What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-17 compared with 2023-04-17 · 330 added, 285 removed, 353 unchanged (64% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis contains forward-looking statements relating to future events or our future financial performance.

In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”,

“expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,

“potential”, or “continue” or the negative of these terms or other comparable terminology.

These statements are

only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual

results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed

or implied by these forward-looking statements.

we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels

of activity or performance.

You should not place undue reliance on these statements, which speak only as of the date of this Annual Report.

These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future.

You should read this Annual Report on Form 10-K with the understanding that our actual future results may be materially different from

what we expect.

All forward-looking statements speak only as of the date on which they are made.

We undertake no obligation to update

such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by

applicable law.

discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which

have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read

in conjunction with, the audited consolidated financial statements and related notes elsewhere in this Annual Report on Form 10-K.

following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part

II, Item 8 of this Annual Report.

The following discussion contains forward-looking statements that involve risks and uncertainties about

our business and operations.

Our actual results and the timing of selected events may differ materially from those anticipated in these

forward-looking statements as a result of various factors, including those we describe under Item 1A.

Risk Factors” and

elsewhere in this Annual Report.

See “Special Note Regarding Forward-Looking Statements.”

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

our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, Sichuan Vtouch and Sichuan Wetouch, 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 Hong Kong Wetouch, Sichuan Wetouch and Sichuan Vtouch for the years ended December 30, 2022 and 2021, respectively.

COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and suppliers significantly.

The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace.

The resulting impact on the

global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures

imposing stay-at-home and work-from-home orders in almost every country.

The effects of social distancing have shut down significant

parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government

designated essential services.

in the spring of 2021, China began to experience an increase of COVID-19 cases, and to some extent, local and national governments began

to take more restrictive measures to stem the spread of the virus, particularly from October to December 2021.

The Company has several

shutdowns during the year ended December 31, 2022.

On October 9, 2020, we entered into the Share Exchange

Agreement with BVI Wetouch and all the shareholders of BVI Wetouch, to acquire all the issued and outstanding capital stock of BVI Wetouch

in exchange for the issuance to such shareholders an aggregate of 28 million shares of our common stock.

The Reverse Merger closed on

October 9, 2020.

As a result of the Reverse Merger, BVI Wetouch became our wholly-owned subsidiary.

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.

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.

July 16, 2023, the Company’s board of directors approved a reverse stock split of the Company’s common stock at a ratio of

On July 16, 2023, the Company filed a certificate of change (with an effective date of July 16, 2023) with the Nevada Secretary

of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of its outstanding common stock.

September 11, 2023, the Company received notice from FINRA/OTC Corporate Actions the reverse split would take effect at the open of business

on September 12, 2023, and the reverse stock that split took effect on that date.

All share information included in this Form 10-K has

been reflected as if the reverse stock split occurred as of the earliest period presented.

has been a global pandemic of a novel strain of coronavirus (COVID-19) that first emerged in China in December 2019 and has spread globally.

In March 2020, the World Health Organization declared COVID-19 as a global pandemic.

The COVID-19 pandemic has resulted in quarantines,

travel restrictions, and the temporary closures of stores and business facilities in China for the first half year of 2020, along with

various government-initiated COVID-19 containment measures implemented intermittently.

Since the end of 2022, the Chinese government

has eased the COVID-19 restrictions.

Although we are currently fully functional, potential impact on our results of operations will also

depend on future developments and information that may emerge regarding the duration and severity of COVID-19 and the actions taken by

governmental authorities and other entities to contain COVID-19 or to mitigate its impacts, almost all of which are beyond our control.

Company has several shutdowns during the first quarter of 2023.

serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of

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products to new customers and entering more regions during the year ended December 31, 2022.

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.

World Health Organization (WHO) announced on May 5, 2023 that COVID-19 is no longer a public health emergency of international concern.

In the long term, the aftermath of the COVID-19 pandemic is likely to adversely affect the economies and financial markets of many countries

and may result in a global economic downturn or a recession.

