Financial Analysis

NOTE 16 COMMITMENTS AND CONTINGENCIES i) Legal Proceedings We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, can result in substantial cost and the diversion of our resources, including our managements time and attention. As of the date of this Annual Report, we are not aware of any material, active, pending or threatened to which the Company or any of its subsidiaries is a party, or to which any of their property is subject. ii) Capital Expenditure Commitment As of December 31, 2025, the Company had commitment of RMB7.3 million (equivalent to $1.05 million) for construction in progress. …

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NOTE 11 CONVERTIBLE PROMISSORY NOTES PAYABLE a) Convertible promissory notes In October, November, and December 2021, the Company, issued seven (7) convertible promissory notes (the Notes) of an aggregate principal amount of $2,250,000, due in one year with discounted issuance price at 90.0%. The Notes bore interest at a rate of 8.0% per annum, payable in one year and matured on October 27, November 5, November 16, November 29, and December 2, 2022, respectively. Net proceeds after debt issuance costs and debt discounts were approximately $1,793,000. Debt issuance costs in the amount of $162,000 are recorded as deferred charges and included in the other current assets on the consolidated balance sheet. The debt discount and debt issuance costs are amortized into interest expense using the effective interest method over the terms of the Notes. Unless the Notes are converted, the principal amounts of the Notes, and accrued interest at the rate of 8% per annum, are payable on the one-year anniversary of the issuance of the Notes (the Maturity Date). If the Company fails to satisfy its loan obligation by the Maturity Date, the default interest rate will be 16%. The Lenders have the right to convert any or all of the principal and accrued interest on the Notes into shares of common stock of the Company on the earlier of (i) 180 calendar days after the issuance date of the Notes or (ii) the closing of a listing for trading of the common stock of the Company on a national securities …

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NOTE 13 SHARE BASED COMPENSATION The Company applied ASC 718 and related interpretations in accounting for measuring the cost of share-based compensation over the period during which the consultants are required to provide services in exchange for the issued shares. The fair value of above award was estimated at the grant date using the Black-Scholes model for pricing the share compensation expenses. On December 22, 2020, the board of directors of the Company authorized the issuance of an aggregate of 5,181 shares and warrants to purchase an aggregate of 10,518 shares of common stock to The Crone Law Group, P.C. or its designees for legal services that had been rendered. The five-year warrants are exercisable at one cent per share. 5,181 shares of common stock underlying such warrants were vested on December 22, 2020 and 6,211 shares were issued upon exercise of these warrants on September 21, 2022 and warrant to purchase 4,307 shares remained outstanding for The Crone Law Group, P.C. or its designees for legal services. The fair value of above award was estimated at the grant date using Black-Scholes model for pricing the share compensation expenses. The fair value of the Black-Scholes model includes the following assumptions: expected life of 2.5 years, expected dividend rate of 0%, volatility of 43.5% and an average interest rate of 0.11%. On January 1, 2021, the board of directors of the Company authorized the issuance of an aggregate of 15,541 shares and warrants to purc …

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NOTE 9 INCOME TAXES Wetouch Wetouch is subject to a tax rate of 21% per year beginning 2018, and files a U.S. federal income tax return. BVI Wetouch Under the current laws of the British Virgin Islands, BVI Wetouch, a wholly owned subsidiary of Wetouch, is not subject to tax on its income or capital gains. In addition, no British Virgin Islands withholding tax will be imposed upon the payment of dividends by the Company to its stockholders. Hong Kong HK Wetouch is subject to profit taxes in Hong Kong at a progressive rate of 16.5%. PRC Sichuan Wetouch and Sichuan Vtouch files income tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income tax rate is 25% according to the Corporate Income Tax (CIT) Law which was passed by the National Peoples Congress on March 16, 2007. Under PRC CIT Law, domestic enterprises and foreign investment enterprises (the FIEs) are usually subject to a unified 25% enterprise income tax rate. The Companys PRC subsidiary Sichuan Vtouch is subject to a 25% income tax rate. The CIT Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January 1, 2008 are exempt from such withholding income tax. The Companys provision f …

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NOTE 6 OPERATING LEASE In March 2021, pursuant to the local PRC government guidelines on local environmental issues and the national plan, the Company was under the government directed relocation order to relocate from a parcel of state-owned land where we maintained our executive offices, research and development facilities and factories. The Company received a total amount of RMB115.2 million (approximately $16.5 million) from the local government to start the construction of the new facility in a neighboring Chengdu Wenjiang District. On March 16, 2021, in order to minimize interruption of the Companys business, Sichuan Vtouch entered into a leasing agreement with Sichuan Renshou Shigao Tianfu Investment Co., Ltd. (later renamed as Meishan Huantian Industrial Co., Ltd.), a limited liability company owned by the local government, to lease the property, and all buildings, facilities and equipment thereon (the Demised Properties) of Sichuan Wetouch, commencing from April 1, 2021 until December 31, 2021 at a monthly rent of RMB300,000 ($42,899), which period was extended to October 31, 2022. The lease was renewed on October 30, 2022, October 30, 2023, August 9, 2024 and September 29, 2025, respectively, with a monthly rent of RMB 400,000 ($57,199), the term of which has been extended to October 31, 2026 for the use of the Demised Properties. Management makes estimates and assumptions to use the leasing property till the end of October 2026, and applies ASU 2016-02 Leases (Topi …

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(v) Recent accounting pronouncements In October 2023, the FASB issued Accounting Standards Update (ASU) 2023-06, Disclosure Improvementscodification amendments in response to SECs disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash FlowsOverall, 250-10 Accounting Changes and Error CorrectionsOverall, 260-10 Earnings Per ShareOverall, 270-10 Interim ReportingOverall, 440-10 CommitmentsOverall, 470-10 DebtOverall, 505-10 EquityOverall, 815-10 Derivatives and HedgingOverall, 860-30 Transfers and ServicingSecured Borrowing and Collateral, 932-235 Extractive ActivitiesOil and GasNotes to Financial Statements, 946-20 Financial ServicesInvestment CompaniesInvestment Company Activities, and 974-10 Real EstateReal Estate Investment TrustsOverall. The amendments represent changes to clarify or improve disclosure and presentation requirements of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SECs existing disclosures with those entities that were not previously subject to the SECs requirements. Also, the amendments align the requirements in the Codification with the SECs regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the rela …

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NOTE 8 RELATED PARTY TRANSACTIONS Amounts due to a related party were as follows : Relationship December 31, 2025 December 31, 2024 Note Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. An affiliate of Ms. Jiaying Cai, niece of the Mr. Guangrong Cai, Chairman of the Company $ 286,311 $ 149,211 Payable to affiliate for expenses paid on behalf of the Company Total $ 286,311 $ 149,211 Chengdu Wetouch Intelligent Optoelectronics Co., Ltd., was incorporated on January 28, 2021 in Chengdu, Sichuan Province under the laws of PRC, with Ms. Jiaying Cai, our former director and secretary of the Company, and the niece of Mr. Guangrong Cai, the Chairman of the Company, as its sole shareholder holding 100% of its equity interests. …

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NOTE 17 SEGMENT REPORTING The Companys chief operating decision maker has been identified as the Chief Executive Officer (CEO), who reviews financial information of operating segments based on U.S. GAAP amounts when making decisions about allocating resources and assessing performance of the Company. The Company determined that it operated in one operating segment of touch screen business. The Company primarily operates in Peoples Republic of China (PRC). and substantially all of the Companys long-lived assets are located in the PRC. 1) The Companys geographical revenue information is set forth below: For the Years Ended December 31, 2025 2024 Sales in PRC $ 30,934,806 $ 27,340,555 Sales in Overseas -Republic of China (ROC, or Taiwan) 8,134,636 8,317,810 -South Korea 6,032,544 6,462,723 -Others 34,832 159,285 Sub-total 14,202,012 14,939,818 Total revenues $ 45,136,818 $ 42,280,373 2) Segment information is set forth below: For the Years Ended December 31, 2025 2024 Revenues $ 45,136,818 $ 42,280,373 Less: Cost of revenues 30,766,304 28,673,574 Allowance for credit losses (30,516 ) 44,862 Provision of obsolete inventory (36,971 ) 54,873 Impairment of construction in progress 175,426 - Staff cost 1,433,106 1,379,476 (Gain) on changes in fair value of common stock purchase warrants liability. - (378,371 ) Amortization of discounts and issue cost of the notes - 5,715 Depreciation expense 22,374 9,805 Lease expense 612,684 98,387 Interest expense - 1,169,974 Income tax expense 2,9 …

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"NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The accompanying consolidated financial statements include the financial statements of Wetouch and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation (b) Uses of estimates In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, fair values of financial instruments, inventory valuations, useful lives of property, plant and equipment, intangible assets, operating lease, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred t …

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NOTE 12 STOCKHOLDERS EQUITY 1) Common Stock The Companys authorized shares of common stock was 15,000,000 shares with par value of $0.001. On December 22, 2020, the Company issued 5,181 shares of common stock to The Crone Law Group, P.C. or its designees for legal services (see Note 12). On January 1, 2021, the Company issued an aggregate of 15,541 shares to a third- party service provider for consulting services that had been rendered. On April 14, April 27 and September 1, 2022, the Company issued 5,777, 5,599 and 2,857 shares of common stock upon cashless exercise of the Note Warrants to three lenders, respectively. (see Note 11 (b)). During the year ended December 31, 2022, the Company issued 6,211 shares of common stock to a third party upon exercise of warrants (see Note 12). During the year ended December 31, 2022, the Company issued 69,228 shares of common upon conversion of convertible promissory note payable (see Note 11 (a)). On January 19, 2023, the Company sold an aggregate of 8,000,000 shares of common stock to purchasers in a private placement for an aggregate purchase price of $40,000,000, or $5.00 per share. On January 20, 2023, the Company received net proceeds of $40 million accordingly. During the year ended December 31, 2023, the Company issued 25,000 shares of common stock upon conversion of convertible promissory note payable (see Note 11(a)). During the year ended December 31, 2023, the Company issued 22,338 shares of common stock to two third parties …

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NOTE 18 SUBSEQUENT EVENTS The Company has evaluated subsequent events and transactions that occurred after the balance sheet date through the date the consolidated financial statements were issued and no subsequent events occurred that require accrual or disclosure. …

SubsequentEventsTextBlock · excerpt; the full note is in the filing