IT TECH PACKAGING, INC. 10-K

Item 8. Financial Statements and Supplementary Data Our audited financial statement for the fiscal year ended December 31, 2024 and 2023, 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, 2024, and 2023, 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, 2024, 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, 2024, and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, 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 We have served as the Company’s auditor since March 1, 2024. Guangzhou, Guangdong, China PCAOB NO: 2729 April 11, 2025 F- 1 IT TECH PACKAGING, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2024 AND 2023 December 31, December 31, 2024 2023 ASSETS Current Assets Cash and bank balances $ 5,916,373 $ 3,918,938 Restricted cash 1,034,203 472,983 Accounts receivable (net of allowance for doubtful accounts of $ 53,111 and $ 11,745 as of December 31, 2024 and December 31, 2023, respectively) 287,576 575,526 Inventories 2,351,876 3,555,235 Prepayments and other current assets 17,951,267 18,981,290 Due from related parties 920,008 853,929 Total current assets 28,461,303 28,357,901 Operating lease right-of-use assets, net 421,868 528,648 Property, plant, and equipment, net 146,911,883 163,974,022 Value-added tax recoverable 1,751,732 1,883,078 Deferred tax asset non-current - - Total Assets $ 177,546,786 $ 194,743,649 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans $ 4,451,616 $ 423,567 Current portion of long-term loans 3,559,902 6,874,497 Lease liability 245,604 100,484 Accounts payable 1 4,991 Advance from customers 11,773 136,167 Due to related parties 43,468 728,869 Accrued payroll and employee benefits 207,508 237,842 Other payables and accrued liabilities 11,545,990 12,912,517 Income taxes payable 80,905 - Total current liabilities 20,146,767 21,418,934 Long-term loans 1,112,904 4,503,932 Lease liability - non-current 231,147 483,866 Derivative liability 5,651 54 Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $ 16,976,765 and $ 20,084,995 as of December 31, 2024 and 2023, respectively) 21,496,469 26,406,786 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, 2024 and December, 31, 2023. 10,066 10,066 Additional paid-in capital 89,172,771 89,172,771 Statutory earnings reserve 6,080,574 6,080,574 Accumulated other comprehensive loss ( 12,998,986 ) ( 10,555,534 ) Retained earnings 73,785,892 83,628,986 Total stockholders’ equity 156,050,317 168,336,863 Total Liabilities and Stockholders’ Equity $ 177,546,786 $ 194,743,649 See accompanying notes to consolidated financial statements. F- 2 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Year Ended December 31, 2024 2023 Revenues $ 75,837,943 $ 86,546,950 Cost of sales ( 69,146,203 ) ( 85,547,065 ) Gross Profit 6,691,740 999,885 Selling, general and administrative expenses ( 14,799,969 ) ( 9,075,475 ) Loss on impairment of assets ( 102,490 ) ( 1,500,298 ) Loss from Operations ( 8,210,719 ) ( 9,575,888 ) Other Income (Expense): Interest income 14,793 315,096 Interest expense ( 762,377 ) ( 984,518 ) Gain (Loss) on derivative liability ( 5,597 ) 646,229 Loss before Income Taxes ( 8,963,900 ) ( 9,599,081 ) Income Tax (Expenses) Benefits ( 879,194 ) ( 346,954 ) Net Loss ( 9,843,094 ) ( 9,946,035 ) Other Comprehensive Loss Foreign currency translation adjustment ( 2,443,452 ) ( 3,040,994 ) Total Comprehensive Loss $ ( 12,286,546 ) $ ( 12,987,029 ) Losses Per Share: Basic and Diluted Losses per Share $ ( 0.98 ) $ ( 0.99 ) Outstanding – Basic and Diluted 10,065,920 10,065,920 F- 3 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Accumulated Additional Statutory Other Common Stock Paid-in Earnings Comprehensive Retained Shares Amount Capital Reserve Income (loss) Earnings Total 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 Foreign currency translation adjustment ( 2,443,452 ) ( 2,443,452 ) Net loss ( 9,843,094 ) ( 9,843,094 ) Balance at December 31, 2024 10,065,920 $ 10,066 $ 89,172,771 $ 6,080,574 $ ( 12,998,986 ) $ 73,785,892 $ 156,050,317 See accompanying notes to consolidated financial statements. F- 4 IT TECH PACKAGING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Year Ended December 31, 2024 2023 Cash Flows from Operating Activities: Net income $ ( 9,843,094 ) $ ( 9,946,035 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,221,082 14,225,990 (Gain) Loss on derivative liability 5,597 ( 646,229 ) (Gain) Loss from disposal and impairment of property, plant and equipment 102,490 1,608,542 (Recovery from) for bad debts 911,228 34,193 Allowances for inventories, net 730,490 2,970 Changes in operating assets and liabilities: Accounts receivable 240,346 280,970 Prepayments and other current assets ( 6,090 ) 9,322,532 Inventories 432,189 ( 736,267 ) Accounts payable ( 4,966 ) 50 Advance from customers ( 123,624 ) 136,686 Related parties ( 38,206 ) ( 478,025 ) Accrued payroll and employee benefits ( 27,107 ) 74,908 Other payables and accrued liabilities ( 382,586 ) ( 596,695 ) Income taxes payable 81,720 ( 412,504 ) Net Cash Provided by Operating Activities 6,299,469 12,871,086 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 