This would likely adversely affect demand on some of our products or services,

which may, in turn negatively impact our results of operations.

for the Year Ended December 31, 2023

were $39.7 million, an increase of 4.7% from $37.9 million for the year ended December 31, 2022

profit was $17.2 million, an increase of 22.8% from $14.0 million for the year ended December 31, 2022

profit margin was 43.3%, as compared to 37.0% for the year ended December 31, 2022

income was $8.3 million, a decrease of 4.6% from $8.7 million for the year ended December 31, 2022

volume shipped was 1,967,316 units, an increase of 2.6% from 1,916,976 units for the year ended December 31, 2022

of Operations

for the year ended December 31, 2022 include:

Revenues were $37.9 million, a decrease of 7.1% from $40.8 million for the year ended December 31, 2021

Gross profit was $14.0 million, an decrease of 23.9% from $18.4 million for the year ended December 31, 2021

Gross profit margin was 37.0%, as compared to 45.3% for the year ended December 31, 2021

Net income was $8.7 million, a decrease of 50.0% from $17.4 million for the year ended December 31, 2021

Total volume shipped was 1,916,976 units, a decrease of 0.3% from 1,922,353 units for the year ended December 31, 2021

following table sets forth, for the periods indicated, statements of income data:

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Operating income

Gain on asset disposal

Loss on conversion of notes payable

Gain (loss) on changes of fair values of Common Stock Purchase Warrant

Total other income (expense), net

Income before income taxes

Income tax benefit (expense)

Income tax expense

the Years Ended December 31, 2023 and 2022

were $37.9 million in the year ended December 31, 2022, a decrease of $2.9 million, or 7.1%, compared with $40.8 million in the same

were $39.7 million in the year ended December 31, 2023, an increase of $1.8 million, or 4.7%, compared with $37.9 million in the same

period of last year.

This was mainly due to the decrease of 0.3% in sales volume, and a decrease of 2.7% in the average selling price

This was mainly due to the increase of 2.6% in sales volume, and an increase of 7.1% in the average selling price

of our products in RMB, and 5.2% negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with those

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(in US Dollar except percentage)

Revenue from sales to customers in PRC

Revenue from sales to customers in the PRC

Revenue from sales to customers overseas

Total Revenues

$ (2,862,361 )

For the Years Ended December 31,

(in Unit, except percentage)

Units sold to customers in PRC

Units sold to customers in the PRC

Units sold to customers overseas

Total Units Sold

Domestic market

the year ended December 31, 2022, revenue from domestic market decreased by $0.8 million or 2.8%, as a combined result of (i) a decrease

of 2.6% in the average selling price of our products in RMB, and (ii) 4.4% negative impact from exchange rate due to depreciation of

RMB against US dollars, and offset by (iii) an increase of 4.1% in sales volume, as compared with those of last year.

for the RMB selling price, the decrease of 2.6% was mainly due to the marketing initiatives to enhance sales of new models of higher-end

products such as touch screens used in POS touchscreens, medical touchscreens and gaming touchscreens in marketing regions such as East

China during the year ended December 31, 2022.

weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic continued to exacerbate the touch screen business environment.

Since April 2022, the Chinese government has imposed strict zero tolerance virus policies and the Company’s business has been negatively

impacted and has continued to generate lower revenues during the year ended December 31, 2022.

Although the Company has taken proactive

efforts to market new models such as POS touchscreens and obtain new customers and penetrate into new regions with a sales increase of

0.8% in Eastern China, the Company had hard suffering of a decrease of 1.6% in Southwest China, and of 0.5% in Southern China due to

the government lockdown in this region during the year ended December 31, 2022.

Overseas market

the year ended December 31, 2022, revenue from overseas market was $11.5 million as compared to and $13.6 million of the same period

of 2021, a decrease of $2.1 million or 15.4%, mainly due to a decrease of 8.3% in sales volume primarily due to 1) the slack overseas

2) negative effects of COVID 19 impact, such as more strict customs inspection in China leading to delayed product shipment during

the second half of 2022, and a decrease of 7.8% in average selling price of our products due to the decreased higher pricing medical

touchscreens during the year ended December 31, 2022, compared with those of the same period of last year.

Dom estic Market

the year ended December 31, 2023, revenue from the PRC domestic market increased by $1.2 million or 4.6%, as a combined result of (i)

the increase of 2.7% in sales volume, and an increase of 6.8% in the average sales price of our products in RMB, and (ii) 5.2%

negative impact from exchange rate due to depreciation of RMB against US dollars, as compared with those of the same period of

increase of 6.8% in sales price in RMB was mainly due to the marketing initiatives to enhance sales of new models of higher-end

products such as multi-functional printer touchscreens, industrial control computer touchscreens, medical touchscreens, and POS

touchscreens in - Southwest and East China during the year ended December 31, 2023.

to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased

by 23.3% in Southwest China, and 13.4% in East China, partially offset by a decrease of 23.4% in South China during the year ended

December 31, 2023.

the year ended December 31, 2023, revenue from overseas market was $12.1 million as compared to $11.5 million of the same period of 2022,

an increase of $0.6 million, or 5.0%, mainly due to an increase of 2.5% in sales volume and an increase of 7.8% in average selling price

in RMB for gaming touchscreens and industrial control computer touchscreens.

