Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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 March 31, 2024

☐ 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 June 14, 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 March 31, 2024 and December 31, 2023 (Unaudited)	F-1
	Condensed Consolidated Statements of Income and Comprehensive Loss for the Three Months Ended March 31 2024 and 2023 (Unaudited)	F-2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	F-3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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	7
Item 4.	Controls and Procedures	7

PART II	OTHER INFORMATION	9
Item 1.	Legal Proceedings	9
Item 1A.	Risk Factors	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	11
Item 4.	Mine Safety Disclosures	11
Item 5.	Other Information	11
Item 6.	Exhibits	12
	Signatures	13

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, Section 21E of 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.

●

Revocation or 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 9 of this Quarterly Report and our other filings with the Securities and Exchange Commission.

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. 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, except as required by law.

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.

iii

Item 1. Financial Statements

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 (Unaudited)	F-1

Condensed Consolidated Statements of Income and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	F-2

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	F-3

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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

(Unaudited)

	March 31, 2024			December 31, 2023

ASSETS
CURRENT ASSETS
Cash	$	94,796,450		$	98,040,554
Accounts receivable		10,937,840			7,455,252
Inventories		184,743			222,102
Prepaid expenses and other current assets		4,116,860			1,063,627
TOTAL CURRENT ASSETS		110,035,893			106,781,535

Long term prepaid expenses		357,390			-
Property, plant and equipment, net		12,753,915			12,859,863
TOTAL ASSETS	$	123,147,198		$	119,641,398

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	566,171		$	640,795
Loan from a third party		385,694			469,591
Income tax payable		658,931			-
Accrued expenses and other current liabilities		626,611			3,992,905
Convertible promissory notes payable		-			1,239,126
TOTAL CURRENT LIABILITIES		2,237,407			6,342,417

Common stock purchase warrants liability		370,550			378,371
TOTAL LIABILITIES	$	2,607,957		$	6,720,788

COMMITMENTS AND CONTINGENCIES (Note 12)
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 March 31, 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		70,035,962			69,477,092
Accumulated other comprehensive loss		(9,205,425	)		(7,275,432	)
TOTAL STOCKHOLDERS’ EQUITY		120,539,241			112,920,610
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	123,147,198		$	119,641,398

Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

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

F-1

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended March 31,
	2024			2023

REVENUES	$	14,877,259		$	13,433,461
Cost of revenues		(11,539,301	)		(7,394,661	)
GROSS PROFIT		3,337,958			6,038,800

OPERATING EXPENSES
Selling expenses		(459,792	)		(50,705	)
General and administrative expenses		(530,524	)		(1,666,756	)
Research and development expenses		(42,738	)		(20,885	)
Total operating expenses		(1,033,054	)		(1,738,346	)

INCOME FROM OPERATIONS		2,304,904			4,300,454

OTHER INCOME (EXPENSES)

Interest income		31,347			29,195
Interest expense		(1,169,974	)		(33,399	)
Other income		46,620			-
Gain (loss) on changes in fair value of common stock purchase warrants liability		7,821			(97,602	)
TOTAL OTHER EXPENSES		(1,084,186	)		(101,806	)

INCOME BEFORE INCOME TAX EXPENSE		1,220,718			4,198,648

INCOME TAX EXPENSE		(661,848	)		(1,405,399	)

NET INCOME	$	558,870		$	2,793,249

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment		(1,929,993	)		(680,976	)
COMPREHENSIVE (LOSS) INCOME	$	(1,371,123	)	$	2,112,273

EARNINGS PER COMMON SHARE
Basic	$	0.04		$	0.35
Diluted	$	0.04		$	0.35

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING*
Basic		13,342,294			7,991,359
Diluted		13,392,999			8,102,988

Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

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

F-2

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(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
Net income		-		-		-		-		2,793,249		-			2,793,249
Foreign currency translation adjustment		-		-		-		-		-		(680,976	)		(680,976	)

Balance as of March 31, 2023		9,680,248	$	9,680	$	43,394,178	$	6,040,961	$	65,160,141	$	(3,658,500	)	$	110,946,460

	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		-		-		-			-		558,870		-			558,870
Foreign currency translation adjustment		-		-		-			-		-		(1,929,993	)		(1,929,993	)

Balance as of March 31, 2024		11,931,534	$	11,932	$	52,501,680		$	7,195,092	$	70,035,962	$	(9,205,425	)	$	120,539,241

Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

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

F-3

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended March 31,
	2024			2023

Cash flows from operating activities
Net income	$	558,870		$	2,793,249
Adjustments to reconcile net income to cash (used in) provided by operating activities
Depreciation		2,316			2,433
Amortization of discounts and issuance cost of the notes		5,715			6,941
Gain (loss) on changes in fair value of common stock purchase warrants liability		(7,821	)		97,602

Changes in operating assets and liabilities:
Accounts receivable		(3,622,872	)		(4,004,967	)
Amounts due from related parties		-			(1,076	)
Inventories		32,939			254,727
Prepaid expenses and other current assets		(3,429,690	)		307,380
Accounts payable		(64,222	)		702,052
Amounts due to related parties		-			(1,344	)
Income tax payable		661,848			1,383,069
Accrued expenses and other current liabilities		(3,354,627	)		1,176,473
Net cash (used in) provided by operating activities		(9,217,544	)		2,716,539

Cash flows from investing activities

Purchase of property, plant and equipment		(111,289	)		-
Net cash used in investing activities		(111,289	)		-

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
Repayment of interest-free advances to a third party		(82,864	)		-
Proceeds from interest-free advances from a third party		-			86,735
Repayments of convertible promissory notes payable		(1,400,750	)		(35,000	)
Net cash provided by financing activities		7,506,140			40,051,735

Effect of changes of foreign exchange rates on cash		(1,421,411	)		(760,531	)
Net (decrease) increase in cash		(3,244,104	)		42,007,743
Cash, beginning of period		98,040,554			51,250,505
Cash, end of period	$	94,796,450		$	93,258,248
Supplemental disclosures of cash flow information
Income tax paid	$	-		$	22,330
Interest paid	$	1,186,210		$	-
Issue costs charged to additional paid-in capital	$	1,810,246		$	-
Exercise of warrant shares	$	38,586		$	-

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

F-4

WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BUSINESS DESCRIPTION

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

On October 9, 2020, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited (“BVI Wetouch”) and all the shareholders of BVI Wetouch (each, a “BVI Shareholder” and collectively, the “BVI Shareholders”), to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Shareholders an aggregate of 28,000,000 shares (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, manufacture, and distribution of touchscreen displays to customers both in the PRC and overseas. The touchscreen products, which are manufactured by the Company, are primarily for use 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.

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 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.

F-5

In March 2021, pursuant to local PRC government guidelines on local environmental issues and the national plan, Sichuan Wetouch was under the government directed relocation order. Sichuan Vtouch took over the operating business of Sichuan Wetouch.

On March 30, 2023, an independent third party acquired all shares of Sichuan Wetouch for a nominal amount.

As a result of the above restructuring, HK Wetouch became the sole stockholder 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 comprehensive income, changes in 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 March 31, 2024, the results of operations and cash flows for the three-month periods ended March 31, 2024 and 2023 have been made. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.

F-6

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 this subsidiary 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, revenue recognition and realization of deferred tax assets. 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 three-month periods ended March 31, 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
Office and electric equipment		3 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 in 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 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.

F-7

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

March 31,
2024

December 31,

2023

Accounts receivable

10,937,840

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 consist of the following:

	March 31, 2024		December 31, 2023
Advance to suppliers	$	329,269	$	334,852
VAT input		87,493		-
Issue cost related to convertible promissory notes		-		64,802
Prepayment for land use right (i)		543,638		537,998
Security deposit (ii)		54,430		53,865
Prepaid consulting service fees (iii)		2,138,482		-
Prepaid market research fees (iv)		955,000		-
Others receivable (v)		5,750		72,110
Prepaid expenses and other current assets	$	4,116,860	$	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 $543,638) 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 fourth quarter 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 $54,430) 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 by 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 of investment consulting services. The total fee would be amortized over the three-year service and reclassified to stock issuance costs accordingly. As of March 31, 2024, $2,138,482 was recognized as prepaid consulting service fees within one year and $357,390 as long term prepaid expenses

(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 signed borrowing contracts of $70,000 and $855,000 dated February 29, 2024, respectively, to the Company, with a principal amount of $70,000 and $855,000 to evidence the advance, bearing 3.45% interest per annum, and payable on February 28, 2025.

(v)

Other receivables are mainly employee advances, and prepaid expenses.

F-8

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET

	March 31, 2024			December 31, 2023
Buildings	$	11,928		$	12,130
Machinery and equipment		3,878			3,944
Vehicles		40,553			41,241
Construction in progress		12,722,820			12,825,896
Subtotal		12,779,179			12,883,211
Less: accumulated depreciation		(25,264	)		(23,348	)
Property, plant and equipment, net	$	12,753,915		$	12,859,863

Depreciation expense was $2,316 and $2,433 for the three-month period ended March 31, 2024 and 2023, respectively.

Pursuant to local PRC government guidelines on local environment issues and the national overall plan, Sichuan Wetouch, was under the government directed relocation order to relocate no later than December 31, 2021 and received compensation accordingly. On March 18, 2021, pursuant to the agreement with the local government and an appraisal report issued by a mutual agreed appraiser, Sichuan Wetouch received a compensation of RMB115.2 million ($16.0 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 ($41,549). The lease was renewed on December 31, 2021 at a monthly rent of RMB 400,000 ($55,399) with a term from January 1, 2022 to October 31, 2024 for the use of the Demised Properties.

As of March 31, 2024, the Company had construction commitment of RMB5.0 million (equivalent to $0.7 million).

F-9

NOTE 6 — INCOME TAXES

Wetouch

Wetouch is subject to a tax rate of 21% per 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 three-month period ended March 31, 2024 and 2023 were 25.4% and 33.5%, respectively.

The estimated effective income tax rate for the year ending December 31, 2024 would be similar to actual effective tax rate of the three-month period ended March 31, 2024.

F-10

NOTE 7 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	March 31, 2024		December 31, 2023
Advance from customers (i)	$	191,727	$	182,277
Accrued payroll and employee benefits		82,874		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		134,792		330,180
Accrued director fees		128,517		106,824
Other tax payables (v)		-		143,035
Others (vi)		88,701		288,704
Accrued expenses and other current liabilities	$	626,611	$	3,992,905

(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 US$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 March 31, 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 12 — COMMITMENTS AND CONTINGENCIES - Legal Proceedings - vii) and viii).

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

(vi)	Others mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses.

F-11

NOTE 8 — 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 US$2,250,000, due in one year with issuance price discounted 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 29 and December 2 of 2022. Net proceeds after debt issuance costs and debt discounts were approximately US$1,793,000. Debt issuance costs in the amount of US$162,000 are recorded as deferred charges and included in the other current assets on the consolidated balance sheet. The debt discount and debt issuance costs are amortized into interest expense using the effective interest method over the terms of the Notes.

The details of 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 16%.

The Lenders have the right to convert any or all of the principal and accrued interest on the Notes into shares of common stock of the Company on the earlier of (i) 180 calendar days after the issuance date of the Notes or (ii) the closing of a listing for trading of the common stock of the Company on a national securities exchange offering resulting in gross proceeds to the Company of $15,000,000 or more (an “Uplist Offering”). If the Company closes an Uplist Offering on or before the 180^th calendar date after the issuance date of the Notes, the conversion price shall be 70% of the per share offering price in the Uplist Offering; otherwise, the conversion price is $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 an amendment to the Notes (“Amendment to Promissory Note”) extending the term of the Notes for an additional 6 months.

From August 29 to September 9, 2023, the lenders of the outstanding Notes and the Company entered into an amendment to the Notes (“Amendment to Promissory Note”) 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

F-12

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 three-month period ended March 31, 2024 and 2023, amortization of discounts and issuance cost of the notes were US$5,715 and $6,941, respectively.

For the three-month period ended March 31, 2024 and 2023, the Company recognized interest expenses of the Notes in the amount of US$1,169,974 and US$33,399, 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 $25per 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, 2022, three lenders exercised the Note Warrants cashlessly for 14,233 shares of common stock.

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

During the three months ended March 31, 2024, one lender exercised the Note Warrants cashlessly for 2,725 shares of common stock.

F-13

The fair values of these warrants as of March 31, 2024 were calculated using the Black-Scholes option-pricing model with the following assumptions:

												March 31, 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 (US$)		Changes of fair value of common stock purchase warrants liability (+ (loss)/(- (gain) (US$)			Common stock purchase warrants liability as of March 31, 2024 (US$)
Convertible Note - Talos Victory (Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		43,113		(1,251	)		41,862
Convertible Note - First Fire (Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		98,375		(2,162	)		96,213
Convertible Note - LGH Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		98,517		(1,938	)		96,579
Convertible Note - Fourth Man (Note 9 (ab))		567.0	%		0.0	%		0.7		5.03	%		41,639		(765	)		40,874
Convertible Note - Jeffery Street Note 9 (a))		567.0	%		0.0	%		0.7		5.03	%		26,264		(463	)		25,801
Convertible Note - Blue Lake Note 9 (a))		567.0	%		0.0	%		0.7		5.03	%		70,463		(1,242	)		69,221
Total										Total			378,371		(7,821	)		370,550

(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 9 — 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.

F-14

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. The Company’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “WETH” on February 21, 2024.

As of March 31, 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 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 three months ended March 31, 2024.

F-15

NOTE 10 — 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 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 three months ended March 31, 2024, warrants for 35,861 shares of common stock related to above mentioned services were exercised. There were no warrants related to services remaining as of March 31, 2024.

As of March 31, 2024 and 2023, the Company recognized relevant share-based compensation expense of nil and nil for the vested shares, and nil and nil for the warrants, respectively.

F-16

NOTE 11 — 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-month period ended March 31, 2024 and 2023, five customers accounted for 22.4%, 20.4%, 14.6%, 13.4% and 11.1%, and five customers accounted for 22.3%, 15.7%, 15.0%, 14.2%, 12.2% and 10.8%, respectively, of the Company’s revenue.

The Company’s top ten customers aggregately accounted for an aggregate of 98.8% and 99.6% of the total revenue for the three-month period ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, three customers accounted for 27.7%, 17.4%, and 16.8% 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 42.4% (three suppliers) and 75.0% (five suppliers) for the three-month period ended March 31, 2024 and 2023, respectively.

F-17

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Contingencies

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 report, all such matters have been settled and Sichuan Wetouch, Hong Kong Wetouch and Mr. Guangde Cai were unconditionally and fully discharged and released therefrom Accordingly, there are no pending material legal proceedings against the Company as of the date of this report.

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

On June 22, 2017, Yunqing Su, a former stockholder, entered an Equity Investment Agreement with Sichuan Wetouch and Guangde Cai, agreed that Yunqing Su would invest RMB1 million (equivalent to $140,847) to purchase 370,370.37 original listed shares of the target company, Sichuan Wetouch, and provided for the exit mechanism in the agreement. However, the target company failed to be listed prior to December 31, 2017 as agreed. On June 22, 2017, Guangde Cai and Yunqing Su entered into a supplementary agreement, pursuant to which Guangde Cai shall repurchase all of Yunqing Su’s equity interest and pay the interest. Sichuan Wetouch repaid Yunqing Su the interest of RMB220,000 (equivalent to $30,986) and the principal of RMB128,000 (equivalent to $18,028) in November 2018. The repayment period set forth in the supplementary agreement expired, but Sichuan Wetouch and Guangde Cai failed to pay the principal and interest owed to Yunqing Su. Yunqing Su 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 principal and interest in the total amount of RMB 1,318,604 (equivalent to $185,721). Sichuan Wetouch fully paid the aforesaid amount on March 15, 2023.

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, while Chengdu Wetouch, a related party company, owned by Mr. Guangde Cai 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 twice extended to be due on August 22, 2018. Upon the loan becoming due, but unpaid by the Company, Chengdu SME paid the outstanding balance of RMB55 million (equivalent to $7.7 million) to Bank of Chengdu. The Company subsequently repaid RMB55 million (equivalent to $7.7 million) to Chengdu SME; however, Chengdu SME filed two separate lawsuits against the Company to recover loan default penalties from the Company. The loan default penalties were (a) RMB5.8 million (equivalent to $0.8 million) related to the 30% of the remaining loan balance repaid by Chengdu SME and (b) RMB6.0 million (equivalent to $0.8 million) related to the 70% of the remaining loan balance repaid by Chengdu SME. During the year ended December 31, 2017, the Company recorded loan default penalties, and related liabilities, of $1.7 million.

F-18

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) of loan default penalties. The agreement did not specify which party shall pay the court fee.

On September 16, 2020, Sichuan Wetouch made a full repayment of 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, the purchase price/lease principal shall be RMB20 million, the rental interest rate of the leased equipment shall be 8% per year, and the lease term shall be 24 months. Upon the expiration of the lease term, Lifan Financial shall transfer the leased property to Chengdu Wetouch or a third party designated by Chengdu Wetouch at the price of RMB0 after Chengdu Wetouch has fully fulfilled its obligations, including, without limitation, the payment of the rent, liquidated damages (if any) and other contractual obligations. Guangde Cai, Sichuan Wetouch, Meishan Wetouch, an affiliated company to 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, in which the parties confirmed that the outstanding payment of RMB 22,905,807 (equivalent to $3.2 million) has been fully paid up on December 23, 2021 and the above cases have been settled. As for the court acceptance fees that were not previously agreed upon by the parties, Chengdu Wetouch agreed to pay the court acceptance fee of RMB 250,470 (equivalent to $35,278). Chengdu Wetouch paid the aforesaid fees to Lifan Financial on March 10, 2023.

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, while Sichuan Wetouch and Hong Kong Wetouch as guarantors, were jointly and severally liable for such debts.

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

To support the local economic development as well as Chengdu Wetouch, two government-backed companies, Sichuan Renshou Shigao Tianfu Investment Co., Ltd. (“Sichuan Renshou”) and Renshou Tengyi Landscaping Co., Ltd. (“Renshou Tengyi”) provided their bank deposits of RMB 12.0 million (equivalent to $1.7 million) as pledge, while Mr. Guangde Cai and Sichuan Wetouch also provided counter-guarantee.

Upon the expiration of the guarantee, Chengdu Wetouch still defaulted on repayment of the above pledge. As a result, CDHT Investment levied this collateral of RMB12.0 million. On November 21, 2019. Subsequently, Sichuan Renshou and Renshou Tengyi filed with Chengdu Intermediate People’s Court a lawsuit demanding an asset recovery of RMB12.0 million (equivalent to $1.7 million) pursuant to the counter guarantee agreement.

F-19

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 should assume the guarantee liability for the debt payable by Chengdu Wetouch. On May 21, 2020, the court rendered a judgment ordering Hong Kong Wetouch to pay compensation of RMB17,467,042 (equivalent to $2,460,181), interest, liquidated damages, liquidated damages for late performance, etc.

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.

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

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 to a local district court against the Company and its new facility constructors (“the three defendants”) requesting the settlement of the remaining accounts payable and the corresponding fund interests, penalties and legal fees, totalling of RMB3,021,294 ($425,540). The court judged Sichuan Vtouch to pay and ordered the freezing of bank accounts of these three defendants. On September 25, 2023, the Company appealed to Chengdu Municipal Intermediate People’s Court, arguing the calculation of fund interests and penalties ordered by the lower court unfair and not in line with the law regulations. As of the date of this report, the management assessed that possibility and amount of contingency cannot be estimated given the current status.

vii)	Legal case with Mr. Guangchuang Liu on a refund of equity transfer price and related interests totalling 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 to Shenzhen Nanshan District People’s Court against Mr. Guangde Cai and Sichuan Vtouch requesting the refund of this equity transfer price and related fund interests totalling RMB324,501 ($45,705). Per the court decision of December 13, 2023, the defendants were ordered to make the payments by the end of 2023. The Company made the payment in full in January, 2024.

F-20

viii)

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, 2022, Sichuan Yali Cement Manufacturing Co., Ltd. (“Yali Co.”) and Sichuan Chunqiu Development & Construction Group Co. Ltd. (“Chunqiu Co.”) entered into construction materials contract for Sichuan Vtouch’s new facility. Under this contract, Sichuan Vtouch was listed as the joint responsibility party for the payment settlement between Yali Company and Chunqiu Company.

On February 15, 2023, Yali Co. filed a lawsuit against Chunqiu Co. to 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 assume the guarantee liability for the debt payable by Chunqiu Co. On August 12, 2023, the court rendered a judgment ordering Chunqiu Co. to pay to Yali Co. for above mentioned amount. Sichuan Vtouch was ordered joint liability of such aforesaid 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 pay pack all the debts, and Sichuan Vtouch to bear the joint and several liability for the above debts of Chunqiu Co. including a court fee of RMB10,627 ($1,497) with Chunqiu liability. As of March 31, 2024, Chunqiu Co made this payment of court fee of RMB10,627 ($1,497) in full.

Capital Expenditure Commitment

As of March 31, 2024, the Company had construction commitment of RMB5.0 million (equivalent to $0.7 million).

NOTE 13 — REVENUES

The Company’s geographical revenue information is set forth below:

	For the Three Months Ended March 31,
	2024		2023
Sales in PRC	$	9,374,473	$	9,287,566
Sales in Overseas
-Republic of China (ROC, or Taiwan)		3,195,161		2,119,140
-South Korea		2,172,475		1,911,297
-Others		135,150		115,458
Sub-total		5,502,786		4,145,895
Total revenues	$	14,877,259	$	13,433,461

NOTE 14 — SUBSEQUENT EVENT

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. 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. For details, please refer to NOTE 12 — COMMITMENTS AND CONTINGENCIES-Contingencies

F-21

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 estimate to finish the building construction by the end of 2024 and commence production in the third quarter of 2025,

During the three months ended March 31, 2024, the Company has planned to increase the scope of facility construction by adding a touch machine construction area, to be completed by the end of 2024.

Highlights for the three-month period ended March 31, 2024 include:

	●	Revenues were $14.9 million, an increase of 11.2% from $13.4 million in the first quarter of 2023

	●	Gross profit was $3.3 million, a decrease of 45.0% from $6.0 million in the first quarter of 2023

	●	Gross profit margin was 22.4% as compared to 45.0% in the first quarter of 2023

	●	Net income was $0.6 million, a decrease of 78.6% from $2.8 million in the first quarter of 2023

●

Total volume shipped was 681,370 units, an increase of 7.3% from 635,276 units in the first 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)	Three-Month Period Ended March 31,						Change
	2024			2023			%
Revenues	$	14.9		$	13.4			11.2	%
Cost of revenues		(11.6	)		(7.4	)		(56.7	)%
Gross profit		3.3			6.0			(45.0	)%
Total operating expenses		(1.0	)		(1.7	)		(41.1	)%
Operating income		2.3			4.3			(46.5	)%
Total other expenses		(1.1	)		(0.1	)		(1,000.0	)%
Interest expense		(1.2	)		(0.0	)		N/A
Income before income taxes		1.2			4.2			(71.4	)%
Income tax expense		(0.6	)		(1.4	)		(57.1	)%
Net income	$	0.6		$	2.8			(78.6	)%

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Revenues

We generated revenue of $14.9 million for the three months ended March 31, 2024, an increase of $1.5 million, or 11.2%, compared to $13.4 million in the same period of last year. This was due to an increase of 7.3% in sales volume, an increase of 8.5% in the average selling price of our products, and partially offset by 5.1% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with that of the same period of last year.

	For the Three-Month Ended March 31,
	2024					2023					Change		Change
	Amount		%			Amount		%			Amount		%
	(in US Dollar millions except percentage)
Revenue from sales to customers in Mainland China	$	9.4		63.1	%	$	9.3		69.4	%	$	0.1		1.1	%
Revenue from sales to customers overseas		5.5		36.9	%		4.1		30.6	%		1.4		34.1	%
Total Revenues	$	14.9		100	%	$	13.4		100	%	$	1.5		11.2	%

	For the Three-Month Ended March 31,
	2024					2023					Change		Change
	Unit		%			Unit		%			Unit		%
		(in UNIT, except percentage)
Units sold to customers in Mainland China		432,050		63.4	%		414.518		65.3	%		17,532		4.2	%
Units sold to customers overseas		249,320		36.6	%		220,758		34.7	%		28,562		12.9	%
Total Units Sold		681,370		100	%		635,276		100	%		46,094		7.3	%

(i) PRC Domestic Market

For the three months ended March 31, 2024, revenue from the PRC domestic market increased by $0.1 million, or 1.1%, as a combined result of: (i) an increase of 4.2% in sales volume and (ii) an increase of 4.1% in the average RMB selling price of our products, and partially offset by 5.1% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with that of the same period of last year.

As for the RMB selling price, the increase of 4.2% was mainly due to the increased sales of new models of higher-end products such as medical touchscreens and industrial control computer touchscreens with higher selling prices in the PRC domestic market during the three-month period ended March 31, 2024.

Due to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 16.9% in Southwest China, and 11.0% in South China, partially offset by a decrease of 1.2% in East China during the three months ended March 31, 2024.

(ii) Overseas Market

For the three-month period ended March 31, 2024, revenues from the overseas market were $5.5 million as compared to $4.1 million of the same period of 2023, representing an increase by $1.4 million, or 34.1%, mainly due to an increase of 12.9% in sales volume due to increased sales in industrial control computer touchscreens, automotive touchscreens and gaming touchscreens, and an increase of 18.1% in average selling price in RMB in these touchscreen products.

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

	Revenues For the Three-Month Ended March 31,
	2024					2023					Change			Change
	Amount		%			Amount		%			Amount			Margin%
	(in US Dollars, except percentage)
Product categories by end applications
Automotive Touchscreens	$	4,185,270		28.1	%	$	3,234,836		24.1	%	$	950,434			29.4	%
Industrial Control Computer Touchscreens		2,847,660		19.2	%		2,672,250		19.9	%		175,410			6.6	%
POS Touchscreens		2,114,099		14.2	%		2,066,774		15.4	%		47,325			2.3	%
Gaming Touchscreens		2,172,475		14.6	%		1,911,297		14.2	%		261,178			13.7	%
Medical Touchscreens		2,414,961		16.2	%		2,094,242		15.6	%		320,719			15.3	%
Multi-Functional Printer Touchscreens		1,142,794		7.7	%		1,454,062		10.8	%		(311,268	)		(21.4	)%
Total Revenues	$	14,877,259		100.0	%	$	13,433,461		100.0	%	$	1,443,798			11.2	%

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

The Company continued to shift production mix from traditional lower-end products to high-end products such as automotive touchscreens, medical touchscreens, gaming touchscreens, and industrial control computer 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

	Three-Month Period Ended March 31,						Change
(in millions, except percentage)	2024			2023			Amount			%
Gross Profit	$	3.3		$	6.0		$	(2.7	)		(45.0	)%
Gross Profit Margin		22.4	%		45.0	%					(22.6	)%

Gross profit was $3.3 million in the first quarter ended March 31, 2024, compared to $6.0 million in the same period of 2023. Our gross profit margin decreased to 22.4% for the first quarter ended March 31, 2024, as compared to 45.0% for the same period of 2023, primarily due to the increase of cost of goods sold by 56.7% resulting from the increase of costs of raw materials. Our cost of raw materials was increased by 66.9% due to (i) export controls imposed by U.S. Department of Commerce on advanced computing and semiconductor manufacturing to the People’s Republic of China, and (ii) production under capacity of other raw materials during the first quarter of 2024 because of holiday season of Chinese Spring Festival.

The management has forecasted the procurement costs of the chip and other categories of raw material will come to stabilize due to supplier production becoming normalized after the second quarter of 2024.

Selling Expenses

	Three-Month Period Ended March 31,						Change
(in US dollars, except percentage)	2024			2023			Amount		%
Selling Expenses	$	459,792		$	50,705		$	409,087		806.8	%
as a percentage of revenues		3.4	%		0.0	%				3.4	%

Selling expenses were $459,792 million for the three-month period ended March 31, 2024, compared to $50,705 in the same period in 2023, representing an increase of $0.5 million. The increase was primarily due to the increase of $0.3 million traveling expenses, $0.1 million logistic expenses to market our products and other miscellaneous selling expenses during the three months ended March 31,2024.

General and Administrative Expenses

	Three-Month Period Ended March 31,						Change
(in millions, except percentage)	2024			2023			Amount			%
General and Administrative Expenses	$	0.5		$	1.7		$	(1.2	)		(70.6	)%
as a percentage of revenues		3.4	%		12.7	%					(9.3	)%

General and administrative expenses were $0.5 million for the three-month period ended March 31, 2024, compared to $1.7 million in the same period in 2023, representing a decrease of $1.2 million, or 70.6%. The decrease was primarily due to full payment of an accrued $1.2 million private placement agent fees in connection with a private placement during the three months ended March 31, 2023. The Company made the full payment in February, 2024. (see Note 8 of the accompanying financial statements).

Research and Development Expenses

	Three-Month Period Ended March 31,						Change
(in US dollars, except percentage)	2024			2023			Amount		%
Research and Development Expenses	$	42,738		$	20,885		$	21,853		104.6	%
as a percentage of revenues		0.0	%		0.0	%				0.0	%

Research and development expenses were $42,738 for three-month period ended March 31, 2024 compared to $20,885 in the same period in 2023, representing an increase of $21,853, which was due to an increase in material consumption.

Operating Income

Total operating income was $2.3 million for the three-month period ended March 31, 2024 as compared to $4.3 million of the same period of last year, primarily due to lower gross margin and higher selling expenses, partially offset by lower general and administrative expenses for the three-month period ended March 31, 2024.

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

	Three-Month Period Ended March 31,						Change
(in millions, except percentage)	2024			2023			Amount		%
Gain (loss) on changes in fair value of common stock purchase warrants	$	0.0		$	(0.1	)	$	0.1		(100,0	)%
as a percentage of revenues		0.0	%		0.7	%				(0.7	)%

Gain on changes in fair value of common stock purchase warrants for the three-month period ended March 31, 2024 was $7,821, compared to $97,602 of loss on changes in fair value of common stock purchase warrants in 2023.

(See Note 9 (b) of the accompanying financial statements).

Interest Expenses

	Three-Month Period Ended March 31,						Change
(in millions, except percentage)	2024			2023			Amount		%
Interest Expenses	$	1.2		$	0.0		$	1.2		N/A
as a percentage of revenues		8.1	%		0.0	%				8.1	%

For the three-month period ended March 31, 2024 and 2023, the Company recognized interest expenses of convertible promissory notes in the amount of $1,169,974 (mainly the default interest charges of $1,145,995 upon the repayment of the notes payable) and $33,399, respectively. (See Note 9 (a) of the accompanying financial statements).

Income Taxes

	Three-Month Period Ended March 31,						Change
(in millions, except percentage)	2024			2023			Amount			%
Income before Income Taxes	$	1.2		$	4.2		$	(3.0	)		(71.4	)%
Income Tax (Expense)		(0.6	)		(1.4	)		0.8			(57.1	)%
Effective income tax rate		25.4	%		33.5	%					5.4	%

The effective income tax rates for the three-month period ended March 31, 2024 and 2023 were 25.4% and 33.5%, respectively.

Net Income

As a result of the above factors, we had a net income of $0.6 million in the first quarter of 2024 compared to a net income of $2.8 million in the same quarter 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 March 31, 2024, we had current assets of $110.0 million, consisting of $94.8 million in cash, $10.9 million in accounts receivable, $0.2 million in inventories, and $4.1 million in prepaid expenses and other current assets Our current liabilities as of March 31, 2024 were $2.2 million, which is comprised of $0.6 million in accounts payable, $0.4 million in loan from a third party, $0.6 million in income tax payable, $0.6 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 three-month periods ended March 31, 2024 and 2023:

	Three-Month Period Ended March 31,
(in US Dollar millions)	2024			2023
Net cash (used in) provided by operating activities	$	(9.2	)	$	2.7
Net cash used in investing activities		(0.1	)		-
Net cash provided by financing activities		7.5			40.0
Effect of foreign currency exchange rate changes on cash and cash equivalents		(1.4	)		(0,7	)
Net (decrease) increase in cash and cash equivalents		(3.2	)		42.0
Cash and cash equivalents at the beginning of period		98.0			51.3
Cash and cash equivalents at the end of period	$	94.8		$	93.3

Operating Activities

Net cash used in operating activities was $9.2 million for the three months ended March 31, 2024 as compared to $2.7 million provided by operating activities for the same period of the last year, primarily due to (i) the decrease of $2.2 million net income for the three months ended March 31, 2024 as compared to the same period of 2023, (ii) the decrease of $0.1 million gain on changes of fair value of common stock purchase warrants for the three months ended March 31, 2024, (iii) the increase of $0.2 million in inventories, and $3.4 million in prepaid and other current assets, (iv) the decrease of $0.8 million in accounts payable, $0.7 million in income tax payable, and $4.5 million in accrued expenses and other current liabilities, partially offset by (v) the decrease of $0.4 million in accounts receivable for the three months ended March 31, 2024.

Investing Activities

Net cash used in investing activities for the three-month period ended March 31, 2024 was $0.1 million for the purchase of property, plant and equipment.

There was no cash flow in investing activities for the three-month period ended March 31, 2023.

Financing Activities

Net cash provided by financing activities for the three months ended March 21, 2024 was $7.5 million, including $9.0 million in net proceeds from the 2024 Public Offering, partially offset by $1.4 million repayment of convertible promissory notes, and $82,864 repayment of interest-free advances to a third party.

Net cash provided by financing activities for the three months ended March 31, 2023 was $40.0 million, including $40.0 million in proceeds from stock issuance in a private placement, and $86,735 in proceeds from interest-free advances from a third party, partially offset by the repayment of $35,000 convertible promissory note payable.

As of March 31, 2024, our cash and cash equivalents were $94.8 million, as compared to $98.0 million at December 31, 2023.

Days Sales Outstanding (“DSO”) has decreased to 56 days for the three-month period ended March 31, 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 March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31 2023
-Current	$	4,561,092	$	3,740,488
-1-3 months past due		5,925,002		2,635,045
-4-6 months past due		451,746		1,079,719
Total accounts receivable	$	10,937,840	$	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 three months ended March 31, 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 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

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 March 31, 2024, the Company had construction commitment of RMB5.0 million (equivalent to $0.7 million).

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 March 31, 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 March 31, 2024, as a result of the material weakness identified below.

In light of this material weakness, 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 weakness, 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 Weakness

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 was identified during the annual report of 2023 and still applied as of March 31, 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 Weakness

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

●

engaged with a third-party financial consulting firm during the year to assist with the preparation of SEC reporting;

●

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

●

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

●

Hire an assistant financial controller familiar with US GAAP and understand English.

During the first quarter of 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 weakness noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 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 12 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 Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 17, 2024.

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, KYHTLAW, 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Except as previously reported in our Current Reports on Form 8-K, we did not undertake any unregistered sales of our equity securities during the quarter ended March 31, 2024.

During the quarter ended March 31, 2024, we did not repurchase any shares of our common stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

Exhibit Number		Description of Document

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)	Filed as an exhibit to the Company’s registration statement on Form S-1, File No. 333-270726 and incorporated herein by reference.

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: June 14, 2024		Zongyi Lian
		Chief Executive Officer and President
		(Principal Executive Officer)

	By:	/s/ Yuhua Huang
Date: June 14, 2024		Yuhua Huang
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Zongyi Lian, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Wetouch Technology Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2024	By:	/s/ Zongyi Lian
	Name:	Zongyi Lian
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Yuhua Huang, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Wetouch Technology Inc.;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 14, 2024	By:	/s/ Yuhua Huang
	Name:	Yuhua Huang
	Title:	Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Wetouch Technology Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Zongyi Lian, Chief Executive Officer and Principal Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1)

the Quarterly Report fully complies with the requirements of Section 13(a), or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Quarterly Report.

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.

Date: June 14, 2024

	/s/ Zongyi Lian
	Name:	Zongyi Lian
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Wetouch Technology Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Yuhua Huang, as Chief Financial Officer, Principal Financial and Accounting Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1)

the Quarterly Report fully complies with the requirements of Section 13(a), or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

Date: June 14, 2024

	/s/ Yuhua Huang
	Name:	Yuhua Huang
	Title:	Chief Financial Officer
		(Principal Financial Officer)

Cover - shares	3 Months Ended
Cover - shares	Mar. 31, 2024	Jun. 14, 2024
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Amendment Flag	false
Document Period End Date	Mar. 31, 2024
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1
Entity Information [Line Items]
Entity Registrant Name	WETOUCH TECHNOLOGY INC.
Entity Central Index Key	0001826660
Entity File Number	001-41957
Entity Tax Identification Number	20-4080330
Entity Incorporation, State or Country Code	NV
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Contact Personnel [Line Items]
Entity Address, Address Line One	No. 29, Third Main Avenue
Entity Address, Address Line Two	Shigao Town
Entity Address, Address Line Three	Meishan
Entity Address, City or Town	Sichuan
Entity Address, Country	CN
Entity Address, Postal Zip Code	620500
Entity Phone Fax Numbers [Line Items]
City Area Code	(86)
Local Phone Number	28-37390666
Entity Listings [Line Items]
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	WETH
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		11,931,534

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)

Mar. 31, 2024

Dec. 31, 2023

CURRENT ASSETS

Cash

$ 94,796,450

$ 98,040,554

Loan receivable-unrelated parties

10,937,840

7,455,252

Inventories

184,743

222,102

Prepaid expenses and other current assets

4,116,860

1,063,627

TOTAL CURRENT ASSETS

110,035,893

106,781,535

Long term prepaid expenses

357,390

Property, plant and equipment, net

12,753,915

12,859,863

TOTAL ASSETS

123,147,198

119,641,398

CURRENT LIABILITIES

Accounts payable

566,171

640,795

Loan from a third party

385,694

469,591

Income tax payable

658,931

Accrued expenses and other current liabilities

626,611

3,992,905

Convertible promissory notes payable

1,239,126

TOTAL CURRENT LIABILITIES

2,237,407

6,342,417

Common stock purchase warrants liability

370,550

378,371

TOTAL LIABILITIES

2,607,957

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 March 31, 2024 and December 31, 2023, respectively*

^[1]

11,932

9,733

Additional paid in capital

^[1]

52,501,680

43,514,125

Statutory reserve

7,195,092

Retained earnings

70,035,962

69,477,092

Accumulated other comprehensive loss

(9,205,425)

(7,275,432)

TOTAL STOCKHOLDERS’ EQUITY

120,539,241

112,920,610

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 123,147,198

$ 119,641,398

[1]	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares

Mar. 31, 2024

Dec. 31, 2023

Statement of Financial Position [Abstract]

Common stock, par value (in Dollars per share)

^[1]

$ 0.001

Common stock, shares authorized

^[1]

15,000,000

Common stock, shares issued

^[1]

11,931,534

9,732,948

Common stock, shares outstanding

^[1]

11,931,534

9,732,948

[1]	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

Condensed Consolidated Statements of Income and Comprehensive Loss (Unaudited) - USD ($)

3 Months Ended

Mar. 31, 2024

Mar. 31, 2023

Income Statement [Abstract]

REVENUES

$ 14,877,259

$ 13,433,461

Cost of revenues

(11,539,301)

(7,394,661)

GROSS PROFIT

3,337,958

6,038,800

OPERATING EXPENSES

Selling expenses

(459,792)

(50,705)

General and administrative expenses

(530,524)

(1,666,756)

Research and development expenses

(42,738)

(20,885)

Total operating expenses

(1,033,054)

(1,738,346)

INCOME FROM OPERATIONS

2,304,904

4,300,454

OTHER INCOME (EXPENSES)

Interest income

31,347

29,195

Interest expense

(1,169,974)

(33,399)

Other income

46,620

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

7,821

(97,602)

TOTAL OTHER EXPENSES

(1,084,186)

(101,806)

INCOME BEFORE INCOME TAX EXPENSE

1,220,718

4,198,648

INCOME TAX EXPENSE

(661,848)

(1,405,399)

NET INCOME

558,870

2,793,249

OTHER COMPREHENSIVE (LOSS) INCOME

Foreign currency translation adjustment

(1,929,993)

(680,976)

COMPREHENSIVE (LOSS) INCOME

$ (1,371,123)

$ 2,112,273

EARNINGS PER COMMON SHARE

Basic (in Dollars per share)

$ 0.04

$ 0.35

Diluted (in Dollars per share)

$ 0.04

$ 0.35

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING*

Basic (in Shares)

^[1]

13,342,294

7,991,359

Diluted (in Shares)

^[1]

13,392,999

8,102,988

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

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - USD ($)

Common stock at Par value $0.001 Shares

Additional paid-in capital

Statutory reserve

Retained Earnings

Accumulated other comprehensive loss

Total

Balance at Dec. 31, 2022

$ 1,680

$ 3,402,178

$ 6,040,961

$ 62,366,892

$ (2,977,524)

$ 68,834,187

Balance (in Shares) at Dec. 31, 2022

1,680,248

Shares issued to private placement

$ 8,000

39,992,000

40,000,000

Shares issued to private placement (in Shares)

8,000,000

Net income

2,793,249

Foreign currency translation adjustment

(680,976)

Balance at Mar. 31, 2023

$ 9,680

43,394,178

6,040,961

65,160,141

(3,658,500)

110,946,460

Balance (in Shares) at Mar. 31, 2023

9,680,248

Balance at Dec. 31, 2023

$ 9,733

43,514,125

7,195,092

69,477,092

(7,275,432)

$ 112,920,610

Balance (in Shares) at Dec. 31, 2023

9,732,948

^[1]

Issuance of common stock from the 2024 Public Offering, net of issuance costs

$ 2,160

8,987,594

$ 8,989,754

Issuance of common stock from the 2024 Public Offering, net of issuance costs (in Shares)

2,160,000

Exercise of warrants issued in conjunction with legal/consultant services in 2020 and 2021

$ 36

(36)

Exercise of warrants issued in conjunction with legal/consultant services in 2020 and 2021 (in Shares)

35,861

Exercise of warrants issued to third parties in conjunction with debt issuance in 2021

$ 3

(3)

Exercise of warrants issued to third parties in conjunction with debt issuance in 2021 (in Shares)

2,725

Net income

558,870

Foreign currency translation adjustment

(1,929,993)

Balance at Mar. 31, 2024

$ 11,932

$ 52,501,680

$ 7,195,092

$ 70,035,962

$ (9,205,425)

$ 120,539,241

Balance (in Shares) at Mar. 31, 2024

11,931,534

^[1]

[1]	Retrospectively restated for effect of reverse stock split (1-for-20), see Note 9 (2)

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Cash flows from operating activities
Net income	$ 558,870	$ 2,793,249
Adjustments to reconcile net income to cash (used in) provided by operating activities
Depreciation	2,316	2,433
Amortization of discounts and issuance cost of the notes	5,715	6,941
Gain (loss) on changes in fair value of common stock purchase warrants liability	(7,821)	97,602
Changes in operating assets and liabilities:
Accounts receivable	(3,622,872)	(4,004,967)
Amounts due from related parties		(1,076)
Inventories	32,939	254,727
Prepaid expenses and other current assets	(3,429,690)	307,380
Accounts payable	(64,222)	702,052
Amounts due to related parties		(1,344)
Income tax payable	661,848	1,383,069
Accrued expenses and other current liabilities	(3,354,627)	1,176,473
Net cash (used in) provided by operating activities	(9,217,544)	2,716,539
Cash flows from investing activities
Purchase of property, plant and equipment	(111,289)
Net cash used in investing activities	(111,289)
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
Repayment of interest-free advances to a third party	(82,864)
Proceeds from interest-free advances from a third party		86,735
Repayments of convertible promissory notes payable	(1,400,750)	(35,000)
Net cash provided by financing activities	7,506,140	40,051,735
Effect of changes of foreign exchange rates on cash	(1,421,411)	(760,531)
Net (decrease) increase in cash	(3,244,104)	42,007,743
Cash, beginning of period	98,040,554	51,250,505
Cash, end of period	94,796,450	93,258,248
Supplemental disclosures of cash flow information
Income tax paid		22,330
Interest paid	1,186,210
Issue costs charged to additional paid-in capital	1,810,246
Exercise of warrant shares	$ 38,586

Business Description

3 Months Ended

Mar. 31, 2024

Business Description [Abstract]

BUSINESS DESCRIPTION

NOTE 1 — BUSINESS DESCRIPTION

Corporate History of BVI Wetouch

In June 2021, Hong Kong Wetouch completed its dissolution process pursuant to the minutes of its special stockholder meeting.

