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, 2023

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 |  | (IRS Employer
incorporation or organization) |  | 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 9, 2023, there were 10,065,920 shares of the registrant’s common stock, par value $0.001, outstanding.

TABLE OF CONTENTS

|  | Page
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, Use of Proceeds, and Issuer Purchases of Equity Securities |  | 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, 2023 AND DECEMBER 31, 2022

(unaudited)

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and bank balances |  | $ | 9,437,941 |  |  | $ | 9,524,868 |
Restricted cash |  |  | - |  |  |  | - |
Accounts receivable (net of allowance for doubtful accounts of $56,674 and $881,878 as of September 30, 2023 and December 31, 2022, respectively) |  |  | 2,794,437 |  |  |  | - |
Inventories |  |  | 5,364,777 |  |  |  | 2,872,622 |
Prepayments and other current assets |  |  | 20,049,101 |  |  |  | 27,207,127 |
Due from related parties |  |  | 3,414,815 |  |  |  | 7,561,858 |
Total current assets |  |  | 41,061,071 |  |  |  | 47,166,475 |
Prepayment on property, plant and equipment |  |  | 877,462 |  |  |  | 1,031,502 |
Operating lease right-of-use assets, net |  |  | 562,612 |  |  |  | 672,722 |
Finance lease right-of-use assets, net |  |  | - |  |  |  | 1,939,970 |
Property, plant, and equipment, net |  |  | 144,603,052 |  |  |  | 151,569,898 |
Value-added tax recoverable |  |  | 1,893,510 |  |  |  | 2,066,666 |
Deferred tax asset non-current |  |  | - |  |  |  | - |
Total Assets |  | $ | 188,997,707 |  |  | $ | 204,447,233 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Short-term bank loans |  | $ | 835,678 |  |  | $ | 5,598,311 |
Current portion of long-term loans |  |  | 4,707,652 |  |  |  | 4,835,884 |
Lease liability |  |  | 96,746 |  |  |  | 224,497 |
Accounts payable |  |  | 104,146 |  |  |  | 5,025 |
Advance from customers |  |  | 18,751 |  |  |  | - |
Due to related parties |  |  | 1,103,317 |  |  |  | 727,462 |
Accrued payroll and employee benefits |  |  | 299,908 |  |  |  | 165,986 |
Other payables and accrued liabilities |  |  | 4,858,444 |  |  |  | 5,665,558 |
Income taxes payable |  |  | - |  |  |  | 417,906 |
Total current liabilities |  |  | 12,024,642 |  |  |  | 17,640,629 |
Long-term loans |  |  | 6,562,401 |  |  |  | 4,204,118 |
Deferred gain on sale-leaseback |  |  | - |  |  |  | 52,314 |
Lease liability - non-current |  |  | 465,866 |  |  |  | 579,997 |
Derivative liability |  |  | 263 |  |  |  | 646,283 |
Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $12,010,014 and $16,784,878 as of September 30, 2023 and December 31, 2022, respectively) |  |  | 19,053,172 |  |  |  | 23,123,341 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Stockholders’ Equity |  |  |  |  |  |  |  |
Common stock, 50,000,000 shares authorized, $0.001 par value per share, 10,065,920 shares issued and outstanding as of September 30, 2023 and December, 31, 2022. |  |  | 10,066 |  |  |  | 10,066 |
Additional paid-in capital |  |  | 89,172,771 |  |  |  | 89,172,771 |
Statutory earnings reserve |  |  | 6,080,574 |  |  |  | 6,080,574 |
Accumulated other comprehensive loss |  |  | (12,931,871 | ) |  |  | (7,514,540 | )
Retained earnings |  |  | 87,612,995 |  |  |  | 93,575,021 |
Total stockholders’ equity |  |  | 169,944,535 |  |  |  | 181,323,892 |
Total Liabilities and Stockholders’ Equity |  | $ | 188,997,707 |  |  | $ | 204,447,233 |

See accompanying notes to condensed consolidated financial statements.

1

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Revenues |  | $ | 15,771,560 |  |  | $ | 31,709,214 |  |  | $ | 65,582,351 |  |  | $ | 78,979,716 |
Cost of sales |  |  | (15,924,783 | ) |  |  | (28,925,626 | ) |  |  | (64,832,715 | ) |  |  | (75,251,646 | )
Gross (Loss) Profit |  |  | (153,223 | ) |  |  | 2,783,588 |  |  |  | 749,636 |  |  |  | 3,728,070 |
Selling, general and administrative expenses |  |  | (2,334,746 | ) |  |  | (3,370,541 | ) |  |  | (6,153,513 | ) |  |  | (8,541,224 | )
Loss on impairment of assets |  |  | 3,456 |  |  |  | - |  |  |  | (371,680 | ) |  |  | - |
Loss from Operations |  |  | (2,484,513 | ) |  |  | (586,953 | ) |  |  | (5,775,557 | ) |  |  | (4,813,154 | )
Other Income (Expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 93,298 |  |  |  | 7,729 |  |  |  | 283,203 |  |  |  | 16,108 |
Interest expense |  |  | (247,818 | ) |  |  | (256,678 | ) |  |  | (767,668 | ) |  |  | (786,597 | )
Gain on acquisition |  |  | - |  |  |  | (1,759 | ) |  |  | - |  |  |  | 30,404 |
Gain (Loss) on derivative liability |  |  | 660,429 |  |  |  | (617,370 | ) |  |  | 646,020 |  |  |  | 729,263 |
Loss before Income Taxes |  |  | (1,978,604 | ) |  |  | (1,455,031 | ) |  |  | (5,614,002 | ) |  |  | (4,823,976 | )
Provision for Income Taxes |  |  | 3,236 |  |  |  | (432,287 | ) |  |  | (348,024 | ) |  |  | 160,531 |
Net Loss |  |  | (1,975,368 | ) |  |  | (1,887,318 | ) |  |  | (5,962,026 | ) |  |  | (4,663,445 | )
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | 1,143,608 |  |  |  | (11,171,156 | ) |  |  | (5,417,331 | ) |  |  | (21,769,765 | )
Total Comprehensive Loss |  | $ | (831,760 | ) |  | $ | (13,058,474 | ) |  | $ | (11,379,357 | ) |  | $ | (26,433,210 | )
Losses Per Share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted Losses per Share |  | $ | (0.20 | ) |  | $ | (0.19 | ) |  | $ | (0.59 | ) |  | $ | (0.47 | )
Outstanding – Basic and Diluted |  |  | 10,065,920 |  |  |  | 9,991,744 |  |  |  | 10,065,920 |  |  |  | 9,941,288 |

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, 2023 AND 2022

(Unaudited)

|  | Nine Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
Cash Flows from Operating Activities: |  |  |  |  |  |
Net income |  | $ | (5,962,026 | ) |  | $ | (4,663,445 | )
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 10,573,288 |  |  |  | 11,218,254 |
(Gain) Loss on derivative liability |  |  | (646,020 | ) |  |  | (729,263 | )
(Gain) Loss from disposal and impairment of property, plant and equipment |  |  | 956,406 |  |  |  | - |
Allowance for bad debts |  |  | (815,317 | ) |  |  | (791 | )
Share-based compensation and expenses |  |  | - |  |  |  | 1,560,000 |
Gain on acquisition |  |  | - |  |  |  | (30,404 | )
Deferred tax |  |  | - |  |  |  | (1,197,630 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (2,037,003 | ) |  |  | 146,250 |
Prepayments and other current assets |  |  | 7,968,553 |  |  |  | (422,092 | )
Inventories |  |  | (2,631,661 | ) |  |  | 863,170 |
Accounts payable |  |  | 101,328 |  |  |  | 144,331 |
Advance from customers |  |  | 19,140 |  |  |  | - |
Related parties |  |  | 120,298 |  |  |  | (149,827 | )
Accrued payroll and employee benefits |  |  | 141,773 |  |  |  | (42,738 | )
Other payables and accrued liabilities |  |  | 119,132 |  |  |  | 1,000,945 |
Income taxes payable |  |  | (413,777 | ) |  |  | (265,493 | )
Net Cash Provided by Operating Activities |  |  | 7,494,114 |  |  |  | 7,431,267 |
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  |  | (9,211,711 | ) |  |  | (1,681,979 | )
Acquisition of land |  |  | - |  |  |  | (6,507,431 | )
Net Cash Used in Investing Activities |  |  | (9,211,711 | ) |  |  | (8,189,410 | )
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Proceeds from short term bank loans |  |  | 852,988 |  |  |  | 602,319 |
Proceeds from long term loans |  |  | 2,558,963 |  |  |  | 60,232 |
Repayment of bank loans |  |  | (5,549,150 | ) |  |  | (307,182 | )
Payment of capital lease obligation |  |  | (130,470 | ) |  |  | (154,212 | )
Loan to a related party (net) |  |  | 4,264,938 |  |  |  | 6,638,923 |
Net Cash Provided by Financing Activities |  |  | 1,997,269 |  |  |  | 6,840,080 |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |  |  | (366,599 | ) |  |  | (1,266,146 | )
Net (Decrease) Increase in Cash and Cash Equivalents |  |  | (86,927 | ) |  |  | 4,815,791 |
Cash, Cash Equivalents and Restricted Cash - Beginning of Period |  |  | 9,524,868 |  |  |  | 11,201,612 |
Cash, Cash Equivalents and Restricted Cash - End of Period |  | $ | 9,437,941 |  |  | $ | 16,017,403 |
Supplemental Disclosure of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid for interest, net of capitalized interest cost |  | $ | 1,118,672 |  |  | $ | 248,275 |
Cash paid for income taxes |  | $ | 761,801 |  |  | $ | 1,287,530 |
Cash and bank balances |  |  | 9,437,941 |  |  |  | 16,017,403 |
Restricted cash |  |  | - |  |  |  | - |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |  |  | 9,437,941 |  |  |  | 16,017,403 |

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, 2023 AND 2022

(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Additional |  |  | Statutory |  |  | Other |  |  |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Earnings |  |  | Comprehensive |  |  | Retained |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Reserve |  |  | Income (loss) |  |  | Earnings |  |  | Total |
Balance at December 31, 2021 |  |  | 9,915,920 |  |  | $ | 9,916 |  |  | $ | 89,016,921 |  |  | $ | 6,080,574 |  |  | $ | 10,496,168 |  |  | $ | 110,146,329 |  |  | $ | 215,749,908 |
Issuance of shares to officer and directors |  |  | 150,000 |  |  |  | 150 |  |  |  | 155,850 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 156,000 |
Foreign currency translation adjustment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (21,769,765 | ) |  |  |  |  |  |  | (21,769,765 | )
Net loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,663,445 | ) |  |  | (4,663,445 | )
Balance at Sep 30, 2022 |  |  | 10,065,920 |  |  | $ | 10,066 |  |  | $ | 89,172,771 |  |  | $ | 6,080,574 |  |  | $ | (11,273,597 | ) |  | $ | 105,482,884 |  |  | $ | 189,472,698 |
Balance at December 31, 2022 |  |  | 10,065,920 |  |  | $ | 10,066 |  |  | $ | 89,172,771 |  |  | $ | 6,080,574 |  |  | $ | (7,514,540 | ) |  | $ | 93,575,021 |  |  | $ | 181,323,892 |
Issuance of shares to officer and directors |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
Foreign currency translation adjustment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (5,417,331 | ) |  |  |  |  |  |  | (5,417,331 | )
Net loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (5,962,026 | ) |  |  | (5,962,026 | )
Balance at September 30, 2023 |  |  | 10,065,920 |  |  | $ | 10,066 |  |  | $ | 89,172,771 |  |  | $ | 6,080,574 |  |  | $ | (12,931,871 | ) |  | $ | 87,612,995 |  |  | $ | 169,944,535 |

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”.

