10-Q: Wetouch Q2 2025: Profit Dips, H1 Net Income Soars 45%

Sentiment:

Quarterly Report 9 October 2025 10:14 AM

Wetouch Technology Inc. reports a 1.6% revenue increase for Q2 2025, but net income declined 18.5% to $2.2 million, while half-year net income surged 45.5% to $4.8 million.

Delay expectedThe company's new facility construction, which began in August 2021, was delayed and suspended due to the Covid-19 outbreak and government-ordered shutdowns in China.The completion of the new building construction has been rescheduled and extended to the end of December 31, 2025.Production at the new facilities is now expected to commence in the second quarter of 2026, indicating a delay from previous timelines.

Capital raiseThe company plans to fund its new facility project primarily with existing cash on hand, which totaled approximately $106.4 million as of June 30, 2025, and cash flows generated from operations.The company explicitly states it 'may seek additional financing if needed to support the timely completion of the project.'

Better than expectedNet income for the six months ended June 30, 2025, increased by 45.5% to $4.8 million, compared to $3.3 million in the same period of 2024.Gross profit for the six months ended June 30, 2025, increased by 18.3% to $9.7 million, compared to $8.2 million in the same period of 2024.Gross profit margin for the six months ended June 30, 2025, increased to 35.2% from 30.2% in the same period of 2024.However, net income for the three months ended June 30, 2025, decreased by 18.5% to $2.2 million, compared to $2.7 million in Q2 2024.Gross profit for the three months ended June 30, 2025, decreased by 14.5% to $4.1 million, compared to $4.9 million in Q2 2024, primarily due to a 12.8% increase in cost of goods sold.

Summary

Revenue for the three months ended June 30, 2025, increased by 1.6% to $12.4 million, compared to $12.2 million in Q2 2024.
Gross profit for Q2 2025 decreased by 14.5% to $4.1 million, down from $4.9 million in Q2 2024, with gross profit margin falling to 33.1% from 39.7%.
Net income for Q2 2025 decreased by 18.5% to $2.2 million, compared to $2.7 million in Q2 2024.
Total volume shipped in Q2 2025 increased by 5.1% to 615,742 units, up from 585,705 units in Q2 2024.
For the six months ended June 30, 2025, revenue increased by 2.2% to $27.7 million, compared to $27.1 million in H1 2024.
Gross profit for H1 2025 increased by 18.3% to $9.7 million, up from $8.2 million in H1 2024, with gross profit margin improving to 35.2% from 30.2%.
Net income for H1 2025 increased significantly by 45.5% to $4.8 million, compared to $3.3 million in H1 2024.
Cash and cash equivalents stood at $110.5 million as of June 30, 2025, an increase from $103.7 million at December 31, 2024.
Days Sales Outstanding (DSO) increased to 89 days for the six months ended June 30, 2025, from 64 days for the year ended December 31, 2024.
New facility construction is expected to be completed by the end of 2025, with production commencing in the second quarter of 2026.
Management identified a material weakness in internal controls over financial reporting due to a lack of competent financial reporting and accounting personnel and insufficient risk assessment procedures.

Sentiment

Score: 6

Explanation: While the half-year results show strong growth in net income and gross profit, supported by a healthy cash balance and a strategic shift towards high-end products, the recent quarterly decline in profitability, coupled with identified material weaknesses in internal controls and project delays, introduces notable uncertainties. The concentration of customers and suppliers, along with geopolitical and regulatory risks associated with operating in China, warrant caution. The overall sentiment is cautiously positive, reflecting both strong H1 performance and significant operational/governance challenges.

Positives

Overall revenue growth for both Q2 2025 (1.6% to $12.4 million) and H1 2025 (2.2% to $27.7 million).
Increased sales volume for both Q2 2025 (5.1% to 615,742 units) and H1 2025 (8.9% to 1,378,287 units).
Significant increase in H1 2025 net income (45.5% to $4.8 million) and gross profit (18.3% to $9.7 million).
Improved H1 2025 gross profit margin (35.2% compared to 30.2% in H1 2024).
Strong cash position of $110.5 million as of June 30, 2025, providing ample liquidity.
Strategic shift in production mix towards higher-end products like POS touchscreens and industrial control computer touchscreens, indicating market adaptation.
Decrease in selling expenses for both Q2 2025 (66.7%) and H1 2025 (71.4%) due to efficient use of online communication for marketing.
No cash flow used in financing activities for H1 2025, suggesting operational self-sufficiency for the period.

Negatives

Net income for the three months ended June 30, 2025, decreased by 18.5% to $2.2 million.
Gross profit for Q2 2025 decreased by 14.5% to $4.1 million, and gross profit margin declined to 33.1% from 39.7%.
Cost of goods sold increased by 12.8% in Q2 2025, driven by higher raw material (13.5%) and labor costs (3.3%).
General and administrative expenses increased significantly by 12.5% in Q2 2025 and 92.3% in H1 2025, primarily due to professional fees and amortization of prepaid marketing research fees.
Average selling price of products decreased by 3.6% in Q2 2025 and 4.6% (in RMB) in H1 2025.
Overseas market revenue decreased by 7.0% in Q2 2025 and 9.1% in H1 2025.
Days Sales Outstanding (DSO) increased to 89 days from 64 days, indicating slower collection of accounts receivable.
Significant customer concentration, with the top five customers accounting for 99.6% of total revenue in Q2 2025.
Significant supplier concentration, with the top four suppliers accounting for 50.1% of raw material purchases in Q2 2025.
Identified material weakness in internal controls over financial reporting, posing a risk of material misstatements.

