WETOUCH TECHNOLOGY INC. Forward-Looking Statements
The following management's discussion and analysis should be read in conjunction
with our historical financial statements and the related notes thereto. The
management's discussion and analysis contain forward-looking statements, such as
statements of our plans, objectives, expectations and intentions. Any statements
that are not statements of historical fact are forward-looking statements. When
used, the words "believe," "plan," "intend," "anticipate," "target," "estimate,"
"expect" and the like, and/or future tense or conditional constructions ("will,"
"may," "could," "should," etc.), or similar expressions, identify certain of
these forward-looking statements. These forward-looking statements are subject
to risks and uncertainties, including those under "Risk Factors" in our Annual
Report filed with the SEC on April 15, 2022 , as updated in subsequent filings we
have made with the SEC that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
Our actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of several factors.
We do not undertake any obligation to update forward-looking statements to
reflect events or circumstances occurring after the date of this QuarterlyReport. Basis of Presentation The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance withUnited States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto. Overview We were originally incorporated under the laws of the state ofNevada inAugust 1992 . OnOctober 9, 2020 , we entered into a share exchange agreement (the "Share Exchange Agreement") with BVI Wetouch and all the shareholders of BVI Wetouch, to acquire all the issued and outstanding capital stock of BVI Wetouch in exchange for the issuance to such shareholders an aggregate of 28 million shares of our common stock (the "Reverse Merger"). The Reverse Merger closed onOctober 9, 2020 . Immediately after the closing of the Reverse Merger, we had a total of 31,396,394 issued and outstanding shares of common stock. As a result of the Reverse Merger, BVI Wetouch is now our wholly-owned subsidiary. We are engaged in the research, development, manufacturing, sales and servicing of medium to large sized projected capacitive touchscreens, which constitutes our source of revenues through BVI Wetouch, which owns Hong Kong Wetouch, HKWetouch , Sichuan Wetouch and Sichuan Vtouch. We are specialized in large-format touchscreens, which are developed and designed for a wide variety of markets and used in by the financial terminals, automotive, point of sale (POS), gaming, lottery, medical, human machine interface (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. In terms of the structures of touch panels, we offer (i) Glass-Glass ("GG"), primarily used in GPS/car entertainment panels in mid-size and luxury cars, industrial HMI, financial and banking terminals, POS and lottery machines; (ii) Glass-Film-Film ("GFF"), mostly used in high-end GPS and entertainment panels, industrial HMI, financial and banking terminals, lottery and gaming industry; (iii) Plastic-Glass ("PG"), typically adopted by touchscreens in GPS/entertainment panels motor vehicle GPS, smart home, robots and charging stations; and (iv) Glass-Film ("GF"), mostly used in industrial HMI. The following discussion and analysis pertain financial condition and results of operations of our subsidiaries Hong Kong Wetouch, HK Wetouch, Sichuan Wetouch and Sichuan Vtouch for the quarter endedSeptember 30, 2022 . 5 Effects of COVID-19 The COVID-19 pandemic and resulting global disruptions have affected our businesses, as well as those of our customers and suppliers. To serve our customers while also providing for the safety of our employees and service providers, we have modified numerous aspects of our logistics, transportation, supply chain, purchasing, and after-sale processes. The Company has taken proactive measures to promote products to new customers and entering more regions during the three-month period endedSeptember 30, 2022 . The extent of the impact of COVID-19 on the Company's results of operations and financial condition will depend on the virus' future developments, including the duration and spread of the outbreak and the impact on the Company's customers, which are still uncertain and cannot be reasonably estimated at this point of time.
