Wetouch Technology Inc.

Previous wording

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.”

Current wording

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.”

Previous wording

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.

Current wording

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 June 30, 2025 and 2024, our domestic sales accounted for approximately 67.7% and 64.8%, respectively, of our revenues, and our international sales accounted for approximately 32.3% and 35.2%, respectively, of our revenues. For the six months ended June 30, 2025 and 2024, our domestic sales accounted for approximately 66.7% and 63.4%, respectively, of our revenues, and our international sales accounted for approximately 33.3% and 36.6%, respectively, of our revenues.

Previous wording

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.

Current wording

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, People’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.

Previous wording

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

Current wording

Highlights for the three months ended June 30, 2025 include:

Previous wording

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.

Current wording

We generated revenue of $12.4 million for the three months ended June 30, 2025, an increase of $0.2 million, or 1.6%, compared to $12.2 million in the same period of last year. This was due to an increase of 5.1% in sales volume, 0.2% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by a decrease of 3.6% in the average selling price of our products, compared with that of the same period of last year.

Previous wording

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.

Current wording

The Company has taken proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 8.6% in South China, and 7.3% in East China, and 5.3% in Southwest China during the three months ended June 30, 2025.

Previous wording

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.

Current wording

The Company continued to shift production mix from traditional lower-end products to high-end products such as POS 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.

Previous wording

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.

Current wording

Gross profit was $4.1 million in the second quarter ended June 30, 2025, compared to $4.8 million in the same period of 2024. Our gross profit margin decreased to 33.1% for the second quarter ended June 30, 2025, as compared to 39.7% for the same period of 2024, primarily due to the increase of cost of goods sold by 12.8% resulting from the increase of 13.5% in costs of raw materials, and 3.3% in labor cost, partially offset by the increased sales of 1.6% during the three months ended June 30, 2025.

Previous wording

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

Current wording

Research and development expenses were nil and $43,211 for three months ended June 30, 2025 and 2024, respectively.

Previous wording

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.

Current wording

Total operating income was $3.1 million for the three months ended June 30, 2025 as compared to $3.7 million of the same period of last year, primarily due to lower gross margin and higher, general and administrative expenses, partially offset by the lower selling expenses and research & development expenses for the three months ended June 30, 2025.

Previous wording

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

Current wording

The effective income tax rates for the three months ended June 30, 2025 and 2021 were 28.1% and 28.9%, respectively.

Previous wording

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.

Current wording

As a result of the above factors, we had a net income of $2.2 million in the second quarter of 2025 compared to a net income of $2.7 million in the same quarter of 2024.

Previous wording

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.

Current wording

For the six months ended June 30, 2025, revenue from PRC market increased by $1.5 million or 8.7% as a combined result of (i) an increase of 8.7% in sales volume, particularly in industrial control computer touchscreens, automotive touchscreens, and multi-functional printer touchscreens, partially offset by (ii) a decrease of 4.6% in the average RMB selling price of our products, and (iii) 0.5% 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

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.

Current wording

As for the RMB selling price, the decrease of 4.6% 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 25.6% inmedical touchscreens and 1.6% in industrial control computer touchscreens during the six-month period ended June 30, 2025.

Previous wording

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,

Current wording

For the six months ended June 30, 2025, revenues from the overseas market were $9.0 million as compared to $9.9 million of the same period of 2024, representing a decrease by $0.9 million, or 9.1%, mainly due to a decrease of 7.3% 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 0.5% negative impact from exchange rate due to depreciation of RMB against US dollars, and the decrease of 1.2% in sales volume due to decreased sales in medical touchscreens, industrial control computer touchscreens and gaming touchscreens,

Previous wording

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.

Current wording

Selling expenses were $0.2 million for the six-month period ended June 30, 2025, compared to $0.7 million in the same period in 2024, representing a decrease of $0.5 million, or 71.4%. The decrease was primarily due to the less traveling expenses as the selling team using online communications to market the products during the six-month period ended June 30, 2025

Previous wording

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.

Current wording

General and administrative (G&A) expenses were $2.5 million for the six months ended June 30, 2025, compared to $1.3 million in the same period in 2024, representing an increase of $1.2 million, or 92.3%. The increase was primarily due to the increase of $0.4 million professional fees and $0.9 million of amortization of prepaid marketing research fees (see Note 3 of the accompanying financial statements), partially offset by the decrease of $0.1 million of miscellaneous expenses including $91,252 reversal of provision for obsolete inventory.

Previous wording

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).

Current wording

For the six months ended June 30, 2024, 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, 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.

Current wording

As of June 30, 2025, we had current assets of $123.2 million, consisting of $110.5 million in cash, $10.7 million in accounts receivable, $0.1 million in inventories, and $1.8 million in prepaid expenses and other current assets Our current liabilities as of June 30, 2025 were $5.0 million, which is comprised of $1.5 million in accounts payable, $0.6 million in amounts due to a related party, $0.9 million in income tax payable, $1.4 million in accrued expenses and other current liabilities. and $0.6 million in operating lease liabilities, current portion. We also had $0.2 million in operating lease liabilities, non- current as of June 30, 2025.

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, 2025 and 2024:

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, 2025 and 2024:

Previous wording

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.

Current wording

Net cash provided by operating activities was $4.7 million for the six months ended June 30, 2025 as compared to net cash used in operating activities of $9.2 million for the same period of the last year.

Previous wording

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.

Current wording

The positive cash flow for the six months ended June 30, 2025 was primarily due to i) $4.8 million net income, ii) $0.3 million of amortization of operating right-of-use assets, iii) the decrease of $0.9 million in prepaid expenses and current assets, iii) the increase of in $0.2 million accounts payable, $0.5 million due to related parties, $0.9 million in tax payable and $0.4 million in accrued expenses and current liabilities, partially offset by iv) the increase of $3.0 million in accounts receivable and v) the decrease of $0.3 million in operating lease liabilities.

Previous wording

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.

Current wording

The negative cash flow for the six months ended June 30, 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.

Previous wording

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

Current wording

There was no cash flow in investing activities for the six months ended June 30, 2025.

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, 2025.

Current wording

There was no cash flow in financing activities for the six months ended June 30, 2025.

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

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

Current wording

As of June 30, 2025, our cash and cash equivalents were $110.5 million, as compared to $103.7 million at December 31, 2024.

Previous wording

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.

Current wording

Days Sales Outstanding (“DSO”) has increased to 89 days for the six months ended June 30, 2025 from 64 days for the year ended December 31, 2024.

Previous wording

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.

Current wording

There have been no changes to the Company’s holding company structure during the six months ended June 30, 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.