Wetouch Technology (WETH) posts Q1 2026 profit jump and funds major China plant build
Rhea-AI Filing Summary
Wetouch Technology Inc. reported solid growth for the quarter ended March 31, 2026. Revenue reached $16.3 million, up 6.5% from the prior-year quarter, driven by both China and overseas touchscreen sales. Net income rose to $3.9 million from $2.6 million, helped by lower general and administrative costs.
Gross margin edged down to 35.7% from 36.9% as labor and material costs increased, but operating income still improved to $5.1 million. Cash and cash equivalents were strong at $120.5 million versus $118.4 million at year-end, while total liabilities remained low at $4.1 million against total assets of $147.3 million.
The company continues building a new manufacturing facility in Chengdu with total estimated capital needs of about $36.7 million and $13.7 million recorded in construction in progress as of March 31, 2026. Customer concentration remains high, and management acknowledges previously identified material weaknesses in internal control over financial reporting have not yet been remediated.
Positive
- Strong earnings growth and profitability: Q1 2026 revenue rose 6.5% to $16.3 million while net income increased about 50% to $3.9 million, with operating income improving to $5.1 million despite slightly lower gross margins.
- Very robust balance sheet: Cash and cash equivalents of $120.5 million and total assets of $147.3 million compare to only $4.1 million of total liabilities, providing substantial financial flexibility to fund operations and the Chengdu facility build-out.
Negative
- Unremediated material weaknesses: Management concludes disclosure controls and procedures were not effective as of March 31, 2026 because previously disclosed material weaknesses in internal control over financial reporting remain unresolved.
- High customer concentration and PRC exposure: The top ten customers accounted for essentially all revenue, and operations and cash are concentrated in mainland China, exposing Wetouch to PRC legal, regulatory and currency risks.
Insights
Wetouch posted strong earnings growth with ample cash, but control weaknesses and China risks persist.
Wetouch Technology increased quarterly revenue to $16.3 million and net income to $3.9 million, a 50% year-on-year gain. Profitability benefited from a sharp reduction in general and administrative expenses, while gross margin slipped modestly to 35.7% due to higher labor and material costs.
The balance sheet is conservative: cash of $120.5 million and total assets of $147.3 million compare with only $4.1 million of liabilities. The company is funding a Chengdu expansion project with total capital needs of about $36.7 million, with $13.7 million already in construction in progress as of March 31, 2026.
Risks remain notable. Revenue is highly concentrated among a small group of customers, and operations are entirely tied to the PRC regulatory and currency environment. Management also confirms that material weaknesses in internal control over financial reporting identified in the 2025 annual filing were still not remediated by March 31, 2026, so the quality of reporting depends on ongoing remediation efforts.
Key Figures
Key Terms
projected capacitive touchscreens technical
construction in progress financial
material weaknesses in internal control over financial reporting regulatory
statutory reserve financial
Days Sales Outstanding financial
Wholly Foreign-Owned Enterprise regulatory
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WETOUCH TECHNOLOGY INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page Number | ||
| Cautionary Note Regarding Forward Looking Statements | ii | |
| PART I | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements | 1 |
| Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 (Unaudited) | F-1 | |
| Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-2 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-3 | |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-4 | |
| Notes to Condensed Consolidated Financial Statements |
F-5 - F-19 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4. | Controls and Procedures | 9 |
| PART II | OTHER INFORMATION | 10 |
| Item 1. | Legal Proceedings | 10 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3. | Defaults Upon Senior Securities | 10 |
| Item 4. | Mine Safety Disclosures | 10 |
| Item 5. | Other Information | 10 |
| Item 6. | Exhibits | 11 |
| Signatures | 12 |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded by, or contain, words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “predict,” “potential,” “might,” “could,” “would,” “should” or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, without limitation, statements about our future business operations and results, our strategy and competition. These statements represent our current expectations or beliefs concerning various future events and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations, including, without limitation, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2026 (the “2025 Form 10-K”), and in our other filings with the SEC.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in the foregoing documents by these cautionary statements.
ii
Item 1. Financial Statements
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Condensed Consolidated Balance Sheets at March 31, 2026 and December 31, 2025 (Unaudited) | F-1 |
| Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-2 |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-3 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (Unaudited) | F-4 |
| Notes to Condensed Consolidated Financial Statements | F-5 - F-19 |
1
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Land use right, net | ||||||||
| Operating right-of-use assets | ||||||||
| Deferred tax assets, net | ||||||||
| Long-term prepayment | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Due to a related party | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ | $ | $ | ||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| REVENUES | $ | $ | ||||||
| Cost of revenues | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| INCOME FROM OPERATIONS | ||||||||
| OTHER INCOME | ||||||||
| Interest income | ||||||||
| TOTAL OTHER INCOME | ||||||||
| INCOME BEFORE INCOME TAX EXPENSE | ||||||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ||||
| NET INCOME | $ | $ | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Foreign currency translation adjustment | ||||||||
| COMPREHENSIVE INCOME | $ | $ | ||||||
| EARNINGS PER COMMON SHARE | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common stock at Par value $0.001 | Additional paid-in | Statutory | Retained | Accumulated other comprehensive | Total stockholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | reserve | Earnings | loss | equity | ||||||||||||||||||||||
| Balance as of December 31 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
Common stock at Par value $0.001 | Additional paid-in | Statutory | Retained | Accumulated other comprehensive | Total stockholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | reserve | Earnings | loss | equity | ||||||||||||||||||||||
| Balance as of December 31 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash provided by operating activities | ||||||||
| Allowance for credit loss | ||||||||
| (Reversal) of provision for obsolete inventory | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Amortization of operating Right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ) | |||||||
| Deferred tax assets, net | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Amounts due to related parties | ||||||||
| Income tax payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Net cash used in investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of changes of foreign exchange rates on cash | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Income tax paid | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
WETOUCH TECHNOLOGY INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BUSINESS DESCRIPTION
Wetouch Technology Inc. (“Wetouch”, or the “Company”), formerly known as Gulf West Investment Properties, Inc., was originally incorporated in August 1992, under the laws of the state of Nevada.
On October 9, 2020, the
Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Wetouch Holding Group Limited (“BVI
Wetouch”) and all the shareholders of BVI Wetouch (each, a “BVI Shareholder” and collectively, the “BVI Shareholders”),
to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to the BVI Shareholders an aggregate
of
BVI Wetouch is a holding
company whose only asset, held through a subsidiary, is
The Reverse Merger was accounted for as a recapitalization effected by a share exchange, wherein BVI Wetouch is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of BVI Wetouch have been brought forward at their book value and no goodwill has been recognized. The number of shares, par value amount, and additional paid-in capital in the prior years are retrospectively adjusted accordingly.
Corporate History of BVI Wetouch
BVI Wetouch was incorporated under the laws of British Virgin Islands on August 14, 2020. It became the holding company of Hong Kong Wetouch Electronics Technology Limited (“Hong Kong Wetouch”) on September 11, 2020.
Hong Kong Wetouch Technology Limited (“HK Wetouch”), was incorporated as a holding company under the laws of Hong Kong Special Administrative Region (the “SAR”) on December 3, 2020. On March 2, 2021, HK Wetouch acquired all shares of Hong Kong Wetouch. Due to the fact that Hong Kong Wetouch and HK Wetouch are both under the same sole stockholder, the acquisition is accounted for under common control.
In June 2021, Hong Kong Wetouch started its dissolution process pursuant to the minutes of its special stockholder meeting and was dissolved on March 18, 2022.
Sichuan Wetouch was formed
on May 6, 2011 in the PRC and became a Wholly Foreign-Owned Enterprise (“WFOE”) in PRC on February 23, 2017. On July 19, 2016,
Sichuan Wetouch was
On December 30, 2020, Sichuan Vtouch was incorporated in Chengdu, Sichuan, under the PRC laws.
In March 2021, pursuant to local PRC government guidelines on local environmental issues and the national plan, Sichuan Wetouch was under the government directed relocation order. Sichuan Vtouch took over the operating business of Sichuan Wetouch.
On March 30, 2023, an independent third party acquired all shares of Sichuan Wetouch for a nominal amount.
As a result of the above restructuring, HK Wetouch became the sole stockholder of Sichuan Vtouch.
F-5
The following diagram illustrates the Company’s current corporate structure:
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The condensed consolidated balance sheet as of December 31, 2025 was derived from the audited consolidated financial statements of Wetouch. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2025, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended.
In the opinion of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2026, the results of operations and cash flows for the three-month periods ended March 31, 2026 and 2025 have been made. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
(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, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates.
F-6
(c) Significant Accounting Policies
For a detailed discussion about Wetouch’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Wetouch’s consolidated financial statements included in Company’s 2025 audited consolidated financial statements. Other than the revised accounting policies on lease and segment reporting as below, during the three-month periods ended March 31, 2026, there were no significant changes made to Wetouch significant accounting policies.
(d) Property, plant and equipment, net
Property, plant and equipment are stated at cost
less accumulated depreciation and amortization.
| Useful life | ||
| Buildings | ||
| Machinery and equipment | ||
| Vehicles |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.
Construction in progress, funded by Company’s working capital, represents manufacturing facilities and office building under construction, is stated at cost and transferred to property, plant and equipment when it is substantially ready for its intended use. No depreciation is recorded for construction in progress.
The construction of the new facility was delayed first due to the impact of COVID 19 and later the supply of the construction materials. The management estimate that construction in progress for our new facilities will be completed by the end of first half of 2027 and will transfer construction in progress to property, plant and equipment to start depreciation.
F-7
(e) Land use right, net
A land use right in the PRC represents an exclusive right to occupy, use and develop a piece of land during the contractual term of the land use right. Land use right is usually paid in one lump sum at the date the right is granted or at the date of the prepayment pursuant to the land use right transfer contract with the local government. The prepayment usually covers the entire duration period of the land use right. The lump sum advance payment is capitalized and recorded as land use right and then charged to expense on a straight-line basis over the period of the right.
On August 6, 2021, Sichuan Vtouch entered into
a contract with Chengdu Wenjiang District Planning and Natural Resources Bureau (“Wenjiang Bureau”) for the purchase of a
land use right of a parcel of land of
Pursuant to the contract, Sichuan Vtouch will
construct a new facility on this parcel according to the specifications. Once the Project is fully completed, Wenjiang Bureau shall transfer
the title of land use right to Sichuan Vtouch for
The Company’s new facility started in August 2021 yet was delayed and suspended due to the outbreak of Covid-19 and government-ordered shutdowns in China. The Company has rescheduled and extended the completion by first half of 2027 with the production at the new facilities will commencing by the end of 2027.
During the years ended December 31, 2025, management
assessed the probability of the obtaining the land use right upon the completion of the new facility, reclassified prepayment of RMB
The amortization expense of land use rights was
US$
| Useful life | ||
| Land use right |
(f) Impairment of long-lived Assets
Long-lived assets, such as property, plant and equipment, land use rights, are reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount that the carrying value exceeds the estimated fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Assets to be disposed are reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated. There was $ impairment of construction in progress recognized for the three months ended March 31, 2026 and 2025, respectively.
F-8
(g) Recent accounting pronouncements
Recently issued accounting pronouncements not yet adopted
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. This guidance will be applied either prospectively or retrospectively. The Company is currently evaluating the impact from the adoption of this ASU on its consolidated financial statements.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient and accounting policy election to allow entities to measure expected credit losses on certain trade receivables and contract assets using a provision matrix approach. ASU 2025-05 is effective for annual periods beginning after December 15, 2025, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which provides updated guidance on how to recognize, measure, and present government grants. The ASU will be effective for annual reporting periods beginning after December 15, 2028, including interim periods within those fiscal years. with early adoption permitted. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.
Recently issued accounting pronouncements adopted
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company adopted ASU 2023-09 on January 1, 2025, on a prospective basis (see note 14). The adoption did not have a material impact on the consolidated financial statements and related disclosures.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its consolidated financial condition, results of operations, cash flows or disclosures.
F-9
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The Company’s accounts receivable primarily includes balance due from customers when the Company’s products are sold and delivered to customers.
The following table provides an analysis of the aging of accounts receivable as of March 31, 2026 and December 31, 2025:
| March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Current | $ | $ | ||||||
| 1-3 months past due | ||||||||
| 4-6 months past due | ||||||||
| 6-12 months past due | ||||||||
| Total accounts receivable | $ | $ | ||||||
NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Advance to suppliers | $ | $ | ||||||
| Security deposit (i) | ||||||||
| Prepaid market research fees (ii) | ||||||||
| Interest receivable (ii) | ||||||||
| Tax receivable (iii) | ||||||||
| Others receivable (iv) | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| (i) | |
| (ii) | |
| (iii) | |
| (iv) |
F-10
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET
| March 31, 2026 | December 31, 2025 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Sub total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | ) | ||||||
Depreciation expense was $
As of March 31, 2026, the Company had commitment
of RMB
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 RMB
On March 16, 2021, in order to minimize interruption
of the Company’s 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 RMB
Management makes estimates and assumptions to use the leasing property till the end of October 2026, and applies ASU 2016-02 “Leases (Topic 842) as practical expedients during the three months ended March 31, 2026.
Both operating lease expense and short-term lease expense are recognized in cost of revenues and general and administrative expenses.
The components of lease expense for the three months ended March 31, 2026 and 2025 were as follows:
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Lease expense | (Unaudited) | (Unaudited) | ||||||
| Operating lease expense | $ | $ | ||||||
F-11
The balances for the operating leases where the Company is the lessee are presented as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Lease liabilities – current | $ | $ | ||||||
The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2026:
| Operating lease | ||||
| 2026 lease payment (till October 31, 2026 | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Lease term and discount rate:
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Weighted-average remaining lease term (years) | (Unaudited) | |||||||
| Operating lease | ||||||||
| Weighted-average discount rate | ||||||||
| Operating lease | % | % | ||||||
Supplemental cash flow information related to leases where the Company was the lessee for the three months ended March 31, 2026 and 2025 was as follows:
| For the Three Months Ended March 31, |
||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Cash payments for operating lease | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | ||||||||
F-12
NOTE 7 — LONG-TERM PREPAYMENT
| March 31, 2026 | December 31, 2025 | |||||||
| Prepaid equipment | $ | $ | ||||||
| Prepaid construction in progress | ||||||||
| Total long-term prepayment | $ | $ | ||||||
In 2021, for the purpose of construction of our
new facility (NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET), the Company prepaid equipment of RMB
NOTE 8 — RELATED PARTY TRANSACTIONS
Amounts due to a related party are as follows:
| Relationship | March 31, 2026 | December 31, 2025 | Note | |||||||||
| (Unaudited) | ||||||||||||
| Chengdu Wetouch Intelligent Optoelectronics Co., Ltd. | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
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
F-13
NOTE 9 — INCOME TAXES
Wetouch
Wetouch is subject to a tax rate of
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 shareholders.
Hong Kong
HK Wetouch is subject to profit taxes in Hong
Kong at a progressive rate of
PRC
Sichuan Vtouch files income tax returns in the
PRC. Effective from January 1, 2008, the PRC statutory income tax rate is
Under PRC CIT Law, domestic enterprises
and foreign investment enterprises (the “FIEs”) are usually subject to a unified
The CIT Law and its implementation rules impose
a withholding income tax at
The CIT Law and its implementation rules
impose a withholding income tax at
The Company’s provision for income taxes expenses consisted of:
| For the Three Months Ended March 31, | ||||||||
| PRC income tax | 2026 | 2025 | ||||||
| (Unaudited) | ||||||||
| Income tax provision | $ | $ | ||||||
| Deferred income tax expenses | ( | ) | ||||||
| Total | $ | $ | ||||||
| US | ||||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| Income tax provision | $ | $ | ||||||
F-14
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three months March 31, 2026 and 2025:
| For the Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC statutory income tax rate | % | % | ||||||
| Income tax computed at PRC statutory corporate income tax rate of | % | % | ||||||
| Tax rate differential on entities not subject to PRC income | % | ( | )% | |||||
| Temporary differences | % | % | ||||||
| Non-deductible expenses | ( | )% | % | |||||
| Effective tax rate | % | % | ||||||
The Company follows ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company’s deferred tax assets consisted of the following components:
| As of March 31, 2026 | As of December 31, 2025 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit losses | $ | $ | ||||||
| Provision of obsolete inventory | ||||||||
| Impairment of construction in progress | ||||||||
| Leasing liabilities | ||||||||
| Total gross deferred tax assets | ||||||||
| Less valuation allowance | ||||||||
| Deferred tax assets net of valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Right-of-use assets | ( | ) | ( | ) | ||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of March 31, 2026 and December 2025, taxes for Sichuan Vtouch remained open for statutory examination by PRC tax authorities.
F-15
NOTE 10 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| Accrued payroll and employee benefits | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Accrued director fees | ||||||||
| Other payable to third parties | ||||||||
| Other tax payables (i) | ||||||||
| Others (ii) | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
| (i) |
| (ii) |
NOTE 11— STOCKHOLDERS’ EQUITY
1) Common Stock
The Company’s authorized number of shares of common
stock was
On December 22, 2020, the Company issued
On January 1, 2021, the Company issued an aggregate
of
On April 14, April 27 and September 1, 2022, the
Company issued
During the year ended
December 31, 2022, the Company issued
During the year ended
December 31, 2022, the Company issued
On January 19, 2023,
the Company sold an aggregate of
During the year ended December 31, 2023, the Company
issued
During the year ended December 31, 2023, the Company
issued
On February
20, 2024, the Company issued
On January
7, 2026, the company filed with the Secretary of State of the State of Nevada an amendment to the Company’s Articles of Incorporation,
as amended (the “Amendment”), which became effective on that date. In connection with the Amendment, the Company also filed
its Second Amended and Restated Articles of Incorporation (the “Restated AOI”). The Amendment was approved by the Company’s
stockholders at the annual meeting held on December 26, 2025, and increased the number of authorized shares of the Company’s common
stock from
As of May 11, 2026, there were
F-16
2) Reverse Stock Split
On February 17, 2023,
On July 16, 2023,
3) Closing of the 2024 Public Offering
On February
23, 2024, the Company closed its offering of
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC
Staff Accounting Bulletin Topic 5A, “Expenses of Offering”, and charged issuance costs of $
3) Statutory Reserve and Restricted Net Assets
Under PRC rules and regulations,
all companies in the PRC are required to appropriate
Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends.
