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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-03-15 · 568 added, 418 removed, 39 unchanged (96% of the section changed)

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

following discussion of the financial condition and results of operations of the Company should be read in conjunction with the selected

financial data, the financial statements, and the notes to those statements that are included elsewhere in this annual report.

of Operations

for the year ended December 31, 2021 was $160,881,720, representing an increase of $59,938,451, or 59.38%, from $100,943,269 for the

previous year.

This was mainly due to the increase in sales volume of corrugating medium paper (“CMP”) and offset printing

paper and increase in average selling prices (“ASP”) of CMP, offset printing paper and tissue paper products, partially offset

by the decrease in sales volume of tissue paper products.

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

from sales of offset printing paper, CMP and tissue paper products for the year ended December 31, 2021 was $160,343,920, an increase

of $60,502,595, or 60.60%, from $99,841,325 for the year ended December 31, 2020.

This was mainly due to the increase in sales volume

of Regular CMP, Light-Weight CMP and offset printing paper and the increase in ASP of CMP, offset printing paper and tissue paper products,

partially offset by the decrease in sales volume of tissue paper products.

quantities of offset printing paper, CMP and tissue paper products sold during the year ended December 31, 2021 amounted to 292,459 tonnes,

an increase of 65,128 tonnes, or 28.65%, compared to 227,331 tonnes sold during the year ended December 31, 2020.

Total quantities of

CMP and offset printing paper sold increased by 66,961 tonnes in the year of 2021 as compared to 2020.

The changes in revenue and quantity

sold for the year ended December 31, 2021 and 2020 are summarized as follows:

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following discussion

of the financial condition and results of operations of the Company should be read in conjunction with the selected financial data, the

financial statements, and the notes to those statements that are included elsewhere in this annual report.

Results of Operations

Revenue for the year ended

December 31, 2022 was $100,352,434, representing a decrease of $60,529,286, or 37.62%, from $160,881,720 for the previous year.

mainly due to the decrease in sales volume of corrugating medium paper (“CMP”) and offset printing paper and tissue paper

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 year ended December 31, 2022 was $100,081,664, a decrease of $60,262,256, or 37.58%,

from $160,343,920 for the year ended December 31, 2021.

This was mainly due to the decrease in sales volume of regular CMP, light-weight

CMP, offset printing paper and tissue paper products, and the decrease in ASPs of CMP products.

Total quantities of offset

printing paper, CMP and tissue paper products sold during the year ended December 31, 2022 amounted to 219,604 tonnes, a decrease of 72,855

tonnes, or 24.91%, compared to 292,459 tonnes sold during the year ended December 31, 2021.

Total quantities of CMP and offset printing

paper sold decreased by 65,873 tonnes in the year of 2022 as compared to 2021.

We sold 1,273 tonnes of tissue paper products in the year

of 2022 as opposed to 8,255 tonnes in 2021.

Production of CMP was suspended during January and February 2022 and offset printing paper

suspended during the year.

Production was restricted due to Winter Olympics held in Beijing 2022 and COVID-19 control measures during

the year as required by the government.

The changes in revenue and quantity sold for the year ended December 31, 2022 and 2021 are summarized

December 31, 2022

December 31, 2021

Sales Revenue

Quantity (Tonne)

$ 111,079,432

$ (28,782,377 )

Printing Paper

Paper Products

CMP, Offset Printing Paper and Tissue Paper Revenue

Light-Weight CMP

$ (7,003,969 )

revenue (excluding revenue of digital photo paper and tissue paper products) for the 24 months ended December 31, 2021, are summarized

average selling price, or ASP, for our major products for the years ended December 31, 2021 and 2020 are summarized as follows:

Printing Paper ASP

Paper Products ASP

$ 134,511,755

$ (35,786,346 )

Offset Printing Paper

$ (17,062,564 )

Tissue Paper Products

$ (7,413,346 )

Total CMP, Offset Printing Paper and Tissue Paper Revenue

$ 100,081,664

$ 160,343,920

$ (60,262,256 )

Monthly revenue (excluding revenue of digital

photo paper and tissue paper products) for the 24 months ended December 31, 2022, are summarized below:

The average selling price, or ASP, for our major products

for the years ended December 31, 2022 and 2021 are summarized as follows:

Offset Printing Paper ASP

Regular CMP ASP

Light-Weight CMP ASP

Tissue Paper Products ASP

Year Ended December 31, 2021

Year Ended December 31, 2022

Increase from comparable period

in the previous year

Increase by percentage

following is a chart showing the month-by-month ASPs for the 24 month period ended December 31, 2021:

from CMP amounted to $134,511,755 (83.89% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended

December 31, 2021, representing an increase of $55,350,829, or 69.92%, from $79,160,926 during 2020.

sold 259,691 tonnes of CMP in the year ended December 31, 2021 as compared to 196,885 tonnes in the year ended December 31, 2020, representing

a 31.90% increase in quantity sold.

for regular CMP increased from $404/tonne in 2020 to $520/tonne in 2021, representing a 28.71% increase.

ASP in RMB for regular CMP in

2020 and 2021 was RMB2,789 and RMB3,355, respectively, representing a 20.29% increase.

The quantity of regular CMP sold increased by

59,406 tonnes, from 154,084 tonnes in 2020 to 213,490 tonnes in 2021.

for light-weight CMP increased from $393/tonne in 2020 to $507/tonne in 2021, representing a $29.01% increase.

ASP in RMB for light-weight

CMP in 2020 and 2021 was RMB2,712 and RMB3,270, respectively, representing a 20.58% increase.

The quantity of light-weight CMP sold increased

by 3,400 tonnes, from 42,801 tonnes in 2020, to 46,201 tonnes in 2021.

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

The utilization rates for the year

ended December 31, 2021 and 2020 were 60.94% and 42.56%, respectively, representing an increase of 18.38%.

sold for regular CMP that was produced by the PM6 production line from January 2020 to December 2021 are as follows:

Printing Paper

from offset printing paper was $17,062,564 (10.64% of the total offset printing paper, CMP and tissue paper products revenues) for the

year ended December 31, 2021, representing an increase of $4,796,818, or 39.11%, from $12,265,746 in 2020.

We sold 24,513 tonnes of offset

printing paper in the year ended December 31, 2021, compared to 20,358 tonnes in 2020, an increase of 4,155 tonnes, or 20.41%.

offset printing paper in the year ended December 31, 2020 and 2021 was $603/tonne and $696/tonne, respectively, representing a 15.42%

ASP in RMB for offset printing paper for the year ended December 31, 2020 and 2021 was RMB4,154 and RMB4,488, respectively,

representing a 8.04% increase.

Paper Products

from tissue paper products was $8,769,601 (5.47% of the total offset printing paper, CMP and tissue paper products revenues) for the

year ended December 31, 2021, representing an increase of $354,948, or 4.22%, from $8,414,653 in 2020.

We sold 8,255 tonnes of tissue

paper products in the year ended December 31, 2021, as compared to 10,088 tonnes in 2020, a decrease of 1,833 tonnes, or 18.17%.ASP for

tissue paper products was $834 and /tonne$1,062/tonne in the year ended December 31, 2020 and 2021, respectively, representing a 27.34%

ASP in RMB for tissue paper products for the year ended 2020 and 2021 was RMB5,821 and RMB6,849, respectively, representing

a 17.66% increase.

April 29, 2020, we launched a production line of non-medical single-use face masks, following the completion of raw materials preparation,

trial run of the equipment and the sample products inspection.

Revenue generated from selling face mask were $537,800 and $1,101,944

for the year ended December 31, 2021 and 2020.

We sold 12,664 thousand pieces of face masks in the year of 2021, as compared to 10,301

thousand pieces in year of 2020, an increase of 2,363 thousand pieces, or 22.94%.

cost of sales for CMP, offset printing paper and tissue paper products in the year ended December 31, 2021 was $149,429,711, an increase

of $54,760,322, or 57.84%, from $94,669,389 for the year ended December 31, 2020.

This was mainly a result of the increase in sales volume

of CMP and offset printing paper and increase of material costs.

Cost of sales for CMP was $125,445,157 for the year ended December 31,

2021, as compared to $74,279,241 in 2020.

The increase in the cost of sales of $51,165,916 for CMP was mainly due to the increase in

the quantities of regular CMP sold and the increase in cost of recycled paper board in the year of 2021.

Average cost of sales per tonne

for CMP increased by 28.12%, from $377 for the year ended December 31, 2020, to $483 in 2021.This is mainly attributable to the higher

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

Cost of sales for offset printing paper was

Increase (Decrease) from comparable period in the previous year

Increase (Decrease) by percentage

The following is a chart showing the month-by-month ASPs

for the 24 month period ended December 31, 2022:

Corrugating Medium Paper

Revenue from CMP amounted

to $98,725,409 (98.64% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended December 31, 2022,

representing a decrease of $35,786,346, or 26.60%, from $134,511,755 during 2021.

We sold 218,331 tonnes of

CMP in the year ended December 31, 2022 as compared to 259,691 tonnes in the year ended December 31, 2021, representing a 15.93% decrease

in quantity sold.

ASP for regular CMP dropped

from $520/tonne in 2021 to $455/tonne in 2022, representing a 12.50% decrease.

ASP in RMB for regular CMP in 2021 and 2022 was RMB3,355

and RMB3,073, respectively, representing a 8.41% decrease.

The quantity of regular CMP sold decreased by 32,513 tonnes, from 213,490 tonnes

in 2021 to 180,977 tonnes in 2022.

ASP for light-weight CMP

dropped from $507/tonne in 2021 to $440/tonne in 2022, representing a $13.21% decrease.

ASP in RMB for light-weight CMP in 2021 and 2022

was RMB3,270 and RMB2,972, respectively, representing a 9.11% decrease.

The quantity of light-weight CMP sold decreased by 8,847 tonnes,

from 46,201 tonnes in 2021, to 37,354 tonnes in 2022.

Our PM6 production line,

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

The utilization rates for the year ended December 31, 2022

and 2021 were 49.28% and 60.94%, respectively, representing a decrease of 11.66%.

Quantities sold for regular

CMP that was produced by the PM6 production line from January 2021 to December 2022 are as follows:

Offset Printing Paper

Revenue from offset printing

paper was $nil for the year ended December 31, 2022 compared to the revenue of $17,062,564 for the year ended December 31, 2021.

COVID-19, our paper production was restricted and production of offset printing paper was suspended in 2022.

Tissue Paper Products

Revenue from tissue paper

products was $1,356,255 (1.36% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended December

31, 2022, representing a decrease of $7,413,346, or 84.53%, from $8,769,601 in 2021.

We sold 1,273 tonnes of tissue paper products in

the year ended December 31, 2022, as compared to 8,255 tonnes in 2021, a decrease of 6,982 tonnes, or 84.58%.

ASP for tissue paper products

was $1,062/tonne and $1,065/tonne in the year ended December 31, 2021 and 2022, respectively, representing a 0.28% increase.

for tissue paper products for the year ended 2021 and 2022 was RMB6,849 and RMB7,198, respectively, representing a 5.10% increase.

Revenue of Face Mask

Revenue generated from selling

face masks were $257,820 and $537,800 for the year ended December 31, 2022 and 2021.

We sold 5,625 thousand pieces of face masks in the

fourth quarter of 2022, as compared to 12,664 thousand pieces in the comparable period of 2021, a decrease of 7,039 thousand pieces, or

Cost of Sales

Total cost of sales for CMP,

offset printing paper and tissue paper products in the year ended December 31, 2022 was $95,384,334, a decrease of $54,045,377, or 36.17%,

from $149,429,711 for the year ended December 31, 2021.

This was mainly a result of the decrease in sales volume of CMP and offset printing

paper and decrease of material costs of CMP.

Cost of sales for CMP was

$91,093,891 for the year ended December 31, 2022, as compared to $125,445,157 in 2021.

Average cost of sales per tonne of offset printing

paper increased by 14.46%, from $498 for the year ended December 31, 2020, to $570 in 2021.

The increase was mainly attributable to higher

average unit purchase costs (net of applicable value added tax) of recycled white scrap paper.

Cost of sales for tissue paper products

was $10,020,571 for the year ended December 31, 2021, as compared to $10,242,868 in 2020.

Average cost of sales per tonne of tissue paper

products increased by 19.61%, from $1,015 for the year ended December 31, 2020, to $1,214 for 2021.

in cost of sales and cost per tonne by product for the year ended December 31, 2021 and 2020 are summarized below:

in percentage

The decrease in the cost of sales of $34,351,266

for CMP was mainly due to the decrease in the quantities of regular CMP sold and the decrease in average cost of sales in the year of

Average cost of sales per tonne for CMP decreased by 13.66%, from $483 for the year ended December 31, 2021, to $417 in 2022.This

is 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 $nil for the year ended December 31, 2022, as compared to $13,963,983 in 2021.

Cost of sales for tissue

paper products was $4,290,443 for the year ended December 31, 2022, as compared to $10,020,571 in 2021.

The decrease in the cost of sales

of $5,730,128 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 177.59%, from $1,214 in 2021

to $ 3,370 in 2022.

This was mainly due to the increase in cost of tissue base paper and higher manufacturing overhead costs absorbed

in the unit cost of sales due to low production yield.

Changes in cost of sales and cost per tonne by product for

the year ended December 31, 2022 and 2021 are summarized below:

December 31, 2022

December 31, 2021

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

$ 104,057,538

$ (27,844,134 )

Printing Paper

Paper Products

CMP, Offset Printing Paper and Tissue Paper Revenue

Light-Weight CMP

$ (6,507,132 )

average unit purchase costs (net of applicable value added tax) of recycled paper board and recycled white scrap paper for the year ended

December 31, 2021 were RMB 1,997/tonne (approximately $310/tonne) and RMB 2,322/tonne (approximately $360/tonne), respectively, as compared

to RMB 1,582/tonne (approximately $229/tonne) and RMB 2,086/tonne (approximately 303/tonne) for the year ended December 31, 2020, respectively.

These changes (in US dollars) represent a year-over-year increase of 35.37% for the unit purchase cost of recycled paper board and a

year-over-year increase of 18.81% for the unit purchase cost of recycled white scrap paper.

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.

pricing trends of our major raw materials for the 24-month period from January 2020 to December 2021 are shown below:

and gas are our two main energy sources.

Electricity and gas accounted for approximately 4% and 10.5% of total sales in 2021, respectively,

compared to 5% and 10.5% of total sales 2020.

The monthly energy cost (electricity, coal and gas) as a percentage of total monthly sales

of our main paper products for the 24 months ended December 31, 2021 are summarized as follows:

profit for December 31, 2021 was $11,017,559 (6.85% of the total revenue), representing an increase of $5,315,574, or 93.22%, from the

gross profit of $5,701,985 (5.65% of the total revenue) for the year ended December 31, 2020.

The increase was mainly due to (i) the

increase in quantities sold of CMP and offset printing paper and (ii) the increase of ASP of CMP, offset printing paper and tissue paper

products, partially offset by the increase in material costs.

Medium Paper, Offset Printing Paper and Tissue Paper Products

profit for offset printing paper, CMP and tissue paper products for the year ended December 31, 2021 was $10,914,209, an increase of

$5,742,273, or 111.03%, from the gross profit of $5,171,936 for the year ended December 31, 2020.

The increase was mainly the result

of the factors discussed above.

overall gross profit margin for offset printing paper, CMP and tissue paper products increased by 1.63percentage points, from 5.18% for

the year ended December 31, 2020, to 6.81% for the year ended December 31, 2021.

profit margin for regular CMP for the year ended December 31, 2021 was 6.32%, or 0.90 percentage points higher, as compared to gross

profit margin of 5.42% for the year ended December 31, 2020.

Such increase was primarily due to increase in ASP of regular CMP, partially

offset by the increase in unit cost of sales.

profit margin for light-weight CMP for the year ended December 31, 2021 was 8.73%, or 0.20 percentage points lower, as compared to gross

profit margin of 8.93% for the year ended December 31, 2020.

Such decrease was primarily due to the increase in unit cost of sales, partially

offset by the increase in ASP of light-weight CMP.

profit margin for offset printing paper was 18.16% for the year ended December 31, 2021, an increase of 0.89 percentage points, as compared

to 17.27% for the year ended December 31, 2020.

Such increase was mainly due to the increase in ASP of offset printing paper, partially

offset by the increase of purchase price of recycled white scrap paper.

profit margin for tissue paper products was -14.26% for the year ended December 31, 2021, an increase of 7.47 percentage points, as compared

to -21.73% for the year ended December 31, 2020.

The increase was mainly due to the increase in ASP of tissue base paper, partially offset

by the increase in cost of tissue base paper.

gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended December 31, 2021 are as

profit for face mask for the year ended December 31, 2021 was $103,350, representing a gross margin of 19.22% compared with a gross profit

of $530,049, representing a gross margin of 48.10%, for the year ended December 31, 2020.

General and Administrative Expenses

general and administrative expenses for the year ended December 31, 2021 were $9,558,190, a decrease of $1,599,599, or 14.34% from $11,157,789

for the year ended December 31, 2020.

The decrease was mainly due to higher share based compensation in year 2020.

(Loss) from Operations

income for the year ended December 31, 2021 was $1,459,369, an increase of $6,915,173, or 126.75%, from loss from operations of $5,455,804

for the year ended December 31, 2020.

The increase was primarily due to the increase in gross profit and decrease in selling, general

and administrative expenses.

Income and Expenses

expense for the year ended December 31, 2021 increased by $98,190, from $1,026,512 for the year ended December 31, 2020, to $1,124,702.

The Company had short-term and long-term interest-bearing loans and lease obligation that aggregated $16,139,485 as of December 31, 2021,

as compared to $16,566,324 as of December 31, 2020.

Income (Loss)

a result of the above, net income was $905,535 for the year ended December 31, 2021, representing an increase of $6,551,079, or 116.30%,

from net loss of $5,554,002 for year ended December 31, 2020.

accounts receivable increased by $2,479,877, or 103.80%, to $4,868,934 as of December 31, 2021, as compared with $2,389,057 as of December

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

consist of raw materials (accounting for 40.17% of total value of inventory as of December 31, 2021), semi-finished goods and finished

As of December 31, 2021, the recorded value of inventory increased by 373.73% to $5,844,895 from $1,233,801 as of December 31,

As of December 31, 2021, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $2,097,062,

approximately $2,077,603, or 10676.82%, higher than the balance as of December 31, 2020.

Due to the volatility of recycled paper board

price and the uncertainty of market and economy situation during the pandemic, a minimum level of inventory was maintained at the end

summary of changes in major inventory items is as follows:

$ 125,445,157

$ (34,351,266 )

Offset Printing Paper

$ (13,963,983 )

Tissue Paper Products

$ (5,730,128 )

Total CMP, Offset Printing Paper and Tissue Paper Revenue

$ 149,429,711

$ (54,045,377 )

Our average unit purchase

costs (net of applicable value added tax) of recycled paper board for the year ended December 31, 2022 were RMB 1,690/tonne (approximately

$250/tonne), as compared to RMB 1,997/tonne (approximately $310/tonne) for the year ended December 31, 2021.

These changes (in US dollars)

represent a year-over-year decrease of 19.35% for the unit purchase cost of 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 January 2021 to December 2022 are shown below:

Electricity and gas are our

two main energy sources.

Electricity and gas accounted for approximately 4% and 12.4% of total sales in 2022, respectively, compared to

4% and 10.5% of total sales 2021.

The monthly energy cost (electricity and gas) as a percentage of total monthly sales of our main paper

products for the 24 months ended December 31, 2022 are summarized as follows:

Gross profit for December

31, 2022 was $4,754,196 (4.74% of the total revenue), representing a decrease of $6,263,363, or 56.85%, from the gross profit of $11,017,559

(6.85% of the total revenue) for the year ended December 31, 2021.

The decrease was mainly due to (i) the decrease in quantities sold

of CMP, offset printing paper and tissue paper products, and (ii) the increase in material costs of tissue paper products.

Corrugating Medium Paper, Offset Printing Paper and Tissue Paper

Gross profit for offset printing paper, CMP

and tissue paper products for the year ended December 31, 2022 was $4,697,330, a decrease of $6,216,879, or 56.96%, from the gross profit

of $10,914,209 for the year ended December 31, 2021.

The decrease was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing

paper, CMP and tissue paper products decreased by 2.12 percentage points, from 6.81% for the year ended December 31, 2021, to 4.69% for

the year ended December 31, 2022.

Gross profit margin for regular CMP for the year

ended December 31, 2022 was 7.39%, or 1.07 percentage points higher, as compared to gross profit margin of 6.32% for the year ended December

Such increase was primarily due to decrease in material costs, partially offset by the decrease in ASP of regular CMP.

Gross profit margin for light-weight CMP for

the year ended December 31, 2022 was 9.42%, or 0.69 percentage points higher, as compared to gross profit margin of 8.73% for the year

ended December 31, 2021.

Such increase was primarily due to the decrease in material costs, partially offset by the decrease in ASP of

light-weight CMP.

Gross profit margin for tissue paper products

was -216.34% for the year ended December 31, 2022, a decrease of 202.08 percentage points, as compared to -14.26% for the year ended December

31, 2021.The decrease was mainly due to the increase in cost of tissue base paper.

Monthly gross profit margins for our corrugating

medium paper and offset printing paper for the 24-month period ended December 31, 2022 are as follows:

Gross profit for face mask

for the year ended December 31, 2022 was $67,328, representing a gross margin of 26.11% compared with a gross profit of $103,350, representing

a gross margin of 19.22%, for the year ended December 31, 2021.

Selling, General and Administrative Expenses

Selling, general and administrative

expenses for the year ended December 31, 2022 were $10,058,723, an increase of $500,533, or 5.24% from $9,558,190 for the year ended December

The increase was mainly due to 150,000 shares of common stock granted under our compensatory incentive plan in August 2022,

value at $156,000 and additional bad debt provision.

Income (Loss) from Operations

Operating loss for

the year ended December 31, 2022 was $5,304,527, a decrease of $6,763,896, or 463.48%, from income from operations of $1,459,369 for

the year ended December 31, 2021.

The decrease was primarily due to the decrease in gross profit and increase in selling, general and

administrative expenses.

Other Income and Expenses

Interest expense for the

year ended December 31, 2022 decreased by $96,751, from $1,124,702 for the year ended December 31, 2021, to $1,027,951.

The Company had

short-term and long-term interest-bearing loans and lease obligation that aggregated $15,442,807 as of December 31, 2022, as compared

to $16,139,485 as of December 31, 2021.

Provision for Income Taxes

Full allowance for deferred

tax asset loss was provided in the year of 2022.

Income tax for the year ended December 31, 2022 is $11,711,339 as compared to the income

tax $5,546,954 for the year ended December 31, 2021.

Net Income (Loss)

As a result of the above,

net loss was $16,571,308 for the year ended December 31, 2022, representing a decrease of $17,476,843, or 1930.0%, from net income of

$905,535 for year ended December 31, 2021.

Accounts Receivable

Net accounts receivable decreased

by $3,987,056, or 81.89%, to $881,878 as of December 31, 2022, as compared with $4,868,934 as of December 31, 2021.

We usually collect

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

Inventories consist of raw

materials (accounting for 51.22% of total value of inventory as of December 31, 2022), semi-finished goods and finished goods.

December 31, 2022, the recorded value of inventory decreased by 50.85% to $2,872,622 from $5,844,895 as of December 31, 2021.

As of December

31, 2022, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $1,258,161, approximately

$838,901, or 40.00%, lower than the balance as of December 31, 2021.

As a result of better control over stock turnover, recycled paper

board and finished goods were reduced by 40% and 62.7%, respectively, as at December 31, 2022 as compared to finished goods at the end

A summary of changes in

major inventory items is as follows:

Raw Materials

Recycled paper

Recycled paper board

Recycled white scrap paper

Tissue base paper

fabric and other raw materials

Mask fabric and other raw materials

Total Raw Materials

Semi-finished Goods

Finished Goods

Total inventory, gross

inventory, net

payable and notes payable was $10,255 as of December 31, 2021, a decrease of 582,136, or 98.27%, from $592,391 as of December 31, 2020.

of operating lease

August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters

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

“Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”)

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

In connection with

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

for a term of up to three years, with an annual rental payment of approximately $155,101 (RMB1,000,000).

The lease agreement expired

in August 2016.

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

agreed to extend the lease term to August 9, 2022 with the same rental payment as original lease agreement.

The accrued rental owed to

Hebei Fangsheng was approximately $61,879 and $nil which was recorded as part of the current liabilities as of December 31, 2021 and

Inventory reserve

Total inventory, net

Renewal of operating lease

On August 7, 2013, the Company’s

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

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

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

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

In connection with the sale of the Industrial

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

years, with an annual rental payment of approximately $147,988 (RMB1,000,000).

The lease agreement was renewed in August 2022 with a term

of six years with the same rental payments as provided for in the original lease agreement.

Capital Expenditure Commitment as of December 31, 2022

On May 5, 2020, the Company

announced it planned the commercial launch of a new tissue paper production line PM10 and the Company signed an agreement to purchase

paper machine with paper machine supplier.

The Company expected the new tissue paper production line to be launched after the completion

of trial run.

As of December 31, 2022,

we had approximately $4.3 million in capital expenditure commitments that were mainly related to the purchase of paper machine of PM10.

The infrastructure work of PM10 has been completed and the associated ancillary facilities are working in progress.

These commitments

are expected to be financed by bank loans and cash flows generated from our business operations.

Financing with Sale-Leaseback

The Company entered into

a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6,

2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million).

Under the sale-leaseback arrangement,

Tengsheng Paper sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million).

Concurrent with the sale of equipment,

Tengsheng Paper leases back the equipment sold to TLCL for a lease term of three years.

At the end of the lease term, Tengsheng Paper

may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment.

The Leased Equipment in amount

of $2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability

and calculated with TLCL’s implicit interest rate of15.6% per annum and stated at $567,099 at the inception of the lease on August

Tengsheng Paper made payments

due according to the schedule.

As of December 31, 2022 and 2021, the balance of Leased Equipment net of amortization was $1,939,970 and

$2,286,459, respectively.

Expenditure Commitment as of December 31, 2021

May 5, 2020, the Company announced it planned the commercial launch of a new tissue paper production line PM10 and the Company signed

an agreement to purchase paper machine with paper machine supplier.

The Company expected the new tissue paper production line to be launched

after the completion of trial run.

of December 31, 2021, we had approximately $4.7 million in capital expenditure commitments that were mainly related to the purchase of

paper machine of PM10.

These commitments are expected to be financed by bank loans and cash flows generated from our business operations.

with Sale-Leaseback

Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”)

on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million).

Under the sale-leaseback

arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million).

Concurrent with the sale

of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years.

At the end of the lease term, Hebei

Tengsheng may pay a nominal purchase price of RMB 100 (approximately $16) to TLCL and buy back the Leased Equipment.

The Leased Equipment

in amount of $2,349,452 was recorded as right-of-use assets and the net present value of the minimum lease payments was recorded as lease

liability and calculated with TLCL’s implicit interest rate of 15.6% per annum and stated at $567,099 at the inception of the lease

on August 17, 2020.

Tengsheng made payments due according to the schedule.

As of December 31, 2021 and 2020, the balance of Leased Equipment net of amortization

was $2,286,459 and $2,397,653, respectively.

The lease liability were $362,394 and $536,959, and its current portion in the amount of

$210,161 and $182,852 as of December 31, 2021 and 2020, respectively.

Amortization of the Leased Equipment was $165,441 and $51,574 for

the year ended December 31, 2021 and 2020, respectively.

Total interest expenses for the sale lease back arrangement was $71,798 and

$28,083 for the year ended December 31, 2021 and 2020, respectively.

a result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded.

The deferred gain is amortized over the lease

term and as an offset to amortization of the Leased Equipment.

Cash Equivalents and restricted cash

cash, cash equivalents and restricted cash as of December 31, 2021 was $11,201,612, an increase of $7,059,175, from $4,142,437 as of

December 31, 2020.

The increase of cash and cash equivalents for the year ended December 31, 2021 was attributable to a number of factors:

The lease liability were $131,772 and $362,394, and its current portion in the amount of $131,772 and $210,161

as of December 31, 2022 and 2021, respectively.

Amortization of the Leased

Equipment was $157,854 and $165,441 for the year ended December 31, 2022 and 2021, respectively.

Total interest expenses for the sale

lease back arrangement was $38,954 and $71,798 for the year ended December 31, 2022 and 2021, respectively.

As a result of the sale

and leaseback, a deferred gain in the amount of $430,695 was recorded.

The deferred gain is amortized over the lease term and as an offset

to amortization of the Leased Equipment.

Cash, Cash Equivalents and restricted cash

Our cash, cash equivalents and restricted cash

as of December 31, 2022 was $9,524,868, a decrease of $1,676,744, from $11,201,612 as of December 31, 2021.

The decrease of cash and cash

equivalents for the year ended December 31, 2022 was attributable to a number of factors including:

Net cash provided by operating activities

cash used in operating activities was $2,436,071 for the year ended December 31, 2021.

The balance represented a decrease of cash of

$18,579,597, or 115.09%, from $16,143,526 provided for the year ended December 31, 2020.

Net income for the year ended December 31, 2021

was $905,535, representing an increase of $6,459,537, or 116.30%, from a net loss of $5,554,002 for the year ended December 31, 2020.

Changes in various asset and liability account balances throughout the year ended December 31, 2021 also contributed to the net change

in cash from operating activities in year ended December 31, 2021.

Chief among such changes is the increase of accounts receivable in

the amount of $2,430,495 during the year of 2021.

There was also an increase of $4,531,263 in the ending inventory balance as of December

31, 2021 (a decrease to net cash for the year ended December 31, 2021 cash flow purposes).

In addition, the Company had non-cash expenses

relating to depreciation and amortization in the amount of $15,358,452.

The Company also had a net increase of $8,350,716 in prepayment

and other current assets (a decrease to net cash) and a net increase of $469,797 in other payables and accrued liabilities and related

parties (a decrease to net cash), as well as an increase in income tax payable of $832,946 (an increase to net cash) during the year

ended December 31, 2021.

Net cash provided by operating

activities was $10,719,388 for the year ended December 31, 2022.

The balance represented a decrease of cash of $13,155,459, or 540.03%,

from $2,436,071 used in operating activities for the year ended December 31, 2021.

Net loss for the year ended December 31, 2022 was $

$16,571,308, representing a decrease of $17,476,843, or 1930.0%, from a net income of $905,535 for the year ended December 31, 2021.

in various asset and liability account balances throughout the year ended December 31, 2022 also contributed to the net change in cash

from operating activities in year ended December 31, 2022.

Chief among such changes is the decrease of accounts receivable in the amount

of $3,750,196 (an increase to net cash) during the year of 2022.

There was also a decrease of $2,554,072 in the ending inventory balance

as of December 31, 2022 (an increase to net cash for the year ended December 31, 2022 cash flow purposes).

In addition, the Company had

non-cash expenses relating to depreciation and amortization in the amount of $14,788,036, net deferred tax allowance of $10,261,104 and

allowance for bad debts of $843,779.

The Company also had a net increase of $3,976,010 in prepayment and other current assets (a decrease

to net cash) and a net increase of $1,018,448 in other payables and accrued liabilities and related parties (a decrease to net cash),

as well as a decrease in income tax payable of $614,738 (a decrease to net cash) during the year ended December 31, 2022.

Net cash used in investing activities

incurred $25,071,372 in net cash expenditures for investing activities during the year ended December 31, 2021, as compared to $20,526,004

for the year ended December 31, 2020.

Expenditures in the year ended December 31, 2021 were mainly for the payments for the acquisition

of lands of Hebei Tengsheng.

Net cash provided in financing activities

cash provided by financing activities was proceeds from issuance of shares and warrants net of repayment of loans and lease obligation

of $34,193,824 for the year ended December 31, 2021, as compared to net cash provided by financing activities in the amount of $2,054,855

We incurred $10,898,531 in

net cash expenditures for investing activities during the year ended December 31, 2022, as compared to $25,071,372 for the year ended

December 31, 2021.

Payments in 2022 were mainly for the last installments for the Tengsheng land acquisition.

Net cash provided by financing activities

Net cash used in financing

activities was $879,596 for the year ended December 31, 2022, as compared to net cash provided by financing activities in the amount of

$34,193,824 for the year ended December 31, 2021.

Industrial and

Commercial Bank of China (“ICBC”) Loan 1

Industrial and Commercial

Bank of China (“ICBC”) Loan 2

short-term bank loans

December 11, 2020, the Company entered into a working capital loan agreement with the ICBC,

with a balance of $6,435,348 as of December 31, 2020.

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

China Construction Bank Loan

Total short-term bank loans

On November 25, 2021, the Company entered into

a working capital loan agreement with the ICBC, with a balance of $5,958,561 as of December 31, 2021.

The working capital loan was secured

by the Land use right of Dongfang Paper as collateral for the benefit of the bank.

bears a fixed interest rate of 4.785% per annum.

by the land use right of Dongfang Paper as collateral for the benefit of the bank and guaranteed by Mr.

The loan bears a fixed interest

rate of 4.785% per annum.

The loan was fully repaid in November 2022.

25, 2021, the Company entered into a working capital loan agreement with the ICBC, with a balance of $5,958,561 as of December 31,

The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the bank and

guaranteed by Mr.

Zhenyong Liu, the Company’s CEO.

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

The loan will

be due and repaid at various installments by November 17, 2022.

of December 31, 2020, there were guaranteed short-term borrowings of $5,958,561 and unsecured bank loans of $nil.

As of December 31,

2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of $nil.

average short-term borrowing rates for the years ended December 31, 2021, and 2020 were approximately 4.73% and 4.79%, respectively.

loans from credit union

of December 31, 2021 and 2020, loans payable to Rural Credit Union of Xushui County, amounted to $9,818,530 and $9,594,017, respectively.

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.

On November 10, 2022, the Company entered into

a working capital loan agreement with the ICBC, with a balance of $5,023,978 as of December 31, 2022.

The working capital loan was secured

by the land use right of Dongfang Paper as collateral for the benefit of the bank and guaranteed by Mr.

The loan bears a fixed interest

rate of 4.785% per annum.

The loan will be due by November 13, 2023.

On November 30, 2022, the Company entered into

a working capital loan agreement with the ICBC, with a balance of $287,167 as of December 31, 2022.

The loan bears a fixed interest rate

of 4.3% per annum.

The loan will be due by May 29, 2023.

On November 30, 2022, the Company entered into

a working capital loan agreement with the ICBC, with a balance of $143,583 as of December 31, 2022.

The loan bears a fixed interest rate

of 4.3% per annum.

The loan will be due by May 29, 2023.

On July 29, 2022, the Company entered into a

working capital loan agreement with the China Construction Bank, with a balance of $143,583 as of December 31, 2022.

The loan bears a

fixed interest rate of 3.95% per annum.

The loan will be due by July 29, 2023.

As of December 31, 2021, there were guaranteed

short-term borrowings of $5,958,561 and unsecured bank loans of $nil.

As of December 31, 2022, there were guaranteed short-term borrowings

of $5,023,978 and unsecured bank loans of $574,333.

The average short-term borrowing

rates for the years ended December 31, 2022, and 2021 were approximately 4.72% and 4.73%, respectively.

Long-term loans

As of December 31, 2022, and 2021, long-term

loans balance is $9,040,002 and $9,818,530, 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 December 31, 2021, and 2020, total

outstanding loan balance was $1,348,871 and $1,318,028, respectively, Out of the total outstanding loan balance, current portion amounted

were $329,376 and $214,563 as of December 31, 2021, and 2020, respectively, which are presented as current liabilities in the consolidated

balance sheet and the remaining balance of $1,019,495 and $1,103,465 are presented as non-current liabilities in the consolidated balance

sheet as of December 31, 2021, and 2020, 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 $1,130,333 and $2,349,796 as of December 31, 2021, and

2020, respectively.

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

Interest payment is due quarterly

and bore a rate of 7.68% per annum.

With effective from November 15, 2022, the interest rate is reduced to 7% per annum.

On November 6,

2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November

As of December 31, 2022, and 2021, total outstanding loan balance was $1,234,816 and $1,348,871, respectively, Out of the total

outstanding loan balance, current portion amounted were $1,234,816 and $329,376 as of December 31, 2022, and 2021, respectively, which

are presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and $1,019,495 are presented

as non-current liabilities in the consolidated balance sheet as of December 31, 2022, and 2021, 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 $280,466 and $1,130,333 as of December 31, 2022, and 2021, respectively.

Interest payment

is due quarterly and bore a rate of 7.68% per annum.

With effective from November 15, 2022, the interest rate is reduced to 7% per annum.

As of December 31, 2022, and 2021, the total outstanding loan balance was $3,589,582 and $3,921,139, respectively.

Out of the total outstanding

loan balance, current portion amounted were $3,589,582 and $1,960,569 as of December 31, 2022, and 2021 respectively, which are presented

as current liabilities in the consolidated balance sheet and the remaining balance of $nil and $1,960,570 are presented as non-current

liabilities in the consolidated balance sheet as of December 31, 2022, and 2021, respectively.

On April 17, 2019, the Company

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

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

The loan was renewed on March 22, 2021 and December 24, 2021 and extended for additional

3 years in total, which will be due on April 16, 2024 according to the new schedule.

The loan is secured by Tengsheng Paper with its land

use right as collateral for the benefit of the credit union.

Interest payment is due quarterly and bore a rate of 7.68% per annum.

effective from November 15, 2022, the interest rate is reduced to 7% per annum.

As of December 31, 2022, and 2021, the total outstanding

loan balance was $2,297,332 and $2,509,528, respectively.

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

and $2,509,528 as of December 31, 2022 and 2021 respectively, which are presented as current liabilities in the consolidated balance sheet

and the remaining balance of $2,297,332 and $nil are presented as non-current liabilities in the consolidated balance sheet as of December,

2022 and 2021, respectively.

On December 12, 2019, the

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

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

The loan was renewed on March 22, 2021 and December 24, 2021 and extended

for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule.

The loan is secured by Tengsheng

Paper with its land use right as collateral for the benefit of the credit union.

Interest payment is due monthly and bore a rate of 7.68%

With effective from November 15, 2022, the interest rate is reduced to 7% per annum.

As of December 31, 2022, and 2021, the

1 unchanged sentence

Out of the total outstanding loan balance, current portion

amounted were $1,960,569 and $337,169 as of December 31, 2021, and 2020 respectively, which are presented as current liabilities in the

consolidated balance sheet and the remaining balance of $1,960,570 and $3,494,307 are presented as non-current liabilities in the consolidated

balance sheet as of December 31, 2021, and 2020, 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 was renewed on March 22, 2021 and December

24, 2021 and extended for additional 3 years in total, which will be due on April 16, 2024 according to the new schedule.

secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union.

Interest payment is due quarterly

and bears a fixed rate of 0.6% per month.

As of December 31, 2021, and 2020, the total outstanding loan balance was $2,509,528 and $2,452,145,

respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2021, and 2020.

December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which

is due and payable in various installments from June 21, 2020 to December 11, 2021.The loan was renewed on March 22, 2021 and December

24, 2021 and extended for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule.

is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union.

Interest payment is due monthly

and bears a fixed rate of 7.56% per annum.

As of December 31, 2021, and 2020, the total outstanding loan balance was $2,038,992 and $1,992,368,

respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2021, and 2020.

interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2021, and 2020 were $1,052,904 and

$998,429, respectively.

party transactions

Zhenyong Liu has loaned money to Dongfang Paper for working capital purposes over a period of time.

On January 1, 2013, Dongfang Paper

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 $402,047 and $392,855 of interest were outstanding to Mr.

Zhenyong Liu, which were recorded in other

payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of December 31, 2021, and 2020,

respectively.

December 10, 2014, Mr.

Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose

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

The unsecured

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

During the year of 2016, the Company repaid

$6,012,416 to Mr.

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

In February 2018, the company paid off the remaining balance, together

with interest of $20,400.

As of December 31, 2021, and 2020, approximately $47,054 and $45,978 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 sheet.

March 1, 2015, the Company entered an agreement with Mr.

Zhenyong Liu which allows Dongfang Paper to borrow from the CEO an amount up

to $17,201,342 (RMB120,000,000) for working capital purposes.

The advances or funding under the agreement are due three years from the

date each amount is funded.

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

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

On July 13, 2015, an unsecured amount of $4,324,636 was drawn from the

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

amounted were $nil and $2,038,992 as of December 31, 2022, and 2021 respectively, which are presented as current liabilities in the consolidated

balance sheet and the remaining balance of $1,866,582 and $nil are presented as non-current liabilities in the consolidated balance sheet

as of December 31, 2022, and 2021, respectively.

On July 1, 2022, the Company

entered into a loan agreement with Jiangna Yu, a customer of the Company, pursuant to which the Company borrowed RMB400,000 from Jiangna

Yu for a term of five years.

The loan is payable in monthly installment of RMB10,667 from July 2022 to July 2027.

As of December 31, 2022,

the total outstanding loan balance was $51,690.

Out of the total outstanding loan balance, the current portion amounted $11,486, which

is presented as current liabilities and the remaining balance of $40,204 is presented as non-current liabilities in the consolidated balance

sheet as of December 31, 2022.

Total interest expenses for

the short-term bank loans and long-term loans for the years ended December 31, 2022, and 2021 were $988,997 and $1,052,904 respectively.

Related party transactions

Zhenyong Liu 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.

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

$368,052 and $402,047 of interest were outstanding to Mr.

Zhenyong Liu, which were recorded in other payables and accrued liabilities

as part of the current liabilities in the consolidated balance sheet as of December 31, 2022, and 2021, respectively.

On December 10, 2014, Mr.

Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate

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

The unsecured loan was provided on December

10, 2014, and would be originally due on December 10, 2017.

During the year of 2016, the Company repaid $6,012,416 to Mr.

Zhenyong Liu,

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.

together with interest of $288,596.

In February 2018, the company paid off the remaining balance, together with interest of $20,400.

of December 31, 2022, and 2021, approximately $43,075 and $47,054 of interest were outstanding to Mr.

Zhenyong Liu, which was recorded

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

On March 1, 2015, the Company

entered into an agreement with Mr.

Zhenyong Liu which allows Dongfang Paper to borrow from the CEO an amount up to $17,201,342 (RMB120,000,000)

for working capital purposes.

The advances or funding under the agreement are due three years from the date each amount is funded.

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.

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.

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

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

As of December 2022, and 2021, the outstanding

interest was $197,338 and $215,565, respectively, which was recorded in other payables and accrued liabilities as part of the current

liabilities in the consolidated balance sheet.

As of December 31, 2022,

2021, and 2020, the outstanding interest was $215,565 and $210,635, respectively, which was recorded in other payables and accrued liabilities

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

of December 31, 2021, and 2020, total amount of loans due to Mr.

and 2021, total amount of loans due to Mr.

Zhenyong Liu were $nil.

The interest expense incurred for such related

party loans are $nil for the years ended December 31, 2021, and 2020.

The accrued interest owe to the CEO was approximately $664,666

and $649,468, as of December 31, 2021, and 2020, respectively, which was recorded in other payables and accrued liabilities.

December 8, 2021, the Company entered an agreement with Mr.

Zhenyong Liu which allows Mr.

Zhenyong Liu to borrow from the Company an

amount of $6,915,176 (RMB44,089,085).

The loanwill be due on June 29, 2022.

The loan is unsecured and carries a fixed interest rate of

3% per annum.

As of December 31, 2021, the outstanding balance of the loan was $6,915,176 and outstanding interest due from CEO is $nil,

which were recorded in due from related parties as part of the current assets in the consolidated balance sheet.

of December 31, 2021, and 2020, amount due to shareholder are $727,433, which represent funds from shareholders to pay for various expenses

incurred in the U.S.

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

for the years ended December 31, 2022 and 2021.

The accrued interest payable to Mr.

Zhenyong Liu was approximately $608,465 and $664,666,

as of December 31, 2022 and 2021, respectively, which was recorded in other payables and accrued liabilities

On December 8, 2021, the

Company entered into an agreement with Mr.

Zhenyong Liu, which allowed Mr.

Zhenyong Liu to borrow from the Company an amount of $6,507,431

(RMB44,089,085).

The loan is unsecured and carries a fixed interest rate of 3% per annum.

The loan was repaid by Mr.

Zhenyong Liu in February

In October 2022 and November

2022, the Company entered into two agreements with Mr.

Zhenyong Liu, which allowed Mr.

Zhenyong Liu to borrow from the Company an amount

of $7,179,163 (RMB50,000,000) in total.

The loans were unsecured and carried a fixed interest rate of 4.35% per annum.

The loans were

fully repaid by Mr.

Zhenyong Liu in February 2023.

As of December 31, 2022 and

2021, amount due to shareholder are $727,433, which represent funds from shareholders to pay for various expenses incurred in the U.S.

The amount is due on demand with interest free.

Accounting Policies and Estimates

Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which

require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent

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

Management makes these estimates using the best information available at the time the estimates are made.

However, actual results

could differ materially from those estimates.

Critical Accounting Policies and Estimates

The Company’s financial

statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates

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

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

Management makes these

estimates using the best information available at the time the estimates are made.

However, actual results could differ materially from

those estimates.

The most critical accounting policies are listed below:

Recognition Policy

Company recognizes revenue when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery

is completed, no other significant obligations of the Company exist, and collectability is reasonably assured.

Goods are considered delivered

when the customer’s truck picks up goods at our finished goods inventory warehouse.

Company evaluates the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances

lead management to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be

generated by those assets are less than the assets’ carrying amount.

In such circumstances, those assets are written down to estimated

Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational

performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry.

For the years ended December 31, 2021 and 2020, no events or circumstances occurred for which an evaluation of the recoverability of

long-lived assets was required.

We are currently not aware of any events or circumstances that may indicate any need to record such impairment

in the future.

Currency Translation

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

Under ASC Topic 830-30, all

assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period.

current exchange rates used by the Company as of December 31, 2021 and 2020 to translate the Chinese RMB to the U.S.

Dollars are 6.3757:1

Revenue Recognition Policy

The Company recognizes revenue

when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant

obligations of the Company exist, and collectability is reasonably assured.

Goods are considered delivered when the customer’s truck

picks up goods at our finished goods inventory warehouse.

Long-Lived Assets

The Company evaluates the

recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management to

believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by those

assets are less than the assets’ carrying amount.

In such circumstances, those assets are written down to estimated fair value.

Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational performance

of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry.

For the years

ended December 31, 2022 and 2021, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets

was required.

We are currently not aware of any events or circumstances that may indicate any need to record such impairment in the future.

Foreign Currency Translation

The functional currency of

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

Under ASC Topic 830-30, all assets and liabilities

are translated into United States dollars using the current exchange rate at the end of each fiscal period.

The current exchange rates

used by the Company as of December 31, 2022 and 2021 to translate the Chinese RMB to the U.S.

Dollars are 6.9646:1 and 6.3757:1, respectively.

Revenues and expenses are translated using the prevailing average exchange rates at 6.7573:1, and 6.4474:1 for the years ended December

31, 2022 and 2021, respectively.

Revenues and expenses are translated using the prevailing average exchange rates at 6.4474:1, and 6.8941:1

for the years ended December 31, 2021 and 2020, 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 $4,862,211 (RMB31,000,000), which matures

at various times in 2023.

Off-Balance Sheet Arrangements

We were the guarantor for

Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,862,211 (RMB31,000,000), which matures at various times in

Baoding Huanrun Trading Co.

is one of our major suppliers of raw materials.

This helps us to maintain a good

relationship with the supplier and negotiate for better terms in payment for materials.

This helps us to maintain a good relationship with the

supplier and negotiate for better terms in payment for materials.

If Huanrun Trading Co.

were to become insolvent,

the Company could be materially adversely affected.

were to become insolvent, the Company could be

materially adversely affected.

Except as aforesaid, we have no material off-balance sheet transactions.

Accounting Pronouncements

June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses

and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments.

is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

In October 2019, the FASB issued ASU

Recent Accounting Pronouncements

In May 2019, the FASB issued

ASU 2019-05, which is an update to ASU Update No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Effective Dates”, to finalize the effective date delays for

private companies, not-for-profits, and smaller reporting companies applying the CECL standards.

The ASU is effective for reporting periods

beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted.

We are currently evaluating

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

Measurement of Credit

Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial

assets measured at amortized cost basis, replacing the previous incurred loss methodology.

The amendments in Update 2016-13 added Topic

326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification.

Update 2016-13 also modified

the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than

the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt

The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair

value option for certain financial assets previously measured at amortized cost basis.

For those entities, the targeted transition relief

will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial

Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update

2016-13 while still providing financial statement users with decision-useful information.

In November 2019, the FASB issued ASU No.

which to update the effective date of ASU No.

2016-02 for private companies, not-for-profit organizations and certain smaller reporting

companies applying for credit losses, leases, and hedging standard.

The new effective date for these preparers is for fiscal years beginning

after December 15, 2022.

The Company is currently evaluating the impact of ASU 2019-05 will have on its consolidated financial statements.

In October 2021, the

FASB issued ASU 2021-08, “Business Combinations”.

The amendments in this Update address how to determine whether a contract

liability is recognized by the acquirer in a business combination and resolve the inconsistency of measuring revenue contracts with customers

acquired in a business combination by providing specific guidance on how to recognize and measure acquired contract assets and contract

liabilities from revenue contracts in a business combination.

The amendments in this Update apply to all entities that enter into a business

combination within the scope of Subtopic 805-10, Business Combination-Overalls.

For public business entities, ASU 2021-08 is

effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

application is permitted.

The amendments in this Update should be applied prospectively to business combinations occurring on or after

the effective date of the amendments.

The Company does not expect the adoption of this standard to have a material impact on its consolidated

financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis