Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission file number: 001-41957

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)

Registrant's telephone number, including area code: (86) 28-37390666

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value per share		WETH		Nasdaq Stock Market LLC

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 period 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 required to be submitted 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, smaller reporting company, or an emerging growth company. See the definitions 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	☒
		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 Act) Yes ☐ No ☒

As of November 12, 2024, there were 11,931,534 shares of the registrant's common stock, par value $0.001 per share, issued and outstanding.

WETOUCH TECHNOLOGY INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page Number
	Cautionary Note Regarding Forward Looking Statements	ii
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	F-1
	Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	F-2
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	F-3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)	F-4
	Notes to Condensed Consolidated Financial Statements	F-5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II	OTHER INFORMATION	15
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the "Quarterly 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"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded by, or contain, words such as "may," "will," "expect," "anticipate," "intend," "plan," "believe," "estimate," "predict," "potential," "might," "could," "would," "should" or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, without limitation, statements about our future business operations and results, our strategy and competition. These statements represent our current expectations or beliefs concerning various future events and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations, including, but not limited to:

●

Our reliance on our top customers is significant. Failure to attract new customers or retain existing ones cost-effectively could materially and adversely impact our business, financial condition, and results of operations.

●

We hold a substantial amount of accounts receivable, which may become uncollectible.

●

Dismissing BF Borgers may cause significant expenses or delays in financings or SEC filings, affecting our stock price and market access.

●

You are unlikely to collect judgments or exercise remedies against BF Borgers for their work as our auditor.

●

We face fines and penalties from the Chinese government for not completing required filings .

●

Our capacity to uphold the quality and safety standards of our products.

●

Our ability to compete effectively within the touchscreen display industry.

●

Without substantial additional financing, our ability to execute our business plan will be compromised.

●

Failure to secure a new parcel for constructing our new buildings and facilities, as well as acquiring and installing new production lines on the new parcel, could materially and adversely affect our business, financial condition, and results of operations .

●

Unavailability of preferential tax treatments and government subsidies, or successful challenges to our tax liability calculation by PRC tax authorities, may necessitate payment of tax, interest, and penalties exceeding our tax provisions.

●

Significant interruptions in the operations of our third-party suppliers could potentially disrupt our operations.

●

Risks associated with fluctuations in the cost, availability, and quality of raw materials may adversely affect our results of operations.

●

We are reliant on key executives and highly qualified managers, and retention cannot be assured.

●

Absence of long-term contracts with our suppliers allows them to reduce order quantities or terminate sales to us at any time.

●

Failure to adopt new technologies to evolving customer needs or emerging industry standards may materially and adversely affect our business.

●

Lack of business liability or disruption insurance exposes us to significant costs and business disruption.

●

Adverse regulatory developments in Mainland China may subject us to additional regulatory review, restrictions, disclosure requirements, and regulatory scrutiny by the SEC, increasing compliance costs and hindering future securities offerings.

●

Our common stock may be prohibited from trading in the U.S. under the Holding Foreign Companies Accountable Act if PCAOB inspection of our auditor is incomplete, leading to delisting or prohibition and potential decline in stock value.

●

Changes in China's economic, political, or social conditions or government policies may adversely affect our business and operations.

●

Uncertainties regarding the PRC legal system, including enforcement and sudden changes in laws and regulations, could adversely affect us and limit legal protections.

●

Fluctuations in exchange rates could materially and adversely affect our results of operations and your investment value.

●

The other risks and uncertainties discussed under the section titled "Risk Factors" beginning on page 13 of this Quarterly Report and our other filings with the Securities and Exchange Commission.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. The forward-looking statements made in this Quarterly Report relate only to events or information as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

You should read this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in the foregoing documents by these cautionary statements.

Item 1. Financial Statements

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets at September 30, 2024 (Unaudited) and December 31, 2023	F-1
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	F-2
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30,2024 and 2023 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,2024 and 2023 (Unaudited)	F-4
Notes to Condensed Consolidated Financial Statements	F-5 - F-21

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States Dollars ("US"), except for number of shares)

		September 30, 2024			December 31, 2023
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	106,737,492			$	98,040,554
Accounts receivable			9,732,758				7,455,252
Inventories			187,408				222,102
Prepaid expenses and other current assets			3,360,770				1,063,627
TOTAL CURRENT ASSETS			120,018,428				106,781,535
Property, plant and equipment, net			13,125,448				12,859,863
TOTAL ASSETS		$	133,143,876			$	119,641,398
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	1,218,402			$	640,795
Due to related parties			434,576				-
Income tax payable			1,000,261				-
Accrued expenses and other current liabilities			800,612				4,462,496
Convertible promissory notes payable			-				1,239,126
TOTAL CURRENT LIABILITIES			3,453,851				6,342,417
Common stock purchase warrants liability			214,679				378,371
TOTAL LIABILITIES		$	3,668,530			$	6,720,788
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 15,000,000 shares authorized, 11,931,534 and 9,732,948 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively*		$	11,932			$	9,733
Additional paid in capital*			52,501,680				43,514,125
Statutory reserve			7,195,092				7,195,092
Retained earnings			75,398,355				69,477,092
Accumulated other comprehensive loss			(5,631,713	)			(7,275,432	)
TOTAL STOCKHOLDERS' EQUITY			129,475,346				112,920,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	133,143,876			$	119,641,398

*	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 10 (2)

The accompanying notes are an integral part of these condensed consolidated financial statements.

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Currency expressed in United States Dollars("US"),except for number of shares)

(Unaudited)

		Three-Month Period Ended			Nine-Month Period Ended
		September 30,			September 30,
		2024			2023			2024			2023
REVENUES		$	11,537,989			$	11,123,605			$	38,649,823			$	37,331,498
COST OF REVENUES			(7,101,645	)			(6,346,079	)			(26,014,703	)			(20,261,755	)
GROSS PROFIT			4,436,344				4,777,526				12,635,120				17,069,743
OPERATING EXPENSES
Selling expenses			(159,032	)			(265,526	)			(908,540	)			(397,591	)
General and administrative expenses			(750,441	)			(205,940	)			(2,083,568	)			(1,929,603	)
Research and development expenses			(43,859	)			(20,580	)			(129,808	)			(61,849	)
OPERATING EXPENSES			(953,332	)			(492,046	)			(3,121,916	)			(2,389,043	)
INCOME FROM OPERATIONS			3,483,012				4,285,480				9,513,204				14,680,700
Interest income			39,003				30,616				108,396				89,845
Interest expense			-				(139,876	)			(1,169,974	)			(211,383	)
Other income			-				-				46,560				-
Gain (loss)on changes in fair value of common stock purchase warrants liability			118,120				(169,067	)			163,692				(124,283	)
TOTAL OTHER INCOME (LOSS)			157,123				(278,327	)			(851,326	)			(245,821	)
INCOME BEFORE INCOME TAX EXPENSE			3,640,135				4,007,153				8,661,878				14,434,879
INCOME TAX EXPENSE			(979,436	)			(1,148,185	)			(2,740,615	)			(4,109,679	)
NET INCOME		$	2,660,699			$	2,858,968			$	5,921,263			$	10,325,200
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment			4,352,118				(674,209	)			1,643,719				(7,560,136	)
COMPREHENSIVE INCOME		$	7,012,817			$	2,184,759			$	7,564,982			$	2,765,064
EARNINGS PER COMMON SHARE*
Basic		$	0.22			$	0.29			$	0.51			$	1.13
Diluted		$	0.22			$	0.29			$	0.51			$	1.13
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING*
Basic			11,931,534				9,712,404				11,529,234				9,135,132
Diluted			11,982,239				9,794,357				11,579,938				9,224,423

*	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 10 (2)

The accompanying notes are an integral part of these consolidated financial statements.

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Currency expressed in United States Dollars("US"),except for number of shares)

(Unaudited)

		Common stock at Par value $0.001			Additional paid-in			Statutory			Retained			Accumulated other comprehensive			Total stockholders'
		Shares			Amount			capital			reserve			Earnings			loss			equity
Balance as of December 31 2022			1,680,248			$	1,680			$	3,402,178			$	6,040,961			$	62,366,892			$	(2,977,524	)		$	68,834,187
Shares issued to private placement			8,000,000				8,000				39,992,000				-				-				-				40,000,000
Exercise of warrants issued to third parties in conjunction with debt issuance in 2021			15,000				15				(15	)							-				-				-
Net income			-				-				-				-				7,466,232				-				7,466,232
Foreign currency translation adjustment			-				-				-				-				-				(6,885,927	)			(6,885,927	)
Balance as of June 30, 2023			9,695,248			$	9,695			$	43,394,163			$	6,040,961			$	69,833,124			$	(9,863,451	)		$	109,414,492
Fraction shares issued due to reverse stock split			5,362				6				(6	)			-				-				-				-
Exercise of warrants issued to third parties in conjunction with debt issuance in 2021			7,338				7				(7	)			-				-				-				-
Stock issuance for convertible promissory notes payable			25,000				25				119,975				-				-				-				120,000
Net income																			2,858,968								2,858,968
Foreign currency translation adjustment			-				-				-				-				-				(674,209	)			(674,209	)
Balance as of September 30, 2023			9,732,948			$	9,733			$	43,514,125			$	6,040,961			$	72,692,092			$	(10,537,660	)		$	111,719,251

		Common stock at Par value $0.001			Additional paid-in			Statutory			Retained			Accumulated other comprehensive			Total stockholders'
		Shares			Amount			capital			reserve			Earnings			loss			equity
Balance as of December 31 2023*			9,732,948			$	9,733			$	43,514,125			$	7,195,092			$	69,477,092			$	(7,275,432	)		$	112,920,610
Issuance of common stock from the 2024 Public Offering, net of issuance costs			2,160,000				2,160				8,987,594				-				-				-				8,989,754
Exercise of warrants issued in conjunction with legal/consultant services in 2020 and 2021			35,861				36				(36	)			-				-				-				-
Exercise of warrants issued to third parties in conjunction with debt issuance in 2021			2,725				3				(3	)			-				-				-				-
Net income			-				-				-				-				3,260,564				-				3,260,564
Foreign currency translation adjustment			-				-				-				-				-				(2,708,399	)			(2,708,399	)
Balance as of June 30, 2024			11,931,534			$	11,932			$	52,501,680			$	7,195,092			$	72,737,656			$	(9,983,831	)		$	122,462,529
Net income			-				-				-				-				2,660,699				-				2,660,699
Foreign currency translation adjustment			-				-				-				-				-				4,352,118				4,352,118
Balance as of September 30, 2024			11,931,534			$	11,932			$	52,501,680			$	7,195,092			$	75,398,355			$	(5,653,713	)		$	129,475,346

*	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 10 (2)

The accompanying notes are an integral part of these condensed consolidated financial statements.

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars("US"),except for number of shares)

(Unaudited)

		For the Nine Months Ended September, 30
		2024			2023
Cash flows from operating activities
Net income		$	5,921,263			$	10,325,200
Adjustments to reconcile net income to cash (used in) provided by operating activities
Depreciation			7,307				9,465
Amortization of discounts and issuance cost of the notes			5,715				24,121
(Gain) loss on changes in fair value of common stock purchase warrants liability			(163,692	)			124,283
Changes in operating assets and liabilities:
Accounts receivable			(2,135,259	)			(5,568,912	)
Amounts due from related parties			-				(98	)
Inventories			35,410				199,566
Prepaid expenses and other current assets			(2,288,804	)			335,230
Accounts payable			555,824				202,515
Amounts due to related parties			-				(1,665	)
Income tax payable			975,226				1,171,069
Accrued expenses and other current liabilities			(3,658,027	)			2,187,200
Net cash (used in) provided by operating activities			(745,037	)			9,007,974
Cash flows from investing activity
Purchase of property, plant and equipment			(119,204	)			-
Net cash used in investing activity			(119,204	)			-
Cash flows from financing activities
Proceeds from issuance of common stock, net of issue costs			8,989,754				-
Proceeds from stock issuance of private placement			-				40,000,000
Proceeds from advances from related parties			434,576				-
Repayments of convertible promissory notes payable			(1,400,750	)			(55,000	)
Net cash provided by financing activities			8,023,580				39,945,000
Effect of changes of foreign exchange rates on cash			1,537,599				(6,266,700	)
Net increase in cash			8,696,938				42,686,274
Cash, beginning of period			98,040,554				51,250,505
Cash, end of period		$	106,737,492			$	93,936,779
Supplemental disclosures of cash flow information
Income tax paid		$	1,765,389			$	2,938,610
Interest paid		$	1,186,210			$	-
Issue costs charged to additional paid-in capital		$	1,810,246			$	-
Exercise of warrant shares		$	38,586			$	-
Cashless stock issuance for convertible promissory notes payable		$	-			$	22,338

The accompanying notes are an integral part of these condensed consolidated financial statements.

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS

Wetouch Technology Inc. ("Wetouch", or the "Company"), formerly known as Gulf West Investment Properties, Inc., was originally incorporated in August 1992, under the laws of the state of Nevada.

On October 9, 2020, the Company entered into a share exchange agreement (the "Share Exchange Agreement") with Wetouch Holding Group Limited ("BVI Wetouch") and all the shareholders of BVI Wetouch (each, a "BVI Shareholder" and collectively, the "BVI Shareholders"), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Shareholders an aggregate of 28,000,000 shares (1,400,000 shares post-Reverse Stock Split) of the Company's common stock (the "Reverse Merger"). In the Reverse Merger, each ordinary share of BVI Wetouch was exchanged for 2,800 shares (140 shares post-Reverse Stock Split) of common stock of Wetouch. Immediately after the closing of the Reverse Merger on October 9, 2020, the Company had a total of 31,396,394 (1,569,820 shares post-Reverse Stock Split) issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch became a wholly-owned subsidiary of the Company.

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 the "PRC"). Sichuan Wetouch is primarily engaged in the business of research and development, manufacturing, and distribution of touchscreen displays to customers both in the PRC and overseas. The touchscreen products, which are manufactured by the Company, are primarily applied for use in financial terminals, automotive, Point of Sales, gaming, lottery, medical, Human-Machine Interface (HMI), and other specialized industries.

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 accordingly.

Through its wholly-owned subsidiaries, the Company is engaged in the research, development, manufacturing, sales and servicing of medium to large sized projected capacitive touchscreens. The Company specializes in large-format touchscreens, which are developed and designed for a wide variety of markets and used in the financial terminals, automotive, Point of Sales, gaming, lottery, medical, Human-Machine Interface ("HMI"), and other specialized industries.

Corporate History of BVI Wetouch

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 (the "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 stockholder meeting.

Sichuan Wetouch was formed on May 6, 2011 in the PRC and became a wholly foreign-owned enterprise ("WFOE") in the PRC on February 23, 2017. On July 19, 2016, Sichuan Wetouch was 100% held by HK Wetouch.

On December 30, 2020, Sichuan Vtouch was incorporated in Chengdu, Sichuan, under the PRC laws.

In March 2021, pursuant to local PRC government guidelines on local environmental issues and the national plan, Sichuan Wetouch was subject to a 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 for a nominal amount.

As a result of the above restructuring, HK Wetouch became the sole shareholder of Sichuan Vtouch.

The following diagram illustrates the Company's current corporate structure:

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

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 (the "SEC"). The condensed consolidated balance sheet as of December 31, 2023 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, 2023, and the related consolidated statements of income and comprehensive income (loss), changes in stockholders' equity and cash flows for the years 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 September 30, 2024, the results of operations and cash flows for the nine months ended September 30, 2024 and 2023 have been made. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.

Deconsolidation of Sichuan Wetouch

On March 30, 2023, upon transferring Sichuan Wetouch to a third-party individual for a nominal value, the Company was no longer able to operate and exert control over Sichuan Wetouch whose operation has been taken over by Sichuan Vtouch since the first quarter of 2021. As a result, Sichuan Wetouch was deconsolidated accordingly since the disposal date.

The deconsolidated Sichuan Wetouch had assets, liabilities and the non-controlling interest on disposal date as the following:

			March 30, 2023
Total assets as of deconsolidated date		$	-
Total liabilities as of deconsolidated date			-
Total gain or loss from deconsolidation		$	-

Upon the deconsolidation, the Company was no longer entitled to the assets and also legally released from the liabilities previously held by the deconsolidated Sichuan Wetouch, derived nil gain or loss from the deconsolidation in the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2023. The disposal of Sichuan Wetouch did not represent a strategic shift and did not have a major effect on the Company's operation. There was no cash outflow for the disposal for the three months ended March 31, 2023.

(b) Uses of Estimates

In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, fair values of financial instruments, inventory valuations, useful lives of property, plant and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition. Actual results could differ from those estimates.

(c) 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 2023 audited consolidated financial statements. Other than the revised accounting policy on property, plant and equipment, net, as below, during the nine months ended September 30, 2024, there were no significant changes made to Wetouch significant accounting policies.

Property, plant and equipment, net

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

			Useful life
Buildings			20 years
Machinery and equipment			10 years
Vehicles			10 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income (loss) as other income or expenses.

Construction in progress, funded by Company's working capital, represents manufacturing facilities and office building under construction, is stated at cost and transferred to property, plant and equipment when it is substantially ready for its intended use. No depreciation is recorded for construction in progress. The management estimate that construction in progress for our new facilities will be completed by the end of first quarter of 2025 and will transfer construction in progress to property, plant and equipment to start depreciation.

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

		September 30, 2024			December 31, 2023
Accounts receivable		$	9,732,758			$	7,455,252

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 consisted of the following:

		September 30, 2024			December 31, 2023
Advance to suppliers		$	338,857			$	334,852
Issuance cost related to convertible promissory notes			-				64,802
Prepayment for land use right (i)			559,341				537,998
Security deposit (ii)			56,002				53,865
Prepaid consulting service fees (iii)			1,423,702				-
Prepaid market research fees (iv)			955,000				-
Others receivable (v)			27,868				72,110
Prepaid expenses and other current assets		$	3,360,770			$	1,063,627

(i)

On July 23, 2021, Sichuan Vtouch entered into a contract with Chengdu Wenjiang District Planning and Natural Resources Bureau for the purchase of a land use right of a parcel of land of 131,010 square feet for a consideration of RMB3,925,233 (equivalent to $559,341) for the Company's new facility. The Company paid the consideration in full by November 18, 2021. Upon issuance of a certificate of land use right by the local government, which is estimated to be obtained by the end of 2024, the Company will reclassify this prepayment to intangible assets accordingly.

(ii)

On July 28, 2021, Sichuan Vtouch made a security deposit of RMB393,000 (equivalent to $56,002) to Chengdu Cross-Strait Science and Technology Industry Development Park Management Committee to obtain a construction license for its new facility. This deposit will be refunded upon the issuance of the construction license, which is expected to be the end of 2024.

(iii)

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, for the three-year consulting services. The total fee would be amortized over the three-year services and reclassified to stock issuance costs accordingly. As of September 30, 2024, $1,423,702 was recognized as prepaid consulting service fees within one year.

(iv)

On February 29, 2024, the Company advanced market research fees $70,000 and $855,000, respectively, to two unrelated individuals, Mr. Chien Hui Chueh and Mr. Cheung Ming Lin, in relation to the Company's market research service overseas. The two individuals entered into borrowing contracts with the Company for a principal amount of $70,000 and $855,000, respectively, on February 29, 2024. Those contracts were issued to the Company to evidence the advances, bearing 3.45% interest per annum, and payable on February 28, 2025.

(v)

Other receivables are mainly employee advances, and prepaid expenses.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET

		September 30, 2024			December 31, 2023
Buildings		$	12,272			$	12,130
Machinery and equipment			7,980				3,944
Vehicles			41,724				41,241
Construction in progress			13,094,588				12,825,896
Subtotal			13,156,564				12,883,211
Less: accumulated depreciation			(31,116	)			(23,348	)
Property, plant and equipment, net		$	13,125,448			$	12,859,863

Depreciation expense was $2,561 and $2,294 for the three months ended September 30, 2024 and 2023, respectively, and $7,307 and $9,465 for the nine months ended September 30, 2024 and 2023, respectively.