As of March 31, 2026
and December 31, 2025, the Company had reserve fund of US
NOTE 12 — WEIGHTED AVERAGE NUMBER OF SHARES
In October 2020, the Company entered into a reverse merger transaction. The Company computes the weighted-average number of shares of common stock outstanding in accordance with ASC 260 states that in calculating the weighted average shares when a reverse merger takes place in the middle of the year, the number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of shares of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. The number of shares of common stock outstanding from the acquisition date to the end of that period shall be the actual number of shares of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.
F-17
NOTE 13 — RISKS AND UNCERTAINTIES
Credit Risk – The carrying amount of accounts receivable included in the balance sheet represents the Company’s exposure to credit risk in relation to its financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer’s financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded management’s estimates.
The Company has its cash in bank deposits primarily
at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors’
interests. The PRC promulgated a Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation
of measures for the bankruptcy of PRC banks. The bank deposits with financial institutions in the PRC are insured by the government authority
for up to RMB
Interest Rate Risk – The Company is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability of securing future debt instruments within the PRC.
Currency Risk - A majority of the Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
Concentrations - The Company sells its products primarily
to customers in the PRC and to some extent, the overseas customers in European countries and East Asia such as South Korea and Taiwan.
For the three-month period ended March 31, 2026 and 2025, five customers accounted for
The Company’s top ten customers aggregately
accounted for an aggregate of
As of March 31, 2026, five customers accounted for
The Company purchases its raw materials through various suppliers.
Raw material purchases from these suppliers which individually exceeded 10% of the Company’s total raw material purchases, accounted
for an aggregate of approximately
NOTE 14 — 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 management’s time and attention.
As of the date of this Quarterly 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 March 31, 2026, the Company had commitment
RMB
F-18
NOTE 15 — SEGMENT REPORTING
The Company determined that it operated in
The Company primarily operates in People’s Republic of China (“PRC”). and substantially all of the Company’s long-lived assets are located in the PRC.
| 1) |
| Three-Month Period Ended March 31 | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Sales in PRC | $ | $ | ||||||
| Sales in Overseas | ||||||||
| -Republic of China (ROC, or Taiwan) | ||||||||
| -South Korea | ||||||||
| Sub-total | ||||||||
| Total revenues | $ | $ | ||||||
| 2) |
| Three-Month Period Ended March 31 | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Revenues | $ | $ | ||||||
| Less: | ||||||||
| Cost of revenues | ||||||||
| Allowance for credit losses | ||||||||
| Reversal of provision for obsolete inventory | ( | ) | ( | ) | ||||
| Staff cost | ||||||||
| Depreciation and amortization expense | ||||||||
| Lease expense | ||||||||
| Income tax expense | ||||||||
| Other segment items* | ||||||||
| Segment net income | ||||||||
| Consolidated net income | $ | $ | ||||||
| Consolidated total assets | $ | $ | ||||||
| * |
NOTE 16 — 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.
F-19
Item 2. 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, 2026, the Company has contributed RMB 348.0 million (US$50.4 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.
2
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 client base, although our revenues remain concentrated among a limited number of major customers, as described in Note 13 to the condensed consolidated financial statements. For the three months ended March 31, 2026 and 2025, our domestic sales accounted for approximately 67.5% and 67.4%, respectively, of our revenues, and our international sales accounted for approximately 32.5% and 32.6%, 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 2025 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, 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. Due to the delayed supply of construction materials, the project has been progressed slowly than expected.