Risks

Significant reliance on top customers; failure to attract new customers or retain existing ones cost-effectively could materially and adversely impact business, financial condition, and results of operations.
Substantial amount of accounts receivable, which may become uncollectible.
Potential fines and penalties from the Chinese government for not completing required filings.
Challenges in upholding the quality and safety standards of products.
Ability to compete effectively within the touchscreen display industry.
Compromised ability to execute the business plan without substantial additional financing.
Failure to secure a new parcel for constructing new buildings and facilities, as well as acquiring and installing new production lines, could materially and adversely affect business.
Revocation or unavailability of preferential tax treatments and government subsidies, or successful challenges to tax liability calculation by PRC tax authorities, may necessitate payment of tax, interest, and penalties exceeding tax provisions.
Significant interruptions in the operations of third-party suppliers could potentially disrupt operations.
Risks associated with fluctuations in the cost, availability, and quality of raw materials may adversely affect results of operations.
Reliance on key executives and highly qualified managers, with retention not assured.
Absence of long-term contracts with suppliers allows them to reduce order quantities or terminate sales at any time.
Failure to adopt new technologies to evolving customer needs or emerging industry standards may materially and adversely affect business.
Lack of business liability or disruption insurance exposes the company to significant costs and business disruption.
Adverse regulatory developments in Mainland China may subject the company to additional regulatory review, restrictions, disclosure requirements, and regulatory scrutiny by the SEC, increasing compliance costs and hindering future securities offerings.
Common stock may be prohibited from trading in the U.S. under the Holding Foreign Companies Accountable Act if PCAOB inspection of the auditor is incomplete, leading to delisting or prohibition and potential decline in stock value.
Changes in China's economic, political, or social conditions or government policies may adversely affect business and operations.
Uncertainties regarding the PRC legal system, including enforcement and sudden changes in laws and regulations, could adversely affect the company and limit legal protections.
Fluctuations in exchange rates could materially and adversely affect results of operations and investment value.
Material weakness in internal controls over financial reporting due to lack of competent financial reporting and accounting personnel with appropriate understanding of U.S. GAAP and financial reporting requirements.
Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner.

Future Outlook

The company expects to complete the construction of its new production facilities and office buildings in Chengdu Medicine City by the end of 2025, with production scheduled to commence in the second quarter of 2026. The project will primarily be funded by existing cash on hand, which totaled approximately $106.4 million as of June 30, 2025, and cash flows generated from operations. Additional financing may be sought if necessary to ensure the timely completion of the project.

Management Comments

We believe that we have established a strong and diversified client base.
We estimate to finish the building construction by the end of 2025 and commence production in the second quarter of 2026.
We plan to fund the project primarily 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.
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.

Industry Context

Wetouch Technology Inc. operates in the mediumto large-sized projected capacitive touchscreen industry, serving diverse sectors such as financial terminals, automotive, Point of Sales (POS), gaming, lottery, medical, and Human-Machine Interface (HMI). The company is strategically shifting its production mix from traditional lower-end products to higher-end offerings like POS and industrial control computer touchscreens, driven by perceived greater growth potential and stronger demand for advanced materials and quality in both Chinese and overseas markets.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Weakness	Identified material weakness in internal controls over financial reporting due to a lack of competent financial reporting and accounting personnel with appropriate understanding of U.S. GAAP and financial reporting requirements, and a lack of risk assessment procedures to detect financial reporting risks in a timely manner.	2025-06-30	Increases the risk of material misstatements in financial statements if not properly remediated; management believes it did not affect current financial results but could in future periods.
Remediation Plan	Management is implementing measures to remediate control deficiencies, including identifying skill gaps, cooperating with operation teams to ensure a control environment, and establishing procedures to assess compliance requirements under the Sarbanes-Oxley Act of 2002.	Ongoing	Aims to improve financial reporting reliability and compliance, but success is not yet assured as remediation efforts are ongoing.

Related Party Transactions

Amounts due to Chengdu Wetouch Intelligent Optoelectronics Co., Ltd., an affiliate of Ms. Jiaying Cai (a director of the company), increased to $642,634 as of June 30, 2025, from $149,211 as of December 31, 2024. This represents payables to the affiliate for expenses paid on behalf of the company.

Stakeholder Impact

Shareholders face potential for increased value from the new facility and strategic shift to high-end products, but also risks from internal control weaknesses, China-related regulatory uncertainties, and potential stock delisting under the Holding Foreign Companies Accountable Act.
Employees are impacted by continued operations and expansion with the new facilities, which could lead to job stability or growth.
Customers may benefit from new and higher-quality products from the new facility, but the company's concentrated customer base indicates high reliance on a few key clients.
Suppliers, particularly the concentrated top suppliers, face risks due to the absence of long-term contracts, allowing for potential changes in order quantities or termination of sales.
Creditors are in a relatively stable position given the company's strong cash position and positive H1 cash flow from operations, though the potential need for future financing for the new facility could introduce new debt.

Next Steps

Complete new building construction for the new facility by the end of 2025.
Commence production at the new facilities in the second quarter of 2026.
Remediate identified material weaknesses in internal controls over financial reporting by identifying skill gaps, ensuring a robust control environment, and establishing Sarbanes-Oxley Act compliance procedures.
Continue to evaluate and improve internal control over financial reporting.
Monitor and address risks related to concentrated customer and supplier bases.
Potentially seek additional financing for the new facility if existing funds prove insufficient.

Key Dates

Date	Description
1992-08	Company (formerly Gulf West Investment Properties, Inc.) incorporated in Nevada.
2020-08-14	BVI Wetouch incorporated in British Virgin Islands.
2020-09-11	BVI Wetouch became the holding company of Hong Kong Wetouch Electronics Technology Limited.
2020-10-09	Company entered into a share exchange agreement with BVI Wetouch and its shareholders (Reverse Merger).
2020-12-03	HK Wetouch incorporated as a holding company in Hong Kong.
2020-12-22	Board of directors authorized the issuance of shares and warrants for legal services.
2020-12-30	Sichuan Vtouch incorporated in Chengdu, Sichuan.
2021-01-01	Board of directors authorized the issuance of shares and warrants for consulting services.
2021-03-02	HK Wetouch acquired all shares of Hong Kong Wetouch.
2021-03	Sichuan Wetouch was under a government-directed relocation order.
2021-03-16	Sichuan Vtouch entered into a leasing agreement for the Demised Properties.
2021-04-01	Lease agreement commenced.
2021-07-23	Sichuan Vtouch entered into a contract for the purchase of a land use right.
2021-07-28	Sichuan Vtouch made a security deposit to obtain a construction license.
2021-08	New facility construction started.
2021-11-18	Consideration for land use right paid in full.
2022-04-14	Issued common stock upon cashless exercise of Note Warrants.
2022-04-27	Issued common stock upon cashless exercise of Note Warrants.
2022-09-01	Issued common stock upon cashless exercise of Note Warrants.
2022-10-30	Lease renewed, extending the term.
2023-01-19	Company sold 8,000,000 shares of common stock in a private placement.
2023-01-20	Company received net proceeds of $40 million from the private placement.
2023-02-17	Board of directors authorized a reverse stock split of common stock.
2023-03-30	Sichuan Wetouch was deconsolidated.
2023-07-16	Board of directors approved a 1-for-20 reverse stock split and filed a certificate of change.
2023-09-11	Reverse stock split approved by the Financial Industry Regulatory Authority (FINRA).
2023-09-12	Reverse stock split took effect.
2023-10-20	HNTE status for Sichuan Wetouch expired.
2023-10-30	Lease renewed.
2023-11-27	FASB issued Accounting Standards Update No. 2023-07, Segment Reporting.
2023-12-14	FASB issued Accounting Standards Update No. 2023-09, Income Taxes.
2024-02-20	Company issued 2,160,000 shares of common stock in a public offering.
2024-02-21	Company's common stock began trading on the Nasdaq Capital Market under the ticker symbol WETH.
2024-02-23	Company closed its public offering and made full payment of remaining promissory notes.
2024-02-29	Company advanced market research fees to two unrelated individuals.
2024-08-09	Lease renewed, extending the term to October 31, 2025.
2024-11	FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures.
2025-01-06	FASB issued ASU 2025-01 clarifying interim effective date of ASU 2024-03.
2025-02-28	Original payable date for market research fees.
2025-03	FASB issued ASU 2025-02 Liabilities (405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122.
2025-06-30	End of the current quarterly reporting period.
2025-10-08	Number of common stock shares issued and outstanding reported.
2025-10-09	Date of filing of the Quarterly Report on Form 10-Q.
2025-10-31	Current lease term for Demised Properties extended to this date.
2025-12-31	Estimated completion of new building construction.
2025-H2	Expected issuance of construction license for new facility.
2026-Q2	Production at the new facilities is scheduled to commence.
2026-08-29	Extended payable date for market research fees.
2026-H2	Estimated obtainment of land use right certificate.

Recommendation

hold

The company presents a mixed financial picture with strong half-year growth in net income and gross profit, supported by a healthy cash balance and a strategic shift towards higher-end products. However, the recent quarterly decline in profitability, coupled with identified material weaknesses in internal controls and delays in new facility construction, introduces notable uncertainties. The concentration of customers and suppliers, along with geopolitical and regulatory risks associated with operating in China, warrant caution. A 'hold' recommendation is appropriate as investors should monitor the remediation of internal control issues, the successful completion and operationalization of the new facility, and the sustained improvement in profitability before considering further investment.

Keywords

touchscreen displays, capacitive touchscreens, SEC filing, quarterly report, WETH, financial results, China manufacturing, corporate governance, internal controls, risk management, financial terminals, automotive, POS, gaming, medical, HMI

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