOTE-3- ACCOUNTS RECEIVABLE Accounts receivable consists of the following: SCHEDULE OF ACCOUNTS RECEIVABLE March 31, 2023 December 31 2022 Accounts receivable $ 13,086,991 $ 9,057,741 Allowance for doubtful accounts - - Accounts receivable, net $ 13,086,991 $ 9,057,741 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 consist of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS March 31, 2023 December 31, 2022 Advance to suppliers $ 345,204 $ 333,920 VAT input credits 38,549 355,482 Issue cost related to convertible promissory notes 78,150 81,614 Prepayment for land use right ( i ) 571,558 569,105 Security deposit ( ii ) 57,225 56,979 Others receivable ( iii ) 55,907 53,520 Prepaid expenses and other current assets $ 1,146,593 $ 1,450,620 (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 $ 571,558 ) 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 2023, 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 $ 57,225 ) 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 the end of 2023. (iii) Other receivables are mainly employee advances, and prepaid expenses. NOTE 5— PROPERTY, PLANT AND EQUIPMENT, NET SCHEDULE OF PROPERTY , PLANT AND EQUIPMENT March 31, 2023 December 31, 2022 Buildings $ 12,540 $ 12,487 Vehicles 42,637 42,453 Construction in progress 10,929,958 10,883,051 Subtotal 10,985,135 10,937,991 Less: accumulated depreciation ( 16,867 ) ( 14,381 ) Property, plant and equipment, net $ 10,968,268 $ 10,923,610 Depreciation expense was $ 2,433 and $ 2,622 for the three-month period ended March 31, 2023 and 2022, 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 ($ 18.2 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. 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. (later renamed as Meishan Huantian Industrial 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 ($ 43,683 ), and renewed on December 31, 2021 at a monthly rent of RMB 400,000 ($58,244) from January 1, 2022 till October 31, 2023 for the use of the Demised Properties . F- 7 NOTE 6 – RELATED PARTY TRANSACTIONS Amounts due from a related party are as follows : SCHEDULE OF RELATED PARTY TRANSACTIONS Relationship March 31, 2023 December 31, 2022 Note Mr. Zongyi Lian President and CEO of the Company $ 1,080 $ - Receivable from employee Total $ 1,080 $ - Amounts due to a related party are as follows : Relationship March 31, 2023 December 31, 2022 Note Mr. Zongyi Lian President and CEO of the Company - 1,665 Payable to employee Total $ - $ 1,665 NOTE 7 — INCOME TAXES Wetouch Wetouch Technology Inc. files a U.S. federal income tax return. 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 rate of 16.5 %. 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 . On March 30, 2023 an independent third party acquired all shares of Sichuan Wetouch. Sichuan Vtouch is entitled to 25 % of income tax rate. The effective income tax rates for the three-month periods ended March 31, 2023 and 2022 were 33.5 % and 28.1 %, respectively. The estimated effective income tax rate for the year ended December 31, 2023 would be similar to actual effective tax rate of the three-month periods ended March 31, 2023. F- 8 NOTE 8— ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES March 31, 2023 December 31, 2022 Advance from customers $ 525,782 $ 397,886 Accrued payroll and employee benefits 89,054 89,359 Accrued interest expenses 148,592 122,135 Accrued underwriter fees (i) 1,200,000 - Other tax payables (ii) - 261 Other payable to a former shareholder (iii) - 191,180 Others (iv) 161,329 153,803 Accrued expenses and other current liabilities $ 2,124,757 $ 944,624 (i) On March 18, 2023, the Company entered into a private placement consent agreement with representatives related to the private placement consummated on January 19, 2023 (see Note 10) on the underwriting fees of US$ 1.2 million, payable only on the completion of the underwriting offering. (ii) Other tax payables are mainly value added tax payable. (iii) Other payable to a former shareholder was paid in March 2023. (iv) Others mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses. NOTE 9 – 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. F- 9 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. The following table summarizes the outstanding promissory notes as of March 31, 2023 and December 31, 2022 (dollars in thousands): SUMMARY OF OUTSTANDING PROMISSORY NOTES March 31, 2023 December 31, 2022 Interest rate Principal Amount Carrying Amount Principal Amount Carrying Amount Convertible Note - Talos Victory (Note 9 (b)) 8 % $ - $ - $ - - Convertible Note - Mast Hill (Note 9 (b)) 8 % 725,000 639,400 740,000 635,535 Convertible Note - First Fire (Note 9 (b)) 8 % 176,250 156,466 181,250 156,594 Convertible Note - LGH Note 9 (b)) 8 % 202,500 188,949 207,500 188,987 Convertible Note - Fourth Man (Note 9 (b)) 8 % 152,000 129,322 157,000 128,703 Convertible Note - Jeffery Street Note 9 (b)) 8 % 165,000 136,809 170,000 142,554 Convertible Note - Blue Lake Note 9 (b))Total 8 % - - - - Total $ 1,420,750 $ 1,250,946 $ 1,455,750 $ 1,252,373 Amortization of discounts for the three months ended March 31, 2023 ( 5,186 ) Convertible promissory notes payable as of March 31, 2023 $ 1,245,760 From December 28, 2022 to January 18, 2023, the remaining five (5) lenders and the Company entered into an amendment to the Note (“Amendment to Promissory Note”) extending maturity date for an additional 6 