The Company had more pricing control capability due to the

higher demand during the year ended December 31, 2023.

following table summarizes the breakdown of revenues by categories in US dollars:

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Automotive Touchscreens

$ (2,304,110 )

Industrial Control Computer Touchscreens

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Total Revenues

$ (2,862,362 )

include applications in financial terminals, ticket vending machines, and self-service kiosks.

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 and multi-functional printer 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

touchscreens made with better raw materials.

include applications in self-service kiosks, ticket vending machines and financial terminals.

Company continued to shift production mix from traditional lower-end products to high-end touchscreens used in industrial control computers,

gaming machines, and automobiles, primarily due to (i) greater growth potential of computer screen models in China, and (ii) stronger

demand and better quality demand from consumers’ recognition of higher-end touchscreens made with better materials.

Profit and Gross Profit Margin

Years Ended December 31,

(in millions, except percentage)

Gross Profit Margin

profit was $14.0 million during the year ended December 31, 2022, as compared to $18.4 million in the same period of 2021, representing

a decrease of $4.4 million, or 23.9%.

Our gross margin was 37.0% during the year ended December 31, 2022, as compared to 45.3% for the

year ended December 2021, primarily due to the decrease of sales by 7.1%, and the increase of 13.2% in cost of materials such as the

chip cost, partially offset by the decrease of labor cost by 2.2%, depreciation and other overhead cost such as rent and electricity

by 9.0% due to the reduced production volume for the year ended December 31, 2022.

profit was $17.2 million during the year ended December 31, 2023, compared to $14.0 million in the same period of 2022.

Our gross profit

margin increased to 43.3% during the year ended December 31, 2023 as compared to 37.0% for the same period of 2022, primarily due to

the increase in sales of 4.7%, particularly high-end products such as industrial control computer touchscreens, automotive touchscreens,

and gaming touchscreens for the year ended December 31, 2023, the decrease of 1.4% in material costs, partially offset by the increase

in labor cost of 9.0% for the year ended December 31, 2023.

Years Ended December 31,

(in millions, except percentage)

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as a percentage of revenues

expenses were $1.3 million during the year ended December 31, 2022, as compared to $0.6 million for the year ended December 31, 2021,

primarily due to the increase of marketing expenses of $0.7 million as the Company took promotional efforts to market new models such

as POS touchscreens and obtain new customers and penetrate into new regions in order to reduce the negative impact of COVID 19.

expenses were $0.6 million for the years ended December 31, 2023, compared to $1.3 million in the same period in 2022, representing a

decrease of $0.7 million, or 53.8%.

During the year ended December 31, 2022, the Company incurred more marketing expenses to reduce the

negative impact of tighter COVID-19 control in China during the second half of 2022.

and Administrative Expenses

Years Ended December 31,

(in millions, except percentage)

1 unchanged sentence

as a percentage of revenues

and administrative (G&A) expenses was $1.3 million for the year ended December 31, 2022, as compared to $1.9 million for the year

ended December 31, 2022, representing a decrease of 31.6%, or $0.6 million.

The decrease was primarily due to i) $0.4 million loss of

VAT input credits due to Sichuan Wetouch ceasing operation and relocation to comply with local PRC government guidelines on local environmental

issues and the national overall plan, ii) $0.1 million accelerated amortization expense due to Sichuan Wetouch ceasing operation and

relocation to comply with local PRC government guidelines on local environmental issues and the national overall plan during the year

ended December 31, 2021 (See Note 5), iii) the decrease of $0.4 million miscellaneous fees, and partially offset by iv) an increase of

$0.3 million professional fees during the year ended December 31, 2022.

and administrative expenses were $3.8 million for the year ended December 31, 2023, compared to $1.3 million in the same period in 2022,

representing an increase of $2.5 million, or 192.3%.

The increase was primarily due to the increase in accrued underwriting fees of $2.5

million in connection with a private placement.

On March 18, 2023, the Company entered into a private placement consent agreement with

Representatives of the private placement taken place on January 19, 2023 on the agent fees of US$1.2 million, payable

only on the completion of the underwriting offering.

The Company made the full payment in February, 2024 (see Note 8).

In May, 2023, the Company entered into two third-party consulting service agreements for a fee of $1.35 million and $3.1 million respectively,

payable only on the completion of the underwriting offering.

