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Item 3. Legal Proceedings

2024-04-17 compared with 2023-04-17 · 202 added, 7 removed, 3 unchanged (99% of the section changed)

1 unchanged sentence

as a plaintiff or defendant in any material proceeding or pending litigation.

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 Annual Report, all actions have been settled and Sichuan

Wetouch, Hong Kong Wetouch and Mr.

Guangde Cai were unconditionally and fully discharged and released therefrom.

See Note 13 to the

Financial Statements in Item 8 .

Accordingly, there are no pending material legal proceedings against the Company or Mr.

time to time, we are parties to various legal actions arising in the ordinary course of business.

For more information, see Note 13 to the Financial Statements in Item

equity dispute case with Yunqing Su with a disputed amount of RMB1,318,604 (equivalent to $185,721)

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 RMB1 million (equivalent to $140,847) to purchase 370,370.37 original listed shares of the target company,

Sichuan Wetouch, 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 RMB220,000

(equivalent to $30,986) and the principal of RMB128,000 (equivalent to $18,028) 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.

Su sued Sichuan Wetouch and Guangde Cai in the Renshou County People’s Court of Sichuan Province, and the case was filed on February

May 9, 2022, pursuant to a civil mediation statement issued by the Renshou County People’s Court of Sichuan Province, Sichuan Wetouch

and Guangde Cai agreed to repay Yunqing Su the principal and interest in the total amount of RMB 1,318,604 (equivalent to $185,721).

Sichuan Wetouch fully paid the aforesaid amount on March 15, 2023.

case with Chengdu SME Credit Guarantee Co., Ltd.

on a court acceptance fee of RMB338,418 (equivalent to $47,665)

July 5, 2013, Sichuan Wetouch obtained a one-year loan of RMB60.0 million (equivalent to $8.5 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, a related party company, owned by Mr.

Guangde Cai and Mr.

provided joint and several liability guarantee for 100% of the loan.

July 31, 2014, Sichuan Wetouch repaid RMB5.0 million (equivalent to $0.7 million).

The remaining loan of RMB55.0 million (equivalent

to $7.7 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 RMB55 million (equivalent to $7.7 million) to Bank of Chengdu.

The Company subsequently repaid RMB55

million (equivalent to $7.7 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) RMB5.8 million (equivalent to $0.8 million) related to the

30% of the remaining loan balance repaid by Chengdu SME and (b) RMB6.0 million (equivalent to $0.8 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.

SME applied to the Chengdu High-tech Court for enforcement of the above-mentioned loan default penalties of RMB5.8 million (equivalent

to $0.8 million) and RMB6.0 million (equivalent to $0.8 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 RMB5.8 million (equivalent to $0.8 million)

and RMB6.0 million (equivalent to $0.8 million) of loan default penalties.

The agreement did not specify which party shall pay the court

September 16, 2020, Sichuan Wetouch made a full repayment of RMB11.8 million (equivalent to $1.7 million) of the above loan default penalties

to Chengdu SME.

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 RMB338,418 (equivalent to $47,665).

On March 17, 2023, Chengdu Wetouch made a full

payment of the above court fee to Chengdu SME.

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 RMB250,470 (equivalent to $35,278)

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 RMB20 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 Wetouch, an affiliated company to

Guangde Cai and Xinjiang Wetouch Electronic Technology Co., Ltd.

(“Xinjiang Wetouch”) provided Lifan Financial

with joint and several liability guarantee.

August 9, 2021, Lifan Financial filed a lawsuit against Chengdu Wetouch, Guangde Cai, Sichuan Wetouch, Meishan Wetouch and Xinjiang Wetouch

in 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 (equivalent to $3.2 million) as well as the difference between the liquidated damages and the value

of the leased property recovered;

parties executed a settlement agreement on March 7, 2023, in which the parties confirmed that the outstanding payment of RMB 22,905,807

(equivalent to $3.2 million) 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 $ 35,278 ).

Chengdu Wetouch paid the aforesaid fees to Lifan Financial on March 10, 2023.

case with Sichuan Renshou Shigao Tianfu Investment Co., Ltd and Renshou Tengyi Landscaping Co., Ltd.

on a court acceptance fee of

RMB103,232 (equivalent to $14,540)

March 19, 2014, Chengdu Wetouch, a related party, obtained a two and half-year loan of RMB15.0 million (equivalent to $2.1 million) from

Chengdu Bank Co., Ltd.

Gaoxin Branch (“Chengdu Bank Gaoxin Branch”), with Chengdu Hi-tech Investment Group Co., Ltd.

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.

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.

support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment

(“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.

the expiration of the guarantee, Chengdu Wetouch still defaulted on repayment of the above pledge.

As a result, CDHT Investment levied

this collateral of RMB12.0 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 RMB12.0 million (equivalent to $1.7 million) pursuant to the counter guarantee

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.

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.

October 27, 2020, Chengdu Wetouch made a full payment of the above debts.

settlement and release agreement did not specify which party shall pay the court acceptance 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 RMB103,232 (equivalent to $14,540).