months. For the three-month period ended March 31 , 2023 and 2022, the Company recognized interest expenses of the Notes in the amount of US$ 33,399 and US$ 56,172 , respectively. *The Company prepaid $ 10,000 legal deposit for each note till the repayment of the notes. F- 10 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. On January 17, 2022, we closed a private offering of ordinary shares and warrants to purchase ordinary shares. A total of 2,750,000 ordinary shares (the “Shares”) were issued to a total of five (5) investors (the “Investors”) at a subscription price of $ 0.80 per share, for total subscription proceeds of $ 2,200,000 . In addition, for each share subscribed for by the Investors, we issued one (1) warrant to purchase one (1) ordinary share at an exercise price of $ 0.88 per share, exercisable for a period of twenty-four (24) months (the “Warrants”). We have agreed to register the Investors’ re-sale of the Shares by way of a prospectus supplement to our currently effective unallocated shelf registration statement on Form F-3, (SEC File No. 333-267116). The offer and sale of the Shares and the Warrants was exempt under Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”). We engaged in no general solicitation or advertising with regard to the offering and the offering was made solely to “Accredited Investors” as defined in Rule 501 of Regulation D under the Securities Act. On April 14, April 27, and September 1, 2022, three lenders exercised cashless for 115,540 (4th Man), 111,972 (Talos) and 57,142 (Blue lake) warrant shares, respectively. F- 11 The fair values of these warrants as of March 31, 2023 were calculated using the Black-Scholes option-pricing model with the following assumptions: SCHEDULE OF FAIR VALUE OF WARRANTS March 31, 2023 Volatility (%) Expected dividends yield (%) Weighted average expected life (year) Risk-free interest rate (%) (per annum) Common stock purchase warrants liability as of December 31, 2022(US$) Changes of fair value of common stock purchase warrants liability (+ (loss)/(- (gain)(US$) Common stock purchase warrants liability as of March 31, 2023 (US$) Convertible Note - Talos Victory (Note 9 (a)) 337.7 % $ 0.0 % $ 1.6 4.35 % 14,803 5,663 20,466 Convertible Note - Mast Hill (Note 9 (a)) 337.7 % 0.0 % 1.6 4.35 % 101,293 38,623 139,916 Convertible Note - First Fire (Note 9 (a)) 337.7 % 0.0 % 1.6 4.35 % 33,919 12,883 46,802 Convertible Note - LGH Note 9 (a)) 337.7 % 0.0 % 1.7 4.35 % 34,028 12,888 46,916 Convertible Note - Fourth Man (Note 9 (ab)) 337.7 % 0.0 % 1.7 4.35 % 14,398 5,444 19,842 Convertible Note - Jeffery Street Note 9 (a))3,054 337.7 % 0.0 % 1.7 4.35 % 34,134 12,892 47,026 Convertible Note - Blue Lake Note 9 (a)) 337.7 % 0.0 % 1.7 4.35 % 24,382 9,209 33,591 Total Total 256,957 97,602 354,559 (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. F- 12 NOTE 10— SHAREHOLDERS’ EQUITY 1) 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. On April 14, April 27, 2022 and September 1, 2022, the Company issued cashless warrant shares of 115,540 , 111,972 and 57,142 to three lenders respectively. (see Note 9 (b)). During the year ended December 31, 2022, the Company issued 124,223 shares to a third party for warrant exercise (see Note 11). During the year ended December 31, 2022, the Company issued 1,384,564 shares of common stock for the conversion of convertible promissory note payable (see note 9 (a)). On January 19, 2023, the Company sold an aggregate of 160,000,000 shares of the common stock to buyers of the private placement for an aggregate purchase price of $ 40,000,000 , or $ 0.25 per share. On January 20, 2023, the Company received net proceeds of $ 40 million accordingly. As of March 31, 2023, the Company had 193,604,965 issued and outstanding shares. 2) Reverse Stock Split On February 17, 2023, the Board authorized a reverse stock split with a ratio of not less than one to five (1:5) and not more than one to eighty (1:80) , with the exact amount and the timing of the reverse stock split to be as determined by the Chairman of the Board. Upon such reverse stock split becoming effective, the number of authorized shares of the common stock of the Company will also be decreased in the same ratio. Pursuant to Nevada Revised Statutes Section 78.209, the reverse stock split does not have to be approved by the shareholders of the Company. NOTE 11- 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 during the year ended December 31, 2022, 124,223 warrant shares were exercised cashless. 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 1.5 years, expected dividend rate of 0 % , volatility of 215.4 % and an average interest rate of 2.96 % . As of March 31, 2023, the Company had 717,217 warrants outstanding related to above mentioned services with i) weighted average exercise price of $ 0.01 ; ii) weighted average remaining contractual life of 0.8 years; and iii) aggregate intrinsic value of $ 0.2 million. For the three-month periods ended March 31, 2023 and 2022, the Company recognized relevant share-based compensation expense of nil and nil for the vested shares, and nil and nil for the warrants, respectively. F- 13 NOTE 12- 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 three-month periods ended March 31, 2023 and 2022, five customers accounted for 22.3 % , 15.7 % , 15.0 % , 14.2 % , 12.2 % and 10.8 % , and six customers accounted for 18.1 % , 16.2 % , 15.7 % , 14.7 % , 12.4 % and 12.3 % , respectively, of the Company’s revenue. And the Company’s top ten customers aggregately accounted for 99.6 % and 99.4 % of the total revenue for the three-month periods ended March 31, 2023 and 2022, respectively. As of March 31, 2023, five customers accounted for 25.8 , 17.4 % , 13.8 % , 12.1 % and 10.9 % 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 75.0 % (five suppliers) and 47.4 % (four suppliers) for the three-month periods ended March 31, 2023 and 2022, respectively. F- 14 NOTE 13 — COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company and its affiliates are parties to various legal actions arising in the ordinary course of business. Although Sichuan Wetouch and Hong Kong Wetouch, the previous subsidiaries of the Company, and our former Chairman and director Mr. Guangde Cai were named as defendants in several litigation matters, as of the date of this report, all such matters have been settled and Sichuan Wetouch, Hong Kong Wetouch and Mr. Guangde Cai were unconditionally and fully discharged and released therefrom (See Item 13- Legal Proceedings). Accordingly, there are no pending material legal proceedings against the Company. i) An equity dispute case with Yunqing Su with a disputed amount of RMB 1,318,604 (equivalent to $ 191,180 ) On June 22, 2017, Yunqing Su, a former shareholder, entered an Equity Investment Agreement with Sichuan Wetouch and Guangde Cai, agreed that Yunqing Su would invest RMB 1 million (equivalent to $ 149,853 ) to purchase 370,370.37 original listed shares of the target company, and provided for the exit mechanism in the agreement. However, the target company failed to be listed prior to December 31, 2017 as agreed. On June 22, 2017, Guangde Cai and Yunqing Su entered into a supplementary agreement, pursuant to which Guangde Cai shall repurchase all of Yunqing Su’s equity interest and pay the interest. Sichuan Wetouch repaid Yunqing Su the interest of RMB 220,000 (equivalent to $ 32,968 ) and the principal of RMB 128,000 (equivalent to $ 19,181 ) in November 2018. The repayment period set forth in the supplementary agreement expired, but Sichuan Wetouch and Guangde Cai failed to pay the principal and interest owed to Yunqing Su. Yunqing Su sued Sichuan Wetouch and Guangde Cai to the Renshou County People’s Court of Sichuan Province, and the case was filed on February 9, 2022. On May 9, 2022, pursuant to a civil mediation statement issued by the Renshou County People’s Court of Sichuan Province, Wetouch Sichuan and Guangde Cai agreed to repay Yunqing Su the principal and interest in the total amount of RMB 1,318,604 (equivalent to $ 191,180 ). Wetouch Sichuan fully paid the aforesaid amount on March 15, 2023. ii) Legal case with Chengdu SME Credit Guarantee Co., Ltd. on a court acceptance fee of RMB 338,418 (equivalent to $ 49,066 ) 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 Technology Co. Ltd. (“Chengdu Wetouch”) and Mr. Guangde Cai 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 $ 8.9 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. The agreement did not specify which party shall pay the court fee. On September 16, 2020, Sichuan Wetouch made a full repayment of RMB 11.8 million (equivalent to $ 1.7 million) of the above loan default penalties to Chengdu SME. F- 15 On March 16, 2023, pursuant to an Enforcement Settlement Agreement entered among Chengdu SME, Sichuan Wetouch and Chengdu Wetouch, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 338,418 (equivalent to $ 49,066 ). On March 17, 2023, Chengdu Wetouch made a full payment of the above court fee to Chengdu SME. iii) Legal case with Zhuhai Hongguang Technology Co., Ltd on the total amount of RMB 131,859 (equivalent to $ 19,118 ) for goods and liquidated damages In September 2016, Sichuan Wetouch started purchasing components from Hongguang Technology Co., Ltd (“Hongguang Technology”) by sending a Purchase Order to Hongguang Technology and agreed to bear 20% of the breach of contract as liquidated damages. On November 30, 2021, Hongguang Technology filed a complaint with Renshou County People’s Court of Sichuan Province, requesting Sichuan Wetouch to pay RMB 109,883.2 (equivalent to $ 16,466 ) in arrears and liquidated damages of RMB 21,976.64 (equivalent to $ 3,293 ). Thereafter, the parties entered into a settlement agreement, pursuant to which Sichuan Wetouch agreed to pay the principal of outstanding payment and liquidated damages in the total amount of RMB 131,859 (equivalent to $ 19,118 ) on a lump-sum basis. Sichuan Wetouch paid the entire aforesaid amount to Hongguang Technology on February 16, 2022. iv) Legal case with Lifan Financial Leasing (Shanghai) Co., Ltd. and Sichuan Wetouch, Chengdu Wetouch, Meishan Wetouch and Xinjiang Wetouch Electronic Technology Co., Ltd. on a court acceptance fee of RMB RMB 250,470 (equivalent to $ 36,315 ) On November 20, 2014, Lifan Financial Lease (Shanghai) Co., Ltd. (“Lifan Financial”) and Chengdu Wetouch entered into a Financial Lease Contract (Sale and Leaseback), which stipulated that Lifan Financial shall lease the equipment to Chengdu Wetouch after the purchase of the production equipment owned by Chengdu Wetouch at a purchase price, the purchase price/lease principal shall be RMB 20 million, the rental interest rate of the leased equipment shall be 8 % per year, and the lease term shall be 24 months. Upon