Highlights for the three-month period ended
? Revenues were
third quarter of 2021
? Gross profit was
third quarter of 2021
? Gross profit margin was 43.6%, compared to 42.9% in the third quarter of 2021
? Net income was
2021
? Total volume shipped was 572,241 units, an increase of 7.7% from 531,210 units
in the third quarter of 2021
Results of Operations
The following table sets forth, for the periods indicated, statements of income
data:
Three-Month Nine-Month
(in US Dollar millions, Period Ended Period Ended
except percentage) September 30, Change September 30, Change
2022 2021 % 2022 2021 %
Revenues $ 11.6 $ 11.2 3.6 % $ 35.4 $ 37.1 (4.6 )%
Cost of revenues (6.6 ) (6.4 ) 3.1 % (20.9 ) (19.3 ) 8.3 %
Gross profit 5.1 4.8 6.3 % 14.4 17.8 (19.1 )%
Total operating expenses (0.3 ) (0.5 ) (0.4 )% (2.2 ) (5.2 ) (57.7 )%
Operating income 4.7 4.3 9.3 % 12.2 12.6 (3.2 )%
Gain on asset disposal - - 0.0 % - 7.6 0.0 %
Gain (loss) on changes of fair
values of Common Stock Purchase
Warrant (0.2 ) - N/A 0.0 - N/A
Income before income taxes 4.5 4.4 2.3 % 12.2 21.0 (41.9 )%
Income tax expense (1.2 ) (1.1 ) 9.1 % (3.4 ) (4.3 ) (20.9 )%
Net income $ 3.3 $ 3.3 0.0 % $ 8.8 $ 16.7 (47.3 )%
6
Results of Operations - Three Months Ended
Revenues
We generated revenue of$11.6 million for the three months endedSeptember 30, 2022 , an increase of$0.4 million , or 3.6%, compared to$11.2 million in the same period of last year. This was due to an increase of 7.7% in sales volume, an increase of 2.2% in the average RMB selling price of our products, offset by 5.9% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year. For the Three-Month Period Ended September 30, 2022 2021 Change Change Amount % Amount % Amount % (in US Dollar millions except percentage) Revenue from sales to customers in PRC$ 8.1 69.8 %$ 7.7 68.8 %$ 0.4 5.2 % Revenue from sales to customers overseas 3.5 30.2 % 3.5 31.2 % 0.0 0.0 % Total Revenues$ 11.6 100 %$ 11.2 100 %$ 0.4 3.6 % For the Three-Month Period Ended September 30, 2022 2021 Change Change Unit % Unit % Unit % (in UNIT, except
percentage)
Units sold to customers in PRC 390,542 68.2 % 356,600 67.1 % 33,942 9.5 % Units sold to customers overseas 181,699 31.8 % 174,610
32.1 % 7,089 4.1 % Total Units Sold 572,241 100 % 531,210 100 % 41,031 7.7 % (i) Domestic market
For the three months endedSeptember 30, 2022 , revenue from domestic market increased by$0.4 million or 5.2% as a combined result of: 1) an increase of 9.5% in sales volume, an increase of 2.1% in the average RMB selling price of our products, offset by 5.9% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year. As for the RMB selling price, the increase of 2.1% was mainly due to the increased sales of new models of higher-end products such as touch screens used in gaming machine with higher selling price in the domestic market during the three-month period endedSeptember 30, 2022 . The weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic continued to exacerbate the touch screen business environment. SinceApril 2022 , the Chinese government has imposed strict zero tolerance virus policies and the Company's business has been negatively impacted and has continued to generate lower revenues. Due to our proactive efforts to market new models such as POS and medical touchscreens coupled with penetration into new regions and new customer acquisitions, our sales increased by 14.8% inEastern China , 12.3% inSouthwest China , and 0.5% inSouthern China during the three-month period endedSeptember 30, 2022 . (ii) Overseas market For the three-month period endedSeptember 30, 2022 , revenues from the overseas market remained stable at$3.5 million as compared to the same period of 2021, with an increase of 4.1% in sales volume and an increase of 1.9% in average selling price, compared with those of the same period of last year. 7 The following table summarizes the breakdown of revenues by categories in US dollars: Revenues For the Three -Month
Period Ended
2022 2021 Change Change
Amount % Amount % Amount Margin%
(in US Dollars, except percentage)
Product categories by end
applications
Automotive Touchscreens $ 2,841,960 24.5 % $ 2,819,828 25.3 % $ 22,131 0.8 %
Industrial Control Computer
Touchscreens 2,609,467 22.5 % 2,237,229 20.0 % 372,238 16.6 %
POS Touchscreens 1,989,250 17.1 % 1,576,455 17.3 % 412,795 26.2 %
Gaming Touchscreens 1,578,004 13.5 % 1,935,984 14.1 % (357,980 ) (18.5 )%
Medical Touchscreens 1,579,007 13.6 % 1,556,448 13.9 % 22,560 1.4 %
Multi-Functional Printer
Touchscreens 1,024,278 8.8 % 1,023,167 9.2 % 1,111 0.1 %
Others* 1,052 0.0 % 16,869 0.2 % (15,817 ) (93.8 )%
Total Revenues $ 11,623,018 100.0 % $ 11,165,980 100.0 % $ 457,038 3.6 %
*Others include applications in self-service kiosks, ticket vending machine and financial terminals.