On June 9, 2022, the Board of Directors of the Company approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-10 (the “Reverse Stock Split”). The Reverse Stock Split become effective on July 7, 2022 (the “Effective Date”), and the shares began trading on the split-adjusted basis on the NYSE American under the Company’s existing trading symbol “ITP” at market open on July 8, 2022. The new CUSIP number following the Reverse Stock Split is 46527C 209. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split.

On October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired DongfangZhiye 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 the shareholder of Tengsheng Paper Co., Ltd. (“Tengsheng Paper”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper would acquire Tengsheng Paper. Full payment of the consideration in the amount of RMB320 million (approximately $45 million) was made on February 23, 2022.

QianrongQianhui Hebei Technology Co., Ltd, a wholly owned subsidiary of Shengde holding, was incorporated on July 15, 2021. It is a service provider of high quality material solutions for textile, cosmetics and paper production.

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 and its subsidiary, 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 and Tengsheng Paper for the three months ended September 30, 2023 and 2022 was accounted for 99.66% and 99.83% of the Company’s total revenue, respectively. The revenue generated from Dongfang Paper and Tengsheng Paper for the nine months ended September 30, 2023 and 2022 was accounted for 99.86% and 99.75% of the Company’s total revenue, respectively. Dongfang Paper and Tengsheng Paper also accounted for 90.71% and 88.54% of the total assets of the Company as of September 30, 2023 and December 31, 2022, respectively.

6

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2023 and December 31, 2022, details of the Company’s subsidiaries and variable interest entities are as follows:

Name |  | Date of Incorporation Or Establishment |  | Place of Incorporation or Establishment |  | Percentage of 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
Qianrong |  | July 15, 2021 |  | PRC |  |  | 100% |  |  | New material technology service
Variable interest entity(“VIE”): |  |  |  |  |  |  |  |  |  |
Dongfang Paper |  | March 10, 1996 |  | PRC |  |  | Control* |  |  | Paper production and distribution
Tengsheng Paper |  | April 07, 2011 |  | PRC |  |  | Control** |  |  | Paper production and distribution

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

** | Tengsheng Paper is 100% subsidiary of Dongfang Paper.

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, 2023 and December 31, 2022 are as follows:

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.

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and bank balances |  | $ | 3,382,230 |  |  | $ | 3,427,717 |
Restricted cash |  |  | - |  |  |  | - |
Accounts receivable |  |  | 2,794,437 |  |  |  | - |
Inventories |  |  | 5,210,261 |  |  |  | 2,852,553 |
Prepayments and other current assets |  |  | 17,000,896 |  |  |  | 20,134,386 |
Due from related parties |  |  | 3,275,535 |  |  |  | 7,418,274 |
Total current assets |  |  | 31,663,359 |  |  |  | 33,832,930 |
Prepayment on property, plant and equipment |  |  | 877,462 |  |  |  | 1,031,502 |
Operating lease right-of-use assets, net |  |  | 562,612 |  |  |  | 672,722 |
Finance lease right-of-use assets, net |  |  | - |  |  |  | 1,939,970 |
Property, plant, and equipment, net |  |  | 138,342,091 |  |  |  | 143,534,690 |
Deferred tax asset non-current |  |  |  |  |  |  | - |
Total Assets |  | $ | 171,445,524 |  |  | $ | 181,011,814 |
LIABILITIES |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Short-term bank loans |  | $ | 417,839 |  |  | $ | 5,598,311 |
Current portion of long-term loans |  |  | 2,479,178 |  |  |  | 4,835,885 |
Lease liability |  |  | 96,746 |  |  |  | 224,497 |
Accounts payable |  |  | 104,146 |  |  |  | 5,025 |
Advance from customers |  |  | 18,751 |  |  |  | - |
Due to related parties |  |  | - |  |  |  | - |
Accrued payroll and employee benefits |  |  | 253,833 |  |  |  | 143,156 |
Other payables and accrued liabilities |  |  | 3,421,890 |  |  |  | 4,887,584 |
Income taxes payable |  |  | - |  |  |  | 417,906 |
Total current liabilities |  |  | 6,792,383 |  |  |  | 16,112,364 |
Long-term loans |  |  | 4,751,765 |  |  |  | 40,203 |
Deferred gain on sale-leaseback |  |  |  |  |  |  | 52,314 |
Lease liability - non-current |  |  | 465,866 |  |  |  | 579,997 |
Total liabilities |  | $ | 12,010,014 |  |  | $ | 16,784,878 |

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, 2022 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, 2023 and the results of operations for the nine months ended September 30, 2023 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.

Reverse stock split

On June 9, 2022, the Board of Directors of the Company approved the Reverse Stock Split, at a ratio of 1-for-10, pursuant to Section 78.207 of the Nevada Revised Statutes (“NRS”). The Reverse Stock Split was effected by the Company filing of a Certificate of Change Pursuant to NRS 78.209 with the Secretary of State of the State of Nevada on July 7, 2022. The par value per share of our stock remains unchanged at $0.001 per share after the Reverse Stock Split. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split.

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, 2023 and December 31, 2022, 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 “Derivative liabilities” under Note (10)), meet the criteria of derivatives and are required to be measured at fair value. The fair value of these derivative liabilities was determined 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.

10

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) 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, 2023 and December 31, 2022:

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Raw Materials |  |  |  |  |  |
Recycled paper board |  | $ | 3,580,255 |  |  | $ | 1,258,161 |
Recycled white scrap paper |  |  | 10,503 |  |  |  | 10,809 |
Gas |  |  | 107,652 |  |  |  | 42,237 |
Base paper and other raw materials |  |  | 302,584 |  |  |  | 160,229 |
|  |  | 4,000,994 |  |  |  | 1,471,436 |
Semi-finished Goods |  |  | 634,615 |  |  |  | 132,810 |
Finished Goods |  |  | 729,168 |  |  |  | 1,268,376 |
Total inventory, gross |  |  | 5,364,777 |  |  |  | 2,872,622 |
Inventory reserve |  |  | - |  |  |  | - |
Total inventory, net |  | $ | 5,364,777 |  |  | $ | 2,872,622 |

(4) Prepayments and other current assets

Prepayments and other current assets consisted of the following as of September 30, 2023 and December 31, 2022:

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Prepaid land lease |  | $ | 174,100 |  |  | $ | 172,300 |
Prepayment for purchase of materials |  |  | 5,231,142 |  |  |  | 12,941,951 |
Value-added tax recoverable |  |  | 13,728,351 |  |  |  | 13,640,868 |
Prepaid gas |  |  | 95,757 |  |  |  | 27,462 |
Others |  |  | 819,751 |  |  |  | 424,546 |
|  | $ | 20,049,101 |  |  | $ | 27,207,127 |

(5) Property, plant and equipment, net

As of September 30, 2023 and December 31, 2022, property, plant and equipment consisted of the following:

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Property, Plant, and Equipment: |  |  |  |  |  |
Land use rights |  | $ | 59,027,166 |  |  | $ | 57,686,220 |
Building and improvements |  |  | 66,713,144 |  |  |  | 68,300,987 |
Machinery and equipment |  |  | 157,605,810 |  |  |  | 158,498,316 |
Vehicles |  |  | 661,187 |  |  |  | 681,617 |
Construction in progress |  |  | 1,515,537 |  |  |  | 1,239,698 |
Totals |  |  | 285,522,844 |  |  |  | 286,406,838 |
Less: accumulated depreciation and amortization |  |  | (140,919,792 | ) |  |  | (134,836,940 | )
Property, Plant and Equipment, net |  | $ | 144,603,052 |  |  | $ | 151,569,898 |

As of September 30, 2023 and December 31, 2022, land use rights represented twenty three 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 2068, respectively.

11

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2023 and December 31, 2022, certain property, plant and equipment of Dongfang Paper with net values of $29,713 and $280,466, respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Tengsheng Paper with net value of $4,872,178 and $5,111,014, respectively, as of September 30, 2023 and December 31, 2022 was pledged for a long-term loan from credit union of Baoding Shengde. In addition, land use right of Tengsheng Paper with net value of $3,755,317 and $3,948,953, respectively, as of September 30, 2023 and December 31, 2022 was pledged for another long-term loan from credit union of Baoding Shengde. Land use right of Dongfang Paper with net value of $5,098,721 as of September 30, 2023 was pledged for a long-term loan from credit union of Tengsheng Paper. 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 $3,423,231 and $3,609,985 for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization of property, plant and equipment was $10,573,288 and $11,168,328 for the nine months ended September 30, 2023 and 2022, respectively.

(6) Leases

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, Tengsheng Paper sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Tengsheng Paper leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Tengsheng Paper may pay a nominal purchase price of RMB 100 (approximately $16) 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.

Tengsheng Paper made payments due according to the schedule. On July 17, 2023, the Company made a final payment on outstanding obligations and bought back the Lease Equipment at nominal price according to the agreement. The lease assets were reclassified as own assets and balance of Leased Equipment net of amortization were $nil and $1,939,970 as of September 30, 2023 and December 31, 2022, respectively.

Operating lease

The Company leases space under non-cancelable operating leases for office and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions.

