Wetouch Technology Inc
For the period ended Jun 30, 2024. Filed Aug 19, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 19, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-06-14.
0001213900-24-052988
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-19.
0001213900-24-070737
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 78 previous paragraphs and 100 current paragraphs.
44 unchanged; 27 reworded; 22 added; 7 removed; 0 previous and 7 current paragraphs rearranged.
Tables are not compared: 19 previous and 28 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (22)
Current report
We generated revenue of $12.2 million for the three months ended June 30, 2024, a decrease of $0.6 million, or 4.7%, compared to $12.8 million in the same period of last year. This was due to a decrease of 0.8% in sales volume, a decrease of 1.1% in the average selling price of our products, and 3.3% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with that of the same period of last year.
Current report
(i) PRC market
Current report
For the three months ended June 30, 2024, revenue from domestic market decreased by $1.2 million or 13.2% as a combined result of: (i) a decrease of 11.3% in sales volume due to lower sales volume of POS touchscreens, industrial control computer touchscreens, and multi-functional printer touchscreens, (ii) 3.3% negative impact from exchange rate due to depreciation of RMB against US dollars, partially offset by an increase of 0.5% in the average RMB selling price of our products, compared with those of the same period of last year.
Current report
The weakening in macroeconomic conditions in China since the outbreak of COVID-19 in January 2020 continued to exacerbate the touch screen business environment. We had sales decrease of 20.8% in South China, 6.6% in South China, 9.4% in Southwest China, and 9.0% in Eastern China during the second quarter ended June 30, 2024 as compared to that of last year, mainly due to overall weaker market demand resulted in reduced sales orders during the second quarter of 2024.
Current report
General and administrative expenses were $802,663 for the three months ended June 30, 2024, compared to $56,907 in the same period in 2023, representing an increase of $0.7 million, or 1,310.5%. The increase was primarily due to $0.5 million consulting service fees (see Note 4-(iii) of the accompanying financial statements) and $0.2 million professional fees during the three months ended June 30, 2024.
Current report
Gain on changes in fair value of common stock purchase warrants for the three months ended June 30, 2024 and 2023 was $37,751 and $142386, respectively.
Current report
Results of Operations - Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Current report
Revenues
Current report
(i) PRC market
Current report
The weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic in January 2020 continued to exacerbate the touch screen business environment. We had sales decrease of 6.7% in South China, 5.1% in East China, partially offset by our sales increase of 3.8% in Southwest China, during the six months ended June 30, 2023.
Current report
(ii) Overseas market
Current report
For the six months ended June 30, 2024, revenues from overseas market was $9.9 million as compared to $7.8 million of the same period of 2022, representing (i) an increase by $2.1 million or 26.9% mainly due to an increase of 21.1% in sales volume, particularly in gaming touchscreens, and automotive touchscreens and industrial control touchscreens, (ii) 8.7% increase in average RMB selling price in these touchscreen products during the six months ended June 30, 2024, partially offset by (iii) the 4.1% negative impact from exchange rate due to depreciation of RMB against US dollars ,compared with those of the same period of last year.
Current report
Gross profit was $8.2 million during the six months ended June 30, 2023, compared to $12.3 million in the same period of 2023. Our gross profit margin increased to 46.9% for the second quarter ended June 30, 2023, as compared to 39.4% for the same period of 2022, primarily due to the increase in sales of 10.5%, particularly high-end products such as POS touchscreens, medical touchscreens, and automotive touchscreens, for the six months ended June 30, 2023, partially offset by the increase in cost of goods sold by 2.8% including increase of cost of materials such as chip cost by 2.7%, for the six months ended June 30, 2023.
Current report
General and Administrative Expenses
Current report
Research and Development Expenses
Current report
Research and development (R&D) expenses were $85,949 for the six months ended June 30, 2024 compared to $41,269 in the same period in 2023, mainly due to an increase in R&D material consumption.
Current report
Operating Income
Current report
Total operating income was $6.0 million for the six months ended June 30, 2024 as compared to $10.4 million of the same period of last year due to lower gross profit, higher selling expenses and research and development expenses, partially offset by lower general & administration expenses.
Current report
Gain on changes in fair value of common stock purchase warrants was $45,572 and $44,784 for the six months ended June 30, 2024 and 2023, respectively (See Note 9 (b)).
Current report
Income Taxes
Current report
Our PRC subsidiary Sichuan Vtouch had $98.4 million of cash of June 30, 2024, which are planned to be indefinitely reinvested in PRC. The distributions from our PRC subsidiary are subject to the U.S. federal income tax at 21%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries.
Removed paragraphs (7)
Previous report
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.
Previous report
(i) PRC Domestic Market
Previous report
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.
Previous report
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.
Previous report
Gain (loss) on Changes in Fair Value of Common Stock Purchase Warrants
Previous report
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.
Previous report
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.
Reworded paragraphs (27)
Previous wording
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,
Current wording
As of the date of this Quarterly Report, we anticipate to complete the building construction, including the newly planned touch machine construction area by the end of the first quarter of 2025 and commence production in the third quarter of 2025.
Previous wording
Highlights for the three-month period ended March 31, 2024 include:
Current wording
Highlights for the three months ended June 30, 2024 include:
Previous wording
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31,2023
Current wording
Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023
Previous wording
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 anincrease 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 touchscreensand gaming touchscreens, and an increase of 18.1% in average selling price in RMB in these touchscreen products.
Current wording
For the three months ended June 30, 2024, revenues from the overseas market were $4.3 million as compared to $3.7 million of the same period of 2023, representing (i) an increase by $0.6 million, or 16.2%, mainly due to an increase of 24.8% in sales volume, particularly in gaming touchscreens and automotive touchscreens, partially offset by (ii) a decrease of 1.5% in average RMB selling price in these touchscreen products, and (iii) 3.3% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year.
Previous wording
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.
Current wording
The Company continued to shift production mix from traditional lower-end products to high-end products such as gaming touchscreens and automotive touchscreens, primarily due to (i) greater growth potential of computer screen models in China and overseas market, and (ii) the stronger demand on higher-end touch screens made with better materials and better quality.
Previous wording
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.
Current wording
Gross profit was $4.8 million in the second quarter ended June 30, 2024, compared to $6.3 million in the same period of 2023. Our gross profit margin decreased to 39.7% for the second quarter ended June 30, 2024, as compared to 49.0% for the same period of 2023, primarily due to the increase of cost of goods sold by 41.5% resulting from the increase of 43.3% in costs of raw materials, mainly driven by 44.4% increase in chip cost.
Previous wording
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.
Current wording
Selling expenses were $289,716 for the three months ended June 30, 2024, compared to $81,360 in the same period in 2023, representing an increase of $0.2 million, or 256.1%. The increase was primarily due to the increase of $0.2 million traveling expenses and logistic expenses to market our products during the three months ended June 30,2024.
Previous wording
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.
Current wording
Research and development expenses were $43,211 for three months ended June 30, 2024 compared to $20,384 in the same period in 2023, representing an increase of $22,827, or 112.0%, which was due to an increase in R&D material consumption.
Previous wording
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.
Current wording
Total operating income was $3.7 million for the three months ended June 30, 2024 as compared to $6.1 million of the same period of last year, primarily due to lower gross margin and higher selling expenses, general and administrative expenses and research & development expenses for the three months ended June 30, 2024.
Previous wording
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.
Current wording
Gain on Changes in Fair Value of Common Stock Purchase Warrants
Previous wording
The effective income tax rates for the three-month period ended March 31, 2024 and 2023 were 25.4% and 33.5%, respectively.
Current wording
The effective income tax rates for the three months ended June 30, 2024 and 2023 were 28.9% and 28.3%, respectively.
Previous wording
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.
Current wording
As a result of the above factors, we had a net income of $2.7 million in the second quarter of 2024 compared to a net income of $4.7 million in the same quarter of 2023.
Previous wording
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.
Current wording
We generated revenue of $27.1 million for the six months ended June 30, 2024, an increase of $0.9 million, or 3.4%, compared to $26.2 million in the same period of last year. This was mainly due to an increase of 3.4% in sales volume, and an increase of 4.2% in the average RMB selling price of our products, partially offset by 4.1% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year.
Previous wording
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.
Current wording
For the six months ended June 30, 2024, revenue from PRC market decreased by $1.2 million or 6.5% as a combined result of (i) a decrease of 4.6% in sales volume, particularly in multi-functional printer touchscreens and automotive touchscreens, (ii) 4.1% negative impact from exchange rate due to depreciation of RMB against US dollars, and partially offset by (iii) an increase of 2.4% in the average RMB selling price of our products, compared with those of the same period of last year.
Previous wording
As for the RMB selling price, the increase of 4.2% was mainly due to theincreased 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.
Current wording
As for the RMB selling price, the increase of 2.4% was mainly due to the increased sales of new models of higher-end products such as medical touchscreens and automotive touchscreens with higher selling prices in the domestic market during the three months ended June 30, 2024
Previous wording
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).
