UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-34577

IT TECH PACKAGING, INC.

(Exact name of registrant as specified in its charter)

Nevada |  | 20-4158835
(State or other jurisdiction of incorporation or organization) |  | (IRS Employer identification No.)

Science Park, Juli Rd, Xushui District, Baoding City

Hebei Province, The People’s Republic of China 072550

(Address of principal executive offices and Zip Code)

011 - (86) 312-8698215

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.001 |  | ITP |  | NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company | ☒
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

As of November 10, 2021, there were 99,049,900 shares of the registrant’s common stock, par value $0.001, outstanding.

TABLE OF CONTENTS

Part I. - FINANCIAL INFORMATION |  |  | 1 |
Item 1. Financial Statements |  |  | 1 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  | 26 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |  |  | 42 |
Item 4. Controls and Procedures |  |  | 42 |
Part II. - OTHER INFORMATION |  |  | 43 |
Item 1. Legal Proceedings |  |  | 43 |
Item 1A. Risk Factors |  |  | 43 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  |  | 43 |
Item 3. Defaults Upon Senior Securities |  |  | 43 |
Item 4. Mine Safety Disclosures |  |  | 43 |
Item 5. Other Information |  |  | 43 |
Item 6. Exhibits |  |  | 44 |
SIGNATURES |  |  | 45 |

i

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

(unaudited)

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and bank balances |  | $ | 26,575,582 |  |  | $ | 4,142,437 |
Restricted cash |  |  | - |  |  |  | - |
Accounts receivable (net of allowance for doubtful accounts of $54,668 and $34,391 as of September 30, 2021 and December 31 2020, respectively) |  |  | 4,121,781 |  |  |  | 2,389,057 |
Inventories |  |  | 7,621,405 |  |  |  | 1,233,801 |
Prepayments and other current assets |  |  | 22,997,609 |  |  |  | 7,051,515 |
Due from related parties |  |  | 935,534 |  |  |  | 92,795 |
Total current assets |  |  | 62,251,911 |  |  |  | 14,909,605 |
Prepayment on property, plant and equipment |  |  | 32,072,039 |  |  |  | 21,149,749 |
Finance lease right-of-use assets, net |  |  | 2,288,902 |  |  |  | 2,397,653 |
Property, plant, and equipment, net |  |  | 127,063,147 |  |  |  | 145,142,642 |
Value-added tax recoverable |  |  | 2,437,669 |  |  |  | 2,566,195 |
Deferred tax asset non-current |  |  | 10,564,650 |  |  |  | 13,708,630 |
Total Assets |  | $ | 236,678,318 |  |  | $ | 199,874,474 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Short-term bank loans |  | $ | 6,320,350 |  |  | $ | 6,435,348 |
Current portion of long-term loans from credit union |  |  | 5,134,610 |  |  |  | 4,996,245 |
Lease liability |  |  | 206,606 |  |  |  | 182,852 |
Accounts payable |  |  | 354,247 |  |  |  | 592,391 |
Advance from customers |  |  | 40,075 |  |  |  | 82,625 |
Due to related parties |  |  | 749,717 |  |  |  | 727,433 |
Accrued payroll and employee benefits |  |  | 318,276 |  |  |  | 224,930 |
Other payables and accrued liabilities |  |  | 5,121,243 |  |  |  | 4,838,601 |
Income taxes payable |  |  | 439,686 |  |  |  | 259,649 |
Total current liabilities |  |  | 18,684,810 |  |  |  | 18,340,074 |
Loans from credit union |  |  | 4,517,840 |  |  |  | 4,597,772 |
Deferred gain on sale-leaseback |  |  | 176,563 |  |  |  | 387,087 |
Lease liability - non-current |  |  | 198,352 |  |  |  | 354,107 |
Derivative liability |  |  | 5,133,147 |  |  |  | 1,115,260 |
Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $17,764,728 and $17,950,224 as of September 30, 2021 and December 31, 2020, respectively) |  |  | 28,710,712 |  |  |  | 24,794,300 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Stockholders’ Equity |  |  |  |  |  |  |  |
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 99,049,900 and 28,535,816 shares issued and outstanding as of September 30, 2021 and December, 31,2020, respectively |  |  | 99,050 |  |  |  | 28,536 |
Additional paid-in capital |  |  | 88,927,787 |  |  |  | 53,989,548 |
Statutory earnings reserve |  |  | 6,080,574 |  |  |  | 6,080,574 |
Accumulated other comprehensive income |  |  | 6,868,929 |  |  |  | 5,740,722 |
Retained earnings |  |  | 105,991,266 |  |  |  | 109,240,794 |
Total stockholders’ equity |  |  | 207,967,606 |  |  |  | 175,080,174 |
Total Liabilities and Stockholders’ Equity |  | $ | 236,678,318 |  |  | $ | 199,874,474 |

See accompanying notes to condensed consolidated financial statements.

1

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenues |  | $ | 45,087,671 |  |  | $ | 33,357,450 |  |  | $ | 115,832,013 |  |  | $ | 68,463,575 |
Cost of sales |  |  | (43,266,135 | ) |  |  | (30,789,899 | ) |  |  | (109,150,452 | ) |  |  | (63,506,913 | )
Gross Profit |  |  | 1,821,536 |  |  |  | 2,567,551 |  |  |  | 6,681,561 |  |  |  | 4,956,662 |
Selling, general and administrative expenses |  |  | (2,019,565 | ) |  |  | (2,390,920 | ) |  |  | (7,172,495 | ) |  |  | (8,445,356 | )
(Loss) Income from Operations |  |  | (198,029 | ) |  |  | 176,631 |  |  |  | (490,934 | ) |  |  | (3,488,694 | )
Other Income (Expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 12,044 |  |  |  | 8,544 |  |  |  | 28,096 |  |  |  | 23,785 |
Subsidy income |  |  | (30 | ) |  |  | 61,152 |  |  |  | 197,861 |  |  |  | 203,171 |
Interest expense |  |  | (281,670 | ) |  |  | (258,438 | ) |  |  | (844,470 | ) |  |  | (744,592 | )
Loss on derivative liability |  |  | 1,938,873 |  |  |  | (482,515 | ) |  |  | 2,810,913 |  |  |  | (510,380 | )
Income (Loss) before Income Taxes |  |  | 1,471,188 |  |  |  | (494,626 | ) |  |  | 1,701,466 |  |  |  | (4,516,710 | )
Provision for Income Taxes |  |  | 71,388 |  |  |  | (26,348 | ) |  |  | (4,950,994 | ) |  |  | 579,418 |
Net Income (Loss) |  |  | 1,542,576 |  |  |  | (520,974 | ) |  |  | (3,249,528 | ) |  |  | (3,937,292 | )
Other Comprehensive (Loss) Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | (819,183 | ) |  |  | 6,670,510 |  |  |  | 1,128,207 |  |  |  | 4,204,935 |
Total Comprehensive Income (Loss) |  | $ | 723,393 |  |  | $ | 6,149,536 |  |  | $ | (2,121,321 | ) |  | $ | 267,643 |
Earnings (Losses) Per Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted Earnings (Losses) per Share |  | $ | 0.03 |  |  | $ | (0.02 | ) |  | $ | (0.06 | ) |  | $ | (0.15 | )
Outstanding – Basic and Diluted |  |  | 54,196,300 |  |  |  | 25,816,354 |  |  |  | 54,196,300 |  |  |  | 25,816,354 |

See accompanying notes to condensed consolidated financial statements.

2

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

|  | Nine Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
Cash Flows from Operating Activities: |  |  |  |  |  |
Net income |  | $ | (3,249,528 | ) |  | $ | (3,937,292 | )
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 11,733,664 |  |  |  | 11,301,703 |
(Gain) Loss on derivative liability |  |  | (2,810,913 | ) |  |  | 510,380 |
Allowance for bad debts |  |  | 20,118 |  |  |  | 2,973 |
Share-based compensation and expenses |  |  | - |  |  |  | 1,242,000 |
Deferred tax |  |  | 3,235,556 |  |  |  | (1,582,754 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (1,742,594 | ) |  |  | (272,857 | )
Prepayments and other current assets |  |  | (6,918,816 | ) |  |  | 2,099,669 |
Inventories |  |  | (6,396,066 | ) |  |  | (6,758,500 | )
Accounts payable |  |  | (242,357 | ) |  |  | 50,683 |
Advance from customers |  |  | (43,161 | ) |  |  | 76,763 |
Related parties |  |  | (821,943 | ) |  |  | 1,767,888 |
Accrued payroll and employee benefits |  |  | 92,207 |  |  |  | (43,025 | )
Other payables and accrued liabilities |  |  | 522,353 |  |  |  | (1,292,657 | )
Income taxes payable |  |  | 178,903 |  |  |  | (795,487 | )
Net Cash (Used in) Provided by Operating Activities |  |  | (6,442,577 | ) |  |  | 2,369,487 |
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  |  | (12,781,114 | ) |  |  | (3,144,261 | )
Proceeds from sale of property, plant and equipment |  |  | - |  |  |  | 572,312 |
Net Cash Used in Investing Activities |  |  | (12,781,114 | ) |  |  | (2,571,949 | )
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Proceeds from issuance of shares and warrants, net |  |  | 41,837,553 |  |  |  | 2,273,360 |
Repayment of bank loans |  |  | (154,579 | ) |  |  | - |
Payment of capital lease obligation |  |  | (135,611 | ) |  |  | (32,317 | )
Net Cash Provided by Financing Activities |  |  | 41,547,363 |  |  |  | 2,241,043 |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |  |  | 109,473 |  |  |  | 333,579 |
Net Increase in Cash and Cash Equivalents |  |  | 22,433,145 |  |  |  | 2,372,160 |
Cash, Cash Equivalents and Restricted Cash - Beginning of Period |  |  | 4,142,437 |  |  |  | 5,837,745 |
Cash, Cash Equivalents and Restricted Cash - End of Period |  | $ | 26,575,582 |  |  | $ | 8,209,905 |
Supplemental Disclosure of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid for interest, net of capitalized interest cost |  | $ | 485,075 |  |  | $ | 509,783 |
Cash paid for income taxes |  | $ | 1,523,555 |  |  | $ | 1,784,107 |
Cash and bank balances |  |  | 26,575,582 |  |  |  | 8,209,905 |
Restricted cash |  |  | - |  |  |  | - |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |  |  | 26,575,582 |  |  |  | 8,209,905 |

See accompanying notes to condensed consolidated financial statements.

3

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Additional |  |  | Statutory |  |  | Other |  |  |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Earnings |  |  | Comprehensive |  |  | Retained |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Reserve |  |  | Income (loss) |  |  | Earnings |  |  | Total |
Balance at December 31, 2019 |  |  | 22,054,816 |  |  | $ | 22,055 |  |  | $ | 51,155,174 |  |  | $ | 6,080,574 |  |  | $ | (6,057,537 | ) |  | $ | 114,794,796 |  |  | $ | 165,995,062 |
Issuance of shares to officer and directors |  |  | 2,000,000 |  |  |  | 2,000 |  |  |  | 1,198,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,200,000 |
Issuance of shares |  |  | 4,400,000 |  |  |  | 4,400 |  |  |  | 1,579,755 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,584,155 |
Issuance of shares to a consultant |  |  | 60,000 |  |  |  | 60 |  |  |  | 41,940 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 42,000 |
Foreign currency translation adjustment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,204,935 |  |  |  |  |  |  |  | 4,204,935 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (3,937,292 | ) |  |  | (3,937,292 | )
Balance at September 30, 2020 |  |  | 28,514,816 |  |  | $ | 28,515 |  |  | $ | 53,974,869 |  |  | $ | 6,080,574 |  |  | $ | (1,852,602 | ) |  | $ | 110,857,504 |  |  | $ | 169,088,860 |
Balance at December 31, 2020 |  |  | 28,535,816 |  |  | $ | 28,536 |  |  | $ | 53,989,548 |  |  | $ | 6,080,574 |  |  | $ | 5,740,722 |  |  | $ | 109,240,794 |  |  | $ | 175,080,174 |
Issuance of shares to officer and directors |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
Issuance of shares to institutional investors |  |  | 26,181,818 |  |  |  | 26,182 |  |  |  | 8,002,488 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 8,028,670 |
Issuance of shares to public investors |  |  | 29,277,866 |  |  |  | 29,278 |  |  |  | 15,585,867 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 15,615,145 |
Exercise of warrants |  |  | 15,054,400 |  |  |  | 15,054 |  |  |  | 11,349,884 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 11,364,938 |
Foreign currency translation adjustment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,128,207 |  |  |  |  |  |  |  | 1,128,207 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (3,249,528 | ) |  |  | (3,249,528 | )
Balance at September 30, 2021 |  |  | 99,049,900 |  |  | $ | 99,050 |  |  | $ | 88,927,787 |  |  | $ | 6,080,574 |  |  | $ | 6,868,929 |  |  | $ | 105,991,266 |  |  | $ | 207,967,606 |

See accompanying notes to condensed consolidated financial statements.

4

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Organization and Business Background

IT Tech Packaging, Inc. (the “Company”) was incorporated in the State of Nevada on December 9, 2005, under the name “Carlateral, Inc.” Through the steps described immediately below, we became the holding company for Hebei Baoding Dongfang Paper Milling Company Limited (“Dongfang Paper”), a producer and distributor of paper products in China, on October 29, 2007.