The leases include option to renew in condition that it is agreed by the landlord before expiry. Therefore, the majority of renewals to extend the lease terms are not included in its right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluate the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

As the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

12

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of the Company’s lease expense are as follows:

|  | Nine Months Ended |
|  | September 30, 2023 |
|  | RMB |
Operating lease cost |  |  | 104,460 |
Short-term lease cost |  |  | - |
Lease cost |  |  | 104,460 |

Supplemental cash flow information related to its operating leases was as follows for the period ended September 30, 2023:

|  | Nine Months Ended |
|  | September 30, 2023 |
|  | RMB |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash outflow from operating leases |  |  | 139,280 |

Maturities of its lease liabilities for all operating leases are as follows as of September 30, 2023:

September 30, |  | Amount |
2024 |  |  | 139,280 |
2025 |  |  | 139,280 |
2026 |  |  | 139,280 |
2027 |  |  | 139,280 |
2028 |  |  | 139,280 |
Thereafter |  |  | - |
Total operating lease payments |  | $ | 696,400 |
Less: Interest |  |  | (133,788 | )
Present value of lease liabilities |  |  | 562,612 |
Less: current portion, record in current liabilities |  |  | (96,746 | )
Present value of lease liabilities |  |  | 465,866 |

The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of September 30, 2023:

|  | September 30, |
|  | 2023 |
Remaining lease term and discount rate: |  | RMB |
Weighted average remaining lease term (years) |  |  | 4.9 |
Weighted average discount rate |  |  | 7.56 | %

(7) Loans Payable

Short-term bank loans

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Industrial and Commercial Bank of China (“ICBC”) Loan 1 |  | $ | - |  |  | $ | 5,023,978 |
ICBC Loan 2 |  |  | - |  |  |  | 287,167 |
ICBC Loan 3 |  |  | - |  |  |  | 143,583 |
ICBC Loan 4 |  |  | 417,839 |  |  |  | - |
China Construction Bank Loan |  |  | - |  |  |  | 143,583 |
ICBC Loan 5 |  |  | 417,839 |  |  |  | - |
Total short-term bank loans |  | $ | 835,678 |  |  | $ | 5,598,311 |

13

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On November 10, 2022, the Company entered into a working capital loan agreement with the ICBC. The loan was secured by the land use right of Dongfang Paper as collateral for the benefit of the bank and guaranteed by Mr. Liu. The loan bore a fixed interest rate of 4.785% per annum. The Company repaid $71,743 in May 2023 and paid off the remaining balance of the loan in August 2023. The balance of the loan was $nil and $5,023,978 as of September 30, 2023 and December 31, 2022, respectively.

On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $287,167 as of September 30, 2023 and December 31, 2022, respectively. The loan bore an interest rate of 4.25% per annum. The loan was fully repaid in May 2023.

On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $143,583 as of September 30, 2023 and December 31, 2022, respectively. The loan bore an interest rate of 4.25% per annum. The loan was fully repaid in May 2023.

On May 29, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $417,839 as of September 30, 2023. The loan bears a fixed interest rate of 4.25% per annum. The loan will be due by November 25, 2023.

On July 29, 2022, the Company entered into a working capital loan agreement with the China Construction Bank, with a balance of $nil and $143,583 as of September 30, 2023 and December 31, 2022, respectively. The loan bore a fixed interest rate of 3.95% per annum. The loan was fully repaid in July 2023.

On June 29, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $417,839 as of September 30, 2023. The loan bears a fixed interest rate of 3.55% per annum. The loan will be due by June 28, 2024.

As of September 30, 2023, there were guaranteed short-term borrowings of $nil and unsecured bank loans of $968,751. As of December 31, 2022, there were guaranteed short-term borrowings of $5,023,978 and unsecured bank loans of $574,333.

The average short-term borrowing rates for the three months ended September 30, 2023 and 2022 were approximately 4.52% and 4.28%. The average short-term borrowing rates for the nine months ended September 30, 2023 and 2022 were approximately 4.66% and 4.6%.

Long-term loans

As of September 30, 2023 and December 31, 2022, long-term loans were $11,270,053 and $9,040,002, respectively.

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Rural Credit Union of Xushui District Loan 1 |  | $ | 1,197,805 |  |  | $ | 1,234,816 |
Rural Credit Union of Xushui District Loan 2 |  |  | 3,481,536 |  |  |  | 3,589,582 |
Rural Credit Union of Xushui District Loan 3 |  |  | 2,228,474 |  |  |  | 2,297,332 |
Rural Credit Union of Xushui District Loan 4 |  |  | 1,810,635 |  |  |  | 1,866,582 |
Rural Credit Union of Xushui District Loan 5 |  |  | 2,507,034 |  |  |  | - |
Yujiangna |  |  | 44,569 |  |  |  | 51,690 |
Total |  |  | 11,270,053 |  |  |  | 9,040,002 |
Less: Current portion of long-term loans |  |  | (4,707,652 | ) |  |  | (4,835,884 | )
Long-term loans |  | $ | 6,562,401 |  |  | $ | 4,204,118 |

As of September 30, 2023, the Company’s long-term debt repayments for the next coming years were as follows:

Fiscal year |  | Amount |
Remainder of 2023 |  | $ | 4,707,652 |
2024 |  |  | 3,061,367 |
2025 & after |  |  | 3,501,034 |
Total |  |  | 11,270,053 |

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 bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. 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, 2023 and December 31, 2022, total outstanding loan balance was $1,197,805 and $1,234,816, respectively, which are presented as current liabilities in the consolidated balance sheet.

14

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 was due and payable in various installments from December 21, 2018 to June 20, 2023. On June 19, 2023, the loan was extended for another 5 years and will be due and payable on June 20, 2028. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $29,713 and $280,466 as of September 30, 2023 and December 31, 2022, respectively. Interest payment is due quarterly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $3,481,536 and $3,589,582, which are presented as non-current liabilities and current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, 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 was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on April 16, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $2,228,474 and $2,297,332, respectively, which are presented as current liabilities and non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, 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 was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7.56% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $1,810,635 and $1,866,582, respectively, which are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

On February 26, 2023, 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 August 21, 2023 to February 24, 2025. The loan is secured by Dongfang Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7% per annum. As of September 30, 2023, the total outstanding loan balance was $2,507,034. Out of the total outstanding loan balance, current portion amounted was $1,267,445, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,239,589 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023.

On July 1, 2022, the Company entered into a loan agreement with Jiangna Yu, a customer of the Company, pursuant to which the Company borrowed RMB 400,000 from Jiangna Yu for a term of five years. The loan is payable in monthly installment of RMB10,667 from July 2022 to July 2027. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $44,569 and $51,690, respectively. Out of the total outstanding loan balance, current portion amounted $11,072 and $13,928, respectively, which are presented as current liabilities and the remaining balance of $30,641 and $40,204 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2023 and 2022 were $247,628 and $248,239, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2023 and 2022 were $760,807 and $753,789, respectively.

(8) 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 $354,748 and $357,021 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, approximately $41,784 and $43,075 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.

15

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 1, 2015, the Company entered an agreement with Mr. Zhenyong Liu which allows Dongfang Paper to borrow from the CEO 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 was 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, 2023 and December 31, 2022, the outstanding interest was $191,422 and $197,338, 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, 2023 and December 31, 2022, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans were $nil for the three and nine months ended September 30, 2023 and 2022. The accrued interest owing to Mr. Zhenyong Liu was approximately $590,227 and $608,465, as of September 30, 2023 and December 31, 2022, respectively, which was recorded in other payables and accrued liabilities.

On December 8, 2021, the Company entered into an agreement with Mr. Zhenyong Liu, which allows Mr. Zhenyong Liu to borrow from the Company an amount of $6,507,431 (RMB44,089,085). The loan is unsecured and carries a fixed interest rate of 3% per annum. The loan was repaid by Mr. Zhenyong Liu in February 2022.

In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of $6,963,982 (RMB50,000,000) in total. The loans were unsecured and carried a fixed interest rate of 4.35% per annum. $4,264,938 (RMB30,000,000) was repaid by Mr. Zhengyong Liu in August 2023. The remaining balance is expected to be repaid by the end of November 2023. Interest income of the loan for the nine months ended September 30, 2023 was $263,342.

As of September 30, 2023 and December 31, 2022, amount due to shareholders 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.

(9) Other payables and accrued liabilities

Other payables and accrued liabilities consist of the following:

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Accrued electricity |  | $ | 114,579 |  |  | $ | 3,036 |
Accrued rental |  |  | 20,129 |  |  |  | 56,646 |
Value-added tax payable |  |  | 686 |  |  |  | 69,053 |
Accrued interest to a related party |  |  | 590,227 |  |  |  | 608,465 |
Payable for purchase of equipment |  |  | 2,442,169 |  |  |  | 3,294,940 |
Accrued commission to salesmen |  |  | 14,553 |  |  |  | 19,524 |
Accrued bank loan interest |  |  | 1,203,655 |  |  |  | 1,595,354 |
Others |  |  | 472,446 |  |  |  | 18,540 |
Totals |  | $ | 4,858,444 |  |  | $ | 5,665,558 |

(10) Derivative Liabilities

The Company analyzed the warrant 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.

16

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company determined its 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, 2023. 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, 2023:

|  |  | Nine months ended |
|  |  | September 30, 2023 |
Expected term |  |  | 1.05 - 2.75 |
Expected average volatility |  |  | 73% - 102 | %
Expected dividend yield |  |  | - |
Risk-free interest rate |  |  | 0.19% - 4.8 | %

The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2023:

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance at December 31, 2022 |  | $ | 646,283 |
Addition of new derivatives recognized as warrant |  |  | - |
Addition of new derivatives recognized as loss on derivatives |  |  | - |
Exercise of warrants |  |  | - |
Change in fair value of derivative liability |  |  | (646,020 | )
Balance at September, 2023 |  | $ | 263 |

(11) Common Stock

Issuance of common stock to investors

On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 2,618,182 shares of common stock and 2,618,182 warrants to purchase up to 2,618,182 shares of common stock in a best-efforts public offering for gross proceeds of approximately $14.4 million. The purchase price for each share of common stock and the corresponding warrant was $5.5. The exercise price of the warrant was $5.5 per share.

On March 1, 2021, the Company offered and sold to the public investors an aggregate of 2,927,786 shares of common stock and 1,463,893 warrants to purchase up to 1,463,893 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 $7.5. The exercise price of the warrant was $7.5 per share.

17

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reverse stock split

On June 9, 2022, the Board of Directors of the Company approved the Reverse Stock Split, at a ratio of 1-for-10, pursuant to Section 78.207 of the Nevada Revised Statutes (“NRS”). The Reverse Stock Split was effected by the Company filing of a Certificate of Change Pursuant to NRS 78.209 with the Secretary of State of the State of Nevada on July 7, 2022. The par value per share of our stock remains unchanged at $0.001 per share after the Reverse Stock Split. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split.