Current wording
General and administrative (G&A) expenses were $1.3 million for the six months ended June 30, 2024, compared to $1.7 million in the same period in 2023, representing a decrease of $0.4 million or 23.5%. The decrease was primarily due to (i) the payment of private placement agent fees of $1.2 million related to the consent agreement with representatives of an investment (see Note 8) during the six months ended June 30, 2023, ii) the increase of $0.7 million consulting service fees (see Note 4-(iii) of the accompanying financial statements) and iii) $0.1 million professional fees during the six months ended June 30, 2024.
Previous wording
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).
Current wording
For the six months ended June 30, 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 $71,507, respectively. (See Note 9 (a) of the accompanying financial statements).
Previous wording
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.
Current wording
As of June 30, 2024, we had current assets of $113.2 million, consisting of $98.4 million in cash, $10.8 million in accounts receivable, $0.2 million in inventories, and $3.8 million in prepaid expenses and other current assets Our current liabilities as of June 30, 2024 were $3.1 million, which is comprised of $0.9 million in accounts payable, $0.4 million in loan from a third party, $0.3 million due to a related party, $1.1 million in income tax payable, and $0.4 million in accrued expenses and other current liabilities.
Previous wording
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:
Current wording
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:
Previous wording
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.
Current wording
Net cash used in operating activities was $5.3 million for the six months ended June 30, 2024 as compared to $6.8 million provided by operating activities for the same period of the last year, primarily due to (i) the decrease of $4.2 million net income for the six months ended June 30, 2024 as compared to the same period of 2023, (ii) the increase of $0.2 million in inventories, and $3.2 million in prepaid and other current assets, (iii) the decrease of $0.8 million in accounts payable, $0.4 million in income tax payable, and $5.3 million in accrued expenses and other current liabilities, partially offset by (v) the decrease of $2.0 million in accounts receivable for the six months ended June 30, 2024
Previous wording
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.
Current wording
Net cash used in investing activities for the six months ended June 30, 2024 was $0.1 million for the purchase of property, plant and equipment.
Previous wording
There was no cash flow in investing activities for the three-month period ended March 31, 2023.
Current wording
There was no cash flow in investing activities for the six months ended June 30, 2023.
Previous wording
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.
Current wording
Net cash provided by financing activities for the six months ended June 30, 2024 was $7.8 million, including $9.0 million in net proceeds from the 2024 Public Offering and $0.3 million in proceeds from interest-free advances from a related party, partially offset by $1.4 million repayment of convertible promissory notes, and $82,864 repayment of interest-free advances to a third party.
Previous wording
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.
Current wording
Net cash provided by financing activities for the six months ended June 30, 2023 was $40.0 million, including $40.0 million in proceeds from stock issuance in a private placement, and $82,145 in proceeds from interest-free advances from a third party, partially offset by the repayment of $35,000 convertible promissory note payable.
Previous wording
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.
Current wording
Days Sales Outstanding (“DSO”) has decreased to 61 days for the six months ended June 30, 2024 from 77 days for the year ended December 31, 2023.
Previous wording
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.
Current wording
There have been no changes to the Company’s holding company structure during the six months ended June 30, 2024. For more details, refer to the Company’s holding company structure disclosures set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Holding Company Structure” of the 2023 Form 10-K.
Previous wording
As of March 31, 2024, the Company had construction commitment of RMB5.0 million (equivalent to $0.7 million).
Current wording
As of June 30, 2024, the Company had commitment of RMB5.0 million (equivalent to $0.7 million) for construction in progress.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
As for the RMB selling price, the increase of 0.5% was mainly due to the increased sales of new models of higher-end products such as medical touchscreen, POS touchscreens and multi-functional printer touchscreens with higher selling prices in the domestic market during the three months ended June 30, 2023.
Current report — wording carried from elsewhere
The following table summarizes the breakdown of revenues by categories in US dollars:
Current report — wording carried from elsewhere
The Company continued to shift production mix from traditional lower-end products such as touchscreens used in industrial control computer industries to high-end products such as automotive touchscreens and gaming touchscreen, primarily due to (i) greater growth potential of computer screen models in China, (ii) the stronger demand on higher-end touch screens made with better materials and better quality.
Current report — wording carried from elsewhere
Gross Profit and Gross Profit Margin
Current report — wording carried from elsewhere
Gain on changes in fair value of Common Stock Purchase Warrants
Current report — wording carried from elsewhere
The effective income tax rates for the six months ended June 30, 2024 and 2023 were 25.4% and 28.4%, respectively.
Current report — wording carried from elsewhere
As a result of the above factors, we had a net income of $3.3 million in the six months ended June 30, 2024 compared to a net income of $7.5 million in the same period of 2023.