As of the date of this Quarterly report, the Company estimated the construction to be completed by the first half of 2027 and commence production by the end of 2027. The total capital requirements for the new facility construction totaled approximately $36.7 million (RMB253 million) and $13.7 million (RMB 94.6 million) have been recorded in the construction in progress as of March 31, 2026. The Company primarily fund the project with our existing cash on hand 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, 2026 include:
| ● | Revenues were $16.3 million, an increase of 6.5% compared to $15.3 million in the first quarter of 2025 |
| ● | Gross profit was $5.8 million, an increase of 1.8% compared to $5.7 million in the first quarter of 2025 |
| ● | Gross profit margin was 35.7%, compared to 36.9% in the first quarter of 2025 |
| ● | Net income was $3.9 million, an increase of 50.0% compared to $2.6 million in the first quarter of 2025 |
| ● | Total volume shipped was 763,325 units, an increase of 0.1% compared to 762,545 units in the first quarter of 2025 |
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 | ||||||||||
| 2026 | 2025 | % | ||||||||||
| Revenues | $ | 16.3 | $ | 15.3 | 6.5 | % | ||||||
| Cost of revenues | (10.5 | ) | (9.6 | ) | 9.4 | % | ||||||
| Gross profit | 5.8 | 5.7 | 1.8 | % | ||||||||
| Total operating expenses | (0.7 | ) | (1.6 | ) | (56.3 | )% | ||||||
| Operating income | 5.1 | 4.1 | 24.4 | % | ||||||||
| Income before income taxes | 5.1 | 4.1 | 24.4 | % | ||||||||
| Income tax expense | (1.2 | ) | (1.5 | ) | (20.0 | )% | ||||||
| Net income | $ | 3.9 | $ | 2.6 | 50.0 | % | ||||||
3
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Revenues
We generated revenue of $16.3 million for the three months ended March 31, 2026, an increase of $1.0 million, or 6.5%, compared to $15.3 million in the same period of last year. This was due to an increase of 0.1% in sales volume, an increase of 1.5% in the average selling price of our products , and 4.8% positive impact from exchange rate due to appreciation of RMB against US dollars, compared with that of the same period of last year.
| For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| (in US Dollar millions except percentage) | ||||||||||||||||||||||||
| Revenue from sales to customers in Mainland China | $ | 11.0 | 67.5 | % | $ | 10.3 | 67.4 | % | $ | 0.7 | 6.8 | % | ||||||||||||
| Revenue from sales to customers overseas | 5.3 | 32.5 | % | 5.0 | 32.6 | % | 0.3 | 6.0 | % | |||||||||||||||
| Total Revenue | $ | 16.3 | 100 | % | $ | 15.3 | 100 | % | $ | 1.0 | 6.5 | % | ||||||||||||
| For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Change | Change | |||||||||||||||||||||
| Unit | % | Unit | % | Unit | % | |||||||||||||||||||
| (in UNIT, except percentage) | ||||||||||||||||||||||||
| Units sold to customers in Mainland China | 503,300 | 65.9 | % | 508,650 | 66.7 | % | (5,350 | ) | (1.1 | )% | ||||||||||||||
| Units sold to customers overseas | 260,025 | 34.1 | % | 253,895 | 33.3 | % | 6,130 | 2.4 | % | |||||||||||||||
| Total Units Sold | 763,325 | 100 | % | 762,545 | 100 | % | 780 | 0.1 | % | |||||||||||||||
(i) PRC Domestic Market
For the three months ended March 31, 2026, revenue from the PRC domestic market increased by $0.7 million, or 6.8%, as a combined result of: (i) an increase of 2.7% in the average RMB selling price of our products, and 4.8% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by (iii) a decrease of 1.1% in sales volume due to higher pricing offset by the lower demand in broader types of touchscreens exclusive of the medial touchscreens, compared with that of the same period of last year.
As for the RMB selling price, the increase of 2.7% was mainly due to the higher demand of higher selling priced products of touchscreen machines in the PRC domestic market, average RMB selling price of 10.8% in medical touchscreens and 1.0% in automotive computer touchscreens during the three-month period ended March 31, 2026.
Due to our proactive efforts to market new models and efforts to obtain new customers and penetrate into new regions, our sales increased by 9.1% in Southwest China, partially offset by a decrease of 1.8% in South China and 1.8% in East China during the three months ended March 31, 2026.
4
(ii) Overseas Market
For the three-month period ended March 31, 2026, revenues from the overseas market were $5.3 million as compared to $5.0 million of the same period of 2025, representing an increase by $0.3 million, or 6.0%, primarily due to (i) 2.4% increase in sales volume because of higher demand on automotive computer touchscreens and gaming touchscreens, (ii) 4.8% positive impact from exchange rate due to appreciation of RMB against US dollars, partially offset by (iii) a decrease of 1.0% in average selling price in RMB (mainly in medical touchscreens and gaming touchscreens), compared to the same period of last year.