Pursuant to local PRC government guidelines on local environment issues and the national overall plan, Sichuan Wetouch was subject to a government directed relocation order to relocate by no later than December 31, 2021 with corresponding compensation. 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 ($16.4 million) (the "Compensation Funds") for the withdrawal of the right to use of state-owned land (the "property") 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 the Company's 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 liability company owned by the local government, to lease the property, and all buildings, facilities and equipment thereon (the "Demised Properties) of Sichuan Wetouch, commencing from April 1, 2021 until December 31, 2021 at a monthly rent of RMB300,000 ($41,281). The lease was renewed on December 31, 2021 and August 9, 2024, respectively, with a monthly rent of RMB 400,000 ($57,000), the term of which has been extended to October 31, 2025 for the use of the Demised Properties.

As of September 30, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress of our new facility.

NOTE 6 - RELATED PARTY TRANSACTIONS

Amounts due to related parties were as follows:

		Relationship		September 30, 2024			December 31, 2023			Note
Chengdu Wetouch Intelligent Optoelectronics Co., Ltd.		Affiliate of Ms. Jiaying Cai, director of the Company		$	382,163			$	-			Payable to affiliate for expenses paid on behalf of the Company
Chengdu Frejoo Enterprise Management Co., Ltd.		Affiliate of Jiaying Cai, director of the Company			52,413				-			Payable to affiliate for expenses paid on behalf of the Company
Total				$	434,576			$	-

Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. was incorporated on December 30, 2020 in Chengdu, Sichuan Province under the laws of PRC, with Ms. Jiaying Cai, a director of the Company as its sole shareholder holding 100% of its equity interests.

Chengdu Frejoo Enterprise Management Co., Ltd. was incorporated on March 20, 2018 in Chengdu, Sichuan Province under the laws of PRC, with Ms. Jiaying Cai, a director of the Company as its major shareholder holding 68% of its equity interests.

NOTE 7 - INCOME TAXES

Wetouch

Wetouch is subject to a tax rate of 21% per year beginning 2018, and files a U.S. federal income tax return.

BVI Wetouch

Under the current laws of the British Virgin Islands, BVI Wetouch, a wholly owned subsidiary 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 stockholders.

Hong Kong

HK Wetouch is subject to profit taxes in Hong Kong at a progressive rate of 16.5%.

PRC

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.

Sichuan Vtouch is subject to a 25% income tax rate.

The effective income tax rates for the nine months ended September 30, 2024 and 2023 were 25.4% and 28.5%, respectively.

The estimated effective income tax rate for the year ending December 31, 2024 would be similar to actual effective tax rate of the nine months ended September 30, 2024.

NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

		September 30, 2024			December 31, 2023
Advance from customers (i)		$	197,265			$	182,277
Accrued payroll and employee benefits			85,268				84,280
Accrued interest expenses			-				240,805
Accrued private placement agent fees (ii)			-				1,200,000
Accrued consulting fees (iii)			-				1,370,972
Accrued litigation charges (iv)			-				45,828
Accrued professional fees			72,207				330,180
Accrued director fees			106,516				106,824
Other payable			250,694				469,591
Other tax payables (v)			79,132				143,035
Others (vi)			9,530				288,704
Accrued expenses and other current liabilities		$	800,612			$	4,462,496

(i)	RMB2,587,825 (equivalent to $365,465) of the beginning balance of advance from customers was recognized as revenues for the year ended December 31, 2023.
(ii)	On March 18, 2023, the Company entered into a private placement consent agreement with a third-party investment bank firm on the agent fees of $1.2 million, payable only on the completion of the private placement. The Company made the full payment in February 2024.

(iii)

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. The Company made the full payment in February 2024. Due to the service of three-year term, $316,378 was charged to additional paid-in capital as the closing cost of the 2024 Public Offering (as defined in Note 9), and the remaining was recognized as consulting service fee over the service period.

(iv)

During the year ended December 31, 2023, the Company accrued litigation compensation of RMB324,501 ($45,705) and court fee of RMB10,627 ($1,497). As of September 30, 2024, the Company made the full payment of RMB324,501 ($45,705) and reversed the court fee of RMB10,627 (1,497). For the details, please see NOTE 13 - COMMITMENTS AND CONTINGENCIES - Legal Proceedings - viii) and viiii).

(v)	Other tax payable mainly represent value added tax payable.

(vi)	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 (the "Notes") of an aggregate principal amount of $2,250,000, due in one year with discounted issuance price at 90.0%. The Notes bore interest at a rate of 8.0% per annum, payable in one year and matured on October 27, November 5, November 16, November 24, November 29, and December 2, 2022, respectively. Net proceeds after debt issuance costs and debt discounts were approximately $1,793,000. Debt issuance costs in the amount of $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 the 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 the lesser of 16% and the maximum amount permitted by law.

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 $15.0 per share.

Subject to customary exceptions, if the Company issues shares or any securities convertible into shares of common stock at an effective price per share lower than the conversion price of the Notes, the conversion rate of the Notes shall be reduced to such lower price.

Until the Notes are either paid or converted in their entirety, the Company agreed with the Lenders not to sell any securities convertible into shares of common stock of the Company (i) at a conversion price that is based on the trading price of the stock or (ii) with a conversion price that is subject to being reset at a future date or upon an event directly or indirectly related to the business of the Company or the market for the common stock. The Company also agreed to not issue securities at a future determined price.

The Lenders have the right to require the Company to repay the Notes if the Company receives cash proceeds, including proceeds from customers and the issuance of equity (including in the Uplist Offering). If the Company prepays the Notes prior to the Maturity Date, the Company shall pay a 10% prepayment penalty.

From December 28, 2022 to April 6, 2023, the lenders of five outstanding Notes and the Company entered into two amendments to the Notes extending the term of the Notes for a total of additional 6 months.

From August 8 to September 7, 2023, the lenders of the outstanding Notes and the Company entered into an amendment to the Notes that upon the listing of the Company's common stock on the Nasdaq Capital Market (the "Uplist"), the Company shall within three (3) business days after the Uplist, pay to the Holders amounts equal to 105% of the total outstanding balance of the Convertible Debenture.

During the year ended December 31, 2023, principal and default charges totaling $1,200,000 were converted into 25,000 shares of common stock of the Company.

During the year ended December 31, 2023, principal, accrued and unpaid interest and default charges totaling $1,038,426 were converted into 69,228 shares of common stock of the Company. Two notes were fully converted.

On February 23, 2024, immediately upon the closing of the public offering (the "2024 Public Offering"), the Company made a full payment of $2,586,960 under the remaining five outstanding promissory notes, including the principal of $1,400,750 and the related accrued interests and default charges of $1,186,210.

During the nine months ended September 30, 2024 and 2023, amortization of discounts and issuance cost of the notes were $5,715 and $24,121, respectively.

For the three months ended September 30, 2024 and 2023, the Company recognized interest expenses of the Notes in the amount of nil and $139,876, respectively.

For the nine months ended September 30, 2024 and 2023, the Company recognized interest expenses of the Notes in the amount of $1,169,974 and $211,383, respectively.

b) Warrants

Accounting for Warrants

In connection with the issuance of the Notes, the Company also issued to the lenders seven (7) three-year warrants (the "Note Warrants") to purchase an aggregate of 90,000 shares of the Company's common stock (the "Warrant Shares").

The Note Warrants issued to the lenders granted the holders the rights to purchase up to 10,000 shares of common stock of the Company at an exercise price of $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 Note 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 $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 Note 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 Note 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 Note Warrants, the exercise price of the Note Warrants shall be reduced to such lower price, subject to customary exceptions.

The lenders may not convert the Notes or exercise the Note 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 shares of common stock immediately after giving effect to such exercise unless such lender notifies the Company at least 61 days prior to such exercise.

During the year ended December 31, 2023, two lenders exercised the Note Warrants cashlessly for 22,338 shares of common stock.

During the nine months ended September 30, 2024, one lender exercised the Note Warrants cashlessly for 2,725 shares of common stock.

The fair values of these warrants as of September 30, 2024 were calculated using the Black-Scholes option-pricing model with the following assumptions:

								September 30, 2024
		Volatility (%)			Expected dividends yield (%)			Weighted average expected life (year)			Risk-free interest rate (%) (per annum)			Common stock purchase warrants liability as of December 31, 2023 ($)			Changes in fair value of common stock purchase warrants liability (+ loss/(- (gain) ($)			Common stock purchase warrants liability as of September 30, 2024 ($)
Convertible Note - Talos Victory (Note 9 (a))			567.0	%			0.0	%			0.6				5.03	%		$	43,113			$	(27,995	)		$	15,118
Convertible Note - First Fire (Note 9 (a))			567.0	%			0.0	%			0.6				5.03	%			98,375				(45,422	)			52,953
Convertible Note - LGH (Note 9 (a))			567.0	%			0.0	%			0.6				5.03	%			98,517				(39,999	)			58,518
Convertible Note - Fourth Man (Note 9 (a))			567.0	%			0.0	%			0.7				5.03	%			41,639				(15,628	)			26,011
Convertible Note - Jeffery Street (Note 9 (a))			567.0	%			0.0	%			0.7				5.03	%			26,264				(9,408	)			16,856
Convertible Note - Blue Lake (Note 9 (a))			567.0	%			0.0	%			0.7				5.03	%			70,463				(25,240	)			45,223
Total															Total			$	378,371			$	(163,692	)		$	214,679

(c) Registration Rights Agreements

Pursuant to the terms of the Registration Rights Agreements between the Company and lenders of the Notes, 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 Note Warrants within sixty days from the date of each Registration Rights Agreement. The Company also granted the lenders piggyback registration rights on such securities pursuant to the Purchase Agreements.