Issuance of common stock pursuant to the 2021 Incentive Stock Plan

On August 15, 2022, the Company granted an aggregate of 150,000 shares of common stock under its compensatory incentive plans to fifteen employees, as awards under the 2021 Incentive Stock Plan. Please see Note (15), Stock Incentive Plans for more details. Total fair value of the stock was calculated at $156,000 as of the date of grant.

(12) Warrants

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 440,000 shares of common stock and warrants to purchase up to 440,000 shares of common stock in a concurrent private placement (the “May 2020 Warrants”). The exercise price of the May 2020 Warrant is $7.425 per share. These warrants become 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. 88,000 May 2020 Warrants were exercised in February 2021 at the exercise price of $7.425 per share and 352,000 May 2020 Warrants were outstanding as of September 30, 2023.

On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 2,618,182 shares of common stock and 2,618,182 warrants to purchase up to 2,618,182 shares of common stock (the “January 2021 Warrants”). The January 2021 Warrants became exercisable on January 20, 2021 at an exercise price of $5.5 and will expire on January 20, 2026. 1,410,690 January 2021 Warrants were exercised in January and February of 2021 at the exercise price of $5.5 per share. 1,207,492 January 2021 Warrants were outstanding as of September 30, 2023.

On March 1, 2021, the Company offered and sold to the public investors an aggregate of 2,927,786 shares of common stock and 1,463,893 warrants to purchase up to 1,463,893 shares of common stock (the “March 2021 Warrants”). The March 2021 Warrants became exercisable on March 1, 2021 at an exercise price of $7.5 and will expire on March 1, 2026. 6,750 March 2021 Warrants were exercised in January and March 2021 at the exercise price of $7.5 per share and 1,457,143 March 2021 Warrants were outstanding as of September 30, 2023.

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

A summary of stock warrant activities is as below:

|  | Nine months Ended |
|  | September 30, 2023 |
|  |  |  |  | Weight |
|  |  |  |  | average |
|  |  |  |  | exercise |
|  | Number |  |  | price |
Outstanding and exercisable at beginning of the period |  |  | 3,016,635 |  |  | $ | 6.6907 |
Issued during the period |  |  | - |  |  |  |  |
Exercised during the period |  |  | - |  |  |  |  |
Outstanding and exercisable at end of the period |  |  | 3,016,635 |  |  | $ | 6.6907 |

18

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, 2023.

Warrants Outstanding |  |  | Warrants Exercisable |
Number of Shares |  |  | Weighted Average Remaining Contractual life (in years) |  |  | Weighted Average Exercise Price |  |  | Number of Shares |  |  | Weighted Average Exercise Price |
| 3,016,635 |  |  |  | 2.34 |  |  | $ | 6.6907 |  |  |  | 3,016,635 |  |  | $ | 6.6907 |

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 September 30, 2023 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, 2023 and December 31, 2022 are nil.

(13) Earnings Per Share

For the three months ended September 30, 2023 and 2022, basic and diluted net income per share are calculated as follows:

|  | Three Months Ended September 30, |
|  | 2023 |  |  | 2022 |
Basic loss per share |  |  |  |  |  |
Net loss for the period - numerator |  | $ | (1,975,368 | ) |  | $ | (1,887,318 | )
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,991,744 |
Net loss per share |  | $ | (0.20 | ) |  | $ | (0.19 | )
Diluted income per share |  |  |  |  |  |  |  |
Net income for the period- numerator |  | $ | (1,975,368 | ) |  | $ | (1,887,318 | )
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,991,744 |
Effect of dilution |  |  | - |  |  |  | - |
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,991,744 |
Diluted loss per share |  | $ | (0.20 | ) |  | $ | (0.19 | )

|  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
Basic loss per share |  |  |  |  |  |
Net loss for the period - numerator |  | $ | (5,962,026 | ) |  | $ | (4,663,445 | )
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,941,288 |
Net loss per share |  | $ | (0.59 | ) |  | $ | (0.47 | )
Diluted loss per share |  |  |  |  |  |  |  |
Net loss for the period - numerator |  | $ | (5,962,026 | ) |  | $ | (4,663,445 | )
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,941,288 |
Effect of dilution |  |  | - |  |  |  | - |
Weighted average common stock outstanding - denominator |  |  | 10,065,920 |  |  |  | 9,941,288 |
Diluted loss per share |  | $ | (0.59 | ) |  | $ | (0.47 | )

For the three and nine months ended September 30, 2023 and 2022 there were no securities with dilutive effect issued and outstanding.

19

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(14) Income Taxes

United States

The Company may be subject to the United States of America Tax laws at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the nine months ended September 30, 2023 and 2022, and management believes that its earnings are permanently invested in the PRC.

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, 2023 and 2022 were as follows:

|  | Three Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
Provision for Income Taxes |  |  |  |  |  |
Current Tax Provision U.S. |  | $ | - |  |  | $ | 15,062 |
Current Tax Provision PRC |  |  | (3,236 | ) |  |  | 793,630 |
Deferred Tax Provision PRC |  |  | - |  |  |  | (376,405 | )
Total Provision for (Deferred tax benefit)/ Income Taxes |  | $ | (3,236 | ) |  | $ | 432,287 |

The provisions for income taxes for nine months ended September 30, 2023 and 2022 were as follows:

|  | Nine Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
Provision for Income Taxes |  |  |  |  |  |
Current Tax Provision U.S. |  | $ | - |  |  | $ | 15,062 |
Current Tax Provision PRC |  |  | 348,024 |  |  |  | 1,022,037 |
Deferred Tax Provision PRC |  |  | - |  |  |  | (1,197,630 | )
Total Provision for (Deferred tax benefit)/ Income Taxes |  | $ | 348,024 |  |  | $ | (160,531 | )

20

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 $530,581 and $761,881 for U.S. income tax purposes for the years ended December 31, 2022 and 2021, 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, 2023, 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, 2023 and December 31, 2022, 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, |
|  | 2023 |  |  | 2022 |
Deferred tax assets (liabilities) |  |  |  |  |  |
Depreciation and amortization of property, plant and equipment |  | $ | 15,938,215 |  |  | $ | 15,474,485 |
Impairment of property, plant and equipment |  |  | 948,175 |  |  |  | 796,559 |
Miscellaneous |  |  | 124,058 |  |  |  | 615,436 |
Net operating loss carryover of PRC company |  |  | 235,109 |  |  |  | 213,620 |
Total deferred tax assets |  |  | 17,245,557 |  |  |  | 17,100,100 |
Less: Valuation allowance |  |  | (17,245,557 | ) |  |  | (17,100,100 | )
Total deferred tax assets, net |  | $ | - |  |  |  | - |

|  | Three Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
PRC Statutory rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of tax and book difference |  |  | (2.6 | )% |  |  | (54.7 | )%
Change in valuation allowance |  |  | (22.2 | )% |  |  | - |
Effective income tax rate |  |  | 0.2 | % |  |  | (29.7 | )%

|  | Nine Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
PRC Statutory rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of tax and book difference |  |  | (28.6 | )% |  |  | (21.7 | )%
Change in valuation allowance |  |  | (2.6 | )% |  |  | - |
Effective income tax rate |  |  | (6.2 | )% |  |  | 3.3 | %

During the three months ended September 30, 2023 and 2022, the effective income tax rate was estimated by the Company to be 0.2% and -29.7%, respectively.

During the nine months ended September 30, 2023 and 2022, the effective income tax rate was estimated by the Company to be -6.2% and 3.3%, respectively.

As of September 30, 2023, 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.

21

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, 2023 and December 31, 2022, 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 three and nine months ended September 30, 2023 and 2022, 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.

(15) Stock Incentive Plans

2021 Incentive Stock Plan

On November 12, 2021, the Company’s Annual General Meeting adopted and approved the 2021 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc.(the”2021 Plan”). Under the 2021 ISP, the Company has reserved a total of 150,000 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 August 15, 2022, the Company granted an aggregate of 150,000 shares of common stock under its compensatory incentive plans to fifteen employees. Total fair value of the stock was calculated at $156,000 as of the date of grant.

(16) Commitments and Contingencies

Xushui Land 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 $17,060 (RMB120,000). This lease is renewable at the end of the 30-year term.

Sale of Headquarters Compound Real Properties

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 with an annual rental payment of approximately $142,165 (RMB1,000,000). The lease was recorded in lease assets and liabilities in the consolidated balance sheet as of September 30, 2023. See ‘Operating lease’ under note (6).

Future minimum lease payments of the land lease is as follows:

September 30, |  | Amount |
2024 |  |  | 16,714 |
2025 |  |  | 16,714 |
2026 |  |  | 16,714 |
2027 |  |  | 16,714 |
2028 |  |  | 16,714 |
Thereafter |  |  | 54,319 |
Total operating lease payments |  |  | 137,889 |

22

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Capital commitment

As of September 30, 2023, the Company has entered into several contracts for the purchase of paper machine of a new tissue paper production line PM10, and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were $3,815,502 and $4,329,279 as of September 30, 2023 and December 31, 2022, respectively. The Company expected to pay off all the balances within 1-3 years.

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, 2023 and December 31, 2022, the Company guaranteed its long-term loan from financial institutions amounting to $4,317,669 (RMB31,000,000), that matured at various times in 2028. If Huanrun Trading Co., were to become insolvent, the Company could be materially adversely affected.

(17) Segment Reporting

Since March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through three business operating segments: Dongfang Paper and Tengsheng Paper, which produces offset printing paper, corrugating medium paper and tissue paper, and Baoding Shengde, which produces face masks and 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 among 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.

