What changed in this filing

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Item 1. Financial Statements

2020-05-14 compared with 2019-11-07 · 1135 added, 1400 removed, 403 unchanged (86% of the section changed)

Financial Statements

TECH PACKAGING, INC.

CONSOLIDATED BALANCE SHEETS

OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

September 30,

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31,

Current Assets

1 unchanged sentence

Restricted cash

Accounts receivable (net of allowance for doubtful accounts of $56,638 and $58,707 as of September 30, 2019 and December 2018, respectively)

Accounts receivable (net of allowance for doubtful accounts of $36,645 and $59,922 as of March 31, 2020 and December 2019, respectively)

Prepayments and other current assets

Due from related parties

Total current assets

Prepayment on property, plant and equipment

Property, plant, and equipment, net

1 unchanged sentence

Deferred tax asset non-current

Other non-current assets

$ 182,256,298

14 unchanged sentences

Loans from a related party

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $67,168,878 and $34,008,908 as of September 30, 2019 and December 31, 2018, respectively)

Other long-term payable

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $16,342,512 and $19,460,257 as of March 31, 2020 and December 31, 2019, respectively)

Commitments and Contingencies

9 unchanged sentences

$ 190,198,430

accompanying notes to condensed consolidated financial statements.

TECH PACKAGING, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

See accompanying notes to condensed consolidated

financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31,

2020 AND 2019

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

(17,642,758 )

(25,464,314 )

(75,917,762 )

(58,181,584 )

Selling, general and administrative expenses

Gain (Loss) from disposal of property, plant and equipment

Gain on acquisition of a subsidiary

Income (Loss) from Operations

Loss from Operations

Other Income (Expense):

2 unchanged sentences

Interest expense

Income (Loss) before Income Taxes

Loss before Income Taxes

Provision for Income Taxes

Net Income (Loss)

Other Comprehensive Loss

Other Comprehensive (Loss) Income

Foreign currency translation adjustment

Total Comprehensive Loss

$ (2,472,352 )

$ (8,399,059 )

$ (4,999,880 )

Total Comprehensive (Loss) Income

$ (5,026,041 )

Earnings (Losses) Per Share:

Basic and Diluted Earnings (Losses) per Share

Losses Per Share:

Basic and Diluted Losses per Share

Outstanding –

Basic and Diluted

accompanying notes to condensed consolidated financial statements.

TECH PACKAGING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

Nine Months Ended

September 30,

See accompanying notes to condensed consolidated

financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

FOR THE THREE MONTHS ENDED MARCH 31,

2020 AND 2019

Three Months Ended

Cash Flows from Operating Activities:

$ (2,436,287 )

$ (2,722,595 )

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Loss from disposal and impairment of property, plant and equipment

Allowance for bad debts

Gain on acquisition of a subsidiary

Changes in operating assets and liabilities:

8 unchanged sentences

Income taxes payable

Net Cash Provided by Operating Activities

Net Cash Provided by (Used in) Operating Activities

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

Acquisition of a subsidiary

Net Cash Used in Investing Activities

Cash Flows from Financing Activities:

Proceeds from related party loans

Repayments of related party loans

Proceeds from short term bank loans

Proceeds from credit union loans

Repayment of bank loans

(11,499,285 )

Net Cash (Used in) Provided by Financing Activities

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Net (Decrease) Increase in Cash and Cash Equivalents

Net Increase (Decrease) in Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash - Beginning of Period

6 unchanged sentences

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

accompanying notes to condensed consolidated financial statements.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

See accompanying notes to condensed consolidated

financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’

FOR THE THREE MONTHS ENDED MARCH 31,

2020 AND 2019

Comprehensive

Income (loss)

Balance at December 31, 2019

$ (6,057,537 )

$ 114,794,796

$ 165,995,062

Foreign currency translation adjustment

Balance at March 31, 2020

$ (8,647,291 )

$ 112,358,509

$ 160,969,021

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(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.

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.

We were the surviving entity.

In connection with the name change, our common stock began being traded under

a new NYSE symbol, “ITP,”

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

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 CONDENSED 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

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

and a new CUSIP

number, 46527C100, at such time.

On October 29, 2007, pursuant to an agreement

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

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

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

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

ownership interests in Dongfang Holding.

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

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

Shuangxi Zhao, for Mr.

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 CONDENSED CONSOLIDATED FINANCIAL

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

An Dongfang Paper Equity Owner will cease to be a party to the agreement once it transfers its equity interests with the

prior approval of Baoding Shengde.

As the Company had controlled Dongfang Paper since July 16, 2007 through Dongfang Holding and

the trust until June 24, 2009, and continued to control Dongfang Paper through Baoding Shengde and the Contractual Agreements,

the execution of the Contractual Agreements is considered as a business combination under common control.

On February 10, 2010, Baoding Shengde and

the Dongfang Paper Equity Owners entered into a Termination of Loan Agreement to terminate the above-mentioned $10,000,000 Loan

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.

An Dongfang Paper Equity Owner will cease

to be a party to the agreement once it transfers its equity interests with the prior approval of Baoding Shengde.

As the Company

had controlled Dongfang Paper since July 16, 2007 through Dongfang Holding and the trust until June 24, 2009, and continued to

control Dongfang Paper through Baoding Shengde and the Contractual Agreements, the execution of the Contractual Agreements is

considered as a business combination under common control.

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

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.

As a result, Hebei Tengsheng becomes a wholly owned subsidiary of Dongfang Paper that manufactures and sells

tissue paper products.

Company has no direct equity interest in Dongfang Paper.

However, through the Contractual Agreements described above, the Company

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

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

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

Consolidation of the Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board

(the “FASB”).

The revenue generated from Dongfang Paper and Hebei Tengsheng for the three months ended September 30,

2019 and 2018 was accounted for 100%, of the Company’s total revenue.

The revenue generated from Dongfang Paper and Hebei

Tengsheng for the nine months ended September 30, 2019 and 2018 was accounted for 100% and 99.98%, respectively, of the Company’s

total revenue.

Dongfang Paper and Hebei Tengsheng also accounted for 92.53% and 90.6% of the total assets of the Company as of

September 30, 2019 and December 31, 2018, respectively.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of September 30, 2019 and December 31, 2018, details of the Company’s subsidiaries and variable interest entities are as

Date 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 three

months ended March 31, 2020 and 2019 was accounted for 100% of the Company’s total revenue.

Dongfang Paper also accounted

for 90.02% and 91.01% of the total assets of the Company as of March 31, 2020 and December 31, 2019, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

As of March 31, 2020 and December 31, 2019, details of the Company’s

subsidiaries and variable interest entities are as follows:

Incorporation

Incorporation or

12 unchanged sentences

Paper production and distribution

Variable interest

entity (“VIE”):

Variable interest entity (“VIE”):

Dongfang Paper

1 unchanged sentence

Paper production and distribution

Hebei Tengsheng

April 7, 2011

Paper production and distribution

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

Tengsheng is 100% owned subsidiary of Dongfang Paper.

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 CONDENSED 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 condensed

consolidated balance sheets as of September 30, 2019 and December 31, 2018 are as follows:

September 30,

* Dongfang Paper is treated as a 100% controlled variable

interest entity of the Company.

However, uncertainties in the PRC legal

system could cause the Company’s current ownership structure to be found to be in violation of any existing and/or future

PRC laws or regulations and could limit the Company’s ability, through its subsidiary, to enforce its rights under these

contractual arrangements.

Furthermore, shareholders of the VIE may have interests that are different than those of the Company,

which could potentially increase the risk that they would seek to act contrary to the terms of the aforementioned agreements.

In addition, if the current structure or

any of the contractual arrangements were found to be in violation of any existing or future PRC law, the Company may be subject

to penalties, which may include, but not be limited to, the cancellation or revocation of the Company’s business and operating

licenses, being required to restructure the Company’s operations or being required to discontinue the Company’s operating

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 CONDENSED CONSOLIDATED FINANCIAL

The Company has aggregated the financial

information of Dongfang Paper in the table below.

The aggregate carrying value of Dongfang Paper’s assets and liabilities

(after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets as of

March 31, 2020 and December 31, 2019 are as follows:

Current Assets

5 unchanged sentences

Total current assets

Prepayment on property, plant and equipment

Property, plant, and equipment, net

Deferred tax asset non-current

Other non-current assets

$ 164,067,645

4 unchanged sentences

Accounts payable

Notes payable

Due to related parties

4 unchanged sentences

Loans from credit union

Loans from a related party

Total liabilities

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.

TECH PACKAGING, INC.

TO CONDENSED 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.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(2) Basis of Presentation and Significant Accounting Policies

accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations

of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q.

Accordingly, certain information and

notes required by the United States of America generally accepted accounting principles (“GAAP”) for annual financial

statements are not included herein.

These interim statements should be read in conjunction with the consolidated financial statements

and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018 of the Company, and its

subsidiaries and variable interest entity (which we sometimes refer to collectively as “the Company”, “we”,

“us”

The accompanying unaudited condensed consolidated

financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission

(“SEC”) for reporting on Form 10-Q.

Accordingly, certain information and notes required by the United States of America

generally accepted accounting principles (“GAAP”) for annual financial statements are not included herein.

These interim

statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report

on Form 10-K for the year ended December 31, 2019 of the Company, and its subsidiaries and variable interest entity (which

we sometimes refer to collectively as “the Company”, “we”, “us”

or “our”).

of Consolidation

unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary

for a fair presentation of our financial position and results of operations.

Such adjustments are of a normal recurring nature,

unless otherwise noted.

The balance sheet as of September 30, 2019 and the results of operations for the nine months ended September

30, 2019 are not necessarily indicative of the results to be expected for any future period.

unaudited condensed consolidated financial statements are prepared in accordance with GAAP.

These accounting principles require

us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

We believe that the estimates, judgments and assumptions are reasonable, based on information available

at the time they are made.

Actual results could differ materially from those estimates.

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

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.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2019 and December 31, 2018, the carrying value of

the Company’s short term financial instruments, such as cash and cash equivalents, accounts receivable, accounts and notes

payable, short-term bank loans, balance due to a related party and obligation under capital lease, approximate at their fair values

because of the short maturity of these instruments;

while loans from credit union and loans from a related party approximate at

their fair value as the interest rates thereon are close to the market rates of interest published by the People’s Bank

Company does not have any assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December

Non-Recurring

Principles of Consolidation

Our unaudited condensed consolidated

financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of

our financial position and results of operations.

Such adjustments are of a normal recurring nature, unless otherwise noted.

The balance sheet as of March 31, 2020 and the results of operations for the three months ended March 31, 2020 are not

necessarily indicative of the results to be expected for any future period.

Our unaudited condensed consolidated financial

statements are prepared in accordance with GAAP.

These accounting principles require us to make certain estimates, judgments and

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We believe that

the estimates, judgments and assumptions are reasonable, based on information available at the time they are made.

Actual results

could differ materially from those estimates.

Valuation of long-lived asset

The Company reviews the carrying value

of long-lived assets to be held and used when events and circumstances warrants such a review.

The carrying value of a long-lived

asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less

than its carrying value.

In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market

value of the long-lived asset and intangible assets.

Fair market value is determined primarily using the anticipated cash flows

discounted at a rate commensurate with the risk involved.

Losses on long-lived assets and intangible assets to be disposed are

determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Fair Value Measurements

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.

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.

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.

and Going Concern

of September 30, 2019 the Company had current assets of $20,574,314 and current liabilities of $61,014,652 (including amounts

due to related parties of $766,544 and interest payable for related party loans of $668,338), resulting in a working capital deficit

of approximately $40,440,338;

as 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 $1,030,790), resulting in a working capital deficit of approximately

The deficit as of September 30, 2019 was mainly attributed to the payable for acquisition of Hebei Tengsheng.

25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder of Hebei Tengsheng, to buy up 100% shares of Hebei

Tengsheng with a purchase price of RMB 320 million (approximately $45 million).

The payable will be due by December 25, 2019.

If the amount is not fully paid off, the seller is offered an option to convert the outstanding amount to shares of the Company.

As of September 30, 2019, acquisition payable was $43,507,826, which was included in the current liabilities in the consolidated

balance sheet.

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.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

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 March 31, 2020 and December 31, 2019, the carrying value of the Company’s short term financial instruments,

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

party and obligation under capital lease, approximate at their fair values because of the short maturity of these instruments;

while loans from credit union and loans from a related party approximate at their fair value as the interest rates thereon are

close to the market rates of interest published by the People’s Bank of China.

The Company does not have any assets and liabilities measured

at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.

Non-Recurring Fair Value Measurements

The Company reviews long-lived assets for

impairment annually or more frequently if events or changes in circumstances indicate the possibility of impairment.

For the continuing

operations, long-lived assets are measured at fair value on a nonrecurring basis when there is an indicator of impairment, and

they are recorded at fair value only when impairment is recognized.

For discontinued operations, long-lived assets are measured

at the lower of carrying amount or fair value less cost to sell.

The fair value of these assets were determined using models with

significant unobservable inputs which were classified as Level 3 inputs, primarily the discounted future cash flow.

Share-Based Compensation

The Company uses the fair value recognition

provision of ASC Topic 718, Compensation-Stock Compensation , which requires the Company to expense the cost of employee

services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the

vesting period.

The Company also applies the provisions

of ASC Topic 505-50, Equity Based Payments to Non-Employees to account for stock-based compensation awards issued to non-employees

for services.

Such awards for services are recorded at either the fair value of the consideration received or the fair value of

the instruments issued in exchange for such services, whichever is more reliably measurable.

(3) Restricted Cash

cash was nil as of September 30, 2019.

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.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

materials inventory includes mainly recycled paper board and recycled white scrap paper.

Finished goods include mainly products

of corrugating medium paper, offset printing paper and tissue paper products.

Inventories consisted of the following as of

September 30, 2019 and December 31, 2018:

September 30,

Restricted cash was nil as of March 31,

2020 and December 31, 2019.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(4) Inventories

Raw materials inventory includes mainly recycled paper board

and recycled white scrap paper.

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

paper products.

Inventories consisted of the following as of March 31, 2020 and December 31, 2019:

Raw Materials

4 unchanged sentences

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 September 30, 2019 and December 31, 2018:

September 30,

Prepayments and other current assets consisted of the following

as of March 31, 2020 and December 31, 2019:

Prepaid land lease

2 unchanged sentences

(6) Property, plant and equipment, net

of September 30, 2019 and December 31, 2018, property, plant and equipment consisted of the following:

September 30,

As of March 31, 2020 and December 31, 2019, property, plant

and equipment consisted of the following:

Property, Plant, and Equipment:

9 unchanged sentences

$ 151,616,852

of September 30, 2019 and December 31, 2018, land use rights represented two parcel of state-owned lands located in Xushui District

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

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

in progress mainly represents payments for improvement of the office building and essentially all industrial-use buildings in

the Headquarters Compound (the “Industrial Buildings”).

of September 30, 2019 and December 31, 2018, certain property, plant and equipment of Dongfang Paper with net values of $4,313,899

and $5,782,640, respectively, have been pledged pursuant to a long-term loan from credit union for Dongfang Paper.

Land use right

of Dongfang Paper with net values of $5,712,365 and $5,990,586 as of September 30, 2019 and December 31, 2018 were pledged for

the bank loan from Industrial & Commercial Bank of China.

Land use right of Hebei Tengsheng with net value of $3,262,677 has

been pledged for a bank loan from Industrial & Commercial Bank of China to Dongfang Paper and another piece of land with a

net value of $5,129,352 has been pledged for a long-term loan from credit union to Baoding Shengde.

bank loans ”

and Long-term loans from credit union under Note (7), Loans Payable, for details of the transaction

and asset collaterals.

and amortization of property, plant and equipment was $3,758,191 and $3,462,703 for the three months ended September 30, 2019

and 2018, respectively.

Depreciation and amortization of property, plant and equipment was $11,547,650 and $10,873,536 for

the nine months ended September 30, 2019 and 2018, respectively.

As of March 31, 2020 and December 31, 2019,

land use rights represented two parcel of state-owned lands located in Xushui District and Wei County of Hebei Province in China,

with lease terms of 50 years expiring in 2061 and 2066, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

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”).

As of March 31, 2020 and December 31, 2019,

certain property, plant and equipment of Dongfang Paper with net values of $3,443,097 and $3,935,270, respectively, have been pledged

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

Land use right of Dongfang Paper with net values of $5,635,572

and $5,757,546 as of March 31, 2020 and December 31, 2019, respectively, was pledged for the bank loan from Industrial & Commercial

Bank of China.

Land use right of Hebei Tengsheng with net value of $5,120,520 and $5,200,452 as of March 31, 2020 and December

31, 2019, respectively, was pledged for a long-term loan from credit union of Baoding Shengde.

In addition, land use right of Hebei

Tengsheng with net value of $7,933,093 and $8,056,930 as of March 31, 2020 and December 31, 2019, respectively, was pledged for

another long-term loan from credit union of Baoding Shengde.

Short-term bank loans ”

and Long-term loans

from credit union under Note (7), Loans Payable, for details of the transaction and asset collaterals.

Depreciation and amortization of property,

plant and equipment was $3,774,674 and $3,930,060 for the three months ended March 31, 2020 and 2019, respectively.

(7) Loans Payable

September 30,

Short-term bank loans

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

Bank of Cangzhou

Total short-term bank loans

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.

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

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 $2,544,925 and

$2,622,683 as of September 30, 2019 and December 31, 2018, respectively.

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 4.741% per annum.

will be due by November 26, 2019.

January 28, 2019, the Company entered into a working capital loan agreement with the ICBC, with a balance of $3,817,387 as

of September 30, 2019.

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 4.785% per annum.

The loan will be due and repaid by

January 30, 2020.

of September 30, 2019, there were guaranteed short-term borrowings of $6,362,312 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.

average short-term borrowing rates for the three months ended September 30, 2019 and 2018 were approximately 4.77% and 5.59%,

respectively.

The average short-term borrowing rates for the nine months ended September 30, 2019 and 2018 were approximately

4.76% and 5.58%, respectively.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

loans from credit union

of September 30, 2019 and December 31, 2018, loans payable to Rural Credit Union of Xushui District, amounted to $7,012,682 and

$7,197,808, respectively.

September 30,

December 20, 2019, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,069,075

and $6,163,814 as of March 31, 2020 and December 31, 2019, respectively.

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% per annum.

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

As of March 31, 2020, there were guaranteed short-term borrowings

of $6,069,075 and unsecured bank loans of $nil.

As of December 31, 2019, there were guaranteed short-term borrowings of $6,163,814

and unsecured bank loans of $nil.

The average short-term borrowing rates for the three months

ended March 31, 2020 and 2019 were approximately 4.79% and 4.76%, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Long-term loans from credit union

As of March 31, 2020 and December 31, 2019,

loans payable to Rural Credit Union of Xushui District, amounted to $8,835,443 and $8,973,367, respectively.

Rural Credit Union of Xushui District Loan 1

4 unchanged sentences

Long-term loans from credit union

of September 30, 2019, the Company’s long-term debt repayments for the next five years were as follows:

As of March 31, 2020, the Company’s long-term

debt repayments for the next five years were as follows:

Remainder of 2020

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

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

On November 6, 2018, the loan was renewed

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

As of September

30, 2019 and December 31, 2018, total outstanding loan balance was $1,215,909 and $1,253,060, respectively.

On April 16, 2014, the Company entered

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

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

The loan is guaranteed by an independent third party.

Interest payment is

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

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

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

As of March 31, 2020 and December 31, 2019,

total outstanding loan balance was $1,213,815 and $1,232,763, respectively.

Out of the total outstanding loan balance, current

portion amounted were $141,141 and $143,345 as of March 31, 2020 and December 31, 2019, respectively, which are presented as current

liabilities in the consolidated balance sheet and the remaining balance of $1,072,674 and $1,089,418 are presented as non-current

liabilities in the consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively.

On July 15, 2013, the Company entered into

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

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

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

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

The loan is secured by certain of the

Company’s manufacturing equipment with net book value of $3,443,097 and $3,935,270 as of March 31, 2020 and December 31,

2019, respectively.

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

As of March 31, 2020 and December

31, 2019, the total outstanding loan balance was $3,528,532 and $3,583,613, respectively.

Out of the total outstanding loan balance,

current portion amounted were $169,370 and $172,013 as of March 31, 2020 and December 31, 2019, respectively, which are presented

as current liabilities in the consolidated balance sheet and the remaining balance of $3,359,162 and $3,411,600 are presented as

non-current liabilities in the consolidated balance sheet as of March 31, 2020 and December 31, 2019, 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.

As of March 31, 2020 and

December 31, 2019, the total outstanding loan balance was $2,258,260 and $2,293,512, respectively.

Out of the total outstanding

loan balance, current portion amounted were $113,108 and $87,423 as of September 30, 2019 and December 31, 2018, respectively,

loan balance, current portion amounted were $1,129,130 and $1,146,756 as of March 31, 2020 and December 31, 2019, respectively,

which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,129,130 and $1,146,756

are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019 and December 31, 2018,

respectively.

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 $4,313,899 and $5,782,640

as of September 30, 2019 and December 31, 2018, respectively.

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

As of September 30, 2019 and December 31, 2018, the total outstanding loan balance was $3,534,617 and $3,642,615, respectively.

Out of the total outstanding loan balance, current portion amounted were $127,246 and $101,993 as of September 30, 2019 and December

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

of $3,407,371 and $3,540,622 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019

and December 31, 2018, respectively.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 was 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 September 30, 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 September 30, 2019 and December

31, 2018, respectively.

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.

As of September 30, 2019 and December 31, 2018, the total outstanding loan balance was $2,262,156 and $nil, respectively.

Out of the total outstanding loan balance, current portion amounted were $70,692 and $nil as of September 30, 2019 and December

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

of $2,191,464 and $nil are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019 and

December 31, 2018, respectively.

interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2019 and 2018 were

$214,907 and $328,955, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the nine

months ended September 30, 2019 and 2018 were $445,860 and $620,294, respectively.

are presented as non-current liabilities in the consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

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 March 31, 2020 and

December 31, 2019, the total outstanding loan balance was $1,834,836 and $1,863,479, respectively.

Out of the total outstanding

loan balance, current portion amounted were $141,141 and $143,345 as of March 31, 2020 and December 31, 2019, respectively, which

are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,693,695 and $1,720,134

are presented as non-current liabilities in the consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively.

Total interest expenses for the short-term

bank loans and long-term loans for the three months ended March 31, 2020 and 2019 were $244,718 and $230,953, respectively.

(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 $362,417 and $373,490 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 September 30, 2019 and December 31, 2018, respectively.

December 10, 2014, Mr.

Zhenyong Liu provided a loan to the Company, amounted to $8,483,083 to Dongfang Paper for working capital

purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China.

The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017.

During the year of 2016,

the Company repaid $6,012,416 to Mr.

Zhenyong Liu, together with interest of $288,596.

In February 2018, the company paid off

the remaining balance, together with interest of $20,400.

As of September 30, 2019 and December 31, 2018, approximately $42,415

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.

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 $16,966,167 (RMB120,000,000) for working capital purposes.

The advances or funding under the agreement are due three years

from the date each amount is funded.

The loan is unsecured and carries an annual interest rate set on the basis of the primary

lending rate of the People’s Bank of China at the time of the borrowing.

On July 13, 2015, an unsecured amount of $4,324,636

was drawn from the facility.

On October 14, 2016 an unsecured amount of $2,883,091 was drawn from the facility.

In February 2018,

the company repaid $1,507,432 to Mr.

Zhenyong Liu, the 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 $361,793 and $367,441 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 March 31,

2020 and December 31, 2019, respectively.

On December 10, 2014, Mr.

provided a loan to the Company, amounted to $8,483,083 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 March 31, 2020 and December 31, 2019, approximately $42,342 and $43,003 of interest were outstanding to Mr.

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

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 $16,936,952 (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 September 30, 2019 and December 31, 2018, the

outstanding loan balance were $2,120,771 and $2,185,569, respectively, and the accrued interest was $263,506 and $200,253, respectively,

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

of September 30, 2019 and December 31, 2018, total amount of loans due to Mr.

Zhenyong Liu were $2,120,771 and $2,185,569, respectively.

The interest expense incurred for such related party loans are $23,234 and $62,130 for the three months ended September 30, 2019

and 2018, respectively.

The interest expenses incurred for such related party loans are $71,415 and $252,829 for the nine months

ended September 30, 2019 and 2018, respectively.

The accrued interest owed to the CEO was approximately $668,338 and $617,454,

as of September 30, 2019 and December 31, 2018, respectively, which was recorded in other payables and accrued liabilities.

of September 30, 2019 and December 31, 2018, amount due to shareholder are $319,129 and $210,148, 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 March 31, 2020 and December 31, 2019, the outstanding loan balance were $nil and the accrued interest was $193,981 and $197,009,

respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated

balance sheet.

As of March 31, 2020 and December 31, 2019,

total amount of loans due to Mr.

Zhenyong Liu were $nil.

The interest expense incurred for such related party loans are $nil and

$24,316 for the three months ended March 31, 2020 and 2019, respectively.

The accrued interest owed to the CEO was approximately

$598,116 and $607,453, as of March 31, 2020 and December 31, 2019, respectively, which was recorded in other payables and accrued

As of March 31, 2020 and December 31, 2019,

amount due to shareholder are $617,433 and $483,433, 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 from 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 $145,930 (RMB1,000,000).

Lease of Headquarters Compound Real Properties from a Related

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 $142,998 (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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Notes payable

payable was nil as of September 30, 2019.

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 as handling charge.

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

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 CONDENSED CONSOLIDATED FINANCIAL

(9) Other payables and accrued liabilities

payables and accrued liabilities consist of the following:

September 30,

Other payables and accrued liabilities consist of the following:

Accrued electricity

3 unchanged sentences

Accrued commission to salesmen

Payable for acquisition of Hebei Tengsheng

of September 30, 2019 and December 31, 2018, others mainly included $1,028,453 and $nil, respectively, amount due to the former

shareholders of Hebei Tengsheng.

The amount represents funds to pay off expenditures incurred for the startup operation of Hebei

Tengsheng and due on demand with interest free.

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”).

Accrued bank loan interest

(10) 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 (14), 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.

37,500 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.

32,500 shares of common stock were issued to Weitain

on August 13, 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

37,500 shares of common stock were issued to Weitian on November 12, 2018.

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 Weitian on August

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

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(11) Earnings Per Share

the three months ended September 30, 2019 and 2018, basic and diluted net income per share are calculated as follows:

For the three months ended March 31, 2020 and 2019, basic and

diluted net income per share are calculated as follows:

Three Months Ended

September 30,

Basic income (loss) per share

Net income (loss) for the period - numerator

Basic loss per share

Net loss for the period - numerator

$ (2,436,287 )

$ (2,722,595 )

Weighted average common stock outstanding - denominator

Net income (loss) per share

Net loss per share

Diluted income per share

1 unchanged sentence

$ (2,436,287 )

Weighted average common stock outstanding - denominator

Effect of dilution

Weighted average common stock outstanding - denominator

Diluted income (loss) per share

the nine months ended September 30, 2019 and 2018, basic and diluted net income per share are calculated as follows:

Nine Months Ended

September 30,

Basic income (loss) per share

Net income (loss) for the period –

$ (2,722,595 )

Weighted average common stock outstanding - denominator

Net income (loss) per share

Diluted income (loss) per share

Net income (loss) for the period - numerator

$ (5,381,244 )

Weighted average common stock outstanding - denominator

Effect of dilution

Weighted average common stock outstanding - denominator

Diluted income (loss) per share

the three and nine months ended September 30, 2019, there were no securities with dilutive effect issued and outstanding.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Diluted loss per share

For the three months ended March 31, 2020 and 2019 there were

no securities with dilutive effect issued and outstanding.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(12) 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.

December 22, 2017, the 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.

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.

statutory federal income tax rate from the highest rate of 35% to 21%

effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income which requires companies to

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

subsidiaries that were previously tax deferred and

creates new taxes on certain foreign sourced earnings.

The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides

guidance on accounting for enactment effects of the 2017 TCJA.

SAB 118 provides a measurement period of up to one year from the

2017 TCJA’s enactment date for companies to complete their accounting under ASC 740.

In accordance with SAB 118, to the extent

that a company’s accounting for certain income tax effects of the 2017 TCJA is incomplete but it is able to determine a reasonable

estimate, it must record a provisional estimate in its financial statements.

If a company cannot determine a provisional estimate

to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws

that were in effect immediately before the enactment of the 2017 TCJA.

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

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:

The transition tax is a

tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s non-U.S.

subsidiaries.

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

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

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.

The Company was able to make a reasonable

estimate of the transition tax and recorded a provisional obligation and additional income tax expense of approximately $80,000

in the fourth quarter of 2017.

However, the Company is continuing to gather additional information and will consider additional

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

This amount may change when the

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

federal taxation and finalizes the

amounts held in cash or other specified assets.

The 2017 TCJA’s transition tax is payable over eight years beginning in 2018.

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

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 three months ended September 30, 2019 and 2018 were as follows:

Dongfang Paper and Baoding Shengde are

PRC operating companies and are subject to PRC Enterprise Income Tax.

Pursuant to the PRC New Enterprise Income Tax Law, Enterprise

Income Tax is generally imposed at a statutory rate of 25%.

The provisions for income taxes for three months ended March

31, 2020 and 2019 were as follows:

Three Months Ended

September 30,

Provision for Income Taxes

Current Tax Provision PRC

Deferred Tax Provision PRC

Total Provision for (Deferred tax benefit)/ Income Taxes

provisions for income taxes for the nine months ended September 30, 2019 and 2018 were as follows:

Nine Months Ended

September 30,

Provision for Income Taxes

Current Tax Provision U.S.

2 unchanged sentences

Total Provision for (Deferred tax benefit)/ Income Taxes

$ (1,626,222 )

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

addition to the reversible future PRC income tax benefits stemming from the timing differences of items such as recognition of

asset disposal gain or loss and asset depreciation, the Company was incorporated in the United States and incurred 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 2016,

respectively.

The net operating loss carried forward may be available to reduce future years’

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

In addition to the reversible future PRC

income tax benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset

depreciation, the Company was incorporated in the United States and incurred 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.

forwards would expire, if not utilized, during the period of 2030 through 2035.

As of December 31, 2016, management believed that

the realization of all the U.S.

income tax benefits from these losses, which generally would generate a deferred tax asset if

it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history

and continuing losses for United States income tax purposes.

Accordingly, As of December 31, 2016, the Company provided a 100%

valuation allowance on the U.S.

deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable for

the PRC income tax purposes.

Management reviews this valuation allowance periodically and will make adjustments as warranted.

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

September 30,

December 31, 2018

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 (liabilities)

6 unchanged sentences

Total deferred tax assets, net

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

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

effective tax rate for:

Three Months Ended

September 30,

PRC Statutory rate

3 unchanged sentences

Effective income tax rate

Nine Months Ended

September 30,

PRC Statutory rate

Effect of different tax jurisdiction

Effect of reconciling items in the PRC for tax purposes

Change in valuation allowance

Effective income tax rate

the three months ended September 30, 2019 and 2018, the effective income tax rate was estimated by the Company to be 24.8% and

27.7%, respectively.

During the nine months ended September 30, 2019 and 2018, the effective income tax rate was estimated by

the Company to be 75.9% and 23.2%, respectively.

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.

During the three months ended March 31,

2020 and 2019, the effective income tax rate was estimated by the Company to be 17.8% and 19.2%, respectively.

As of December 31, 2017, except for the

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

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

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

tax deductions and net operating losses will cause the

Company to recognize any other substantial current U.S.

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

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

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.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 CONDENSED CONSOLIDATED FINANCIAL

(13) 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 of IT 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 past years.

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

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.

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.

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.

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.

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 of IT 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.

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 Stock Plan

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 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 ISP.

Total fair value of the shares of common stock granted was calculated at $470,360 as of the date of issuance at $0.88

2019 Incentive Stock Plan

On October 31, 2019, the shareholders of

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

of IT Tech Packaging, Inc.

(the “2019 ISP”).

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

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

and its subsidiaries.

(14) 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 $17,512

(RMB 120,000).

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

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 $145,930 (RMB 1,000,000), for a

total term of up to five years.

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

minimum lease payments of all operating leases are as follows:

September 30,

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 $17,160 (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 $142,998 (RMB 1,000,000), for a total term of up to five years.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Total operating lease payments

of September 30, 2019, the Company has signed several contracts for improvement of Industrial Buildings.

Total outstanding commitments

under these contracts were $1,255,028 and $2,300,187 as of September 30, 2019 and December 31, 2018, respectively.

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 September 30, 2019 and December 31, 2018, the Company guaranteed its long-term loan from financial institutions

amounting to $4,382,926 (RMB31,000,000) that matured at various times in 2018-2023.

If Huanrun Trading Co., were to become insolvent,

the Company could be materially adversely affected.

Capital commitment

As of March 31, 2020, the Company has signed

several contracts for improvement of Industrial Buildings.

Total outstanding commitments under these contracts were $882,019 and

$1,101,989 as of March 31, 2020 and December 31, 2019, respectively.

The Company expected to pay off all the balances within 1

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), of which $1.4 million was paid by the Company, and the balance

consideration of $43.6 million is payable by December 31, 2021.

Guarantees and Indemnities

The Company agreed with Baoding Huanrun

Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third party, and as of March 31, 2020

and December 31, 2019, the Company guaranteed its long-term loan from financial institutions amounting to $4,375,379 (RMB31,000,000)

that matured at various times in 2020-2023.

If Huanrun Trading Co., were to become insolvent, the Company could be materially adversely

(15) Segment Reporting

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

operating segments:

Dongfang Paper, which produces offset printing paper and corrugating medium paper, Hebei Tengsheng, which

produces tissue 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 District,

Baoding City, Hebei Province, China.

Since March 10, 2010, Baoding Shengde started

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

Dongfang Paper, which

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

They are managed

separately because each business requires different technology and marketing strategies.

The Company evaluates performance of its

operating segments based on net income.

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

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

on gross revenue generated.

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

All sales were sold to customers located in the PRC.

financial information for the three reportable segments is as follows:

Three Months Ended

September 30, 2019

Not Attributable

Elimination of

Enterprise-wide,

Inter-segment

Depreciation and amortization

Interest income

Interest expense

Income tax expense(benefit)

Net income (loss)

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

September 30, 2018

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Summarized financial information for the three reportable segments

is as follows:

Months Ended March 31, 2020

Not Attributable

3 unchanged sentences

Depreciation and amortization

Loss from disposal of property, plant and equipment

Interest income

2 unchanged sentences

Net income (loss)

As of September 30, 2019

Not Attributable

Elimination of

Enterprise-wide,

Inter-segment

Nine Months Ended

September 30, 2019

Months Ended March 31, 2019

Not Attributable

3 unchanged sentences

Depreciation and amortization

Loss from impairment and disposal of property, plant and equipment

Interest income

2 unchanged sentences

Net income (loss)

Nine Months Ended

September 30, 2018

As of March 31, 2020

Not Attributable

Elimination of

Enterprise-wide,

Inter-segment

Depreciation and amortization

Loss from disposal of property, plant and equipment

Interest income

Interest expense

Income tax expense(benefit)

Net income (loss)

of Inter-segment

As of December 31, 2019

Not Attributable

Elimination of

Enterprise-wide,

Inter-segment

$ 183,987,100

TECH PACKAGING, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(16) Concentration and Major Customers and Suppliers

the three months ended September 30, 2019, the Company had no single customer contributed over 10% of total sales.

the three months ended September 30, 2018, the Company had no single customer contributed over 10% of total sales.

the three months ended September 30, 2019, the Company had four major suppliers accounted for 71%, 13%, 4% and 4% of total purchases.

For the three months ended September 30, 2018, the Company had three major suppliers accounted for 86%, 7% and 3% of total purchases.

the nine months ended September 30, 2019, the Company had three major suppliers accounted for 77%, 10% and 4% of the total purchases.

For the nine months ended September 30, 2018, the Company had three major suppliers which accounted for 85%, 4% and 3% of the

total purchases.

For the three months ended March 31, 2020, the Company had no

single customer contributed over 10% of total sales.

For the three months ended March 31, 2019, the Company had no

single customer contributed over 10% of total sales.

For the three months ended March 31, 2020,

the Company had three major suppliers accounted for 70%, 11% and 9% of total purchases.

For the three months ended March 31, 2019,

the Company had three major suppliers accounted for 80%, 9% and 4% of total purchases.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

(17) 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 September 30, 2019 and December 31, 2018.

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 March 31, 2020 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$70,692) 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 September 30, 2019 and December 31, 2018, respectively, while

for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to

RMB31,787,448 (US$4,494,260) as of September 30, 2019.

was effective in the PRC that the maximum protection

would be up to RMB500,000 (US$70,571) 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 March 31, 2020 and December 31, 2019, respectively, while for the cash placed in financial institutions

in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to RMB80,720,243 (US$11,392,957) as of March 31,

(18) Risks and Uncertainties

Company is subject to substantial risks from, among other things, intense competition associated with the industry in general,

other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange

rates, and operating in the PRC under its various laws and restrictions.

The Company is subject to substantial risks

from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity

requirements, rapidly changing customer requirements, foreign currency exchange rates, and operating in the PRC under its various

laws and restrictions.

Our business, financial condition and

results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19 outbreak.

of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition,

and results of operations.

The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19

as a global pandemic.

While the COVID-19 outbreak is still in relatively early stages, international stock markets have begun

to reflect the uncertainty associated with the slow-down in the global economy and the reduced levels of international travel

experienced since the beginning of January, large declines in oil prices and the significant decline in the Dow Industrial Average

at the end of February and beginning of March 2020 was largely attributed to the effects of COVID-19.

Any resulting financial

impact cannot be reasonably estimated at this time.

The extent to which the COVID-19 impacts our results will depend on future

developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity

of the coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others.

Existing insurance

coverage may not provide protection for all costs that may arise from all such possible events.

During the quarter ended March

31, 2020, our revenue was affected by the temporary suspension in production as a result of the pandemic outbreak.

assessing our business operations and the total impact COVID-19 may have on our results and financial condition, but there can

be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences,

including downturns in business sentiment generally.

(19) Recent Accounting Pronouncements

June 2016, the FASB issued ASU No.

2016-13, “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.

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

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.

(20) Subsequent Event

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward-Looking

The following discussion

of the financial condition and results of operations of the Company for the periods ended September 30, 2019 and 2018 should be

read in conjunction with the financial statements and the notes to the financial statements that are included elsewhere in this

quarterly report.

In this quarterly

report, references to “the Company,”

On April 2, 2020, the compensation committee

granted an aggregate of 2,000,000 shares of restricted common stock to fifteen officers, directors and employees of the Company,

which were granted under the 2019 Omnibus Equity Incentive Plan.

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

at $1,200,000 as of the date of issuance at $0.60 per share.

On April 29, 2020, the Company and certain

institutional investors entered into a securities purchase agreement, as amended on May 4, 2020, pursuant to which the Company

agreed to sell to such investors an aggregate of 4,400,000 shares of common stock in a registered direct offering and warrants

to purchase up to 4,400,000 shares of the Company’s common stock in a concurrent private placement, for gross proceeds of

approximately $2.55 million (net proceeds of approximately 2.27 million).

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Notice Regarding Forward-Looking Statements

following discussion of the financial condition and results of operations of the Company for the periods ended March 31, 2020

and 2019 should be read in conjunction with the financial statements and the notes to the financial statements that are included

elsewhere in this quarterly report.

this quarterly report, references to “the Company,”

“we,”

1 unchanged sentence

and “us”

refer to IT Tech Packaging,

to IT Tech Packaging, Inc.

and its PRC subsidiary and variable interest entity unless the context requires otherwise.

We make certain forward-looking

statements in this report.

Statements concerning our future operations, prospects, strategies, financial condition, future economic

performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations,

including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition

and Results of Operations”

make certain forward-looking statements in this report.

Statements concerning our future operations, prospects, strategies, financial

condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans,

beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis

of Financial Condition and Results of Operations”

as well as captions elsewhere in this document, are forward-looking statements.

In some cases

these statements are identifiable through the use of words such as “anticipate”, “believe”, “estimate”,

“expect”, “intend”, “plan”, “project”, “target”, “can”,

“could”, “may”, “should”, “will”, “would”, and similar expressions.

We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities

Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended

(the “Exchange Act”).

The forward-looking statements we make are not guarantees of future performance and are subject

to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these

forward-looking statements.

Because such statements are subject to risks and uncertainties, actual results may differ materially

from those expressed or implied by the forward-looking statements.

Indeed, it is likely that some of our assumptions may prove

to be incorrect.

Our actual results and financial position may vary from those projected or implied in the forward-looking statements

and the variances may be material.

You are cautioned not to place undue reliance on such forward-looking statements.

and uncertainties, together with the other risks described from time to time in reports and documents that we file with the Securities

and Exchange Commission (the “SEC”) should be considered in evaluating forward-looking statements.

In evaluating the

forward-looking statements contained in this report, you should consider various factors, including, without limitation, the following:

(a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth

efficiently and operate profitably, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and

grow our operations, and (d) whether we are able to successfully fulfill our primary requirements for cash.

We assume no obligation

to update forward-looking statements, except as otherwise required under federal securities laws.

Effective on August

1, 2018, we changed our corporate name to IT Tech Packaging, Inc..

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.

Results of Operations

Comparison of the Three Months Ended

September 30, 2019 and 2018

Revenue for the three

months ended September 30, 2019 was $32,937,917, an increase of $6,214,260, or 23.25%, from $26,723,657 for the same period in

the previous year.

This was mainly due to the increase in sales volume of CMP, offset printing paper and tissue paper products,

partially offset by the decrease in average selling price (ASP) of CMP and offset printing paper.

Revenue of Offset Printing Paper, Corrugating

Medium Paper and Tissue Paper Products

Revenue from sales

of offset printing paper, corrugating medium paper (“CMP”) and tissue paper products for the three months ended September

30, 2019 was $32,937,917, an increase of $6,214,055, or 23.25%, from $26,723,862 for the third quarter of 2018.

Total offset printing

paper, CMP and tissue paper products sold during the three months ended September 30, 2019 amounted to 72,246 tonnes, an increase

of 25,097 tonnes, or 53.23%, compared to 47,149 tonnes sold in the comparable period in the previous year.

The increase of revenue

of CMP and offset printing paper was due to the increase in sales volume of regular CMP and offset printing paper, partially offset

by the decrease in average selling price (ASP) of CMP and offset printing paper.

With the launch of PM8 in December 2018, the production

and sales of tissue paper products have increased steadily in 2019.

In some cases these statements are identifiable through the use of words such as “anticipate”, “believe”,

“estimate”, “expect”, “intend”, “plan”, “project”, “target”,

“can”, “could”, “may”, “should”, “will”, “would”, and

similar expressions.

We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section

27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange

Act of 1934, as amended (the “Exchange Act”).

The forward-looking statements we make are not guarantees of future

performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially

from those suggested by these forward-looking statements.

Because such statements are subject to risks and uncertainties, actual

results may differ materially from those expressed or implied by the forward-looking statements.

Indeed, it is likely that some

of our assumptions may prove to be incorrect.

Our actual results and financial position may vary from those projected or implied

in the forward-looking statements and the variances may be material.

You are cautioned not to place undue reliance on such forward-looking

These risks and uncertainties, together with the other risks described from time to time in reports and documents

that we file with the Securities and Exchange Commission (the “SEC”) should be considered in evaluating forward-looking

In evaluating the forward-looking statements contained in this report, you should consider various factors, including,

without limitation, the following:

(a) those risks and uncertainties related to general economic conditions, (b) whether we are

able to manage our planned growth efficiently and operate profitably, (c) whether we are able to generate sufficient revenues

or obtain financing to sustain and grow our operations, and (d) whether we are able to successfully fulfill our primary requirements

We assume no obligation to update forward-looking statements, except as otherwise required under federal securities

of Operations

of the Three months ended March 31, 2020 and 2019

for the three months ended March 31, 2020 was $8,743,851, a decrease of $8,706,441, or 49.89%, from $17,450,292 for the same period

in the previous year.

This was mainly due to the decrease in sales volume and Average Selling Prices (ASPs) of CMP and tissue

paper products.

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

from sales of offset printing paper, corrugating medium paper (“CMP”) and tissue paper products for the three months

ended March 31, 2020 was $8,743,851, a decrease of $8,706,441, or 49.89%, from $17,450,292 for the first quarter of 2019.

offset printing paper, CMP and tissue paper products sold during the three months ended March 31, 2020 amounted to 19,862 tonnes,

a decrease of 15,459 tonnes, or 43.77%, compared to 35,321 tonnes sold in the comparable period in the previous year.

was mainly due to production suspension from mid-January 2020 to early March 2020 due to Chinese New Year and the COVID-19 pandemic

We resumed full capacity of CMP production in May 2020.

The changes in revenue dollar amount and in quantity sold for

the three months ended September 30, 2019 and 2018 are summarized as follows:

Three Months Ended

September 30, 2019

September 30, 2018

Quantity (Tonne)

Light-Weight CMP

the three months ended March 31, 2020 and 2019 are summarized as follows:

$ (6,502,940 )

$ (1,349,569 )

Offset Printing Paper

Tissue Paper Products

Total CMP, Offset Printing Paper and Tissue Paper Revenue

Monthly sales revenue

(excluding revenue from digital photo paper and tissue paper products) for the 24 months ended September 30, 2019, are summarized

The Average Selling

Prices (ASPs) for our main products in the three months ended September 30, 2019 and 2018 are summarized as follows:

$ (7,852,509 )

Printing Paper

Paper Products

CMP, Offset Printing Paper and Tissue Paper Revenue

$ (8,706,441 )

sales revenue (excluding revenue from digital photo paper and tissue paper products) for the 24 months ended March 31, 2020, are

summarized below:

Average Selling Prices (ASPs) for our main products in the three months ended March 31, 2020 and 2019 are summarized as follows:

Offset Printing Paper ASP

2 unchanged sentences

Tissue Paper Products ASP

Three Months ended September 30, 2018

Three Months ended September 30, 2019

Increase (Decrease) from comparable period in the previous year

Three Months ended March 31, 2019

Three Months ended March 31, 2020

Decrease from comparable period in the previous year

Decrease by percentage

The following chart

shows the month-by-month ASPs (excluding the ASPs of the digital photo paper and tissue paper products) for the 24-month period

ended September 30, 2019:

Corrugating Medium Paper

Revenue from CMP amounted

to $24,349,052 (73.92% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September

30, 2019, representing a decrease of $1,719,228, or 6.60%, from $26,068,280 for the comparable period in 2018.

The decrease was

mainly due to the decrease in ASP of CMP.

We sold 60,208 tonnes

of CMP in the three months ended September 30, 2019 as compared to 46,247 tonnes for the same period in 2018, representing a 30.19%

increase in quantity sold.

ASP for regular CMP

dropped from $566/tonne for the three months ended September 30, 2018 to $407/tonne for the three months ended September 30, 2019,

representing a 28.09% decrease.

ASP in RMB for regular CMP for the third quarter of 2018 and 2019 was RMB3,811 and RMB2,846, respectively,

representing a 25.32% decrease.

The quantity of regular CMP sold increased by 13,559 tonnes, from 33,928 tonnes in the third quarter

of 2018 to 47,487 tonnes in the third quarter of 2019.

ASP for light-weight

CMP decreased from $556/tonne for the three months ended September 30, 2018 to $394/tonne for the three months ended September

following chart shows the month-by-month ASPs (excluding the ASPs of the digital photo paper and tissue paper products) for the

24-month period ended March 31, 2020:

from CMP amounted to $7,737,502 (88.49% of the total offset printing paper, CMP and tissue paper products revenues) for the three

months ended March 31, 2020, representing a decrease of $7,852,509, or 50.37%, from $15,590,011 for the comparable period in 2019.

sold 18,677 tonnes of CMP in the three months ended March 31, 2020 as compared to 33,718 tonnes for the same period in 2019, representing

a 44.61% decrease in quantity sold.

for regular CMP dropped from $465/tonne for the three months ended March 31, 2019 to $415/tonne for the three months ended March

31, 2020, representing a 10.75% decrease.

ASP in RMB for light-weight CMP for the third quarter of 2018 and 2019 was RMB3,712 and

RMB2,758, respectively, representing a 25.70% decrease.

The quantity of light-weight CMP sold increased by 402 tonnes, from 12,319

tonnes in the third quarter of 2018, to 12,721 tonnes in the third quarter of 2019.

We do not expect that

there will be big swings in the market demand and ASPs for CMP and other packaging paper in the remaining months of 2019.

Our PM6 production

line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year.

The utilization rates for the third quarter

of 2019 and 2018 were 53.19% and 38.79%, respectively, representing an increase of 14.40%.

Quantities sold for

regular CMP that was produced by the PM6 production line from October 2017 to September 2019 are as follows:

Tissue Paper Products

ASP in RMB for regular CMP for the first quarter of 2019 and 2020 was RMB3,119 and RMB2,902,

respectively, representing a 6.96% decrease.

The quantity of regular CMP sold decreased by 12,505 tonnes, from 26,293 tonnes in

the first quarter of 2019 to 13,788 tonnes in the first quarter of 2020.

for light-weight CMP decreased from $453/tonne for the three months ended March 31, 2019 to $412/tonne for the three months ended

March 31, 2020, representing a 9.05% decrease.

ASP in RMB for light-weight CMP for the first quarter of 2019 and 2020 was RMB3,041

and RMB2,883, respectively, representing a 5.20% decrease.

The quantity of light-weight CMP sold decreased by 2,536 tonnes, from

7,425 tonnes in the first quarter of 2019, to 4,889 tonnes in the first quarter of 2020.

PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year.

The utilization rates for

the first quarter of 2020 and 2019 were 14.86% and 28.79%, respectively, representing a decrease of 13.93%.

sold for regular CMP that was produced by the PM6 production line from April 2018 to March 2020 are as follows:

Paper Products

We produce tissue

paper products, including toilet paper, boxed and soft-packed tissues, handkerchief tissues and paper napkins, as well as bathroom

and kitchen paper towels that are marketed and sold under the Dongfang Paper brand.

In December 2018, we completed the construction,

installation and test of operation of our PM8 production line.

We launched the complete line of processing base tissue paper with

designated capacity of 15,000 tonnes/year, and producing finished tissue paper products with designated capacity of 10,000 tonnes/year.

Revenue from tissue

paper products was $1,551,283 (4.71% of the total offset printing paper, CMP and tissue paper products revenues) for the three

months ended September 30, 2019, representing an increase of $1,551,283, from $nil for the three months ended September 30, 2018.

We sold 1,840 tonnes of tissue paper in the third quarter of 2019.

Offset Printing Paper

Revenue from offset

printing paper was $7,037,582 (21.37% of the total offset printing paper, CMP and tissue paper products revenues) for the three

months ended September 30, 2019, representing an increase of $6,382,000, or 973.49%, from $655,582 for the three months ended September

We sold 10,198 tonnes of offset printing paper in the third quarter of 2019, as compared to 902 tonnes in the comparable

period of 2018, an increase of 9,296 tonnes, or 1030.60%.

ASPs for offset printing

paper for the third quarter of 2018 and 2019 were $727 and $690, respectively, representing a 5.09% decrease.

ASP in RMB for offset

printing paper for the third quarter of 2018 and 2019 was RMB5,517 and RMB4,779, respectively, representing a 13.38% decrease.

We do not expect that there will be big swings in the market demand and ASPs for offset printing paper in the remaining months

Cost of Sales

Total cost of sales

for CMP, offset printing paper and tissue paper products for the quarter ended September 30, 2019 was $27,563,185, an increase

of $2,098,465, or 8.24%, from $25,464,720 for the comparable period in 2018.

This was mainly due to the increase in sales quantity

of CMP, offset printing paper and tissue paper products, partially offset by the decrease in material costs.

Cost of sales for

CMP was $20,711,656 for the quarter ended September 30, 2019, as compared to $24,787,540 for the comparable period in 2018.

cost of sales per tonne for CMP decreased by 35.82%, from $536 in the third quarter of 2018 to $344 in the third quarter of 2019.

The decrease in average cost of sales was mainly attributable to the lower average unit purchase costs (net of applicable value

added tax) of recycled paper board in third quarter of 2019 compared to the third quarter of 2018.

Cost of sales for

offset printing paper was $4,696,459 for the quarter ended September 30, 2019, as compared to $677,180 for the comparable period

Average cost of sales per tonne of offset printing paper decreased by 38.62%, from $751 in the three months ended September

30, 2018, to $461 during the comparable period in 2019.

The decrease in average cost of sales of offset printing paper was mainly

due to the decrease in cost of recycled white scrap paper.

Changes in cost of

sales and cost per tonne by product for the quarters ended September 30, 2019 and 2018 are summarized below:

and kitchen paper towels that are marketed and sold under the brand “Qingmu”.

In December 2018 and November 2019, we

completed the construction, installation and test of operation of our PM8 and PM9 production lines.

We launched the complete line

of processing base tissue paper with designated capacity of 15,000 tonnes/year, and producing finished tissue paper products with

designated capacity of 15,000 tonnes/year.

from tissue paper products was $1,006,349 (11.51% of the total offset printing paper, CMP and tissue paper products revenues)

for the three months ended March 31, 2020, representing a decrease of $853,932, or 45.90%, from $1,860,281 for the three months

ended March 31, 2019.

We sold 1,185 tonnes of tissue paper in the first quarter of 2020, as compared to 1,603 tonnes in the comparable

period of 2019, representing a decrease of 418 tonnes, or 26.08%.

Tissue paper production was suspended and resumed on February

As a result, the production and sales quantity of tissue paper products decreased in the three months ended March 31,

2020 as compared to the same period of 2019.

for tissue paper products decreased from $1,160/tonne for the three months ended March 31, 2019 to $849/tonne for the three months

ended March 31, 2020, representing a 26.81% decrease.

ASP in RMB for tissue paper products for the first quarter of 2019 and 2020

was RMB7,786 and RMB5,941, respectively, representing a 23.70% decrease.

The quantity of tissue paper products sold decreased

by 418 tonnes, from 1,603 tonnes in the first quarter of 2019, to 1,185 tonnes in the first quarter of 2020.

cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended March 31, 2020 was $8,913,570, a

decrease of $8,729,188, or 49.48%, from $17,642,758 for the comparable period in 2019.

This was mainly due to the decrease in

sales quantity of CMP, offset printing paper and tissue paper products and decrease in material costs.

of sales for CMP was $7,195,348 for the quarter ended March 31, 2020, as compared to $15,816,086 for the comparable period in

The decrease in the cost of sales of $8,620,739 for CMP was mainly due to the decrease in sales volume of CMP and decrease

in average cost of sales.

Average cost of sales per tonne for CMP decreased by 17.91%, from $469 in the first quarter of 2019

to $385 in the first quarter of 2020.

The decrease in average cost of sales was mainly attributable to the lower average unit

purchase costs (net of applicable value added tax) of recycled paper board in first quarter of 2020 compared to the first quarter

Cost of sales for tissue paper products was $1,718,222 for the quarter ended March 31, 2020, as compared to $1,826,672

for the comparable period in 2019.

The decrease in the cost of sales of $108,450 for tissue paper products was mainly due to the

decrease in sales volume of tissue paper products, partially offset by the increase in average cost of sales.

Average cost of

sales per tonne of tissue paper products increased by 27.19%, from $1,140 in the three months ended March 31, 2019, to $1,450

for the comparable period in 2020.

This is mainly due to higher average fixed costs per tonne (labor, depreciation and etc.) absorbed

owning to low production quantity of PM8 and PM9 in the first quarter of 2020.

in cost of sales and cost per tonne by product for the quarters ended March 31, 2020 and 2019 are summarized below:

Three Months Ended

September 30, 2019

September 30, 2018

March 31, 2020

March 31, 2019

Change in percentage

14 unchanged sentences

Total CMP, Offset Printing Paper and Tissue Paper

Our average unit purchase

costs (net of applicable value added tax) of recycled paper board and recycled white scrap paper in the three months ended September

30, 2019 were RMB 1,372/tonne (approximately $200/tonne) and RMB 1,770/tonne (approximately $258/tonne), as compared to RMB 2,353/tonne

(approximately $360/tonne) and RMB 3,017/tonne (approximately $461/tonne) for the three months ended September 30, 2018.

changes (in US dollars) represent a year-over-year decrease of 44.44% for the recycled paper board.

We use domestic recycled paper

(sourced mainly from the Beijing-Tianjin metropolitan area) exclusively.

Although we do not rely on imported recycled paper, the

pricing of which tends to be more volatile than domestic recycled paper, our experience suggests that the pricing of domestic recycled

paper bears some correlation to the pricing of imported recycled paper.

The pricing trends

of our major raw materials for the 24-month period from October 2017 to September 2019 are shown below:

Electricity and gas

are our two main energy sources.

Electricity and gas accounted for approximately 5% and 10.4% of total sales in third quarter of

2019, respectively, compared to 6% and 9% of total sales in third quarter of 2018.

The monthly energy cost as a percentage of total

monthly sales of our main paper products for the 24 months ended September 30, 2019 are summarized as follows:

Gross profit for the

three months ended September 30, 2019 was $5,374,732 (16.32% of the total revenue), representing an increase of $4,115,389, or

326.79%, from the gross profit of $1,259,343 (4.71% of the total revenue) for the three months ended September 30, 2018.

Offset Printing Paper, CMP and Tissue

Paper Products

Gross profit for offset

printing paper, CMP and tissue paper products for the three months ended September 30, 2019 was $5,374,731, an increase of $4,115,589,

or 326.86%, from the gross profit of $1,259,142 for the three months ended September 30, 2018.

The increase was mainly the result

of the factors discussed above.

The overall gross

profit margin for offset printing paper, CMP and tissue paper products increased by 11.61 percentage points, from 4.71% for the

three months ended September 30, 2018, to 16.32% for the three months ended September 30, 2019.

Gross profit margin

for regular CMP for the three months ended September 30, 2019 was 14.68%, or 9.83 percentage points higher, as compared to gross

profit margin of 4.85% for the three months ended September 30, 2018.

Gross profit margin

for light-weight CMP for the three months ended September 30, 2019 was 15.93%, or 10.85 percentage points higher, as compared to

gross profit margin of 5.08% for the three months ended September 30, 2018.

Gross profit margin

for offset printing paper was 33.27% for the three months ended September 30, 2019, an increase of 36.56 percentage points, as

compared to -3.29% for the three months ended September 30, 2018.

Gross profit margin

for tissue paper products was -38.92% for the three months ended September 30, 2019.

Monthly gross profit

margins on the sales of our CMP and offset printing paper for the 24-month period ended September 30, 2019 are as follows:

Selling, General and Administrative

Selling, general and

administrative expenses for the three months ended September 30, 2019 were $2,024,547, a decrease of $805,386, or 28.46% from $2,829,933

for the three months ended September 30, 2018.

The decrease was mainly due to additional repair and maintenance costs incurred

during the production suspension period in 2018.

Income (Loss) from Operations

Operating income for

the quarter ended September 30, 2019 was $3,349,306, an increase of $4,919,659, or 313.28%, from loss from operations of $1,570,353

for the quarter ended September 30, 2018.

Other Income and Expenses

Interest expense for

the three months ended September 30, 2019 decreased by $135,289, from $372,276 in the three months ended September 30, 2018, to

The Company had short-term and long-term interest-bearing loans and related party loans that aggregated $15,495,765 as

of September 30, 2019, as compared to $24,915,688 as of September 30, 2018.

Net Income (Loss)

As a result and the

factors discussed above, net income was $2,338,027 for the quarter ended September 30, 2019, representing an increase of $3,742,989,

or 266.41%, from net loss of $1,404,962 for the quarter ended September 30, 2018.

Comparison of the nine months ended

September 30, 2019 and 2018

Revenue for the nine

months ended September 30, 2019 was $84,008,157, an increase of $22,247,116, or 36.02%, from $61,761,041 for the same period in

the previous year.

Revenue of Offset Printing Paper, Corrugating

Medium Paper and Tissue Paper Products

Revenue from sales

of offset printing paper, CMP and tissue paper products for the nine months ended September 30, 2019 was $84,008,157, an increase

of $22,260,938, or 36.05%, from $61,747,219 for the nine months ended September 30, 2018.

This was mainly due to the increase in

sales volume of CMP, offset printing paper and tissue paper products, which was partially offset by the decrease in ASP of Regular

CMP and offset printing paper.

Total quantities of offset printing paper, CMP and tissue paper products sold during the nine months

ended September 30, 2019 amounted to 177,956 tonnes, an increase of 74,510 tonnes, or 72.03%, compared to 103,446 tonnes sold during

the nine months ended September 30, 2018.

Total quantities of CMP and offset printing paper sold increased by 69,813 tonnes in

the nine months of 2019 as compared to the same period of 2018.

We sold 4,697 tonnes of tissue paper products in the nine months

The increase was mainly due to the production suspension that took place from late January 2018 to March 13, 2018 due

to a government-mandated restriction on the natural gas supply, and the launch of our PM8 production line in December 2018 for

production and sales of tissue paper products.

The changes in revenue and quantity sold for the nine months ended September 30,

2019 and 2018 are summarized as follows:

A summary of the above

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

Nine Months Ended

September 30, 2019

September 30, 2018

Sales Revenue

Quantity (Tonne)

Light-Weight CMP

Offset Printing Paper

Tissue Paper Products

Total CMP, Offset Printing Paper and Tissue Paper Revenue

ASPs for our main

products in the nine-month period ended September 30, 2019 and 2018 are summarized as follows:

Offset Printing Paper ASP

Regular CMP ASP

Light-Weight CMP ASP

Tissue Paper Products ASP

Nine Months Ended September 30, 2018

Nine Months Ended September 30, 2019

Decrease from comparable period in the previous year

Decrease by percentage

Cost of Sales

Total cost of sales

for CMP, offset printing paper and tissue paper products in the nine months ended September 30, 2019 was $75,917,762, an increase

of $17,753,372, or 30.52%, from $58,164,390 for the nine months ended September 30, 2018.

This was mainly a result of the increase

in volume sold, partially offset by decrease in cost of recycled paper board and recycled white scrap paper.

Cost of sales for

CMP was $60,759,533 for the nine months ended September 30, 2019, as compared to $52,994,747 in the same period of 2018.

in the cost of sales of $7,764,786 for CMP was mainly due to the increase in the quantities of CMP sold, partially offset by the

decrease in cost of recycled paper board in the nine months of 2019.

Average cost of sales per tonne for CMP decreased by 27.89%,

from $545 for the nine months ended September 30, 2018, to $393 in the same period of 2019.

The decrease was mainly attributable

to the lower average unit purchase costs (net of applicable value added tax) of recycled paper board.

Cost of sales for offset

printing paper was $9,313,615 for the nine months ended September 30, 2019, as compared to $5,169,643 in the same period of 2018.

Average cost of sales per tonne of offset printing paper decreased by 40.48%, from $835 in the nine months ended September 30,

2018, to $497 in the same period of 2019.

The decrease was mainly attributable to lower average unit purchase costs (net of applicable

value added tax) of recycled white scrap paper.

Cost of sales for tissue paper products was $5,844,614 for the nine months ended

September 30, 2019.

Average cost of sales per tonne of tissue paper products was $1,244 for the nine months ended September 30,

Changes in cost of

sales and cost per tonne by product for the nine months ended September 30, 2019 and 2018 are summarized below:

Nine Months Ended

September 30, 2019

Nine Months Ended

September 30, 2018

Change in percentage

Cost of Sales

Cost per Tonne

Cost of Sales

Cost per tonne

Cost of Sales

Cost per Tonne

Cost of Sales

Cost per Tone

Light-Weight CMP

Offset Printing Paper

Tissue Paper Products

Total CMP, Offset Printing Paper and Tissue Paper Revenue

Gross profit for the

nine months ended September 30, 2019 was $8,090,395 (9.63% of the total revenue), representing an increase of $4,510,938, or 126.02%,

from the gross profit of $3,579,457 (5.80% of the total revenue) for the nine months ended September 30, 2018.

The increase was

mainly due to (i) the increase in quantities sold of CMP, offset printing paper, tissue paper and (ii) the decrease of material

purchase price of CMP and offset printing paper, partially offset by the decrease of ASP of these products.

Offset Printing Paper, CMP and Tissue

Paper Products

Gross profit for offset

printing paper, CMP and tissue paper products for the nine months ended September 30, 2019 was $8,090,395, an increase of $4,507,566,

or 125.81%, from the gross profit of $3,582,830 for the nine months ended September 30, 2018.

The overall gross

profit margin for offset printing paper, CMP and tissue paper products increased by 3.83 percentage points, from 5.80% for the

nine months ended September 30, 2018, to 9.63% for the nine months ended September 30, 2019.

Gross profit margin

for regular CMP for the nine months ended September 30, 2019 was 8.39%, or 1.78 percentage points higher, as compared to gross

profit margin of 6.61% for the nine months ended September 30, 2018.

Gross profit margin

for light-weight CMP for the nine months ended September 30, 2019 was 7.10%, or 2.01 percentage points higher, as compared to gross

profit margin of 5.09% for the nine months ended September 30, 2018.

Gross profit margin

for offset printing paper was 29.84% for the nine months ended September 30, 2019, an increase of 29.02 percentage points, as compared

to 0.82% for the nine months ended September 30, 2018.

Gross profit margin

for tissue paper products for the nine months ended September 30, 2019 was -27.04%.

Selling, General and Administrative

Selling, general and

administrative expenses for the nine months ended September 30, 2019 were $7,413,879, a decrease of $2,257,113, or 23.34% from

$9,670,992 for the nine months ended September 30, 2018.

The decrease was mainly due to the depreciation of idle equipment and

additional repair and maintenance costs incurred during the suspension of production in the first quarter of 2018.

Income (Loss) from Operations

Operating income for

the nine months ended September 30, 2019 was $707,034, an increase of $6,808,595, or 111.59%, from loss from operations of $6,101,561

for the nine months ended September 30, 2018.

The increase in operating income was primarily due to the increase in gross profit

and decrease in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for

the nine months ended September 30, 2019 decreased by $452,242, from $1,183,269 in the nine months ended September 30, 2018, to

The Company had short-term and long-term interest-bearing loans and related party loans that aggregated $15,495,765 as

of September 30, 2019, as compared to $24,915,688 as of September 30, 2018.

Net Income (Loss)

As a result of the

above, net income was $65,502 for the nine months ended September 30, 2019, representing an increase of $5,446,746, or 101.22%,

from net loss of $5,381,244 for nine months ended September 30, 2018.

Accounts Receivable

Net accounts receivable

decreased by $101,328, or 3.52%, to $2,775,304 as of September 30, 2019, as compared with $2,876,632 as of December 31, 2018.

usually collect accounts receivable within 30 days of delivery and completion of sales.

Inventories consist

of raw materials (accounting for 72.83% of total value of inventory as of September 30, 2019), semi-finished goods and finished

As of September 30, 2019, the recorded value of inventory increased by 139.79% to $7,010,419 from $2,923,516 as of December

As of September 30, 2019, the inventory of recycled paper board, which is the main raw material for the production of

CMP, was $3,947,903, approximately $3,535,586, or 857.49%, higher than the balance as of December 31, 2018.

Due to the volatility

of recycled paper board price, we reduced the Company’s inventory of recycled paper board in December 2018.

A summary of changes

in major inventory items is as follows:

September 30,

$ (8,729,188 )

average unit purchase costs (net of applicable value added tax) of recycled paper board in the three months ended March 31, 2020

were RMB1,388/tonne (approximately $198/tonne), as compared to RMB1,625/tonne (approximately $242/tonne) for the three months

ended March 31, 2019.

We use domestic recycled paper (sourced mainly from the Beijing-Tianjin metropolitan area) exclusively.

Although we do not rely on imported recycled paper, the pricing of which tends to be more volatile than domestic recycled paper,

our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled

pricing trends of our major raw materials for the 24-month period from April 2018 to March 2020 are shown below:

and gas are our two main energy sources.

Electricity and gas accounted for approximately 4% and 8.7% of total sales in first quarter

of 2020, respectively, compared to 9% and 10.2% of total sales in first quarter of 2019.

The monthly energy cost as a percentage

of total monthly sales of our main paper products for the 24 months ended March 31, 2020 are summarized as follows:

loss for the three months ended March 31, 2020 was $169,719 (1.94% of the total revenue), representing an increase of $22,747,

or 11.82%, from the gross loss of $192,466 (1.10% of the total revenue) for the three months ended March 31, 2019, as a result

of factors described above.

Printing Paper, CMP and Tissue Paper Products

loss for offset printing paper, CMP and tissue paper products for the three months ended March 31, 2020 was $169,719, an increase

of $22,747, or 11.82%, from the gross loss of $192,466 for the three months ended March 31, 2019.

The increase was mainly the

result of the factors discussed above.

overall gross profit margin for offset printing paper, CMP and tissue paper products decreased by 0.84 percentage points, from

-1.10% for the three months ended March 31, 2019, to -1.94% for the three months ended March 31, 2020.

profit margin for regular CMP for the three months ended March 31, 2020 was 4.94%, or 5.32 percentage points higher, as compared

to gross profit margin of -0.38% for the three months ended March 31, 2019.

Such increase was mainly due to the decrease in cost

of recycled paper board, partially offset by the decrease in ASP of regular CMP in the first quarter of 2020.

profit margin for light-weight CMP for the three months ended March 31, 2020 was 12.89%, or 18.24 percentage points higher, as

compared to gross profit margin of -5.35% for the three months ended March 31, 2019.

The increase was mainly due to decrease in

cost of recycled paper board, partially offset by the decrease in ASP of light-weight CMP in the first quarter of 2020.

profit margin for tissue paper products for the three months ended March 31, 2020 was -70.74%, or 72.55 percentage points lower,

as compared to gross profit margin of 1.81% for the three months ended March 31, 2019.

The decrease was mainly due to higher unit

fixed cost absorbed as a result of lower volume of tissue paper produced in the first quarter of 2020.

gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended March 31, 2020 are as follows:

General and Administrative Expenses

general and administrative expenses for the three months ended March 31, 2020 were $2,696,963, a decrease of $284,510, or 9.54%

from $2,981,473 for the three months ended March 31, 2019.

The decrease was mainly due to a decrease in commission to sales staff

and a depreciation of RMB against USD.

(Loss) from Operations

loss for the quarter ended March 31, 2020 was $2,866,682, an increase of $307,257, or 9.68%, from $3,173,939 for the quarter ended

March 31, 2019.

Income and Expenses

expense for the three months ended March 31, 2020 decreased by $10,551, from $255,269 in the three months ended March 31, 2019,

The Company had short-term and long-term interest-bearing loans, related party loans and leasing obligations that

aggregated $14,904,518 as of March 31, 2020, as compared to $16,247,123 as of March 31, 2019.

income of $142,998 for the three month ended March 31, 2020 represents funding by the government to finance various expenditures

during the COVID-19 pandemic period.

Income (Loss)

a result and the factors discussed above, net loss was $2,436,287 for the quarter ended March 31, 2020, representing an increase

of $286,308, or 10.52%, from net loss of $2,722,595 for the quarter ended March 31, 2019.

accounts receivable decreased by $1,323,640, or 42.43%, to $1,795,671 as of March 31, 2020, as compared with $3,119,311 as of

December 31, 2019.

We usually collect accounts receivable within 30 days of delivery and completion of sales.

consist of raw materials (accounting for 50.46% of total value of inventory as of March 31, 2020), semi-finished goods and finished

As of March 31, 2020, the recorded value of inventory increased by 20.08% to $2,020,083 from $1,682,298 as of December

As of March 31, 2020, the inventory of recycled paper board, which is the main raw material for the production of CMP,

was $727,392, approximately $687,360, or 1717.03%, higher than the balance as of December 31, 2019.

Due to the volatility of recycled

paper board price, a minimum level of inventory was maintained at the end of 2019.

summary of changes in major inventory items is as follows:

Raw Materials

6 unchanged sentences

Finished Goods

Accounts Payable and Notes Payable

Accounts payable and

notes payable was $857,218 as of September 30, 2019, a decrease of 3,414,452, or 79.93%, from $4,271,670 as of December 31, 2018.

Accounts payable was $857,218 and $629,054 as of September 30, 2019 and December 31, 2018, respectively.

We have been relying on

the bank acceptance notes issued under our credit facilities with Bank of Cangzhou to make the majority of our raw materials payments

to our vendors.

Our notes payable to Bank of Cangzhou were $nil and $3,642,616 as of September 30, 2019 and December 31, 2018,

respectively.

In January 2018, Bank of Cangzhou issued bank acceptance notes on our behalf for $3,642,616, which we paid off in

January 2019.

of September 30, 2019 the Company had current assets of $20,574,314 and current liabilities of $61,014,652 (including amounts

due to related parties of $766,544 and interest payable for related party loans of $668,338), resulting in a working capital deficit

of approximately $40,440,338;

as 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 $1,030,790), resulting in a working capital deficit of approximately

The deficit as of September 30, 2019 was mainly attributed to the payable for acquisition of Hebei Tengsheng.

25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder of Hebei Tengsheng, to buy up 100% shares of Hebei

Tengsheng with a purchase price of RMB 320 million (approximately $45 million).

The payable will be due by December 25, 2019.

If the amount is not fully paid off, the seller is offered an option to convert the outstanding amount to shares of the Company.

As of September 30, 2019, acquisition payable was $43,507,826, which was included in the current liabilities in the consolidated

balance sheet.

Total inventory, gross

Inventory reserve

Total inventory, net

of operating lease

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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.

The accrued rental owed to Hebei Fangsheng was approximately $303,202 and $203,188

as of September 30, 2019 and December 31, 2018, respectively, and such amounts were recorded as part of the current liabilities.

Expenditure Commitment as of September 30, 2019

supplementary agreements with Hebei Fangsheng, who agreed to extend the lease term to August 9, 2022 with the same rental payment

as provided for in the original lease agreement.

The accrued rental owed to Hebei Fangsheng was $nil and $56,552 as of March 31,

2020 and December 31, 2019, respectively, and such amounts were recorded as part of the current liabilities.

Expenditure Commitment as of March 31, 2020

finance our daily operations mainly by cash flows generated from our business operations.

As of September 30, 2019, we had approximately

As of March 31, 2020, we had approximately

$0.9 million in capital expenditure commitments that were mainly related to improvement of Industrial Buildings.

2 unchanged sentences

and Cash Equivalents

cash, cash equivalents and restricted cash as of September 30, 2019 was $4,805,861, a decrease of $7,311,564, from $12,117,425

as of December 31, 2018.

The decrease of cash and cash equivalents for the nine months ended September 30, 2019 was attributable

to a number of factors:

cash, cash equivalents and restricted cash as of March 31, 2020 was $11,712,152, an increase of $5,874,407, from $5,837,745 as

of December 31, 2019.

The increase of cash and cash equivalents for the three months ended March 31, 2020 was attributable to

a number of factors:

Net cash provided by operating activities

cash provided by operating activities was $4,599,034 for the nine months ended September 30, 2019.

The balance represented an

increase of cash of $2,789,310, or 154.13%, from $1,809,724 provided for the nine months ended September 30, 2018.

for the nine months ended September 30, 2019 was $65,502, representing an increase of $5,446,746, or 101.22%, from a net loss

of $5,381,244 for the nine months ended September 30, 2018.

Changes in various asset and liability account balances throughout

the nine months ended September 30, 2019 also contributed to the net change in cash from operating activities in nine months ended

September 30, 2019.

Chief among such changes is the decrease of accounts receivable in the amount of $16,894 during the nine months

of 2019 and the decrease of notes payable in the amount of $3,648,250.

There was also an increase of $4,307,754 in the ending

inventory balance as of September 30, 2019 (a decrease to net cash for the nine months ended September 30, 2019 cash flow purposes).

In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of $11,547,650.

also had a net decrease of $185,780 in prepayment and other current assets (an increase to net cash) and a net increase of $1,127,175

in other payables and accrued liabilities and related parties (an increase to net cash), as well as an increase in income tax

payable of $1,155,880 (an increase to net cash) during the nine months ended September 30, 2019.

cash provided by operating activities was $6,860,307 for the three months ended March 31, 2020.

The balance represented an increase

of cash of $9,912,459, or 324.77%, from $3,052,152 used in operating activities for the three months ended March 31, 2019.

loss for the three months ended March 31, 2020 was $2,436,287, representing an increase of $286,308, or 10.52%, from a net loss

of $2,722,595 for the three months ended March 31, 2019.

Changes in various asset and liability account balances throughout the

three months ended March 31, 2020 also contributed to the net change in cash from operating activities in three months ended March

Chief among such changes is the decrease of accounts receivable in the amount of $1,315,128 during the three months

of 2020 (an increase to net cash).

There was also an increase of $373,470 in the ending inventory balance as of March 31, 2020

(a decrease to net cash for the three months ended March 31, 2020 cash flow purposes).

In addition, the Company had non-cash expenses

relating to depreciation and amortization in the amount of $3,774,674.

The Company also had a net decrease of $5,486,216 in prepayment

and other current assets (an increase to net cash) and a net decrease of $1,023,343 in other payables and accrued liabilities

and related party balances (an increase to net cash), as well as a decrease in income tax payable of $1,379,130 (a decrease to

net cash) during the three months ended March 31, 2020.

Net cash used in investing activities

incurred $6,449,181 in net cash expenditures for investing activities during the nine months of 2019, as compared to $1,812,280

incurred $756,514 in net cash expenditures for investing activities during the first three months of 2020, as compared to $1,415,761

for the same period of 2019.

Payments in the nine months ended September 30, 2019 were for acquisition of Hebei Tengsheng and

expenditures on improvement of industrial building.

Payments in the three months ended March 31, 2020 were for the expenditures on improvement of industrial

Net cash provided by financing activities

cash used in financing activities was $ 5,224,295 for the nine months ended September 30, 2019, as compared to net cash provided

by financing activities in the amount of $764,760 financing activities for the nine months ended September 30, 2018.

was mainly attributable to repayment of bank loans in the nine months ended September 30, 2018.

September 30,

cash used in financing activities was $nil for the three months ended March 31, 2020, as compared to net cash used in financing

activities in the amount of $5,366,166 for the three months ended March 31, 2019.

April 29, 2020, the Company and certain institutional investors entered into a securities purchase agreement, as amended on May

4, 2020, pursuant to which the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock in a

registered direct offering and warrants to purchase up to 4,400,000 shares of the Company’s common stock in

a concurrent private placement, for gross proceeds of approximately $2.55 million.

The Company plans to raise additional capital

through sales of the Company’s capital stock if necessary.

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

Bank of Cangzhou

Total short-term bank loans

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.

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

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 $2,544,925 and

$2,622,683 as of September 30, 2019 and December 31, 2018, respectively.

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 4.741% per annum.

will be due by November 26, 2019.

January 28, 2019, the Company entered into a working capital loan agreement with the ICBC, with a balance of $3,817,387 as

of September 30, 2019.

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

for the benefit of the bank.

December 20, 2019, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,069,075 and $6,163,814

as of March 31, 2020 and December 31, 2019, respectively.

The working capital loan was secured by the land use right of Hebei

Tengsheng as collateral for the benefit of the bank.

The loan bears a fixed interest rate of 4.785% per annum.

The loan will be due and repaid by

January 30, 2020.

of September 30, 2019, there were guaranteed short-term borrowings of $6,362,312 and unsecured bank loans of $nil.

The loan will be

due and repaid by December 23, 2020.

of March 31, 2020, there were guaranteed short-term borrowings of $6,069,075 and unsecured bank loans of $nil.

As of December

31, 2019, there were guaranteed short-term borrowings of $6,163,814 and unsecured bank loans of $nil.

average short-term borrowing rates for the three months ended September 30, 2019 and 2018 were approximately 4.77% and 5.59%,

respectively.

The average short-term borrowing rates for the nine months ended September 30, 2019 and 2018 were approximately

4.76% and 5.58%, respectively.

average short-term borrowing rates for the three months ended March 31, 2020 and 2019 were approximately 4.79% and 4.76%, respectively.

loans from credit union

of September 30, 2019 and December 31, 2018, loans payable to Rural Credit Union of Xushui District, amounted to $7,012,682 and

of March 31, 2020 and December 31, 2019, loans payable to Rural Credit Union of Xushui District, amounted to $8,835,443 and $8,973,367,

respectively.

5 unchanged sentences

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

As of September

31, 2020 and December 31, 2019, total outstanding loan balance was $1,213,815 and $1,232,763, respectively.

Out of the total outstanding

loan balance, current portion amounted were $113,108 and $87,423 as of September 30, 2019 and December 31, 2018, respectively,

which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,102,801 and $1,165,637

are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019 and December 31, 2018, respectively.

loan balance, current portion amounted were $141,141 and $143,345 as of March 31, 2020 and December 31, 2019, respectively, which

are presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,072,674 and $1,089,418

are presented as non-current liabilities in the consolidated balance sheet as of March 31, 2020 and December 31, 2019, respectively.

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

3 unchanged sentences

The loan is secured by certain of the Company’s manufacturing equipment with net book value of $3,443,097 and $3,935,270

as of September 30, 2019 and December 31, 2018, respectively.

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

As of September 30, 2019 and December 31, 2018, the total outstanding loan balance was $3,534,617 and $3,642,615, respectively.

Out of the total outstanding loan balance, current portion amounted were $127,246 and $101,993 as of September 30, 2019 and December

as of March 31, 2020 and December 31, 2019, respectively.

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

As of March 31, 2020 and December 31, 2019, the total outstanding loan balance was $3,528,532 and $3,583,613, respectively.

Out of the total outstanding loan balance, current portion amounted were $169,370 and $172,013 as of March 31, 2020 and December

31, 2019, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance

of $3,407,371 and $3,540,622 are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019

and December 31, 2018, 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 was 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 September 30, 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 September 30, 2019 and December

31, 2018, respectively.

of $3,359,162 and $3,411,600 are presented as non-current liabilities in the consolidated balance sheet as of March 31, 2020 and

December 31, 2019, respectively.

April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years,

4 unchanged sentences

0.6% per month.

As of September 30, 2019 and December 31, 2018, the total outstanding loan balance was $2,262,156 and $nil, respectively.

Out of the total outstanding loan balance, current portion amounted were $70,692 and $nil as of September 30, 2019 and December

As of March 31, 2020 and December 31, 2019, the total outstanding loan balance was $2,258,260 and $2,293,512,

respectively.

Out of the total outstanding loan balance, current portion amounted were $1,129,130 and $1,146,756 as of March 31,

2020 and December 31, 2019, respectively, which are presented as current liabilities in the consolidated balance sheet and the

remaining balance of $1,129,130 and $1,146,756 are presented as non-current liabilities in the consolidated balance sheet as of

March 31, 2020 and December 31, 2019, respectively.

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%

As of March 31, 2020 and December 31, 2019, the total outstanding loan balance was $1,834,836 and $1,863,479, respectively.

Out of the total outstanding loan balance, current portion amounted were $141,141 and $143,345 as of March 31, 2020 and December

31, 2019, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance

of $2,191,464 and $nil are presented as non-current liabilities in the consolidated balance sheet as of September 30, 2019 and

of $1,693,695 and $1,720,134 are presented as non-current liabilities in the consolidated balance sheet as of March 31, 2020 and

December 31, 2019, respectively.

interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2019 and 2018 were

interest expenses for the short-term bank loans and long-term loans for the three months ended March 31, 2020 and 2019 were $244,718

and $230,953, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the nine months

ended September 30, 2019 and 2018 were $445,860 and $620,294, respectively.

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

6 unchanged sentences

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

balance sheet as of September 30, 2019 and December 31, 2018, respectively.

balance sheet as of March 31, 2020 and December 31, 2019, respectively.

December 10, 2014, Mr.

7 unchanged sentences

the remaining balance, together with interest of $20,400.

As of September 30, 2019 and December 31, 2018, approximately $42,415

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.

As of March 31, 2020 and December 31, 2019, approximately $42,342 and

$43,003 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.

March 1, 2015, the Company entered an agreement with Mr.

17 unchanged sentences

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

As of September 30, 2019 and December 31, 2018, the

outstanding loan balance were $2,120,771 and $2,185,569, respectively, and the accrued interest was $263,506 and $200,253, respectively,

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

of September 30, 2019 and December 31, 2018, total amount of loans due to Mr.

Zhenyong Liu were $2,120,771 and $2,185,569, respectively.

The interest expense incurred for such related party loans are $23,234 and $62,130 for the three months ended September 30, 2019

and 2018, respectively.

The interest expenses incurred for such related party loans are $71,415 and $252,829 for the nine months

ended September 30, 2019 and 2018, respectively.

The accrued interest owed to the CEO was approximately $668,338 and $617,454,

as of September 30, 2019 and December 31, 2018, respectively, which was recorded in other payables and accrued liabilities.

of September 30, 2019 and December 31, 2018, amount due to shareholder are $319,129 and $210,148, respectively, which represents

funds from shareholders to pay for various expenses incurred in the U.S.

In December 2019, the company paid off the remaining

balance, together with interest of 94,636.

As of March 31, 2020 and December 31, 2019, the outstanding loan balance were $nil

and the accrued interest was $193,981 and $197,009, respectively, which was recorded in other payables and accrued liabilities

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

of March 31, 2020 and December 31, 2019, total amount of loans due to Mr.

Zhenyong Liu were $nil.

The interest expense incurred

for such related party loans are $nil and $24,316 for the three months ended March 31, 2020 and 2019, respectively.

interest owed to the CEO was approximately $598,116 and $607,453, as of March 31, 2020 and December 31, 2019, respectively, which

was recorded in other payables and accrued liabilities.

of March 31, 2020 and December 31, 2019, amount due to shareholder are $617,433 and $483,433, 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.

21 unchanged sentences

manufacturing industry.

For the three months ended September 30, 2019 and 2018, no events or circumstances occurred for which

an evaluation of the recoverability of long-lived assets was required.

We are currently not aware of any events or circumstances

that may indicate any need to record such impairment in the future.

For the three months ended March 31, 2020 and 2019, no events or circumstances occurred for which an evaluation

of the recoverability of long-lived assets was required.

We are currently not aware of any events or circumstances that may indicate

any need to record such impairment in the future.

Currency Translation

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

Topic 830-30, all assets and liabilities are translated into United States dollars using the current exchange rate at the end

of each fiscal period.

The current exchange rates used by the Company as of September 30, 2019 and December 31, 2018 to translate

the Chinese RMB to the U.S.

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

The current exchange rates used by the Company as of March 31, 2020 and December 31, 2019 to translate the Chinese RMB

Dollars are 7.0851:1 and 6.9762:1, respectively.

Revenues and expenses are translated using the prevailing

average exchange rates at 6.8526:1, and 6.5380:1 for the nine months ended September 30, 2019 and 2018, respectively.

adjustments are included in other comprehensive income (loss).

Revenues and expenses are translated using the prevailing average

exchange rates at 6.9931:1, and 6.7087:1 for the three months ended March 31, 2020 and 2019, respectively.

Translation adjustments

are included in other comprehensive income (loss).

Sheet Arrangements

were the guarantor for Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,382,926 (RMB31,000,000), which

matures at various times in in 2018 -2023.

were the guarantor for Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,375,379 (RMB31,000,000),

which matures at various times in 2020 -2023.

Baoding Huanrun Trading Co.

is one of our major suppliers of raw materials.

us to maintain a good relationship with the supplier and negotiate for better terms in payment for materials.

If Huanrun Trading

This helps us to maintain a good relationship with the supplier and negotiate for better terms in payment for materials.

Huanrun Trading Co.

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

Except as aforesaid, we have no material off-balance

sheet transactions.

Except as aforesaid, we

have no material off-balance sheet transactions.

Accounting Pronouncements

June 2016, the FASB issued ASU No.

2016-13, “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 condensed consolidated financial statements.

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.

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

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-Q

Item 1. Financial Statements