The Company made the full payment in February, 2024 (see Note 8).

and Development Expenses

Years Ended December 31,

(in US dollars, except percentage)

1 unchanged sentence

as a percentage of revenues

and development (R&D) expenses were $85,251 in the year ended December 31, 2022 compared to $89,477 in the same period in 2021, representing

a decrease of $4,226, or 0.0, mainly due to the decrease of salary and welfare expenses of R&D personnel.

(in millions, except percentage)

Share-based compensation

as a percentage of revenues

compensation were nil and $3.1 million for the years ended December 31, 2022 and 2021, respectively.

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 consultant for advisory services that had been rendered.

The Company recognized relevant share-based compensation expense of $1,041,281

for the vested shares and $2,107,825 for the warrants during the year ended December 31, 2021.

operating income was $11.4 million for the year ended December 31, 2022 compared to $12.6 million for the year ended December 31, 2021,

representing a decrease of $1.2 million or 9.5% due to lower gross profit and higher selling expenses, partially offset by the lower

G&A expenses and share-based compensation expenses.

on Asset Disposal

(in millions, except percentage)

Gain on asset disposal

and development expenses were $84,551 for the year ended December 31, 2023 compared to $85,251 in the same period in 2022.

operating income was $12.7 million for the year ended December 31, 2023 as compared to $11.4 million of the same period of last year

due to higher gross profit and lower selling expenses, partially offset by higher general and administrative expenses.

Years Ended December 31,

(in US dollars, except percentage)

Other expenses

as a percentage of revenues

on asset disposal was nil for the year ended December 31, 2022 compared to $7.6 million for the year ended December 31, 2021.

to local PRC government guidelines on local environmental issues and the national overall plan, Sichuan Wetouch was 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 RMB115.2 million ($17.9 million) (“Compensation Funds”) for the withdrawal of the right to use of state-owned land and

the demolition of all buildings, facilities, equipment and all other appurtenances on the land.

During the year ended December 31, 2021,

the Company recorded a gain of $7,625,279 for the asset disposal.

the year ended December 31, 2023, the Company accrued litigation compensation of RMB324,501 ($45,828) and court fee of RMB10,627 ($1,500).

on Conversion of Notes Payable

Years Ended December 31,

(in millions, except percentage

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as a percentage of revenues

on conversion of notes payable were $0.1 million for the year ended December 31, 2022, as lenders of convertible promissory note payable

converted certain principal, accrued and unpaid interest and default charges totaling $1,038,426 into 1,384,564 shares of common stock

of the Company, including two notes fully converted.

As a result, the Company recorded a loss on the conversion of notes payable of $0.1

million accordingly (see Note (9 (a)).

on changes in fair value of Common Stock Purchase Warrants

on conversion of notes payable were $0.1 million for the years ended December 31, 2022, as lenders of convertible promissory notes converted

certain principal, accrued and unpaid interest and default charges totaling $1,038,426 into 69,228 shares of common stock of the Company,

including two notes fully converted.

As a result, the Company recorded a loss on the conversion of notes payable of $0.1 million accordingly.

(loss) on Changes in Fair Value of Common Stock Purchase Warrants

Years Ended December 31,

(in millions, except percentage)

Gain on changes in fair value of Common Stock Purchase Warrants

Gain (loss) on changes in fair value of common stock purchase warrants

as a percentage of revenues

on changes in fair value of common stock purchase warrants was $0.9 million and $0.8 million for the years ended December 31, 2022 and

2021, respectively (See Note 9 (b)).

on changes in fair value of common stock purchase warrants was $0.1 million for the year ended December 31, 2023, as compared to a gain

of $0.9 million in the same period of 2022.

Years Ended December 31,

(in millions, except percentage)

Income before Income Taxes

Income Tax Benefit (Expense)

Income Tax (Expense)

Effective income tax rate

effective income tax rates for the years ended December 31, 2022 and 2021 were 27.1% and 20.2%, respectively.

The effective income tax

rate increased during the year ended December 31, 2022 primarily due to Sichuan Wetouch’s preferential income tax rate for the

same period of 2021.

PRC subsidiaries had $51.2 million of cash and cash equivalents at December 31, 2022, which are planned to be indefinitely reinvested

effective income tax rate for the year ended December 31, 2023 and 2022 was 25.4% and 27.7%, respectively.