On August 1, 2018, we changed our corporate name to IT Tech Packaging, Inc.. The name change was effected through a parent/subsidiary short-form merger of IT Tech Packaging, Inc., our wholly-owned Nevada subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity. In connection with the name change, our common stock began being traded under a new NYSE symbol, “ITP,” and a new CUSIP number, 46527C100, at such time.

On October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired Dongfang Zhiye Holding Limited (“Dongfang Holding”), a corporation formed on November 13, 2006 under the laws of the British Virgin Islands, and issued the shareholders of Dongfang Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse stock split effected in November 2009) shares of our common stock, which shares were distributed pro-rata to the shareholders of Dongfang Holding in accordance with their respective ownership interests in Dongfang Holding. At the time of the Merger Agreement, Dongfang Holding owned all of the issued and outstanding stock and ownership of Dongfang Paper and such shares of Dongfang Paper were held in trust with Zhenyong Liu, Xiaodong Liu and Shuangxi Zhao, for Mr. Liu, Mr. Liu and Mr. Zhao (the original shareholders of Dongfang Paper) to exercise control over the disposition of Dongfang Holding’s shares in Dongfang Paper on Dongfang Holding’s behalf until Dongfang Holding successfully completed the change in registration of Dongfang Paper’s capital with the relevant PRC Administration of Industry and Commerce as the 100% owner of Dongfang Paper’s shares. As a result of the merger transaction, Dongfang Holding became a wholly owned subsidiary of the Company, and Dongfang Holding’s wholly owned subsidiary, Dongfang Paper, became an indirectly owned subsidiary of the Company.

Dongfang Holding, as the 100% owner of Dongfang Paper, was unable to complete the registration of Dongfang Paper’s capital under its name within the proper time limits set forth under PRC law. In connection with the consummation of the restructuring transactions described below, Dongfang Holding directed the trustees to return the shares of Dongfang Paper to their original shareholders, and the original Dongfang Paper shareholders entered into certain agreements with Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”) to transfer the control of Dongfang Paper over to Baoding Shengde.

On June 24, 2009, the Company consummated a number of restructuring transactions pursuant to which it acquired all of the issued and outstanding shares of Shengde Holdings Inc., a Nevada corporation. Shengde Holdings Inc. was incorporated in the State of Nevada on February 25, 2009. On June 1, 2009, Shengde Holdings Inc. incorporated Baoding Shengde, a limited liability company organized under the laws of the PRC. Because Baoding Shengde is a wholly-owned subsidiary of Shengde Holdings Inc., it is regarded as a wholly foreign-owned entity under PRC law.

5

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

To ensure proper compliance of the Company’s control over the ownership and operations of Dongfang Paper with certain PRC regulations, on June 24, 2009, the Company entered into a series of contractual agreements (the “Contractual Agreements”) with Dongfang Paper and Dongfang Paper Equity Owners via the Company’s wholly owned subsidiary Shengde Holdings Inc. (“Shengde Holdings”) a Nevada corporation and Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”), a wholly foreign-owned enterprise in the PRC with an original registered capital of $10,000,000 (subsequently increased to $60,000,000 in June 2010). Baoding Shengde is mainly engaged in production and distribution of digital photo paper and single-use face masks and is 100% owned by Shengde Holdings. Prior to February 10, 2010, the Contractual Agreements included (i) Exclusive Technical Service and Business Consulting Agreement, which generally provides that Baoding Shengde shall provide exclusive technical, business and management consulting services to Dongfang Paper, in exchange for service fees including a fee equivalent to 80% of Dongfang Paper’s total annual net profits; (ii) Loan Agreement, which provides that Baoding Shengde will make a loan in the aggregate principal amount of $10,000,000 to Dongfang Paper Equity Owners in exchange for each such shareholder agreeing to contribute all of its proceeds from the loan to the registered capital of Dongfang Paper; (iii) Call Option Agreement, which generally provides, among other things, that Dongfang Paper Equity Owners irrevocably grant to Baoding Shengde an option to purchase all or part of each owner’s equity interest in Dongfang Paper. The exercise price for the options shall be RMB1 which Baoding Shengde should pay to each of Dongfang Paper Equity Owner for all their equity interests in Dongfang Paper; (iv) Share Pledge Agreement, which provides that Dongfang Paper Equity Owners will pledge all of their equity interests in Dongfang Paper to Baoding Shengde as security for their obligations under the other agreements described in this section. Specifically, Baoding Shengde is entitled to dispose of the pledged equity interests in the event that Dongfang Paper Equity Owners breach their obligations under the Loan Agreement or Dongfang Paper fails to pay the service fees to Baoding Shengde pursuant to the Exclusive Technical Service and Business Consulting Agreement; and (v) Proxy Agreement, which provides that Dongfang Paper Equity Owners shall irrevocably entrust a designee of Baoding Shengde with such shareholder’s voting rights and the right to represent such shareholder to exercise such owner’s rights at any equity owners’ meeting of Dongfang Paper or with respect to any equity owner action to be taken in accordance with the laws and Dongfang Paper’s Articles of Association. The terms of the agreement are binding on the parties for as long as Dongfang Paper Equity Owners continue to hold any equity interest in Dongfang Paper. A Dongfang Paper Equity Owner will cease to be a party to the agreement once it transfers its equity interests with the prior approval of Baoding Shengde. As the Company had controlled Dongfang Paper since July 16, 2007 through Dongfang Holding and the trust until June 24, 2009 and continued to control Dongfang Paper through Baoding Shengde and the Contractual Agreements, the execution of the Contractual Agreements is considered as a business combination under common control.

On February 10, 2010, Baoding Shengde and the Dongfang Paper Equity Owners entered into a Termination of Loan Agreement to terminate the above-mentioned $10,000,000 Loan Agreement. Because of the Company’s decision to fund future business expansions through Baoding Shengde instead of Dongfang Paper, the $10,000,000 loan contemplated was never made prior to the point of termination. The parties believe the termination of the Loan Agreement does not in itself compromise the effective control of the Company over Dongfang Paper and its businesses in the PRC.

An agreement was also entered into among Baoding Shengde, Dongfang Paper and the Dongfang Paper Equity Owners on December 31, 2010, reiterating that Baoding Shengde is entitled to 100% of the distributable profit of Dongfang Paper, pursuant to the above- mentioned Contractual Agreements. In addition, Dongfang Paper and the Dongfang Paper Equity Owners shall not declare any of Dongfang Paper’s unappropriated earnings as dividend, including the unappropriated earnings of Dongfang Paper from its establishment to 2010 and thereafter.

On June 25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. Upon full payment of the consideration in the amount of RMB 320 million (approximately $45 million), Dongfang Paper will gain control over substantial parcels of land that under the possession of Hebei Tengsheng.

The Company has no direct equity interest in Dongfang Paper. However, through the Contractual Agreements described above, the Company is found to be the primary beneficiary (the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective control over Dongfang Paper’s activities that most significantly affect its economic performance, resulting in Dongfang Paper being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”). The revenue generated from Dongfang Paper for the three months ended September 30, 2021 and 2020 was accounted for 97.01% and 99.34% of the Company’s total revenue, respectively. The revenue generated from Dongfang Paper for the nine months ended September 30, 2021 and 2020 was accounted for 98.89% and 98.44% of the Company’s total revenue, respectively.Dongfang Paper also accounted for 83.91% and 90.70% of the total assets of the Company as of September 30, 2021 and December 31, 2020, respectively.

6

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2021 and December 31, 2020, details of the Company’s subsidiaries and variable interest entities are as follows:

|  | Date of |  | Place of |  |  |  |
|  | Incorporation |  | Incorporation or |  | Percentage of |  |
Name |  | or Establishment |  | Establishment |  | Ownership |  | Principal Activity
Subsidiary: |  |  |  |  |  |  |  |
Dongfang Holding |  | November 13, 2006 |  | BVI |  | 100% |  | Inactive investment holding
Shengde Holdings |  | February 25, 2009 |  | State of Nevada |  | 100% |  | Investment holding
Baoding Shengde |  | June 1, 2009 |  | PRC |  | 100% |  | Paper production and distribution
Variable interest entity (“VIE”): |  |  |  |  |  |  |  |
Dongfang Paper |  | March 10, 1996 |  | PRC |  | Control* |  | Paper production and distribution

| * | Dongfang Paper is treated as a 100% controlled variable interest entity of the Company.

However, uncertainties in the PRC legal system could cause the Company’s current ownership structure to be found to be in violation of any existing and/or future PRC laws or regulations and could limit the Company’s ability, through its subsidiary, to enforce its rights under these contractual arrangements. Furthermore, shareholders of the VIE may have interests that are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the aforementioned agreements.

In addition, if the current structure or any of the contractual arrangements were found to be in violation of any existing or future PRC law, the Company may be subject to penalties, which may include, but not be limited to, the cancellation or revocation of the Company’s business and operating licenses, being required to restructure the Company’s operations or being required to discontinue the Company’s operating activities. The imposition of any of these or other penalties may result in a material and adverse effect on the Company’s ability to conduct its operations. In such case, the Company may not be able to operate or control the VIE, which may result in deconsolidation of the VIE. The Company believes the possibility that it will no longer be able to control and consolidate its VIE will occur as a result of the aforementioned risks and uncertainties is remote.

7

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company has aggregated the financial information of Dongfang Paper in the table below. The aggregate carrying value of Dongfang Paper’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 are as follows:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and bank balances |  | $ | 9,506,216 |  |  | $ | 3,315,778 |
Restricted cash |  |  | - |  |  |  | - |
Accounts receivable |  |  | 4,114,419 |  |  |  | 2,389,057 |
Inventories |  |  | 7,604,964 |  |  |  | 1,223,020 |
Prepayments and other current assets |  |  | 18,807,488 |  |  |  | 7,051,381 |
Due from related parties |  |  | 935,534 |  |  |  | 92,795 |
Total current assets |  |  | 40,968,621 |  |  |  | 14,072,031 |
Prepayment on property, plant and equipment |  |  | 30,530,114 |  |  |  | 19,617,159 |
Finance lease right-of-use assets, net |  |  | 2,288,902 |  |  |  | 2,397,653 |
Property, plant, and equipment, net |  |  | 116,276,783 |  |  |  | 133,134,932 |
Deferred tax asset non-current |  |  | 8,885,697 |  |  |  | 12,040,962 |
Total Assets |  | $ | 198,950,117 |  |  | $ | 181,262,737 |
LIABILITIES |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Short-term bank loans |  | $ | 6,320,350 |  |  | $ | 6,435,348 |
Current portion of long-term loans from credit union |  |  | 663,028 |  |  |  | 551,733 |
Lease liability |  |  | 206,606 |  |  |  | 182,852 |
Accounts payable |  |  | 354,248 |  |  |  | 592,391 |
Advance from customers |  |  | 40,075 |  |  |  | 82,625 |
Due to related parties |  |  | 22,284 |  |  |  | - |
Accrued payroll and employee benefits |  |  | 297,984 |  |  |  | 221,482 |
Other payables and accrued liabilities |  |  | 4,704,275 |  |  |  | 4,672,265 |
Income taxes payable |  |  | 439,686 |  |  |  | 259,649 |
Total current liabilities |  |  | 13,048,536 |  |  |  | 12,998,345 |
Loans from credit union |  |  | 4,517,840 |  |  |  | 4,597,772 |
Lease liability - non-current |  |  | 198,352 |  |  |  | 354,107 |
Total liabilities |  | $ | 17,764,728 |  |  | $ | 17,950,224 |

The Company and its consolidated subsidiaries are not required to provide financial support to the VIE, and no creditor (or beneficial interest holders) of the VIE have recourse to the assets of Company unless the Company separately agrees to be subject to such claims. There are no terms in any agreements or arrangements, implicit or explicit, which require the Company or its subsidiaries to provide financial support to the VIE. However, if the VIE does require financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIE.

8

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and notes required by the United States of America generally accepted accounting principles (“GAAP”) for annual financial statements are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020 of the Company, and its subsidiaries and variable interest entity (which we sometimes refer to collectively as “the Company”, “we”, “us” or “our”).

Principles of Consolidation

Our unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of September 30, 2021 and the results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for any future period.

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments 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. We believe that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.

Valuation of long-lived asset

The Company reviews the carrying value of long-lived assets to be held and used when events and circumstances warrants such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Fair Value Measurements

The Company has adopted ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

9

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts that the Company could realize in a current market exchange. As of September 30, 2021 and December 31, 2020, the carrying value of the Company’s short term financial instruments, such as cash and cash equivalents, accounts receivable, accounts and notes payable, short-term bank loans, balance due to a related party and obligation under capital lease, approximate at their fair values because of the short maturity of these instruments; while loans from credit union and loans from a related party approximate at their fair value as the interest rates thereon are close to the market rates of interest published by the People’s Bank of China.

Management determined that liabilities created by beneficial conversion features associated with the issuance of certain warrants (see “Derivativeliabilities” under Note (10), meet the criteria of derivatives and are required to be measured at fair value. The fair value of these derivative liabilities wasdetermined based on management’s estimate of the expected future cash flows required to settle the liabilities. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3.

Non-Recurring Fair Value Measurements

The Company reviews long-lived assets for impairment annually or more frequently if events or changes in circumstances indicate the possibility of impairment. For the continuing operations, long-lived assets are measured at fair value on a nonrecurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. For discontinued operations, long-lived assets are measured at the lower of carrying amount or fair value less cost to sell. The fair value of these assets were determined using models with significant unobservable inputs which were classified as Level 3 inputs, primarily the discounted future cash flow.