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

|  | Three Months Ended |
|  | September 30, 2023 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Revenues |  | $ | 15,492,300 |  |  | $ | 264,063 |  |  | $ | 15,197 |  |  | $ | - |  |  | $ | - |  |  | $ | 15,771,560 |
Gross profit |  |  | 583,651 |  |  |  | (734,481 | ) |  |  | (2,393 | ) |  |  | - |  |  |  | - |  |  |  | (153,223 | )
Depreciation and amortization |  |  | 960,898 |  |  |  | 2,071,901 |  |  |  | 390,432 |  |  |  | - |  |  |  | - |  |  |  | 3,423,231 |
Loss on impairment of assets |  |  | - |  |  |  | - |  |  |  | (3,456 | ) |  |  | - |  |  |  | - |  |  |  | (3,456 | )
Interest income |  |  | 90,449 |  |  |  | 561 |  |  |  | 2,250 |  |  |  | 38 |  |  |  | - |  |  |  | 93,298 |
Interest expense |  |  | 119,795 |  |  |  | 52,199 |  |  |  | 72,291 |  |  |  | 3,533 |  |  |  | - |  |  |  | 247,818 |
Income tax expense(benefit) |  |  | (3,236 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,236 | )
Net income (loss) |  |  | (398,386 | ) |  |  | (2,114,896 | ) |  |  | (84,850 | ) |  |  | 622,764 |  |  |  | - |  |  |  | (1,975,368 | )

23

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

|  | Three Months Ended |
|  | September 30, 2022 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Revenues |  | $ | 31,359,186 |  |  | $ | 293,157 |  |  | $ | 56,871 |  |  | $ | - |  |  | $ | - |  |  | $ | 31,709,214 |
Gross profit |  |  | 3,524,435 |  |  |  | (757,695 | ) |  |  | 16,848 |  |  |  | - |  |  |  | - |  |  |  | 2,783,588 |
Depreciation and amortization |  |  | 1,168,036 |  |  |  | 2,054,034 |  |  |  | 403,865 |  |  |  | - |  |  |  | - |  |  |  | 3,625,935 |
Interest income |  |  | 4,130 |  |  |  | 416 |  |  |  | 2,965 |  |  |  | 217 |  |  |  | - |  |  |  | 7,728 |
Interest expense |  |  | 160,740 |  |  |  | 17,230 |  |  |  | 78,708 |  |  |  | - |  |  |  | - |  |  |  | 256,678 |
Income tax expense(benefit) |  |  | 740,764 |  |  |  | (337,791 | ) |  |  | 14,252 |  |  |  | 15,062 |  |  |  | - |  |  |  | 432,287 |
Net income (loss) |  |  | 2,100,268 |  |  |  | (1,871,128 | ) |  |  | (12,836 | ) |  |  | (2,101,863 | ) |  |  | (1,759 | ) |  |  | (1,887,318 | )

|  | Nine Months Ended |
|  | September 30, 2023 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Revenues |  | $ | 64,651,896 |  |  |  | 835,375 |  |  |  | 95,080 |  |  |  | - |  |  |  | - |  |  |  | 65,582,351 |
Gross profit |  |  | 2,915,818 |  |  |  | (2,157,381 | ) |  |  | (8,801 | ) |  |  | - |  |  |  | - |  |  |  | 749,636 |
Depreciation and amortization |  |  | 3,098,303 |  |  |  | 6,281,495 |  |  |  | 1,193,490 |  |  |  | - |  |  |  | - |  |  |  | 10,573,288 |
Loss on impairment of assets |  |  | - |  |  |  | - |  |  |  | 371,680 |  |  |  | - |  |  |  | - |  |  |  | 371,680 |
Interest income |  |  | 271,395 |  |  |  | 2,098 |  |  |  | 7,971 |  |  |  | 1,739 |  |  |  | - |  |  |  | 283,203 |
Interest expense |  |  | 410,580 |  |  |  | 134,764 |  |  |  | 218,791 |  |  |  | 3,533 |  |  |  | - |  |  |  | 767,668 |
Income tax expense(benefit) |  |  | 348,024 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 348,024 |
Net income (loss) |  |  | (30,517 | ) |  |  | (5,522,885 | ) |  |  | (627,976 | ) |  |  | 219,352 |  |  |  | - |  |  |  | (5,962,026 | )

|  | Nine Months Ended |
|  | September 30, 2022 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Revenues |  | $ | 77,675,737 |  |  |  | 1,102,933 |  |  |  | 201,046 |  |  |  | - |  |  |  | - |  |  |  | 78,979,716 |
Gross profit |  |  | 5,812,160 |  |  |  | (2,135,819 | ) |  |  | 51,729 |  |  |  | - |  |  |  | - |  |  |  | 3,728,070 |
Depreciation and amortization |  |  | 3,649,174 |  |  |  | 6,304,944 |  |  |  | 1,264,136 |  |  |  | - |  |  |  | - |  |  |  | 11,218,254 |
Interest income |  |  | 7,874 |  |  |  | 812 |  |  |  | 7,205 |  |  |  | 217 |  |  |  | - |  |  |  | 16,108 |
Interest expense |  |  | 501,360 |  |  |  | 41,599 |  |  |  | 243,638 |  |  |  | - |  |  |  | - |  |  |  | 786,597 |
Income tax expense(benefit) |  |  | 795,347 |  |  |  | (1,128,442 | ) |  |  | 157,502 |  |  |  | 15,062 |  |  |  | - |  |  |  | (160,531 | )
Net income (loss) |  |  | 2,046,362 |  |  |  | (5,480,223 | ) |  |  | (297,484 | ) |  |  | (962,504 | ) |  |  | 30,404 |  |  |  | (4,663,445 | )

|  | As of September 30, 2023 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Total assets |  | $ | 63,466,149 |  |  |  | 107,979,374 |  |  |  | 12,930,971 |  |  |  | 4,621,212 |  |  |  | - |  |  |  | 188,997,706 |

|  | As of December 31, 2022 |
|  | Dongfang |  |  | Tengsheng |  |  | Baoding |  |  | Not Attributable |  |  | Elimination of |  |  | Enterprise-wide, |
|  | Paper |  |  | Paper |  |  | Shengde |  |  | to Segments |  |  | Inter-segment |  |  | consolidated |
Total assets |  | $ | 63,365,986 |  |  |  | 117,645,828 |  |  |  | 17,945,969 |  |  |  | 5,489,450 |  |  |  | - |  |  |  | 204,447,233 |

24

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(18) Concentration and Major Customers and Suppliers

For the three months ended September 30, 2023, the Company had no single customer contributed over 10% of total sales. For the three months ended September 30, 2022, the Company had five customers accounted for approximately 12% of total sales.

For the nine months ended September 30, 2023 and 2022, the Company had no single customer contributed over 10% of total sales.

For the three months ended September 30, 2023, the Company had three major suppliers accounted for 71%, 18% and 7% of total purchases. For the three months ended September 30, 2022, the Company had three major suppliers accounted for 77%, 14% and 7% of total purchases.

For the nine months ended September 30, 2023, the Company had three major suppliers accounted for 75%, 16% and 6% of total purchases. For the nine months ended September 30, 2022, the Company had three major suppliers accounted for 77%, 15% and 5% of total purchases.

(19) 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, 2023 and December 31, 2022. On May 1, 2015, the new “Deposit Insurance Regulations” was effective in the PRC that the maximum protection would be up to RMB500,000 ($69,640) 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, 2023 and December 31, 2022, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to RMB57,984,303 ($8,076,033) as of September 30, 2023.

(20) 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.

(21) Recent Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

(22) Subsequent Event

2023 Incentive Stock Plan

On October31, 2023, the Company’s Annual General Meeting adopted and approved the 2023 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc.(the”2023 Plan”). Under the 2023 ISP, the Company has reserved a total of 1,500,000 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.

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, 2023 and 2022 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.

Results of Operations

Comparison of the Three months ended September 30, 2023 and 2022

Revenue for the three months ended September 30, 2023 was $15,771,560, a decrease of $15,937,654, or 50.26%, from $31,709,214 for the same period in the previous year. This was mainly due to the decrease of sales volume of corrugating medium paper (“CMP”) and a decrease in average selling prices of CMP and tissue paper products.

26

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, 2023 was $15,756,399, representing a decrease of $15,895,944, or 50.22%, from $31,652,343 for the third quarter of 2022. Total offset printing paper, CMP and tissue paper products sold during the three months ended September 30, 2023 amounted to 44,807 tonnes, representing a decrease of 27,808 tonnes, or 38.30%, compared to 72,615 tonnes sold in the comparable period in the previous year. Production of regular CMP was limited in August 2023 due to unfavorable weather conditions (i.e. continuous rainstorm in August 2023). Production of offset printing paper had been suspended in year 2022 and first nine months of 2023 except for an intermittent production in May and June 2023. The production of offset print paper was resumed in early October 2023. The changes in revenue dollar amount and in quantity sold for the three months ended September 30, 2023 and 2022 are summarized as follows:

|  | Three Months Ended |  |  | Three Months Ended |  |  |  |  |  | Percentage |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | Change in |  |  | Change |
Sales Revenue |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity |  |  | Amount |
Regular CMP |  |  | 34,186 |  |  | $ | 11,953,552 |  |  |  | 59,848 |  |  | $ | 26,062,736 |  |  |  | (25,662 | ) |  | $ | (14,109,184 | ) |  |  | -42.88 | % |  |  | -54.14 | %
Light-Weight CMP |  |  | 10,210 |  |  | $ | 3,469,521 |  |  |  | 12,507 |  |  | $ | 5,296,450 |  |  |  | (2,297 | ) |  | $ | (1,826,929 | ) |  |  | -18.37 | % |  |  | -34.49 | %
Total CMP |  |  | 44,396 |  |  | $ | 15,423,073 |  |  |  | 72,355 |  |  | $ | 31,359,186 |  |  |  | (27,959 | ) |  | $ | (15,936,113 | ) |  |  | -38.64 | % |  |  | -50.82 | %
Offset Printing Paper |  |  | 170 |  |  | $ | 69,227 |  |  |  | - |  |  | $ | - |  |  |  | 170 |  |  | $ | 69,227 |  |  |  | - | % |  |  | - | %
Tissue Paper Products |  |  | 241 |  |  | $ | 264,099 |  |  |  | 260 |  |  | $ | 293,157 |  |  |  | (19 | ) |  | $ | (29,058 | ) |  |  | -7.31 | % |  |  | -9.91 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  |  | 44,807 |  |  | $ | 15,756,399 |  |  |  | 72,615 |  |  | $ | 31,652,343 |  |  |  | (27,808) |  |  | $ | (15,895,944 | ) |  |  | -38.30 | % |  |  | -50.22 | %

Monthly sales revenue for the 24 months ended September 30, 2023, are summarized below:

The Average Selling Prices (ASPs) for our main products in the three months ended September 30, 2023 and 2022 are summarized as follows:

|  | Offset Printing Paper ASP |  |  | Regular CMP ASP |  |  | Light-Weight CMP ASP |  |  | Tissue Paper Products ASP |
Three Months ended September 30, 2023 |  | $ | 407 |  |  | $ | 350 |  |  | $ | 340 |  |  | $ | 1,096 |
Three Months ended September 30, 2022 |  | $ | - |  |  | $ | 435 |  |  | $ | 423 |  |  | $ | 1,128 |
Decrease from comparable period in the previous year |  | $ | 407 |  |  | $ | 85 |  |  | $ | 83 |  |  | $ | 32 |
Decrease by percentage |  |  | - | % |  |  | -19.54 | % |  |  | -19.62 | % |  |  | -2.84 | %

27

The following chart shows the month-by-month ASPs for the 24-month period ended September 30, 2023:

Corrugating Medium Paper

Revenue from CMP amounted to $15,423,073 (97.88% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2023, representing a decrease of $15,936,113, or 50.82%, from $31,359,186 for the comparable period in 2022.