329,611 ) ( 22,292,870 ) Proceeds from sale of property, plant and equipment - 53,573 Net Cash Used in Investing Activities ( 329,611 ) ( 22,239,297 ) Cash Flows from Financing Activities: Repayments of related party loans ( 727,433 ) - Proceeds from short term bank loans 843,087 1,275,546 Proceeds from long term loans - 3,769,948 Repayment of bank loans ( 3,372,350 ) ( 7,647,610 ) Payment of capital lease obligation - ( 74,154 ) Loan to a related party (net) - 7,086,369 Net Cash (Used in) Provided by Financing Activities ( 3,256,696 ) 4,410,099 Effect of Exchange Rate Changes on Cash and Cash Equivalents ( 154,507 ) ( 174,835 ) Net Increase (Decrease) in Cash and Cash Equivalents 2,558,655 ( 5,132,947 ) Cash, Cash Equivalents and Restricted Cash - Beginning of Year 4,391,921 9,524,868 Cash, Cash Equivalents and Restricted Cash - End of Year $ 6,950,576 $ 4,391,921 Supplemental Disclosure of Cash Flow Information: Cash paid for interest, net of capitalized interest cost $ 1,812,864 $ 1,484,461 Cash paid for income taxes $ 797,473 $ 759,458 Cash and bank balances 5,916,373 3,918,938 Restricted cash 1,034,203 472,983 Total cash, cash equivalents and restricted cash shown in the statement of cash flows 6,950,576 4,391,921 See accompanying notes to consolidated financial statements. F- 5 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- 6 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, 2024 and 2023 was accounted for 100 %%and 99.88 % of the Company’s total revenue, respectively. Dongfang Paper and Tengsheng Paper also accounted for 96.07 % and 94.93 % of the total assets of the Company as of December 31, 2024 and 2023, respectively. F- 7 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024, and 2023, 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- 8 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, 2024, and 2023 are as follows: December 31, December 31, 2024 2023 ASSETS Current Assets Cash and bank balances $ 5,850,910 $ 2,807,608 Restricted cash 1,034,203 472,983 Accounts receivable 287,576 575,526 Inventories 2,351,876 3,555,235 Prepayments and other current assets 17,922,229 18,617,351 Due from related parties - 289,173 Total current assets 27,446,794 26,317,876 Operating lease right-of-use assets, net 421,868 528,648 Property, plant, and equipment, net 142,702,663 158,027,099 Deferred tax asset non-current - - Total Assets $ 170,571,325 $ 184,873,623 LIABILITIES Current Liabilities Short-term bank loans $ - $ - Current portion of long-term loans 3,559,902 2,780,014 Lease liability 245,604 100,484 Accounts payable - 4,991 Advance from customers 11,773 136,167 Due to related parties 26,244 - Accrued payroll and employee benefits 172,239 231,568 Other payables and accrued liabilities 11,536,047 11,843,973 Income taxes payable 80,905 - Total current liabilities 15,632,714 15,097,197 Long-term loans 1,112,904 4,503,932 Lease liability - non-current 231,147 483,866 Total liabilities $ 16,976,765 $ 20,084,995 F- 9 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. Liquidity and Going Concern As of December 31, 2024, the Company had current assets of $ 28,461,303 (including a VAT recoverable of Tengsheng Paper in amount of $ 13,154,375 ), and current liabilities of $ 20,146,767 , resulting in a working capital of $ 8,314,536 . However, production of Baoding Shende has been suspended in 2024, rendering related VAT unrecoverable in the short term. Net working capital excluding VAT recoverable as of December 31, 2024 was a working capital deficit of $ 4,839,839 . Baoding Shengde and Tengsheng Paper have incurred loss that there is doubt about these subsidiaries ability to continue as going concerns. The main reason of losses was due to high depreciation costs, decreased market demand, and elevated material costs. Therefore, there was a substantial doubt about the ability of the Company to continue as a going concern that it may be unable to realize its assets and discharge its liabilities in the normal course of business as of December 31, 2024. To address these challenges, the Company plans to optimize its raw material structure and stabilize manufacturing capacity utilization, which will help to reduce procurement costs. Additionally, the Company is actively exploring new products and adjusting pricing strategies in a timely manner to secure a larger market share. Furthermore, the Company will maintain rigorous control over inventory, working capital, and cash flow to mitigate financial risks. The Company will also strategically utilize financing quotas from the capital market to ensure the smooth and healthy operation of the company. The Company’s continued existence as a going concern depends on the successful implementation of its business plan. This includes increasing market acceptance of its products to boost sales volume and achieve economies of scale, while deploying more effective marketing strategies and cost control measures to better manage the operating cash flow position. 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, 2024, and 2023 to translate the Chinese RMB to the U.S. Dollars are 7.1884 : 1 , and 7.0827 : 1 , respectively. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective years at 7.1167 : 1 and 7.0558 : 1 for the years ended December 31, 2024, and 2023, 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, 2024, and 2023, and revenues and expenses for the years ended December 31, 2024, and 2023. 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- 10 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, 2024, and 2023, the balance of allowance for doubtful accounts was $ 53,111 and $ 11,745 , 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 2024 2023 Opening balance $ 11,745 $ 881,878 Provision (Reversal) for the year 41,956 ( 858,689 ) Exchange difference ( 590 ) ( 11,444 ) Closing balance $ 53,111 $ 11,745 Inventories, net Inventories are stated at the lower of cost (weighted average basis) or net realizable value. The methods of determining inventory costs are used consistently from year to year. Net realizable value is based on estimated selling prices less selling expenses and any further costs expected to be incurred for completion. Adjustments to reduce the cost of inventory to net realizable value are made, if required, for estimated excess, obsolescence, or impaired balances. Inventories consist principally of raw materials and finished goods. Cost includes labor, raw materials, and allocated overhead. Provision in inventories were $ 730,490 and $ 2,970 for the years ended December 31, 2024, and 2023, 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- 11 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, 2024, and 2023, IT Tech Packaging made transfers of $ nil to this reserve fund. No statutory reserves were provided for the year ended December 31, 2024, and 2023. 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, 2024, and 2023. 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, 2024, and 2023. 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- 12 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, 2024, and 2023. 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 $ 99,610 and $ 90,766 for the years ended December 31, 2024, and 2023, 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. 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, 2024. F- 13 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024, and 2023, 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU’s amendments are effective for all entities that are subject to Topic 740, Income Taxes, for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, which emphasizes the importance of providing more granular and detailed expense information in financial statements. The update requires entities to disaggregate expenses by nature and function on the income statement, offering a clearer picture of an entity’s cost structure and operational efficiency. This enhanced disclosure is intended to improve the transparency and comparability of financial reporting. Entities must apply the new guidance retrospectively to all periods presented in the financial statements. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is in the process of assessing the impact of these changes on its financial reporting and will implement the necessary adjustments to comply with the updated standards. F- 14 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Restricted Cash Restricted cash of $ 1,034,203 and $ 472,983 as of December 31, 2024 and 2023 was presented for the cash deposited at the banks of Tengsheng Paper. The deposits were restricted due to the legal proceeding against Tengsheng Paper and Jie Ping, who had served as the executive director and 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, 2024, and 2023: December 31, December 31, 2024 2023 Recycled paper board $ 1,353,543 $ 198,744 Recycled white scrap paper 10,491 10,647 Gas 16,334 21,428 Base paper and other raw materials 132,348 142,149 1,512,716 372,968 Semi-finished Goods 295,792 300,207 Finished Goods 1,269,487 2,885,019 Total inventory, gross 3,077,995 3,558,194 Inventory reserve ( 726,119 ) ( 2,959 ) $ 2,351,876 $ 3,555,235 The movement of inventory reserve was as follows: Year Ended December 31, 2024 2023 Balance at beginning of year $ 2,959 $ - Additional charge (written off), net 730,490 2,970 Foreign currency translation difference ( 7,330 ) ( 11 ) Balance at the end of year $ 726,119 $ 2,959 (5) Prepayments and other current assets Prepayments and other current assets consisted of the following as of December 31, 2024, and 2023: December 31, December 31, 2024 2023 Prepayment for purchase of materials $ 5,634,870 $ 5,446,823 Value-added tax recoverable 13,154,375 13,409,459 Prepaid gas 14,096 116,372 Others 8,527 8,636 Allowance for doubtful accounts ( 860,601 ) - $ 17,951,267 $ 18,981,290 F- 15 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The movement of allowance for doubtful accounts was as follows: Year Ended December 31, 2024 2023 Balance at beginning of year $ - $ - Additional charge (written off), net 869,272 - Foreign currency translation difference ( 8,671 ) - Balance at the end of year $ 860,601 $ - (6) Property, plant