Share-Based Compensation

The Company uses the fair value recognition provision of ASC Topic 718, Compensation-Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period.

The Company also applies the provisions of ASC Topic 505-50, Equity Based Payments to Non-Employees to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.

(3) Restricted Cash

Restricted cash was nil as of September 30, 2021 and December 31, 2020.

10

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Inventories

Raw materials inventory includes mainly recycled paper board and recycled white scrap paper. Finished goods include mainly products of corrugating medium paper, offset printing paper and tissue paper products. Inventories consisted of the following as of September 30, 2021 and December 31, 2020:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Raw Materials |  |  |  |  |  |
Recycled paper board |  | $ | 4,869,733 |  |  | $ | 19,459 |
Recycled white scrap paper |  |  | 521,732 |  |  |  | 11,193 |
Gas |  |  | 187,506 |  |  |  | 55,473 |
Base paper and other raw materials |  |  | 476,289 |  |  |  | 181,426 |
|  |  | 6,055,260 |  |  |  | 267,551 |
Semi-finished Goods |  |  | 321,177 |  |  |  | 176,703 |
Finished Goods |  |  | 1,244,968 |  |  |  | 789,547 |
Total inventory, gross |  |  | 7,621,405 |  |  |  | 1,233,801 |
Inventory reserve |  |  | - |  |  |  | - |
Total inventory, net |  | $ | 7,621,405 |  |  | $ | 1,233,801 |

(5) Prepayments and other current assets

Prepayments and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Prepaid land lease |  | $ | 185,031 |  |  | $ | 183,912 |
Prepayment for purchase of materials |  |  | 7,804,227 |  |  |  | 10,945 |
Value-added tax recoverable |  |  | 14,565,106 |  |  |  | 5,864,989 |
Others |  |  | 443,245 |  |  |  | 991,669 |
|  | $ | 22,997,609 |  |  | $ | 7,051,515 |

(6) Property, plant and equipment, net

As of September 30, 2021 and December 31, 2020, property, plant and equipment consisted of the following:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Property, Plant, and Equipment: |  |  |  |  |  |
Land use rights |  | $ | 12,573,719 |  |  | $ | 12,497,601 |
Building and improvements |  |  | 73,347,682 |  |  |  | 81,233,162 |
Machinery and equipment |  |  | 164,041,126 |  |  |  | 163,787,807 |
Vehicles |  |  | 664,437 |  |  |  | 628,462 |
Construction in progress |  |  | 2,349,169 |  |  |  | 586,216 |
Totals |  |  | 252,976,133 |  |  |  | 258,733,248 |
Less: accumulated depreciation and amortization |  |  | (125,912,986 | ) |  |  | (113,590,606 | )
Property, Plant and Equipment, net |  | $ | 127,063,147 |  |  | $ | 145,142,642 |

As of September 30, 2021 and December 31, 2020, land use rights represented two parcels of state-owned lands located in Xushui District and Wei County of Hebei Province in China, with lease terms of 50 years expiring in 2061 and 2066, respectively.

Construction in progress mainly represents payments for paper machine of a new tissue paper production line PM10.

11

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2021 and December 31, 2020, certain property, plant and equipment of Dongfang Paper with net values of $1,313,720 and $2,349,796, respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Dongfang Paper with net values of $5,937,242 and $6,010,359, respectively, as of September 30, 2021 and December 31, 2020 was pledged for the bank loan from Industrial & Commercial Bank of China. Land use right of Hebei Tengsheng with net value of $5,594,011 and $5,560,146, respectively, as of September 30, 2021 and December 31, 2020 was pledged for a long-term loan from credit union of Baoding Shengde. In addition, land use right of Hebei Tengsheng with net value of $8,666,660 and $8,614,194, respectively, as of September 30, 2021 and December 31, 2020 was pledged for another long-term loan from credit union of Baoding Shengde. See “Short-term bank loans” under Note (7), Loans Payable, for details of the transaction and asset collaterals.

Depreciation and amortization of property, plant and equipment was $3,500,145 and $3,805,389 for the three months ended September 30, 2021 and 2020, respectively. Depreciation and amortization of property, plant and equipment was $11,659,670 and $11,301,703 for the nine months ended September 30, 2021 and 2020, respectively.

(7) Financing with Sale-Leaseback

The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate of 15.6% per annum and stated at $567,099 at the inception of the lease on August 17, 2020.

Hebei Tengsheng made payments due according to the schedule. The balance of Leased Equipment net of amortization was $2,288,902 and $2,397,653 as of September 30, 2021 and December 31, 2020, respectively. The lease liability was $404,958 and $536,959, and its current portion in the amount of $206,606 and $182,852 as of September 30, 2021 and December 31, 2020, respectively.

Amortization of the Leased Equipment was $41,208 and $12,718 for the three months ended September 30, 2021 and 2020. Amortization of the Leased Equipment was $123,663 and $12,718 for the nine months ended September 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $17,026 and $7,172 for the three months ended September 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $56,376 and $7,172 for the nine months ended September 30, 2021 and 2020.

As a result of the sale and leaseback, a deferred gain in the amount of $288,922 was recorded. The deferred gain is amortized over the lease term and as an offset to amortization of the Leased Equipment.

The future minimum lease payments of the capital lease as of September 30, 2021 were as follows:

September 30, |  | Amount |
2022 |  |  | 255,343 |
2023 |  |  | 212,786 |
Less: unearned discount |  |  | (63,170 | )
|  |  | 404,958 |
Less: Current portion lease liability |  |  | (206,606 | )
|  | $ | 198,352 |

(8) Loans Payable

Short-term bank loans

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Industrial and Commercial Bank of China (“ICBC”) |  | $ | 6,320,350 |  |  | $ | 6,435,348 |
Total short-term bank loans |  | $ | 6,320,350 |  |  | $ | 6,435,348 |

On December 11, 2020, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,320,350 and $6,435,348 as of September 30, 2021 and December 31, 2020, respectively. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785% per annum. The loan will be due and repaid at various installments by December 7, 2021.

12

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2021, there were guaranteed short-term borrowings of $6,320,350 and unsecured bank loans of $nil. As of December 31, 2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of $nil.

The average short-term borrowing rates for the three and nine months ended September 30, 2021 and 2020 were approximately 4.79%.

Long-term loans from credit union

As of September 30, 2021 and December 31, 2020, loans payable to Rural Credit Union of Xushui District, amounted to $9,652,450 and $9,594,017, respectively.

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Rural Credit Union of Xushui District Loan 1 |  | $ | 1,326,055 |  |  | $ | 1,318,028 |
Rural Credit Union of Xushui District Loan 2 |  |  | 3,854,813 |  |  |  | 3,831,476 |
Rural Credit Union of Xushui District Loan 3 |  |  | 2,467,080 |  |  |  | 2,452,145 |
Rural Credit Union of Xushui District Loan 4 |  |  | 2,004,502 |  |  |  | 1,992,368 |
Total |  |  | 9,652,450 |  |  |  | 9,594,017 |
Less: Current portion of long-term loans from credit union |  |  | (5,134,610 | ) |  |  | (4,996,245 | )
Long-term loans from credit union |  | $ | 4,517,840 |  |  | $ | 4,597,772 |

As of September 30, 2021, the Company’s long-term debt repayments for the next coming years were as follows:

Fiscal year |  | Amount |
Remainder of 2021 |  | $ | 5,134,610 |
2022 |  |  | 3,901,070 |
2023 |  |  | 616,770 |
Total |  |  | 9,652,450 |

On April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of September 30, 2021 and December 31, 2020, total outstanding loan balance was $1,326,055 and $1,318,028, respectively. Out of the total outstanding loan balance, current portion amounted were $246,708 and $214,563 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,079,347 and $11,103,465 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and will be due and payable in various installments from December 21, 2018 to June 20, 2023. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $1,313,720 and $2,349,796 as of September 30, 2021 and December 31, 2020, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $3,854,813 and $3,831,476, respectively. Out of the total outstanding loan balance, current portion amounted were $416,320 and $337,169 as of September 30, 2021 and December 31, 2020 respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $3,438,493 and $3,494,307 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6% per month. On March 22, 2021, the loan was renewed for additional one year and the repayments will be due on April 16, 2022. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $2,467,080 and $2,452,145, respectively. Out of the total outstanding loan balance, current portion amounted were $2,467,080 and $2,452,145 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

13

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate of 7.56% per annum. On March 22, 2021, the loan was extended and the repayments will be due on August 18, 2022. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $2,004,502 and $1,992,368, respectively. Out of the total outstanding loan balance, current portion amounted were $2,004,502 and $1,992,368 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2021 and 2020 were $264,644 and $251,266, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2021 and 2020 were $788,094 and $737,420, respectively.

(9) Related Party Transactions

Mr. Zhenyong Liu, the Company’s CEO has loaned money to Dongfang Paper for working capital purposes over a period of time. On January 1, 2013, Dongfang Paper and Mr. Zhenyong Liu renewed the three-year term loan previously entered on January 1, 2010, and extended the maturity date further to December 31, 2015. On December 31, 2015, the Company paid off the loan of $2,249,279, together with interest of $391,374 for the period from 2013 to 2015. Approximately $395,248 and $392,855 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017. During the year of 2016, the Company repaid $6,012,416 to Mr. Zhenyong Liu, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of September 30, 2021 and December 31, 2020, approximately $46,258 and $45,978 of interest, respectively, were outstanding to Mr. Zhenyong Liu, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

On March 1, 2015, the Company entered an agreement with Mr. Zhenyong Liu which allows Dongfang Paper to borrow from Mr. Zhenyong Liu an amount up to $17,201,342 (RMB120,000,000) for working capital purposes. The advances or funding under the agreement are due three years from the date each amount is funded. The loan is unsecured and carries an annual interest rate set on the basis of the primary lending rate of the People’s Bank of China at the time of the borrowing. On July 13, 2015, an unsecured amount of $4,324,636 was drawn from the facility. On October 14, 2016, an unsecured amount of $2,883,091 was drawn from the facility. In February 2018, the Company repaid $1,507,432 to Mr. Zhenyong Liu. The loan would be originally due on July 12, 2018. Mr. Zhenyong Liu agreed to extend the loan for additional 3 years and the remaining balance will be due on July 12, 2021. On November 23, 2018, the Company repaid $3,768,579 to Mr. Zhenyong Liu, together with interest of $158,651. In December 2019, the Company paid off the remaining balance, together with interest of $94,636. As of September 30, 2021 and December 31, 2020, the outstanding interest was $211,918 and $210,635, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

As of September 30, 2021 and December 31, 2020, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans are $nil for the three and nine months ended September 30, 2021 and 2020. The accrued interest owing to Mr. Zhenyong Liu was approximately $653,424 and $649,468, as of September 30, 2021 and December 31, 2020, respectively, which was recorded in other payables and accrued liabilities.

As of September 30, 2021 and December 31, 2020, amount due to shareholder was $727,433, which represents funds from shareholders to pay for various expenses incurred in the U.S. The amount is due on demand with interest free.

Lease of Headquarters Compound Real Properties from a Related Party

On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million, respectively. Sales of the LUR and the Industrial Buildings were completed in year 2013.

In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to three years, with an annual rental payment of approximately $154,579 (RMB1,000,000). The lease agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with Hebei Fangsheng, who agreed to extend the lease term for another four years in total, with the same rental payment as original lease agreement.

14

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(10) Other payables and accrued liabilities

Other payables and accrued liabilities consist of the following:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Accrued electricity |  | $ | 126,685 |  |  | $ | 14,544 |
Value-added tax payable |  |  | 468,596 |  |  |  | 428,481 |
Accrued interest to a related party |  |  | 653,424 |  |  |  | 649,468 |
Payable for purchase of equipment |  |  | 3,014,146 |  |  |  | 3,262,153 |
Accrued commission to salesmen |  |  | 17,067 |  |  |  | 10,917 |
Accrued bank loan interest |  |  | 790,391 |  |  |  | 429,279 |
Others |  |  | 50,934 |  |  |  | 43,759 |
Totals |  | $ | 5,121,243 |  |  | $ | 4,838,601 |

(11) Derivative Liabilities

The Company analyzed warrants for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability since the warrant becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the September 30, 2021:

|  | Nine months ended
|  | September 30,
|  | 2021
Expected term |  | 2.05 - 2.75
Expected average volatility |  | 85% - 105%
Expected dividend yield |  | -
Risk-free interest rate |  | 0.19% - 0.53%

The following table summarizes the changes in the derivative liabilities during the three months ended September 30, 2021:

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance at December 31, 2020 |  | $ | 1,115,260 |
Addition of new derivatives recognized as warrant |  |  | 9,730,919 |
Addition of new derivatives recognized as loss on derivatives |  |  | 10,813,347 |
Exercise of warrants |  |  | (2,902,119 | )
Change in fair value of derivative liability |  |  | (13,624,260 | )
Balance at September 30, 2021 |  | $ | 5,133,147 |

15

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(12) Common Stock

Issuance of common stock to investors

On April 29, 2020, the Company and certain institutional investors entered into a securities purchase agreement, as amended on May 4, 2020 (the “2020 Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock in a registered direct offering and warrants to purchase up to 4,400,000 shares of the Company’s common stock in a concurrent private placement, for gross proceeds of approximately $2.55 million (net proceeds of approximately 2.27 million). The purchase price for each share of Common Stock and the corresponding warrant was $0.58. The exercise price of the warrant was $0.7425 per share.