We sold 44,396 tonnes of CMP in the three months ended September 30, 2023 as compared to 72,355 tonnes for the same period in 2022, representing a 38.64% decrease in quantity sold.

ASP for regular CMP decreased from $435/tonne for the three months ended September 30, 2022 to $350/tonne for the three months ended September 30, 2023, representing a 19.54% decrease. ASP in RMB for regular CMP for the third quarter of 2022 and 2023 was RMB2,980 and RMB2,532, respectively, representing a 15.03% decrease. The quantity of regular CMP sold decreased by 25,662 tonnes, from 59,848 tonnes in the third quarter of 2022 to 34,186 tonnes in the third quarter of 2023.

ASP for light-weight CMP decreased from $423/tonne for the three months ended September 30, 2022 to $340/tonne for the three months ended September 30, 2023, representing a 19.62% decrease. ASP in RMB for light-weight CMP for the third quarter of 2022 and 2023 was RMB2,892 and RMB2,439, respectively, representing a 15.66% decrease. The quantity of light-weight CMP sold decreased by 2,297 tonnes, from 12,507 tonnes in the third quarter of 2022, to 10,210 tonnes in the third quarter of 2023.

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 2023 and 2022 were 38.07% and 66.82%, respectively, representing a decrease of 28.75%.

28

Quantities sold for regular CMP that was produced by the PM6 production line from October 2021 to September 2023 are as follows:

Offset printing paper

Revenue from offset printing paper was $69,227 (representing 0.44% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2023, representing an increase of $69,227, or 100.00%, from $nil for the three months ended September 30, 2022. Production of offset printing paper had been suspended in year 2022 and first nine months of 2023 except for an intermittent production in May and June 2023. The production of offset print paper was resumed in early October 2023. We sold 170 tonnes of offset printing paper in the third quarter of 2023.

Tissue Paper Products

Revenue from tissue paper products was $264,099 (representing 1.68% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2023, representing a decrease of $29,058, or 9.91%, from $293,157 for the three months ended September 30, 2022. We sold 241 tonnes of tissue paper in the third quarter of 2023, as compared to 260 tonnes in the comparable period of 2022, representing a decrease of 19 tonnes, or 7.31%. Except for the production suspension in the first quarter of 2020, the production and sales of tissue paper products have been growing up steadily since the launch of PM8 and PM9 in December 2018 and November 2019.

ASP for tissue paper products decreased from $1,128/tonne for the three months ended September 30, 2022 to $1,096/tonne for the three months ended September 30, 2023, representing a 2.84% decrease. ASP in RMB for tissue paper products for the third quarter of 2022 and 2023 was RMB7,913 and RMB7,849, respectively, representing a 0.81% decrease.

29

Revenue of Face Mask

Revenue generated from selling face mask were $15,198 and $56,871 for the three months ended September 30, 2023 and 2022, respectively, representing a decrease of $41,673, or 73.28%. We sold 507 thousand pieces of face masks in the third quarter of 2023, as compared to 1,282 thousand pieces in the comparable period of 2022, a decrease of 775 thousand pieces, or 60.45%.

Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended September 30, 2023 was $15,907,217, a decrease of $12,978,386, or 44.93%, from $28,885,603 for the comparable period in 2022. This was mainly due to the decrease in sales quantity and the decrease in the unit material costs of CMP.

Cost of sales for CMP was $14,844,637 for the quarter ended September 30, 2023, as compared to $27,834,752 for the comparable period in 2022. The decrease in the cost of sales of $12,990,115 for CMP was mainly due to the decrease in sales volume and average unit cost of sales of CMP. Average cost of sales per tonne for CMP decreased by 13.25%, from $385 in the third quarter of 2022 to $334 in the third quarter of 2023. The decrease in average cost of sales was mainly attributable to the lower average unit purchase costs (net of applicable value added tax) of recycled paper board in the third quarter of 2023 compared to the third quarter of 2022.

Cost of sales for tissue paper products was $998,569 for the quarter ended September 30, 2023, as compared to $1,050,851 for the comparable period in 2022. The decrease in the cost of sales of $52,282 for tissue paper products was mainly due to the decrease in sales volume of tissue paper products, partially offset by the increase in average cost of sales. Average cost of sales per tonne of tissue paper products increased by 2.50%, from $4,042 in the three months ended September 30, 2022, to $4,143 for the comparable period in 2023. 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, 2023 and 2022 are summarized below:

|  | Three Months Ended |  |  | Three Months Ended |  |  |  |  |  |  |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | 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 |  | $ | 11,116,060 |  |  | $ | 325 |  |  | $ | 23,218,241 |  |  | $ | 388 |  |  | $ | (12,102,181 | ) |  | $ | (63 | ) |  |  | -52.12 | % |  |  | -16.24 | %
Light-Weight CMP |  | $ | 3,728,577 |  |  | $ | 365 |  |  | $ | 4,616,511 |  |  | $ | 369 |  |  | $ | (887,934 | ) |  | $ | (4 | ) |  |  | -19.23 | % |  |  | -1.08 | %
Total CMP |  | $ | 14,844,637 |  |  | $ | 334 |  |  | $ | 27,834,752 |  |  | $ | 385 |  |  | $ | (12,990,115 | ) |  | $ | (51 | ) |  |  | -46.67 | % |  |  | -13.25 | %
Offset Printing Paper |  | $ | 64,011 |  |  | $ | 377 |  |  | $ | - |  |  | $ | - |  |  | $ | 64,011 |  |  | $ | 377 |  |  |  |  | % |  |  |  | %
Tissue Paper Products |  | $ | 998,569 |  |  | $ | 4,143 |  |  |  | 1,050,851 |  |  | $ | 4,042 |  |  | $ | (52,282 | ) |  | $ | 101 |  |  |  | -4.98 | % |  |  | 2.50 | %
Total CMP, Offset Printing Paper and Tissue Paper |  | $ | 15,907,217 |  |  | $ | n/a |  |  | $ | 28,885,603 |  |  | $ | n/a |  |  | $ | (12,978,386 | ) |  | $ | n/a |  |  |  | -44.93 | % |  |  | n/a |

Our average unit purchase costs (net of applicable value added tax) of recycled paper board in the three months ended September 30, 2023 was RMB 1,239/tonne (approximately $176/tonne), as compared to RMB 1,561/tonne (approximately $235/tonne) for the three months ended September 30, 2022. These changes (in US dollars) represent a year-over-year decrease of 25.11% 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.

30

The pricing trends of our major raw materials for the 24-month period from October 2021 to September 2023 are shown below:

Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 5% and 13.3% of total sales in the third quarter of 2023, respectively, compared to 4% and 11.6% of total sales in the third quarter of 2022. The monthly energy cost as a percentage of total monthly sales of our main paper products for the 24 months ended September 30, 2023 are summarized as follows:

Gross Profit (Loss)

Gross loss for the three months ended September 30, 2023 was $153,223 (representing 0.97% of the total revenue), representing a decrease of $2,936,811, or 105.50%, from the gross profit of $2,783,588 (representing 8.78% of the total revenue) for the three months ended September 30, 2022, as a result of factors described above.

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Offset Printing Paper, CMP and Tissue Paper Products

Gross loss for offset printing paper, CMP and tissue paper products for the three months ended September 30, 2023 was $150,818, representing a decrease of $2,917,558, or 105.45%, from the gross profit of $2,766,740 for the three months ended September 30, 2022. 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 9.70 percentage points, from 8.74% for the three months ended September 30, 2022, to -0.96% for the three months ended September 30, 2023.

Gross profit margin for regular CMP for the three months ended September 30, 2023 was 7.01%, or 3.90 percentage points lower, as compared to gross profit margin of 10.91% for the three months ended September 30, 2022. Such decrease was mainly due to the decrease in ASP of regular CMP, partially offset by the decrease in cost of recycled paper board in the third quarter of 2023.

Gross profit margin for light-weight CMP for the three months ended September 30, 2023 was -7.47%, or 20.31 percentage points lower, as compared to gross profit margin of 12.84% for the three months ended September 30, 2022. The decrease was mainly due to the decrease of ASP of light-weight CMP, partially offset by the decrease in cost of recycled paper board in the third quarter of 2023.

Gross profit margin for offset printing paper was 7.53% for the three months ended September 30, 2023.

Gross profit margin for tissue paper products for the three months ended September 30, 2023 was -278.10%, or 19.64 percentage points lower, as compared to gross profit margin of -258.46% for the three months ended September 30, 2022. The decrease in gross loss was mainly due to the decrease in ASP of tissue paper products and the increase in cost of base paper.

Monthly gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended September 30, 2023 are as follows:

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Face Masks

Gross profit for face masks was a gross loss of $2,393 and a gross profit of $16,848, respectively, for the three months ended September 30, 2023 and 2022, representing a gross margin of -15.75% and 29.62%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2023 were $2,334,746, a decrease of $1,035,795, or 30.73% from $3,370,541 for the three months ended September 30, 2022. The decrease was mainly due to the shares of common stock granted and issued under our compensatory incentive plan in August 2022.

Loss from Operations

Operating loss for the quarter ended September 30, 2023 was $2,484,513, a decrease of $1,897,560, or 323.29%, from $586,953 for the quarter ended September 30, 2022. The increase in loss from operations was primarily due to the decrease in gross profit, partially offset by decrease in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for the three months ended September 30, 2023 decreased by $8,860, from $256,678 in the three months ended September 30, 2022, to $247,818. The Company had short-term and long-term interest-bearing loans, related party loans and leasing obligations that aggregated $12,105,731 as of September 30, 2023, as compared to $14,681,595 as of September 30, 2022.

Gain on derivative liability

The Company analyzed the warrant 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, 2023 and 2022 was a gain of $660,429 and a loss of $617,370, respectively.

Net Loss

As a result and the factors discussed above, net loss was $1,975,368 for the quarter ended September 30, 2023, representing a decrease of $88,050, or 4.67%, from $1,887,318 for the quarter ended September 30, 2022.

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Comparison of the nine months ended September 30, 2023 and 2022

Revenue for the nine months ended September 30, 2023 was $65,582,351, representing a decrease of $13,397,365, or 16.96%, from $78,979,716 for the same period in the previous year. This was mainly due to the decrease in ASP of CMP.