the expiration of the lease term, Lifan Financial shall transfer the leased property to Chengdu Wetouch or a third party designated by Chengdu Wetouch at the price of RMB0 after Chengdu Wetouch has fully fulfilled its obligations, including, without limitation, the payment of the rent, liquidated damages (if any) and other contractual obligations. Guangde Cai, Sichuan Wetouch, Meishan Vtouch Electronics Technology Co., Ltd. (“Meishan Wetouch”) and Xinjiang Wetouch Electronic Technology Co., Ltd. (“Xinjiang Wetouch”) provided Lifan Financial with joint and several liability guarantee. On August 9, 2021, Lifan Financial filed a lawsuit against Chengdu Wetouch, Guangde Cai, Sichuan Wetouch, Meishan Wetouch and Xinjiang Wetouch to the Chengdu Intermediate People’s Court. The court ruled that: 1) the Financial Lease Contract (Sale and Leaseback) was terminated; 2) the leased property was owned by Lifan Financial; 3) Chengdu Wetouch shall pay Lifan Financial all outstanding rent and interest thereon in the total amount of RMB 22,905,807.12 as well as the difference between the liquidated damages and the value of the leased property recovered; etc. The parties executed a settlement agreement on March 7, 2023, in which the parties confirmed that the outstanding payment of RMB 22,905,807.12 has been fully paid up on December 23, 2021 and the above cases have been settled. As for the court acceptance fees that were not previously agreed upon by the parties, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 250,470 (equivalent to $ 36,315 ). Chengdu Wetouch paid the aforesaid fees to Lifan Financial on March 10, 2023. v) Legal case with Sichuan Renshou Shigao Tianfu Investment Co., Ltd and Renshou Tengyi Landscaping Co., Ltd. on a court acceptance fee of RMB 103,232 (equivalent to $ 14,967 ) 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. F- 16 To support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment Co., Ltd. (“Sichuan Renshou”) and Renshou Tengyi Landscaping Co., Ltd. (“Renshou Tengyi”) provided their bank deposits of RMB 12.0 million (equivalent to $ 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 on repayment of the above pledge. As a result, CDHT Investment levied this collateral of RMB 12.0 million. On November 21, 2019. Subsequently, Sichuan Renshou 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 Electronic Technology Co., Ltd. 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. The settlement and release agreement did not specify which party shall pay the court acceptane fee. On March 10, 2023, pursuant to an enforcement settlement agreement entered among Sichuan Renshou, Renshou Tengyi, Sichuan Wetouch, Chengdu Wetouch, and other relevant parties, Sichuan Wetouch agreed to pay the court acceptance fee of RMB 103,232 (equivalent to $ 14,967 ). On March 17, 2023, Chengdu Wetouch made a full payment of the above court fee to Sichuan Renshou. vi) Legal case with Chengdu High Investment Financing Guarantee Co. on a court acceptance fee of RMB 250,000 (equivalent to $ 36,246 ) On March 22, 2019, Chengdu High Investment Financing Guarantee Co., Ltd, (“Chengdu High Investment”) filed a lawsuit against Hong Kong Wetouch to the Chengdu Intermediate People’s Court, claiming that Hong Kong Wetouch should assume the guarantee liability for the debt payable by Chengdu Wetouch. On May 21, 2020, the court rendered a judgment ordering Hong Kong Wetouch to pay compensation of RMB 17,467,042 (equivalent to $ 2,617,491 ), interest, liquidated damages, liquidated damages for late performance, etc. On March 16, 2023, Chengdu Wetouch, Sichuan Wetouch and Chengdu High Investment entered into a settlement enforcement agreement, confirming that Chengdu High Investment had received RMB 17,547,197.5 (equivalent to $ 2,629,503 ) on October 27, 2020, and the above case has been settled. As for the court acceptance fees that were not previously agreed upon by the parties, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 250,000 (equivalent to $ 36,246 ). Chengdu Wetouch paid the aforesaid fees to Chengdu High Investment on March 20, 2023. vii) Legal case with Hubei Lai’en Optoelectronics Technology Co., Ltd. on a product payment of RMB 157,714 (equivalent to $ 22,866 ) Sichuan Wetouch purchased products from Hubei Lai’en Optoelectronics Technology Co., Ltd. (“Hubei Lai’en) multiple times from March to June 2019, but failed to pay the corresponding amount of RMB 137,142.7 for the purchased products. On April 6, 2022, Hubei Lai’en filed a lawsuit against Sichuan Wetouch to the Renshou County People’s Court of Sichuan Province, requesting payment of overdue payment for the products and liquidated damages. On May 31, 2022, the Renshou County People’s Court rendered a judgment that Sichuan Wetouch shall pay Hubei Lai’en the price of goods of RMB 137,143 and liquidated damages of RMB 20,571 . Sichuan Wetouch paid the above amount to Hubei Lai’en on March 15, 2023. F- 17 viii) Legal case with Shenzhen Helitong Technology Co., Ltd. on a product payment of RMB 229,513 (equivalent to $ 34,393 ) Sichuan Wetouch purchased products from Shenzhen Helitong Technology Co., Ltd. (“Shenzhen Helitong”) multiple times from January to June 2020, but failed to pay some of the purchase fee for the products. On October 21, 2021, Shenzhen Helitong filed a lawsuit against Sichuan Wetouch to the Renshou County People’s Court of Sichuan