On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 26,181,818 shares of common stock and 26,181,818warrants to purchase up to 26,181,818 shares of common stock in a bestefforts public offering for gross proceeds of approximately $14.4 million. The purchase price for each share of common stock and the corresponding warrant was $0.55. The exercise price of the warrant was $0.55 per share.

On March 1, 2021, the Company offered and sold to the public investors an aggregate of 29,277,866 shares of common stock and 14,638,933 warrants to purchase up to 14,638,933 shares of common stock in a firm commitment underwritten public offering for gross proceeds of approximately $21.9 million. The purchase price for each share of common stock and accompanying warrant was $0.75. The exercise price of the warrant was $0.75 per share,

Issuance of common stock pursuant to the 2012 Incentive Stock Plan, 2015 Omnibus Equity Incentive and 2019 Omnibus Equity Incentive

On January 12, 2016, the Company granted an aggregate of 1,133,916 shares of common stock under its compensatory incentive plans to nine officers, directors and employees of and a consultant when the stock was at $1.25 per share, as compensation for their services in the past years, of which 168,416 shares of common stock were granted under the 2012 Incentive Stock Plan and 965,500 shares were granted under the 2015 Omnibus Equity Incentive. Please see Note (14), Stock Incentive Plans for more details. Total fair value of the stock was calculated at $1,417,395 as of the date of grant.

On September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock at $0.88 per share to fifteen officers, directors and employees of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan. Total fair value of the shares of common stock granted was calculated at $470,360 as of the date of issuance.

On April 2, 2020, the compensation committee granted an aggregate of 2,000,000 shares of restricted common stock to fifteen officers, directors and employees of the Company, which were granted under the 2019 Omnibus Equity Incentive Plan. Total fair value of the shares of common stock granted was calculated at $1,200,000 as of the date of issuance at $0.60 per share.

Issuance of common stock to a consultant

On January 2, 2020, the Company entered into an agreement with a consultant and agreed as compensation to issue to the consultant in the aggregate of 60,000 shares of common stock for merger and acquisition consulting service rendered from January 2, 2020 to January 2, 2021. 60,000 shares of common stock were issued to this consultant on April 28, 2020. Total fair value of the shares of common stock issued was calculated at $42,000 at $0.70 per share.

Issuance of common stock to a consultant

On November 2, 2020, the Company entered into an agreement with a consultant and agreed as compensation to issue to the consultant in the aggregate of 21,000 shares of common stock for investor relations consulting service rendered from November 2, 2020 to November 2, 2021. 21,000 shares of common stock were issued to this consultant on November 30, 2020. Total fair value of the shares of common stock issued was calculated at $14,700 at $0.70 per share.

16

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(13) Warrants

Pursuant to the 2020 Purchase Agreement, the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock and warrants to purchase up to 4,400,000 shares of common stock in a concurrent private placement (the “May 2020 Warrants”). The exercise price of the May 2020 Warrant is $0.7425 per share. These warrants are exercisable on July 23, 2020 and have a term of exercise equal to five years and six months from the date of issuance till July 23, 2025. 880,000 May 2020 Warrants were exercised in February 2021 at the exercise price of $0.7425 per share and 3,520,000 May 2020 Warrants were outstanding as of September 30, 2021. The Company classified warrant as liabilities and accounted for the issuance of the May 2020 Warrants as a derivative.

On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 26,181,818 shares of common stock and 26,181,818warrants to purchase up to 26,181,818 shares of common stock (the “January 2021 Warrants”). The January 2021 Warrants are exercisable commencing on January 20, 2021 at an exercise price of $0.55 and will expire on January 20, 2026. 14,106,900 January 2021 Warrants were exercised in January and February of 2021 at the exercise price of $0.55 per share. 12,074,918 January 2021 Warrants were outstanding as of September 30, 2021.

On March 1, 2021, the Company offered and sold to the public investors an aggregate of 29,277,866 shares of common stock and 14,638,933 warrants to purchase up to 14,638,933 shares of common stock (the “March 2021 Warrants”). The March 2021Warrants are exercisable commencing on March 1, 2021 at an exercise price of $0.75 and will expire on March 1, 2026. 67,500 March 2021 Warrants were exercised in January and March 2021 at the exercise price of $0.75 per share and 14,571,433 March 2021 Warrants were outstanding as of September 30, 2021.

The Company classified warrants as liabilities and accounted for the issuance of the warrants as a derivative.

A summary of warrant activities is as below:

|  | Nine months Ended September 30, 2021 |
|  | Number |  |  | Weight average exercise price |
Outstanding and exercisable at beginning of the period |  |  | 4,400,000 |  |  | $ | 0.7425 |
Issued during the period |  |  | 40,820,751 |  |  |  | 0.622 |
Exercised during the period |  |  | (15,054,400 | ) |  |  | 0.5621 |
Cancelled or expired during the period |  |  | - |  |  |  | - |
Outstanding and exercisable at end of the period |  |  | 30,166,351 |  |  | $ | 0.6691 |

17

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2021.

Warrants Outstanding |  |  | Warrants Exercisable |
|  |  | Weighted Average |  |  |  |  |  | Number of |  |  |  |
|  |  | Remaining |  |  |  |  |  | Shares |  |  |  |
Number of |  |  | Contractual life |  |  | Weighted Average |  |  | Underlying |  |  | Weighted Average |
Shares |  |  | (in years) |  |  | Exercise Price |  |  | the Warrants |  |  | Exercise Price |
| 30,166,351 |  |  |  | 4.34 |  |  | $ | 0.6691 |  |  |  | 30,166,351 |  |  | $ | 0.6691 |

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at December 31, 2020 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). The intrinsic value of the warrants as of September 30, 2021 is $nil.

(14) Earnings Per Share

For the three months ended September 30, 2021 and 2020, basic and diluted net income per share are calculated as follows:

|  | Three Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Basic income (loss) per share |  |  |  |  |  |
Net income (loss) for the period - numerator |  | $ | 1,542,576 |  |  | $ | (520,974 | )
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Net income (loss) per share |  | $ | 0.03 |  |  | $ | (0.02 | )
Diluted income per share |  |  |  |  |  |  |  |
Net income for the period- numerator |  | $ | 1,542,576 |  |  | $ | (520,974 | )
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Effect of dilution |  |  | - |  |  |  | - |
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Diluted income (loss) per share |  | $ | 0.03 |  |  | $ | (0.02 | )

For the nine months ended September 30, 2021 and 2020, basic and diluted net income per share are calculated as follows:

|  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Basic loss per share |  |  |  |  |  |
Net loss for the period - numerator |  | $ | (3,249,528 | ) |  | $ | (3,937,292 | )
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Net loss per share |  | $ | (0.06 | ) |  | $ | (0.15 | )
Diluted loss per share |  |  |  |  |  |  |  |
Net loss for the period - numerator |  | $ | (3,249,528 | ) |  | $ | (3,937,292 | )
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Effect of dilution |  |  | - |  |  |  | - |
Weighted average common stock outstanding - denominator |  |  | 54,196,300 |  |  |  | 25,816,354 |
Diluted loss per share |  | $ | (0.06 | ) |  | $ | (0.15 | )

For the three and nine months ended September 30, 2021 and 2020 there were no securities with dilutive effect issued and outstanding.

18

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(15) Income Taxes

United States

The Company and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S. federal tax and state statutory tax rates up to 34% and 0%, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “2017 TCJA”), which significantly changed U.S. tax law. The 2017 TCJAlowered the Company’s U.S. statutory federal income tax rate from the highest rate of 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income which requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for enactment effects of the 2017 TCJA. SAB 118 provides a measurement period of up to one year from the 2017 TCJA’s enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017 TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 TCJA.

Transition tax: The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s non-U.S. subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. The Company was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional income tax expense of approximately $80,000 in the fourth quarter of 2017. However, the Company is continuing to gather additional information and will consider additional technical guidance to more precisely compute and account for the amount of the transition tax. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The 2017 TCJA’s transition tax is payable over eight years beginning in 2018.

PRC

Dongfang Paper and Baoding Shengde are PRC operating companies and are subject to PRC Enterprise Income Tax. Pursuant to the PRC New Enterprise Income Tax Law, Enterprise Income Tax is generally imposed at a statutory rate of 25%.

The provisions for income taxes for three months ended September 30, 2021 and 2020 were as follows:

|  | Three Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
Provision for Income Taxes |  |  |  |  |  |
Current Tax Provision U.S. |  | $ | 14,717 |  |  | $ | 14,717 |
Current Tax Provision PRC |  |  | 443,028 |  |  |  | 572,686 |
Deferred Tax Provision PRC |  |  | (529,133 | ) |  |  | (561,055 | )
Total Provision for (Deferred tax benefit)/ Income Taxes |  | $ | (71,388 | ) |  | $ | 26,348 |

The provisions for income taxes for nine months ended September 30, 2021 and 2020 were as follows:

|  | Nine Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
Provision for Income Taxes |  |  |  |  |  |
Current Tax Provision U.S. |  | $ | 14,717 |  |  | $ | 14,747 |
Current Tax Provision PRC |  |  | 1,700,721 |  |  |  | 988,589 |
Deferred Tax Provision PRC |  |  | 3,235,556 |  |  |  | (1,582,754 | )
Total Provision for (Deferred tax benefit)/ Income Taxes |  | $ | 4,950,994 |  |  | $ | (579,418 | )

19

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition to the reversible future PRC income tax benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset depreciation, the Company was incorporated in the United States and incurred net operating losses of approximately $2,508,797 and $0 for U.S. income tax purposes for the years ended December 31, 2020 and 2019, respectively. The net operating loss carried forward may be available to reduce future years’ taxable income. These carry forwards would expire, if not utilized, during the period of 2030 through 2035. As of September 30, 2021, management believed that the realization of all the U.S. income tax benefits from these losses, which generally would generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, As of September 30, 2021, the Company provided a 100% valuation allowance on the U.S. deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable for the PRC income tax purposes. Management reviews this valuation allowance periodically and will make adjustments as warranted. A summary of the otherwise deductible (or taxable) deferred tax items is as follows:

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Deferred tax assets (liabilities) |  |  |  |  |  |
Depreciation and amortization of property, plant and equipment |  | $ | 14,154,457 |  |  | $ | 12,397,323 |
Impairment of property, plant and equipment |  |  | 748,873 |  |  |  | 680,800 |
Miscellaneous |  |  | 290,174 |  |  |  | 258,963 |
Net operating loss carryover of PRC company |  |  | 371,146 |  |  |  | 371,544 |
Total deferred tax assets |  |  | 15,564,650 |  |  |  | 13,708,630 |
Less: Valuation allowance |  |  | 5,000,000 |  |  |  | - |
Total deferred tax assets, net |  | $ | 10,564,650 |  |  |  | 13,708,630 |

The following table reconciles the statutory rates to the Company’s effective tax rate:

|  | Three Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
PRC Statutory rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of different tax jurisdiction |  |  |  |  |  |  |  |
Effect of reconciling items in the PRC for tax purposes |  |  | (29.9 | %) |  |  | (30.3 | %)
Change in valuation allowance |  |  |  |  |  |  | - |
Effective income tax rate |  |  |  |  |  |  | - |
|  |  | (4.9 | %) |  |  | (5.3 | %)

|  | Nine Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
PRC Statutory rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of different tax jurisdiction |  |  |  |  |  |  |  |
Effect of reconciling items in the PRC for tax purposes |  |  | (27.9 | ) |  |  | (12.2 | )
(Over) Under-provision in previous year |  |  |  |  |  |  |  |
Change in valuation allowance |  |  | 293.9 |  |  |  | - |
|  |  | 291.0 | % |  |  | 12.8 | %

During the three months ended September 30, 2021 and 2020, the effective income tax rate was estimated by the Company to be -4.9% and -5.3%, respectively.

During the nine months ended September 30, 2021 and 2020, the effective income tax rate was estimated by the Company to be 291.0% and 12.8%, respectively.

As of December 31, 2017, except for the one-time transition tax under the 2017 TCJA which imposes a U.S. tax liability on all unrepatriated foreign E&Ps, the Company does not believe that its future dividend policy and the available U.S. tax deductions and net operating losses will cause the Company to recognize any other substantial current U.S. federal or state corporate income tax liability in the near future. Nor does it believe that the amount of the repatriation of the VIE’s earnings and profits for purposes of paying dividends will change the Company’s position that its PRC subsidiary Baoding Shengde and the VIE, Dongfang Paper are considered or are expected to be indefinitely reinvested offshore to support our future capacity expansion. If these earnings are repatriated to the U.S. resulting in U.S. taxable income in the future, or if it is determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required.

20

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company has adopted ASC Topic 740-10-05, Income Taxes. To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2021 and December 31, 2020, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the nine months ended September 30, 2021 and 2020, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.

(16) Stock Incentive Plans

2019 Incentive Stock Plan

On October 31, 2019, the shareholders of the Company at the Company’s Annual Shareholders General Meeting adopted and approved the 2019 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc. (the “2019 ISP”). Under the 2019 ISP, the Company has reserved a total of 2,000,000 shares of common stock for issuance as or under awards to be made to the directors, officers, employees and/or consultants of the Company and its subsidiaries. On April 2, 2020, 2,000,000 shares of common stock were granted under the 2019 ISP. Total fair value of the shares of common stock granted was calculated at $1,200,000 as of the date of issuance at $0.60 per share.

