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Item 8. Financial Statements and Supplementary Data

2020-03-23 compared with 2019-03-07 · 1227 added, 1130 removed, 250 unchanged (90% of the section changed)

Financial Statements and Supplementary Data

audited financial statement for the fiscal year ended December 31, 2018 and 2017, together with the report of the independent

certified public accounting firms thereon and the notes thereto, are presented beginning at page F-1.

Financial Statements and

Supplementary Data

Our audited financial

statement for the fiscal year ended December 31, 2019 and 2018, together with the report of the independent certified public accounting

firms thereon and the notes thereto, are presented beginning at page F-1.

REPORT OF INDEPENDENT REGISTERED PUBLIC

1 unchanged sentence

The Board of Directors and Stockholders of

IT Tech Packaging, Inc.

Opinion on the Financial Statements

We have audited the accompanying

consolidated balance sheets of IT Tech Packaging, Inc.

(the Company) as of December 31, 2018 and 2017, and the related

consolidated statement of income and comprehensive income (loss), statement of changes in stockholders’

cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to

as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for

each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in

the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required

to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

/s/ WWC, P.C.

Certified Public Accountants

We have served as the Company’s auditor

since March 25, 2018.

San Mateo, California

March 7, 2019

Tech Packaging, Inc.

BALANCE SHEETS

OF DECEMBER 31, 2018 AND 2017

on the Financial Statements

have audited the accompanying balance sheets of IT Tech Packaging, Inc.

(the Company) as of December 31, 2019, and 2018, and the

related statements of income, comprehensive income, stockholders’

equity, and cash flows for each of the years in the two-year

period ended December 31, 2019, and the related notes (collectively referred to as the financial statements).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019

and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31,

2019, in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but

not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Public Accountants

have served as the Company’s auditor since March 25, 2018.

Mateo, California

IT TECH PACKAGING, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER

31, 2019 AND 2018

Current Assets

3 unchanged sentences

Prepayments and other current assets

Due from related parties

Total current assets

Prepayment on property, plant and equipment

Property, plant, and equipment, net

3 unchanged sentences

$ 203,076,010

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

2 unchanged sentences

Accounts payable

Advance from customers

Notes payable

8 unchanged sentences

Commitments and Contingencies

Stockholders’

Common stock, 500,000,000 shares authorized, $0.001 par value per share, 20,022,316 and 21,450,316 shares issued and outstanding as of December 31, 2018 and 2017, respectively

Stockholders' Equity

Common stock, 500,000,000 shares authorized, $0.001 par value per share, 22,054,816 shares issued

Additional paid-in capital

Statutory earnings reserve

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Retained earnings

Total stockholders’

Total Liabilities and Stockholders’

Total stockholders' equity

Total Liabilities and Stockholders' Equity

$ 190,198,430

$ 203,076,010

accompanying notes to consolidated financial statements.

TECH PACKAGING, INC.

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

THE YEARS ENDED DECEMBER 31, 2018 AND 2017

See accompanying

notes to consolidated financial statements.

IT TECH PACKAGING, INC.

CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2019

$ 117,614,886

4 unchanged sentences

(13,098,373 )

(11,307,395 )

Loss from disposal of property, plant and equipment

Loss on impairment of assets

(Loss) Income from Operations

Income (Loss) from Operations

(11,182,314 )

3 unchanged sentences

Interest expense

(Loss) Income before Income Taxes

Income (Loss) before Income Taxes

(12,396,612 )

Provision for Income Taxes

Net (Loss) Income

Net Income (Loss)

(10,545,684 )

Other Comprehensive (Loss) Income

Other Comprehensive Loss

Foreign currency translation adjustment

Total Comprehensive (Loss) Income

Total Comprehensive Loss

$ (19,278,435 )

(Losses) Earnings Per Share:

Basic and Diluted (Losses) Earnings per Share

Earnings (Losses) Per Share:

Basic and Diluted Earnings (Losses) per Share

Outstanding –

Basic and Diluted

accompanying notes to consolidated financial statements.

TECH PACKAGING, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’

THE YEARS ENDED DECEMBER 31, 2018 AND 2017

See accompanying notes to consolidated financial

IT TECH PACKAGING, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’

FOR THE YEARS ENDED DECEMBER 31, 2019

Comprehensive

Income (loss)

Balance at January 1, 2017

$ (5,441,391 )

$ 121,459,510

$ 172,755,386

Foreign currency translation adjustment

Net income for the year of 2017

Balance at December 1, 2018

2 unchanged sentences

Foreign currency translation adjustment

Net loss for the year of 2018

Net income for the year of 2018

(10,545,684 )

4 unchanged sentences

$ 166,549,915

accompanying notes to consolidated financial statements.

TECH PACACKING, INC.

STATEMENTS OF CASH FLOWS

THE YEARS ENDED DECEMBER 31, 2018 AND 2017

Issuance of shares to officer and directors

Issuance of shares to Weitian

Foreign currency translation adjustment

Net income for the year of 2019

Balance at December 31, 2019

$ (6,057,537 )

$ 114,794,796

$ 165,995,062

See accompanying notes to consolidated financial

IT TECH PACACKING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019

Cash Flows from Operating Activities:

2 unchanged sentences

Depreciation and amortization

Allowances for obsolete inventories, net

Loss from disposal and impairment of property, plant and equipment

(Recovery from) Allowance for bad debts

(Recovery from) for bad debts

Share-based compensation expenses

5 unchanged sentences

Notes payable

Due to related parties

Related parties

Accrued payroll and employee benefits

4 unchanged sentences

Purchases of property, plant and equipment

Proceeds from sale of property, plant and equipment

Acquisition of a subsidiary

Net Cash Used in Investing Activities

4 unchanged sentences

Proceeds from short term bank loans

Proceeds from credit union loans

Repayment of bank loans

1 unchanged sentence

(12,149,899 )

Proceeds from credit union loans

Payment of capital lease obligation

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Net Increase (Decrease) in Cash and Cash Equivalents

Net (Decrease) Increase in Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash - Beginning of Year

6 unchanged sentences

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

accompanying notes to consolidated financial statements.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

See accompanying notes to consolidated financial

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Business Background

Tech Packaging, Inc.

(the Company) was incorporated in the State of Nevada on December 9, 2005, under the name “Carlateral,

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, and

effective December 21, 2007, we changed our name to “Orient Paper, Inc.”.

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,”

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, and effective December 21, 2007, we changed our name

to “Orient Paper, Inc.”.

Effective 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.

were the surviving entity.

In connection with the name change, our common stock began being traded under a new NYSE symbol, “ITP,”

and a new CUSIP number, 46527C100, at such time.

October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired Dongfang

Zhiye Holding Limited (“Dongfang Holding”), a corporation formed on November 13, 2006 under the laws of the British

Virgin Islands, and issued the shareholders of Dongfang Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse

stock split effected in November 2009) shares of our common stock, which shares were distributed pro-rata to the shareholders

of Dongfang Holding in accordance with their respective ownership interests in Dongfang Holding.

At the time of the Merger Agreement,

Dongfang Holding owned all of the issued and outstanding stock and ownership of Dongfang Paper and such shares of Dongfang Paper

were held in trust with Zhenyong Liu, Xiaodong Liu and Shuangxi Zhao, for Mr.

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.

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.

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.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 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

On October 29, 2007, pursuant to an agreement

and plan of merger (the “Merger Agreement”), the Company acquired Dongfang Zhiye Holding Limited (“Dongfang Holding”),

a corporation formed on November 13, 2006 under the laws of the British Virgin Islands, and issued the shareholders of Dongfang

Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse stock split effected in November 2009) shares of our

common stock, which shares were distributed pro-rata to the shareholders of Dongfang Holding in accordance with their respective

ownership interests in Dongfang Holding.

At the time of the Merger Agreement, Dongfang Holding owned all of the issued and outstanding

stock and ownership of Dongfang Paper and such shares of Dongfang Paper were held in trust with Zhenyong Liu, Xiaodong Liu and

Shuangxi Zhao, for Mr.

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

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.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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;

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 agreement are binding on the parties for as long as Dongfang Paper Equity Owners continue to hold any equity interest in Dongfang

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 continues 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

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

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.

Dongfang Paper and the Dongfang Paper Equity Owners shall not declare any of Dongfang Paper’s unappropriated earnings as

dividend, including the unappropriated earnings of Dongfang Paper from its establishment to 2010 and thereafter.

On June 25, 2019, Dongfang Paper entered

into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd.(“Hebei Tengsheng”), a limited liability

company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng.

Upon full payment

of the consideration in the amount of RMB 320 million (approximately $45 million), Hebei Tengsheng will become a wholly owned

subsidiary of Dongfang Paper that manufactures and sells tissue paper products.

The Company has no direct 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;

(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 continues 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.

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.

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

Company has no direct equity interest in Dongfang Paper.

However, through the Contractual Agreements described above, the Company

is found to be the primary beneficiary (the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective

control over Dongfang Paper’s activities that most significantly affect its economic performance, resulting in Dongfang

Paper being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the

Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”).

The revenue generated from Dongfang Paper for the years ended December 31, 2018 and 2017 was accounted for 99.98% and 100% of

the Company’s total revenue, respectively.

Dongfang Paper also accounted for 90.60% and 87.96% of the total assets of the

Company as of December 31, 2018 and 2017, respectively.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2018 and 2017, details of the Company’s subsidiaries and variable interest entity are as follows:

of Incorporation

However, through the Contractual Agreements described above, the Company is found to be the primary beneficiary

(the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective control over Dongfang Paper’s

activities that most significantly affect its economic performance, resulting in Dongfang Paper being treated as a controlled

variable interest entity of the Company in accordance with Topic 810 - Consolidation of the Accounting Standards Codification

(the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”).

The revenue generated from

Dongfang Paper for the years ended December 31, 2019 and 2018 was accounted for 100% and 99.98% of the Company’s total revenue,

respectively.

Dongfang Paper also accounted for 91.01% and 90.60% of the total assets of the Company as of December 31, 2019 and

2018, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019 and 2018, details

of the Company’s subsidiaries and variable interest entity are as follows:

Incorporation

Incorporation or

3 unchanged sentences

Principal Activity

Dongfang Holding

November 13, 2006

Inactive investment holding

Shengde Holdings

February 25, 2009

State of Nevada

Investment holding

Baoding Shengde

Paper production and distribution

interest entity (“VIE”):

production and distribution

Variable interest entity (“VIE”):

Dongfang Paper

March 10, 1996

Paper production and distribution

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

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.

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.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated

balance sheets as of December 31, 2018 and 2017 are as follows:

and bank balances

and other current assets

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

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.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated balance sheets as of December

31, 2019 and 2018 are as follows:

Current Assets

plant, and equipment, net

tax asset non-current

Cash and bank balances

Restricted cash

Accounts receivable

Prepayments and other current assets

Due from related parties

Total current assets

Prepayment on property, plant and equipment

Property, plant, and equipment, net

Deferred tax asset non-current

$ 173,095,049

$ 183,987,100

portion of long-term loans from credit union

to related parties

payroll and employee benefits

payables and accrued liabilities

taxes payable

Current Liabilities

from credit union

from a related party

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Basis of Presentation and Significant Accounting Policies

of Consolidation

consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the

United States of America (“US GAAP”), and include the assets, liabilities, revenues, expenses and cash flows of all

subsidiaries and variable interest entity.