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, 2023 was $65,483,282, a decrease of $13,295,389, or 16.88%, from $78,778,671 for the nine months ended September 30, 2022. This was mainly due to the decrease in ASPs of CMP. Total quantities of offset printing paper, CMP and tissue paper products sold during the nine months ended September 30, 2023 amounted to 173,317 tonnes, an increase of 5,251 tonnes, or 3.12%, compared to 168,066 tonnes sold during the nine months ended September 30, 2022. Total quantities of CMP and offset printing paper sold increased by 5,565 tonnes in the nine months of 2023 as compared to the same period of 2022. We sold 726 tonnes of tissue paper products in the nine months of 2023 as opposed to 1,040 tonnes in the same period of 2022. Production of offset printing paper was resumed in May 2023. The changes in revenue and quantity sold for the nine months ended September 30, 2023 and 2022 are summarized as follows:

|  | Nine Months Ended |  |  | Nine Months Ended |  |  |  |  |  | Percentage |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | Change in |  |  | Change |
Sales Revenue |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity (Tonne) |  |  | Amount |  |  | Quantity |  |  | Amount |
Regular CMP |  |  | 135,912 |  |  | $ | 50,352,851 |  |  |  | 139,036 |  |  | $ | 65,015,400 |  |  |  | (3,124 | ) |  | $ | (14,662,549 | ) |  |  | -2.25 | % |  |  | -22.55 | %
Light-Weight CMP |  |  | 31,106 |  |  | $ | 11,073,937 |  |  |  | 27,990 |  |  | $ | 12,660,338 |  |  |  | 3,116 |  |  | $ | (1,586,401 | ) |  |  | 11.13 | % |  |  | -12.53 | %
Total CMP |  |  | 167,018 |  |  | $ | 61,426,788 |  |  |  | 167,026 |  |  | $ | 77,675,738 |  |  |  | (8 | ) |  | $ | (16,248,950 | ) |  |  | 0.00 | % |  |  | -20.92 | %
Offset Printing Paper |  |  | 5,573 |  |  | $ | 3,225,109 |  |  |  | - |  |  | $ | - |  |  |  | 5,573 |  |  | $ | 3,225,109 |  |  |  | - | % |  |  | - | %
Tissue Paper Products |  |  | 726 |  |  | $ | 831,385 |  |  |  | 1,040 |  |  | $ | 1,102,933 |  |  |  | (314 | ) |  | $ | (271,548 | ) |  |  | -30.19 | % |  |  | -24.62 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  |  | 173,317 |  |  | $ | 65,483,282 |  |  |  | 168,066 |  |  | $ | 78,778,671 |  |  |  | 5,251 |  |  | $ | (13,295,389 | ) |  |  | 3.12 | % |  |  | -16.88 | %

ASPs for our main products in the nine-month period ended September 30, 2023 and 2022 are summarized as follows:

|  | Offset Printing Paper ASP |  |  | Regular CMP ASP |  |  | Light-Weight CMP ASP |  |  | Tissue Paper Products ASP |
Nine Months Ended September 30, 2023 |  | $ | 579 |  |  | $ | 370 |  |  | $ | 356 |  |  | $ | 1145 |
Nine Months Ended September 30, 2022 |  | $ | - |  |  | $ | 468 |  |  | $ | 452 |  |  | $ | 1061 |
Increase (Decrease) from comparable period in the previous year |  | $ | 579 |  |  | $ | (98 | ) |  | $ | (96 | ) |  | $ | 84 |
Increase (Decrease) by percentage |  |  | - | % |  |  | -20.94 | % |  |  | -21.24 | % |  |  | 7.92 | %

Revenue of Face Masks

Revenue generated from selling face masks were $95,080 and $201,045 for the nine months ended September 30, 2023 and 2022. We sold 3,023 thousand pieces of face masks for the nine months ended September 30, 2023, as compared to 4,295 thousand pieces in the comparable period of 2022, a decrease of 1,272 thousand pieces, or 29.62%.

Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products in the nine months ended September 30, 2023 was $64,717,786, a decrease of $10,384,544, or 13.83%, from $75,102,330 for the nine months ended September 30, 2022. This was mainly due to the decrease of material costs of CMP. Cost of sales for CMP was $58,592,582 for the nine months ended September 30, 2023, as compared to $71,863,579 in the same period of 2022. Average cost of sales per tonne for CMP decreased by 18.37%, from $430 for the nine months ended September 30, 2022, to $351 in the same period of 2023. This was mainly attributable to the lower average unit purchase costs (net of applicable value added tax) of recycled paper board. Cost of sales for tissue paper products was $2,981,708 for the nine months ended September 30, 2023, as compared to $3,238,751 in the same period of 2022.

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Changes in cost of sales and cost per tonne by product for the nine months ended September 30, 2023 and 2022 are summarized below:

|  | Nine Months Ended |  |  | Nine Months Ended |  |  |  |  |  |  |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | 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 |  | $ | 47,704,888 |  |  | $ | 351 |  |  | $ | 60,363,632 |  |  | $ | 434 |  |  | $ | (12,658,744 | ) |  | $ | (83 | ) |  |  | -20.97 | % |  |  | -19.12 | %
Light-Weight CMP |  | $ | 10,887,694 |  |  | $ | 350 |  |  | $ | 11,499,947 |  |  | $ | 411 |  |  | $ | (612,253 | ) |  | $ | (61 | ) |  |  | -5.32 | % |  |  | -14.84 | %
Total CMP |  | $ | 58,592,582 |  |  | $ | 351 |  |  | $ | 71,863,579 |  |  | $ | 430 |  |  | $ | (13,270,997 | ) |  | $ | (79 | ) |  |  | -18.47 | % |  |  | -18.37 | %
Offset Printing Paper |  | $ | 3,143,496 |  |  | $ | 564 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,143,496 |  |  | $ | 564 |  |  |  | - | % |  |  | 0.00 | %
Tissue Paper Products |  | $ | 2,981,708 |  |  | $ | 4,107 |  |  | $ | 3,238,751 |  |  | $ | 3,114 |  |  | $ | (257,043 | ) |  | $ | 993 |  |  |  | -7.94 | % |  |  | 31.89 | %
Total CMP, Offset Printing Paper and Tissue Paper Revenue |  | $ | 64,717,786 |  |  | $ | n/a |  |  | $ | 75,102,330 |  |  | $ | n/a |  |  | $ | (10,384,544 | ) |  | $ | n/a |  |  |  | -13.83 | % |  |  | n/a | %

Gross Profit

Gross profit for the nine months ended September 30, 2023 was $749,636 (representing 1.14% of the total revenue), representing a decrease of $2,978,434, or 79.89%, from the gross profit of $3,728,070 (representing 4.72% of the total revenue) for the nine months ended September 30, 2022. The decrease was mainly due to (i) the decrease in ASP of CMP, and (ii) the increase in material costs of tissue paper products.

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, 2023 was $765,496, a decrease of $2,910,845, or 79.18%, from the gross profit of $3,676,341 for the nine months ended September 30, 2022. 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 3.50 percentage points, from 4.67% for the nine months ended September 30, 2022, to 1.17% for the nine months ended September 30, 2023.

Gross profit margin for regular CMP for the nine months ended September 30, 2023 was 5.26%, or 1.89 percentage points lower, as compared to gross profit margin of 7.15% for the nine months ended September 30, 2022. Such decrease was primarily due to the decrease in ASP of regular CMP.

Gross profit margin for light-weight CMP for the nine months ended September 30, 2023 was 1.68%, or 7.49 percentage points lower, as compared to gross profit margin of 9.17% for the nine months ended September 30, 2022. Such decrease was primarily due to the decrease in ASP of light-weight CMP.

Gross profit margin for offset printing paper was 2.53% for the nine months ended September 30, 2023.

Gross profit margin for tissue paper products was -258.64% for the nine months ended September 30, 2023, a decrease of 64.99 percentage points, as compared to -193.65% for the nine months ended September 30, 2022. The decrease was mainly due to the increase in cost of tissue base paper.

Face Masks

Gross loss for face mask for the nine months ended September 30, 2023 was $8,801, representing a gross margin of -9.26% compared with a gross profit of $51,729, representing a gross margin of 25.73%, for the nine months ended September 30, 2022.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2023 were $6,153,513, a decrease of $2,387,711, or 27.96% from $8,541,224 for the nine months ended September 30, 2022. The decrease was mainly due to the reversal of doubtful debt loss and the decrease in depreciation of idle fixed assets during production suspension.

Loss from Operations

Operating loss for the nine months ended September 30, 2023 was $5,775,557, a decrease of $962,403, or 20.00%, from $4,813,154 for the nine months ended September 30, 2022. The decrease was primarily due to the decrease in gross profit and recognition of impairment loss on assets, partially offset by the decrease in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for the nine months ended September 30, 2023 decreased by $18,929, from $786,597 for the nine months ended September 30, 2022, to $767,668. The Company had short-term and long-term interest-bearing loans and lease obligation that aggregated $12,105,731 as of September 30, 2023, as compared to $14,681,595 as of September 30, 2022.

Gain on derivative liability

The Company analyzed the warrant 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, 2023 and 2022 was a gain of $ 646,020 and a gain of $729,263, respectively.

Net Loss

As a result of the above, net loss was $5,962,026 for the nine months ended September 30, 2023, representing an increase of net loss of $1,298,581, or 27.85%, from $4,663,445 for the nine months ended September 30, 2022.

Accounts Receivable

Net accounts receivable was $2,794,437 as of September 30, 2023, as compared with $nil as of December 31, 2022. We usually collect accounts receivable within 30 days of delivery and completion of sales.

Inventories

Inventories consist of raw materials (accounting for 74.58% of total value of inventory as of September 30, 2023), semi-finished goods and finished goods. As of September 30, 2023, the recorded value of inventory increased by 86.76% to $5,364,777 from $2,872,622 as of December 31, 2022. As of September 30, 2023, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $3,580,255, approximately $2,322,094, or 184.56%, higher than the balance as of December 31, 2022. As a result of better control over stock turnover and volatility of recycled paper board price, inventory was kept in a minimum level as of December 2022.