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

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 stockholder of Sichuan Vtouch.

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

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2024

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation and Principles of Consolidation

Deconsolidation of Sichuan Wetouch

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	$	-

(b) Uses of Estimates

(c) 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
Office and electric equipment		3 years
Vehicles		10 years

Accounts Receivable

3 Months Ended

Mar. 31, 2024

Accounts Receivable [Abstract]

ACCOUNTS RECEIVABLE

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

March 31,
2024

December 31,

2023

Accounts receivable

10,937,840

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.

Prepaid Expenses and Other Current Assets

3 Months Ended

Mar. 31, 2024

Prepaid Expenses and Other Current Assets [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	March 31, 2024		December 31, 2023
Advance to suppliers	$	329,269	$	334,852
VAT input		87,493		-
Issue cost related to convertible promissory notes		-		64,802
Prepayment for land use right (i)		543,638		537,998
Security deposit (ii)		54,430		53,865
Prepaid consulting service fees (iii)		2,138,482		-
Prepaid market research fees (iv)		955,000		-
Others receivable (v)		5,750		72,110
Prepaid expenses and other current assets	$	4,116,860	$	1,063,627

(i)

(ii)

(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 of investment consulting services. The total fee would be amortized over the three-year service and reclassified to stock issuance costs accordingly. As of March 31, 2024, $2,138,482 was recognized as prepaid consulting service fees within one year and $357,390 as long term prepaid expenses

(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 signed borrowing contracts of $70,000 and $855,000 dated February 29, 2024, respectively, to the Company, with a principal amount of $70,000 and $855,000 to evidence the advance, bearing 3.45% interest per annum, and payable on February 28, 2025.

(v)

Other receivables are mainly employee advances, and prepaid expenses.

Property, Plant and Equipment, Net

3 Months Ended

Mar. 31, 2024

Property, Plant and Equipment, Net [Abstract]

PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET

	March 31, 2024			December 31, 2023
Buildings	$	11,928		$	12,130
Machinery and equipment		3,878			3,944
Vehicles		40,553			41,241
Construction in progress		12,722,820			12,825,896
Subtotal		12,779,179			12,883,211
Less: accumulated depreciation		(25,264	)		(23,348	)
Property, plant and equipment, net	$	12,753,915		$	12,859,863

Depreciation expense was $2,316 and $2,433 for the three-month period ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company had construction commitment of RMB5.0 million (equivalent to $0.7 million).

Income Taxes

3 Months Ended

Mar. 31, 2024

Income Taxes [Abstract]

INCOME TAXES

NOTE 6 — INCOME TAXES

Wetouch

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

BVI Wetouch

Hong Kong

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

PRC

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

The effective income tax rates for the three-month period ended March 31, 2024 and 2023 were 25.4% and 33.5%, respectively.

The estimated effective income tax rate for the year ending December 31, 2024 would be similar to actual effective tax rate of the three-month period ended March 31, 2024.

Accrued Expenses and Other Current Liabilities

3 Months Ended

Mar. 31, 2024

Accrued Expenses and Other Current Liabilities [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

NOTE 7 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	March 31, 2024		December 31, 2023
Advance from customers (i)	$	191,727	$	182,277
Accrued payroll and employee benefits		82,874		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		134,792		330,180
Accrued director fees		128,517		106,824
Other tax payables (v)		-		143,035
Others (vi)		88,701		288,704
Accrued expenses and other current liabilities	$	626,611	$	3,992,905

(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 US$1.2 million, payable only on the completion of the private placement. The Company made the full payment in February, 2024.

(iii)

(iv)

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

(vi)	Others mainly represent accrued employee reimbursement payable and other accrued miscellaneous operating expenses.

Convertible Promissory Notes Payable

3 Months Ended

Mar. 31, 2024

Convertible Promissory Notes Payable [Abstract]

CONVERTIBLE PROMISSORY NOTES PAYABLE

NOTE 8 — CONVERTIBLE PROMISSORY NOTES PAYABLE

a) Convertible promissory notes

The details of the Notes are as follows:

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 three-month period ended March 31, 2024 and 2023, amortization of discounts and issuance cost of the notes were US$5,715 and $6,941, respectively.

For the three-month period ended March 31, 2024 and 2023, the Company recognized interest expenses of the Notes in the amount of US$1,169,974 and US$33,399, respectively.

b) Warrants

Accounting for Warrants

During the year ended December 31, 2022, three lenders exercised the Note Warrants cashlessly for 14,233 shares of common stock.

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

During the three months ended March 31, 2024, one lender exercised the Note Warrants cashlessly for 2,725 shares of common stock.

The fair values of these warrants as of March 31, 2024 were calculated using the Black-Scholes option-pricing model with the following assumptions:

												March 31, 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 (US$)		Changes of fair value of common stock purchase warrants liability (+ (loss)/(- (gain) (US$)			Common stock purchase warrants liability as of March 31, 2024 (US$)
Convertible Note - Talos Victory (Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		43,113		(1,251	)		41,862
Convertible Note - First Fire (Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		98,375		(2,162	)		96,213
Convertible Note - LGH Note 9 (a))		567.0	%		0.0	%		0.6		5.03	%		98,517		(1,938	)		96,579
Convertible Note - Fourth Man (Note 9 (ab))		567.0	%		0.0	%		0.7		5.03	%		41,639		(765	)		40,874
Convertible Note - Jeffery Street Note 9 (a))		567.0	%		0.0	%		0.7		5.03	%		26,264		(463	)		25,801
Convertible Note - Blue Lake Note 9 (a))		567.0	%		0.0	%		0.7		5.03	%		70,463		(1,242	)		69,221
Total										Total			378,371		(7,821	)		370,550

(c) Registration Rights Agreements

Stockholders’ Equity

3 Months Ended

Mar. 31, 2024

Stockholders’ Equity [Abstract]

STOCKHOLDERS’ EQUITY