Province, requesting payment of overdue payment for the products and interests. On October 10, 2021, pursuant to a civil mediation letter issued by the Renshou County People’s Court, both parties agree that Sichuan Wetouch shall pay a total of RMB 229,513 (equivalent to $ 34,393 ) to Shenzhen Helitong, and the other claims waived by Shenzhen Helitong. As of February 16, 2022, Sichuan Wetouch made a full payment of RMB 229,513 (equivalent to $ 33,276 ) to Shenzhen Helitong. ix) Legal case with Xinjiang Weiyida Real Estate Development Co., Ltd on a loan payment of RMB 17,318,625 (equivalent to $ 2,510,964 ) Xinjiang Weiyida Real Estate Development Co., Ltd (“Weiyida Real Estate”) filed a lawsuit against Meishan Wetouch, Guangde Cai, Sichuan Wetouch, Xinjiang Wetouch, Sichuan Yitong Financing Guarantee Co., Ltd to the Renshou County People’s Court of Sichuan Province and applied for property preservation on February 14, 2022 with respect to the dispute over recovery right in connection with the loan agreement. The parties entered into a settlement agreement and agreed that Meishan Wetouch shall repay the principal of RMB$ 17,318,625 (equivalent to $ 2,595,250 ) and liquidated damages to Weiyida Real Estate in a lump sum. On March 14, 2022, Meishan Wetouch paid RMB$ 17,318,625 (equivalent to $ 2,510,964 ) to Weiyida Real Estate. 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 March 31, 2023, the Company has prepaid RMB 15.0 million (equivalent to US$ 2.2 million) and recorded as construction in progress (see Note 5) and had a remaining balance of RMB 5.0 million (equivalent to US$ 0.7 million) to be paid by the end of 2023. NOTE 14 — REVENUES The Company’s geographical revenue information is set forth below: SCHEDULE OF GEOGRAPHICAL REVENUE INFORMATION 2023 2022 For the Three-Month Periods Ended, March 31, 2023 2022 Sales in PRC $ 9,287,566 $ 8,169,567 Sales in Overseas —Republic of China (ROC, or Taiwan) 2,119,140 1,998,679 -South Korea 1,911,297 1,763,200 -Others 115,458 63,101 Sub-total 4,145,895 3,824,980 Total revenues $ 13,433,461 $ 11,994,547 F- 18 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. The management’s discussion and analysis contain forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in our Annual Report filed with the SEC on April 17, 2023, as updated in subsequent filings we have made with the SEC that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report. Basis of Presentation The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto. Overview We were originally incorporated under the laws of the state of Nevada in August 1992. On October 9, 2020, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited, a British Virgin Islands (“BVI”) company incorporated on August 14, 2020 under the laws of the British Virgin Islands (“BVI Wetouch”), and all the shareholders of BVI Wetouch (each a “Shareholder” and collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the Shareholders an aggregate of 28 million shares of our common stock (the “Reverse Merger”). The Reverse Merger closed on October 9, 2020. Immediately after the closing of the Reverse Merger, we had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary. Through our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing, sales and servicing of medium to large sized projected capacitive touchscreens, which constitutes our source of revenues. We are specialized in large-format touchscreens, which are developed and designed for a wide variety of markets and used in by the financial terminals, automotive, POS, gaming, lottery, medical, HMI, and other specialized industries. Our product portfolio comprises medium to large sized projected capacitive touchscreens ranging from 7.0 inch to 42 inch screens. In terms of the structures of touch panels, we offer (i) Glass-Glass (“GG”), primarily used in GPS/car entertainment panels in mid-size and luxury cars, industrial HMI, financial and banking terminals, POS and lottery machines; (ii) Glass-Film-Film (“GFF”), mostly used in high-end GPS and entertainment panels, industrial HMI, financial and banking terminals, lottery and gaming industry; (iii) Plastic-Glass (“PG”), typically adopted by touchscreens in GPS/entertainment panels motor vehicle GPS, smart home, robots and charging stations; and (iv) Glass-Film (“GF”), mostly used in industrial HMI. The following discussion and analysis pertain financial condition and results of operations of our subsidiaries for the three-month period ended March 31, 2023 and 2022, respectively. 5 Effects of COVID-19 The COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and suppliers. To serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing, and after-sale processes. Beginning in Q1 2020, we made numerous process updates across our operations worldwide, and adapted our fulfillment network, to implement employee and customer safety measures, such as enhanced cleaning and physical distancing, personal protective gear, disinfectant spraying, and temperature checks. We will continue to prioritize employee and customer safety and comply with evolving state and local standards as well as to implement standards or processes that we determine to be in the best interests of our employees, customers, and communities. Due to the COVID-19 pandemic, our subsidiary Sichuan Wetouch was temporarily shut down from early February 2020 to early March 2020 in accordance