All significant inter-company balances, transactions and cash flows are eliminated

on consolidation.

and Going Concern

of December 31, 2018 the Company had current assets of $24,158,872 and current liabilities of $29,634,267 (including amounts due

to related parties of $413,336 and interest payable for related party loans of $617,454), resulting in a working capital deficit

of approximately $5,475,395;

as of December 31, 2017, the Company had current assets of $19,986,797 and current liabilities of

$21,757,533 (including amounts due to related parties of $60,378), resulting in a working capital deficit of approximately $1,770,736.

In late January, 2018, the Company temporarily suspended its production due to a government-mandated restriction on the natural

The Company resumed production on March 14, 2018.

As a result, the Company incurred a net loss of $4.0 million in

the first quarter of 2018.

As the production resumed, the net cash generated from operations for the nine months from April 2018

to December 2018 was $14 million (cash-in) as compared to the net cash-out of $4.8 million in the first quarter of 2018.

The management

expects that there will be sufficient and continuous cash-in from sales in the first half of year 2019 and the working capital

condition will be further improved.

Currency Translation

Company accounts for foreign currency translation pursuant to ASC Topic 830, Foreign Currency Matters .

The functional

currency of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”).

Monetary assets and liabilities

denominated in currencies other than RMB are translated into RMB at the rates of exchange ruling at the balance sheet date.

in currencies other than RMB are converted into RMB at the applicable rates of exchange prevailing the transactions occurred.

Transaction gains and losses are recognized in the consolidated statements of income.

The functional currency of IT Tech Packaging

and Shengde Holdings is United States dollars.

Monetary assets and liabilities denominated in currencies other than United States

dollars are translated into United States dollars at the rates of exchange ruling at the balance sheet date.

Translation in currencies

other than United States dollars are converted into United States dollars at the applicable rates of exchange prevailing when

the transactions occurred.

Short-term bank loans

Current portion of long-term loans from credit union

Accounts payable

Notes payable

Due to related parties

Accrued payroll and employee benefits

Other payables and accrued liabilities

Income taxes payable

Total current liabilities

Loans from credit union

Loans from a related party

Total liabilities

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

(2) Basis of Presentation and Significant

Accounting Policies

Basis of Consolidation

The consolidated financial statements of

the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US

GAAP”), and include the assets, liabilities, revenues, expenses and cash flows of all subsidiaries and variable interest

All significant inter-company balances, transactions and cash flows are eliminated on consolidation.

Foreign Currency Translation

The Company accounts for foreign currency

translation pursuant to ASC Topic 830, Foreign Currency Matters .

The functional currency of Dongfang Paper and Baoding

Shengde is the Chinese Yuan Renminbi (“RMB”).

Monetary assets and liabilities denominated in currencies other than

RMB are translated into RMB at the rates of exchange ruling at the balance sheet date.

Transactions in currencies other than RMB

are converted into RMB at the applicable rates of exchange prevailing the transactions occurred.

Transaction gains and losses are

recognized in the consolidated statements of income.

The functional currency of IT Tech Packaging and Shengde Holdings is United

States dollars.

Monetary assets and liabilities denominated in currencies other than United States dollars are translated into

United States dollars at the rates of exchange ruling at the balance sheet date.

Translation in currencies other than United States

dollars are converted into United States dollars at the applicable rates of exchange prevailing when the transactions occurred.

Transaction gains or losses are recognized in the consolidated statement of income.

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 December 31, 2018 and 2017 to translate the Chinese

RMB to the U.S.

Dollars are 6.8632:1, and 6.5342:1, respectively.

Revenues and expenses are translated using the average exchange

rates prevailing throughout the respective years at 6.6338:1 and 6.7423:1 for the years ended December 31, 2018 and 2017, respectively.

Translation adjustments are included in other comprehensive income (loss).

preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities as of December 31, 2018 and 2017, and revenues and expenses for the

years ended December 31, 2018 and 2017.

The most significant estimates relate to allowance for uncollectible accounts receivable,

inventory valuation, useful lives and impairment for property, plant and equipment, valuation allowance for deferred tax assets

and contingencies.

Actual results could differ from those estimates made by management.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

accounts receivable are recorded on shipment of products to customers.

The trade receivables are all without customer collateral

and interest is not accrued on past due accounts.

Periodically, management reviews the adequacy of its provision for doubtful

accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its

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.

exchange rates used by the Company as of December 31, 2019 and 2018 to translate the Chinese RMB to the U.S.

Dollars are 6.9762:1,

and 6.8632:1, respectively.

Revenues and expenses are translated using the average exchange rates prevailing throughout the respective

years at 6.8948:1 and 6.6338:1 for the years ended December 31, 2019 and 2018, respectively.

Translation adjustments are included

in other comprehensive income (loss).

Use of Estimates

The preparation of consolidated financial

statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of

assets and liabilities as of December 31, 2019 and 2018, and revenues and expenses for the years ended December 31, 2019 and 2018.

The most significant estimates relate to allowance for uncollectible accounts receivable, inventory valuation, useful lives and

impairment for property, plant and equipment, valuation allowance for deferred tax assets and contingencies.

Actual results could

differ from those estimates made by management.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Additionally, the Company may identify additional allowance requirements based on indications that a specific

customer may be experiencing financial difficulties.

Trade accounts receivable are recorded

on shipment of products to customers.

The trade receivables are all without customer collateral and interest is not accrued on

past due accounts.

Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad

debt expense results and current economic conditions using factors based on the aging of its accounts receivable.

Additionally,

the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial

difficulties.

Actual bad debt results could differ materially from these estimates.

of December 31, 2018 and 2017, the balance of allowance for doubtful accounts was $58,707 and $37,626, respectively;

and the movement

of the provision of the doubtful accounts is as below.

While management uses the best information available upon which to base

estimates, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions

used for the purposes of analysis.

of doubtful accounts

(Reversal) for the year

consist principally of raw materials and finished goods, and are stated at the lower of cost (average cost method) or market.

As of December 31, 2019 and 2018, the balance

of allowance for doubtful accounts was $59,922 and $58,707, respectively;

and the movement of the provision of the doubtful accounts

While management uses the best information available upon which to base estimates, future adjustments to the allowance

may be necessary if economic conditions differ substantially from the assumptions used for the purposes of analysis.

Allowance of doubtful accounts

Opening balance

Provision (Reversal) for the year

Exchange difference

Closing balance

Inventories consist principally of raw materials and finished

goods, and are stated at the lower of cost (average cost method) or market.

Cost includes labor, raw materials, and allocated overhead.

No provision in inventories has been provided for the years ended

December 31, 2018 and 2017.

Plant, and Equipment

plant, and equipment are stated at cost less accumulated depreciation and any impairment losses.

Major renewals, betterments,

and improvements are capitalized to the asset accounts while replacements, maintenance, and repairs, which do not improve or extend

the lives of the respective assets, are expensed to operations.

At the time property, plant, and equipment are retired or otherwise

disposed of, the asset and related accumulated depreciation or amortization accounts are relieved of the applicable amounts.

or losses from retirements or sales are credited or charged to operations.

Construction-in-progress

is stated at cost and capitalized as expenses are incurred or as payments are made pursuant to relevant construction contracts.

Contract retention is recorded as accrued liability.

Construction in progress is not depreciated until project completion and

the constructed property being placed in service, at which time the capitalized balance will be transferred to appropriate account

of property, plant and equipment.

Company depreciates property, plant, and equipment using the straight-line method as follows:

the lease term

and improvements

and equipment

of long-lived asset

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

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

to the laws and regulations in the PRC, the Company is required to provide for certain statutory funds, namely, a reserve fund

by an appropriation from net profit after taxation but before dividend distribution based on the local statutory financial statements

of the PRC subsidiary and variable interest entity prepared in accordance with the PRC accounting principles and relevant financial

of the Company’s wholly owned subsidiary and variable interest entity in the PRC are required to allocate at least 10% of

its net profit to the reserve fund until the balance of such fund has reached 50% of its registered capital.

Appropriations of

additional reserve fund are determined at the discretion of its directors.

The reserve fund can only be used, upon approval by

the relevant authority, to offset accumulated losses or increase capital.

the years ended December 31, 2018 and 2017, IT Tech Packaging made transfers of $nil to this reserve fund.

As a result of net

loss in fiscal year 2018 and 2017 of Baoding Shengde, no statutory reserves were provided for the year ended December 31, 2018

The Company’s variable interest entity Dongfang Paper, the statutory reserve account of which has been fully funded

for 50% of its registered capital in the amount of RMB 75,030,000 (or approximately $11,811,470) since December 31, 2010, did

not make any transfer to statutory reserves during the years ended December 31, 2018 and 2017.

time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which

certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees.

provision for such employee benefits was $nil for the years ended December 31, 2018 and 2017.

Recognition Policy

Company recognizes revenue when goods are delivered, when 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.

are considered delivered when customer’s truck picks up goods at our finished goods inventory warehouse.

Substantially

all customers use their own trucks or hire commercial trucking companies to pick up goods from the Company.

The Company usually

incurs no shipping cost for delivery of goods to customers.

For those rare situations where products are not shipped utilizing

customer specified shipping services, the Company charges customers a shipping fee which is included in net revenues and was not

Freight-in and handling costs incurred by the Company with respect to purchased goods are recorded as a component of

inventory cost and charged to cost of sales when the inventory items are sold.

Company expenses all advertising and promotion costs as incurred.

The Company incurred $nil of advertising and promotion costs

Provision in inventories were $75,719 and $nil for the years ended December 31, 2019 and 2018, respectively.

Property, Plant, and Equipment

Property, plant, and equipment are stated

at cost less accumulated depreciation and any impairment losses.

Major renewals, betterments, and improvements are capitalized

to the asset accounts while replacements, maintenance, and repairs, which do not improve or extend the lives of the respective

assets, are expensed to operations.

At the time property, plant, and equipment are retired or otherwise disposed of, the asset

and related accumulated depreciation or amortization accounts are relieved of the applicable amounts.

Gains or losses from retirements

or sales are credited or charged to operations.

Construction-in-progress is stated at cost

and capitalized as expenses are incurred or as payments are made pursuant to relevant construction contracts.

Contract retention

is recorded as accrued liability.

Construction in progress is not depreciated until project completion and the constructed property

being placed in service, at which time the capitalized balance will be transferred to appropriate account of property, plant and

The Company depreciates property, plant,

and equipment using the straight-line method as follows:

Land use right

Over the lease term

Building and improvements

Machinery and equipment

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.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statutory Reserves

According to the laws and regulations in

the PRC, the Company is required to provide for certain statutory funds, namely, a reserve fund by an appropriation from net profit

after taxation but before dividend distribution based on the local statutory financial statements of the PRC subsidiary and variable

interest entity prepared in accordance with the PRC accounting principles and relevant financial regulations.

Each of the Company’s wholly owned

subsidiary and variable interest entity in the PRC are required to allocate at least 10% of its net profit to the reserve fund

until the balance of such fund has reached 50% of its registered capital.

Appropriations of additional reserve fund are determined

at the discretion of its directors.

The reserve fund can only be used, upon approval by the relevant authority, to offset accumulated

losses or increase capital.

For the years ended December 31, 2019 and

and development costs

and development costs are expensed as incurred and included in selling, general and administrative expenses.

Research and development

expenses incurred $30,194 and $31,922 for the years ended December 31, 2018 and 2017, respectively.

costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period

of time to be ready for their intended use or sale, are capitalized as part of the cost of those assets.