and equipment As of December 31, 2024, and 2023, property, plant and equipment consisted of the following: December 31, December 31, 2024 2023 Land use rights $ 80,306,144 $ 81,504,608 Building and improvements 66,580,793 67,939,059 Machinery and equipment 156,179,361 158,629,858 Vehicles 343,088 348,209 Construction in progress - - Totals 303,409,386 308,421,734 Less: accumulated depreciation and amortization ( 156,497,503 ) ( 144,447,712 ) Property, Plant and Equipment, net $ 146,911,883 $ 163,974,022 As of December 31, 2024 and 2023, land use rights represented twenty three parcels of state-owned lands located in Xushui District and Wei County of Hebei Province in China, with lease terms of 50 years expiring in 2061 and 2068, respectively. As of December 31, 2024 and 2023, certain property, plant and equipment of Dongfang Paper with net values of $ nil have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Certain property, plant and equipment of Baoding Shengde with net value of $ 3,407,848 have been pledged pursuant two short-term loans from credit union of Baoding Shengde. 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 $ 14,221,082 and $ 14,225,990 for the years ended December 31, 2024, and 2023, respectively. Loss from disposal and impairment of property, plant and equipment of $ 102,490 and $ 1,500,298 were recorded for the years ended December 31, 2024, and 2023. (7) Leases 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- 16 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the Company’s lease expense are as follows: Year Ended 2024 RMB Operating lease cost 100,004 Short-term lease cost - Lease cost 100,004 Supplemental cash flow information related to its operating lease was as follows for the period ended December 31, 2024: Year Ended 2023 RMB Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating lease 139,113 Maturities of its lease liabilities for all operating lease are as follows as of December 31, 2024: December 31, Amount 2025 139,113 2026 139,113 2027 139,113 2028 139,113 2029 - Thereafter - Total operating lease payments $ 556,452 Less: Interest ( 79,701 ) Present value of lease liabilities 476,751 Less: current portion, record in current liabilities ( 245,604 ) Present value of lease liabilities 231,147 The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of December 31, 2024: December 31, 2024 Remaining lease term and discount rate: RMB Weighted average remaining lease term (years) 3.6 Weighted average discount rate 7.56 % (8) Loans Payable Short-term bank loans December 31, December 31, 2024 2023 Rural Credit Union of Xushui District Loan 1 $ 1,808,469 $ - Rural Credit Union of Xushui District Loan 2 2,225,808 - Industrial and Commercial Bank of China (“ICBC”) Loan 1 - 2,824 ICBC Loan 2 - 70,594 ICBC Loan 3 - 350,149 ICBC Loan 4 2,782 - ICBC Loan 5 139,113 - ICBC Loan 6 139,113 - ICBC Loan 7 136,331 - Total short-term bank loans $ 4,451,616 $ 423,567 F- 17 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District to borrow $ 1,808,469 (RMB 13,000,000 ) to repay the existing long-term loan of the same amount. The loan was secured by the equipment of Baoding Shengde as collateral for the benefit of the bank. The loan bears a fixed rate of 6 % and will be due by December 23, 2025. On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District to borrow $ 2,225,808 (RMB 16,000,000 ) to repay the existing long-term loan of the same amount. The loan was secured by the equipment of Baoding Shengde as collateral for the benefit of the bank and guaranteed by a third party company. The loan bears a fixed rate of 6 % and will be due by December 23, 2025. On September 15, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ nil and $ 2,824 as of December 31, 2024 and 2023, respectively. The loan bore a fixed interest rate of 3.45 % per annum. The loan was repaid in June 2024. On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ nil and $ 70,594 as of December 31, 2024 and 2023, respectively. The loan bore a fixed interest rate of 3.45 % per annum. The loan was repaid in June 2024. On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ nil and $ 350,149 as of December 31, 2024 and 2023, respectively. The loan bore a fixed interest rate of 3.45 % per annum. The loan was repaid in June 2024. On June 11, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 2,782 as of December 31, 2024. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 11, 2025. On June 21, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 139,113 as of December 31, 2024. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 21, 2025. On June 22, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 139,113 as of December 31, 2024. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 22, 2025. On June 24, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 136,331 as of December 31, 2024. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 24, 2025. As of December 31, 2024, there were guaranteed short-term borrowings of $ 2,225,808 and unsecured bank loans of $ 417,339 . 