PRC subsidiary had $98.0 million of cash and cash equivalents of December 31, 2023, which are planned to be indefinitely reinvested in

The distributions from our PRC subsidiary are subject to the U.S.

federal income tax at 21%, less any applicable foreign tax

Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax

liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries.

a result of the above factors, we had a net income of $8.7 million the year ended December 31, 2022 compared to net income of $17.4 million

for the year ended December 31, 2021.

federal income tax at 21%, less any applicable foreign

Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income

tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries.

a result of the above factors, we had a net income of $8.3 million in the year ended December 31, 2023 compared to a net income of $8.7

million in the same period of 2022.

and Capital Resources

14 unchanged sentences

Our current liabilities as of December 31, 2023,

were $4.0 million, which is comprised of $1.4 million in accounts payable, $0.9 million in accrued expenses and other current liabilities,

$0.4 million loan from a third party, and $1.3 million convertible promissory notes payable.

following table sets forth a summary of our cash flows for the periods indicated.

were $6.3 million, which is comprised of $0.6 million in accounts payable, $0.5 million in loans from a third party, $4.0 million in

accrued expenses and other current liabilities and $1.2 million in convertible promissory notes payable.

following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the years ended December

31, 2023 and 2022:

Years Ended December 31,

(in US Dollar millions)

Net cash provided by operating activities

Net cash provided by investing activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Effect of foreign currency exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period

Cash and cash equivalents at the end of period

cash provided by operating activities was $8.6 million for the year ended December 31, 2022, as compared to $14.0 million provided by

operating activities for for the year ended December 31, 2021, primarily due to (i) the decrease of $8.7 million net income for the year

ended December 31, 2022 as compared to the same period of 2021, (ii) the decrease of $3.1 million of share-based compensation during

the year ended December 31, 2022 , (iii) ) the increase of $6.5 million account receivable due to slower collection from the impact of

the COVID-19 pandemic and Sichuan Wetouch settling customer receivables during the year ended December 31, 2021;

partially offset by

(iv) the increase of $0.8 million of account payable due to the longer payment period (v) $7.6 million gain on asset disposal for the

year ended December 31, 2021, (vi) the decrease of $3.1 million prepaid expenses including amortization of $1.0 million prepaid marketing

expenses during the year ended December 31, 2022;

(vii) 0.5 million of deferred income due to Sichuan Wetouch write-off government grant

in the operating ceasing process for the year ended December 31, 2021.

was nil investing activities for the year ended December 31, 2022.

were $17.8 million in proceeds from asset disposal for Sichuan Wetouch, and $0.2 million in purchase of property, plant and equipment

for year ended December 31, 2021.

See Note 5 in the interim financial information.

cash provided by operating activities was $12.7 million for the year ended December 31, 2023, as compared to $8.6 million used in operating

activities for the same period of the last year, a change of $4.1 million, primarily due to (i) an increase of $2.4 million in accrued

expenses and other current liabilities, a decrease of $2.8 million in accounts receivable and $0.4 million in inventories, and a decrease

of $0.1 million in amortization of discounts and issuance cost of the Notes, partially offset by (ii) a decrease of $0.5 million in net

income for the year ended December 31, 2023, (iii) a decrease of $1.3 million in accounts payable, an increase of $0.5 million in prepaid

expenses and other current assets, and an increase of $1.0 million in loss on changes in fair value of common stock purchase warrant

cash used in investing activities for the year ended December 31, 2023 was $2.3 million for the purchase of property, plant and equipment.

were nil investing activities for the year ended December 31, 2022.

cash provided by financing activities was $40.0 million for the year ended December 31, 2023, consisting of $40.0 million proceeds from

a private placement, partially offset by the repayment of $55,000 in convertible promissory note payable.

cash used in the financing activities was $0.7 million for the year ended December 31, 2022, including $1.4 million of repayment of convertible

promissory note payable (see Note 9 (a)), partially offset by 0.4 million loan from a third party.

cash provided by the financing activities was $1.8 million for the year ended December 31, 2021 as a result of proceeds of $2.0 million

from issuance of seven convertible promissory notes, partially offset by the payment of issue cost of $0.2 million related to notes financing

(see Note 11).

of December 31, 2022, our cash and cash equivalents were $51.3 million, as compared to $46.2 million at December 31, 2021.

Sales Outstanding (“DSO”) has decreased at 81 days for the year ended December 31, 2022 compared to 88 days for the year

ended December 31, 2021.

following table provides an analysis of the aging of accounts receivable as of December 31, 2022 and December 31, 2021:

December 31, 2022

promissory note payable, partially offset by proceeds of a third party loan of $0.4 million.

Days Sales Outstanding (“DSO”) decreased to 75 days for the year ended December 31, 2023 from 81 days for the year ended

December 31, 2022.

following table provides an analysis of the aging of accounts receivable as of December 31, 2023 and 2022:

1-3 months past due

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Total accounts receivable

majority of the Company’s revenues and expenses were denominated primarily in Renminbi (“RMB”), the currency of the

People’s Republic of China.

majority of the Company’s revenues and expenses were denominated primarily in RMB, the currency of the People’s Republic

There is no assurance that exchange rates between the RMB and the U.S.