The Company continued to shift production mix from traditional lower-end products to high-end touchscreens used in control computer industries, POS touchscreens, automotive and medical touchscreens, primarily due to (i) greater growth potential of computer screen models inChina , and (ii) the stronger demand and better quality demand from consumers' recognition of higher-end touch screens made with better raw materials.
Gross Profit and Gross Profit Margin
Three-Month Period Ended
September 30, Change
(in millions, except percentage) 2022 2021 Amount %
Gross Profit $ 5.1 $ 4.8 $ 0.3 6.3 %
Gross Profit Margin 43.6 % 42.9 % 0.7 %
Gross profit was $5.1 million in the third quarter ended September 30, 2022 ,
compared to $4.8 million in the same period of 2021. Our gross profit margin
increased to 43.6% for the third quarter ended September 30, 2022 as compared to
42.9% for the same period of 2021, primarily due to the increase of 7.7% in
sales volume and of 2.2% in the average RMB selling price of our products, due
to our product shift to higher gross profit margin products such as POS
touchscreens, industrial control computer touchscreens and medical touchscreens,
partially offset by the increased raw materials and higher cost of goods sold.
Selling Expenses
Three-Month Period Ended
September 30, Change(in millions,, except percentage) 2022 2021
Amount % Selling Expenses$ 0.2 $ 0.1 $ 0.1 100.0 % as a percentage of revenues 1.7 % 0.9 % 0.8 % Selling expenses were$0.2 million for the three-month period endedSeptember 30, 2022 compared to$0.1 million in the same period in 2021, primarily due to the increase of marketing expenses as the Company took promotional efforts to market new models such as POS touchscreens and obtain new customers and penetrate into new regions in order to reduce the negative impact of COVID
19. 8
General and Administrative Expenses
Three-Month Period Ended
September 30 , Change(in millions, except percentage) 2022 2021 Amount % General and Administrative Expenses$ 0.1 $ 0.3 $ (0.2 ) (66.7 )% as a percentage of revenues 0.8 % 2.7 % (1.9 )%
General and administrative (G&A) expenses were$0.1 million for the quarter endedSeptember 30, 2022 , compared to$0.3 million in the same period in 2021, representing a decrease of 66.7%, or$0.2 million . The decrease was primarily due to the decrease of$0.4 million loss of input VAT credits during the third quarter of 2021, due to Sichuan Wetouch ceasing operation and relocation to comply with local PRC government guidelines on local environment issues and the national overall plan (see Note 5 to our Condensed Consolidated Financial Statements (unaudited)), and offset by an increase of$0.2 million of professional fees during the third quarter endedSeptember 30, 2022 .