NOTE 10 - STOCKHOLDERS' EQUITY

1) Common Stock

The Company's authorized shares of common stock was 15,000,000 shares with par value of $0.001.

On December 22, 2020, the Company issued 5,181 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 15,541 shares to a third party service provider for consulting services that had been rendered.

On April 14, April 27 and September 1, 2022, the Company issued 5,777, 5,599 and 2,857 shares of common stock upon cashless exercise of the Note Warrants to three lenders, respectively. (see Note 9 (b)).

During the year ended December 31, 2022, the Company issued 6,211 shares of common stock to a third party upon exercise of warrants (see Note 11).

During the year ended December 31, 2022, the Company issued 69,228 shares of common upon conversion of convertible promissory note payable (see note 9 (a)).

On January 19, 2023, the Company sold an aggregate of 8,000,000 shares of common stock to purchasers in a private placement for an aggregate purchase price of $40,000,000, or $5.00 per share. On January 20, 2023, the Company received net proceeds of $40 million accordingly.

During the year ended December 31, 2023, the Company issued 25,000 shares of common stock upon conversion of convertible promissory note payable (see note 9 (a)).

During the year ended December 31, 2023, the Company issued 22,338 shares of common stock to two third parties upon exercise of warrants (see Note 9(b)).

On February 20, 2024, the Company issued 2,160,000 shares of common stock at a public offering price of $5.00 per share in the 2024 Public Offering. The Company's common stock began trading on the Nasdaq Capital Market under the ticker symbol "WETH" on February 21, 2024.

As of September 30, 2024, there were 11,931,534 shares of common stock issued and outstanding.

2) Reverse Stock Split

On February 17, 2023, the Company's board of directors authorized a reverse stock split of common stock 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 determined by the Chairman of the Board. Upon effectiveness of such reverse stock split, the number of authorized shares of the common stock of the Company will also be decreased in the same ratio. Pursuant to Section 78.209 of the Nevada Revised Statutes, the reverse stock split does not have to be approved by the stockholders of the Company.

On July 16, 2023, the Company's board of directors approved the reverse stock split of the Company's common stock at a ratio of 1-for-20. 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 Section 78.209 of the Nevada Revised Statutes to effectuate a 1-for-20 reverse stock split of its common stock. On September 11, 2023, the reverse stock split was approved by the Financial Industry Regulatory Authority and took effect on September 12, 2023. All share information included in this Quarterly Report has been adjusted as if the reverse stock split occurred as of the earliest period presented.

3) Closing of the 2024 Public Offering

On February 23, 2024, the Company closed its offering of 2,160,000 shares of common stock at a public offering price of $5.00 per share, for aggregate gross proceeds of $10.8 million before deducting underwriting discounts, and other offering expenses.

The Company complies with the requirements of FASB ASC Topic 340-10-S99-1, "Other Assets and Deferred Costs - SEC Materials" ("ASC 340-10-S99") and SEC Staff Accounting Bulletin Topic 5A, "Expenses of Offering", and charged issuance costs of $1,810,246 to additional paid-in capital during the nine months ended September 30, 2024.

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 the 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 5,181 shares and warrants to purchase an aggregate of 10,518 shares of common stock 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.

5,181 shares of common stock underlying such warrants were vested on December 22, 2020 and 6,211 shares were issued upon exercise of these warrants on September 21, 2022 and warrant to purchase 4,307 shares remained outstanding for The Crone law Group, P.C. or its designees for legal services. 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 15,541 shares and warrants to purchase 31,554 shares of common stock to a third party service provider for consulting services that had been rendered. These warrants have a five-year term and are exercisable at one cent per share.

The 15,541 shares of common stock and warrants to purchase 31,554 shares of commons stock vested on January 1, 2021.

The fair value of the above warrants was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. The fair value of the Black-Scholes model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0%, volatility of 51.3% and an average interest rate of 0.12%.

During the nine months ended September 30, 2024, warrants for 35,861 shares of common stock related to above mentioned services were exercised. There were nowarrants related to services remaining as of September 30, 2024.

As of September 30, 2024 and 2023, the Company recognized relevant share-based compensation expense of niland nilfor the vested shares, and niland nilfor the warrants, respectively.

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 RMB500,000.

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 to 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 months ended September 30, 2024, five customers accounted for approximately 21.4%, 19.5%, 15.9%, 14.4% and 12.0%, respectively, of the Company's total revenue. For the three-month periods ended September 30, 2023, five customers accounted for approximately 20.5%, 17.4%, 15.7%, 15.6% and 12.3%%, respectively, of the Company's revenue.

For the nine months ended September 30, 2024, five customers accounted for approximately 21.7%, 19.9%, 15.4%, 14.0% and 11.7%, respectively, of the Company's total revenue. For the nine months ended September 30, 2023, five customers accounted for approximately 22.0%, 16.1%, 15.9%, 14.4%, and 11.6%, respectively, of the Company's revenue.

The Company's top ten customers aggregately accounted for 99.95% and 99.8% of the total revenue for the three months ended September 30, 2024 and 2023, and approximately 99.4% and 99.6% for the nine months ended September 30, 2024 and 2023. As of September 30, 2024, seven customers accounted for approximately 19.7%, 17.3%, 16.6%, 11.9%, 11.4%, 11.0% and 10.4% 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 an aggregate of approximately 23.8% (two suppliers) and 23.0% (two suppliers) for the three months ended September 30, 2024 and 2023, respectively, and approximately 39.55% (three suppliers) and 11.9% (one supplier) for the nine months ended September 30, 2024 and 2023, respectively.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Contingencies

The Company's common stock began trading on the Nasdaq Capital Market under the ticker symbol "WETH" on February 21, 2024. The Company failed to timely complete the filing procedures with China Securities Regulatory Commission ("CSRC") on overseas offering and transfer of listing pursuant to the regulations below:

1)

Pursuant to Article 13 and Article 8 and Article 25 of CSRC Announcement (2023) No. 43 -Trial Measures for the Administration of Overseas Issuance and Listing of Securities for Domestic Enterprises" (the "Trial Measures"), which was effective on March 31, 2023 ( http://www.csrc.gov.cn/csrc/c101954/c7124478/content.shtml), when an issuer conducts an overseas offering or listing, it shall submit overseas issuance and listing application documents to CSRC within three working days of submitting its application documents for transfer and listing overseas; when a domestic enterprise transfers its listing overseas, it shall comply with the requirements of the overseas first public listing requirements for issuance and listing, and shall file with the CSRC within 3 working days, after its submitting application documents for transfer and listing overseas.

2)

Article 27 of Trial Measures stipulates that if a domestic enterprise violates the provisions of Article 13 of these Measures and fails to perform the filing procedures, or violates the provisions of Articles 8 and 25 of these Measures for overseas issuance and listing, CSRC shall order it to make corrections and give a warning, and impose a fine of not less than RMB 1 million but not more than RMB 10 million.

As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from the CSRC.

Legal Proceedings

From time to time, the Company and its subsidiaries are parties to various legal actions arising in the ordinary course of business. Although Hong Kong Wetouch, Sichuan Wetouch, the deconsolidated subsidiary of the Company (see Note 2-(a) - Deconsolidation of Sichuan Wetouch), Sichuan Vtouch and Mr. Guangde Cai, the former Chairman and director of the Company, were named as defendants in several litigation matters, as of the date of this Quarterly Report, some of which have been settled and Sichuan Wetouch, Hong Kong Wetouch and Mr. Guangde Cai were unconditionally and fully discharged and released therefrom. Below is a summary of the above-mentioned litigation.

i)	A share transfer dispute case with Yunqing Su for a disputed amount of RMB1,318,604 (equivalent to $185,721)

On June 22, 2017, Yunqing Su, a former shareholder of Sichuan Wetouch, entered into an Equity Investment Agreement with Sichuan Wetouch and Guangde Cai, pursuant to which Yunqing Su would invest RMB1 million (equivalent to $140,847) to purchase 370,370.37 original proposed listed shares of the proposed listed company on Australian capital market, Sichuan Wetouch, and provided for the exit mechanism in the agreement. However, the target company failed to be listed on Australian capital market 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 interests 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. However, upon the expiration of the supplementary agreement, Sichuan Wetouch and Guangde Cai failed to repay the remaining principal balance plus interest owed to Yunqing Su. Yunqing Su subsequently sued Sichuan Wetouch and Guangde Cai in 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, Sichuan Wetouch and Guangde Cai agreed to repay Yunqing Su the remaining principal balance plus interest in the total amount of RMB 1,318,604 (equivalent to $185,721). Sichuan Wetouch fully repaid the aforesaid amount on March 15, 2023.

ii)	Legal case with Chengdu SME Credit Guarantee Co., Ltd. on a court acceptance fee of RMB338,418 (equivalent to $47,665)

On 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. Chengdu Wetouch, a related party company with 98% equity interests owned by Mr. Guangde Cai, the founder of the Company, and Mr. Guangde Cai provided joint and several liability guarantee for 100% of the loan.

On 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 extended twice due on August 22, 2018. Upon the loan becoming due, but unpaid by the Company, Chengdu SME repaid 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.

Chengdu 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), respectively, of the 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 RMB11.8 million (equivalent to $1.7 million) of the above loan default penalties to Chengdu SME.

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 RMB338,418 (equivalent to $47,665). On March 17, 2023, Chengdu Wetouch made a full payment of the above court fee to Chengdu SME.

iii)	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 RMB250,470 (equivalent to $35,278)

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 lease principal of RMB20 million, with the rental interest rate of the leased equipment at 8% per year, for a lease term of 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 of Mr. Guangde Cai 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 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, etc.

The parties executed a settlement agreement on March 7, 2023, pursuant to which the parties confirmed that the outstanding balance of RMB 22,905,807 (equivalent to $3.2 million) has been fully paid 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.

iv)	Legal 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)

On 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. ("CDHT Investment") acting as guarantor to pay off the loan principal and related interests, and Sichuan Wetouch and Hong Kong Wetouch as guarantors, all of which were jointly and severally liable for such debts.