The following table summarizes the breakdown of revenues by categories in US dollars:
| Revenues For the Three-Month Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | Margin% | |||||||||||||||||||
| (in US Dollars, except percentage) | ||||||||||||||||||||||||
| Product categories by end applications | ||||||||||||||||||||||||
| Automotive Touchscreens | $ | 4,330,102 | 26.5 | % | $ | 3,960,497 | 25.9 | % | $ | 369,605 | 9.3 | % | ||||||||||||
| Industrial Control Computer Touchscreens | 3,307,179 | 20.3 | % | 3,235,073 | 21.2 | % | 72,106 | 2.2 | % | |||||||||||||||
| POS Touchscreens | 2,488,365 | 15.3 | % | 2,411,031 | 15.8 | % | 77,334 | 3.2 | % | |||||||||||||||
| Gaming Touchscreens | 2,333,822 | 14.3 | % | 2,320,592 | 15.1 | % | 13,230 | 0.6 | % | |||||||||||||||
| Medical Touchscreens | 2,393,767 | 14.7 | % | 1,949,658 | 12.8 | % | 444,109 | 22.8 | % | |||||||||||||||
| Multi-Functional Printer Touchscreens | 1,458,934 | 8.9 | % | 1,412,727 | 9.2 | % | 46,207 | 3.3 | % | |||||||||||||||
| Total Revenue | $ | 16,312,169 | 100.0 | % | $ | 15,289,578 | 100.0 | % | $ | 1,022,591 | 6.5 | % | ||||||||||||
| * | 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 medical touchscreens, automotive touchscreens, POS touchscreens, industrial control computer 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) | 2026 | 2025 | Amount | % | ||||||||||||
| Gross Profit | $ | 5.8 | $ | 5.7 | $ | 0.1 | 1.8 | % | ||||||||
| Gross Profit Margin | 35.7 | % | 36.9 | % | (1.2 | )% | ||||||||||
Gross profit was $5.8 million in the first quarter ended March 31, 2026, compared to $5.7 million in the same period of 2025. Our gross profit margin decreased to 35.7% for the first quarter ended March 31, 2026, as compared to 36.9% for the same period of 2025, primarily due to an increase of 8.7% in cost of goods sold, consisting of an increase of 10.5% in labor costs due to additional hiring of technicians, and an increase of 2.7% in costs of materials, and partially offset by the increase of revenue by 6.5%, particularly high-end products as stated above during the three months ended March 31, 2026.
5
Selling Expenses
| Three-Month Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2026 | 2025 | Amount | % | ||||||||||||
| Selling Expenses | $ | 0.2 | $ | 0.1 | $ | 0.1 | 100.0 | % | ||||||||
| as a percentage of revenues | 1.2 | % | 0.6 | % | 0.6 | % | ||||||||||
Selling expenses were $0.2 million for the three-month period ended March 31, 2026, compared to $0.1 million in the same period in 2025, representing an increase of $0.1 million. The increase was primarily due to the traveling expenses visiting clients during the three months ended March 31, 2026.
General and Administrative Expenses
| Three-Month Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2026 | 2025 | Amount | % | ||||||||||||
| General and Administrative Expenses | $ | 0.6 | $ | 1.6 | $ | (1.0 | ) | (62.5 | )% | |||||||
| as a percentage of revenues | 3.7 | % | 10.5 | % | (6.8 | )% | ||||||||||
General and administrative expenses were $0.6 million for the three-month period ended March 31, 2026, compared to $1.6 million in the same period in 2025, representing a decrease of $1.0 million, or 62.5%. The decrease was primarily due to the absence in the first quarter of 2026 of approximately $0.5 million of amortization expense related to prepaid three-year consulting service fees that was recorded during the first quarter of 2025, partially offset by an increase of approximately $0.4 million in professional fees during the first quarter of 2026.
Operating Income
Total operating income was $5.1 million for the three-month period ended March 31, 2026 as compared to $4.1 million of the same period of last year, primarily due to higher revenues and gross profit, and lower general and administrative expenses, partially offset by the higher selling expenses for the three-month period ended March 31, 2026.
Income Taxes
| Three-Month Period Ended March 31, | Change | |||||||||||||||
| (in millions, except percentage) | 2026 | 2025 | Amount | % | ||||||||||||
| Income before Income Taxes | $ | 5.1 | $ | 4.1 | $ | 1.0 | 24.4 | % | ||||||||
| Income Tax (Expense) | (1.2 | ) | (1.5 | ) | 0.3 | (20.0 | )% | |||||||||
| Effective income tax rate | 24.3 | % | 36.5 | % | (12.2 | )% | ||||||||||
The effective income tax rates for the three-month period ended March 31, 2026 and 2025 were 24.3% and 36.5%, respectively.
Net Income
As a result of the above factors, we had a net income of $3.9 million in the first quarter of 2026 compared to a net income of $2.6 million in the same quarter of 2025.