with the requirement of the local governments. Our business was negatively impacted and generated lower revenue and net income in 2020. Commencing in the spring of 2021, China began to experience an increase in COVID-19 cases, and to some extent, local governments and the national government began to take more restrictive measures to stem the spread of the virus, particularly from October 2021 to December 2021 and various periods in 2022. The Company experienced several shutdowns until the period ended March 31, 2023. To serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing, and after-sale processes. The Company has taken proactive measures to promote products to new customers and entering more regions during the three-month period ended March 31, 2023. The extent of the impact of COVID-19 on the Company’s results of operations and financial condition will depend on the virus’ future developments, including the duration and spread of the outbreak and the impact on the Company’s customers, which are still uncertain and cannot be reasonably estimated at this point of time. Highlights for the three-month period ended March 31, 2023 include: ● Revenues were $13.4 million, an increase of 11.7% from $12.0 million in the first quarter of 2022 ● Gross profit was $6.0 million, an increase of 39.5 % from $4.3 million in the first quarter of 2022 ● Gross profit margin was 45.0%, compared to 35.9% in the first quarter of 2022 ● Net income was $2.8 million, compared to $2.5 million in the first quarter of 2022 ● Total volume shipped was 635,276 units, an increase of 13.5% from 559,958 units in the first quarter of 2022 Results of Operations The following table sets forth, for the periods indicated, statements of income data: (in US Dollar millions, except percentage) Three-Month Period Ended March 31, Change 2023 2022 % Revenues $ 13.4 $ 12.0 11.7 % Cost of revenues (7.4 ) (7.7 ) (3.9 )% Gross profit 6.0 4.3 39.5 % Total operating expenses (1.7 ) (0.9 ) 88.9 % Operating income 4.3 3.4 26.5 % Total other income (expenses) (0.1 ) 0.1 (200.0 )% Changes in FV of Common Stock Purchase Warrants ( gain+/loss-) (0.1 ) 0.2 (150.0 )% Income before income taxes 4.2 3.5 20.0 % Income tax expense (1.4 ) (1.0 ) 40.0 % Net income $ 2.8 $ 2.5 12.0 % 6 Results of Operations - Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Revenues We generated revenue of $13.4 million for the three months ended March 31, 2023, an increase of $1.4 million, or 11.7%, compared to $12.0 million in the same period of last year. This was due to an increase of 13.5% in sales volume, an increase of 5.4% in the average selling price of our products, and partially offset by 7.8% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year. For the Three-Month Ended March 31, 2023 2022 Change Change Amount % Amount % Amount % (in US Dollar millions except percentage) Revenue from sales to customers in PRC $ 9.3 69.4 % $ 8.2 68.3 % $ 1.1 13.4 % Revenue from sales to customers overseas 4.1 30.6 % 3.8 31.7 % 0.3 7.9 % Total Revenues $ 13.4 100 % $ 12.0 100 % $ 1.4 11.7 % For the Three-Month Ended March 31, 2023 2022 Change Change Unit % Unit % Unit % (in UNIT, except percentage) Units sold to customers in PRC 414.518 65.3 % 356,687 63.7 % 57,831 16.2 % Units sold to customers overseas 220,758 34.7 % 203,271 36.3 % 17,487 8.6 % Total Units Sold 635,276 100 % 559,958 100 % 75,318 13.5 % (i) Domestic market For the three months ended March 31, 2023, revenue from the domestic market increased by $1.1 million or 13.4% as a combined result of: (i) an increase of 16.2% in sales volume and (ii) an increase of 5.4% in the average RMB selling price of our products, and partially offset by 7.8% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year. As for the RMB selling price, the increase of 5.4% was mainly due to the increased sales of new models of higher-end products such as POS touchscreens, industrial control computer touchscreens and gaming touch screens with higher selling prices in the domestic market during the three-month period ended March 31, 2023. 7 The weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic in January 2020 continued to exacerbate the touch screen business environment. Due to our proactive efforts to market new models such as POS touchscreens, medical touchscreens, and industrial control computer touchscreens, and efforts to obtain new customers and penetrate into new regions, we had sales increases of 49.2% in Southwest China, 13.8% in Eastern China, and 9.0% in Southern China during the first quarter ended March 31, 2023 as compared to that of last year. (ii) Overseas market For the three-month period ended March 31, 2023 , revenues from the overseas market was $4.1 million as compared to $3.8 million of the same period of 2022, representing an increase by $0.3 million or 7.9% mainly due to an increase of 8.6% in sales volume due to increased sales in gaming touchscreens, automotive touchscreens and industrial control computer touchscreens, partially offset by a decrease of 0.2% in average selling price. The following table summarizes the breakdown of revenues by categories in US dollars : Revenues For the Three-Month Ended March 31 2023 2022 Change Change Amount % Amount % Amount Margin% (in US Dollars, except percentage) Product categories by end applications Automotive Touchscreens $ 3,234,836 24.1 % $ 3,012,725 25.1 % $ 222,111 7.4 % Industrial