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

|  | September 30, |  |  | December 31, |  |  |  |  |  |  |
|  | 2023 |  |  | 2022 |  |  | $ Change |  |  | % Change |
Raw Materials |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recycled paper board |  | $ | 3,580,255 |  |  | $ | 1,258,161 |  |  |  | 2,322,094 |  |  |  | 184.56 | %
Recycled white scrap paper |  |  | 10,503 |  |  |  | 10,809 |  |  |  | -306 |  |  |  | -2.83 | %
Tissue base paper |  |  | 173,508 |  |  |  | 60,660 |  |  |  | 112,848 |  |  |  | 186.03 | %
Gas |  |  | 107,652 |  |  |  | 42,237 |  |  |  | 65,415 |  |  |  | 154.88 | %
Mask fabric and other raw materials |  |  | 129,076 |  |  |  | 99,569 |  |  |  | 29,507 |  |  |  | 29.63 | %
Total Raw Materials |  |  | 4,000,994 |  |  |  | 1,471,436 |  |  |  | 2,529,558 |  |  |  | 171.91 | %
Semi-finished Goods |  |  | 634,615 |  |  |  | 132,810 |  |  |  | 501,805 |  |  |  | 377.84 | %
Finished Goods |  |  | 729,168 |  |  |  | 1,268,376 |  |  |  | -539,208 |  |  |  | -42.51 | %
Total inventory, gross |  |  | 5,364,777 |  |  |  | 2,872,622 |  |  |  | 2,492,155 |  |  |  | 86.76 | %
Inventory reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |
Total inventory, net |  | $ | 5,364,777 |  |  | $ | 2,872,622 |  |  |  | 2,492,155 |  |  |  | 86.76 | %

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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 $142,165 (RMB1,000,000). The lease agreement was renewed in August 2022 with a term of six years with the same rental payments as provided for in the original lease agreement.

Capital Expenditure Commitment as of September 30, 2023

On May 5, 2020, the Company announced it planned the commercial launch of a new tissue paper production line PM10 and the Company signed an agreement to purchase paper machine with 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, 2023, we had approximately $3.8 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 progress. These commitments are expected to be financed by bank loans and cash flows generated from our business operations.

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, Tengsheng Paper sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Tengsheng Paper leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Tengsheng Paper may pay a nominal purchase price of RMB 100 (approximately $16) 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.

Tengsheng Paper made payments due according to the schedule. On July 17, 2023, the Company made a final payment on outstanding obligations and bought back the Lease Equipment at nominal price according to the agreement. The lease assets were reclassified as own assets and balance of Leased Equipment net of amortization were $nil and $1,939,970 as of September 30, 2023 and December 31, 2022, respectively.

Cash and Cash Equivalents

Our cash, cash equivalents and restricted cash as of September 30, 2023 was $9,437,941, a decrease of $86,927, from $9,524,868 as of December 31, 2022. The decrease of cash and cash equivalents for the nine months ended September 30, 2023 was attributable to a number of factors including:

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

Net cash provided by operating activities was $7,494,114 for the nine months ended September 30, 2023. The balance represented an increase of cash of $62,847, or 0.85%, from $7,431,267 provided for the nine months ended September 30, 2022. Net loss for the nine months ended September 30, 2023 was $5,962,026, representing a decrease of $1,298,581, or 27.85%, from a net loss of $4,663,445 for the nine months ended September 30, 2022. Changes in various asset and liability account balances throughout the nine months ended September 30, 2023 also contributed to the net change in cash from operating activities in nine months ended September 30, 2023. Chief among such changes is the increase of accounts receivable in the amount of $2,037,003 during the nine months of 2023. There was also an increase of $2,631,661 in the ending inventory balance as of September 30, 2023 (a decrease to net cash for the nine months ended September 30, 2023 cash flow purposes). In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of $10,573,288. The Company also had a net decrease of $7,968,553 in prepayment and other current assets (an increase to net cash) and a net increase of $381,203 in other payables and accrued liabilities and related parties (an increase to net cash), as well as a decrease in income tax payable of $413,777 (a decrease to net cash) during the nine months ended September 30, 2023.

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ii. Net cash used in investing activities

We incurred $9,211,711 in net cash expenditures for investing activities during the nine months ended September 30, 2023, as compared to $8,189,410 for the same period of 2022.

iii. Net cash provided by financing activities

Net cash provided by financing activities was $1,997,269 for the nine months ended September 30, 2023, as compared to net cash provided by financing activities in the amount of $6,840,080 for the nine months ended September 30, 2022.

Short-term bank loans

|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Industrial and Commercial Bank of China (“ICBC”) Loan 1 |  | $ | - |  |  | $ | 5,023,978 |
ICBC Loan 2 |  |  | - |  |  |  | 287,167 |
ICBC Loan 3 |  |  | - |  |  |  | 143,583 |
ICBC Loan 4 |  |  | 417,839 |  |  |  | - |
China Construction Bank Loan |  |  | - |  |  |  | 143,583 |
ICBC Loan 5 |  |  | 417,839 |  |  |  | - |
Total short-term bank loans |  | $ | 835,678 |  |  | $ | 5,598,311 |

On November 10, 2022, the Company entered into a working capital loan agreement with the ICBC. The loan was secured by the land use right of Dongfang Paper as collateral for the benefit of the bank and guaranteed by Mr. Liu. The loan bore a fixed interest rate of 4.785% per annum. The company repaid $71,743 in May 2023 and paid off the remaining balance of the loan in August 2023. The balance of the loan was $nil and $5,023,978 as of September 30, 2023 and December 31, 2022, respectively.

On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $287,167 as of September 30, 2023 and December 31, 2022, respectively. The loan bore an interest rate of 4.25% per annum. The loan was repaid in May 2023.

On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $143,583 as of September 30, 2023 and December 31, 2022, respectively. The loan bore an interest rate of 4.25% per annum. The loan was repaid in May 2023.

On May 29, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $417,839 as of September 30, 2023. The loan bears a fixed interest rate of 4.25% per annum. The loan will be due by November 25, 2023.

On July 29, 2022, the Company entered into a working capital loan agreement with the China Construction Bank, with a balance of $nil and $143,583 as of September 30, 2023 and December 31, 2022, respectively. The loan bore a fixed interest rate of 3.95% per annum. The loan was fully repaid in July 2023.

On June 29, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $417,839 as of September 30, 2023. The loan bears a fixed interest rate of 3.55% per annum. The loan will be due by June 28, 2024.

As of September 30, 2023, there were guaranteed short-term borrowings of $nil and unsecured bank loans of $968,751. As of December 31, 2022, there were guaranteed short-term borrowings of $5,023,978 and unsecured bank loans of $574,333.

The average short-term borrowing rates for the three months ended September 30, 2023 and 2022 were approximately 4.52% and 4.28%. The average short-term borrowing rates for the nine months ended September 30, 2023 and 2022 were approximately 4.66% and 4.6%.

Long-term loans

As of September 30, 2023 and December 31, 2022, long-term loans were $11,270,053 and $9,040,002, respectively.

38

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 bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. 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, 2023 and December 31, 2022, total outstanding loan balance was $1,197,805 and $1,234,816, respectively, which are presented as current liabilities in the consolidated balance sheet.

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 was due and payable in various installments from December 21, 2018 to June 20, 2023. On June 19, 2023, the loan was extended for another 5 years and will be due and payable on June 20, 2028. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $29,713 and $280,466 as of September 30, 2023 and December 31, 2022, respectively. Interest payment is due quarterly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $3,481,536 and $3,589,582, which are presented as non-current liabilities and current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, 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 was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on April 16, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $2,228,474 and $2,297,332, respectively, which are presented as current liabilities and non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, 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 was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7.56% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $1,810,635 and $1,866,582, respectively, which are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

On February 26, 2023, 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 August 21, 2023 to February 24, 2025. The loan is secured by Dongfang Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7% per annum. As of September 30, 2023, the total outstanding loan balance was $2,507,034. Out of the total outstanding loan balance, current portion amounted was $1,267,445, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,239,589 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023.

On July 1, 2022, the Company entered into a loan agreement with Jiangna Yu, a customer of the Company, pursuant to which the Company borrowed RMB 400,000 from Jiangna Yu for a term of five years. The loan is payable in monthly installment of RMB10,667 from July 2022 to July 2027. As of September 30, 2023 and December 31, 2022, the total outstanding loan balance was $44,569 and $51,690, respectively. Out of the total outstanding loan balance, current portion amounted $11,072 and $13,928, respectively, which are presented as current liabilities and the remaining balance of $30,641 and $40,204 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2023 and 2022 were $247,628 and $248,239, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2023 and 2022 were $760,807 and $753,789, 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 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 $354,748 and $357,021 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, approximately $41,784 and $43,075 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 the CEO 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 was 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, 2023 and December 31, 2022, the outstanding interest was $191,422 and $197,338, 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, 2023 and December 31, 2022, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans were $nil for the three and nine months ended September 30, 2023 and 2022. The accrued interest owing to Mr. Zhenyong Liu was approximately $590,227 and $608,465, as of September 30, 2023 and December 31, 2022, respectively, which was recorded in other payables and accrued liabilities.

On December 8, 2021, the Company entered into an agreement with Mr. Zhenyong Liu, which allows Mr. Zhenyong Liu to borrow from the Company an amount of $6,507,431 (RMB44,089,085). The loan is unsecured and carries a fixed interest rate of 3% per annum. The loan was repaid by Mr. Zhenyong Liu in February 2022.

In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of $6,963,982 (RMB50,000,000) in total. The loans were unsecured and carried a fixed interest rate of 4.35% per annum. $4,264,938 (RMB30,000,000) was repaid by Mr. Zhenyong Liu in August 2023. The remaining balance will be repaid in November 2023. Interest income of the loan for the nine months ended September 30, 2023 was $263,342.

As of September 30, 2023 and December 31, 2022, 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, 2023 and 2022, 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, 2023 and December 31, 2022 to translate the Chinese RMB to the U.S. Dollars are 7.1798:1 and 6.9646:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 7.0341:1 and 6.6410:1 for the nine months ended September 30, 2023 and 2022, 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 $4,317,669 (RMB31,000,000), which matures at various times in 2028. 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 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 October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on its 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 “Exchange 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, 2023, 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 (as such term is defined in Rules 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting in the quarterly period ended September 30, 2023.

42

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

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, Use of Proceeds, and Issuer Purchases of Equity Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

During our fiscal quarter ended September 30, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as those terms are defined in Item 408(a) of Regulation S-K.

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.DEF |  | Inline XBRL Definition Linkbase Document
101.LAB |  | Inline XBRL Label Linkbase Document
101.PRE |  | Inline XBRL Presentation Linkbase Document
104 |  | Cover Page Interactive Data File The cover page iXBRL tags are embedded within the inline

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 9, 2023 | /s/ Zhenyong Liu
| Name: | Zhenyong Liu
| Title: | Chief Executive Officer
|  | (Principal Executive Officer)
Date: November 9, 2023 | /s/ Jing Hao
| Name: | Jing Hao
| Title: | Chief Financial Officer
|  | (Principal Financial Officer)

45

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