Wetouch Technology Inc

Previous 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.

Current wording

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

Previous wording

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

Current wording

Highlights for the three months endedSeptember 30, 2024 include:**

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

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 wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

Gain on Changes in Fair Value of Common Stock Purchase Warrants

Current wording

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

Previous wording

The effective income tax rates for the three months ended June 30, 2024 and 2023 were 28.9% and 28.3%, respectively.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

We generated revenue of $38.6 million for the nine months ended September 30, 2024, an increase of $1.3 million, or 3.5%, compared to $37.3 million in the same period of last year. This was mainly due to an increase of 1.8% in sales volume, and an increase of 4.0% in the average RMB selling price of our products, partially offset by 2.3% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year.

Previous 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.

Current wording

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

Previous 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

Current wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous 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.

Current wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous 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).

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

Our PRC subsidiary Sichuan Vtouch had $106.7 million of cash as of September 30, 2024, which are planned to be indefinitely reinvested in PRC. The distributions from our PRC subsidiary are subject to the U.S. federal income tax at 21%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries.

Previous wording

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.

Current wording

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

Previous 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.

Current wording

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

Previous 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:

Current wording

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

Previous 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

Current wording

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

Previous 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.

Current wording

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

Previous wording

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

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

As of June 30, 2024, our cash and cash equivalents were $94.8 million, as compared to $98.0 million at December 31, 2023.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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