(17) Commitments and Contingencies

Operating Lease

The Company leases 32.95 acres of land from a local government in Xushui District, Baoding City, Hebei, China through a real estate lease with a 30-year term, which expires on December 31, 2031. The lease requires an annual rental payment of approximately $18,549 (RMB120,000). This operating lease is renewable at the end of the 30-year term.

As mentioned in Note (8) Related Party Transactions, in connection with the sale of Industrial Buildings to Hebei Fangsheng, Hebei Fangsheng agrees to lease the Industrial Buildings back to the Company at an annual rental of $154,579 (RMB1,000,000), for a total term of up to five years.

21

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Future minimum lease payments of all operating leases are as follows:

September 30, |  | Amount |
2022 |  |  | 146,997 |
2023 |  |  | 18,503 |
2024 |  |  | 18,503 |
2025 |  |  | 18,503 |
2026 |  |  | 18,503 |
Thereafter |  |  | 97,141 |
Total operating lease payments |  | $ | 318,151 |

Capital commitment

As of September 30, 2021, the Company has entered contract for the purchase of paper machine of a new tissue paper production line PM10. Total outstanding commitments under these contracts were $ 6,491,981 and $4,570,331 as of September 30, 2021 and December 31, 2020, respectively. The Company expected to pay off all the balances within 1-3 years.

On June 25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. The consideration for the acquisition is RMB320 million (approximately $49 million), of which $32 million was paid by the Company, and the balance consideration of $17 million is payable by December 31, 2021.

Guarantees and Indemnities

The Company agreed with Baoding Huanrun Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third party, and as of September 30, 2021 and December 31, 2020, the Company guaranteed its long-term loan from financial institutions amounting to $4,779,967 (RMB31,000,000) and $4,779,967 (RMB31,000,000), respectively, that matured at various times in 2018-2023. If Huanrun Trading Co., were to become insolvent, the Company could be materially adversely affected.

(18) Segment Reporting

Since March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through two business operating segments: Dongfang Paper, which produces offset printing paper and corrugating medium paper, and Baoding Shengde, which produces digital photo paper. They are managed separately because each business requires different technology and marketing strategies.

The Company evaluates performance of its operating segments based on net income. Administrative functions such as finance, treasury, and information systems are centralized. However, where applicable, portions of the administrative function expenses are allocated between the operating segments based on gross revenue generated. The operating segments do share facilities in Xushui County, Baoding City, Hebei Province, China. All sales were sold to customers located in the PRC.

22

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Summarized financial information for the three reportable segments is as follows:

|  | Three Months Ended |
|  | September 30, 2021 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Revenues |  | $ | 42,123,855 |  |  | $ | 2,508,611 |  |  | $ | 2,789,071 |  |  | $ | - |  |  | $ | (2,333,866 | ) |  | $ | 45,087,671 |
Gross profit |  |  | 2,026,870 |  |  |  | (249,996 | ) |  |  | 44,662 |  |  |  | - |  |  |  | - |  |  |  | 1,821,536 |
Depreciation and amortization |  |  | 1,215,907 |  |  |  | 1,918,917 |  |  |  | 432,437 |  |  |  | - |  |  |  | - |  |  |  | 3,567,261 |
Interest income |  |  | 8,222 |  |  |  | 370 |  |  |  | 3,452 |  |  |  | - |  |  |  | - |  |  |  | 12,044 |
Interest expense |  |  | 180,270 |  |  |  | 17,026 |  |  |  | 84,374 |  |  |  | - |  |  |  | - |  |  |  | 281,670 |
Income tax expense(benefit) |  |  | 320,249 |  |  |  | (396,715 | ) |  |  | 5,078 |  |  |  | - |  |  |  | - |  |  |  | (71,388 | )
Net income (loss) |  |  | 956,901 |  |  |  | (1,258,593 | ) |  |  | (56,897 | ) |  |  | 1,901,165 |  |  |  | - |  |  |  | 1,542,576 |

|  | Three Months Ended |
|  | September 30, 2020 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | of Inter-segment |  |  | consolidated |
Revenues |  | $ | 30,756,297 |  |  | $ | 2,380,052 |  |  | $ | 221,102 |  |  | $ | - |  |  | $ | - |  |  | $ | 33,357,451 |
Gross profit |  |  | 2,888,037 |  |  |  | (345,084 | ) |  |  | 24,598 |  |  |  | - |  |  |  | - |  |  |  | 2,567,551 |
Depreciation and amortization |  |  | 1,645,309 |  |  |  | 2,155,505 |  |  |  | 4,575 |  |  |  | - |  |  |  | - |  |  |  | 3,805,389 |
Interest income |  |  | 6,544 |  |  |  | 977 |  |  |  | 1,023 |  |  |  | - |  |  |  | - |  |  |  | 8,544 |
Interest expense |  |  | 172,003 |  |  |  | 7,172 |  |  |  | 79,263 |  |  |  | - |  |  |  | - |  |  |  | 258,438 |
Income tax expense(benefit) |  |  | 578,029 |  |  |  | (538,191 | ) |  |  | -13,490 |  |  |  | - |  |  |  | - |  |  |  | 26,348 |
Net income (loss) |  |  | 1,722,774 |  |  |  | (1,394,727 | ) |  |  | (67,334 | ) |  |  | (781,687 | ) |  |  | - |  |  |  | (520,974 | )

|  | Nine Months Ended |
|  | September 30, 2021 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | of Inter-segment |  |  | consolidated |
Revenues |  | $ | 108,949,261 |  |  |  | 6,487,027 |  |  |  | 5,714,288 |  |  |  | - |  |  |  | (5,318,563 | ) |  |  | 115,832,013 |
Gross profit |  |  | 7,523,100 |  |  |  | (938,454 | ) |  |  | 96,915 |  |  |  | - |  |  |  | - |  |  |  | 6,681,561 |
Depreciation and amortization |  |  | 3,976,098 |  |  |  | 6,459,845 |  |  |  | 1,297,721 |  |  |  | - |  |  |  | - |  |  |  | 11,733,664 |
Interest income |  |  | 19,202 |  |  |  | 1,176 |  |  |  | 7,718 |  |  |  | - |  |  |  | - |  |  |  | 28,096 |
Interest expense |  |  | 537,831 |  |  |  | 56,376 |  |  |  | 250,263 |  |  |  | - |  |  |  | - |  |  |  | 844,470 |
Income tax expense(benefit) |  |  | 1,355,079 |  |  |  | 3,582,328 |  |  |  | (1,130 | ) |  |  | 14,717 |  |  |  | - |  |  |  | 4,950,994 |
Net income (loss) |  |  | 3,892,107 |  |  |  | (9,219,504 | ) |  |  | (210,718 | ) |  |  | 2,288,587 |  |  |  | - |  |  |  | (3,249,528 | )

|  | Nine Months Ended |
|  | September 30, 2020 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | of Inter-segment |  |  | consolidated |
Revenues |  | $ | 61,630,714 |  |  |  | 5,766,207 |  |  |  | 1,066,654 |  |  |  |  |  |  |  |  |  |  |  | 68,463,575 |
Gross profit (loss) |  |  | 5,859,599 |  |  |  | (1,430,934 | ) |  |  | 527,997 |  |  |  |  |  |  |  |  |  |  |  | 4,956,662 |
Depreciation and amortization |  |  | 4,769,348 |  |  |  | 6,396,006 |  |  |  | 136,349 |  |  |  |  |  |  |  |  |  |  |  | 11,301,703 |
Interest income |  |  | 19,638 |  |  |  | 1,524 |  |  |  | 2,623 |  |  |  |  |  |  |  |  |  |  |  | 23,785 |
Interest expense |  |  | 505,000 |  |  |  | 7,172 |  |  |  | 232,420 |  |  |  |  |  |  |  |  |  |  |  | 744,592 |
Income tax expense(benefit) |  |  | 927,129 |  |  |  | (1,586,876 | ) |  |  | 65,612 |  |  |  |  |  |  |  |  |  |  |  | (579,418 | )
Net income (loss) |  |  | 2,667,923 |  |  |  | (4,338,839 | ) |  |  | 56,764 |  |  |  |  |  |  |  |  |  |  |  | (3,937,292 | )

23

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

|  | As of September 30, 2021 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Total assets |  | $ | 105,220,080 |  |  |  | 93,730,035 |  |  |  | 28,402,322 |  |  |  | 9,325,881 |  |  |  | - |  |  |  | 236,678,318 |

|  | As of December 31, 2020 |
|  | Dongfang |  |  | Hebei |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Tengsheng |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Total assets |  | $ | 79,206,447 |  |  |  | 102,056,291 |  |  |  | 18,589,570 |  |  |  | 22,166 |  |  |  | - |  |  |  | 199,874,474 |

(19) Concentration and Major Customers and Suppliers

For the three and nine months ended September 30, 2021, the Company had no single customer contributed over 10% of total sales.

For the three and nine months ended September 30, 2020, the Company had no single customer contributed over 10% of total sales.

For the three months ended September 30, 2021, the Company had three major suppliers accounted for 74%, 12% and 5% of total purchases.

For the three months ended September 30, 2020, the Company had three major suppliers accounted for 75%, 11% and 3% of total purchases.

For the nine months ended September 30, 2021, the Company had two major suppliers accounted for 78% and 11% of total purchases.

For the nine months ended September 30, 2020, the Company had three major suppliers accounted for 74%, 11% and 4% of total purchases.

24

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(20) Concentration of Credit Risk

Financial instruments for which the Company is potentially subject to concentration of credit risk consist principally of cash. The Company places its cash in reputable financial institutions in the PRC and the United States. Although it is generally understood that the PRC central government stands behind all of the banks in China in the event of bank failure, there is no deposit insurance system in China that is similar to the protection provided by the Federal Deposit Insurance Corporation (“FDIC”) of the United States as of as of September 30, 2021 and December 31, 2020. On May 1, 2015, the new “Deposit Insurance Regulations” was effective in the PRC that the maximum protection would be up to RMB500,000 (US$77,096) per depositor per insured financial intuition, including both principal and interest. For the cash placed in financial institutions in the United States, the Company’s U.S. bank accounts are all fully covered by the FDIC insurance as of September 30, 2021 and December 31, 2020, respectively, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to RMB109,299,409 (US$16,853,148) as of September 30, 2021.

(21) Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange rates, and operating in the PRC under its various laws and restrictions.

(22) Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.

(23) Subsequent Event

None.

25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward-Looking Statements

The following discussion of the financial condition and results of operations of the Company for the periods ended September 30, 2021 and 2020 should be read in conjunction with the financial statements and the notes to the financial statements that are included elsewhere in this quarterly report.

In this quarterly report, references to “the Company,” “we,” “our” and “us” refer to IT Tech Packaging, Inc. and its PRC subsidiary and variable interest entity unless the context requires otherwise.

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our products, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “project”, “target”, “can”, “could”, “may”, “should”, “will”, “would”, and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions may prove to be incorrect. Our actual results and financial position may vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) should be considered in evaluating forward-looking statements. In evaluating the forward-looking statements contained in this report, you should consider various factors, including, without limitation, the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitably, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, and (d) whether we are able to successfully fulfill our primary requirements for cash. We assume no obligation to update forward-looking statements, except as otherwise required under federal securities laws.

Impact of COVID-19 on Our Operations and Financial Performance

Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition, and results of operations. The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. Substantially all of our revenues and workforce are concentrated in China. In response to the intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions, which included extending the Chinese New Year holiday, quarantining individuals suspected of having COVID-19, asking residents in China to stay at home and to avoid public gathering, among other things. During the early part of 2020, COVID-19 caused temporary closure of our CMP production, and as a result, our revenue of CMP decreased by 49.89 % in the first quarter of 2020. It is, however, still unclear how the pandemic will evolve going forward, and we cannot assure you whether the COVID-19 pandemic will again bring about significant negative impact on our business operations, financial condition and operating results, including but not limited to negative impact to our total revenues.

While we have resumed business operations, there remain significant uncertainties surrounding the COVID-19 outbreak and its further development as a global pandemic. Hence, the extent of the business disruption and the related impact on our financial results and outlook for the rest of 2021 cannot be reasonably estimated at this time. The extent to which the COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We are still assessing our business operations and the total impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally.

Recent Development

In November 2020, we completed inviting bids for the 75 tonne per hour biomass boiler procurement for our biomass cogeneration project (the “Cogeneration Project”). Multiple well-known enterprises in the biomass industry participated in tendering opening bids. In February 2021, we completed evaluation on the bidding proposals and announced that Tai Shan Group Co., Ltd., a top manufacturer in the biomass industry in China, has won the bid. Installation of the boilers is expected to commence in the near future. We expect to participate in the bidding process for urban central heating projects. In April 2021, the Company obtained qualification to supply central heating in industrial parks for the Cogeneration Project.

On April 2021, the Company announced it has completed fundamental constructions on its new tissue paper production line (the “PM10”) and is working on the installation of accessory equipment.

26

Results of Operations

Comparison of the Three months ended September 30, 2021 and 2020

Revenue for the three months ended September 30, 2021 was $45,087,671, an increase of $11,730,220, or 35.17%, from $33,357,451 for the same period in the previous year. This was mainly due to the increase in sales volume of regular corrugating medium paper (“regular CMP”) and the increase in Average Selling Prices (ASPs) of CMP and tissue paper products.

Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products

Revenue from sales of offset printing paper, corrugating medium paper (“CMP”) and tissue paper products for the three months ended September 30, 2021 was $44,935,480, an increase of $11,799,131, or 35.61%, from $33,136,349 for the third quarter of 2020. Total offset printing paper, CMP and tissue paper products sold during the three months ended September 30, 2021 amounted to 84,135 tonnes, an increase of 10,009 tonnes, or 13.50%, compared to 74,126 tonnes sold in the comparable period in the previous year. The changes in revenue dollar amount and in quantity sold for the three months ended September 30, 2021 and 2020 are summarized as follows:

|  | Three Months Ended |  |  | Three Months Ended |  |  |  |  |  |  |  |  | Percentage |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | Change in |  |  | Change |
Sales Revenue |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity |  |  | Amount |
Regular CMP |  |  | 61,947 |  |  | $ | 31,200,984 |  |  |  | 48,107 |  |  | $ | 19,553,861 |  |  |  | 13,840 |  |  | $ | 11,647,123 |  |  |  | 28.77 | % |  |  | 59.56 | %
Light-Weight CMP |  |  | 12,497 |  |  | $ | 6,127,480 |  |  |  | 12,884 |  |  | $ | 5,076,133 |  |  |  | (387 | ) |  | $ | 1,051,347 |  |  |  | -3.00 | % |  |  | 20.71 | %
Total CMP |  |  | 74,444 |  |  | $ | 37,328,464 |  |  |  | 60,991 |  |  | $ | 24,629,994 |  |  |  | 13,453 |  |  | $ | 12,698,470 |  |  |  | 22.06 | % |  |  | 51.56 | %
Offset Printing Paper |  |  | 7,045 |  |  | $ | 4,795,391 |  |  |  | 10,280 |  |  | $ | 6,126,303 |  |  |  | (3,235 | ) |  | $ | (1,330,912 | ) |  |  | (31.47 | )% |  |  | (21.72 | )%
Tissue Paper Products |  |  | 2,646 |  |  | $ | 2,811,625 |  |  |  | 2,855 |  |  | $ | 2,380,052 |  |  |  | (209 | ) |  | $ | 431,573 |  |  |  | -7.32 | % |  |  | 18.13 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  |  | 84,135 |  |  | $ | 44,935,480 |  |  |  | 74,126 |  |  | $ | 33,136,349 |  |  |  | 10,009 |  |  | $ | 11,799,131 |  |  |  | 13.50 | % |  |  | 35.61 | %

Monthly sales revenue for the 24 months ended September 30, 2021, are summarized below:

27

The Average Selling Prices (ASPs) for our main products in the three months ended September 30, 2021 and 2020 are summarized as follows:

|  | Offset Printing Paper ASP |  |  | Regular CMP ASP |  |  | Light-Weight CMP ASP |  |  | Tissue Paper Products ASP |
Three Months ended September 30, 2020 |  | $ | 596 |  |  | $ | 406 |  |  | $ | 394 |  |  | $ | 834 |
Three Months ended September 30, 2021 |  | $ | 681 |  |  | $ | 504 |  |  | $ | 490 |  |  | $ | 1,063 |
Increase from comparable period in the previous year |  | $ | 85 |  |  | $ | 98 |  |  | $ | 96 |  |  | $ | 229 |
Increase by percentage |  |  | 14.26 | % |  |  | 24.14 | % |  |  | 24.37 | % |  |  | 27.46 | %

The following chart shows the month-by-month ASPs for the 24-month period ended September 30, 2021:

Corrugating Medium Paper

Revenue from CMP amounted to $37,328,464 (83.07% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2021, representing an increase of $12,698,470, or 51.56%, from $24,629,994 for the comparable period in 2020.

We sold 74,444 tonnes of CMP in the three months ended September 30, 2021 as compared to 60,991 tonnes for the same period in 2020, representing a 22.06% increase in quantity sold.

ASP for regular CMP increased from $406/tonne for the three months ended September 30, 2020 to $504/tonne for the three months ended September 30, 2021, representing a 24.14% increase. ASP in RMB for regular CMP for the third quarter of 2020 and 2021 was RMB2,816 and RMB3,259, respectively, representing a 15.73% increase. The quantity of regular CMP sold increased by 13,840 tonnes, from 48,107 tonnes in the third quarter of 2020 to 61,947 tonnes in the third quarter of 2021.

ASP for light-weight CMP increased from $394/tonne for the three months ended September 30, 2020 to $490/tonne for the three months ended September 30, 2021, representing a 24.37% increase. ASP in RMB for light-weight CMP for the third quarter of 2020 and 2021 was RMB2,727 and RMB3,173, respectively, representing a 16.35% increase. The quantity of light-weight CMP sold decreased by 387 tonnes, from 12,884 tonnes in the third quarter of 2020, to 12,497 tonnes in the third quarter of 2021.

Our PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year. The utilization rates for the third quarter of 2021 and 2020 were 67.42% and 53.77%, respectively, representing an increase of 13.65%.

28

Quantities sold for regular CMP that was produced by the PM6 production line from October 2019 to September 2021 are as follows:

Tissue Paper Products

Revenue from tissue paper products was $2,811,625 (6.26% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2021, representing an increase of $431,573, or 18.13%, from $2,380,052 for the three months ended September 30, 2020. We sold 2,646 tonnes of tissue paper in the third quarter of 2021, as compared to 2,855 tonnes in the comparable period of 2020, representing a decrease of 209 tonnes, or 7.32%.

ASP for tissue paper products increased from $834/tonne for the three months ended September 30, 2020 to $1,063/tonne for the three months ended September 30, 2021, representing a 27.46% increase. ASP in RMB for tissue paper products for the third quarter of 2020 and 2021 was RMB5,766 and RMB6,875, respectively, representing a 19.23% increase.

Offset printing paper

Revenue from offset printing paper was $4,795,391 (10.67% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2021, representing a decrease of $1,330,912, or 21.72%, from $6,126,303 for the three months ended September 30, 2020. We sold 7,045 tonnes of offset printing paper in the third quarter of 2021, as compared to 10,280 tonnes in the comparable period of 2020, a decrease of 3,235 tonnes, or 31.47%. ASPs for offset printing paper for the third quarter of 2020 and 2021 were $596 and $681, respectively, representing a 14.26% increase. ASP in RMB for offset printing paper for the third quarter of 2020 and 2021 was RMB4,159 and RMB4,404, respectively, representing a 5.89% increase.

29

Revenue of Face Mask

On April 29, 2020, we launched production line of non-medical single-use face masks, following completion of raw materials preparation, trial run of the equipment and the sample products inspection. Revenue generated from selling face mask were $152,191 and $221,102 for the three months ended September 30, 2021 and 2020. We sold 3,180 thousand pieces of face masks in the third quarter of 2021, as compared to 3,576 thousand pieces in the comparable period of 2020, a decrease of 396 thousand pieces, or 31.17%.

Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended September 30, 2021 was $43,145,052, an increase of $12,551,657, or 41.03%, from $30,593,395 for the comparable period in 2020. This was mainly due to the increase in sales quantity of regular CMP and the increase in material costs.

Cost of sales for CMP was $36,069,192 for the quarter ended September 30, 2021, as compared to $22,898,910 for the comparable period in 2020. The increase in the cost of sales of $13,170,282 for CMP was mainly due to the increase in sales volume of regular CMP and the increase in average cost of sales. Average cost of sales per tonne for CMP increased by 29.33%, from $375 in the third quarter of 2020 to $485 in the third quarter of 2021. The increase in average cost of sales was mainly attributable to the higher average unit purchase costs (net of applicable value added tax) of recycled paper board in the third quarter of 2021 compared to the third quarter of 2020.

Cost of sales for offset printing paper was $4,018,447 for the quarter ended September 30, 2021, as compared to $4,969,350 for the comparable period in 2020. The decrease in cost of sales of offset printing paper was mainly due to the decrease in sales volume, partially offset by the increase in average cost of sales of offset printing paper. Average cost of sales per tonne of offset printing paper increased by 18.01%, from $483 in the three months ended September 30, 2020, to $570 during the comparable period in 2021. The increase in average cost of sales of offset printing paper was mainly due to the increase in average unit purchase costs (net of applicable value added tax) of recycled white scrap paper.

Cost of sales for tissue paper products was $3,057,413 for the quarter ended September 30, 2021, as compared to $2,725,135 for the comparable period in 2020. The increase in the cost of sales of $332,278 for tissue paper products was mainly due to the increase in average cost of sales, partially offset by the decrease in sales volume of tissue paper products. Average cost of sales per tonne of tissue paper products increased by 20.94%, from $955 in the three months ended September 30, 2020, to $1,155 for the comparable period in 2021. This is mainly due to the increase in cost of tissue base paper.

Changes in cost of sales and cost per tonne by product for the quarters ended September 30, 2021 and 2020 are summarized below:

|  | Three Months Ended |  |  | Three Months Ended |  |  |  |  |  |  |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | Change in |  |  | Change in percentage |
|  | Cost of Sales |  |  | Cost per Tonne |  |  | Cost of Sales |  |  | Cost per Tonne |  |  | Cost of Sales |  |  | Cost per Tonne |  |  | Cost of Sales |  |  | Cost per Tone |
Regular CMP |  | $ | 30,284,195 |  |  | $ | 489 |  |  | $ | 18,301,720 |  |  | $ | 380 |  |  | $ | 11,982,475 |  |  | $ | 109 |  |  |  | 65.47 | % |  |  | 28.68 |
Light-Weight CMP |  | $ | 5,784,997 |  |  | $ | 463 |  |  | $ | 4,597,190 |  |  | $ | 357 |  |  | $ | 1,187,807 |  |  | $ | 106 |  |  |  | 25.84 | % |  |  | 29.69 |
Total CMP |  | $ | 36,069,192 |  |  | $ | 485 |  |  | $ | 22,898,910 |  |  | $ | 375 |  |  | $ | 13,170,282 |  |  | $ | 110 |  |  |  | 57.51 | % |  |  | 29.33 |
Offset Printing Paper |  | $ | 4,018,447 |  |  | $ | 570 |  |  | $ | 4,969,350 |  |  | $ | 483 |  |  | $ | (950,903 | ) |  | $ | 87 |  |  |  | -19.14 | % |  |  | 18.01 |
Tissue Paper Products |  | $ | 3,057,413 |  |  | $ | 1,155 |  |  |  | 2,725,135 |  |  | $ | 955 |  |  | $ | 332,278 |  |  | $ | 200 |  |  |  | 12.19 | % |  |  | 20.94 |
Total CMP, Offset Printing Paper and Tissue Paper |  | $ | 43,145,052 |  |  | $ | n/a |  |  | $ | 30,593,395 |  |  | $ | n/a |  |  | $ | 12,551,657 |  |  | $ | n/a |  |  |  | 41.03 | % |  |  | n/a |

Our average unit purchase costs (net of applicable value added tax) of recycled paper board and recycled white scrap paper in the three months ended September 30, 2021 were RMB 1,966/tonne (approximately $304/tonne) and RMB 2,319/tonne (approximately $358/tonne), as compared to RMB 1,754/tonne (approximately $251/tonne) and RMB 2,078/tonne (approximately $297/tonne) for the three months ended September 30, 2020. These changes (in US dollars) represent a year-over-year increase of 21.12% for the recycled paper board. We use domestic recycled paper (sourced mainly from the Beijing-Tianjin metropolitan area) exclusively. Although we do not rely on imported recycled paper, the pricing of which tends to be more volatile than domestic recycled paper, our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled paper.

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The pricing trends of our major raw materials for the 24-month period from October 2019 to September 2021 are shown below:

Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 4% and 10.8% of total sales in the third quarter of 2021, respectively, compared to 4% and 10.9% of total sales in the third quarter of 2020. The monthly energy cost as a percentage of total monthly sales of our main paper products for the 24 months ended September 30, 2021 are summarized as follows:

Gross Profit

Gross profit for the three months ended September 30, 2021 was $1,821,536 (4.04% of the total revenue), representing a decrease of $746,015, or 29.06%, from the gross profit of $2,567,551 (7.70% of the total revenue) for the three months ended September 30, 2020, as a result of factors described above.

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Offset Printing Paper, CMP and Tissue Paper Products

Gross profit for offset printing paper, CMP and tissue paper products for the three months ended September 30, 2021 was $1,790,428, a decrease of $752,526, or 29.59%, from the gross profit of $2,542,954 for the three months ended September 30, 2020. The decrease was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products decreased by 3.69 percentage points, from 7.67% for the three months ended September 30, 2020, to 3.98% for the three months ended September 30, 2021.

Gross profit margin for regular CMP for the three months ended September 30, 2021 was 2.94%, or 3.46 percentage points lower, as compared to gross profit margin of 6.40% for the three months ended September 30, 2020. Such decrease was mainly due to the increase in cost of recycled paper board, partially offset by the increase of ASP of regular CMP in the third quarter of 2021.

Gross profit margin for light-weight CMP for the three months ended September 30, 2021 was 5.59%, or 3.85 percentage points lower, as compared to gross profit margin of 9.44% for the three months ended September 30, 2020. The decrease was mainly due to the increase in cost of recycled paper board, partially offset by the increase in ASP of light-weight CMP in the third quarter of 2021.

Gross profit margin for offset printing paper was 16.20% for the three months ended September 30, 2021, a decrease of 2.69 percentage points, as compared to 18.89% for the three months ended September 30, 2020. The decrease was mainly due to the increase in cost of recycled white scrap paper, partially offset by the increase in ASP of offset printing paper in the third quarter of 2021.