On March 17, 2023, Chengdu Wetouch made a full

payment of the above court fee to Sichuan Renshou.

case with Chengdu High Investment Financing Guarantee Co.

on a court acceptance fee of RMB250,000 (equivalent to $35,211)

March 22, 2019, Chengdu High Investment Financing Guarantee Co., Ltd, (“Chengdu High Investment”) filed a lawsuit against

Hong Kong Wetouch in 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 RMB17,467,042 (equivalent to $2,460,181), interest, liquidated damages, liquidated damages for late performance, etc.

March 16, 2023, Chengdu Wetouch, Sichuan Wetouch and Chengdu High Investment entered into a settlement enforcement agreement, confirming

that Chengdu High Investment had received RMB17,547,197 (equivalent to $2,471,471) on October 27, 2020 paid by Chengdu Wetouch,

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 $35,211).

Chengdu Wetouch paid the aforesaid fees to Chengdu High

Investment on March 20, 2023.

case with Hubei Lai’en Optoelectronics Technology Co., Ltd.

on a product payment of RMB157,714 (equivalent to $22,213)

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 RMB137,142.7 for the purchased products.

On April 6, 2022, Hubei Lai’en

filed a lawsuit against Sichuan Wetouch in 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 RMB137,143 and liquidated damages of RMB 20,571.

Sichuan Wetouch paid the

above amount to Hubei Lai’en on March 15, 2023.

vi) Legal case with

Chengdu Hongxin Shunda Trading Co., Ltd.

on settlement of accounts payable and related fund interests totalling RMB3,021,294 ($425,540)

March 2022, Sichuan Vtouch purchase steel products from Chengdu Hongxin Shunda Trading Co., Ltd.

(“Chengdu Hongxin”) for

facility construction, but failed to settle the accounts payable on time.

In July 2023, Chengdu Hongxin filed a lawsuit to a local district

court against the Company and its new facility constructors (“the three defendants”) requesting the settlement of the remaining

accounts payable and the corresponding fund interests, penalties and legal fees, totalling of RMB3,021,294 ($425,540).

The court judged

Sichuan Vtouch to pay and ordered the freezing of bank accounts of these three defendants.

On September 25, 2023, the Company appealed

to Chengdu Municipal Intermediate People’s Court, arguing the calculation of fund interests and penalties ordered by the lower

court unfair and not in line with the law regulations.

As of the Report date of this 10K, the management assessed that possibility and

amount of contingency cannot be estimated given the current status.

vii) Legal case with

Guangchuang Liu on a refund of equity transfer price and related interests totalling RMB324,501 ($45,705)

July 2022 Mr.

Liu entered into an equity transfer agreement with Mr.

Guangde Cai and Sichuan Vtouch with the intention to subscribe the

Company’s shares of 20,000 for RMB315,245 ($44,104).

In April, 2023, Mr.

Liu filed a lawsuit to Shenzhen Nanshan District People’s

Court against Mr.

Guangde Cai and Sichuan Vtouch requesting the refund of this equity transfer price and related fund interests totalling

RMB324,501 ($45,705).

Per the court decision of December 13, 2023, the defendants were ordered to make the payments by the end of 2023.

As of December 31, 2023, the Company recorded the liabilities of RMB324,501 ($45,705) and subsequently, the Company has made the payment

in full in January, 2024.

viii) Legal case with

Sichuan Yali Cement Manufacturing Co., Ltd.

and Sichuan Chunqiu Development & Construction Group Co.

on a debt payable of RMB

RMB1,656,480 (equivalent to $233,310) and related interest, legal fees and penalties.

August 10, 2022, Sichuan Yali Cement Manufacturing Co., Ltd.

(“Yali Co.”) and Sichuan Chunqiu Development & Construction

(“ Chunqiu Co.”) entered into construction materials contract for Sichuan Vtouch’s new facility.

this contract, Sichuan Vtouch was listed as the joint responsibility party for the payment settlement between Yali Company and Chunqiu

February 15, 2023, Yali Co.

filed a lawsuit against Chunqiu Co.

to the Chengdu Wenjiang District People’s Court, claiming that

should pay the remaining debt of RMB RMB1,656,480 (equivalent to $233,310) and related interest, legal fees and penalties,

and that Sichuan Vtouch should assume the guaranteed liability for the debt payable by Chunqiu Co.

On August 12, 2023, the court rendered

a judgment ordering Chunqiu Co.

to pay to Yali Co.

for above mentioned amount.

Sichuan Vtouch was ordered joint liability of such aforesaid

August 22, 2023, Chunqiu Co.

appealed to Chengdu Municipal Intermediate People’s Court against Yali Co.

and Sichuan Vtouch requesting

Sichuan Vtouch to be responsible for this debt payable.

On October 30, 2023, the court ordered Chunqiu Co.

to pay pack all the debts,

and Sichuan Vtouch to bear the joint and several liability for the above debts of Chunqiu Co.

including a court fee of RMB10,627 ($1,497)

with Chunqiu liability.

As of December 31, 2023, Sichuan Vtouch accrued this court fee of RMB10,627 ($1,497).

and Safety Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings