Quarterly Report for Quarter Ending March 31, 2025 (Form 10-Q)

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. For more information regarding the risks and uncertainties of our business, See "Risk Factors", "Cautionary Note Regarding Forward Looking Statement."

Overview

The Company is a Nevada holding company with no material operations of its own. We conduct substantially all of our operations through our subsidiary in mainland China, which we control through BVI Wetouch. See "Item 1. Business - Corporate History and Structure" for more details.

Because our operations are primarily in China, we are subject to complex and evolving PRC laws and regulations. These include restrictions on capital flows, dividend payments, currency conversion, cybersecurity and data privacy, and governmental discretion over overseas securities offerings. These risks could materially affect our ability to transfer funds, conduct offerings, or continue operations in their current form. See "Item 1A. Risk Factors-Risks Related to Doing Business in China."

As of March 31, 2025, the Company has contributed RMB 348.0 million (US$47.7 million) to its PRC subsidiary through intermediate holding companies, which were accounted for as long-term investments. These funds have been used by our PRC subsidiary in its operations. To date, no dividends or other distributions have been made by our PRC subsidiary to the Company. We may rely on future distributions from our PRC subsidiary to fund our holding company obligations, subject to PRC law and restrictions. For more details, see "Item 1A. Risk Factors-Risks Related to Doing Business in China-As a holding company, we conduct our operations primarily through our PRC subsidiary and face risks and uncertainties associated with this structure."

Under current PRC law, dividend payments by our PRC subsidiary are limited to accumulated profits determined in accordance with PRC accounting standards and are subject to statutory reserve requirements. Dividends to the Company are also subject to withholding tax, generally 10%, but reduced to 5% if treaty conditions are met. There is no assurance that the reduced rate will apply. For more details, see "Item 1A. Risk Factors-Risks Related to Doing Business in China-Uncertainties with respect to the PRC legal system, including the enforcement of laws and changes in laws and regulations, could adversely affect us and limit the legal protections available."

We currently do not have cash management policies dictating how funds are transferred between the Company and its subsidiaries. Most of our cash is maintained in Renminbi in mainland China and may be subject to PRC restrictions on outbound transfers. For details, see "Item 1A. Risk Factors - Risks Related to Doing Business in China - Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment."

Through our wholly owned subsidiaries, BVI Wetouch, HK Wetouch, and Sichuan Vtouch, we are engaged in the research, development, manufacturing, sales and servicing of medium- to large-sized projected capacitive touchscreens. We are specialized in large-format touchscreens, which are developed and designed for a wide variety of markets and used in 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.

We generate revenues through sales of our various touchscreen products.

We sell our touchscreen products both domestically in China and internationally, covering major areas in Mainland China, including but not limited to the eastern, southern, northern and southwest regions of Mainland China, Taiwan, South Korea, and Germany. We believe that we have established a strong and diversified client base. For the three months ended March 31, 2025 and 2024, our domestic sales accounted for approximately 67.3% and 63.1%, respectively, of our revenues, and our international sales accounted for approximately 32.7% and 36.9%, respectively, of our revenues.

Since our incorporation, we have effected two reverse stock splits of our common stock, including a 1-for-70 reverse split in 2020 and a 1-for-20 reverse split in 2023, and all share and per share information in this Quarterly Report has been retroactively adjusted to reflect these actions. For more details, see "Item 1. Business - Corporate History and Structure - Reverse Stock Splits" of the 2024 Form 10-K.

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. 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 2025.

As of the date of this Quarterly Report, we estimate to finish the building construction by the end of 2025 and commence production in the second quarter of 2026. In consideration of the capital requirements for the new facility construction, we plan to fund the project primarily with our existing cash on hand, which totaled approximately $106.4 million as of March 31, 2025, and cash flows generated from operations, and we may seek additional financing if needed to support the timely completion of the project.

Highlights for the three-month period ended March 31, 2025 include:

●

Revenues were $15.3 million, an increase of 2.7% compared to $14.9 million in the first quarter of 2024

●

Gross profit was $5.6 million, an increase of 69.7% compared to $3.3 million in the first quarter of 2024

●

Gross profit margin was 36.9%, compared to 22.4% in the first quarter of 2024

●

Net income was $2.5 million, an increase of 316.7% compared to $0.6 million in the first quarter of 2024

●

Total volume shipped was 762,545 units, an increase of 11.9% compared to 681,370 units in the first quarter of 2024

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
		2025				2024				%
Revenues		$	15.3			$	14.9				2.7	%
Cost of revenues			(9.7	)			(11.6	)			(16.4	)%
Gross profit			5.6				3.3				69.7	%
Total operating expenses			(1.6	)			(1.0	)			(60.0	)%
Operating income			4.0				2.3				73.9	%
Total other income (expenses)			0.0				(1.1	)			(100.0	)%
Interest expense			0.0				(1.2	)			(100.0	)%
Income before income taxes			4.0				1.2				233.3	%
Income tax expense			(1.5	)			(0.6	)			150.0	%
Net income		$	2.5			$	0.6				316.7	%

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Revenues

We generated revenue of $15.3 million for the three months ended March 31, 2025, an increase of $0.4 million, or 2.7%, compared to $14.9 million in the same period of last year. This was due to an increase of 11.9% in sales volume, and partially offset by a decrease of 6.9% in the average selling price of our products , and 1.2% 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,
		2025								2024								Change				Change
		Amount				%				Amount				%				Amount				%
		(in US Dollar millions except percentage)
Revenue from sales to customers in Mainland China		$	10.3				67.3	%		$	9.4				63.1	%		$	0.9				9.6	%
Revenue from sales to customers overseas			5.0				32.7	%			5.5				36.9	%			(0.5	)			(9.1	)%
Total Revenue		$	15.3				100	%		$	14.9				100	%		$	0.4				2.7	%

		For the Three-Month Ended March 31,
		2025								2024								Change				Change
		Unit				%				Unit				%				Unit				%
			(in UNIT, except percentage)
Units sold to customers in Mainland China			508,650				66.7	%			432,050				63.4	%			76,600				17.7	%
Units sold to customers overseas			253,895				33.3	%			249,320				36.6	%			4,575				1.8	%
Total Units Sold			762,545				100	%			681,370				100	%			81,175				11.9	%

(i) PRC Domestic Market

For the three months ended March 31, 2025, revenue from the PRC domestic market increased by $0.9 million, or 9.6%, as a combined result of: (i) an increase of 17.7% in sales volume, partially offset by (ii) a decrease of 5.3% in the average RMB selling price of our products, and partially offset by 1.2% 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 decrease of 5.3% was mainly due to the lower demand of higher selling priced products of touchscreen machines in the PRC domestic market, including the decreased average RMB selling price of 25.5% in medical touchscreens and 1.2% in industrial control computer touchscreens during the three-month period ended March 31, 2025.

Due to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 19.7% in South China, and 18.4% in East China, partially offset by a decrease of 1.5% in Southwest China during the three months ended March 31, 2025.

(ii) Overseas Market

For the three-month period ended March 31, 2025, revenues from the overseas market were $5.0 million as compared to $5.5 million of the same period of 2024, representing a decrease by $0.6 million, or 10.9%, mainly due to an decrease of 9.9% in average selling price in RMB due to the lower demand on touchscreen machines in medical touchscreens, industrial control computer touchscreens, and automotive touchscreens, and 1.2% negative impact from exchange rate due to depreciation of RMB against US dollars, partially offset by the increase of 1.8% in sales volume due to increased sales in industrial control computer touch screens and gaming touchscreens,

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

		Revenues For the Three-Month Ended March 31,
		2025								2024								Change				Change
		Amount				%				Amount				%				Amount				Margin%
			(in US Dollars, except percentage)
Product categories by end applications
Automotive Touchscreens		$	3,960,497				25.9	%		$	4,185,270				28.1	%		$	(224,773	)			(5.4	)%
Industrial Control Computer Touchscreens			3,235,073				21.2	%			2,847,660				19.2	%			387,413				13.6	%
POS Touchscreens			2,411,031				15.8	%			2,114,099				14.2	%			296,932				14.0	%
Gaming Touchscreens			2,320,592				15.1	%			2,172,475				14.6	%			148,117				6.8	%
Medical Touchscreens			1,949,656				12.8	%			2,414,961				16.2	%			(465,305	)			(19.3	)%
Multi-Functional Printer Touchscreens			1,412,727				9.2	%			1,142,794				7.7	%			269,933				23.6	%
Total Revenue		$	15,289,578				100.0	%		$	14,877,259				100.0	%		$	412,319				2.7	%

*	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 industrial control computer touchscreens POS touchscreens, gaming touchscreens, and multi-functional printer 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)		2025				2024				Amount				%
Gross Profit		$	5.6			$	3.3			$	2.3				69.7	%
Gross Profit Margin			36.9	%			22.4	%							14.5	%

Gross profit was $5.6 million in the first quarter ended March 31, 2025, compared to $3.3 million in the same period of 2024. Our gross profit margin increased to 36.9% for the first quarter ended March 31, 2025, as compared to 22.4% for the same period of 2024, primarily due to the increase of revenues by 2.7% and the decrease of cost of goods sold by 22.1% resulting from the decrease of costs of raw materials of the touch screens machine production, partially offset by the increase of labor costs market during the first three months ended March 31, 2025.

Selling Expenses

		Three-Month Period Ended March 31,								Change
(in millions, except percentage)		2025				2024				Amount				%
Selling Expenses		$	0.1			$	0.5			$	(0.4	)			(80.0	)%
as a percentage of revenues			0.6	%			3.4	%							(2.8	)%

Selling expenses were $0.1 million for the three-month period ended March 31, 2025, compared to $0.5 million in the same period in 2024, representing a decrease of $0.4 million, or 80.0%. The decrease was primarily due to the less traveling expenses as the selling team using online communications to market the products during the three months ended March 31, 2025.

General and Administrative Expenses

		Three-Month Period Ended March 31,								Change
(in millions, except percentage)		2025				2024				Amount				%
General and Administrative Expenses		$	1.6			$	0.5			$	1.1				220.0	%
as a percentage of revenues			10.5	%			3.4	%							7.1	%

General and administrative expenses were $1.6 million for the three-month period ended March 31, 2025, compared to $0.5 million in the same period in 2024, representing an increase of $1.1 million, or 220.0%. The increase was primarily due to the increase of $0.5 million professional fees and $0.5 million of amortization of prepaid marketing research fees (see Note 3 of the accompanying financial statements) and $0.1 million of miscellaneous expenses including $45,739 allowance for credit losses of advance to vendors during the three months ended March 31, 2025.

Research and Development Expenses

		Three-Month Period Ended March 31,								Change
(in US dollars, except percentage)		2025				2024				Amount				%
Research and Development Expenses		$	-			$	42,738			$	(42,738	)			(100.0	)%
as a percentage of revenues			0.0	%			0.0	%							0.0	%

Research and development expenses were nil and $42,738 for three-month period ended March 31, 2025, and 2024, respectively.

Operating Income

Total operating income was $4.0 million for the three-month period ended March 31, 2025 as compared to $2.3 million of the same period of last year, primarily due to higher gross margin and lower selling expenses, partially offset by higher general and administrative expenses for the three-month period ended March 31, 2025.

Interest Expenses

		Three-Month Period Ended March 31,								Change
(in millions, except percentage)		2025				2024				Amount				%
Interest Expenses		$	0.0			$	1.2			$	(1.2	)			(100.0	)%
as a percentage of revenues			0.0	%			8.1	%							(8.1	)%

For the three-month period ended March 31, 2025 and 2024, interest expenses were nil and $1.2 million respectively. 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 10 (a) of the accompanying financial statements).