Control Computer Touchscreens 2,672,250 19.9 % 2,298,142 19.2 % 374,108 16.3 % POS Touchscreens 2,066,774 15.4 % 1,956,350 16.3 % 110,424 5.6 % Gaming Touchscreens 1,911,297 14.2 % 1,763,069 14.7 % 148,228 8.4 % Medical Touchscreens 2,094,242 15.6 % 1,472,091 12.3 % 622,151 42.3 % Multi-Functional Printer Touchscreens 1,454,062 10.8 % 1,488,175 12.4 % (34,113 ) (2.3 )% Others* - 0.0 % 3,995 0.0 % (3,995 ) (100.0 )% Total Revenues $ 13,433,461 100.0 % $ 11,994,547 100.0 % $ 1,438,914 11.7 % *Others include applications in self-service kiosks, ticket vending machines and financial terminals. The Company continued to shift production mix from traditional lower-end products such as touchscreens used in automotive to high-end products such as touchscreens used in POS touchscreens, medical touchscreens and industrial control computer touchscreens, primarily due to (i) greater growth potential of computer screen models in China, and (ii) the stronger demand and better quality demand from consumers’ recognition of higher-end touch screens made with better raw materials. Gross Profit and Gross Profit Margin Three-Month Period Ended March 31, Change (in millions, except percentage) 2023 2022 Amount % Gross Profit $ 6.0 $ 4.3 $ 1.7 39.5 % Gross Profit Margin 45.0 % 35.9 % 9.1 % Gross profit was $6.0 million in the first quarter ended March 31, 2023, compared to $4.3 million in the same period of 2022. Our gross profit margin increased to 45.0% for the first quarter ended March 31, 2023, as compared to 35.9% for the same period of 2022, primarily due to the increase in sales of 11.7%, particularly high-end products such as POS touchscreens, medical touchscreens, and industrial control computer touchscreens, for the quarter ended March 31, 2023, partially offset by the increase in cost of goods sold by 3.9% including increase of cost of materials such as chip cost by 3.8%, for the three-month period ended March 31, 2023. 8 General and Administrative Expenses Three-Month Period Ended March 31, Change (in millions, except percentage) 2023 2022 Amount % General and Administrative Expenses $ 1.7 $ 0.4 $ 1.3 325.0 % as a percentage of revenues 12.7 % 3.3 % 9.4 % General and administrative (G&A) expenses were $1.7 million for the three-month period ended March 31, 2023, compared to $0.4 million in the same period in 2022, representing an increase of $1.3 million or 325.0%. The increase was primarily due to the increase of accrued $1.2 million underwriting fees in connection with a private placement. On March 18, 2023, the Company entered into a consent agreement with representatives related to the private placement on the fees of US$1.2 million, payable only on the completion of an underwritten offering (see Note 8). Research and Development Expenses Three-Month Period Ended March 31, Change (in US dollars, except percentage) 2023 2022 Amount % Research and Development Expenses $ 20,885 $ 22,857 $ (1,972 ) (8.6 )% as a percentage of revenues 0.0 % 0.0 % 0.0 % Research and development (R&D) expenses were $20,885 for three-month period ended March 31, 2023 compared to $22,857 in the same period in 2022, representing a decrease of $1,972 of material consumption. Operating Income Total operating income was $4.3 million for the three-month period ended March 31, 2023 as compared to $3.4 million of the same period of last year, primarily due to higher gross margin and lower selling expenses, partially offset by higher administrative expenses for the three-month period ended March 31, 2023. Gain (loss) on changes in fair value of Common Stock Purchase Warrants Three-Month Period Ended March 31, Change (in millions, except percentage) 2023 2022 Amount % Gain (loss) on changes in fair value of common stock purchase warrants $ (0.1 ) $ 0.2 $ (0.3 ) (150,0 )% as a percentage of revenues 0.7 % 1.7 % (1.0 )% Loss on changes in fair value of common stock purchase warrants was $97,602 for the three-month period ended March 31, 2023, as compared to gain of $160,443 on changes in fair value of common stock purchase warrants in 2022 (See Note 9 (b)). 9 Income Taxes Three-Month Period Ended March 31, Change (in millions, except percentage) 2023 2022 Amount % Income before Income Taxes $ 4.2 $ 3.5 $ 0.7 20.0 % Income Tax (Expense) (1.4 ) (1.0 ) (0.4 ) 40.0 % Effective income tax rate 33.5 % 28.1 % 5.4 % The effective income tax rates for the three-month periods ended March 31, 2023 and 2022 were 33.5% and 28.1%, respectively. Net Income As a result of the above factors, we had a net income of $2.8 million in the first quarter of 2023 compared to a net income of $2.5 million in the same quarter of 2022. Liquidity and Capital Resources Historically, our primary uses of cash have been to finance working capital needs. We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings. We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all. As of March 31, 2023, we had current assets of $107.7 million, consisting of $93.3 million in cash including $40.0 million from the stock issuance of a private placement, $13.1 million in accounts receivable, $0.2 million in inventories, and $1.1 million in prepaid expenses and other current assets. Our current liabilities as of March 31, 2023, were $7.3 million, which is comprised of $2.1 million in accounts payable, $1.4 million in income tax payable, $2.1 million in accrued expenses and other current liabilities, $0.5 million