Gross profit margin for tissue paper products for the three months ended September 30, 2021 was -8.74%, or 5.76 percentage points higher, as compared to gross profit margin of -14.50% for the three months ended September 30, 2020. The decrease in gross loss was mainly due to the increase in ASP of tissue paper products, partially offset by the increase in cost of base paper in the third quarter of 2021.

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Monthly gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended September 30, 2021 are as follows:

Face Masks

Gross profit for face mask for the three months ended September 30, 2021 and 2020 were $31,108 and $24,598, representing a gross margin of 20.44% and 11.13%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2021 were $2,019,565, a decrease of $371,355, or 15.53% from $2,390,920 for the three months ended September 30, 2020.

(Loss) Income from Operations

Operating loss for the quarter ended September 30, 2021 was $198,029, a decrease of $374,660, or 212.11%, from income from operations of $176,631 for the quarter ended September 30, 2020. The decrease in income from operations was primarily due to the decrease in gross profit.

Other Income and Expenses

Interest expense for the three months ended September 30, 2021 increased by $23,232, from $258,438 in the three months ended September 30, 2020, to $281,670. The Company had short-term and long-term interest-bearing loans, related party loans and leasing obligations that aggregated $16,377,758 as of September 30, 2021, as compared to $16,060,576 as of September 30, 2020.

Gain on derivative liability

The Company analyzed the warrants for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability. ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The change in fair value of derivative liability for the three months ended September 30, 2021 was $1,938,873.

Net Loss

As a result and the factors discussed above, net income was $1,542,576 for the quarter ended September 30, 2021, representing an increase of $2,063,550, or 396.09%, from net loss of $520,974 for the quarter ended September 30, 2020.

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Comparison of the nine months ended September 30, 2021 and 2020

Revenue for the nine months ended September 30, 2021 was $115,832,013, an increase of $47,368,438, or 69.19%, from $68,463,575 for the same period in the previous year.

Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products

Revenue from sales of offset printing paper, CMP and tissue paper products for the nine months ended September 30, 2021 was $115,440,494, an increase of $48,043,574, or 71.28%, from $67,396,920 for the nine months ended September 30, 2020. This was mainly due to the increase in sales volume of CMP and offset printing paper and the increase in ASP of CMP, offset printing paper and tissue paper products. Total quantities of offset printing paper, CMP and tissue paper products sold during the nine months ended September 30, 2021 amounted to 216,303 tonnes, an increase of 57,659 tonnes, or 36.34%, compared to 158,644 tonnes sold during the nine months ended September 30, 2020. Total quantities of CMP and offset printing paper sold increased by 58,619 tonnes in the nine months of 2021 as compared to the same period of 2020. We sold 5,963 tonnes of tissue paper products in the nine months of 2021 as opposed to 6,923 tonnes in the same period of 2020.

A summary of the above changes and further analyses of the changes in our sales revenue are as follows:

|  | Nine Months Ended |  |  | Nine Months Ended |  |  |  |  |  |  |  |  | Percentage |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | Change in |  |  | Change |
Sales Revenue |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity |  |  | Amount |
Regular CMP |  |  | 156,080 |  |  | $ | 78,417,279 |  |  |  | 108,874 |  |  | $ | 42,647,898 |  |  |  | 47,206 |  |  | $ | 35,769,381 |  |  |  | 43.36 | % |  |  | 83.87 | %
Light-Weight CMP |  |  | 33,658 |  |  | $ | 16,436,588 |  |  |  | 30,384 |  |  | $ | 11,594,324 |  |  |  | 3,274 |  |  | $ | 4,842,264 |  |  |  | 10.78 | % |  |  | 41.76 | %
Total CMP |  |  | 189,738 |  |  | $ | 94,853,867 |  |  |  | 139,258 |  |  | $ | 54,242,222 |  |  |  | 50,480 |  |  | $ | 40,611,645 |  |  |  | 36.25 | % |  |  | 74.87 | %
Offset Printing Paper |  |  | 20,602 |  |  | $ | 14,095,393 |  |  |  | 12,463 |  |  | $ | 7,388,491 |  |  |  | 8,139 |  |  | $ | 6,706,902 |  |  |  | 65.31 | % |  |  | 90.77 | %
Tissue Paper Products |  |  | 5,963 |  |  | $ | 6,491,234 |  |  |  | 6,923 |  |  |  | 5,766,207 |  |  |  | (960 | ) |  | $ | 725,027 |  |  |  | -13.87 | % |  |  | 12.57 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  |  | 216,303 |  |  | $ | 115,440,494 |  |  |  | 158,644 |  |  | $ | 67,396,920 |  |  |  | 57,659 |  |  | $ | 48,043,574 |  |  |  | 36.34 | % |  |  | 71.28 | %

ASPs for our main products in the nine-month period ended September 30, 2021and 2020 are summarized as follows:

|  | Offset Printing Paper ASP |  |  | Regular CMP ASP |  |  | Light-Weight CMP ASP |  |  | Tissue Paper Products ASP |
Nine Months Ended September 30, 2020 |  | $ | 593 |  |  | $ | 392 |  |  | $ | 382 |  |  | $ | 833 |
Nine Months Ended September 30, 2021 |  | $ | 684 |  |  | $ | 502 |  |  | $ | 488 |  |  | $ | 1089 |
Increase from comparable period in the previous year |  | $ | 91 |  |  | $ | 110 |  |  | $ | 106 |  |  | $ | 256 |
Increase by percentage |  |  | 15.35 | % |  |  | 28.06 | % |  |  | 27.75 | % |  |  | 30.73 | %

Revenue of Face Mask

Revenue generated from selling face mask were $391,519 and $1,066,654 for the nine months ended September 30, 2021 and 2020. We sold 9,650 thousand pieces of face masks in the third quarter of 2021, as compared to 9,856 thousand pieces in the comparable period of 2020, a decrease of 206 thousand pieces, or 2.09%.

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Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products in the nine months ended September 30, 2021 was $108,825,403, an increase of $45,857,147, or 72.83%, from $62,968,256 for the nine months ended September 30, 2020. This was mainly a result of the increase in sales volume of CMP and offset printing paper and increase of material costs. Cost of sales for CMP was $89,766,509 for the nine months ended September 30, 2021, as compared to $49,838,234 in the same period of 2020. The increase in the cost of sales of $39,928,274 for CMP was mainly due to the increase in the quantities of regular CMP sold and the increase in cost of recycled paper board in the nine months of 2021. Average cost of sales per tonne for CMP increased by 32.12%, from $358 for the nine months ended September 30, 2020, to $473 in the same period of 2021.This is mainly attributable to the higher average unit purchase costs (net of applicable value added tax) of recycled paper board. Cost of sales for offset printing paper was $11,633,414 for the nine months ended September 30, 2021, as compared to $5,932,881 in the same period of 2020. Average cost of sales per tonne of offset printing paper increased by 18.70%, from $476 for the nine months ended September 30, 2020, to $565 in the same period of 2021. The increase was mainly attributable to higher average unit purchase costs (net of applicable value added tax) of recycled white scrap paper. Cost of sales for tissue paper products was $7,425,480 for the nine months ended September 30, 2021, as compared to $7,197,141 in the same period of 2020. Average cost of sales per tonne of tissue paper products increased by 19.71%, from $1,040 for the nine months ended September 30, 2020, to $1,245 for the same period of 2021.

Changes in cost of sales and cost per tonne by product for the nine months ended September 30, 2021 and 2020 are summarized below:

|  | Nine Months Ended |  |  | Nine Months Ended |  |  |  |  |  |  |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | Change in |  |  | Change in percentage |
|  | Cost of Sales |  |  | Cost per Tonne |  |  | Cost of Sales |  |  | Cost per tonne |  |  | Cost of Sales |  |  | Cost per Tonne |  |  | Cost of Sales |  |  | Cost per Tone |
Regular CMP |  | $ | 74,522,911 |  |  | $ | 477 |  |  | $ | 39,545,909 |  |  | $ | 363 |  |  | $ | 34,977,002 |  |  | $ | 114 |  |  |  | 88.45 | % |  |  | 31.40 | %
Light-Weight CMP |  | $ | 15,243,598 |  |  | $ | 453 |  |  | $ | 10,292,325 |  |  | $ | 339 |  |  | $ | 4,951,273 |  |  | $ | 114 |  |  |  | 48.11 | % |  |  | 33.63 | %
Total CMP |  | $ | 89,766,509 |  |  | $ | 473 |  |  | $ | 49,838,234 |  |  | $ | 358 |  |  | $ | 39,928,275 |  |  | $ | 115 |  |  |  | 80.12 | % |  |  | 32.12 | %
Offset Printing Paper |  | $ | 11,633,414 |  |  | $ | 565 |  |  | $ | 5,932,881 |  |  | $ | 476 |  |  | $ | 5,700,533 |  |  | $ | 89 |  |  |  | 96.08 | % |  |  | 18.70 | %
Tissue Paper Products |  | $ | 7,425,480 |  |  | $ | 1,245 |  |  | $ | 7,197,141 |  |  | $ | 1,040 |  |  | $ | 228,339 |  |  | $ | 205 |  |  |  | 3.17 | % |  |  | 19.71 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  | $ | 108,825,403 |  |  | $ | n/a |  |  | $ | 62,968,256 |  |  | $ | n/a |  |  | $ | 45,857,147 |  |  | $ | n/a |  |  |  | 72.83 | % |  |  | n/a% |

Gross Profit

Gross profit for the nine months ended September 30, 2021 was $6,681,561 (5.77% of the total revenue), representing an increase of $1,724,899, or 34.80%, from the gross profit of $4,956,662 (7.24% of the total revenue) for the nine months ended September 30, 2020. The increase was mainly due to (i) the increase in quantities sold of CMP and offset printing paper and (ii) the increase of ASP of CMP, offset printing paper and tissue paper products, partially offset by the increase in material costs.

Offset Printing Paper, CMP and Tissue Paper Products

Gross profit for offset printing paper, CMP and tissue paper products for the nine months ended September 30, 2021 was $6,615,092, an increase of $2,186,428, or 49.37%, from the gross profit of $4,428,664 for the nine months ended September 30, 2020. The increase was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products decreased by 0.84 percentage points, from 6.57% for the nine months ended September 30, 2020, to 5.73% for the nine months ended September 30, 2021.

Gross profit margin for regular CMP for the nine months ended September 30, 2021 was 4.97%, or 2.30 percentage points lower, as compared to gross profit margin of 7.27% for the nine months ended September 30, 2020. Such decrease was primarily due to increase in unit cost of sales, partially offset by the increase in ASP of regular CMP.

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Gross profit margin for light-weight CMP for the nine months ended September 30, 2021 was 7.26%, or 3.97 percentage points lower, as compared to gross profit margin of 11.23% for the nine months ended September 30, 2020. Such decrease was primarily due to the increase in unit cost of sales, partially offset by the increase in ASP of regular CMP.

Gross profit margin for offset printing paper was 17.47% for the nine months ended September 30, 2021, a decrease of 2.23 percentage points, as compared to 19.70% for the nine months ended September 30, 2020. Such decrease was mainly due to the increase of purchase price of recycled white scrap paper, partially offset by the increase in ASP of offset printing paper.

Gross profit margin for tissue paper products was -14.39% for the nine months ended September 30, 2021, an increase of 10.43 percentage points, as compared to -24.82% for the nine months ended September 30, 2020. The increase was mainly due to the increase in ASP of tissue base paper, partially offset by the increase in cost of tissue base paper.

Face Mask

Gross profit for face mask for the nine months ended September 30, 2021 was $66,469, representing a gross margin of 16.98% compared with a gross profit of $527,997, representing a gross margin of 49.50%, for the nine months ended September 30, 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2021 were $7,172,495, a decrease of $1,272,861, or 15.07% from $8,445,356 for the nine months ended September 30, 2020. The decrease was mainly due to higher share based compensation and expenses in April 2020.

Loss from Operations

Operating loss for the nine months ended September 30, 2021 was $490,934, a decrease of loss of $2,997,760, or 85.93%, from $3,488,694 for the nine months ended September 30, 2020. The decrease was primarily due to the increase in gross profit and decrease in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for the nine months ended September 30, 2021 increased by $99,878, from $744,592 for the nine months ended September 30, 2020, to $844,470. The Company had short-term and long-term interest-bearing loans and lease obligation that aggregated $16,377,758 as of September 30, 2021, as compared to $16,060,576 as of September 30, 2020.

Gain on derivative liability

The Company analyzed warrants for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability. ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The change in fair value of derivative liability for the nine months ended September 30, 2021 was $ 2,810,913.

Net Loss

As a result of the above, net loss was $3,249,528 for the nine months ended September 30, 2021, representing a decrease of loss of $687,764, or 17.47%, from $3,937,292 for nine months ended September 30, 2020.

Accounts Receivable

Net accounts receivable increased by $1,732,724, or 72.53%, to $4,121,781 as of September 30, 2021, as compared with $2,389,057 as of December 31, 2020. We usually collect accounts receivable within 30 days of delivery and completion of sales.

Inventories

Inventories consist of raw materials (accounting for 79.45% of total value of inventory as of September 30, 2021), semi-finished goods and finished goods. As of September 30, 2021, the recorded value of inventory increased by 517.72% to $7,621,405 from $1,233,801 as of December 31, 2020. As of September 30, 2021, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $4,869,733, approximately $4,850,274, or 24925.61%, higher than the balance as of December 31, 2020. Due to the volatility of recycled paper board price, a minimum level of inventory was maintained at the end of 2020.