Income earned on temporary

investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalized.

other borrowing costs are recognized in interest expenses in the period in which they are incurred.

government subsidy is not recognized until there is reasonable assurance that:

(a) the enterprise will comply with the conditions

attached to the grant;

and (b) the grant will be received.

When the Company received the government subsidies but the conditions

attached to the grants have not been fulfilled, such government subsidies are deferred and recorded under other payables and accrued

expenses, and other long-term liability.

The classification of short-term or long-term liabilities is depended on the management’s

expectation of when the conditions attached to the grant can be fulfilled.

For the years ended December 31, 2018 and 2017, the

Company received government subsidies of $241,189 and $41,529, which are recognized as subsidy income in the consolidated statements

of income in that fiscal year.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

non-cancellable leases with an initial term greater than one year are categorized as either capital or operating leases.

lessee, a lease is a capital lease if any of the following conditions exist:

a) ownership is transferred to the lessee by the

end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated

remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more

of the fair value of the leased property to the lessor at the inception date.

A capital lease is accounted for as if there was

an acquisition of an asset and an incurrence of an obligation at the inception of the lease.

All other leases are accounted for

as operating leases.

Assets recorded under capital leases are amortized according to the same depreciation methods employed for

property, plant and equipment or over the term of the related lease, if shorter.

Company defers any profit or loss from a sale-leaseback transaction unless any of the following conditions exist:

a) the seller-lessee

relinquishes the right to substantially all of the remaining use of the property sold retaining only a minor portion of such use;

b) the seller-lessee retains more than a minor part but less than substantially all of the use of the property through the leaseback

and realizes a profit on the sale in excess of the recorded amount of the leased assets;

or c) the fair value of the property

at the time of the transaction is less than its undepreciated cost, in which circumstance a loss shall be recognized immediately.

Company accounts for income taxes pursuant to ASC Topic 740, Income Taxes.

Income taxes are provided on an asset and liability

approach for financial accounting and reporting of income taxes.

2018, IT Tech Packaging made transfers of $nil to this reserve fund.

As a result of net loss in fiscal year 2019 and 2018 of Baoding

Shengde, no statutory reserves were provided for the year ended December 31, 2019 and 2018.

The Company’s variable interest

entity Dongfang Paper, the statutory reserve account of which has been fully funded for 50% of its registered capital in the amount

of RMB 75,030,000 (or approximately $11,811,470) since December 31, 2010, did not make any transfer to statutory reserves during

the years ended December 31, 2019 and 2018.

Employee Benefit Plan

Full time employees of the PRC entities

participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical

care, unemployment insurance and other welfare benefits are provided to employees.

The total provision for such employee benefits

was $nil for the years ended December 31, 2019 and 2018.

Revenue Recognition

The Company adopted ASC Topic 606, Revenue

from Contracts with Customers , and all subsequent ASUs that modified ASC 606 on April 1, 2017 using the full

retrospective method which requires the Company to present the financial statements for all periods as if Topic 606 had been

applied to all prior periods.

The company derives revenue principally from producing and sales of paper products.

from contracts with customers is recognized using the following five steps:

Identify the contract(s) with a customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations

in the contract;

Recognize revenue when (or as) the entity satisfies a

performance obligation.

A contract contains a promise (or promises) to transfer goods

or services to a customer.

A performance obligation is a promise (or a group of promises) that is distinct.

The transaction price

is the amount of consideration a company expects to be entitled from a customer in exchange for providing the goods or services.

The unit of account for revenue recognition is a performance

obligation (a good or service).

A contract may contain one or more performance obligations.

Performance obligations are accounted

for separately if they are distinct.

A good or service is distinct if the customer can benefit from the good or service either

on its own or together with other resources that are readily available to the customer, and the good or service is distinct in

the context of the contract.

Otherwise performance obligations are combined with other promised goods or services until the Company

identifies a bundle of goods or services that is distinct.

Promises in contracts which do not result in the transfer of a good

or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the

context of the contract.

The Company has addressed whether various goods and services promised to the customer represent distinct

performance obligations.

The Company applied the guidance of ASC Topic 606-10-25-16 through 18 in order to verify which promises

should be assessed for classification as distinct performance obligations.

Company’s revenue is primary derived from sales of paper products.

The Company recognizes revenue when goods are delivered,

when 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 customer’s truck picks

up goods at our finished goods inventory warehouse.

Shipping Cost

Substantially all customers use their own

trucks or hire commercial trucking companies to pick up goods from the Company.

The Company usually incurs no shipping cost for

delivery of goods to customers.

For those rare situations where products are not shipped utilizing customer specified shipping

services, the Company charges customers a shipping fee which is included in net revenues and was not material.

Freight-in and handling

costs incurred by the Company with respect to purchased goods are recorded as a component of inventory cost and charged to cost

of sales when the inventory items are sold.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company expenses all advertising and

promotion costs as incurred.

The Company incurred $nil of advertising and promotion costs for the years ended December 31, 2019

Research and development costs

Research and development costs are expensed

as incurred and included in selling, general and administrative expenses.

Research and development expenses incurred $74,825 and

$30,194 for the years ended December 31, 2019 and 2018, respectively.

Borrowing costs

Borrowing costs attributable directly to

the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their

intended use or sale, are capitalized as part of the cost of those assets.

Income earned on temporary investments of specific borrowings

pending their expenditure on those assets is deducted from borrowing costs capitalized.

All other borrowing costs are recognized

in interest expenses in the period in which they are incurred.

Government subsidies

A government subsidy is not recognized

until there is reasonable assurance that:

(a) the enterprise will comply with the conditions attached to the grant;

grant will be received.

When the Company received the government subsidies but the conditions attached to the grants have not been

fulfilled, such government subsidies are deferred and recorded under other payables and accrued expenses, and other long-term liability.

The classification of short-term or long-term liabilities is depended on the management’s expectation of when the conditions

attached to the grant can be fulfilled.

For the years ended December 31, 2019 and 2018, the Company received government subsidies

of $261,136 and $241,189, which are recognized as subsidy income in the consolidated statements of income in that fiscal year.

The Company accounts for income taxes pursuant

to ASC Topic 740, Income Taxes.

Income taxes are provided on an asset and liability approach for financial accounting and reporting

of income taxes.

Any tax paid by subsidiaries during the year is recorded.

tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income

tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

740 also requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the

financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax

losses and tax credit carry-forwards.

ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect

the likelihood of realization of deferred tax assets.

Current tax is based on the profit or loss from ordinary

activities adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates

that have been enacted or substantively enacted at the balance sheet date.

ASC Topic 740 also requires the recognition of deferred

tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets

and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards.

740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

Realization of deferred tax assets, including those related to the U.S.

net operating loss carry-forwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain.

Company adopted ASC Topic 740-10-05, Income Tax , which provides guidance for recognizing and measuring uncertain tax

positions, it prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position

to be recognized in the financial statements.

It also provides accounting guidance on derecognizing, classification and disclosure

of these uncertain tax positions.

Company’s policy on classification of all interest and penalties related to unrecognized income tax positions, if any, is

to present them as a component of income tax expense.

the PRC subsidiary and variable interest entity of the Company are subject to value added tax (“VAT”) imposed by the

PRC government on its purchase and sales of goods.

The output VAT is charged to customers who purchase goods from the Company

and the input VAT is paid when the Company purchases goods from its vendors.

VAT rate is 16% in general, depending on the types

of products purchased and sold.

net operating loss carry-forwards, are dependent upon future

earnings, if any, of which the timing and amount are uncertain.

The Company adopted ASC Topic 740-10-05, Income

Tax , which provides guidance for recognizing and measuring uncertain tax positions, it prescribes a threshold condition that

a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements.

also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions.

The Company’s policy on classification

of all interest and penalties related to unrecognized income tax positions, if any, is to present them as a component of income

Value Added Tax

Both the PRC subsidiary and variable interest

entity of the Company are subject to value added tax (“VAT”) imposed by the PRC government on its purchase and sales

The output VAT is charged to customers who purchase goods from the Company and the input VAT is paid when the Company

purchases goods from its vendors.

VAT rate is 17% (before May 1, 2018),

16% (after May 1, 2018) and 13% (after April 1, 2019) in general, depending on the types of products purchased and sold.

The input VAT can be offset against the output VAT.

Debit balance of VAT payable represents a

credit against future collection of output VAT instead of a receivable due from government.

Comprehensive

Income (Loss)

Company presents comprehensive income (loss) in accordance with ASC Topic 220, Comprehensive Income .

ASC Topic 220

states that all items that are required to be recognized under accounting standards as components of comprehensive income (loss)

be reported in the consolidated financial statements.

The components of comprehensive income (loss) were the net income for the

years and the foreign currency translation adjustments.

earnings per share is computed by dividing the net income attributable to the common stockholders by the weighted average number

of shares of common stock outstanding during the period.

Diluted earnings per share is computed similar to basic earnings per

share except that the denominator is increased to include the number of additional common shares that would have been outstanding

if the potential common shares had been issued and if the additional common shares were dilutive.

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.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Value Measurements

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:

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

2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or

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.

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.

Classification

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

Company estimates the fair value of financial instruments using the available market information and valuation methods.

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 December 31, 2018 and 2017, the carrying value of the Company’s

short term financial instruments, such as cash and bank balances, accounts receivable, accounts and notes payable, short-term

bank loans and balance due to related parties, approximate at their fair values because of the short maturity of these instruments;

while loans from credit union, loans from a related party and obligation under capital lease 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.

Company does not have any assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017.

Non-Recurring

Debit balance of VAT payable represents a credit against future collection

of output VAT instead of a receivable due from government.

Comprehensive Income (Loss)

The Company presents comprehensive income

(loss) in accordance with ASC Topic 220, Comprehensive Income .

ASC Topic 220 states that all items that are required

to be recognized under accounting standards as components of comprehensive income (loss) be reported in the consolidated financial

The components of comprehensive income (loss) were the net income for the years and the foreign currency translation

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Earnings Per Share

Basic earnings per share is computed by

dividing the net income attributable to the common stockholders by the weighted average number of shares of common stock outstanding

during the period.

Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased

to include the number of additional common shares that would have been outstanding if the potential common shares had been issued

and if the additional common shares were dilutive.

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.

Fair Value Measurements

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.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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 December 31, 2019 and 2018, the carrying value of the Company’s short term financial instruments,

such as cash and bank balances, accounts receivable, accounts and notes payable, short-term bank loans and balance due to related

parties, approximate at their fair values because of the short maturity of these instruments;

while loans from credit union, loans

from a related party and obligation under capital lease 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.

The Company does not have any assets and liabilities measured

at fair value on a recurring basis as of December 31, 2019 and 2018.

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.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) Restricted Cash

cash of $3,642,616 as of December 31, 2018 was presented for the cash deposited at the Bank of Cangzhou for purpose of securing

the bank acceptance notes from these banks (see Note (9)).

The restriction has been lifted upon the maturity of the notes payable

on January 10, 2019.

cash of $6,121,637 as of December 31, 2017 was presented for the cash deposited at the Bank of Cangzhou for purpose of securing

the bank acceptance notes from these banks.

The restriction has been lifted upon the maturity of the notes payable on January

materials inventory includes mainly recycled paper and coal.