Upon the loan due in January 2017, Chengdu Wetouch defaulted the loan, thus, CDHT Investment filed a lawsuit against Chengdu Wetouch, Sichuan Wetouch, and Hong Kong Wetouch demanding a full repayment of such debts.

To support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment Co., Ltd. ("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 collateral, while Mr. Guangde Cai and Sichuan Wetouch also provided counter-guarantee.

Upon the expiration of the guarantee, Chengdu Wetouch still defaulted on repayment. As a result, CDHT Investment levied this collateral of RMB12.0 million. On November 21, 2019, Sichuan Renshou and Renshou Tengyi filed a lawsuit with Chengdu Intermediate People's Court demanding an asset recovery of RMB12.0 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 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.

v)	Legal case with Chengdu High Investment Financing Guarantee Co. on a court acceptance fee of RMB250,000 (equivalent to $35,211)

On 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 was jointly liable as a guarantor 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.

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 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.

vi)	Legal case with Hubei Lai'en Optoelectronics Technology Co., Ltd. on a product payment of RMB157,714 (equivalent to $22,213)

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 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.

vii)	Legal case with Chengdu Hongxin Shunda Trading Co., Ltd. on settlement of accounts payable and related fund interests totaling RMB3,021,294 ($425,540)

In 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 with Chengdu Wuhou District People's Court against the Company and its new facility constructors (the "three defendants"), of which Sichuan Chunqiu Development & Construction Group Co. Ltd. ("Chunqiu Co.") as the primary contractor, requesting the settlement of the remaining accounts payable and the corresponding fund interests, penalties and legal fees, totaling of RMB3,021,294 ($425,540). The court made a judgment against the defendants for the repayment and ordered the freezing of bank accounts of these three defendants. On September 25, 2023, Sichuan Vtouch appealed to Chengdu Municipal Intermediate People's Court, arguing the calculation of fund interests and penalties ordered by the lower court was unfair and not in line with the law regulations. On March 26, 2024, the appellate court upheld the original judgment. In April 2024, Chengdu Hongxin sought enforcement of the judgment in the amount of RMB2,556,537 ($351,791). As of the date of this Quarterly Report, the primary facility constructor Chunqiu Co. paid the above enforcement amount in full.

viii)

Legal case with Mr. Guangchang Liu on a refund of equity transfer price and related interests totaling RMB324,501 ($45,705)

In 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 with Shenzhen Nanshan District People's Court against Mr. Guangde Cai and Sichuan Vtouch requesting the refund of this equity transfer price and related interests totaling RMB324,501 ($45,705). On December 13, 2023, the dispute was resolved through court-mediated settlement, with the defendants ordered to pay the required funds and associated legal fees by the end of 2023, along with any applicable default interest in the event of late payment. Mr. Cai made the repayment of the subscription fund and legal fees in full (totaling RMB 303,083.76) in January 2024 and the related default interests of approximately RMB29,300 (equivalent to $4,127). The above repayments totaling RMB332,383.76 (equivalent to $46,815). On November 5, 2024, Mr. Guangde Cai signed a liability waver agreement with Sichuan Vtouch, discharging any joint liability of Sichuan Vouch accordingly.

ix)	Legal case with Sichuan Yali Cement Manufacturing Co., Ltd. and Sichuan Chunqiu Development & Construction Group Co. Ltd. on a debt payable of RMB RMB1,656,480 (equivalent to $233,310) and related interest, legal fees and penalties.

On August 10, 2021, Sichuan Yali Cement Manufacturing Co., Ltd. ("Yali Co.") and Chunqiu Co. entered into construction materials purchase contract for Sichuan Vtouch's new facility. Under this contract, Sichuan Vtouch was jointly liable for the payment settlement between Yali Co. and Chunqiu Co.

On February 15, 2023, Yali Co. filed a lawsuit against Chunqiu Co. with the Chengdu Wenjiang District People's Court, claiming that Chunqiu Co. 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 be jointly liable for the debt payable by Chunqiu Co. On August 2, 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 repayment.

On 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 repay 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 Co. As of September 30, 2024, Chunqiu Co. made full payment of remaining debt of RMB RMB1,656,480 (equivalent to $233,310) and the payment of related court fee of RMB10,627 ($1,497) in full.

Capital Expenditure Commitment

As of September 30, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.

NOTE 14 - REVENUES

The Company's geographical revenue information was set forth below:

		Three Months Ended September 30,			Nine Months Ended September 30,
		2024			2023			2024			2023
Sales in PRC		$	7,429,211			$	7,423,695			$	24,671,308			$	25,819,405
Sales in Overseas
-Republic of China (ROC, or Taiwan)			2,253,523				1,943,123				7,859,989				5,962,410
-South Korea			1,830,671				1,742,589				5,959,287				5,387,021
-Others			24,584				14,199				159,239				162,662
Sub-total			4,108,778				3,699,910				13,978,515				11,512,093
Total Revenue		$	11,537,989			$	11,123,605			$	38,649,823			$	37,331,498

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion should be read in conjunction with the Company's consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from those expressed, implied or anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission. See "Cautionary Note Regarding Forward Looking Statement."

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 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"). The Reverse Merger closed on October 9, 2020. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary.

Through our wholly-owned subsidiaries, BVI Wetouch, HK Wetouch, Sichuan 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.

On July 16, 2023, the Company's board of directors approved a reverse stock split of the Company's common stock at a ratio of 1-for-20. 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. On September 11, 2023, the Company received a 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 Quarterly Report has been reflected as if the reverse stock splits occurred as of the earliest period presented.

Construction of our new facility

We have been actively engaged in the construction of our new production facilities and office buildings in Chengdu Medicine City (Technology Park), Wenjiang District, Chengdu, Sichuan Province, Peoples's Republic of China since the summer of 2023.

As of the date of this Quarterly Report, we anticipate completing the building construction, including the newly planned touch machine construction area by the end of the first quarter of 2025 and commence production in the third quarter of 2025.

Highlights for the three months ended September 30, 2024 include:

●

Revenues were $11.5 million, an increase of 3.6% from $ 11.1 million in the third quarter of 2023

●

Gross profit was $4.4 million, a decrease of 8.3% from $ 4.8 million in the third quarter of 2023

●

Gross profit margin was 38.4% as compared to 42.9% in the third quarter of 2023

●

Net income was $2.7 million, a decrease of 6.9% from $ 2.9 million in the third quarter of 2023

●

Total volume shipped was 548,335 units, a decrease of 1.6% from 557,503 units in the third quarter of 2023

Results of Operations

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

(in US Dollar millions, except percentage)		For the Three Months Ended September 30,			Change			For the Nine Months Ended September 30,			Change
		2024			2023			%			2024			2023			%
Revenues		$	11.5			$	11.1				3.6	%		$	38.6			$	37.3				3.5	%
Cost of revenues			(7.1	)			(6.3	)			12.7	%			(26.0	)			(20.2	)			28.7	%
Gross profit			4.4				4.8				(8.3	)%			12.6				17.1				(26.3	)%
Total operating expenses			(0.9	)			(0.5	)			80.0	%			(3.1	)			(2.4	)			29.2	%
Operating income			3.5				4.3				(18.6	)%			9.5				14.7				(35.4	)%
Total other income (expenses)			0.1				(0.3	)			(133.3	)%			(0.9	)			(0.3	)			200.0	%
Interest expense			0.0				0.1				(100.0	)%			(1.2	)			(0.2	)			500.0	%
Income before income taxes			3.6				4.0				(10.0	)%			8.6				14.4				(40.3	)%
Income tax expense			(0.9	)			(1.1	)			(18.2	)%			(2.7	)			(4.1	)			(34.1	)%
Net income		$	2.7			$	2.9				(6.9	)%		$	5.9			$	10.3				(42.7	)%

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Revenues

We generated revenue of $11.5 million for the three months ended September 30, an increase of $0.4 million, or 3.6%, compared to $11.1 million in the same period of last year. This was due to an increase of 3.6% in the average selling price of our products, and 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by a decrease of 1.6% in sales volume compared with that of the same period of last year.

		For the Three Months Ended September 30,
		2024			2023			Change			Change
		Amount			%			Amount			%			Amount			%
		(in US Dollar millions except percentage)
Revenue from sales to customers in Mainland China		$	7.4				64.3	%		$	7.4				66.7	%		$	0.0				0.0	%
Revenue from sales to customers overseas			4.1				35.7	%			3.7				33.3	%			0.4				10.8	%
Total Revenues		$	11.5				100	%		$	11.1				100	%		$	0.4				3.6	%

		For the Three Months Ended September 30,
		2024			2023			Change			Change
		Unit			%			Unit			%			Unit			%
		(in UNIT, except percentage)
Units sold to customers in Mainland China			349,960				63.8	%			365,623				65.6	%			(15,663	)			(4.3	)%
Units sold to customers overseas			198,375				36.2	%			191,880				34.4	%			6,495				3.4	%
Total Units Sold			548,335				100	%			557,503				100	%			(9,168	)			(1.6	)%

(i) PRC market

For the three months ended September 30, 2024, we recorded the same revenue of $7.4 million in the domestic market compared to the same period of last year. During the third quarter of 2024, the Company had an increase of $3.0% in the average RMB selling price of our products, and 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by a decrease of 4.3% in sales volume, primarily due to lower sales volume of industrial control computer touchscreens, POS touchscreens, and gaming touchscreens, compared with those of the same period of last year.

As for the RMB selling price, the increase of 3.0% was mainly due to the higher selling price of new models of higher-end products such as medical touchscreen and automotive touchscreens in the domestic market during the three months ended September 30, 2023.

The macroeconomic conditions in China in 2024 continued to be exacerbated from the impact of three years of zero-COVID lockdowns since 2020, resulted in overall weaker market demand and reduced sales orders in the touchscreen business. Despite of sales decreased by 4.7% in South China and 5.6% in Eastern China, we achieved 6.4% sales increase in Southwest China during the three months ended September 30, 2024 as compared to that of last year.