Dollar will remain stable.

has not had a material impact on the Company’s business.

industry typical payment term is 180 days.

Accounts receivables are written off against the allowances only after exhaustive collection

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.

Inflation has not had a material

impact on the Company’s business.

Company Structure

is a holding company and a company incorporated in Nevada with no material operations of its own.

We conduct substantially all of our

operations through our subsidiary established in mainland China.

Our equity structure is a direct holding structure, that is, Wetouch,

a Nevada corporation listed in the U.S., controls Sichuan Vtouch though BVI Wetouch.

Business – Corporate

History and Structure ” for more details.

face various risks and uncertainties relating to doing business in China.

Our business operations are primarily conducted in China, and

we are subject to complex and evolving PRC laws and regulations.

For example, we face risks associated with regulatory approvals on offshore

offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct

certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange.

could result in a material adverse change in our operations and the value of our common stock, significantly limit or completely hinder

our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline.

For a detailed

description of risks relating to doing business in China, see “ Item 1.A.

Risk Factors—Risks Related to Doing Business

PRC government’s significant discretion and authority in regulating our operations and its oversight and control over offerings

conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer

or continue to offer securities to investors.

Implementation of industry-wide regulations in this nature may cause the value of our securities

to significantly decline or become worthless.

For more details, see “ Item 1.A.

Risk Factors—Risks Relating to Doing Business

in China— Changes in China’s economic, political or social conditions or government policies could have a material adverse

effect on our business and operations.

The PRC government has recently indicated an intent to exert more oversight and control over overseas

securities offerings and other capital markets activities and foreign investment in China-based companies like us.

Any such action, once

taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors

and cause the value of such securities to significantly decline or in extreme cases, become worthless .”

and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly

evolving rules and regulations in China, could result in a material adverse change in our operations and cause our Common Stock to decrease

in value or become worthless.

For more details, see “ Item 1.A.

Risk Factors—Risks Relating to Doing Business in China—

Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws and sudden and unexpected

changes in laws and regulations in China, could adversely affect us and limit the legal protections available to you and us .”

and Other Assets Transfers between the Holding Company and Its Subsidiaries

of March 31, 2024, Wetouch had made cumulative capital contributions of RMB346.0 million

(US$ 51.9 million) to its PRC subsidiary through intermediate holding companies, and were

accounted as long-term investments of Wetouch.

These funds have been used by the Company’s PRC subsidiary for its operations.

date, there have not been any dividends or other distributions from our PRC subsidiary to Wetouch, both of which are located outside

of mainland China.

Wetouch, as a holding company, may rely on dividends and other distributions on equity paid by its PRC subsidiary

for its cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to its stockholders,

subject to Wetouch’s charter and M&A and Nevada law or to service any expenses and other obligations it may incur.

our direct holding structure, the cross-border transfer of funds from Wetouch to its PRC subsidiary is permitted under laws and regulations

of the PRC currently in effect.

Specifically, Wetouch is permitted to provide funding to its PRC subsidiary in the form of shareholder

loans or capital contributions, subject to satisfaction of applicable government registration, approval and filing requirements in China.

There are no quantity limits on Wetouch’s ability to make capital contributions to its PRC subsidiary under the PRC law and regulations.

However, the PRC subsidiary may only procure stockholder loans from HK Wetouch in an amount equal to the difference between its registered

capital and total investment amount as recorded in the Chinese Foreign Investment Comprehensive Management Information System or 2.5

times of its net assets, at the discretion of such PRC subsidiary.

additional information, see “ Item 1.A.

Risk Factors—Risks Related to Doing Business in China PRC regulation of loans to

and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent

us from using the proceeds of any offerings or financings to make loans or additional capital contributions to our Chinese subsidiaries,

which could materially and adversely affect our liquidity and our ability to fund and expand our business .”

PRC Enterprise Income Tax Law (the “EIT Law”) and its implementation rules provide that a withholding tax at a rate of 10%

will be applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless reduced under treaties or arrangements

between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident.

Pursuant to the tax agreement between mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect

to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.

if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax

treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

Accordingly, there is no assurance that

the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from our PRC subsidiaries.

This withholding

tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

is no assurance that the PRC government will not intervene or impose restrictions on the ability of us or our subsidiary to transfer

Most of our cash is in Renminbi, and the PRC government could prevent the cash maintained in our bank accounts in mainland China

from leaving mainland China, could restrict deployment of the cash into the business of our subsidiaries and restrict the ability to

pay dividends.