from a third-party loan, and $1.2 million in convertible promissory notes payable. The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the three-month periods ended March 31, 2023 and 2022: Three-Month Period Ended March 31, (in US Dollar millions) 2023 2022 Net cash provided by (used in) operating activities $ 2.7 $ (1.4 ) Net cash provided by investing activities - - Net cash provided by financing activities 40.0 - Effect of foreign currency exchange rate changes on cash and cash equivalents (0,7 ) 0.0 Net increase (decrease) in cash and cash equivalents 42.0 (1.4 ) Cash and cash equivalents at the beginning of period 51.3 46.2 Cash and cash equivalents at the end of period $ 93.3 $ 44.8 10 Operating Activities Net cash provided by operating activities was $2.7 million for the three-month period ended March 31, 2023, as compared to $1.4 million used in operating activities for the same period of the last year, primarily due to (i) the increase of $0.2 million net income for the three-month period ended March 31, 2023 as compared to the same period of 2022, (ii) the increase of $0.3 million loss on changes of FV of common stock purchase warrants for the three-month period ended March 31, 2023; (iii) the decrease of $2.3 million of accounts receivable for the three-month period ended March 31, 2023 due to faster collection of receivables, (iv) the decrease of $0.3 million in inventories, (v) the decrease of $0.4 million in accounts payable, (vi) the increase of $0.5 million in income tax payable, and (vii) the decrease of $0.7 million of accrued expenses and other current liabilities for the three-month period ended March 31, 2023. Investing Activities There was nil investing activities for the three-month periods ended March 31, 2023 and 2022. Financing Activities Net cash provided by financing activities for the three-month period ended March 31, 2023 were $40.0 million, due to the $40.0 million proceeds from stock issuance in a private placement. There were nil financing activities for the three-month period ended March 31, 2022. As of March 31, 2023, our cash and cash equivalents were $93.3 million, as compared to $51.3 million at December 31, 2022. Days Sales Outstanding (“DSO”) has decreased to 74 days for the three-month period ended March 31, 2023 from 81 days for the year ended December 31, 2022. The following table provides an analysis of the aging of accounts receivable as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31 2022 -Current $ 8,668,782 $ 1,252,152 -1-3 months past due 4,186,053 4,998,596 -4-6 months past due 232,156 2,806,973 7-12 months past due - 20 -greater than 1 year past due - - Total accounts receivable $ 13,086,991 $ 9,057,741 The majority of the Company’s revenues and expenses were denominated primarily in Renminbi (“RMB”), the currency of the People’s Republic of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has not had a material impact on the Company’s business. Based on past performance and current expectations, we believe our cash and cash equivalents provided by operating activities and financing activities will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months. 11 Off Balance Sheet Arrangements We have no off balance sheet arrangements. COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company and its affiliates are parties to various legal actions arising in the ordinary course of business. As of the date of this report, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation. 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 RMB20.0 million (equivalent to US$3.1 million). As of March 31, 2023, the Company has prepaid RMB15.0 million (equivalent to US$2.2 million) and recorded as construction in progress (see Note 5) and had a remaining balance of RMB5.0 million (equivalent to US$0.7 million) to be paid by the end of 2023. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable because we are a smaller reporting company. ITEM 4. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. 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 of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2023 due to the material weaknesses in internal control over financial reporting described below. Because of our limited operations, we have a limited number of employees which prohibits a segregation of duties. In addition, we lack a formal audit committee with a financial expert. As we grow and expand our operations we will engage additional employees and experts as needed. However, there can be no assurance that our operations will expand. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 12 PART II – OTHER INFORMATION ITEM 1. 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. As of March 31, 2023, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation. ITEM 1A. RISK FACTORS. Not required for smaller reporting companies. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS. Exhibit No. Description 31.1 Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 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) 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WETOUCH TECHNOLOGY INC. Date: May 22, 2023 By: /s/ Zongyi Lian Name: Zongyi Lian Title: President and Chief Executive Officer (Principal Executive Officer) Date: May 22, 2023 By: /s/ Yuhua Huang Name: Yuhua Huang Title: Chief Financial Officer (Principal Financial and Accounting Officer) 14