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, 2024, and 2023 were approximately 4.6 % and 4.48 %, respectively. Long-term loans As of December 31, 2024, and 2023, long-term loan balance is $ 4,672,806 and $ 11,378,429 , respectively. December 31, December 31, 2024 2023 Rural Credit Union of Xushui District Loan 1 $ 3,476,434 $ 3,528,315 Rural Credit Union of Xushui District Loan 2 - 2,259,026 Rural Credit Union of Xushui District Loan 3 - 1,835,458 Rural Credit Union of Xushui District Loan 4 - 2,541,404 Rural Credit Union of Xushui District Loan 5 1,196,372 1,214,226 Total 4,672,806 11,378,429 Less: Current portion of long-term loans ( 3,559,902 ) ( 6,874,497 ) Long-term loans $ 1,112,904 $ 4,503,932 F- 18 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of Dec 31, 2024, the Company’s long-term debt repayments for the next coming years were as follows: Amount Fiscal year 2025 3,559,902 2026 & after 1,112,904 Total 4,672,806 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 as of December 31, 2024 and 2023. 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, 2024 and 2023, the total outstanding loan balance was $ 3,476,434 and $ 3,528,315 . Out of the total outstanding loan balance, current portion amounted was $ 2,641,756 and $ 1,269,290 , which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $ 834,678 and $ 2,259,025 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, respectively. On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan was renewed on March 22, 2021, December 24, 2021 and April 16, 2024 and extended for additional 5 years in total, which is due on April 15, 2026 according to the new schedule. The loan was secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment was due quarterly and bore a rate of 7.2 % per annum. Effective from November 15, 2022, the interest rate was reduced to 7 % per annum. On December 24, 2024, the Company entered into a one-year loan agreement with the Rural Credit Union of Xushui District for same amount to repay the loan. This refinancing arrangement secured a lower market rate and did not involve any cash inflows or outflows. As of December 31, 2024 and 2023, the total outstanding loan balance was $ nil and $ 2,259,026 , respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023. 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 was due on December 11, 2024 according to the new schedule. The loan was 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. On December 24, 2024, the Company entered into a one-year loan agreement with the Rural Credit Union of Xushui District for same amount to repay the loan. This refinancing arrangement secured a lower market rate and did not involve any cash inflows or outflows. As of December 31, 2024 and 2023, the total outstanding loan balance was $ nil and $ 1,835,458 , respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, 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. The loan was repaid in July 2024. As of December 31, 2024 and 2023, the total outstanding loan balance was $ nil and $ 2,541,404 . Out of the total outstanding loan balance, current portion amounted was $ nil and $ 1,284,820 , which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $ nil and $ 1,256,584 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, respectively. 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 is guaranteed by an independent third party. Interest payment is due monthly and bears a rate of 7 % per annum. As of December 31, 2024 and 2023, total outstanding loan balance was $ 1,196,372 and $ 1,214,226 , respectively. Out of the total outstanding loan balance, current portion amounted $ 918,146 and $ 225,903 , which is presented as current liabilities and the remaining balance of $ 278,226 and $ 988,323 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, respectively. Total interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2024, and 2023 were $ 762,377 and $ 977,678 respectively. F- 19 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 $ 356,594 and $ 361,915 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, 2024, and 2023, 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, 2024, and 2023, approximately $ 41,734 and $ 42,357 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 2024, and 2023, the outstanding interest was $ 191,193 and $ 194,047 , 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, 2024, and 2023, total amount of loans due to Mr. Zhenyong Liu were $ nil . The interest expense incurred for such related party loans were $ nil for the years ended December 31, 2024, and 2023. The net interest owe to Mr. Zhenyong Liu was approximately $ 304,600 and $ 598,319 , as of December 31, 2024, and 2023, respectively, which was recorded in other payables and accrued liabilities. 