Income Taxes

		Three-Month Period Ended March 31,								Change
(in millions, except percentage)		2025				2024				Amount				%
Income before Income Taxes		$	4.0			$	1.2			$	2.8				233.3	%
Income Tax (Expense)			(1.5	)			(0.6	)			(0.9	)			150.0	%
Effective income tax rate			36.5	%			54.2	%							(17.7	)%

The effective income tax rates for the three-month period ended March 31, 2025 and 2024 were 36.5% and 54.2%, respectively.

Net Income

As a result of the above factors, we had a net income of $2.5 million in the first quarter of 2025 compared to a net income of $0.6 million in the same quarter of 2024.

Liquidity and Capital Resources

Historically, our primary uses of cash have been to finance working capital needs. We expect to be able to meet our needs to fund operations, capital expenditures, and other commitments over the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.

However, we may require additional cash resources due to changes in business conditions or other future developments. If these sources prove insufficient to meet our cash requirements, we may seek to raise additional funds through the sale of equity or debt securities or by obtaining a credit facility. Any issuance of additional equity or equity-linked securities could dilute the ownership interests of existing shareholders, while the incurrence of additional indebtedness would increase our debt service obligations and could subject us to operating and financial covenants that may restrict our business activities. There can be no assurance that financing will be available in the necessary amounts, on terms acceptable to us, or at all.

As of March 31, 2025, we had current assets of $119.8 million, consisting of $106.4 million in cash, $11.1 million in accounts receivable, $0.1 million in inventories, and $2.2 million in prepaid expenses and other current assets Our current liabilities as of March 31, 2025 were $5.4 million, which is comprised of $1.6 million in accounts payable, $0.4 million in amounts due to a related party, $1.3 million in income tax payable, $1.6 million in accrued expenses and other current liabilities. and $0.6 million in operating lease liabilities, current portion. We also had $0.4 million in operating lease liabilities, non- current as of March 31, 2025.

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, 2025 and 2024:

		Three-Month Period Ended March 31,
(in US Dollar millions)		2025				2024
Net cash provided by (used in) provided by operating activities		$	2.0			$	(9.2	)
Net cash used in investing activities			(0.0	)			(0.1	)
Net cash provided by financing activities			0.0				7.5
Effect of foreign currency exchange rate changes on cash and cash equivalents			0.6				(1.4	)
Net increase (decrease) in cash and cash equivalents			2.7				(3.2	)
Cash and cash equivalents at the beginning of period			103.7				98.0
Cash and cash equivalents at the end of period		$	106.4			$	94.8

Operating Activities

Net cash provided by operating activities was $2.0 million for the three months ended March 31, 2025 as compared to net cash used in operating activities of $9.2 million for the same period of the last year.

The positive cash flow for the three months ended March 31, 2025 was primarily due to i) $2.5 million net income, ii) the decrease of $0.5 million in prepaid expenses and current assets, iii) the increase of in $0.3 million accounts payable, $0.3 million due to a related party, $1.3 million in tax payable and $0.6 million in accrued expenses and current liabilities, partially offset by iv) the increase of $3.5 million in accounts receivable.

The negative cash flow for the three months ended March 31, 2024 was primarily due to i) increase of $3.6 million in accounts receivable, $3.4 million in prepaid expenses and current assets, ii) the decrease of $3.4 million in accrued expenses and current liabilities, partially offset by iii) net income of $0.6 million and iv) the increase of $0.6 million in income tax payable.

Investing Activities

There was no cash flow in investing activities for the three-month period ended March 31, 2025.

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.

Financing Activities

There was no cash flow in investing activities for the three-month period ended March 31, 2025.

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.

As of March 31, 2025, our cash and cash equivalents were $106.4 million, as compared to $103.7 million at December 31, 2024.

Days Sales Outstanding ("DSO") has decreased to 55 days for the three-month period ended March 31, 2025 from 64 days for the year ended December 31, 2024.

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, 2025. 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 2024 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 2024 Form 10-K for more details.

Capital Expenditure Commitment

As of March 31, 2025, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2025.

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 2024 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 2024 Form 10-K.