For details regarding the restrictions on our ability to transfer cash between us, and our subsidiaries, see “ Item

Risk Factors—Risks Related to Doing Business in China — “Governmental control of currency conversion may limit

our ability to utilize our revenues effectively and affect the value of your investment .” We currently do not have cash management

policies that dictate how funds are transferred between our holding company and our subsidiaries.

on Our Ability to Transfer Cash Out of China and to U.S.

PRC subsidiary’s ability to distribute dividends is based upon its distributable earnings.

Current PRC regulations permit our PRC

subsidiary to pay dividends to its shareholders only out of its accumulated profits, if any, as determined in accordance with PRC accounting

standards and regulations.

In addition, under PRC law, our PRC subsidiary is required to set aside at least 10% of its after-tax profits

each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.

These reserves

are not distributable as cash dividends.

If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing

such debt may restrict its ability to pay dividends to Wetouch.

address persistent capital outflows and the RMB’s depreciation against the U.S.

dollar in the fourth quarter of 2016, the People’s

Bank of China and the State Administration of Foreign Exchange, or SAFE, implemented a series of capital control measures in the subsequent

months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend

payments and shareholder loan repayments.

The PRC government may continue to strengthen its capital controls and our PRC subsidiary’s

dividends and other distributions may be subject to tightened scrutiny in the future.

The PRC government also imposes controls on the

conversion of RMB into foreign currencies and the remittance of currencies out of mainland China.

Therefore, we may experience difficulties

in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits,

AND CONTINGENCIES

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contingencies are expensed as incurred.

of December 31, 2022, the Company had several legal claims or litigations.

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.

For a discussion of the Company’s

legal proceedings, see Note 13 to the Financial Statements in Item 8 .

a discussion of the Company’s legal proceedings, see Note 14 to the Financial Statements in Item 8.

Expenditure Commitment

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 December 31, 2022, 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.

of December 31, 2023, the Company has no capital expenditure commitment.

Sheet Arrangements

were no off-balance sheet arrangements as of December 31, 2022.

had no off-balance sheet arrangements as of December 31, 2023.

Accounting Policies

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Inventories are carried at this lower cost basis until sold or scrapped.

$74,100 and nil inventory write-off was recorded for the years ended December 31, 2022 and 2021, respectively.

Nil and $74,100 inventory write-off was recorded for the year ended December 31, 2023 and 2022, respectively.

Promissory Notes

4 unchanged sentences

to be accounted for as derivatives under Topic 815.

analyze the convertible notes for the existence of a beneficial conversion feature.

Company analyzes the convertible notes for the existence of a beneficial conversion feature.

The Company considered the three characteristics

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Company used a Black-Scholes-pricing model to estimate the fair values of common stock purchase warrants at the balance sheet dates.

As of December 31, 2022 and 2021, the Company recorded $256,957 and $1,128,635 common stock purchase warrants liability, respectively,

and $871,677 and $759,471 gain on change of fair value of common stock purchase liability warrants for the year ended December 31, 2022

As of December 31, 2023 and 2022, the Company recorded $378,371 and $256,957 common stock purchase warrant liability, respectively, and

loss of $121,413 and gain of $871,677 on change of fair value of common stock purchase warrant liability for the year ended December

31, 2023 and 2022, respectively.

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plant and equipment, net

Property, plant and equipment are stated at cost less accumulated depreciation

and amortization.

Depreciation and amortization of property and equipment is provided using the straight-line method over their expected

useful lives, as follows:

Machinery and equipment

Office and electric equipment

plant and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization of property and

equipment is provided using the straight-line method over their expected useful lives, as follows:

and equipment

and electric equipment

for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.

16 unchanged sentences

No impairment of long-lived assets was recognized for any of the years

Company awards share options and other equity-based instruments to its employees, directors and third party service providers (collectively

“share-based payments”).

Compensation cost related to such awards is measured based on the fair value of the instrument on

the grant date.

The Company recognizes the compensation cost over the period the employee is required to provide service in exchange

for the award, which generally is the vesting period.

The amount of cost recognized is adjusted to reflect the expected forfeiture prior

When no future services are required to be performed by the employee in exchange for an award of equity instruments, and

if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date.

The Company recognizes

compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite

service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals

the portion of the grant-date value of such award that is vested at that date.

Comprehensive

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new accounting standards that are issued.

Company considers the applicability and impact of all accounting standards updates (“ASUs”).

Management periodically reviews

new accounting standards that are issued.

August 2020, the FASB issued ASU No.

