IT TECH PACKAGING, INC. 10-K

Item 8. Financial Statements and Supplementary Data Our audited financial statement for the fiscal year ended December 31, 2023 and 2022, together with the report of the independent certified public accounting firms thereon and the notes thereto, are presented beginning at page F-1. 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To: The Board of Directors and Stockholders of IT Tech Packaging, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of IT Tech Packaging, Inc. (the Company) as of December 31, 2023, and 2022, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to the accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. The principal considerations in determining that this was a critical audit matter was that the Company had a significant accumulated balance and the carrying value of such assets are subject to estimation, judgment, and complex calculations. The balance resulted from temporary differences in taxes dues as the result of the difference in timing of recognition of expenses that are required under generally accepted accounting principles, but may require deferral under local tax regulations. The Company’s consolidated financial statements include entities in multiple jurisdictions with varying tax laws. These circumstances lead to estimation and interpretation that may be challenging to assess and evaluate as part of the audit. The audit engagement team addressed this critical accounting matter by reviewing the Company’s accounting policies, perform extended audit procedures including examination of relevant local tax laws, testing for arithmetical accuracy of the asset, review of the Company’s assumptions and estimates concerning future profitability, and independent recalculation of the future tax asset. The engagement team was satisfied with the evidence accumulated to support our audit opinion and to mitigate the risk of material misstatement to an acceptable level. The accounts that are affected by this critical audit matter are deferred tax assets, related valuation allowance and income tax expense. /s/ GGF CPA LTD GGF CPA LTD Certified Public Accountants We have served as the Company’s auditor since March 1, 2024. Guangzhou, Guangdong, China PCAOB NO: 2729 March 27, 2024 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To: The Board of Directors and Stockholders of IT Tech Packaging, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of IT Tech Packaging, Inc. (the Company) as of December 31, 2022, and 2021, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to the accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. We determined that the auditing of deferred tax asset should be considered a critical audit matter. The principal considerations in determining that this was a critical audit matter was that the Company had a significant accumulated balance and the carrying value of such assets are subject to estimation, judgment, and complex calculations. The balance resulted from temporary differences in taxes dues as the result of the difference in timing of recognition of expenses that are required under generally accepted accounting principles, but may require deferral under local tax regulations. The Company’s consolidated financial statements include entities in multiple jurisdictions with varying tax laws. These circumstances lead to estimation and interpretation that may be challenging to assess and evaluate as part of the audit. The audit engagement team addressed this critical accounting matter by reviewing the Company’s accounting policies, perform extended audit procedures including examination of relevant local tax laws, testing for arithmetical accuracy of the asset, review of the Company’s assumptions and estimates concerning future profitability, and independent recalculation of the future tax asset. The engagement team was satisfied with the evidence accumulated to support our audit opinion and to mitigate the risk of material misstatement to an acceptable level. The accounts that are affected by this critical audit matter are deferred tax assets, related valuation allowance and income tax expense. /s/ WWC, P.C. WWC, P.C. Certified Public Accountants We have served as the Company’s auditor since March 25, 2018. San Mateo, California PCAOB NO.: 1171 March 23, 2023 F- 2 IT TECH PACKAGING, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022 December 31, December 31, 2023 2022 ASSETS Current Assets Cash and bank balances $ 3,918,938 $ 9,524,868 Restricted cash 472,983 - Accounts receivable (net of allowance for doubtful accounts of $ 11,745 and $ 881,878 as of December 31, 2023 and December 31, 2022, respectively) 575,526 - Inventories 3,555,235 2,872,622 Prepayments and other current assets 18,981,290 27,207,127 Due from related parties 853,929 7,561,858 Total current assets 28,357,901 47,166,475 Prepayment on property, plant and equipment - 1,031,502 Operating lease right-of-use assets, net 528,648 672,722 Finance lease right-of-use assets, net - 1,939,970 Property, plant, and equipment, net 163,974,022 151,569,898 Value-added tax recoverable 1,883,078 2,066,666 Deferred tax asset non-current - - Total Assets $ 194,743,649 $ 204,447,233 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans $ 423,567 $ 5,598,311 Current portion of long-term loans 6,874,497 4,835,884 Lease liability 100,484 224,497 Accounts payable 4,991 5,025 Advance from customers 136,167 - Due to related parties 728,869 727,462 Accrued payroll and employee benefits 237,842 165,986 Other payables and accrued liabilities 12,912,517 5,665,558 Income taxes payable - 417,906 Total current liabilities 21,418,934 17,640,629 Long-term loans 4,503,932 4,204,118 Deferred gain on sale-leaseback - 52,314 Lease liability - non-current 483,866 579,997 Derivative liability 54 646,283 Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $ 20,084,995 and $ 16,784,878 as of December 31, 2023 and 2022, respectively) 26,406,786 23,123,341 Commitments and Contingencies Stockholders’ Equity Common stock, 50,000,000 shares authorized, $ 0.001 par value per share, 10,065,920 shares issued and outstanding as of December 31, 2023 and 2022. 10,066 10,066 Additional paid-in capital 89,172,771 89,172,771 Statutory earnings reserve 6,080,574 6,080,574 Accumulated other comprehensive loss ( 10,555,534 ) ( 7,514,540 ) Retained earnings 83,628,986 93,575,021 Total stockholders’ equity 168,336,863 181,323,892 Total Liabilities and Stockholders’ Equity $ 194,743,649 $ 204,447,233 See accompanying notes to consolidated financial statements. F- 3 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Year Ended December 31, 2023 2022 Revenues $ 86,546,950 $ 100,352,434 Cost of sales ( 85,547,065 ) ( 95,598,238 ) Gross Profit 999,885 4,754,196 Selling, general and administrative expenses ( 9,075,475 ) ( 10,058,723 ) Gain (Loss) from disposal and impairment of property, plant and equipment ( 1,500,298 ) - Loss from Operations ( 9,575,888 ) ( 5,304,527 ) Other Income (Expense): Interest income 315,096 24,264 Interest expense ( 984,518 ) ( 1,027,951 ) Gain on acquisition - 30,994 Gain (Loss) on derivative liability 646,229 1,417,251 Loss before Income Taxes ( 9,599,081 ) ( 4,859,969 ) Provision for Income Taxes ( 346,954 ) ( 11,711,339 ) Net Loss ( 9,946,035 ) ( 16,571,308 ) Other Comprehensive Loss Foreign currency translation adjustment ( 3,040,994 ) ( 18,010,708 ) Total Comprehensive Loss $ ( 12,987,029 ) $ ( 34,582,016 ) Losses Per Share: Basic and Diluted Losses per Share $ ( 0.99 ) $ ( 1.66 ) Outstanding – Basic and Diluted 10,065,920 9,972,788 F- 4 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Accumulated Additional Statutory Other Common Stock Paid-in Earnings Comprehensive Retained Shares Amount Capital Reserve Income (loss) Earnings Total Balance at December 31, 2021 9,915,920 $ 9,916 $ 89,016,921 $ 6,080,574 $ 10,496,168 $ 110,146,329 $ 215,749,908 Issuance of shares to officer and directors 150,000 150 155,850 156,000 Foreign currency translation adjustment ( 18,010,708 ) ( 18,010,708 ) Net loss ( 16,571,308 ) ( 16,571,308 ) Balance at December 31, 2022 10,065,920 $ 10,066 $ 89,172,771 $ 6,080,574 $ ( 7,514,540 ) $ 93,575,021 $ 181,323,892 Foreign currency translation adjustment ( 3,040,994 ) ( 3,040,994 ) Net loss ( 9,946,035 ) ( 9,946,035 ) Balance at December 31, 2023 10,065,920 $ 10,066 $ 89,172,771 $ 6,080,574 $ ( 10,555,534 ) $ 83,628,986 $ 168,336,863 See accompanying notes to consolidated financial statements. F- 5 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Year Ended December 31, 2023 2022 Cash Flows from Operating Activities: Net income $ ( 9,946,035 ) $ ( 16,571,308 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,225,990 14,788,036 (Gain) Loss on derivative liability ( 646,229 ) ( 1,417,251 ) (Gain) Loss from disposal and impairment of property, plant and equipment 1,608,542 - (Recovery from) Allowance for bad debts 34,193 843,779 Allowances for inventories, net 2,970 - Share-based compensation and expenses - 156,000 Gain on acquisition - ( 30,992 ) Deferred tax - 10,261,104 Changes in operating assets and liabilities: Accounts receivable 280,970 3,750,196 Prepayments and other current assets 9,322,532 ( 3,976,010 ) Inventories ( 736,267 ) 2,554,072 Accounts payable 50 ( 4,496 ) Advance from customers 136,686 ( 37,452 ) Related parties ( 478,025 ) 444,291 Accrued payroll and employee benefits 74,908 ( 103,683 ) Other payables and accrued liabilities ( 596,695 ) 677,840 Income taxes payable ( 412,504 ) ( 614,738 ) Net Cash Provided by Operating Activities 12,871,086 10,719,388 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 22,292,870 ) ( 4,534,092 ) Proceeds from sale of property, plant and equipment 53,573 - Acquisition of land - ( 6,364,439 ) 　 　 Net Cash Used in Investing Activities ( 22,239,297 ) ( 10,898,531 ) Cash Flows from Financing Activities: Proceeds from issuance of shares and warrants, net - - Proceeds from short term bank loans 1,275,546 6,214,020 Proceeds from long term loans 3,769,948 59,195 Repayment of bank loans ( 7,647,610 ) ( 6,071,952 ) Payment of capital lease obligation ( 74,154 ) ( 206,114 ) Loan to a related party (net) 7,086,369 ( 874,745 ) 　 Net Cash Provided by (Used in) Financing Activities 4,410,099 ( 879,596 ) Effect of Exchange Rate Changes on Cash and Cash Equivalents ( 174,835 ) ( 618,005 ) Net Decrease in Cash and Cash Equivalents ( 5,132,947 ) ( 1,676,744 ) Cash, Cash Equivalents and Restricted Cash - Beginning of Year 9,524,868 11,201,612 Cash, Cash Equivalents and Restricted Cash - End of Year $ 4,391,921 $ 9,524,868 Supplemental Disclosure of Cash Flow Information: Cash paid for interest, net of capitalized interest cost $ 1,484,461 $ 320,568 Cash paid for income taxes $ 759,458 $ 2,049,911 Cash and bank balances 3,918,938 9,524,868 Restricted cash 472,983 - Total cash, cash equivalents and restricted cash shown in the statement of cash flows 4,391,921 9,524,868 See accompanying notes to consolidated financial statements. F- 6 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Business Background IT Tech Packaging, Inc. (the “Company”) was incorporated in the State of Nevada on December 9, 2005, under the name “Carlateral, Inc.” Through the steps described immediately below, we became the holding company for Hebei Baoding Dongfang Paper Milling Company Limited (“Dongfang Paper”), a producer and distributor of paper products in China, on October 29, 2007. 