Research and Development Expenses
Three-Month Period Ended
September 30, Change
(in US dollars, except percentage) 2022 2021 Amount %
Research and Development Expenses $ 20,737 $ 22,267 $(1,530 ) (6.8 )% as a percentage of revenues 0.0 % 0.0 % 0.0 %
Research and development (R&D) expenses were
Operating Income Total operating income was$4.7 million for the third quarter endedSeptember 30, 2022 as compared to$4.3 million for the same period of last year, due to higher gross profit and lower operating expenses.
Loss on changes in fair value of Common Stock Purchase Warrants
Three-Month Period Ended September 30, Change
(in US$ millions, except
percentage) 2022 2021 Amount %
Loss on changes in fair value of
Common Stock Purchase Warrants $ (0.2 ) $ 0.0$ (0.2 ) N/A as a percentage of revenues 1.7 % 0.0 % 1.7 % Loss on changes in fair value of common stock purchase warrants was$0.2 million for the three-month period endedSeptember 30, 2022 , as compared to nil in the same period of 2021 (See Note 9 (b)). 9 Income Taxes Three-Month Period Ended September 30, Change
(in millions, except percentage) 2022 2021 Amount
%
Income before Income Taxes $ 4.5 $ 4.4 $ 0.1 2.3 %
Income Tax (Expense) (1.2 ) (1.1 ) (0.1 ) 9.1 %
Effective income tax rate 27.3 % 25.0 % 2.3 %
The effective income tax rates for the three-month periods endedSeptember 30, 2022 and 2021 were 27.3% and 25.0%, respectively. The increase of the effective income tax rate was partially due to the increase of taxable income for the third quarter of 2022, as compared to that of the same period of the prior
year. Net Income
Our net income remained at
Results of Operations - Nine Months Ended
Revenues We generated revenue of$35.4 million for the nine-month period endedSeptember 30, 2022 , a decrease of$1.7 million , or 4.6%, compared to$37.1 million in the same period of last year. This was primarily due to a decrease of 2.5% in sales volume, and a decrease of 0.6% in the average RMB selling price of our products and 2.1% negative impact from exchange rate due to depreciation of RMB against US dollars, compared with those of the same period of last year. For the Nine -Month Period Ended September 30, 2022 2021 Change Change Amount % Amount % Amount % (in US Dollar millions except percentage) Revenue from sales to customers in PRC$ 24.5 69.2 %$ 24.6 66.3 %$ (0.1 ) (0.4 )% Revenue from sales to customers overseas 10.9 30.8 % 12.5 33.7 % (1.6 ) (12.8 )% Total Revenues$ 35.4 100 %$ 37.1 100 %$ (1.7 ) (4.6 )% 10 For the Nine-Month Period Ended September 30, 2022 2021 Change Change Unit % Unit % Unit % (in UNIT, except percentage)
Units sold to customers in PRC 1,129,764 66.5 % 1,109,985
66.1 % 19,779 1.8 %
Units sold to customers overseas 569,144 33.5 % 632,569
33.9 % (63,425 ) (10.0 )%
Total Units Sold 1,698,908 100 % 1,742,554 100 % (43,646 ) (2.5 )%
(i) Domestic market
For the nine-month period ended September 30, 2022 , revenue from the domestic
market decreased by $0.1 million or 0.4% as a combined result of: (i) an
increase of 1.8% in sales volume, partially offset by (ii) a decrease of 0.6% in
the average RMB selling price of our products, and 2.1% negative impact from
exchange rate due to depreciation of RMB against US dollars, compared with those
of the same period of last year.
As for the RMB selling price, the decrease of 0.6% was mainly due to the
Company's marketing strategy to offer price discount to penetrate into new
markets during the nine-month period ended
The weakening in macroeconomic conditions since the outbreak of COVID-19 pandemic continued to exacerbate the touch screen business environment. SinceApril 2022 , the Chinese government has imposed strict zero tolerance virus policies and the Company's business has been negatively impacted and has continued to generate lower revenues during the nine months endedSeptember 30, 2022 . Although the Company has taken proactive efforts to market new models such as POS touchscreens and obtain new customers and penetrate into new regions with a sales increase of 5.3% inEastern China and 3.7% inSouthwest China , the Company suffered a decrease of 19.4% inSouthern China due to the government lockdown in this region during the nine-month period endedSeptember 30, 2022 . (ii) Overseas market For the nine-month period endedSeptember 30, 2022 , revenues from the overseas market were$10.9 million as compared to$12.5 million of the same period of 2021, decreasing by$1.6 million or 12.8%, mainly due to a decrease of 10.0% in sales volume and a decrease of 2.3% in average selling price of our products, compared with those of the same period of last year. 11 The following table summarizes the breakdown of revenues by categories in US dollars: Revenues For the Nine-Month Period Ended September 30, 2022 2021 Change Change Amount % Amount % Amount Margin% (in US Dollars, except percentage) Product categories by end applications Automotive Touchscreens$ 8,759,635 24.8 %$ 10,574,802 28.5 %$ (1,815,167 ) (17.2 )% Industrial Control Computer Touchscreens 7,251,728 20.5 % 7,060,893 19.0 % 190,835 2.7 % POS Touchscreens 5,963,500 16.9 % 5,580,657 14.8 % 382,843 7.0 % Gaming Touchscreens 5,144,703 14.5 % 5,469,102 15.0 % (324,399 ) (5.9 )% Medical Touchscreens 4,627,854 13.1 % 4,960,325 13.4 % (332,471 ) (6.7 )% Multi-Functional Printer Touchscreens 3,618,124 10.2 % 3,356,615 9.0 % 261,509 7.8 % Others* 4,955 0.0 % 111,776 0.3 % (106,821 ) (95.6 )% Total Revenues$ 35,370,499 100.0 %$ 37,114,170 100.0 %$ (1,743,671 ) (4.6 )%
*Others include applications in self-service kiosks, ticket vending machine and financial terminals.
The Company continued to shift production mix from traditional lower-end products such as touchscreens used in automotive to high-end products such as touchscreens used in POS touchscreens and multi-functional printer touchscreens, primarily due to (i) greater growth potential of computer screen models inChina , and (ii) the stronger demand and better quality demand from consumers' recognition of higher-end touchscreens made with better raw materials.
Gross Profit and Gross Profit Margin
Nine-Month Period Ended
September 30 , Change(in millions, except percentage) 2022 2021 Amount
%
Gross Profit $ 14.4 $ 17.8 $ (3.4 ) (19.1 )%
Gross Profit Margin 40.8 % 48.2 % (7.4 )%
Gross profit was$14.4 million during the nine-month period endedSeptember 30, 2022 , compared to$17.8 million in the same period of 2021. Our gross profit margin decreased to 40.8% for the nine-month period endedSeptember 30, 2022 as compared to 48.2% for the same period of 2021, primarily due to the decrease of sales by 4.6%, and the increase of 11.8% in cost of materials such as the chip cost, and 14.8% of overhead cost such as facility rent and electricity, partially offset by the decrease of labor cost by 19.1% due to the reduced production volume for the nine-month period endedSeptember 30, 2022 . Selling Expenses Nine-Month Period Ended September 30, Change (in millions, except percentage) 2022 2021 Amount % Selling Expenses$ 1.2 $ 0.3 $ 0.9 300.0 % as a percentage of revenues 3.4 % 0.8 % 2.6 % Selling expenses were$1.2 million for the nine-month period endedSeptember 30, 2022 compared to$0.3 million in the same period in 2021, primarily due to the increase of marketing expenses of$1.0 million as the Company took promotional efforts to market new models such as POS touchscreens and obtain new customers and penetrate into new regions in order to reduce the negative impact of COVID 19. 12
General and Administrative Expenses
Nine-Month Period Ended
September 30 , Change(in millions, except percentage) 2022 2021 Amount % General and Administrative Expenses$ 0.9 $ 1.6 $ (0.7 ) (43.7 )% as a percentage of revenues 2.5 % 4.3 % (1.8 )% General and administrative (G&A) expenses were$0.9 million for the nine-month period endedSeptember 30, 2022 , compared to$1.6 million in the same period in 2021, representing a decrease of 43.7%, or$0.7 million . The decrease was primarily due to i)$0.4 million loss of VAT input credits due toSichuan Wetouch ceasing operation and relocation to comply with local PRC government guidelines on local environmental issues and the national overall plan, ii)$0.1 million accelerated amortization expense due to Sichuan Wetouch ceasing operation and relocation to comply with local PRC government guidelines on local environmental issues and the national overall plan during the nine-month period endedSeptember 30, 2021 (See Note 5), partially offset by iii) the increase of$0.3 million in miscellaneous expenses.
Research and Development Expenses
Nine-Month Period Ended
September 30, Change
(in US dollars, except percentage) 2022 2021 Amount %
Research and Development Expenses $ 65,307 $ 67,035 $ (1,728 ) (2.6 )%
as a percentage of revenues 0.0 % 0.0 % 0.0 %
Research and development (R&D) expenses were
Share-based Compensation
Nine-Month Period Ended
September 30, Change
(in millions, except percentage) 2022 2021 Amount %
Share-based compensation $ 0.0 $ 3.1 $ (3.1 ) (0.0 )%
as a percentage of revenues 0.0 % 8.4 % (8.4 )%
Share-based compensation were nil and $3.1 million for the nine-month period
ended September 30, 2022 and 2021, respectively. On January 1, 2021 , the Board
of Directors of the Company authorized the issuance of an aggregate of 310,830
shares and 631,080 warrants to a consultant for advisory services that had been
rendered. The Company recognized relevant share-based compensation expense of
$1,041,281 for the vested shares and $2,107,825 for the warrants during the
nine-month period ended September 30, 2021 .
Operating Income
Total operating income was
13
Gain on Asset Disposal
Nine-Month Period Ended
September 30 , Change(in millions, except percentage) 2022 2021 Amount
%
Gain on asset disposal $ 0.0 $ 7.6 $ (7.6 ) (0.0 )%
as a percentage of revenues 0.0 % 20.5 % (20.5 )%
Gain on asset disposal was nil for the nine-month period ended September 30,
2022 compared to $7.6 million in the same period in 2021. Pursuant to local PRC
government guidelines on local environmental issues and the national overall
plan, Sichuan Wetouch was under the government directed relocation order to
relocate no later than December 31, 2021 and received compensation accordingly.
On March 18, 2021 , pursuant to the agreement with the local government and an
appraisal report issued by a mutual agreed appraiser, Sichuan Wetouch received a
compensation of RMB115.2 million ($17.9 million ) ("Compensation Funds") for the
withdrawal of the right to use of state-owned land and the demolition of all
buildings, facilities, equipment and all other appurtenances on the land. During
the nine-month period ended September 30, 2021 , the Company recorded a gain of
$7,625,279 for the asset disposal.
Gain on changes in fair value of Common Stock Purchase Warrants
Nine-Month Period Ended September
30 , Change(in US dollars, except percentage) 2022 2021 Amount % Gain on changes in fair value of Common Stock Purchase Warrants$ 35,542 $ 0.0
$ 35,542 N/A as a percentage of revenues 0.0 % 0.0 % 0.8 %
Gain on changes in fair value of common stock purchase warrants was$35,542 for the nine-month period endedSeptember 30, 2022 , as compared to nil in the same period of 2021 (See Note 9 (b)). 14 Income Taxes Nine-Month Period EndedSeptember 30 , Change
(in millions, except percentage) 2022 2021 Amount
%
Income before Income Taxes $ 12.2 $ 21.0 $ (8.8 ) (41.9 )%
Income Tax (Expense) (3.4 ) (4.3 ) (0.9 ) (20.9 )%
Effective income tax rate 27.9 % 20.6 % 7.3 %
The effective income tax rates for the nine-month periods ended September 30,
2022 and 2021 were 27.9% and 20.6%, respectively. The effective income tax rate
increased during the nine-month period ended September 30, 2022 , primarily due
to Sichuan Wetouch's preferential income tax rate for the same period of the
last year.