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A summary of changes in major inventory items is as follows:

|  | September 30, |  |  | December 31, |  |  |  |  |  |  |
|  | 2021 |  |  | 2020 |  |  | $ Change |  |  | % Change |
Raw Materials |  |  |  |  |  |  |  |  |  |  |  |
Recycled paper board |  | $ | 4,869,733 |  |  | $ | 19,459 |  |  |  | 4,850,274 |  |  |  | 24925.61 | %
Recycled white scrap paper |  |  | 521,732 |  |  |  | 11,193 |  |  |  | 510,539 |  |  |  | 4561.23 | %
Tissue base paper |  |  | 260,685 |  |  |  | 14,027 |  |  |  | 246,658 |  |  |  | 1758.45 | %
Gas |  |  | 187,506 |  |  |  | 55,473 |  |  |  | 132,033 |  |  |  | 238.01 | %
Mask fabric and other raw materials |  |  | 215,604 |  |  |  | 167,399 |  |  |  | 48,205 |  |  |  | 28.80 | %
Total Raw Materials |  |  | 6,055,260 |  |  |  | 267,551 |  |  |  | 5,787,709 |  |  |  | 2163.22 | %
Semi-finished Goods |  |  | 321,177 |  |  |  | 176,703 |  |  |  | 144,474 |  |  |  | 81.76 | %
Finished Goods |  |  | 1,244,968 |  |  |  | 789,547 |  |  |  | 455,421 |  |  |  | 57.68 | %
Total inventory, gross |  |  | 7,621,405 |  |  |  | 1,233,801 |  |  |  | 6,387,604 |  |  |  | 517.72 | %
Inventory reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |
Total inventory, net |  | $ | 7,621,405 |  |  | $ | 1,233,801 |  |  |  | 6,387,604 |  |  |  | 517.72 | %

Renewal of operating lease

On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million, respectively. In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to three years, with an annual rental payment of approximately $154,579 (RMB1,000,000). The lease agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with Hebei Fangsheng, who agreed to extend the lease term to August 9, 2022 with the same rental payment as original lease agreement.

Capital Expenditure Commitment as of September 30, 2021

On May 5, 2020, the Company announced it planned the commercial launch of a new tissue paper production line PM10. In connection with the PM10, the Company signed an agreement to purchase paper machine with a paper machine supplier. The Company expected the new tissue paper production line to be launched after the completion of trial run.

As of September 30, 2021, we had approximately $4.3 million in capital expenditure commitments that were mainly related to the purchase of paper machine of PM10. The infrastructure work of PM10 has been completed and the associated ancillary facilities are working in the progress.

In February 2021, we completed evaluation on the bidding proposals and announced that Tai Shan Group Co., Ltd., a top manufacturer in the biomass industry in China, has won the bid for the 75 tonne per hour biomass boiler procurement for the Cogeneration Project. Installation of the boilers is expected to commence in the near future. We expect to participate in the bidding process for urban central heating projects. In April 2021, the Company obtained qualification to supply central heating in industrial parks for the Cogeneration Project.

Financing with Sale-Leaseback

The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate of 15.6% per annum and stated at $567,099 at the inception of the lease on August 17, 2020.

Hebei Tengsheng made payments due according to the schedule. The balance of Leased Equipment net of amortization was $2,288,902 and $2,397,653 as of September 30, 2021 and December 31, 2020, respectively. The lease liability was $404,958 and $536,959, and its current portion in the amount of $206,606 and $182,852 as of September 30, 2021 and December 31, 2020, respectively.

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Amortization of the Leased Equipment was $41,208 and $12,718 for the three months ended September 30, 2021 and 2020. Amortization of the Leased Equipment was $123,663 and $12,718 for the nine months ended September 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $17,026 and $7,172 for the three months ended September 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $56,376 and $7,172 for the nine months ended September 30, 2021 and 2020.

As a result of the sale and leaseback, a deferred gain in the amount of $288,922 was recorded. The deferred gain is amortized over the lease term and as an offset to amortization of the Leased Equipment.

Cash and Cash Equivalents

Our cash, cash equivalents and restricted cash as of September 30, 2021 was $26,575,582, an increase of $22,433,145, from $4,142,437 as of December 31, 2020. The increase of cash and cash equivalents for the nine months ended September 30, 2021 was attributable to a number of factors:

i. Net cash provided by (used in) operating activities

Net cash used in operating activities was $6,442,577 for the nine months ended September 30, 2021. The balance represented a decrease of cash of $8,812,064, or 371.90%, from $2,369,487 provided by operating activities for the nine months ended September 30, 2020. Net loss for the nine months ended September 30, 2021 was $3,249,528, representing a decrease of loss of $687,764, or 17.47%, from a net loss of $3,937,292 for the nine months ended September 30, 2020. Changes in various asset and liability account balances throughout the nine months ended September 30, 2021 also contributed to the net change in cash from operating activities in nine months ended September 30, 2021. Chief among such changes is the increase of accounts receivable in the amount of $1,742,594 (a decrease to net cash) during the nine months of 2021. There was also an increase of $6,396,066 in the ending inventory balance as of September 30, 2021 (a decrease to net cash for the nine months ended September 30, 2021 cash flow purposes). In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of $11,733,664. The Company also had a net increase of $6,918,816 in prepayment and other current assets (a decrease to net cash) and a net increase of $207,383 in other payables and accrued liabilities and related parties (a decrease to net cash), as well as an increase in income tax payable of $178,903 (an increase to net cash) during the nine months ended September 30, 2021.

ii. Net cash used in investing activities

We incurred $ 12,781,114 in net cash expenditures for investing activities during the nine months ended September 30, 2021, as compared to $ 2,571,949 for the same period of 2020. Payments in the nine months ended September 30, 2021 were mainly for the payments for the acquisition of lands of Hebei Tengsheng.

iii. Net cash provided by financing activities

Net cash provided by financing activities was proceeds from issuance of shares and warrants net of repayment of loans and lease obligation of $41,547,363 for the nine months ended September 30, 2021, as compared to net cash provided by financing activities in the amount of $2,241,043 for the nine months ended September 30, 2020.

Short-term bank loans

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Industrial and Commercial Bank of China (“ICBC”) |  | $ | 6,320,350 |  |  | $ | 6,435,348 |
Total short-term bank loans |  | $ | 6,320,350 |  |  | $ | 6,435,348 |

On December 11, 2020, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,320,350 and $6,435,348 as of September 30, 2021 and December 31, 2020, respectively. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785% per annum. The loan will be due and repaid at various installments by December 7, 2021.

As of September 30, 2021, there were guaranteed short-term borrowings of $6,320,350 and unsecured bank loans of $nil. As of December 31, 2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of $nil.

The average short-term borrowing rates for the three and nine months ended September 30, 2021 and 2020 were approximately 4.79%.

38

Long-term loans from credit union

As of September 30, 2021 and December 31, 2020, loans payable to Rural Credit Union of Xushui District, amounted to $9,652,450 and $9,594,017, respectively.

On April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of September 30, 2021 and December 31, 2020, total outstanding loan balance was $1,326,055 and $1,318,028, respectively, Out of the total outstanding loan balance, current portion amounted were $246,708 and $214,563 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,079,347 and $11,103,465 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and will be due and payable in various installments from December 21, 2018 to June 20, 2023. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $1,313,720 and $2,349,796 as of September 30, 2021 and December 31, 2020, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $3,854,813 and $3,831,476, respectively. Out of the total outstanding loan balance, current portion amounted were $416,320 and $337,169 as of September 30, 2021 and December 31, 2020 respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $3,438,493 and $3,494,307 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6% per month. On March 22, 2021, the loan was renewed for additional one year and the repayments will be due on April 16, 2022. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $2,467,080 and $2,452,145, respectively. Out of the total outstanding loan balance, current portion amounted were $2,467,080 and $2,452,145 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate of 7.56% per annum. On March 22, 2021, the loan was extended and the repayments will be due on August 18, 2022. As of September 30, 2021 and December 31, 2020, the total outstanding loan balance was $2,004,502 and $1,992,368, respectively. Out of the total outstanding loan balance, current portion amounted were $2,004,502 and $1,992,368 as of September 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2021 and 2020 were $264,644 and $251,266, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2021 and 2020 were $788,094 and $737,420, respectively.

39

Shareholder Loans

Mr. Zhenyong Liu, the Company’s CEO, has loaned money to Dongfang Paper for working capital purposes over a period of time. On January 1, 2013, Dongfang Paper and Mr. Zhenyong Liu renewed the three-year term loan previously entered into on January 1, 2010, and extended the maturity date further to December 31, 2015. On December 31, 2015, the Company paid off the loan of $2,249,279, together with interest of $391,374 for the period from 2013 to 2015. Approximately $395,248 and $392,855 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017. During the year of 2016, the Company repaid $6,012,416 to Mr. Zhenyong Liu, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of September 30, 2021 and December 31, 2020, approximately $46,258 and $45,978 of interest, respectively were outstanding to Mr. Zhenyong Liu, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

On March 1, 2015, the Company entered into an agreement with Mr. Zhenyong Liu which allows Dongfang Paper to borrow from Mr. Zhenyong Liu an amount up to $17,201,342 (RMB120,000,000) for working capital purposes. The advances or funding under the agreement are due three years from the date each amount is funded. The loan is unsecured and carries an annual interest rate set on the basis of the primary lending rate of the People’s Bank of China at the time of the borrowing. On July 13, 2015, an unsecured amount of $4,324,636 was drawn from the facility. On October 14, 2016 an unsecured amount of $2,883,091 was drawn from the facility. In February 2018, the Company repaid $1,507,432 to Mr. Zhenyong Liu. The loan would be originally due on July 12, 2018. Mr. Zhenyong Liu agreed to extend the loan for additional 3 years and the remaining balance would be due on July 12, 2021. On November 23, 2018, the Company repaid $3,768,579 to Mr. Zhenyong Liu, together with interest of $158,651. In December 2019, the Company paid off the remaining balance, together with interest of 94,636. As of September 30, 2021 and December 31, 2020, the outstanding interest was $211,918 and $210,635, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

As of September 30, 2021 and December 31, 2020, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans are $nil for the three and nine months ended September 30, 2021 and 2020. The accrued interest owing to Mr. Zhenyong Liu was approximately $653,424 and $649,468, as of September 30, 2021 and December 31, 2020, respectively, which was recorded in other payables and accrued liabilities.

As of September 30, 2021 and December 31, 2020, amount due to shareholder was $727,433, which represents funds from shareholders to pay for various expenses incurred in the U.S. The amount is due on demand with interest free.

40

Critical Accounting Policies and Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make 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 periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates. The most critical accounting policies are listed below:

Revenue Recognition Policy

The Company recognizes revenue when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured. Goods are considered delivered when the customer’s truck picks up goods at our finished goods inventory warehouse.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. In such circumstances, those assets are written down to estimated fair value. Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry. For the three months ended September 30, 2021 and 2020, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required. We are currently not aware of any events or circumstances that may indicate any need to record such impairment in the future.

Foreign Currency Translation

The functional currency of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. The current exchange rates used by the Company as of September 30, 2021 and December 31, 2020 to translate the Chinese RMB to the U.S. Dollars are 6.4601:1 and 6.5249:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 6.4682:1 and 6.9931:1 for the three months ended September 30, 2021 and 2020, respectively. Translation adjustments are included in other comprehensive income (loss).

Off-Balance Sheet Arrangements

We were the guarantor for Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,779,967 (RMB31,000,000), which matures at various times in 2023. Baoding Huanrun Trading Co. is one of our major suppliers of raw materials. This helps us to maintain a good relationship with the supplier and negotiate for better terms in payment for materials. If Baoding Huanrun Trading Co. were to become insolvent, the Company could be materially adversely affected. Except as aforesaid, we have no material off-balance sheet transactions.

41

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Foreign Exchange Risk

While our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange risks as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Inflation

Although we are generally able to pass along minor incremental cost inflation to our customers, inflation such as increases in the costs of our products and overhead costs may adversely affect our operating results. We do not believe that inflation in China has had a material impact on our financial position or results of operations to date, however, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase in line with the increased costs.

Item 4. Controls and Procedures.

As required by Rule 13a-15 of the Securities Exchange Act, as amended (the “Securities Act”), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, which were designed to provide reasonable assurance of achieving their objectives. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (2) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting in the quarterly period ended September 30, 2021.

42

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

43

Item 6. Exhibits.

(a) Exhibits

31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS | Inline XBRL Instance Document
101.SCH | Inline XBRL Schema Document
101.CAL | Inline XBRL Calculation Linkbase Document
101.LAB | Inline XBRL Label Linkbase Document
101.PRE | Inline XBRL Presentation Linkbase Document
101.DEF | Inline XBRL Definition Linkbase Document
104. | Cover Page Interactive Data File - The cover page iXBRL tags are embedded within the inline XBRL document.

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| IT TECH PACKAGING, INC.
Date: November 10, 2021 | /s/ Zhenyong Liu
| Name: | Zhenyong Liu
| Title: | Chief Executive Officer
|  | (Principal Executive Officer)
Date: November 10, 2021 | /s/ Jing Hao
| Name: | Jing Hao
| Title: | Chief Financial Officer
|  | (Principal Financial Officer)

45

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