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. On June 9, 2022, the Board of Directors of the Company approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $ 0.001 per share (the “Common Stock”), at a ratio of 1-for-10 (the “Reverse Stock Split”). The Reverse Stock Split become effective on July 7, 2022 (the “Effective Date”), and the shares began trading on the split-adjusted basis on the NYSE American under the Company’s existing trading symbol “ITP” at market open on July 8, 2022. The new CUSIP number following the Reverse Stock Split will be 46527C 209. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split. On October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired Dongfang Zhiye Holding Limited (“Dongfang Holding”), a corporation formed on November 13, 2006 under the laws of the British Virgin Islands, and issued the shareholders of Dongfang Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse stock split effected in November 2009) shares of our common stock, which shares were distributed pro-rata to the shareholders of Dongfang Holding in accordance with their respective ownership interests in Dongfang Holding. At the time of the Merger Agreement, Dongfang Holding owned all of the issued and outstanding stock and ownership of Dongfang Paper and such shares of Dongfang Paper were held in trust with Zhenyong Liu, Xiaodong Liu and Shuangxi Zhao, for Mr. Liu, Mr. Liu and Mr. Zhao (the original shareholders of Dongfang Paper) to exercise control over the disposition of Dongfang Holding’s shares in Dongfang Paper on Dongfang Holding’s behalf until Dongfang Holding successfully completed the change in registration of Dongfang Paper’s capital with the relevant PRC Administration of Industry and Commerce as the 100 % owner of Dongfang Paper’s shares. As a result of the merger transaction, Dongfang Holding became a wholly owned subsidiary of the Company, and Dongfang Holding’s wholly owned subsidiary, Dongfang Paper, became an indirectly owned subsidiary of the Company. Dongfang Holding, as the 100 % owner of Dongfang Paper, was unable to complete the registration of Dongfang Paper’s capital under its name within the proper time limits set forth under PRC law. In connection with the consummation of the restructuring transactions described below, Dongfang Holding directed the trustees to return the shares of Dongfang Paper to their original shareholders, and the original Dongfang Paper shareholders entered into certain agreements with Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”) to transfer the control of Dongfang Paper over to Baoding Shengde. On June 24, 2009, the Company consummated a number of restructuring transactions pursuant to which it acquired all of the issued and outstanding shares of Shengde Holdings Inc., a Nevada corporation. Shengde Holdings Inc. was incorporated in the State of Nevada on February 25, 2009. On June 1, 2009, Shengde Holdings Inc. incorporated Baoding Shengde, a limited liability company organized under the laws of the PRC. Because Baoding Shengde is a wholly-owned subsidiary of Shengde Holdings Inc., it is regarded as a wholly foreign-owned entity under PRC law. F- 7 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS To ensure proper compliance of the Company’s control over the ownership and operations of Dongfang Paper with certain PRC regulations, on June 24, 2009, the Company entered into a series of contractual agreements (the “Contractual Agreements”) with Dongfang Paper and Dongfang Paper Equity Owners via the Company’s wholly owned subsidiary Shengde Holdings Inc. (“Shengde Holdings”) a Nevada corporation and Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”), a wholly foreign-owned enterprise in the PRC with an original registered capital of $ 10,000,000 (subsequently increased to $ 60,000,000 in June 2010). Baoding Shengde is mainly engaged in production and distribution of digital photo paper and single-use face masks and is 100 % owned by Shengde Holdings. Prior to February 10, 2010, the Contractual Agreements included (i) Exclusive Technical Service and Business Consulting Agreement, which generally provides that Baoding Shengde shall provide exclusive technical, business and management consulting services to Dongfang Paper, in exchange for service fees including a fee equivalent to 80 % of Dongfang Paper’s total annual net profits; (ii) Loan Agreement, which provides that Baoding Shengde will make a loan in the aggregate principal amount of $ 10,000,000 to Dongfang Paper Equity Owners in exchange for each such shareholder agreeing to contribute all of its proceeds from the loan to the registered capital of Dongfang Paper; (iii) Call Option Agreement, which generally provides, among other things, that Dongfang Paper Equity Owners irrevocably grant to Baoding Shengde an option to purchase all or part of each owner’s equity interest in Dongfang Paper. The exercise price for the options shall be RMB 1 which Baoding Shengde should pay to each of Dongfang Paper Equity Owner for all their equity interests in Dongfang Paper; (iv) Share Pledge Agreement, which provides that Dongfang Paper Equity Owners will pledge all of their equity interests in Dongfang Paper to Baoding Shengde as security for their obligations under the other agreements described in this section. Specifically, Baoding Shengde is entitled to dispose of the pledged equity interests in the event that Dongfang Paper Equity Owners breach their obligations under the Loan Agreement or Dongfang Paper fails to pay the service fees to Baoding Shengde pursuant to the Exclusive Technical Service and Business Consulting Agreement; and (v) Proxy Agreement, which provides that Dongfang Paper Equity Owners shall irrevocably entrust a designee of Baoding Shengde with such shareholder’s voting rights and the right to represent such shareholder to exercise such owner’s rights at any equity owners’ meeting of Dongfang Paper or with respect to any equity owner action to be taken in accordance with the laws and Dongfang Paper’s Articles of Association. The terms of the agreement are binding on the parties for as long as Dongfang Paper Equity Owners continue to hold any equity interest in Dongfang Paper. A Dongfang Paper Equity Owner will cease to be a party to the agreement once it transfers its equity interests with the prior approval of Baoding Shengde. As the Company had controlled Dongfang Paper since July 16, 2007 through Dongfang Holding and the trust until June 24, 2009 and continued to control Dongfang Paper through Baoding Shengde and the Contractual Agreements, the execution of the Contractual Agreements is considered as a business combination under common control. On February 10, 2010, Baoding Shengde and the Dongfang Paper Equity Owners entered into a Termination of Loan Agreement to terminate the above-mentioned $ 10,000,000 Loan Agreement. Because of the Company’s decision to fund future business expansions through Baoding Shengde instead of Dongfang Paper, the $ 10,000,000 loan contemplated was never made prior to the point of termination. The parties believe the termination of the Loan Agreement does not in itself compromise the effective control of the Company over Dongfang Paper and its businesses in the PRC. An agreement was also entered into among Baoding Shengde, Dongfang Paper and the Dongfang Paper Equity Owners on December 31, 2010, reiterating that Baoding Shengde is entitled to 100 % of the distributable profit of Dongfang Paper, pursuant to the above- mentioned Contractual Agreements. In addition, Dongfang Paper and the Dongfang Paper Equity Owners shall not declare any of Dongfang Paper’s unappropriated earnings as dividend, including the unappropriated earnings of Dongfang Paper from its establishment to 2010 and thereafter. On June 25, 2019, Dongfang Paper entered into an acquisition agreement with the shareholder of Hebei Tengsheng Paper Co., Ltd. (“Tengsheng Paper”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Tengsheng Paper. Full payment of the consideration in the amount of RMB 320 million (approximately $ 45 million) was made on February 23, 2022. QianrongQianhui Hebei Technology Co., Ltd (“Qianrong”), a wholly owned subsidiary of Shengde holding, was incorporated on July 15, 2021. It is a service provider of high quality material solutions for textile, cosmetics and paper production. The Company has no direct equity interest in Dongfang Paper. However, through the Contractual Agreements described above, the Company is found to be the primary beneficiary (the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective control over Dongfang Paper’s activities that most significantly affect its economic performance, resulting in Dongfang Paper being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”). The revenue generated from Dongfang Paper and Tengsheng Paper for the years ended December 31, 2023 and 2022 was accounted for 99.88 %%and 99.74 % of the Company’s total revenue, respectively. Dongfang Paper and Tengsheng Paper also accounted for 94.93 % and 88.54 % of the total assets of the Company as of December 31, 2023 and 2022, respectively. F- 8 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2023, and 2022, details of the Company’s subsidiaries and variable interest entity are as follows: Date of Place of Percentage Incorporation Incorporation or of Name or Establishment Establishment Ownership Principal Activity Subsidiary: Dongfang Holding November 13, 2006 BVI 100 % Inactive investment holding Shengde Holdings February 25, 2009 State of Nevada 100 % Investment holding Baoding Shengde June 1, 2009 PRC 100 % Paper production and distribution Qianrong July 15, 2021 PRC 100 % New material technology service Variable interest entity (“VIE”): Dongfang Paper March 10, 1996 PRC Control* Paper production and distribution Tengsheng Paper April 07, 2011 PRC Control** Paper production and distribution * Dongfang Paper is treated as a 100 % controlled variable interest entity of the Company. ** Tengsheng Paper is 100 % subsidiary of Dongfang Paper. However, uncertainties in the PRC legal system could cause the Company’s current ownership structure to be found to be in violation of any existing and/or future PRC laws or regulations and could limit the Company’s ability, through its subsidiary, to enforce its rights under these contractual arrangements. Furthermore, shareholders of the VIE may have interests that are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the aforementioned agreements. In addition, if the current structure or any of the contractual arrangements were found to be in violation of any existing or future PRC law, the Company may be subject to penalties, which may include, but not be limited to, the cancellation or revocation of the Company’s business and operating licenses, being required to restructure the Company’s operations or being required to discontinue the Company’s operating activities. The imposition of any of these or other penalties may result in a material and adverse effect on the Company’s ability to conduct its operations. In such case, the Company may not be able to operate or control the VIE, which may result in deconsolidation of the VIE. The Company believes the possibility that it will no longer be able to control and consolidate its VIE will occur as a result of the aforementioned risks and uncertainties is remote. F- 9 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has aggregated the financial information of Dongfang Paper in the table below. The aggregate carrying value of Dongfang Paper’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s consolidated balance sheets as of December 31, 2023, and 2022 are as follows: December 31, December 31, 2023 2022 　 ASSETS Current Assets Cash and bank balances $ 2,807,608 $ 3,427,717 Restricted cash 472,983 - Accounts receivable 575,526 - Inventories 3,555,235 2,852,553 Prepayments and other current assets 18,617,351 20,134,386 Due from related parties 289,173 7,418,274 Total current assets 26,317,876 33,832,930 Prepayment on property, plant and equipment - 1,031,502 Operating lease right-of-use assets, net 528,648 672,722 Finance lease right-of-use assets, net - 1,939,970 Property, plant, and equipment, net 158,027,099 143,534,690 Deferred tax asset non-current - - Total Assets $ 184,873,623 $ 181,011,814 LIABILITIES Current Liabilities Short-term bank loans $ - $ 5,598,311 Current portion of long-term loans 2,780,014 4,835,885 Lease liability 100,484 224,497 Accounts payable 4,991 5,025 Advance from customers 136,167 - Accrued payroll and employee benefits 231,568 143,156 Other payables and accrued liabilities 11,843,973 4,887,584 Income taxes payable - 417,906 Total current liabilities 15,097,197 16,112,364 Long-term loans 4,503,932 40,203 Deferred gain on sale-leaseback - 52,314 Lease liability - non-current 483,866 579,997 Total liabilities $ 20,084,995 $ 16,784,878 F- 10 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company and its consolidated subsidiaries are not required to provide financial support to the VIE, and no creditor (or beneficial interest holders) of the VIE have recourse to the assets of Company unless the Company separately agrees to be subject to such claims. There are no terms in any agreements or arrangements, implicit or explicit, which require the Company or its subsidiaries to provide financial support to the VIE. 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. (2) Basis of Presentation and Significant Accounting Policies Basis of Consolidation The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and include the assets, liabilities, revenues, expenses and cash flows of all subsidiaries and variable interest entity. All significant inter-company balances, transactions and cash flows are eliminated on consolidation. Foreign Currency Translation The Company accounts for foreign currency translation pursuant to ASC Topic 830, Foreign Currency Matters . The functional currency of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Monetary assets and liabilities denominated in currencies other than RMB are translated into RMB at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than RMB are converted into RMB at the applicable rates of exchange prevailing the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of income. The functional currency of IT Tech Packaging and Shengde Holdings is United States dollars. Monetary assets and liabilities denominated in currencies other than United States dollars are translated into United States dollars at the rates of exchange ruling at the balance sheet date. Translation in currencies other than United States dollars are converted into United States dollars at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains or losses are recognized in the consolidated statement of income. 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, 2023, and 2022 to translate the Chinese RMB to the U.S. Dollars are 7.0827:1, and 6.9646:1, respectively. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective years at 7.0558:1 and 6.75731 for the years ended December 31, 2023, and 2022, respectively. Translation adjustments are included in other comprehensive income (loss). Use of Estimates The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2023, and 2022, and revenues and expenses for the years ended December 31, 2023, and 2022. The most significant estimates relate to allowance for uncollectible accounts receivable, inventory valuation, useful lives and impairment for property, plant and equipment, valuation allowance for deferred tax assets and contingencies. Actual results could differ from those estimates made by management. F- 11 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounts Receivable Trade accounts receivable are recorded on shipment of products to customers. The trade receivables are all without customer collateral and interest is not accrued on past due accounts. Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties. Actual bad debt results could differ materially from these estimates. As of December 31, 2023, and 2022, the balance of allowance for doubtful accounts was $ 881,878 and $ 69,053 , respectively; and the movement of the provision of the doubtful accounts is as below. While management uses the best information available upon which to base estimates, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used for the purposes of analysis. December 31, December 31, Allowance of doubtful accounts 2023 2022 Opening balance $ 881,878 $ 69,053 Provision (Reversal) for the year ( 858,689 ) 843,779 Exchange difference ( 11,444 ) ( 30,954 ) Closing balance $ 11,745 $ 881,878 Inventories Inventories consist principally of raw materials and finished goods, and are stated at the lower of cost (average cost method) or market. Cost includes labor, raw materials, and allocated overhead. Provision in inventories were $ 2,959 and $ nil for the years ended December 31, 2023, and 2022, respectively. Property, Plant, and Equipment Property, plant, and equipment are stated at cost less accumulated depreciation and any impairment losses. Major renewals, betterments, and improvements are capitalized to the asset accounts while replacements, maintenance, and repairs, which do not improve or extend the lives of the respective assets, are expensed to operations. At the time property, plant, and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation or amortization accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations. Construction-in-progress is stated at cost and capitalized as expenses are incurred or as payments are made pursuant to relevant construction contracts. Contract retention is recorded as accrued liability. Construction in progress is not depreciated until project completion and the constructed property being placed in service, at which time the capitalized balance will be transferred to appropriate account of property, plant and equipment. The Company depreciates property, plant, and equipment using the straight-line method as follows: Land use right Over the lease term Building and improvements 30 years Machinery and equipment 5 - 15 years Vehicles 15 years 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. F- 12 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statutory Reserves According to the laws and regulations in the PRC, the Company is required to provide for certain statutory funds, namely, a reserve fund by an appropriation from net profit after taxation but before dividend distribution based on the local statutory financial statements of the PRC subsidiaries and variable interest entity prepared in accordance with the PRC accounting principles and relevant financial regulations. Each of the Company’s wholly owned subsidiary and variable interest entity in the PRC are required to allocate at least 10 % of its net profit to the reserve fund until the balance of such fund has reached 50 % of its registered capital. Appropriations of additional reserve fund are determined at the discretion of its directors. The reserve fund can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital. For the years ended December 31, 2023, and 2022, IT Tech Packaging made transfers of $ nil to this reserve fund. No statutory reserves were provided for the year ended December 31, 2023, and 2022. The Company’s variable interest entity Dongfang Paper, the statutory reserve account of which has been fully funded for 50 % of its registered capital in the amount of RMB 75,030,000 (or approximately $ 11,811,470 ) since December 31, 2010, did not make any transfer to statutory reserves during the years ended December 31, 2023, and 2022. Employee Benefit Plan Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees. The total provision for such employee benefits was $ nil for the years ended December 31, 2023, and 2022. Revenue Recognition The Company adopted ASC Topic 606, Revenue from Contracts with Customers , and all subsequent ASUs that modified ASC 606 on April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods as if Topic 606 had been applied to all prior periods. The company derives revenue principally from producing and sales of paper products. Revenue from contracts with customers is recognized using the following five steps: 1. Identify the contract(s) with a customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) the entity satisfies a performance obligation. A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct. The transaction price is the amount of consideration a company expects to be entitled from a customer in exchange for providing the goods or services. The unit of account for revenue recognition is a performance obligation (a good or service). A contract may contain one or more performance obligations. Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise, performance obligations are combined with other promised goods or services until the Company identifies a bundle of goods or services that is distinct. Promises in contracts which do not result in the transfer of a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the context of the contract. The Company has addressed whether various goods and services promised to the customer represent distinct performance obligations. The Company applied the guidance of ASC Topic 606-10-25-16 through 18 in order to verify which promises should be assessed for classification as distinct performance obligations. The Company’s revenue is primary derived from sales of paper products. The Company recognizes revenue when goods are delivered, when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured. Goods are considered delivered when customer’s truck picks up goods at the Company’s finished goods inventory warehouse. Shipping Cost Substantially all customers use their own trucks or hire commercial trucking companies to pick up goods from the Company. The Company usually incurs no shipping cost for delivery of goods to customers. For those rare situations where products are not shipped utilizing customer specified shipping services, the Company charges customers a shipping fee which is included in net revenues and was not material. Freight-in and handling costs incurred by the Company with respect to purchased goods are recorded as a component of inventory cost and charged to cost of sales when the inventory items are sold. F- 13 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Advertising The Company expenses all advertising and promotion costs as incurred. The Company incurred $ nil advertising and promotion costs for the years ended December 31, 2023, and 2022. Research and development costs Research and development costs are expensed as incurred and included in selling, general and administrative expenses. Research and development expenses incurred $ 90,766 and $ 145,538 for the years ended December 31, 2023, and 2022, respectively. Borrowing costs Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their intended use or sale, are capitalized as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalized. All other borrowing costs are recognized in interest expenses in the period in which they are incurred. Government subsidies A government subsidy is not recognized until there is reasonable assurance that: (a) the enterprise will comply with the conditions attached to the grant; and(b)the grant will be received. When the Company receives government subsidies but the conditions attached to the grants have not been fulfilled, such government subsidies are deferred and recorded under other payables and accrued expenses, and other long-term liability. The classification of short-term or long-term liabilities is depended on the management’s expectation of when the conditions attached to the grant can be fulfilled. For the years ended December 31, 2023, and 2022, the Company received government subsidies of $ nil , which are recognized as subsidy income in the consolidated statements of income in that fiscal year. Income Taxes The Company accounts for income taxes pursuant to ASC Topic 740, Income Taxes. Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Any tax paid by subsidiaries during the year is recorded. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. ASC Topic 740 also requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carry-forwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain. The Company adopted ASC Topic 740-10-05, Income Tax , which provides guidance for recognizing and measuring uncertain tax positions, it prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognized in the financial statements. It also provides accounting guidance on derecognizing, classification and disclosure of these uncertain tax positions. The Company’s policy on classification of all interest and penalties related to unrecognized income tax positions, if any, is to present them as a component of income tax expense. Value Added Tax Both the PRC subsidiaries and variable interest entity of the Company are subject to value added tax (“VAT”) imposed by the PRC government on its purchase and sales of goods. The output VAT is charged to customers who purchase goods from the Company and the input VAT is paid when the Company purchases goods from its vendors. VAT rate is 17 % (before May 1, 2018), 16 % (after May 1, 2018) and 13 % (after April 1, 2019) in general, depending on the types of products purchased and sold. The input VAT can be offset against the output VAT. Debit balance of VAT payable represents a credit against future collection of output VAT instead of a receivable due from government. Comprehensive Income (Loss) The Company presents comprehensive income (loss) in accordance with ASC Topic 220, Comprehensive Income . ASC Topic 220 states that all items that are required to be recognized under accounting standards as components of comprehensive income (loss) be reported in the consolidated financial statements. The components of comprehensive income (loss) were the net income for the years and the foreign currency translation adjustments. Earnings Per Share Basic earnings per share is computed by dividing the net income attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities that were in-the-money that were outstanding during the years ended December 31, 2023. F- 14 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Reverse stock split On June 9, 2022, the Board of Directors of the Company approved the Reverse Stock Split, at a ratio of 1-for-10, pursuant to Section 78.207 of the Nevada Revised Statutes (“NRS”). The Reverse Stock Split was effected by the Company filing of a Certificate of Change Pursuant to NRS 78.209 with the Secretary of State of the State of Nevada on July 7, 2022. The par value per share of our stock remains unchanged at $ 0.001 per share after the Reverse Stock Split. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split. Fair Value Measurements The Company has adopted ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurement, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts that the Company could realize in a current market exchange. As of December 31, 2023, and 2022, the carrying value of the Company’s short term financial instruments, such as cash and bank balances, accounts receivable, accounts and notes payable, short-term bank loans and balance due to related parties, approximate at their fair values because of the short maturity of these instruments; while loans from credit union approximates 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. Derivative liabilities are measured at fair value on a recurring basis. 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 was determined using models with significant unobservable inputs which were classified as Level 3 inputs, primarily the discounted future cash flow. Recently issued accounting pronouncements In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. F- 15 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Restricted Cash Restricted cash of $ 472,983 as of December 31, 2023 was presented for the cash deposited at the Industrial and Commercial Bank of China of Tengsheng Paper. The deposit was restricted due to the personal legal proceeding of Mr. Ping, the Legal Representative of Tengsheng Paper. (4) Inventories Raw materials inventory includes mainly recycled paper and gas. Finished goods include mainly products of corrugating medium paper and offset printing paper. Inventories consisted of the following as of and December 31, 2023, and 2022: December 31, December 31, 2023 2022 Raw Materials Recycled paper board $ 198,744 $ 1,258,161 Recycled white scrap paper 10,647 10,809 Gas 21,428 42,237 Base paper and other raw materials 142,149 160,229 372,968 1,471,436 Semi-finished Goods 300,207 132,810 Finished Goods 2,885,019 1,268,376 Total inventory, gross 3,558,194 2,872,622 Inventory reserve ( 2,959 ) - Total inventory, net $ 3,555,235 $ 2,872,622 (5) Prepayments and other current assets Prepayments and other current assets consisted of the following as of December 31, 2023, and 2022: December 31, December 31, 2023 2022 Prepaid land lease $ - $ 172,300 Prepayment for purchase of materials 5,446,823 12,941,951 Value-added tax recoverable 13,409,459 13,640,868 Prepaid gas 116,372 27,462 Others 8,636 424,546 $ 18,981,290 $ 27,207,127 (6) Property, plant and equipment As of December 31, 2023, and 2022, property, plant and equipment consisted of the following: December 31, December 31, 2023 2022 Property, Plant, and Equipment: Land use rights $ 81,504,608 $ 57,686,220 Building and improvements 67,939,059 68,300,987 Machinery and equipment 158,629,858 158,498,316 Vehicles 348,209 681,617 Construction in progress - 1,239,698 Totals 308,421,734 286,406,838 Less: accumulated depreciation and amortization ( 144,447,712 ) ( 134,836,940 ) Property, Plant and Equipment, net $ 163,974,022 $ 151,569,898 F- 16 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2023, land use rights represented twenty-three 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 2068. As of December 31, 2022, land use rights represented twenty-three parcel of state-owned lands located in Xushui District of Hebei Province in China, with lease terms of 50 years expiring from 2061 to 2066, respectively. As of December 31, 2023 and 2022, certain property, plant and equipment of Dongfang Paper with net values of $ nil and $ 280,466 , respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Tengsheng Paper with net value of $ 4,910,034 and $ 5,111,014 , respectively, as of December 31, 2023 and 2022 was pledged for a long-term loan from credit union of Baoding Shengde. In addition, land use right of Tengsheng Paper with net value of $ 3,781,366 and $ 3,948,953 , respectively, as of December 31, 2023 and 2022 was pledged for another long-term loan from credit union of Baoding Shengde. Land use right of Dongfang Paper with net value of $ 5,135,132 as of December 31, 2023 was pledged for a long-term loan from credit union of Tengsheng Paper. See “Short-term bank loans” under Note (8), Loans Payable, for details of the transaction and asset collaterals. Depreciation and amortization of property, plant and equipment was $ 14,225,990 and $ 14,788,036 for the years ended December 31, 2023, and 2022, respectively. Loss from disposal and impairment of property, plant and equipment of $ 1,500,298 and $ nil were recorded for the years ended December 31, 2023, and 2022. (7) Leases Financing with Sale-Leaseback The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$ 2.3 million). Under the sale-leaseback arrangement, Tengsheng Paper sold the Leased Equipment to TLCL for 16 million (approximately US$ 2.3 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 $ 14 ) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $ 2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate of 15.6 % per annum and stated at $ 567,099 at the inception of the lease on August 17, 2020. Tengsheng Paper made payments due according to the schedule. On July 17, 2023, the Company made a final payment on outstanding obligations and bought back the Lease Equipment at nominal price according to the agreement. The lease assets were reclassified as own assets and balance of Leased Equipment net of amortization were $ nil and $ 1,939,970 as of December 31, 2023 and 2022, respectively. Operating lease as lessor The Company has a non-cancellable agreement to lease plant to tenant under operating lease for 1 year from November 2023 to November 2024. The lease does not contain contingent payments. The rental income of the year was paid in advance by the tenant in December 2023. Operating lease as lessee The Company leases space under non-cancelable operating leases for plant and production equipment. The lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions. The lease include option to renew in condition that it is agreed by the landlord before expiry. Therefore, the majority of renewals to extend the lease terms are not included in its right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluate the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. As the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. F- 17 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the Company’s lease expense are as follows: Year Ended 2023 RMB Operating lease cost 141,189 Short-term lease cost - Lease cost 141,189 Supplemental cash flow information related to its operating lease was as follows for the period ended December 31, 2023: Year Ended 2023 RMB Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating lease 141,189 Maturities of its lease liabilities for all operating lease are as follows as of December 31, 2023: December 31, Amount 2024 141,189 2025 141,189 2026 141,189 2027 141,189 2028 141,189 Thereafter - Total operating lease payments $ 705,945 Less: Interest ( 121,595 ) Present value of lease liabilities 584,350 Less: current portion, record in current liabilities ( 100,484 ) Present value of lease liabilities 483,866 The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of December 31, 2023: December 31, 2023 Remaining lease term and discount rate: RMB Weighted average remaining lease term (years) 4.6 Weighted average discount rate 7.56 % (8) Loans Payable Short-term bank loans December 31, December 31, 2023 2022 Industrial and Commercial Bank of China (“ICBC”) Loan 1 $ - $ 5,023,978 ICBC Loan 2 - 287,167 ICBC Loan 3 - 143,583 China Construction Bank Loan - 143,583 ICBC Loan 4 423,567 - ICBC Loan 5 2,824 - ICBC Loan 6 70,594 - ICBC Loan 7 350,149 - Total short-term bank loans $ 423,567 $ 5,598,311 F- 18 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On November 10, 2022, the Company entered into a working capital loan agreement with the ICBC. The loan was secured by the land use right of Dongfang Paper as collateral for the benefit of the bank and guaranteed by Mr. Liu. The loan bore a fixed interest rate of 4.785 % per annum. The Company repaid $ 71,743 in May 2023 and paid off the remaining balance of the loan in August 2023. The balance of the loan was $ nil and $ 5,023,978 as of December 31, 2023 and 2022, respectively. On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ nil and $ 287,167 as of December 31, 2023 and 2022, respectively. The loan bore an interest rate of 4.25 % per annum. The loan was fully repaid in May 2023. On November 30, 2022, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ nil and $ 143,583 as of December 31, 2023 and 2022, respectively. The loan bore an interest rate of 4.25 % per annum. The loan was fully repaid in May 2023. On July 29, 2022, the Company entered into a working capital loan agreement with the China Construction Bank, with a balance of $ nil and $ 143,583 as of December 31, 2023 and 2022, respectively. The loan bore a fixed interest rate of 3.95 % per annum. The loan was fully repaid in July 2023. On May 29, 2023, the Company entered into a working capital loan agreement with the ICBC, to borrow $ 423,567 at a fixed interest rate of 4.25 % per annum. The loan was repaid in November 2023. On June 29, 2023, the Company entered into a working capital loan agreement with the ICBC, to borrow $ 423,567 at a fixed interest rate of 3.55 % per annum. The loan was repaid in September 2023.. On September 15, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 2,824 as of December 31, 2023. The loan bears a fixed interest rate of 3.45 % per annum. The loan will be due by September 14, 2024. On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 70,594 as of December 31, 2023. The loan bears a fixed interest rate of 3.45 % per annum. The loan will be due by September 21, 2024. On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 350,149 as of December 31, 2023. The loan bears a fixed interest rate of 3.45 % per annum. The loan will be due by September 21, 2024. As of December 31, 2022, there were guaranteed short-term borrowings of $ 5,023,978 and unsecured bank loans of $ 574,333 . As of December 31, 2023, there were guaranteed short-term borrowings of $ nil and unsecured bank loans of $ 423,567 . The average short-term borrowing rates for the years ended December 31, 2023, and 2022 were approximately 4.48 % and 4.72 %, respectively. Long-term loans As of December 31, 2023, and 2022, long-term loan balance is $ 11,378,429 and $ 9,040,002 , respectively. December 31, December 31, 2023 2022 Rural Credit Union of Xushui District Loan 1 $ - $ 1,234,816 Rural Credit Union of Xushui District Loan 2 3,528,315 3,589,582 Rural Credit Union of Xushui District Loan 3 2,259,026 2,297,332 Rural Credit Union of Xushui District Loan 4 1,835,458 1,866,582 Rural Credit Union of Xushui District Loan 5 2,541,404 - Rural Credit Union of Xushui District Loan 6 1,214,226 - Yujiangna - 51,690 Total 11,378,429 9,040,002 Less: Current portion of long-term loans ( 6,874,497 ) ( 4,835,884 ) Long-term loans $ 4,503,932 $ 4,204,118 F- 19 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of Dec 31, 2023, the Company’s long-term debt repayments for the next coming years were as follows: Amount Fiscal year 2024 6,874,497 2025 3,374,419 2026 & after 1,129,513 Total 11,378,429 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 was guaranteed by an independent third party. Interest payment was due quarterly and bore a rate of 7.68 % per annum. Effective from November 15, 2022, the interest rate was reduced to 7 % per annum. On November 6, 2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. The loan was fully repaid in December 2023. As of December 31, 2023 and 2022, total outstanding loan balance was $ nil and $ 1,234,816 , respectively, which are presented as current liabilities in the consolidated balance sheet. On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and was due and payable in various installments from December 21, 2018 to June 20, 2023. On August 24, 2023, the loan was extended for another 3 years and will be due and payable on August 24, 2026 . The loan is secured by certain of the Company’s manufacturing equipment with net book value of $ nil and $ 280,466 as of December 31, 2023 and 2022, respectively. Interest payment is due monthly and bore a rate of 7.68 % per annum. Effective from November 15, 2022, the interest rate was reduced to 7 % per annum. As of December 31, 2023 and 2022, the total outstanding loan balance was $ 3,528,315 and $ 3,589,582 . Out of the total outstanding loan balance, current portion amounted was $ 1,269,290 , which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $ 2,259,025 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2023. On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on April 16, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bore a rate of 7.68 % per annum. Effective from November 15, 2022, the interest rate was reduced to 7 % per annum. As of December 31, 2023 and 2022, the total outstanding loan balance was $ 2,259,026 and $ 2,297,332 , respectively, which are presented as current liabilities and non-current liabilities in the consolidated balance sheet as of December 31, 2023 and 2022, respectively. On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7.56 % per annum. Effective from November 15, 2022, the interest rate was reduced to 7 % per annum. As of December 31, 2023 and 2022, the total outstanding loan balance was $ 1,835,458 and $ 1,866,582 , respectively, which are presented as current liabilities and non-current liabilities in the consolidated balance sheet as of December 31, 2023 and 2022, 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 RMB 400,000 from Jiangna Yu for a term of five years. The loan is payable in monthly installment of RMB 10,667 from July 2022 to July 2027. The company repaid the loan in November 2023. As of December 31, 2023 and 2022, the total outstanding loan balance was $ nil and $ 51,690 , respectively. Out of the total outstanding loan balance, current portion amounted $ nil and $ 11,486 , respectively, which are presented as current liabilities and the remaining balance of $ nil and $ 40,204 are presented as non-current liabilities in the consolidated balance sheet as of December 31, 2023 and 2022, respectively. On February 26, 2023, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from August 21, 2023 to February 24, 2025. The loan is secured by Dongfang Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7 % per annum. As of December 31, 2023, the total outstanding loan balance was $ 2,541,404 . Out of the total outstanding loan balance, current portion amounted was $ 1,284,820 , which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $ 1,256,584 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2023. On December 5, 2023, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 3 years, which was due in various installments from June 21, 2024 to December 5, 2026. The loan was guaranteed by an independent third party. Interest payment was due monthly and bore a rate of 7 % per annum. As of December 31, 2023, total outstanding loan balance was $ 1,214,226 . Out of the total outstanding loan balance, current portion amounted $ 225,903 , which is presented as current liabilities and the remaining balance of $ 988,323 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2023. Total interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2023, and 2022 were $ 977,678 and $ 988,997 respectively. F- 20 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) Related Party Transactions Mr. 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. 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 $ 361,915 and $ 368,052 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, 2023, and 2022, respectively. On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $ 8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35 % per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017 . During the year of 2016, the Company repaid $ 6,012,416 to Mr. Zhenyong Liu, together with interest of $ 288,596 . In February 2018, the company paid off the remaining balance, together with interest of $ 20,400 . As of December 31, 2023, and 2022, approximately $ 42,357 and $ 43,075 of interest were outstanding to Mr. Zhenyong Liu, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet. On March 1, 2015, the Company entered an agreement with Mr. Zhenyong Liu which allows Dongfang Paper to borrow from the CEO an amount up to $ 17,201,342 (RMB 120,000,000 ) for working capital purposes. The advances or funding under the agreement are due three years from the date each amount is funded. The loan is unsecured and carries an annual interest rate set on the basis of the primary lending rate of the People’s Bank of China at the time of the borrowing. On July 13, 2015, an unsecured amount of $ 4,324,636 was drawn from the facility. On October 14, 2016 an unsecured amount of $ 2,883,091 was drawn from the facility. In February 2018, the company repaid $ 1,507,432 to Mr. Zhenyong Liu. The loan would be originally due on July 12, 2018 . Mr. Zhenyong Liu agreed to extend the loan for additional 3 years and the remaining balance will be due on July 12, 2021. On November 23, 2018, the company repaid $ 3,768,579 to Mr. Zhenyong Liu, together with interest of $ 158,651 . In December 2019, the company paid off the remaining balance, together with interest of 94,636 . As of December 2023, and 2022, the outstanding interest was $ 194,047 and $ 197,338 , respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet. As of December 31, 2023, and 2022, 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, 2023, and 2022. The accrued interest owe to Mr. Zhenyong Liu was approximately $ 598,319 and $ 608,465 , 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 allows Mr. Zhenyong Liu to borrow from the Company an amount of $ 6,507,431 (RMB 44,089,085 ). The loan is unsecured and carries a fixed interest rate of 3 % per annum. The loan was repaid by Mr. Zhenyong Liu in February 2022. In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of $ 7,059,455 (RMB 50,000,000 ) in total. The loans were unsecured and carried a fixed interest rate of 4.35 % per annum. $ 4,235,673 (RMB 30,000,000 ) was repaid by Mr. Zhengyong Liu in August 2023 and the remaining balance was repaid in December 2023. Interest income of the loan for the year ended December 31, 2023 was $ 290,275 . As of December 31, 2023, and 2022, 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. F- 21 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) Other payables and accrued liabilities Other payables and accrued liabilities consist of the following December 31, December 31, 2023 2022 Accrued electricity $ 3,054 $ 3,036 Accrued rental - 56,646 Value-added tax payable 696 69,053 Accrued interest to a related party 598,319 608,465 Payable for purchase of property, plant and equipment 11,175,858 3,294,940 Accrued commission to salesmen 47,040 19,524 Accrued bank loan interest 1,070,708 1,595,354 Others 16,842 18,540 Totals $ 12,912,517 $ 5,665,558 (11) Derivative Liabilities The Company analyzed the warrant for derivative accounting consideration under ASC 815, “ Derivatives and Hedging, and hedging, ” and determined that the instrument should be classified as a liability since the warrant becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of December 31, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the December 31, 2023: Year ended December 31, 2023 Expected term 0.93 - 2.75 Expected average volatility 74 % - 102 % Expected dividend yield - Risk-free interest rate 0.19 % - 4.01 % The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2023: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance at December 31, 2022 $ 646,283 Change in fair value of derivative liability ( 646,229 ) Balance at December 31, 2023 $ 54 The following table summarizes the loss on derivative liability included in the income statement for the year ended December 31, 2023 and 2022, respectively. Year Ended December 31, 2023 2022 Day one loss due to derivative liabilities as warrant $ - $ - (Gain) Loss on change in fair value of derivative liability ( 646,229 ) ( 1,417,251 ) ( 646,229 ) ( 1,417,251 ) F- 22 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) Common Stock Issuance of common stock to investors On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 2,618,182 shares of common stock and 2,618,182 warrants to purchase up to 2,618,182 shares of common stock in a best-efforts public offering for gross proceeds of approximately $ 14.4 million. The purchase price for each share of common stock and the corresponding warrant was $ 5.5 . The exercise price of the warrant was $ 5.5 per share. On March 1, 2021, the Company offered and sold to the public investors an aggregate of 2,927,786 shares of common stock and 1,463,893 warrants to purchase up to 1,463,893 shares of common stock in a firm commitment underwritten public offering for gross proceeds of approximately $ 21.9 million. The purchase price for each share of common stock and accompanying warrant was $ 7.5 . The exercise price of the warrant was $ 7.5 per share. Reverse stock split On June 9, 2022, the Board of Directors of the Company approved the Reverse Stock Split, at a ratio of 1-for-10 , pursuant to Section 78.207 of the Nevada Revised Statutes (“NRS”). The Reverse Stock Split was affected by the Company filing of a Certificate of Change Pursuant to NRS 78.209 with the Secretary of State of the State of Nevada on July 7, 2022. The par value per share of our stock remains unchanged at $ 0.001 per share after the Reverse Stock Split. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split. Issuance of common stock pursuant to the 2021 Incentive Stock Plan On August 15, 2022, the Company granted an aggregate of 150,000 shares of common stock under its compensatory incentive plans to fifteen employees, as awards under the 2021 Incentive Stock Plan. Please see Note (16), Stock Incentive Plans for more details. Total fair value of the stock was calculated at $ 156,000 as of the date of grant. (13) Warrants On April 29, 2020, the Company and certain institutional investors entered into a securities purchase agreement, as amended on May 4, 2020 (the “2020 Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 440,000 shares of common stock and warrants to purchase up to 440,000 shares of common stock in a concurrent private placement (the “May 2020 Warrants”). The exercise price of the May 2020 Warrant is $ 7.425 per share. These warrants become exercisable on July 23, 2020 and have a term of exercise equal to five years and six months from the date of issuance till July 23, 2025. 88,000 May 2020 Warrants were exercised in February 2021 at the exercise price of $ 7.425 per share and 352,000 May 2020 Warrants were outstanding as of December 31, 2023. On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 2,618,182 shares of common stock and 2,618,182 warrants to purchase up to 2,618,182 shares of common stock (the “January 2021 Warrants”). The January 2021 Warrants became exercisable on January 20, 2021 at an exercise price of $ 5.5 and will expire on January 20, 2026. 1,410,690 January 2021 Warrants were exercised in January and February of 2021 at the exercise price of $ 5.5 per share. 1,207,492 January 2021 Warrants were outstanding as of December 31, 2023. On March 1, 2021, the Company offered and sold to the public investors an aggregate of 2,927,786 shares of common stock and 1,463,893 warrants to purchase up to 1,463,893 shares of common stock (the “March 2021 Warrants”). The March 2021 Warrants became exercisable on March 1, 2021 at an exercise price of $ 7.5 and will expire on March 1, 2026. 