Our PRC subsidiary Sichuan Vtouch had $45.5 million of cash and cash equivalents
of September 30, 2022 , which are planned to be indefinitely reinvested in PRC.
The distributions from our PRC subsidiary are subject to the U.S. federal income
tax at 21%, less any applicable foreign tax credits. Due to our policy of
indefinitely reinvesting our earnings in our PRC business, we have not provided
for deferred income tax liabilities related to PRC withholding income tax on
undistributed earnings of our PRC subsidiaries.
Net Income
As a result of the above factors, we had a net income of $8.8 million in the
nine-month period ended September 30, 2022 compared to a net income of $16.7
million in the same period of 2021.
Liquidity and Capital Resources
Historically, our primary uses of cash have been to finance working capital needs. We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.
We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all. As ofSeptember 30, 2022 , we had current assets of$61.4 million , consisting of$45.5 million in cash,$14.3 million in accounts receivable,$0.4 million in inventories, and$1.2 million in prepaid expenses other current assets. Our current liabilities as ofSeptember 30, 2022 , were$5.4 million , which is comprised of$1.2 million in income tax payable,$1.4 million in accounts payable,$0.8million in accrued expenses and other current liabilities and$1.9 million convertible promissory notes payable. 15 The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the nine- month period endedSeptember 30, 2022 and 2021: Nine-Month Period Ended September 30, (in US Dollar millions) 2022 2021
Net cash provided by operating activities $ 4.8 $
13.0
Net cash provided by investing activities -
17.6
Net cash used in financing activities - - Effect of foreign currency exchange rate changes on cash and cash equivalents (5.4 ) (0.5 ) Net increase (decrease) in cash and cash equivalents (0.6 )
30.1
Cash and cash equivalents at the beginning of period 46.1
24.0
Cash and cash equivalents at the end of period $ 45.5 $
54.1
Operating Activities
Net cash provided by operating activities was $4.8 million for the nine months
ended September 30, 2022 , as compared to $13.0 million provided by operating
activities for the same period of the last year, primarily due to (i) the
decrease of $7.9 million net income for the nine months ended September 30, 2022
as compared to the same period of 2021, (ii) the decrease of $3.1 million of
share-based compensation during the nine-month period ended September 30, 2021 ,
(iii) the increase of $9.0 million account receivable due to slower collection
from the impact of the COVID-19 pandemic and Sichuan Wetouch settling customer
receivables for the nine-month period ended September 30, 2021 , iv) the decrease
of 0.7 million of deferred income due to Sichuan Wetouch's write-off of the
government grant in the operating ceasing process for the nine-month period
ended September 30, 2021 , offset by (v) the increase of $1.9 million prepaid
expenses, (vi) the decrease of $7.6 million gain on asset disposal for the
nine-month period ended September 30, 2021 , and (vii) the increase of $0.8
million accounts payable due to the longer payment period.
Investing Activities
There were $17.8 million in proceeds from asset disposal for Sichuan Wetouch,
and $0.2 million in purchase of property, plant and equipment for the nine month
period ended September 30, 2021 . See Note 5 in the interim financial
information.
Financing Activities
There were nil financing activities for the nine-month period ended
As of
Days Sales Outstanding ("DSO") was at 85 days for the nine-month period ended
The following table provides an analysis of the aging of accounts receivable as
of
September 30, December 31,
2022 2021
-Current $ 5,290,212 $ 1,403,187
-1-3 months past due 7,589,897 2,827,048
-4-6 months past due 1,398,333 3,742,732
7-12 months past due 3,480 18,070
-greater than 1 year past due - -
Total accounts receivable $ 14,281,922 $ 7,991,037
The majority of the Company's revenues and expenses were denominated primarily
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.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
16
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