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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, 2026, we had current assets of $132.7 million, consisting of $120.5 million in cash and cash equivalent, $11.1 million in accounts receivable, $29,060 in inventories, and $1.1 million in prepaid expenses and other current assets. Our current liabilities as of March 31, 2026 were $4.1 million, which is comprised of $0.9 million in accounts payable, $0.3 million in amounts due to a related party, $1.2 million income tax payable, $1.3 million in accrued expenses and other current liabilities. and $0.4 million in operating lease liabilities, current portion.
The following is a summary of our cash flows provided by operating, investing, and financing activities for the three-month periods ended March 31, 2026 and 2025:
| Three-Month Period Ended March 31, | ||||||||
| (in US Dollar millions) | 2026 | 2025 | ||||||
| Net cash provided by provided by operating activities | $ | 0.5 | $ | 2.0 | ||||
| Net cash used in investing activities | (0.0 | ) | (0.0 | ) | ||||
| Net cash provided by financing activities | 0.0 | 0.0 | ||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 1.6 | 0.6 | ||||||
| Net increase in cash and cash equivalents | 2.1 | 2.6 | ||||||
| Cash and cash equivalents at the beginning of period | 118.4 | 103.8 | ||||||
| Cash and cash equivalents at the end of period | $ | 120.5 | $ | 106.4 | ||||
Operating Activities
Net cash provided by operating activities was $0.5 million for the three months ended March 31, 2026 as compared to net cash provided by operating activities of $2.0 million for the same period of the last year.
The positive cash flow for the three months ended March 31, 2026 was primarily due to i) $3.9 million net income, ii) the increase of $1.2 million in income tax payable, and partially offset by iii) the increase of $4.4 million in accounts receivable and iv) the decrease of $0.1 million in accounts payable.
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 $0.6 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.
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Investing Activities
There were no cash flows from investing activities for the three-month period ended March 31, 2026 and 2025.
Financing Activities
There were no cash flows from financing activities for the three-month period ended March 31, 2026 and 2025.
As of March 31, 2026, our cash and cash equivalents were $120.5 million, as compared to $118.4 million on December 31, 2025.
Days Sales Outstanding (“DSO”) has decreased to 48 days for the three-month period ended March 31, 2026 from 56 days for the year ended December 31, 2025.
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, 2026. 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 2025 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 2025 Form 10-K for more details.
Capital Expenditure Commitment
As of March 31, 2026, the Company had commitment of RMB7.3 million (equivalent to $1.06 million) for construction in progress.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of March 31, 2026.
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 Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2025 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 2025 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2026. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective at a reasonable assurance level, due to the material weaknesses in internal control over financial reporting previously disclosed in the 2025 Form 10-K.
During the first quarter of 2026, management continued to evaluate and implement remediation measures intended to address the previously identified material weaknesses. However, these material weaknesses had not been fully remediated as of March 31, 2026.
The Company recognizes that the material weaknesses in its internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because the Company’s remediation efforts are ongoing, it cannot provide any assurance that these remediation efforts will be successful or that its internal control over financial reporting will be effective as a result of these efforts.
The Company will continue to evaluate and work to improve its internal control over financial reporting related to the identified material weaknesses, and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. The Company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.
Changes in Internal Control over Financial Reporting
Other than discussed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - Other Information
Item 1. 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 management’s time and attention.
As of the date of this Quarterly 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 to, that, if determined adversely to us, would have a material adverse effect on our business, financial condition, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously reported in our Current Reports on Form 8-K, we did not undertake any unregistered sales of our equity securities during the quarter ended March 31, 2026.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
| Exhibit Number |
Description of Document | |
| 3.1 | Certificate of Amendment and Second Amended and Restated Articles of Incorporation of the Company, dated January 7, 2026 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on January 12, 2026). | |
| 3.2(1) | Bylaws of the Company. | |
| 4.1(1) | Specimen Common Stock Certificate. | |
| 4.2 | Description of Registrant’s Securities. (Incorporated herein by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the Securities and Exchange Commission on April 13, 2026). | |
| 4.3 | Form of Underwriter’s Warrants. (Incorporated herein by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the Securities and Exchange Commission on April 13, 2026). | |
| 31.1* | Certification of The Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of The Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15(d)-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of The Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2** | Certification of The Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document.* | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith |
| ** | Furnished herewith |
| (1) | Filed as an exhibit to the Company’s registration statement on Form S-1, File No. 333-270726 and incorporated herein by reference. |
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SIGNATURES
In accordance with the requirements of Securities Exchange Act of 1934, the registrant has caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 15, 2026 | By: | /s/ Zongyi Lian |
| Zongyi Lian | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| Date: May 15, 2026 | By: | /s/ Xing Tang |
| Xing Tang | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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