6,750 March 2021 Warrants were exercised in January and March 2021 at the exercise price of $ 7.5 per share and 1,457,143 March 2021 Warrants were outstanding as of December 31, 2023. The Company classified warrant as liabilities and accounted for the issuance of the warrants as a derivative. F- 23 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of stock warrant activities is as below: Year Ended December 31, 2023 Weight average exercise Number price Outstanding and exercisable at beginning of the period 3,016,635 $ 6.6907 Issued during the period - Exercised during the period - Cancelled or expired during the period - Outstanding and exercisable at end of the period 3,016,635 $ 6.6907 The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2023. Warrants Outstanding Warrants Exercisable Weighted Average Weighted Weighted Remaining Average Average Number of Contractual life Exercise Number of Exercise Shares (in years) Price Shares Price 3,016,635 2.09 $ 6.6907 3,016,635 $ 6.6907 Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at December 31, 2023 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). The intrinsic value of the warrants as of December 31, 2023 and 2022 are $ nil . (14) Earnings Per Share For the years ended December 31, 2023, and 2022, basic and diluted net income per share are calculated as follows: Year Ended December 31, 2023 2022 Basic loss per share Net loss for the year - numerator $ ( 9,946,035 ) $ ( 16,571,308 ) Weighted average common stock outstanding - denominator 10,065,920 9,972,788 Net loss per share $ ( 0.99 ) $ ( 1.66 ) Diluted loss per share Net loss for the year - numerator $ ( 9,946,035 ) $ ( 16,571,308 ) Weighted average common stock outstanding - denominator 10,065,920 9,972,788 Effect of dilution - - Weighted average common stock outstanding - denominator 10,065,920 9,972,788 Diluted loss per share $ ( 0.99 ) $ ( 1.66 ) F- 24 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) Income Taxes United States The Company and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S. federal tax and state statutory tax rates up to 34 % and 0 %, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “2017 TCJA”), which significantly changed U.S. tax law. The 2017TCJA 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 2017TCJA. SAB 118 provides a measurement period of up to one year from the 2017TCJA’s enactment date for companies to complete their accounting under ASC740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017TCJA 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 2017TCJA. Transition tax: The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s non-U.S. subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. The Company was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional income tax expense of approximately $ 80,000 in the fourth quarter of 2017. However, the Company is continuing to gather additional information and will consider additional technical guidance to more precisely compute and account for the amount of the transition tax. This amount may change when the Company finalizes the calculation of post-1985 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The 2017TCJA’s transition tax is payable over eight years beginning in 2018. PRC Dongfang Paper and Baoding Shengde are PRC operating companies and are subject to PRC Enterprise Income Tax. Pursuant to the PRC New Enterprise Income Tax Law, Enterprise Income Tax is generally imposed at a statutory rate of 25 %. The provisions for income taxes for the years ended December 31, 2023, and 2022 were as follows: Year Ended December 31, 2023 2022 Provision for Income Taxes Current Tax Provision U.S. $ - $ 15,062 Current Tax Provision PRC 346,954 1,435,173 Deferred Tax Provision PRC - 10,261,104 Total Provision for (Deferred tax benefit)/ Income Taxes $ 346,954 $ 11,711,339 In addition to the reversible future PRC income tax benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset depreciation, the Company was incorporated in the United States and incurred net operating losses of approximately $ 62,499 and $ 530,581 for U.S. income tax purposes for the years ended December 31, 2023 and 2022, respectively. The net operating loss carried forward may be available to reduce future years’ taxable income. These carry forwards would expire, if not utilized, during the period of 2030 through 2035. As of December 31, 2023, management believed that the realization of all the U.S. income tax benefits from these losses, which generally would generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, As of December 31, 2023 and 2022, the Company provided a 100 % valuation allowance on the U.S. deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable for the PRC income tax purposes. Management reviews this valuation allowance periodically and will make adjustments as warranted. A summary of the otherwise deductible (or taxable) deferred tax items is as follows: December 31, December 31, 2023 2022 Deferred tax assets (liabilities) Depreciation and amortization of property, plant and equipment $ 16,922,756 $ 15,474,485 Impairment of property, plant and equipment 585,380 796,559 Miscellaneous 135,714 615,436 Net operating loss carryover of PRC company 274,525 213,620 (Gain)/Loss on asset disposal 　( 64,065 )　 　- Total deferred tax assets 17,854,310 17,100,100 Less: Valuation allowance ( 17,854,310 ) ( 17,100,100 ) Total deferred tax assets, net $ - 　- F- 25 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table reconciles the statutory rates to the Company’s effective tax rate as of: Year Ended December 31, 2023 2022 PRC Statutory rate 25.0 % 25.0 % Effect of different tax jurisdiction ( 20.7 ) ( 17.0 )% Change in valuation allowance ( 7.9 )% ( 249.0 )% Effective income tax rate ( 3.6 )% ( 241.0 )% During the years ended December 31, 2023, and 2022, the effective income tax rate was estimated by the Company to be - 3.6 % and - 241.0 %, respectively. As of December 31, 2023, except for the one-time transition tax under the 2017 TCJA which imposes a U.S. tax liability on all unrepatriated foreign E&Ps, the Company does not believe that its future dividend policy and the available U.S. tax deductions and net operating losses will cause the Company to recognize any other substantial current U.S. federal or state corporate income tax liability in the near future. Nor does it believe that the amount of the repatriation of the VIE’s earnings and profits for purposes of paying dividends will change the Company’s position that its PRC subsidiary Baoding Shengde and the VIE, Dongfang Paper are considered or are expected to be indefinitely reinvested offshore to support our future capacity expansion. If these earnings are repatriated to the U.S. resulting in U.S. taxable income in the future, or if it is determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. 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, 2023 and 2022, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the year ended December 31, 2023 and 2022, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority. (16) Stock Incentive Plans 2021 Incentive Stock Plan On November 12, 2021, the Company’s Annual General Meeting adopted and approved the 2021 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc.(the”2021 Plan”). Under the 2021 ISP, the Company has reserved a total of 150,000 shares of common stock for issuance as or under awards to be made to the directors, officers, employees and/or consultants of the Company and its subsidiaries. On August 15, 2022, the Company granted an aggregate of 150,000 shares of common stock under its compensatory incentive plans to fifteen employees. Total fair value of the stock was calculated at $ 156,000 as of the date of grant. 2023 Incentive Stock Plan On October 31, 2023, the Company’s Annual General Meeting adopted and approved the 2023 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc.(the”2023 Plan”). Under the 2023 ISP, the Company has reserved a total of 1,500,000 shares of common stock for issuance as or under awards to be made to the directors, officers, employees and/or consultants of the Company and its subsidiaries. All shares of common stock under the 2023 ISP, including shares originally authorized by equity holders and shares remaining for future issuance as of December 31, 2023, have been reserved. F- 26 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (17) Commitments and Contingencies Xushui Land Lease The Company leases 32.95 acres of land from a local government in Xushui District, Baoding City, Hebei, China through a real estate lease with a 30 -year term, which expires on December 31, 2031. The lease requires an annual rental payment of approximately $ 16,943 (RMB 120,000 ). This lease is renewable at the end of the 30-year term. December 31, Amount 2024 16,943 2025 16,943 2026 16,943 2027 16,943 2028 16,943 Thereafter 　　 50,828 Total operating lease payments $ 135,543 Sale of Headquarters Compound Real Properties On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $ 2.77 million, $ 1.15 million, and $ 4.31 million respectively. Sales of the LUR and the Industrial Buildings were completed in year 2013. In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use with an annual rental payment of approximately $ 141,189 (RMB 1,000,000 ). The lease was recorded in lease assets and liabilities in the consolidated balance sheet as of December 31, 2023. December 31, Amount 2024 141,189 2025 141,189 2026 141,189 2027 141,189 2028 141,189 Thereafter - Total operating lease payments $ 705,945 Less: Interest ( 121,595 ) Present value of lease liabilities 584,350 Less: current portion, record in current liabilities ( 100,484 ) Present value of lease liabilities 483,866 Capital commitment As of December 31, 2023, the Company has entered into several contracts for the purchase of paper machine of a new tissue paper production line PM10 and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were $ 3,499,936 and $ 4,329,279 as of December 31, 2023 and 2022, respectively. The Company expected to pay off all the balances within 1 - 3 years. Guarantees and Indemnities The Company agreed with Baoding