Item 2. Properties
ITEM
2.
Properties
and Facilities
We
operate our business in approximately nine separate buildings covering a total area of approximately 735,745 square feet at No. 29, Third
Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (previously known as 22 Xingan Ave., Section 2, Shigao Town, Sichuan,
China ) where we maintain our executive offices, research and development facilities, factories and other facilities.
Leaseback
Agreement
Pursuant
to local PRC government guidelines on local environmental issues and the national overall plan, Sichuan Wetouch is under the government-directed
relocation order to relocate no later than December 31, 2021 and received compensation accordingly.
On
March 16, 2021, Sichuan Wetouch entered into an Agreement of Compensation on Demolition (the “Compensation Agreement”) with
Meishan Huantian Industrial Co., Ltd, formerly named Sichuan Renshou Shigao Tianfu Investment Co., Ltd, a limited company owned by the
local government (“Sichuan Renshou”), for the withdrawal of our right to use of a parcel of state-owned land and the demolition
of all buildings, facilities and equipment on such land where we maintain our executive offices, research and development facilities
and factories at No.29, Third Main Avenue, Shigao Town, Renshou County, Meishan City, Sichuan, China (the “Property”). The
Property, all buildings, facilities, equipment and all other appurtenances on the Property are collectively referred to as “Properties”.
The Compensation Agreement was executed and delivered as a result of the guidelines (the “Guidelines”) published by the local
government with respect to local environmental issues and a national plan on Tianfu New District, Meishan City, Sichuan, PRC. In accordance
with the Guidelines, a project named “Chaisang River Ecological Wetland Park” is under construction in the areas where our
manufacturing facilities and properties are located. In consideration for such relocation, as an owner of the buildings on the state-owned
land, we will be compensated. On March 18, 2021, Sichuan Wetouch received a total amount of RMB115.2 million (approximately $17.7 million)
as the total amount of compensation from Sichuan Renshou, including RMB100.2 million ($15.4 million) based upon the appraised value of
the Properties plus an extra 15% relocation bonus of RMB15.0 million ($2.3 million).
In
order to minimize the interruption to our business, Sichuan Vtouch entered into a Leaseback Agreement with Sichuan Renshou on March 16,
2021. The Leaseback Agreement entitles us to lease back the Properties commencing from April 1, 2021 until December 31, 2021, at a monthly
rent of RMB300,000 (approximately $46,154), which period was extended to October 31, 2022. On October 16, 2022, Sichuan Vtouch entered
an extension to the Leaseback Agreement with Sichuan Renshou to extend the period it granted Sichuan Vtouch to lease back the Properties
until October 31, 2024, at a monthly rent of RMB 400,000 ($56,339).
New Facilities
On July 23, 2021, Sichuan Vtouch
entered into a contract with the Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use right
for a parcel of land spanning 131,010 square feet, for a consideration of RMB3,925,233 (equivalent to $537,998) for the Company’s
new facility. The Company paid the consideration in full on November 18, 2021. The Company estimates receiving the certificate of land
use right from the local government in the fourth quarter of 2024.
On
July 27, 2021, Sichuan Vtouch and Sichuan Chunqiu Development and Construction Group Co., Ltd. entered into a construction contract
for a project to build the capacitive touch screen and touch machine research and development production base. The contract was
estimated to start on August 15, 2021, and to be completed by August 15, 2022, at a provisional price of RMB76,000,000
(approximately $11.9 million). This price is subject to adjustment based on actual completion settlement. However, the construction
project has been put on hold due to the outbreak of Covid-19 and government-ordered shutdowns in China. The parties have agreed to
extend the term of the contract to December 31, 2024. As of the date of
this Annual Report, we estimate that our capital needs for this acquisition and construction will be approximately RMB170.0 million
(approximately $26.2 million), but there is no assurance that the estimated amount is sufficient to achieve our goals. We may need
additional financing for our new facilities. In addition, we expect that this the construction of buildings and affixtures will be
completed by end of 2023 and our production at the new facilities will commence in the third quarter of 2025, but there is no assurance and we may need extended time to achieve our business
plan.
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