Finished goods include mainly products of corrugating medium

paper and offset printing paper.

Inventories consisted of the following as of and December 31, 2018 and 2017:

white scrap paper

paper and other raw materials

Restricted cash of as

of December 31, 2019 was nil.

Restricted cash of $3,642,616 as of December 31, 2018 was presented for the cash deposited at the

Bank of Cangzhou for purpose of securing the bank acceptance notes from these banks (see Note (9)).

The restriction has been lifted

upon the maturity of the notes payable on January 10, 2019.

(4) Inventories

Raw materials inventory includes mainly

recycled paper and coal.

Finished goods include mainly products of corrugating medium paper and offset printing paper.

consisted of the following as of and December 31, 2019 and 2018:

Raw Materials

Recycled paper board

Recycled white scrap paper

Base paper and other raw materials

Semi-finished Goods

Finished Goods

Total inventory, gross

Inventory reserve

Total inventory, net

(5) Prepayments and other current assets

and other current assets consisted of the following as of December 31, 2018 and 2017:

tax recoverable

for purchase of materials

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Prepayments and other current assets consisted

of the following as of December 31, 2019 and 2018:

Prepaid land lease

Prepayment for purchase of materials

Value-added tax recoverable

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) Property, plant and equipment

of December 31, 2018 and 2017, property, plant and equipment consisted of the following:

As of December 31, 2019 and 2018, property,

plant and equipment consisted of the following:

Property, Plant, and Equipment:

9 unchanged sentences

$ 167,829,716

of December 31, 2018 and December 31, 2017, land use rights represented two parcel of state-owned lands located in Xushui District

of Hebei Province in China, with lease terms of 50 years expiring from 2061 to 2066.

in progress as of December 31, 2017 mainly represents payments for the new 15,000 tonnes per year tissue paper manufacturing equipment

PM8, the tissue paper workshops and general infrastructure and administrative facilities in the Wei County Industrial Park.

December 2018, the Company announced commercial launch of PM8 and the related cost of construction in progress were capitalized

as machinery and equipment costs.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2018 and 2017, certain property, plant and equipment of Dongfang Paper with net values of $5,782,640 and $7,963,285,

respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper.

Land use right of Dongfang Paper

with net values of $5,990,586 and $6,437,419 as of December 31, 2018 and 2017 were pledged for the bank loan from Bank of Industrial

& Commercial Bank of China.

In addition, plant and equipment of Baoding Shengde with net values of $12,939,899 and $nil as

of December 31, 2018 and 2017, respectively, and another land use right with net value of $4,762,300 and $nil as of December 31,

2018 and 2017 were pledged for the bank loan from Bank of Cangzhou.

As of December 31, 2019 and December 31,

2018, land use rights represented two parcel of state-owned lands located in Xushui District of Hebei Province in China, with lease

terms of 50 years expiring from 2061 to 2066.

Construction in progress mainly represents

payments for improvement of the office building and essentially all industrial-use buildings in the Headquarters Compound (the

“Industrial Buildings”).

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019 and 2018, certain

property, plant and equipment of Dongfang Paper with net values of $3,935,270 and $5,782,640, respectively, have been pledged pursuant

to a long-term loan from credit union of Dongfang Paper.

Land use right of Dongfang Paper with net values of $5,757,546 as of December

31, 2019 was pledged for the bank loan from Bank of Industrial & Commercial Bank of China.

Land use right of Hebei Tengsheng

with net value of $5,200,452 as of December 31, 2019 was pledged for a long-term loan from credit union of Baoding Shengde.

addition, land use right of Hebei Tengsheng with net value of $8,056,930 as of December 31, 2019 was pledged for another long-term

loan from credit union of Baoding Shengde.

Short-term bank loans ”

(7), Loans Payable, for details of the transaction and asset collaterals.

under Note (7), Loans Payable, for

details of the transaction and asset collaterals.

Depreciation and amortization of property,

1 unchanged sentence

Impairment loss

was recorded for certain inactive production line in the amount of $3,894,461 and $2,291,027 for the years ended December 31,

2018 and 2017, respectively.

was recorded for certain inactive production line in the amount of $nil and $3,894,461 for the years ended December 31, 2019 and

2018, respectively.

(7) Loans Payable

and Commercial Bank of China (“ICBC”) Loan 1

Bank of Cangzhou

Short-term bank loans

January 10, 2017, the Company entered into a working capital loan agreement with the ICBC, with a balance of $4,285,145 as

of December 31, 2017.

The working capital loan was guaranteed by Hebei Tengsheng with its land use right pledged as collateral

for the benefit of the bank.

The loan bears a fixed interest rate of 4.5675% per annum.

Industrial and Commercial Bank of China (“ICBC”) Loan 1

Bank of Cangzhou

Total short-term bank loans

On February 6, 2018, the Company entered into a working capital loan agreement with the ICBC, with a balance of $4,079,730 as of December 31, 2018.

The working capital loan was guaranteed by Hebei Tengsheng with its land use right pledged as collateral for the benefit of the bank.

The loan bore a fixed interest rate of 5.4% per annum.

The loan was due and repaid on January 28, 2019.

October 18, 2017, the Company entered into a working capital loan agreement with the ICBC, with a balance of $- and

$2,907,778 as of December 31, 2018 and December 31, 2017.

The working capital loan is secured by the Company’s land

use right as collateral for the benefit of the bank.

The loan bears a fixed interest rate of 4.945% per annum.

was due and repaid on October 12, 2018.

January 2, 2018, the Company entered into a working capital loan agreement with the Bank of Cangzhou.

The loan was withdrawn

on January 4, 2018, with a balance of $5,099,662 as of December 31, 2018.

The loan bears a fixed interest rate of 6.09% per

The working capital loan is secured by the Company’s land use right and guaranteed by the Company’s CEO

and Baoding Shengde with its production equipment as collateral for the benefit of the bank.

The loan was due and repaid on

January 3, 2019.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

February 6, 2018, the Company entered into a working capital loan agreement with the ICBC, with a balance of $4,079,730 as

of December 31, 2018.

The working capital loan was guaranteed by Hebei Tengsheng with its land use right pledged as collateral

for the benefit of the bank.

The loan bears a fixed interest rate of 5.4% per annum.

On January 2, 2018, the Company entered into a working capital loan agreement with the Bank of Cangzhou, with a balance of $5,099,662 as of December 31, 2018.

The loan bore a fixed interest rate of 6.09% per annum.

The working capital loan was secured by the Company’s land use right and guaranteed by the Company’s CEO and Baoding Shengde with its production equipment as collateral for the benefit of the bank.

The loan was due and repaid on January 3, 2019.

November 22, 2018, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,622,683 as

of December 31, 2018.

The working capital loan is secured by the Company’s land use right as collateral for the benefit

The loan bears a fixed interest rate of 4.741% per annum.

The loan will be due on November 26, 2019.

of December 31, 2018, there were guaranteed short-term borrowings of $11,802,075 and unsecured bank loans of $nil.

As of December

31, 2017, there were guaranteed short-term borrowings of $7,192,923 and unsecured bank loans of $nil.

average short-term borrowing rates for the years ended December 31, 2018 and 2017 were approximately 5.66% and 5.27%, respectively.

loans from credit union

of December 31, 2018 and 2017, loans payable to Rural Credit Union of Xushui County, amounted to $7,197,808 and $7,560,221, respectively.

Credit Union of Xushui District Loan 1

Credit Union of Xushui District Loan 2

Credit Union of Xushui District Loan 3

On November 22, 2018, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,622,683 as of December 31, 2018.

The working capital loan was secured by the Company’s land use right as collateral for the benefit of the bank.

The loan bore a fixed interest rate of 4.741% per annum.

The loan was repaid on October 19, 2019.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(d) On December 20, 2019, the Company entered into a working

capital loan agreement with the ICBC, with a balance of $6,163,814 as of December 31, 2019.

The working capital loan was secured

by land use right of Hebei Tengsheng as collateral for the benefit of the bank.

The loan bears a fixed interest rate of 4.785%

The loan will be due and repaid by December 23, 2020.

As of December 31, 2019, there were guaranteed

short-term borrowings of $6,163,814 and unsecured bank loans of $nil.

As of December 31, 2018, there were guaranteed short-term

borrowings of $11,802,075 and unsecured bank loans of $nil.

The average short-term borrowing rates

for the years ended December 31, 2019 and 2018 were approximately 4.93% and 5.66%, respectively.

Long-term loans from credit union

As of December 31, 2019 and 2018, loans

payable to Rural Credit Union of Xushui County, amounted to $8,973,367 and $7,197,808, respectively.

Rural Credit Union of Xushui District Loan 1

Rural Credit Union of Xushui District Loan 2

Rural Credit Union of Xushui District Loan 3

Rural Credit Union of Xushui District Loan 4

Rural Credit Union of Xushui District Loan 5

Current portion of long-term loans from credit union

loans from credit union

of December 31, 2018, the Company’s long-term debt repayments for the next five years were as follows:

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 is payable in various installments from June 21, 2014 to November 18, 2018.

The loan is guaranteed by an independent third

Interest payment is due quarterly and bears the rate of 0.64% per month.

On November 6, 2018, the loan was renewed for

additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023.

Long-term loans from credit union

As of December 31, 2019, the Company’s

long-term debt repayments for the next four years were as follows:

On April 16, 2014, the Company entered

into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due in various

installments from June 21, 2014 to November 18, 2018.

The loan is guaranteed by an independent third party.

Interest payment is

due quarterly and bears the rate of 0.64% per month.

On November 6, 2018, the loan was renewed for additional 5 years and will

be due and payable in various installments from December 21, 2018 to November 5, 2023.

As of December 31, 2019 and 2018, total

outstanding loan balance was $1,232,763 and $1,253,060, respectively, Out of the total outstanding loan balance, current portion

amounted were $143,345 and $87,423 as of December 31, 2019 and 2018, respectively, which are presented as current liabilities in

the consolidated balance sheet and the remaining balance of $1,089,418 and $1,165,637 are presented as non-current liabilities

in the consolidated balance sheet as of December 31, 2019 and 2018, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 15, 2013, the Company entered into

a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in

various installments from December 21, 2013 to July 26, 2018.

On June 21, 2018, the loan was extended for additional 5 years and

will be due and payable in various installments from December 21, 2018 to June 20, 2023.

The loan is secured by certain of the

Company’s manufacturing equipment with net book value of $3,935,270 and $5,782,640 as of December 31, 2019 and 2018, respectively.

Interest payment is due quarterly and bears a fixed rate of 0.64% per month.

As of December 31, 2019 and 2018, the total outstanding

loan balance was $3,583,613 and $3,642,615, respectively.

Out of the total outstanding loan balance, current portion amounted were

$172,013 and $101,993 as of December 31, 2019 and 2018 respectively, which are presented as current liabilities in the consolidated

balance sheet and the remaining balance of $3,411,600 and $3,540,622 are presented as non-current liabilities in the consolidated

balance sheet as of December 31, 2019 and 2018, respectively.

On April 20, 2017, 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 26, 2017 to April 19, 2019.

The loan was guaranteed by Hebei Tengsheng with its land use right pledged

as collateral for the benefit of the bank.

Interest payment was due quarterly and bore a fixed rate of 0.6% per month.

As of December

31, 2018 and 2017, total outstanding loan balance was $1,253,060 and $1,316,152, respectively, Out of the total outstanding loan

balance, current portion amounted were $nil and $1,316,152 as of December 31, 2018 and 2017, respectively, which are presented

as current liabilities in the consolidated balance sheet and the remaining balance of $1,253,060 and $nil are presented as non-current

liabilities in the consolidated balance sheet as of December 31, 2018 and 2017, respectively.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years,

which was originally due and payable in various installments from December 21, 2013 to July 26, 2018.

On June 21, 2018, the loan

was extended for additional 5 years and will be due and payable in various installments from December 21, 2018 to June 20, 2023.

The loan is secured by certain of the Company’s manufacturing equipment with net book value of $5,782,640 and $7,963,285

as of December 31, 2018 and 2017, respectively.

31, 2019 and December 31, 2018, the total outstanding loan balance was $nil and $2,302,133, respectively, which are presented as

non-current liabilities in the consolidated balance sheet as of December 31, 2019 and 2018, respectively.

On April 17, 2019, the Company entered

into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various

installments from August 21, 2019 to April 16, 2021.

The loan is secured by Hebei Tengsheng with its land use right as collateral

for the benefit of the bank.

Interest payment is due quarterly and bears a fixed rate of 0.6% per month.

of December 31, 2018 and 2017, the total outstanding loan balance was $3,642,615 and $3,826,022, respectively.

Out of the total

outstanding loan balance, current portion amounted were $nil and $3,826,022 as of December 31, 2018 and 2017, respectively, which

are presented as current liabilities in the consolidated balance sheet and the remaining balance of $3,642,615 and $nil are presented

as non-current liabilities in the consolidated balance sheet as of December 31, 2018 and 2017, respectively.

April 20, 2017, 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 26, 2017 to April 19, 2019.

The loan is guaranteed by Hebei Tengsheng

with its land use right pledged as collateral for the benefit of the bank.

Interest payment is due quarterly and bears a fixed

rate of 0.6% per month.

As of December 31, 2018 and December 31, 2017, the total outstanding loan balance was $2,302,133 and $2,418,047,

respectively.

Out of the total outstanding loan balance, current portion amounted were $2,302,133 and $1,224,328 as of December

31, 2018 and December 31, 2017, respectively, which are presented as current liabilities in the consolidated balance sheet and

the remaining balance of $nil and $1,193,719 are presented as non-current liabilities in the consolidated balance sheet as of

September 30, 2018 and December 31, 2017, respectively.

interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2018 and 2017 were $1,214,708

and $1,196,814, respectively.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019

and 2018, the total outstanding loan balance was $2,293,512 and $nil, respectively.

Out of the total outstanding loan balance,

current portion amounted were $1,146,756 and $nil as of December 31, 2019 and 2018, respectively, which are presented as current

liabilities in the consolidated balance sheet and the remaining balance of $1,146,756 and $nil are presented as non-current liabilities

in the consolidated balance sheet as of December 31, 2019 and 2018, 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 was due and payable in various

installments from June 21, 2020 to December 11, 2021.

The loan is secured by Hebei Tengsheng with its land use right as collateral

for the benefit of the bank.

Interest payment is due monthly and bears a fixed rate of 7.56% per annum.

As of December 31, 2019

and 2018, the total outstanding loan balance was $1,863,479 and $nil, respectively.

Out of the total outstanding loan balance,

current portion amounted were $143,345 and $nil as of December 31, 2019 and 2018, respectively, which are presented as current

liabilities in the consolidated balance sheet and the remaining balance of $1,720,134 and $nil are presented as non-current liabilities

in the consolidated balance sheet as of December 31, 2019 and 2018, respectively.

Total interest expenses for the short-term

bank loans and long-term loans for the years ended December 31, 2019 and 2018 were $831,732 and $1,214,708, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Related Party Transactions

Zhenyong Liu, the Company’s CEO has loaned money to Dongfang Paper for working capital purposes over a period of time.

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 $373,490 and $392,296 of interest were outstanding to

Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated

balance sheet as of December 31, 2018 and 2017, respectively.

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 repaid $3,014,863

Zhenyong Liu, together with interest of $20,400.

As of December 31, 2018 and 2017, the outstanding loan balance was $nil

and $3,060,818, respectively and the accrued interest was $43,711 and $45,912, respectively, which was recorded in other payables

and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

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 $17,484,555 (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.

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 $367,441 and $373,490 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 December 31,

2019 and 2018, respectively.

On December 10, 2014, Mr.

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.

Liu, together with interest of $288,596.

In February 2018, the company paid off the remaining balance, together with interest of

As of December 31, 2019 and 2018, approximately $43,003 and $43,711 of interest 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.

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.

Zhenyong Liu agreed

to extend the loan for additional 3 years and the remaining balance will be due on July 12, 2021.

On November 23, 2018, the company

repaid $3,768,579 to Mr.

Zhenyong Liu, together with interest of $158,651.

As of December 31, 2018 and 2017, the outstanding loan

balance were $2,185,569 and $7,652,047, respectively, and the accrued interest was $200,253 and $110,476, respectively, which

was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

of December 31, 2018 and 2017, total amount of loans due to Mr.

Zhenyong Liu were $2,185,569 and $10,712,865, respectively.

interest expense incurred for such related party loans are $277,411 and $451,626 for the years ended December 31, 2018 and 2017,

respectively.

The accrued interest owe to the CEO was approximately $617,454 and $548,684, as of December 31, 2018 and 2017, respectively,

which was recorded in other payables and accrued liabilities.

of December 31, 2018 and 2017, amount due to shareholder are $210,148 and $nil, respectively, which represents funds from shareholders

to pay for various expenses incurred in the U.S.

Zhenyong Liu agreed to extend the loan for additional 3 years

and the remaining balance will be due on July 12, 2021.

On November 23, 2018, the company repaid $3,768,579 to Mr.

Zhenyong Liu,

together with interest of $158,651.

In December 2019, the company paid off the remaining balance, together with interest of 94,636.

As of December 31, 2019 and 2018, the outstanding loan balance were $nil and $2,185,569, respectively, and the accrued interest

was $197,009 and $200,253, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities

in the consolidated balance sheet.

As of December 31, 2019 and 2018, total

amount of loans due to Mr.

Zhenyong Liu were $nil and $2,185,569, respectively.

The interest expense incurred for such related

party loans are $94,636 and $277,411 for the years ended December 31, 2019 and 2018, respectively.

The accrued interest owe to

the CEO was approximately $607,453 and $617,454, as of December 31, 2019 and 2018, respectively, which was recorded in other payables

and accrued liabilities.

As of December 31, 2019 and 2018, amount

due to shareholder are $483,433 and $210,148, respectively, which represents funds from shareholders to pay for various expenses

incurred in the U.S.

The amount is due on demand with interest free.

of Headquarters Compound Real Properties to a Related Party

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.

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 $150,743 (RMB1,000,000).

Sale of Headquarters Compound Real Properties

to a Related Party

On August 7, 2013, the Company’s

Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”),

the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”),

and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng

for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million respectively.

Sales of the LUR and the Industrial

Buildings were completed in year 2013.

In connection with the sale of the Industrial

Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to

three years, with an annual rental payment of approximately $145,037 (RMB1,000,000).

The lease agreement expired in August 2016.

On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements

with Hebei Fangsheng, who agreed to extend the lease term for another four years in total, with the same rental payment as original

lease agreement.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with Hebei Fangsheng, who agreed to

extend the lease term for another four years in total, with the same rental payment as original lease agreement.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Notes payable

of December 31, 2018, the Company had bank acceptance notes of $3,642,616 from the Bank of Cangzhou to one of its major suppliers

for settling purchase of raw materials.

The acceptance notes are used to essentially extend the payment of accounts payable and

are issued under the banking facilities obtained from bank as well as the restricted bank deposit of $3,642,616 in the bank as

mentioned in Note (3).

Notes payable was nil as of December 31,

As of December 31, 2018, the Company had bank acceptance notes of $3,642,616 from the Bank of Cangzhou to one of its major

suppliers for settling purchase of raw materials.

The acceptance notes are used to essentially extend the payment of accounts payable

and are issued under the banking facilities obtained from bank as well as the restricted bank deposit of $3,642,616 in the bank

as mentioned in Note (3).

The bank acceptance notes from the bank bore interest rate at nil% per annum and 0.05% of notes amount

1 unchanged sentence

The acceptance notes were due and paid off in January 2019.

of December 31, 2017, the Company had bank acceptance notes of $6,121,637 from the Bank of Cangzhou to one of its major suppliers

for settling purchase of raw materials.

The acceptance notes are used to essentially extend the payment of accounts payable and

are issued under the banking facilities obtained from bank as well as the restricted bank deposit of $6,121,637 in the bank.

bank acceptance notes from the bank bore interest rate at nil% per annum and 0.05% of notes amount as handling charge.

The acceptance

notes were due and paid off in January 2018.

(10) Other payables and accrued liabilities

payables and accrued liabilities consist of the following:

interest to a related party

for purchase of equipment

commission to salesmen

of common stock to investors

August 27, 2014, the Company issued 1,562,500 shares of our common stock and warrants to purchase up to 781,250 shares of our

common stock (the “Offering”).

Other payables and accrued liabilities

consist of the following:

Accrued electricity

Value-added tax payable

Accrued interest to a related party

Payable for purchase of equipment

Accrued commission to salesmen

(11) Common Stock

Issuance of common stock to investors

On August 27, 2014, the Company issued

1,562,500 shares of our common stock and warrants to purchase up to 781,250 shares of our common stock (the “Offering”).

Each share of common stock and accompanying warrant was sold at a price of $1.60.

refer to Note (12), Stock Warrants, for details.

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

January 12, 2016, the Company granted an aggregate of 1,133,916 shares of common stock under its compensatory incentive plans

to nine officers, directors and employees of and a consultant when the stock was at $1.25 per share, as compensation for their

services in the past years, of which 168,416 shares of common stock were granted under the 2012 Incentive Stock Plan and 965,500

shares were granted under the 2015 Omnibus Equity Incentive.

Issuance of common stock pursuant to

the 2012 Incentive Stock Plan and 2015 Omnibus Equity Incentive

On January 12, 2016, the Company granted

an aggregate of 1,133,916 shares of common stock under its compensatory incentive plans to nine officers, directors and employees

of and a consultant when the stock was at $1.25 per share, as compensation for their services in the past years, of which 168,416

shares of common stock were granted under the 2012 Incentive Stock Plan and 965,500 shares were granted under the 2015 Omnibus

Equity Incentive.

Please see Note (15), Stock Incentive Plans for more details.

fair value of the stock was calculated at $1,417,395 as of the date of grant.

September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock at $0.88 per share to fifteen

officers, directors and employees of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan.

value of the shares of common stock granted was calculated at $470,360 as of the date of issuance.

of common stock to Weitian

October 15, 2018, the Company entered an agreement with Weitian Group LCC(“Weitian”) and agreed as compensation to

issue to Weitian in the aggregate of 70,000 shares of common stock for investor relation consulting service rendered from October

15, 2018 to October 15,2019.

Total fair value of the stock was calculated at

$1,417,395 as of the date of grant.

On September 13, 2018, the compensation

committee granted an aggregate of 534,500 shares of common stock at $0.88 per share to fifteen officers, directors and employees

of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan.

Total fair value of the shares of common stock

granted was calculated at $470,360 as of the date of issuance.

Issuance of common stock to Weitian

On October 15, 2018, the Company entered

an agreement with Weitian Group LCC (“Weitian”) and agreed as compensation to issue to Weitian in the aggregate of

70,000 shares of common stock for investor relation consulting service rendered from October 15, 2018 to October 15, 2019.

shares of common stock were issued to Weitain on November 12, 2018.

Total fair value of the

shares of common stock granted was calculated at $32,625 at $0.87 per share.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Stock warrants

August 27, 2014, the Company issued 1,562,500 shares of our common stock and warrants to purchase up to 781,250 shares of our

common stock.

The warrants have an exercise price of $1.70 per share.

These warrants are exercisable immediately upon issuance

on September 3, 2014 and have a term of exercise equal to five years from the date of issuance till September 2, 2019.

value of these shares amounted to $780,000, is classified as equity at the date of issuance.

fair value of the warrants issued was estimated by using the Binominal pricing model with the following assumptions:

interest rate

dividend yield

connection with the Offering, the Company issued warrants to its placement agent of this Offering, which can purchase an aggregate

of up to 2.50% of the aggregate number of shares of common stock sold in the Offering, i.e.

39,062 shares.

These warrants have

substantially the same terms as the warrants issued to purchaser in the Offering, except that the exercise price is $2.00 per

share and the expiration date is from September 3, 2014 to June 26, 2019.

The fair value of these shares amounted to $35,191,

is classified in the equity at the date of issuance to net off the proceeds from the issuance of the shares and warrants.

fair value of the warrants issued was estimated by using the Binominal pricing model with the following assumptions:

interest rate

dividend yield

Company applied judgment in estimating key assumptions in determining the fair value of the warrants on the date of issuance.

The Company used historical data to estimate stock volatilities and expected dividend yield.

The risk-free rates are consistent

with the terms of the warrants and are based on the United States Treasury yield curve in effect at the time of issuance.

summary of stock warrant activities is as below:

average exercise price

and exercisable at beginning of the year

during the year

or expired during the year

and exercisable at end of the year

of exercise price

1.70 to $2.00

warrants were issued, exercised, cancelled or expired during the years ended December 31, 2018 and 2017.

As of December 31, 2018

and 2017, the aggregated intrinsic value of warrants outstanding and exercisable was $nil.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Total fair value of the shares of common stock granted was

calculated at $32,625 at $0.87 per share.

32,500 shares of common stock were issued to Weitain on August 13, 2019.

value of the shares of common stock granted was calculated at $17,550 at $0.54 per share.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) Earnings Per Share

the years ended December 31, 2018 and 2017, basic and diluted net income per share are calculated as follows:

Year Ended December 31,

Basic (loss) income per share

Net (loss) income for the year - numerator

For the years ended December 31, 2019 and

2018, basic and diluted net income per share are calculated as follows:

Basic income (loss) per share

Net income (loss) for the year - numerator

$ (10,545,684 )

Weighted average common stock outstanding - denominator

Net (loss) income per share

Diluted (loss) income per share

Net (loss) income for the year - numerator

Net income (loss) per share

Diluted income (loss) per share

Net income (loss) for the year - numerator

$ (10,545,684 )

2 unchanged sentences

Weighted average common stock outstanding - denominator

Diluted (loss) income per share

the years ended December 31, 2018 and 2017, 820,312 shares related to warrants are excluded from the calculations of dilutive

net income per share as their effects would have been anti-dilutive since the average share price for the years ended December

31, 2018 and 2017 were lower than the warrants exercise price.

Company and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S.

federal tax and state statutory

tax rates up to 34% and 0%, respectively.

Diluted income (loss) per share

(13) Income Taxes

United States

The Company and Shengde

Holdings are incorporated in the State of Nevada and are subject to the U.S.

federal tax and state statutory tax rates up to 34%

and 0%, respectively.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (the “2017 TCJAAct”),

which significantly changed U.S.

enacted the Tax Cuts and Jobs Act (the “2017 TCJAAct”), which

significantly changed U.S.

The Act 2017 TCJA lowered the Company’s U.S.

statutory federal income tax rate

from the highest rate of 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign

income which requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S.

subsidiaries that

were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The SEC staff issued Staff Accounting

Bulletin (SAB) 118, which provides guidance on accounting for enactment effects of the 2017 TCJA.

SAB 118 provides a measurement

period of up to one year from the 2017 TCJA’s enactment date for companies to complete their accounting under ASC 740.

accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017 TCJA is incomplete

but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements.

statutory federal income tax rate from the

highest rate of 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income

which requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S.

subsidiaries that were

previously tax deferred and creates new taxes on certain foreign sourced earnings.

The SEC staff issued Staff Accounting Bulletin

(SAB) 118, which provides guidance on accounting for enactment effects of the 2017 TCJA.

SAB 118 provides a measurement period

of up to one year from the 2017 TCJA’s enactment date for companies to complete their accounting under ASC 740.

In accordance

with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017 TCJA is incomplete but

it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements.

cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the

basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 TCJA.

connection with the Company’s initial analysis of the impact of the enactment of the 2017 TCJA, the Company recorded a net

tax expense of approximately $80,000 in the fourth quarter of 2017.

For various reasons that are discussed more fully below, including

the issuance of additional technical and interpretive guidance, the Company has not completed its accounting for the income tax

effects of certain elements of the 2017 TCJA.

However, with respect to the following, the Company was able to make reasonable

estimates of the 2017 TCJA’s effects and, as such, recorded provisional amounts:

The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the

Company’s non-U.S.

In connection with

the Company’s initial analysis of the impact of the enactment of the 2017 TCJA, the Company recorded a net tax expense of

approximately $80,000 in the fourth quarter of 2017.

For various reasons that are discussed more fully below, including the issuance

of additional technical and interpretive guidance, the Company has not completed its accounting for the income tax effects of certain

elements of the 2017 TCJA.

However, with respect to the following, the Company was able to make reasonable estimates of the 2017

TCJA’s effects and, as such, recorded provisional amounts:

Transition tax:

transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s

subsidiaries.

To determine the amount of the transition tax, the Company must determine, in addition

to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S.

paid on such earnings.

Further, the transition tax is based in part on the amount of those earnings held in cash and other specified

The Company was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional

income tax expense of approximately $80,000 in the fourth quarter of 2017.

However, the Company is continuing to gather additional

information and will consider additional technical guidance to more precisely compute and account for the amount of the transition

This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S.

federal taxation and finalizes the amounts held in cash or other specified assets.

The 2017 TCJA’s transition tax is payable

over eight years beginning in 2018.

To determine the amount of the transition tax, the Company must determine, in addition to other factors,

the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S.

income taxes paid on such earnings.

Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets.

was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional income tax expense

of approximately $80,000 in the fourth quarter of 2017.

However, the Company is continuing to gather additional information and

will consider additional technical guidance to more precisely compute and account for the amount of the transition tax.

may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S.

federal taxation

and finalizes the amounts held in cash or other specified assets.

The 2017 TCJA’s transition tax is payable over eight years

beginning in 2018.

Hence, the Company only provided $6,528 for the year ended 31 December 2017.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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%.

provisions for income taxes for the years ended December 31, 2018 and 2017 were as follows:

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 the

years ended December 31, 2019 and 2018 were as follows:

Provision for Income Taxes

6 unchanged sentences

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 carried net operating losses of approximately $8,024,104 and

$7,119,918 for U.S.

income tax purposes as of December 31, 2018 and 2017, respectively.

The net operating loss carried forward

may be available to reduce future years’

depreciation, the Company was incorporated in the United States and incurred aggregate net operating losses of approximately $nil

and $6,710,939 for U.S.

income tax purposes for the years ended December 31, 2018 and 2017, respectively.

The net operating loss

carried forward may be available to reduce future years’

taxable income.

These carry forwards would expire, if not utilized, beginning in

Since 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, the Company has not recognized deferred

tax assets for such net operating losses.

A summary of the otherwise deductible (or taxable) deferred tax items is as follows:

These carry forwards would expire, if not utilized,

during the period of 2030 through 2035.

As of December 31, 2019, management believed that the realization of all the U.S.

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 December 31, 2019, the Company provided a 100% valuation allowance on the U.S.

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:

Deferred tax assets

8 unchanged sentences

Total deferred tax assets, net

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the statutory rates to the Company’s

effective tax rate as of:

PRC Statutory rate

6 unchanged sentences

Effective income tax rate

of December 31, 2017, except for the one-time transition tax under the 2017 TCJA which imposes a U.S.

tax liability on all unrepatriated

foreign E&Ps, the Company does not believe that its future dividend policy and the available U.S.

tax deductions and net operating

losses will cause the Company to recognize any other substantial current U.S.

federal or state corporate income tax liability

in the near future.

Nor does it believes 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.

During the years ended December 31, 2019

and 2018, the effective income tax rate was estimated by the Company to be 48.4% and 17.6%, respectively.

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 December 31, 2018 and 2017, 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 years ended December 31, 2018 and 2017, 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.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2017, except for the

one-time transition tax under the 2017 TCJA which imposes a U.S.

tax liability on all unrepatriated foreign E&Ps, the Company

does not believe that its future dividend policy and the available U.S.

tax deductions and net operating losses will cause the

Company to recognize any other substantial current U.S.

federal or state corporate income tax liability in the near future.

does it believes 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.

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 December 31, 2019 and 2018, 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 years ended December 31, 2019 and 2018, 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.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) Stock Incentive Plans

of common stock pursuant to the 2011 Incentive Stock Plan and 2012 Incentive Stock Plan

August 28, 2011, the Company’s Annual General Meeting approved the 2011 Incentive Stock Plan ofIT Tech Packaging, Inc.

“2011 ISP”) as previously adopted by the Board of Directors on July 5, 2011.

Under the 2011 ISP, the Company may grant

an aggregate of 375,000 shares of the Company’s common stock to the Company’s directors, officers, employees or consultants.

No stock or option was issued under the 2011 ISP until January 2, 2012, when the Compensation Committee granted 109,584 shares

of restricted common stock to certain officers and directors of the Company when the stock was at $3.45 per share, as compensation

for their services in the past years.

Issuance of common stock pursuant to

the 2011 Incentive Stock Plan and 2012 Incentive Stock Plan

On August 28, 2011, the Company’s

Annual General Meeting approved the 2011 Incentive Stock Plan ofIT Tech Packaging, Inc.

(the “2011 ISP”) as previously

adopted by the Board of Directors on July 5, 2011.

Under the 2011 ISP, the Company may grant an aggregate of 375,000 shares of

the Company’s common stock to the Company’s directors, officers, employees or consultants.

No stock or option was issued

under the 2011 ISP until January 2, 2012, when the Compensation Committee granted 109,584 shares of restricted common stock to

certain officers and directors of the Company when the stock was at $3.45 per share, as compensation for their services in the

Total fair value of the stock was calculated at $378,065 as of the date of issuance.

September 10, 2012, the Company’s Annual General Meeting approved the 2012 Incentive Stock Plan of IT Tech Packaging , Inc.

(the “2012 ISP”) as previously adopted by the Board of Directors on July 4, 2012.

Under the 2012 ISP, the Company

may grant an aggregate of 200,000 shares of the Company’s common stock to the Company’s directors, officers, employees

or consultants.

Specifically, the Board and/or the Compensation Committee have authority to (a) grant, in its discretion, Incentive

Stock Options or Non-statutory Options, Stock Awards or Restricted Stock Purchase Offers;

(b) determine in good faith the fair

market value of the stock covered by any grant;

restrictions, terms and conditions to be included in such grants;

and (d) make all other determinations necessary or advisable

for the 2012 ISP’s administration.

On December 31, 2013, the Compensation Committee granted restricted common shares of

297,000, out of which 265,416 shares were granted under the 2011 ISP and 31,584 shares under the 2012 ISP, to certain officers,

directors and employees of the Company when the stock was at $2.66 per share, as compensation for their services in the past years.

Total fair value of the stock was calculated at $790,020 as of the date of grant.

On September 10, 2012, the Company’s

Annual General Meeting approved the 2012 Incentive Stock Plan of IT Tech Packaging, Inc.

(the “2012 ISP”) as previously

adopted by the Board of Directors on July 4, 2012.

Under the 2012 ISP, the Company may grant an aggregate of 200,000 shares of

the Company’s common stock to the Company’s directors, officers, employees or consultants.

Specifically, the Board

and/or the Compensation Committee have authority to (a) grant, in its discretion, Incentive Stock Options or Non-statutory Options,

Stock Awards or Restricted Stock Purchase Offers;

(b) determine in good faith the fair market value of the stock covered by any

(c) determine which eligible persons shall receive grants and the number of shares, restrictions, terms and conditions to

be included in such grants;

and (d) make all other determinations necessary or advisable for the 2012 ISP’s administration.

On December 31, 2013, the Compensation Committee granted restricted common shares of 297,000, out of which 265,416 shares were

granted under the 2011 ISP and 31,584 shares under the 2012 ISP, to certain officers, directors and employees of the Company when

the stock was at $2.66 per share, as compensation for their services in the past years.

Total fair value of the stock was calculated

at $790,020 as of the date of grant.

2015 Incentive Plan

August 29, 2015, the Company’s Annual General Meeting approved the 2015 Omnibus Equity Incentive Plan of IT Tech Packaging,

(the “2015 ISP”) as previously adopted by the Board of Directors on July 10, 2015.

Under the 2015 ISP, the Company

may grant an aggregate of 1,500,000 shares of the Company’s common stock to the directors, officers, employees and/or consultants

of the Company and its subsidiaries.

January 12, 2016, the Compensation Committee granted un-restricted common shares of 1,133,916, of which 168,416 shares were granted

under the 2012 ISP and 965,500 shares under the 2015 ISP, to certain officers, directors, employees and a consultant of the Company

as compensation for their services in the past years.

Total fair value of the stock was calculated at $1,417,395 as of the date

of issuance at $1.25 per share.

September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock to fifteen officers, directors

and employees of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan.

Total fair value of the shares

of common stock granted was calculated at $470,360 as of the date of issuance at $0.88 per share.

On August 29, 2015, the Company’s

Annual General Meeting approved the 2015 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc.

(the “2015 ISP”)

as previously adopted by the Board of Directors on July 10, 2015.

Under the 2015 ISP, the Company may grant an aggregate of 1,500,000

shares of the Company’s common stock to the directors, officers, employees and/or consultants of the Company and its subsidiaries.

On January 12, 2016, the Compensation Committee granted un-restricted common shares of 1,133,916, of which 168,416 shares were

granted under the 2012 ISP and 965,500 shares under the 2015 ISP, to certain officers, directors, employees and a consultant of

the Company as compensation for their services in the past years.

Total fair value of the stock was calculated at $1,417,395 as

of the date of issuance at $1.25 per share.

On September 13, 2018, the compensation

committee granted an aggregate of 534,500 shares of common stock to fifteen officers, directors and employees of the Company, which

were granted under the 2015 Omnibus Equity Incentive Plan.

Total fair value of the shares of common stock granted was calculated

at $470,360 as of the date of issuance at $0.88 per share.

2019 Incentive Plan

On October 31, 2019, the shareholders of

the Company at the Company’s Annual Shareholders General Meeting adopted and approved the 2019 Omnibus Equity Incentive Plan

of IT Tech Packaging, Inc.

(the “2019 ISP”).

Under the 2019 ISP, the Company has reserved a total of 2,000,000 shares

of common stock for issuance as or under awards to be made to the directors, officers, employees and/or consultants of the Company

and its subsidiaries.

(15) Commitments and Contingencies

Company leases 32.95 acres of land from a local government in Xushui District, Baoding City, Hebei, China through a real estate

lease with a 30-year term, which expires on December 31, 2031.

The lease requires an annual rental payment of approximately $18,089

(RMB 120,000).

This operating lease is renewable at the end of the 30-year term.

November 27, 2012, the company entered into a 49.4 acres land lease with an investment company in the Economic Development Zone

in Wei County, Hebei Province, China.

The lease term of the Wei County land lease commences on the date of the lease and lasts

for 15 years.

The lease requires an annual rental payment of $542,675 (RMB 3,600,000).

The Company is currently building two new

tissue paper production lines and future production facilities in the leased Wei County land.

mentioned in Note (8) Related Party Transactions, in connection with the sale of Industrial Buildings to Hebei Fangsheng, Hebei

Fangsheng agrees to lease the Industrial Buildings back to the Company at an annual rental of $150,743 (RMB 1,000,000), for a

total term of up to five years.

minimum lease payments are as follows:

operating lease payments

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2018, the Company has signed several contracts for improvement of Industrial Buildings.

Total outstanding commitments

under these contracts were $2,300,187 and $11,227,896 as of December 31, 2018 and 2017, respectively.

The Company expected to

pay off all the balances within 1 year.

and Indemnities

Company agreed with Baoding Huanrun Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third

party, and as of December 31, 2018 and 2017, the Company guaranteed its long-term loan from financial institutions amounting to

$4,516,843 (RMB31,000,000) and $8,159,459 (RMB56,000,000) that matured at various times in 2023.

If Huanrun Trading Co., were

to become insolvent, the Company could be materially adversely affected.

Operating Lease

The Company leases 32.95 acres of land

from a local government in Xushui District, Baoding City, Hebei, China through a real estate lease with a 30-year term, which expires

on December 31, 2031.

The lease requires an annual rental payment of approximately $17,404 (RMB 120,000).

This operating lease

is renewable at the end of the 30-year term.

As mentioned in Note (8) Related Party

Transactions, in connection with the sale of Industrial Buildings to Hebei Fangsheng, Hebei Fangsheng agrees to lease the Industrial

Buildings back to the Company at an annual rental of $ 145,037 (RMB 1,000,000), for a total term of up to five years.

Future minimum lease payments are as follows:

Total operating lease payments

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capital commitment

As of December 31, 2019, the Company has signed several contracts for improvement of Industrial Buildings.

Total outstanding

commitments under these contracts were $1,101,989 and $2,300,187 as of December 31, 2019 and 2018, respectively.

expected to pay off all the balances within 1 year.

On June 25, 2019, Dongfang Paper entered into an acquisition agreement

with shareholder of Hebei Tengsheng Paper Co., Ltd.(“Hebei Tengsheng”), a limited liability company organized

under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng.

The consideration for the acquisition

is RMB 320 million (approximately $45 million) and is payable by December 31, 2021.

Guarantees and Indemnities

The Company agreed with Baoding Huanrun

Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third party, and as of December 31, 2019

and 2018, the Company guaranteed its long-term loan from financial institutions amounting to $4,443,680 (RMB31,000,000) and $4,516,843

(RMB31,000,000), respectively, that matured at various times in 2018-2023.

If Huanrun Trading Co., were to become insolvent, the

Company could be materially adversely affected.

(16) Segment Reporting

March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through two business

operating segments:

Dongfang Paper, which produces offset printing paper and corrugating medium paper, and Baoding Shengde, which

produces digital photo paper.

They are managed separately because each business requires different technology and marketing strategies.

Company evaluates performance of its operating segments based on net income.

Administrative functions such as finance, treasury,

and information systems are centralized.

However, where applicable, portions of the administrative function expenses are allocated

between the operating segments based on gross revenue generated.

The operating segments do share facilities in Xushui County,

Baoding City, Hebei Province, China.

All sales were sold to customers located in the PRC.

financial information for the two reportable segments is as follows:

Since March 10, 2010, Baoding Shengde started

its operations and thereafter the Company manages its operations through two business operating segments:

Dongfang Paper, which

produces offset printing paper and corrugating medium paper, and Baoding Shengde, which produces digital photo paper.

managed separately because each business requires different technology and marketing strategies.

The Company evaluates performance of its

operating segments based on net income.

Administrative functions such as finance, treasury, and information systems are centralized.

However, where applicable, portions of the administrative function expenses are allocated between the operating segments based

on gross revenue generated.

The operating segments do share facilities in Xushui County, Baoding City, Hebei Province, China.

sales were sold to customers located in the PRC.

Summarized financial information for the

two reportable segments is as follows:

December 31, 2019

Not Attributable

Elimination of

Enterprise-wide,

Inter-segment

of Inter-segment

$ 113,072,638

$ 117,614,886

Depreciation and amortization

Loss from impairment and disposal of property, plant

and equipment

Loss from impairment and disposal of property, plant and equipment

Interest income

2 unchanged sentences

Net income (loss)

(10,545,684 )

December 31, 2018

Not Attributable

Enterprise-wide,

Inter-segment

$ 117,023,578

of Inter-segment

Gross profit (loss)

Depreciation and amortization

Loss from disposal of property, plant and equipment

Interest income

Interest expense

Income tax expense(benefit)

Net income (loss)

(10,545,684 )

and amortization

from impairment and disposal of property, plant and equipment

tax expense(benefit)

income (loss)

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration and Major Customers and Suppliers

the years ended December 31, 2018 and 2017, the Company had no single customer contributed over 10% of total sales.

the year ended December 31, 2018, the Company had two major suppliers that accounted for 82% and 7% of total purchases by the

the year ended December 31, 2017, the Company had two major suppliers that accounted for 69% and 8% of its total purchases.

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(17) Concentration and Major Customers

and Suppliers

For the years ended December 31, 2019 and

2018, the Company had no single customer contributed over 10% of total sales.

For the year ended December 31, 2019, the Company

had two major suppliers that accounted for 74% and 12% of total purchases by the Company.

For the year ended December 31, 2018, the

Company had two major suppliers that accounted for 82% and 7% of total purchases by the Company.

(18) Concentration of Credit Risk

instruments for which the Company is potentially subject to concentration of credit risk consist principally of cash.

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 December 31, 2018 and December 31, 2017.

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 December 31, 2018 and December

On May 1, 2015, the new “Deposit Insurance Regulations”

was effective in the PRC that the maximum protection would be up to RMB500,000 (US$72,852) 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

bank accounts are all fully covered by the FDIC insurance as of December 31, 2018 and 2017, respectively, while for the cash

placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to RMB80,774,719

(US$11,769,250) as of December 31, 2018.

was effective in the PRC that the maximum protection

would be up to RMB500,000 (US$71,672) per depositor per insured financial intuition, including both principal and interest.

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 December 31, 2019 and 2018, while for the cash placed in financial institutions in the PRC, the balances

exceeding the maximum coverage of RMB500,000 amounted to RMB38,779,345 (US$5,558,806) as of December 31, 2019.

(19) Risks and Uncertainties

Tech Packaging 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.

IT Tech Packaging 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.

(20) Recent Accounting Pronouncements

January 2016, the FASB issued ASU No.

2016-01, “Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement

of Financial Assets and Financial Liabilities”

(“ASU 2016-01”).