(ii) Overseas market

For the three months ended September 30, 2024, revenues from the overseas market were $4.1 million as compared to $3.7 million of the same period of 2023, representing an increase by $0.4 million, or 10.8%, mainly due to (i) an increase of 3.4% sales volume, particularly in gaming touchscreens and automotive touchscreens, (ii) an increase of 4.9% in average RMB selling price mainly in industrial control computer touchscreens and automotive touchscreens products, and (iii) 1.7% positive impact from exchange rate due to appreciation of RMB against US dollars, as compared with those of the same period of last year.

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

		Revenues For the Three Months Ended September 30,
		2024			2023			Change			Change
		Amount			%			Amount			%			Amount			Margin%
		(in US Dollars, except percentage)
Product categories by end applications
Automotive Touchscreens		$	3,193,024				27.7	%		$	2,945,460				26.5	%		$	247,564				8.4	%
Industrial Constrol Computer Touchscreens			2,243,509				19.4	%			2,297,924				20.7	%			(54,415	)			(2.4	)%
Gaming Touchscreens			1,830,671				15.9	%			1,742,589				15.7	%			88,082				5.1	%
POS Touchscreens			1,661,568				14.4	%			1,738,935				15.6	%			(77,367	)			(4.4	)%
Medical Touchscreens			1,647,650				14.3	%			1,398,203				12.6	%			249,447				17.8	%
Multi-Functional Printer Touchscreens			961,567				8.3	%			1,000,494				9.0	%			(38,927	)			(3.9	)%
Total Revenues		$	11,537,989				100.0	%		$	11,123,605				100.0	%		$	414,384				3.6	%

The Company continued to shift production mix from traditional lower-end products to high-end products such as medical touchscreens and automotive touchscreens, primarily due to (i) greater growth potential of computer screen models in China and overseas market, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.

Gross Profit and Gross Profit Margin

		For the Three Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Gross Profit		$	4.4			$	4.8			$	(0.4	)			(8.3	)%
Gross Profit Margin			38.4	%			42.9	%							(4.5	)%

Gross profit was $4.4 million in the third quarter ended September 30, 2024, compared to $4.8 million in the same period of 2023. Our gross profit margin decreased to 38.4% for the third quarter ended September 30, 2024, as compared to 42.9% for the same period of 2023, primarily due to the increase of cost of goods sold by 11.9%, including the increase of 11.9% in cost of materials, 12.2% in utility cost, and 25.5% in labor costs due to new hiring of technicians since the first quarter of 2024. The rising chip cost has stabilized in the third quarter ended September 30, 2024 compared to the first quarter of 2024.

Selling Expenses

		For the Three Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Selling Expenses		$	0.2			$	0.3			$	(0.1	)			(33.3	)%
as a percentage of revenues			1.7	%			2.7	%							(1.0	)%

Selling expenses were $0.2 million for the three months ended September 30, 2024, compared to $0.3 million in the same period in 2023, representing a decrease of $0.1 million, or 33.3%. The decrease was primarily due to a decrease in traveling expenses, as the sales department increasingly utilized online communications for sales forecasting and marketing evaluations during the three months ended September 30, 2024.

General and Administrative Expenses

		For the Three Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
General and Administrative Expenses		$	0.7			$	0.2			$	0.5				250.0	%
as a percentage of revenues			6.1	%			1.8	%							4.3	%

General and administrative expenses were $0.7 million for the three months ended September 30, 2024, compared to $0.2 million in the same period in 2023, representing an increase of $0.7 million, or 250.0%. The increase was primarily due to amortized $0.6 million consulting service fees (see Note 4 (iii) of the accompanying financial statements) and the increase of $0.1 million professional fees during the three months ended September 30, 2024.

Research and Development Expenses

		For the Three Months Ended September 30,			Change
(in US dollars, except percentage)		2024			2023			Amount			%
Research and Development Expenses		$	43,859			$	20,580			$	23,279				113.1	%
as a percentage of revenues			0.4	%			0.2	%							0.2	%

Research and development expenses were $43,859 for the three months ended September 30, 2024 compared to $20,580 in the same period in 2023, representing an increase of $23,279, or 113.1%, due to the increased R&D material consumption.

Operating Income

Total operating income was $3.5 million for the three months ended September 30, 2024 as compared to $4.3 million of the same period of last year, primarily due to lower gross margin and higher general and administrative expenses and research & development expenses, partially offset by lower selling expenses for the three months ended September 30, 2024.

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

		For the Three Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			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			0.9	%			1.8	%							(0.9	)%

Gain on changes in fair value of common stock purchase warrants for the three months ended September 30, 2024 was $0.1 million as compared to loss of $0.2 million on changes in fair value of common stock purchase warrants in the same period of 2023, respectively.

Income Taxes

		For the Three Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Income before Income Taxes		$	3.6			$	4.0			$	(0.4	)			(10.0	)%
Income Tax (Expense)			(0.9	)			(1.1	)			0.2				(18.2	)%
Effective income tax rate			26.9	%			28.7	%							3.9	%

The effective income tax rates for the three months ended September 30, 2024 and 2023 were 26.9% and 28.7%, respectively.

Net Income

As a result of the above factors, we had a net income of $2.7 million in the third quarter of 2024 compared to a net income of $2.9 million in the same quarter of 2023.

Results of Operations - Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Revenues

We generated revenue of $38.6 million for the nine months ended September 30, 2024, an increase of $1.3 million, or 3.5%, compared to $37.3 million in the same period of last year. This was mainly due to an increase of 1.8% in sales volume, and an increase of 4.0% in the average RMB selling price of our products, partially offset by 2.3% 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 Nine Months Ended September 30,
		2024			2023			Change			Change
		Amount			%			Amount			%			Amount			%
		(in US Dollar millions except percentage)
Revenue from sales to customers in PRC		$	24.7				64.0	%		$	25.8				69.2	%		$	(1.1	)			(4.3	)%
Revenue from sales to customers overseas			13.9				36.0	%			11.5				30.8	%			2.4				20.9	%
Total Revenues		$	38.6				100	%		$	37.3				100	%		$	1.3				3.5	%

		For the Nine Months Ended September 30,
		2024			2023			Change			Change
		Unit			%			Unit			%			Unit			%
		(in UNIT, except percentage)
Units sold to customers in PRC			1,153,140				63.5	%			1,207,931				66.5	%			(54,791	)			(4.5	)%
Units sold to customers overseas			662,270				36.5	%			574,988				33.5	%			87,282				15.2	%
Total Units Sold			1,815,410				100	%			1,782,919				100	%			32,491				1.8	%

(i) PRC market

For the nine months ended September 30, 2024, revenue from PRC market decreased by $1.1 million or 4.3% as a combined result of (i) a decrease of 4.5% in sales volume, particularly in multi-functional printer touchscreens, medical touchscreens and automotive touchscreens, (ii) 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars, and partially offset by (iii) an increase of 2.6% in the average RMB selling price of our products, compared with those of the same period of last year.

As for the RMB selling price, the increase of 2.6% was mainly due to the increased sales of new models of higher-end products such as medical touchscreens and automotive touchscreens with higher selling prices in the domestic market during the nine months ended September 30, 2024

The macroeconomic conditions in China in 2024 continued to be exacerbated from the impact of three years of zero-COVID lockdowns since 2020, resulted in overall weaker market demand and reduced sales orders in the touchscreen business. Despite of sales decreased by 6.0% in South China and 5.2% in East China, we achieved sales increase by 4.4% in Southwest China during the nine months ended September 30, 2024 as compared to that of last year.

(ii) Overseas market

For the nine months ended September 30, 2024, revenues from overseas market was $13.9 million as compared to $11.5 million of the same period of 2023, representing an increase by $2.4 million or 20.9% mainly due to i) an increase of 15.2% in sales volume, particularly in industrial control touchscreens, gaming touchscreens and automotive touchscreens (ii) 7.5% increase in average RMB selling price during the nine months ended September 30, 2024, partially offset by (iii) the 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars ,compared with those of the same period of last year.

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

		Revenues For the Nine Months Ended September 30,
		2024			2023			Change			Change
		Amount			%			Amount			%			Amount			Margin%
		(in US Dollars, except percentage)
Product categories by end applications
Automotive Touchscreens		$	10,769,342				27.9	%		$	9,390,350				25.2	%		$	1,378,992				14.7	%
Industrial Control Computer Touchscreens			7,458,806				19.3	%			7,392,780				19.8	%			66,026				0.9	%
Gaming Touchscreens			5,959,287				15.4	%			5,387,021				14.4	%			572,266				10.6	%
Medical Touchscreens			5,791,538				15.0	%			5,380,498				14.4	%			411,040				7.6	%
POS Touchscreens			5,544,124				14.3	%			6,084,523				16.3	%			(540,399	)			(8.9	)%
Multi-Functional Printer Touchscreens			3,126,726				8.1	%			3,696,326				9.9	%			(569,600	)			(15.4	)%
Total Revenues		$	38,649,823				100.0	%		$	37,331,498				100.0	%		$	1,318,325				3.5	%

The Company continued to shift production mix from traditional lower-end products such as touchscreens used in industrial control computer industries to high-end products such as automotive touchscreens, gaming touchscreen, and medical touchscreens, primarily due to (i) greater growth potential of computer screen models in China, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.

Gross Profit and Gross Profit Margin

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Gross Profit		$	12.6			$	17.1			$	(4.5	)			(26.3	)%
Gross Profit Margin			32.7	%			45.7	%							(13.0	)%

Gross profit was $12.6 million during the nine months ended September 30, 2023, compared to $17.1 million in the same period of 2023. Our gross profit margin increased to 32.7% for the nine months ended September 30, 2024, as compared to 45.7% for the same period of 2023, primarily due to the increase of cost of goods sold by 33.4%, resulting from the increase of 35.2% in costs of raw materials, including the increase of chip cost by 3.1%, and the increase of 24.4% of labor costs due to additional hiring of technicians, and the increase of 25.4% of utility cost during the nine months ended September 30, 2024. The rising chip cost has stabilized in the third quarter ended September 30, 2024 compared to the first quarter of 2024.