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The Company adopted ASU 2016-13 utilizing the modified

retrospective transition method.

The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated

financial statements.

retrospective transition method on January 1, 2022.

The adoption of ASU 2016-13 did not have a material impact on the Company’s

consolidated financial statements.

December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

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for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company is currently evaluating the impact of

this ASU on its financial statements and the effects will be based upon the contract assets and liabilities acquired in the future.

The Company adopted ASU No.

2021-08 on January 1,

The adoption of ASU No.

2021-08 did not have a material impact on the Company’s consolidated financial statements.

November 2021, the FASB issued ASU No.

2021-10, Government Assistance (Topic 832).

This ASU requires business entities to disclose information

about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting

The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the

balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the

significant terms and conditions of the transactions.

The ASU is effective for annual periods beginning after December 15, 2021.

disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that

are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date

of initial application.

The ASU is currently not expected to have a material impact on the Company’s financial results or financial

time to time, the FASB or other standards setting bodies issue new accounting pronouncements.

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adopted in the future, is not expected to have a material impact on its consolidated financial statements upon adoption.

and Qualitative Disclosures about Market Risks

exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing

bank deposits.

Interest-earning instruments carry a degree of interest rate risk.

We have not been exposed to material risks due to changes

in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.

Currency Exchange Rates

some of our revenues are collected in and our expenses are paid in RMB.

We face foreign currency rate translation risks when our results

are translated to U.S.

RMB was relatively stable against the U.S.

dollar at approximately 8.28 RMB to the US$1.00 until July 21, 2005 when the Chinese currency

regime was altered resulting in a 2.1% revaluation versus the U.S.

From July 21, 2005 to September 30, 2010, the RMB exchange

rate was no longer linked to the U.S.

dollar but rather to a basket of currencies with a 0.3% margin of fluctuation resulting in further

appreciation of the RMB against the U.S.

Since September 30, 2009, the exchange rate had remained stable at 6.8307 RMB to 1.00

dollar until September 30, 2010 when the People’s Bank of China allowed a further appreciation of the RMB by 0.43% to 6.798

RMB to 1.00 U.S.

The People’s Bank of China allowed the RMB and U.S.

dollar exchange rate to fluctuate within 1% on April

16, 2012 and 2% on March 17, 2014, respectively.

On December 31, 2022, the RMB traded at 6.8972 RMB to 1.00 U.S.

remains international pressure on the Chinese government to adopt an even more flexible currency policy and the exchange rate of RMB

is subject to changes in China’s government policies which are, to a large extent, dependent on the economic and political development

both internationally and locally and the demand and supply of RMB in the domestic market.

There can be no assurance that such exchange

rate will continue to remain stable in the future amongst the volatility of currencies, globalization and the unstable economies in recent

Since (i) our revenues and net income of our PRC operating entities are denominated in RMB, and (ii) the payment of dividends,

if any, will be in U.S.

dollars, any decrease in the value of RMB against U.S.

dollars would adversely affect the value of the shares

and dividends payable to shareholders, in U.S.

date, inflation in China has not materially affected our results of operations.

According to the National Bureau of Statistics of China,

the year-over-year percent changes in the consumer price index for December 2022 and 2021 were increases of 2.0%, and 0.9%, respectively.

Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation

in the future.

issued accounting pronouncements not yet adopted

March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate

Reform on Financial Reporting”, which provides optional expedients and exceptions for applying U.S.

GAAP on contract modifications

and hedge accounting to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected

to be discontinued because of reference rate reform, if certain criteria are met.

These optional expedients and exceptions provided in

2020-04 are effective for the Company as of March 12, 2020 through December 31, 2022.

In December 2022, the FASB issued ASU 2022-06,

Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”), which deferred the application

dates of Topic 848 to December 31, 2024.

The Group currently does not have any financial instrument that reference to LIBOR and does

not anticipate the adoption will have a material impact to the Group’s combined and consolidated financial statements.

November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, Improvements to Reportable Segment

Disclosures (Topic 280).

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable

segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported

measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the individual identified

as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance

and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods

within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented

in the financial statements.

Early adoption is also permitted.

This ASU will likely result in the group including the additional required

disclosures when adopted.

The Group is currently evaluating the provisions of this ASU and expect to adopt them for the year ending December

December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

The ASU requires disaggregated information

about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial

statements that have not yet been issued or made available for issuance.

The Group has evaluated this ASU and expects to add additional

disclosures to our combined and consolidated financial statements, once adopted.

and Qualitative Disclosure About Market Risk

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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 7. Management’s Discussion and Analysis