The amendments in this update require all equity

investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted

for under equity method of accounting or those that result in consolidation of the investee).

The amendments in this update also

require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability

resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value

in accordance with the fair value option for financial instruments.

In addition the amendments in this update eliminate the requirement

to disclose the method(s) and significant assumptions used to estimate the fair value that are required to be disclosed for financial

instruments measured at amortized cost on the balance sheet for public entities.

For public business entities, the amendments

in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal

Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is

not permitted.

We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.

February 2016, the FASB issued ASU No.

2016-02, “Leases (Topic 842)”

(“ASU 2016-02”).

The amendments in

this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases.

Topic 842 specifies the accounting

The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information

to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

The main difference

between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating

leases under Topic 840.

Topic 842 retains a distinction between finance leases and operating leases.

The classification criteria

for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing

between capital leases and operating leases in the previous leases guidance.

The result of retaining a distinction between finance

leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive

income and the statement of cash flows is largely unchanged from previous GAAP.

The amendments in ASU 2016-02 are effective for

fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities.

Early application of the amendments in ASU 2016-02 is permitted.

We are currently in the process of evaluating the impact of the

adoption of ASU 2016-02 on our consolidated financial statements.

June 2016, the FASB issued ASU No.

In June 2016, the FASB issued ASU No.

“Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses

on Financial Instruments”

(“ASU 2016-13”).

Financial Instruments-Credit Losses (Topic 326) amends guidelines

on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities.

For assets held at

amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an

entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that

is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For available-for-sale

debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit

losses be presented as an allowance rather than as a write-down.

ASU 2016-13 affects entities holding financial assets and net

investment in leases that are not accounted for at fair value through net income.

The amendments affect loans, debt securities,

trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial

assets not excluded from the scope that have the contractual right to receive cash.

The amendments in this ASU will be effective

for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

We are currently evaluating

the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Measurement of Credit Losses on Financial Instruments”

2016-13”).

Financial Instruments-Credit Losses (Topic 326) amends guidelines on reporting credit losses for assets held at

amortized cost basis and available-for-sale debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the

probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all

expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of

the financial assets to present the net amount expected to be collected.

For available-for-sale debt securities, credit losses

should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance

rather than as a write-down.

ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted

for at fair value through net income.

The amendments affect loans, debt securities, trade receivables, net investments in leases,

off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have

the contractual right to receive cash.

The amendments in this ASU will be effective for fiscal years beginning after December 15,

2019, including interim periods within those fiscal years.

We are currently evaluating the impact of the adoption of ASU 2016-13

on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments in this standard will remove,

modify and add certain disclosures under ASC Topic 820, Fair Value Measurement, with the objective of improving disclosure effectiveness.

ASU 2018-13 will be effective for the Company’s fiscal year beginning April 1, 2020, with early adoption permitted.

The transition

requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively.

The Company does not expect ASU 2018-13 to have a material impact to the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes

(Topic 740) Simplifying the Accounting for Income Taxes.

The amendments in this Update related to separate financial statements

of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented.

The amendments

related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective

basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The amendments

related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods

presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of

the fiscal year of adoption.

All other amendments should be applied on a prospective basis.

We do not expect the adoption of ASU

2019-12 to have a material impact on our condensed consolidated financial statements.

IT TECH PACKAGING,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(21) Subsequent Event

Summarized Quarterly Financial Data (Unaudited)

financial information for 2018 and 2017 is as follows:

(22) Summarized Quarterly Financial

Data (Unaudited)

Quarterly financial information for 2019

and 2018 is as follows:

Gross (loss) profit

(Loss) income from operations

Net (loss) income

Net income per share

Gross (loss) profit

Loss from operations

1 unchanged sentence

Net income per share

from operations

Net income per

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(23) Condensed Financial Information of the Parent Company

condensed financial statements of IT Tech Packaging Inc.

(“ITP”, the “parent company”) have been prepared

in accordance with accounting principles generally accepted in the United States of America.

Under the PRC laws and regulations,

the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the parent company

in the form of dividend payments, loans or advances.

The amounts restricted include paid-in capital, capital surplus and statutory

reserves, as determined pursuant to PRC generally accepted accounting principles, totaling $45,589,643 as of December 31, 2018

and 2017, respectively.

following represents condensed unconsolidated financial information of the parent company only:

BALANCE SHEETS

Current Assets

and cash equivalents

and other current assets

The condensed financial statements of IT

Tech Packaging Inc.

(“ITP”, the “parent company”) have been prepared in accordance with accounting principles

generally accepted in the United States of America.

Under the PRC laws and regulations, the Company’s PRC subsidiaries are

restricted in their ability to transfer certain of their net assets to the parent company in the form of dividend payments, loans

The amounts restricted include paid-in capital, capital surplus and statutory reserves, as determined pursuant to

PRC generally accepted accounting principles, totaling $45,589,643 as of December 31, 2019 and 2018.

The following represents condensed unconsolidated

financial information of the parent company only:

CONDENSED BALANCE SHEETS

Current Assets

in subsidiaries

Cash and cash equivalents

Prepayments and other current assets

Total current assets

Investment in subsidiaries

$ 170,498,891

$ 170,540,569

AND STOCKHOLDERS’

Inter-company

payroll and employee benefit

current liabilities

stockholders’

LIABILITIES AND STOCKHOLDERS’

Current Liabilities

Inter-company payable

Accrued payroll and employee benefit

Accrued liabilities

Income tax payable

Total current liabilities

Total liabilities

Total stockholders’

Total Liabilities and Stockholders’

$ 170,498,891

$ 170,540,569

TECH PACKAGING, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

general and administrative expenses

from Operations

in (loss)/earnings of unconsolidated subsidiaries

Income (Expense)

(Loss)/Income

before Income Taxes

IT TECH PACKAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

Selling, general and administrative expenses

Loss from Operations

Equity in earnings of unconsolidated subsidiaries

Other Income (Expense)

Income before Income Taxes

(10,537,493 )

for Income Taxes

Provision for Income Taxes

$ (10,545,682 )

comprehensive income /(loss)

Comprehensive Income (loss)

Other comprehensive income /(loss)

Total Comprehensive Income (loss)

$ (19,278,433 )

STATEMENTS OF CASH FLOWS

Cash (Used in) Provided by Operating Activities

Cash Used in Investing Activities

Cash Provided by Financing Activities

Increase (Decrease) in Cash and Cash Equivalents

and Cash Equivalents - Beginning of Year

and Cash Equivalents - End of Year

OF PRESENTATION

condensed financial information has been prepared using the same accounting policies as set out in the Company’s consolidated

financial statements except that the parent company has used equity method to account for its investments in the subsidiaries.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

March 23, 2018, we dismissed our principal independent accountant, BDO China Shu Lun Pan Certified Public Accountants LLP (“BDO”)

from its engagement with the Company, which dismissal was effective immediately.

CONDENSED STATEMENTS OF CASH FLOWS

Net Cash (Used in) Provided by Operating Activities

Net Cash Used in Investing Activities

Net Cash Provided by Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents - Beginning of Year

Cash and Cash Equivalents - End of Year

BASIS OF PRESENTATION

The condensed financial information has

been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that

the parent company has used equity method to account for its investments in the subsidiaries.

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

On March 23, 2018,

we dismissed our principal independent accountant, BDO China Shu Lun Pan Certified Public Accountants LLP (“BDO”) from

its engagement with the Company, which dismissal was effective immediately.

The decision to dismiss BDO as the Company’s

principal independent accountant was approved by the Audit Committee of the Company on March 23, 2018.

were no disagreements between the Company and BDO on any matter of accounting principles or practices, financial statement disclosure,

or auditing scope or procedure, within the Company’s two most recent fiscal years ended December 31, 2017 and subsequently

up to the date of dismissal which disagreements that, if not resolved to BDO’s satisfaction, would have caused BDO to make

reference to the subject matter of the disagreement in connection with its report issued in connection with the audit of the Company’s

financial statements.

of the reportable events described under Item 304(a)(1)(v)(A)-(D) of Regulation S-K occurred within the Company’s two most

recent fiscal years ended December 31, 2018and subsequently up to the date of dismissal.

report on the Company’s financial statements for each of the fiscal years ended December 31, 2016 and 2015 contained a modification

There were no disagreements

between the Company and BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope

or procedure, within the Company’s two most recent fiscal years ended December 31, 2017 and subsequently up to the date of

dismissal which disagreements that, if not resolved to BDO’s satisfaction, would have caused BDO to make reference to the

subject matter of the disagreement in connection with its report issued in connection with the audit of the Company’s financial

None of the reportable

events described under Item 304(a)(1)(v)(A)-(D) of Regulation S-K occurred within the Company’s two most recent fiscal years

ended December 31, 2018and subsequently up to the date of dismissal.

BDO’s report

on the Company’s financial statements for each of the fiscal years ended December 31, 2016 and 2015 contained a modification

by BDO raising substantial doubt of the Company’s ability to continue as a going concern.

3 unchanged sentences

as to uncertainty, audit scope or accounting principles.

Company provided BDO with a copy of the Form 8-K including the disclosure above before its filing with the SEC, providing BDO

with the opportunity to furnish the Company with a letter addressed to the SEC containing any new information, clarification of

the Company’s expression of its views, or the respect in which BDO does not agree with the statements contained herein.

A letter from BDO dated March 28, 2018 was attached such Form 8-K filed with the SEC on March 29, 2018.

March 26, 2018, we engaged WWC, P.C.

Certified Accountants (“WWC”) to serve as our principal independent accountant,

effective immediately.The decision to engage WWC as the Company’s principal independent accountant was approved by the Audit

Committee of the Company on March 23, 2018.

the Company’s two most recent fiscal years, and any subsequent interim period prior to engaging WWC, the Company did not

consult with WWC regarding (i) the application of accounting principles to a specific completed or proposed transaction, or the

type of audit opinion that might be rendered on the Company’s consolidated financial statements and no written or oral advice

was provided by WWC that was an important factor considered by the Company in reaching a decision as to the accounting, auditing

or financial reporting issue or (ii) any matter that was either the subject of a disagreement or event as set forth in Item 304(a)(1)(iv)

or Item 304(a)(1)(v) of Regulation S-K.

The Company provided

BDO with a copy of the Form 8-K including the disclosure above before its filing with the SEC, providing BDO with the opportunity

to furnish the Company with a letter addressed to the SEC containing any new information, clarification of the Company’s

expression of its views, or the respect in which BDO does not agree with the statements contained herein.

A letter from BDO dated

March 28, 2018 was attached such Form 8-K filed with the SEC on March 29, 2018.

On March 26, 2018,

we engaged WWC, P.C.

Certified Accountants (“WWC”) to serve as our principal independent accountant, effective immediately.The

decision to engage WWC as the Company’s principal independent accountant was approved by the Audit Committee of the Company

on March 23, 2018.

During the Company’s

two most recent fiscal years, and any subsequent interim period prior to engaging WWC, the Company did not consult with WWC regarding

(i) the application of accounting principles to a specific completed or proposed transaction, or the type of audit opinion that

might be rendered on the Company’s consolidated financial statements and no written or oral advice was provided by WWC that

was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting

issue or (ii) any matter that was either the subject of a disagreement or event as set forth in Item 304(a)(1)(iv) or Item 304(a)(1)(v)

of Regulation S-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data