Selling Expenses

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Selling Expenses		$	0.9			$	0.4			$	0.5				125.0	%
as a percentage of revenues			2.3	%			1.1	%							1.2	%

Selling expenses were $0.9 million for the nine months ended September 30, 2024, compared to $0.4 million in the same period in 2023, representing an increase of $0.5 million, or 125.0%, primarily due to an increase in traveling expenses and logistics costs during the nine months ended September 30, 2024.

General and Administrative Expenses

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
General and Administrative Expenses		$	2.1			$	1.9			$	0.2				10.5	%
as a percentage of revenues			5.4	%			5.1	%							0.3	%

General and administrative (G&A) expenses were $2.1 million for the nine months ended September 30, 2024, compared to $1.9 million in the same period in 2023, representing an increase of $0.2 million or 10.5%. The increase was primarily due to i) the amortized $1.3 million consulting service fees (see Note 4 (iii) of the accompanying financial statements), ii) the increase of $0.1 million professional fees during the nine months ended September 30, 2024, partially offset by iii) the accrued private placement agent fees of $1.2 million related to the private placement consent agreement with representatives of an investment bank firm during the nine months ended September 30, 2023 (see Note 8 (ii) of the accompanying financial statements).

Research and Development Expenses

		For the Nine Months Ended September 30,			Change
(in US dollars, except percentage)		2024			2023			Amount			%
Research and Development Expenses		$	129,808			$	61,849			$	67,559				109.9	%
as a percentage of revenues			0.3	%			0.2	%							0.1	%

Research and development (R&D) expenses were $129,808 for the nine months ended September 30, 2024 compared to $61,849 in the same period in 2023, due to the increased R&D material consumption.

Operating Income

Total operating income was $9.5 million for the nine months ended September 30, 2024 as compared to $14.7 million of the same period of last year, primarily due to lower gross profit, higher selling expenses, general & administration expenses and research and development expenses.

Gain (loss) on changes in fair value of Common Stock Purchase Warrants

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Gain (loss) on changes in fair value of Common Stock Purchase Warrants		$	0.2			$	(0.1	)		$	0.3				300.0	%
as a percentage of revenues			1.7	%			0.9	%							0.8	%

Gain on changes in fair value of common stock purchase warrants was $0.2 million and loss on changes of $0.1 for the nine months ended September 30, 2024 and 2023, respectively (See Note 9 (b)).

Interest Expenses

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Interest Expenses		$	1.2			$	0.2			$	1.0				500.0
as a percentage of revenues			3.1	%			0.6	%							2.5	%

For the nine months ended September 30, 2024 and 2023, the Company recognized interest expenses from cetain convertible promissory notes in the amount of $1,169,974 (mainly contributable to the default interest charges of $1,145,995 upon the repayment of the notes payable) and $211,383, respectively. (See Note 9 (a) of the accompanying financial statements).

Income Taxes

		For the Nine Months Ended September 30,			Change
(in millions, except percentage)		2024			2023			Amount			%
Income before Income Taxes		$	8.6			$	14.4			$	(5.8	)			(40.3	)%
Income Tax (Expense)			(2.7	)			(4.1	)			(1.4	)			(34.1	)%
Effective income tax rate			25.4	%			28.5	%							(3.1	)%

The effective income tax rates for the nine months ended September 30, 2024 and 2023 were 25.4% and 28.4%, respectively.

Our PRC subsidiary Sichuan Vtouch had $106.7 million of cash as of September 30, 2024, which are planned to be indefinitely reinvested in PRC. The distributions from our PRC subsidiary are subject to the U.S. federal income tax at 21%, less any applicable foreign tax credits. 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.

Net Income

As a result of the above factors, we had a net income of $5.9 million for the nine months ended September 30, 2024 compared to a net income of $10.3 million in the same period of 2023.

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 September 30, 2024, we had current assets of $120.0 million, consisting of $106.7 million in cash, $9.7 million in accounts receivable, $0.2 million in inventories, and $3.4 million in prepaid expenses and other current assets Our current liabilities as of September 30, 2024 were $3.4 million, which is comprised of $1.2 million in accounts payable, $0.4 million due to related parties, $1.0 million in income tax payable, and $0.8 million in accrued expenses and other current liabilities.

The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023:

		For the Nine Months Ended September 30,
(in US Dollar millions)		2024			2023
Net cash (used in) provided by operating activities		$	(0.7	)		$	9.0
Net cash used in investing activity			(0.1	)			-
Net cash provided by financing activities			8.0				39.9
Effect of foreign currency exchange rate changes on cash and cash equivalents			1.5				(6.2	)
Net increase in cash and cash equivalents			8.7				42.7
Cash and cash equivalents at the beginning of period			98.0				51.2
Cash and cash equivalents at the end of period		$	106.7			$	93.9

Operating Activities

Net cash used in operating activities was $0.7 million for the nine months ended September 30, 2024 as compared to $9.0 million provided by operating activities for the same period of the last year, primarily due to (i) the decrease of $4.4 million net income and the increase of $0.3 million of gain on changes in fair value of common stock purchase warrants liability for the nine months ended September 30, 2024 as compared to the same period of 2023, (ii) the decrease of $0.2 million in inventories, and $2.6 million in prepaid and other current assets, (iii) the decrease of $0.2 million in income tax payable and $5.8 million in accrued expenses and other current liabilities, partially offset by (v) the decrease of $3.4 million in accounts receivable and the increase of $0.4 million in accounts payable for the nine months ended September 30, 2024.

Investing Activity

Net cash used in investing activity for the nine months ended September 30, 2024 was $0.1 million for the purchase of property, plant and equipment.

There was no cash flow in investing activities for the nine months ended September 30, 2023.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2024 was $8.0 million, including $9.0 million in net proceeds from the 2024 Public Offering and $0.4 million in proceeds of interest-free advances from a related party, partially offset by $1.4 million repayment of convertible promissory notes.

Net cash provided by financing activities for the nine months ended September 30, 2023 was $40.0 million, including $40.0 million in proceeds from stock issuance in a private placement, partially offset by the repayment of $55,000 convertible promissory note payable.

As of September 30, 2024, our cash and cash equivalents were $106.7 million, as compared to $98.0 million at December 31, 2023.

Days Sales Outstanding ("DSO") has decreased to 60 days for the nine months ended September 30, 2024 from 77 days for the year ended December 31, 2023.

The following table provides an analysis of the aging of accounts receivable as of September 30, 2024 and December 31, 2023:

		September 30, 2024			December 31, 2023
-Current		$	3,877,220			$	3,740,488
-1-3 months past due			3,903,309				2,635,045
-4-6 months past due			1.952.229				1,079,719
Total accounts receivable		$	9,732,758			$	7,455,252

The majority of the Company's revenues and expenses were denominated 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.

Holding Company Structure

There have been no changes to the Company's holding company structure during the nine months ended September 30, 2024. For more details, refer to the Company's holding company structure disclosures set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations- Holding Company Structure" of the Company's annual report on Form 10-K for the fiscal year ended December 31, 2023 (the "2023 Form 10-K").

Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries

Please see "ITEM 7- Management's Discussion and Analysis of Financial Condition and Results of Operations- Cash and Other Assets Transfers between the Holding Company and Its Subsidiaries" of the 2023 Form 10-K for more details.

Commitments and Contingencies

Contingencies

The Company's common stock began trading on the Nasdaq Capital Market under the ticker symbol "WETH" on February 21, 2024. The Company failed to timely complete the filing procedures with China Securities Regulatory Commission ("CSRC") on overseas initial public offering and transfer of listing as regulated below:

1)

Per Article 13 and Article 8 and Article 25 of CSRC Announcement (2023) No. 43 -Trial Measures for the Administration of Overseas Issuance and Listing of Securities for Domestic Enterprises" ("Trial Measures" Announcement No. 43), which was implemented on March 31, 2023 (http://www.csrc.gov.cn/csrc/c101954/c7124478/content.shtml), when an issuer conducts an overseas initial public offering or listing, it shall submit overseas issuance and listing application documents to CSRC within three working days; When a domestic enterprise transfers its listing overseas, it shall comply with the requirements of the overseas first public listing requirements for issuance and listing, and shall file with the CSRC within 3 working days, after its submitting application documents for transfer and listing overseas.

2)

Article 27 of Trial Measures Announcement No. 43 stipulates that if a domestic enterprise violates the provisions of Article 13 of these Measures and fails to perform the filing procedures, or violates the provisions of Articles 8 and 25 of these Measures for overseas issuance and listing, CSRC shall order it to make corrections and give a warning, and impose a fine of not less than RMB 1 million but not more than RMB 10 million.

As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from CSRC.

Capital Expenditure Commitment

As of September 30, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company's condensed consolidated financial statements. There have been no material changes to the Company's critical accounting estimates since the 2023 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our "Certifying Officers"), we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024, as a result of the material weaknesses identified below.

In light of the material weaknesses, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP. Based on such analysis and notwithstanding the identified material weaknesses, our management, including our Chief Executive Officer and Chief Financial Officer, believe the unaudited condensed consolidated financial statements included in this Quarterly Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Material Weaknesses

In connection with the audit of the financial year ended December 31, 2023, we identified certain control deficiencies in the design and operation of our internal controls over our financial reporting that constituted a material weakness in aggregation. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company's annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses related to internal control over financial reporting that were identified in the 2023 Form 10-K and still applied as of September 30, 2024 were:

●

Inadequate segregation of duties consistent with control objectives;

●

Lack of formal policies and procedures; and

●

Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner.

As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.

Management's Plan to Remediate the Material Weaknesses

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:

●

Identify gaps in our skillset and the expertise of our staff required to meet the financial reporting requirements of a public company; and

●

Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures;

During the nine months ended September 30, 2024, the management has not addressed the material weaknesses on internal control and will continue to implement the above improvement plans to ensure our financial reporting in compliance with US GAAP and SEC filing requirements.

The Company recognizes that the material weaknesses in its internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because the Company's remediation efforts are ongoing, it cannot provide any assurance that these remediation efforts will be successful or that its internal control over financial reporting will be effective as a result of these efforts.

