Wetouch Technology Inc. Leases Disclosure

NOTE 6 — OPERATING LEASE

 

In March 2021, pursuant to the local PRC government guidelines on local environmental issues and the national plan, the Company was under the government directed relocation order to relocate from a parcel of state-owned land where we maintained our executive offices, research and development facilities and factories. The Company received a total amount of RMB115.2 million (approximately $16.5 million) from the local government to start the construction of the new facility in a neighboring Chengdu Wenjiang District.

 

On March 16, 2021, in order to minimize interruption of the 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 RMB300,000 ($42,899), which period was extended to October 31, 2022. The lease was renewed on October 30, 2022, October 30, 2023, August 9, 2024 and September 29, 2025, respectively, with a monthly rent of RMB 400,000 ($57,199), the term of which has been extended to October 31, 2026 for the use of the Demised Properties.

 

Management makes estimates and assumptions to use the leasing property till the end of October 2026, and applies ASU 2016-02 “Leases (Topic 842) as practical expedients during the years ended December 31, 2025.

 

Both operating lease expense and short-term lease expense are recognized in cost of revenues and general and administrative expenses.

 

The lease expense for the years ended December 31, 2025 and 2024 was as follows:

 

		For the Years Ended December 31,
		2025				2024
Lease expense
Operating lease expense		$	612,684			$	98,387
Short-term lease expense			-				491,934
Total lease expense		$	612,684			$	590,321

The balances for the operating leases where the Company is the lessee are presented as follows:

 

		December 31, 2025				December 31, 2024
Operating lease right-of-use assets		$	521,454			$	1,055,208
Lease liabilities – current			521,454				571,539
Lease liabilities – non-current			-				482,606
Total operating lease liabilities		$	521,454			$	1,054,145

 

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2025:

 

		Operating lease
2026 lease payment		$	524,764
Less: imputed interest			(3,310	)
Present value of lease liabilities		$	521,454

 

Lease term and discount rate:

 

		For the Years Ended December 31,
		2025				2024
Weighted-average remaining lease term (years)
Operating lease			0.8				1.8
Weighted-average discount rate
Operating lease			1.38	%			1.06	%

 

Supplemental cash flow information related to leases where the Company was the lessee for the years ended December 31,2025 and 2024 was as follows:

 

		For the Years Ended December 31,
		2025				2024
Cash payments for operating lease		$	612,684			$	98,387
Lease liabilities arising from obtaining right-of-use assets			11,526				1,992