Huanrun Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third party, and as of December 31, 2023, and 2022, the Company guaranteed its long-term loan from financial institutions amounting to $ 4,376,862 (RMB 31,000,000 ) and $ 4,451,081 (RMB 31,000,000 ), respectively, that matured at various times in 2028. If Huanrun Trading Co., were to become insolvent, the Company could be materially adversely affected. F- 27 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) Segment Reporting Since March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through three business operating segments: Dongfang Paper and Tengsheng Paper, which produces offset printing paper, corrugating medium paper and tissue paper, and Baoding Shengde, which produces face masks and digital photo paper. They are managed separately because each business requires different technology and marketing strategies. The Company evaluates performance of its operating segments based on net income. Administrative functions such as finance, treasury, and information systems are centralized. However, where applicable, portions of the administrative function expenses are allocated among the operating segments based on gross revenue generated. The operating segments do share facilities in Xushui County, Baoding City, Hebei Province, China. All sales were sold to customers located in the PRC. Summarized financial information for the three reportable segments is as follows: Year Ended December 31, 2023 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Revenues $ 85,106,864 1,334,022 106,064 - - 86,546,950 Gross profit 4,006,381 ( 2,995,369 ) ( 11,127 ) - - 999,885 Depreciation and amortization 4,168,755 8,470,810 1,586,425 - - 14,225,990 Loss on impairment of assets 905,226 219,744 375,328 - - 1,500,298 Interest income 300,928 2,376 9,790 2,002 - 315,096 Interest expense 503,740 181,447 291,675 7,656 - 984,518 Income tax expense(benefit) 346,954 - - - - 346,954 Net income (loss) ( 109,770 ) ( 9,004,792 ) ( 726,065 ) ( 105,408 ) - ( 9,946,035 ) Year Ended December 31, 2022 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Revenues $ 98,725,408 1,369,206 257,820 - - 100,352,434 Gross profit 7,629,761 ( 2,942,893 ) 67,328 - - 4,754,196 Depreciation and amortization 4,782,157 8,349,374 1,656,505 - - 14,788,036 Interest income 12,820 1,209 8,684 1,551 - 24,264 Interest expense 653,525 54,180 320,246 - - 1,027,951 Income tax expense(benefit) 3,054,208 7,062,139 1,579,930 15,062 - 11,711,339 Net income (loss) 780,465 ( 17,162,887 ) ( 1,100,286 ) 880,406 30,994 ( 16,571,308 ) As of December 31, 2023 Dongfang Paper Tengsheng Paper Baoding Shengde Not Attributable to Segments Elimination of Inter-segment Enterprise-wide, consolidated Total assets $ 57,139,592 127,734,031 8,184,902 1,685,124 - 194,743,649 As of December 31, 2022 Dongfang Paper Tengsheng Paper Baoding Shengde Not Attributable to Segments Elimination of Inter-segment Enterprise-wide, consolidated Total assets $ 63,365,986 117,645,828 17,945,969 5,489,450 - 204,447,233 F- 28 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (19) Concentration and Major Customers and Suppliers For the years ended December 31, 2023, and 2022, the Company had no single customer contributed over 10 % of total sales. For the year ended December 31, 2023, the Company had two major suppliers that accounted for 72 % and 17 % of total purchases by the Company. For the year ended December 31, 2022, the Company had two major suppliers that accounted for 76 % and 15 % of total purchases by the Company. (20) Concentration of Credit Risk Financial instruments for which the Company is potentially subject to concentration of credit risk consist principally of cash. The Company places its cash in reputable financial institutions in the PRC and the United States. Although it is generally understood that the PRC central government stands behind all of the banks in China in the event of bank failure, there is no deposit insurance system in China that is similar to the protection provided by the Federal Deposit Insurance Corporation (“FDIC”) of the United States as of December 31, 2023 and 2022. On May 1, 2015, the new “Deposit Insurance Regulations” was effective in the PRC that the maximum protection would be up to RMB 500,000 (US$ 70,595 ) per depositor per insured financial intuition, including both principal and interest. For the cash placed in financial institutions in the United States, the Company’s U.S. bank accounts are all fully covered by the FDIC insurance as of December 31, 2023, and 2022, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB 500,000 amounted to RMB 24,135,060 (US$ 3,407,607 ) as of December 31, 2023. (21) Risks and Uncertainties IT Tech Packaging is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange rates, and operating in the PRC under its various laws and restrictions. F- 29 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (22) Subsequent Event The board removed Jie Ping from the position of Legal Representative of Tengsheng Paper On January 1, 2024. (23) Summarized Quarterly Financial Data (Unaudited) Quarter 2023 First Second Third Fourth Revenues $ 19,790,877 $ 30,019,914 $ 15,771,560 $ 20,964,599 Gross (loss) profit ( 276,999 ) 1,179,858 ( 153,223 ) 250,249 Loss from operations ( 2,772,361 ) ( 518,683 ) ( 2,484,513 ) ( 3,800,331 ) Net loss ( 2,733,165 ) ( 1,253,493 ) ( 1,975,368 ) ( 3,984,009 ) Net income per share Basic $ - 0.27 $ - 0.125 $ - 0.20 $ - 0.40 Diluted $ - 0.27 $ - 0.125 $ - 0.20 $ - 0.40 2022 First Second Third Fourth Revenues $ 15,481,618 $ 31,788,884 $ 31,709,214 $ 21,372,718 Gross profit 310,445 634,037 2,783,588 1,026,126 Loss from operations ( 2,990,436 ) ( 1,235,765 ) ( 586,953 ) ( 1,895,373 ) Net loss ( 2,488,214 ) ( 287,913 ) ( 1,887,318 ) ( 11,907,863 ) Net income per share Basic $ - 0.03 $ - 0.003 $ - 0.19 $ - 1.19 Diluted $ - 0.03 $ - 0.003 $ - 0.19 $ - 1.19 F- 30 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (24) Condensed Financial Information of the Parent Company The condensed financial statements of IT Tech Packaging Inc. (“ITP”, the “parent company”) have been prepared in accordance with accounting principles generally accepted in the United States of America. Under the PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the parent company in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital, capital surplus and statutory reserves, as determined pursuant to PRC generally accepted accounting principles, totaling $ 86,641,643 and $ 86,141,643 as of December 31, 2023, and 2022. The following represents condensed unconsolidated financial information of the parent company only: December 31, December 31, 2023 2022 ASSETS Current Assets Cash and cash equivalents $ 678,347 $ 1,930,241 Prepayments and other current assets 　 - 　 - Total current assets 678,347 1,930,241 Investment in subsidiaries 172,382,428 184,806,532 Total Assets $ 173,060,775 $ 186,736,773 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Inter-company payable $ 4,026,904 $ 4,070,160 Due to related parties 727,433 727,433 Accrued payroll and employee benefit - - Accrued liabilities - - Income tax payable 　 - 　 - Total current liabilities 　 4,754,337 　 4,797,593 Derivative liability 54 646,283 Total liabilities $ 4,754,391 $ 5,443,876 Total stockholders’ equity 1 68,306,384 181,292,897 Total Liabilities and Stockholders’ Equity $ 173,060,775 $ 186,736,773 F- 31 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2023 2022 Revenue - - Selling, general and administrative expenses $ 708,638 $ 515,294 Loss from Operations ( 708,638 ) ( 515,294 ) Equity in earnings of unconsolidated subsidiaries ( 9,883,626 ) ( 17,489,197 ) Loss on derivative liability 646,229 1,417,251 Other Income (Expense) 　- - Income before Income Taxes ( 9,946,035 ) ( 16,587,240 ) Provision for Income Taxes - 　( 15,062 ) Net Income $ ( 9,946,035 ) $ ( 16,602,302 ) Other comprehensive income /(loss) ( 3,040,994 ) ( 18,010,708 ) Total Comprehensive Income (loss) $ ( 12,987,029 ) $ ( 34,613,010 ) Year Ended December 31, 2023 2022 Net Cash Used in Operating Activities $ ( 708,641 ) $ ( 374,357 ) Net Cash Used in Investing Activities ( 500,000 ) ( 6,502,000 ) Net Cash Provided by Financing Activities 　( 43,253 ) 　( 329,399 ) Net Increase (Decrease) in Cash and Cash Equivalents ( 1,251,894 ) ( 7,205,755 ) Cash and Cash Equivalents - Beginning of Year 　 1,930,241 　 9,135,996 Cash and Cash Equivalents - End of Year $ 678,347 $ 1,930,241 The condensed financial information has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company has used equity method to account for its investments in the subsidiaries. F- 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On February 29, 2024, WWC, P.C. Certified Public Accountants (“WWC”) resigned as our independent registered public accounting firm, effective immediately. WWC’s reports on our consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years ended December 31, 2022 and 2021, and the subsequent interim period through February 29, 2024, there were no disagreements with WWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of WWC, would have caused WWC to make reference to the subject matter of the disagreements in connection with its reports on our consolidated financial statements for such years. Also during this time, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K. We provided WWC with a copy of the above disclosures and requested that WWC furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the statements made above. A copy of WWC’s letter dated February 29, 2024 was attached as Exhibit 16.1 to a Current Report on Form 8-K that was filed by us with the SEC on March 4, 2024. On March 1, 2024, we engaged GGF CPA LIMITED (“GGF”) as our independent registered public accounting firm for the fiscal year ending December 31, 2023, effective immediately. During the fiscal years ended December 31, 2022 and 2021 and through March 1, 2024, neither we nor anyone on its behalf consulted with GGF regarding (i) the application of accounting principles to any specified transaction, either completed or proposed or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that GGF concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement,” as defined in Item 304(a)(1)(iv) of Regulation S-K, or a “reportable event,” as defined in Item 304(a)(1)(v) of Regulation S-K.