The Company will continue to evaluate and work to improve its internal control over financial reporting related to the identified material weaknesses, and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. The Company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.

Changes in Internal Control over Financial Reporting

As described above, the Company is taking steps to remediate the material weaknesses noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the nine months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

Item 1. Legal Proceedings.

From time to time, we may be subject to other legal proceedings arising in the ordinary course of business. Regardless of the outcome of any existing or future litigation, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

The information required with respect to this item can be found under "Commitments and Contingencies" in Note 13 to our condensed consolidated financial statements included elsewhere in this Form 10-Q and is incorporated by reference into this Item 1.

Item 1A. Risk Factors.

Except for the additional risk factors set forth below, there have been no material changes to our Risk Factors as disclosed in our 2023 Form 10-K and our quarterly reports on Form 10-Q, as filed with the SEC on April 17, 2024, June 14, 2024 and August 19, 2024, respectively.

We may incur material expenses or delays in financings or SEC filings due to the dismissal of BF Borgers and our stock price and access to the capital markets may be affected.

As a public company, we are required to file with the SEC financial statements that are audited or reviewed, as applicable, by an independent registered public accountant. Our access to the capital markets and our ability to make timely filings with the SEC will depend on having financial statements audited or reviewed again by a new independent registered public accounting firm. In addition, because the SEC found that BF Borgers CPA PC deliberately failed to conduct audits and quarterly reviews in accordance with applicable PCAOB standards and fraudulently issued audit reports, we will not be able to rely on BF Borgers (as defined herein) to provide other information or documents that would customarily be received by us or underwriters in connection with financings or other transactions, including consents and "comfort" letters. As a result, we may encounter delays, additional expense and other difficulties in future financings. Any resulting delay in accessing or inability to access the public capital markets could be disruptive to our operations and could affect the price and liquidity of our securities. Any negative news about the proceedings against BF Borgers may also adversely affect investor confidence in companies that were previous clients of BF Borgers. All of these factors could materially and adversely affect the market price of our common stock and our ability to access the capital markets.

You are unlikely to be able to exercise effective remedies or collect judgments against BF Borgers relating to their work as our independent registered public accounting firm.

BF Borgers served as our independent registered public accounting firm from 2020 to 2023. On May 3, 2024, the SEC entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC ("Borgers") and its sole audit partner, Benjamin F. Borgers CPA, permanently, barring Mr. Borgers and Borgers (collectively, "BF Borgers") from appearing or practicing before the Commission as an accountant (the "Order"). As a result of the Order, BF Borgers may no longer serve as the Company's independent registered public accounting firm, nor can BF Borgers issue any audit reports included in Commission filings or provide consents with respect to audit reports. In light of the Order, the Audit Committee of the board of directors of the Company (the "Audit Committee") on May 9, 2024, unanimously approved to dismiss and dismissed BF Borgers as the Company's independent registered public accounting firm and approved the engagement of Enrome LLP to serve as the Company's new independent registered public accounting firm. The management has also decided to redo the annual audit for the year of 2023 by the end of 2024. We have no ability to ascertain whether BF Borgers will survive or that adequate assets will be available to satisfy any claims against it. As a result, you may not be able to exercise effective remedies or collection judgements against BF Borgers.

We may be subject to fines and penalties imposed by the Chinese government for having failed to complete the filing obligations required by the Trial Administrative Measures.

On February 17, 2023, the China Securities Regulatory Commission (the "CSRC") promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the "Trial Administrative Measures"), which took effect on March 31, 2023. Compared to the Draft Rules, the Trial Administrative Measures further clarified and emphasized several aspects, including: (i) comprehensive determination of the "indirect overseas offering and listing by Mainland China domestic companies" in compliance with the principle of "substance over form" and particularly, an issuer will be required to go through the filing procedures under the Trial Administrative Measures if the following criteria are met at the same time: a) 50% or more of the issuer's operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by Mainland China domestic companies, and b) the main parts of the issuer's business activities are conducted in Mainland China, or its main places of business are located in Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in Mainland China; (ii) exemptions from immediate filing requirements for issuers that a) have already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Administrative Measures, and b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas stock exchange, c) whose such overseas securities offering or listing shall be completed before September 30, 2023. However, such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (iii) a negative list of types of issuers banned from listing overseas, such as issuers under investigation for bribery and corruption; (iv) regulation of issuers in specific industries; (v) issuers' compliance with national security measures and the personal data protection laws; and (vi) certain other matters such as: an issuer must file with the CSRC within three business days after it submits an application for initial public offering to competent overseas regulators; and subsequent reports shall be filed with the CSRC on material events, including change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings. Our PRC counsel advised that because our common stock currently trades in the U.S., we were not required to submit filings to the CSRC before the Offering was completed and the Offering was not conditioned on CSRC approval. Rather, within three days of the closing of the Offering, we are required to submit filings to the CSRC in accordance with the Trial Administrative Measures. According to the relevant provisions of the Trial Administrative Measures and its supporting guidelines, the Company was advised that it was required to fulfill the filing procedures with the CSRC within three days of the closing of the Offering. According to the Trial Administrative Measures, the Company has submitted the filing materials to the CSRC, but the materials were not complete due to lack of a commitment letter from the lead underwriter for the Offering, and the Company withdrew the filing from the CSRC.

On May 7, 2024, the CSRC issued the "Regulatory Rules Application Guidelines, Category 7 for Overseas Issuance and Listing: Regulatory Requirements for Domestic Enterprises Transferring from Overseas OTC Markets to Overseas Stock Exchanges for Overseas Issuance and Listing." The CSRC stated that, according to Articles 1 and 2 of the Trial Administrative Measures, overseas issuance and listing refer to activities related to issuing and listing on overseas stock exchanges, and the listing of domestic enterprises on overseas OTC markets does not fall within the scope of filing requirements. Article 16 of the Trial Administrative Measures stipulates that "an issuer's initial public offering or listing overseas shall be filed with the CSRC within three working days after the submission of the application documents for issuance and listing overseas"; domestic enterprises transferring to overseas stock exchanges for listing should file with the CSRC within three working days after submitting the application documents for transfer listing overseas, in accordance with the relevant requirements for the initial public offering and listing overseas. Additionally, according to the "Notice on Filing Management Arrangements for Domestic Enterprises' Overseas Issuance and Listing," Mainland China domestic enterprises that submitted transfer listing application documents overseas but have not been approved by overseas regulatory authorities or overseas stock exchanges by March 31, 2023, the effective date of the Trial Administrative Measures, should complete the filing procedures before the overseas listing transfer is completed.

The CSRC has determined that we have failed to comply with the filing obligations imposed by the Trial Administrative Measures. As of the date of this Quarterly Report, the Company has not received any notice of penalty from the CSRC. Management will closely monitor any notice or action from CSRC. We have engaged a PRC counsel, K&H LAW FIRM, LLP (Chengdu), to complete the required filings with the CSRC and will submit the filing materials when ready. However, given that the Trial Administrative Measures were recently promulgated, there remain substantial uncertainties as to their interpretation, application, and enforcement and there is no guarantee that we can complete our filing obligations under the Trial Administrative Measures within a reasonable time. Furthermore, if the CSRC determines that there are misrepresentation, misleading statement or material omission in the materials we submit to the CSRC, the CSRC would have the right to order rectification, issue a warning and impose a fine on us of between RMB 1 million and RMB 10 million and issuing a warning to the parties responsible for such failure, misrepresentation or material omission and impose a fine on each of such individuals ranging from RMB 500,000 to RMB 5 million. Our operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We cannot guarantee that our Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. Repurchases of shares of our common stock could also increase the volatility of the trading price of our common stock and could diminish our cash reserves.

On July 2, 2024, the Board of the Company approved and authorized a stock repurchase program (the "Repurchase Program"), pursuant to which the Company intends to repurchase up to $15 million of its common stock, from time to time, for a purchase price of not less than $1.50 per share and not more than $4 per share, in the open market or privately negotiated transactions, with Westpark Capital, Inc. ("Westpark") as the exclusive agent for the Repurchase Program. The Repurchase Program commenced on July 1, 2024, and will terminate on the date to be determined by the Board. The Repurchase Program does not have a fixed expiration date and may be suspended or discontinued at any time. The Repurchase Program will be terminated automatically upon the date that the aggregate purchases under the Repurchase Program reach $15 million. Pursuant to the Repurchase Program, the Company is not obligated to repurchase any specific number of shares of its common stock and shall not repurchase more than 25% of the average daily volume of its stock over the previous 20 trading days. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. We cannot guarantee that the Repurchase Program will be fully consummated or that it will enhance long-term stockholder value. The Repurchase Program could also affect the trading price of our common stock and increase volatility, and any announcement of a reduction, suspension or termination of the Repurchase Program may result in a decrease in the trading price of our common stock. In addition, repurchasing our common stock could diminish our cash and cash equivalents and marketable securities available to fund working capital, repayment of debt, capital expenditures, strategic acquisitions, investments, or business opportunities, and other general corporate purposes, which may adversely affect our result of operations and financial condition.

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 Number		Description of Document
10.1		Form of Director Offer Letter (1)
10.2		Form of the Executive Officer Agreement (2)
31.1*		Certification of The Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of The Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of The Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of The Principal Financial Officer pursuant to 18 U.S.C. 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 (formatted as Inline XBRL and contained in Exhibit 101).*

*	Filed herewith

**	Furnished herewith

(1)	Incorporated herein by reference to Exhibit 10.31 to the Registrant's Current Report on Form 8-K filed July 1, 2024.

(2)	Incorporated herein by reference to Exhibit 10.31 to the Registrant's Current Report on Form 8-K filed July 12, 2024.

SIGNATURES

In accordance with the requirements of Securities Exchange Act of 1934, the registrant has caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	By:	/s/ Zongyi Lian
Date: November 14, 2024		Zongyi Lian
		Chief Executive Officer and President
		(Principal Executive Officer)
	By:	/s/ Xing Tang
Date: November 14, 2024		Xing Tang
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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