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 years ended December 31, 2024 and 2023 were $ nil and $ 290,275 . As of December 31, 2024, and 2023, amount due to shareholder are $ nil and $ 727,433 , respectively, 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- 20 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, 2024 2023 Accrued electricity $ 2,964 $ 3,054 Value-added tax payable 21,868 696 Accrued interest to a related party 304,600 598,319 Payable for purchase of property, plant and equipment 10,711,678 11,175,858 Accrued commission to salesmen 3,877 47,040 Accrued bank loan interest 14,955 1,070,708 Accrued litigation costs 461,855 - Others 24,193 16,842 Totals $ 11,545,990 $ 12,912,517 (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, 2024. 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, 2024: Year ended December 31, 2024 Expected term 0.42 - 2.75 Expected average volatility 85 % - 132 % Expected dividend yield - Risk-free interest rate 0.13 % - 4.25 % The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2024: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance at December 31, 2023 $ 54 Change in fair value of derivative liability 5,597 Balance at December 31, 2024 $ 5,651 The following table summarizes the loss on derivative liability included in the income statement for the year ended December 31, 2024 and 2023, respectively. Year Ended December 31, 2024 2023 Day one loss due to derivative liabilities as warrant $ - $ - Loss (Gain) on change in fair value of derivative liability 5,597 ( 646,229 ) 5,597 ( 646,229 ) F- 21 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. (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, 2024. 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, 2024. 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, 2024. The Company classified warrant as liabilities and accounted for the issuance of the warrants as a derivative. F- 22 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of stock warrant activities is as below: Year Ended December 31, 2024 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, 2024. 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 1.08 $ 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, 2024 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, 2024 and 2023 are $ nil . (14) Earnings Per Share For the years ended December 31, 2024, and 2023, basic and diluted net income per share are calculated as follows: Year Ended December 31, 2024 2023 Basic (loss) income per share Net (loss) income for the year - numerator $ ( 9,843,094 ) $ ( 9,946,035 ) Weighted average common stock outstanding - denominator 10,065,920 10,065,920 Net (loss) income per share $ ( 0.98 ) $ ( 0.99 ) Diluted (loss) income per share Net (loss) income for the year - numerator $ ( 9,843,094 ) $ ( 9,946,035 ) Weighted average common stock outstanding - denominator 10,065,920 10,065,920 Effect of dilution - - Weighted average common stock outstanding - denominator 10,065,920 10,065,920 Diluted loss per share $ ( 0.98 ) $ ( 0.99 ) F- 23 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, 2024, and 2023 were as follows: Year Ended December 31, 2024 2023 Provision for Income Taxes Current Tax Provision U.S. $ 36,793 $ - Current Tax Provision PRC 842,401 346,954 Deferred Tax Provision PRC - - Total Income Tax Expenses (Benefits) $ 879,194 $ 346,954 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 $ 568,358 and $ 62,499 for U.S. income tax purposes for the years ended December 31, 2024 and 2023, 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, 2024, 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, 2024, and 2023, 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: F- 24 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, December 31, 2024 2023 Deferred tax assets (liabilities) Depreciation and amortization of property, plant and equipment $ 18,875,162 $ 16,922,756 Impairment of property, plant and equipment 602,139 585,380 Impairment of inventory 181,530 Provision for doubtful debts 446,064 Miscellaneous 247,969 135,714 Net operating loss carryover of PRC company 432,365 274,525 (Gain) Loss on asset disposal ( 63,123 ) ( 64,065 ) Total deferred tax assets 20,722,106 17,854,310 Less: Valuation allowance ( 20,722,106 ) ( 17,854,310 ) Total deferred tax assets, net $ - - The following table reconciles the statutory rates to the Company’s effective tax rate as of: Year Ended December 31, 2024 2023 PRC Statutory rate 25.0 % 25.0 % Effect of tax and book difference ( 2.8 )% ( 20.7 )% Change in valuation allowance ( 32.0 )% ( 7.9 )% Effective income tax rate ( 9.8 )% ( 3.6 )% During the years ended December 31, 2024, and 2023, the effective income tax rate was estimated by the Company to be - 9.8 % and - 3.6 %, respectively. As of December 31, 2024, 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, 2024 and 2023, 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, 2024 and 2023, 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 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 ISP”). 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, 2024, have been reserved. F- 25 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 $ 16,694 (RMB 120,000 ). This lease is renewable at the end of the 30-year term. December 31, Amount 2025 16,694 2026 16,694 2027 16,694 2028 16,694 2029 16,694 Thereafter 33,387 Total operating lease payments $ 116,857 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 $ 139,113 (RMB 1,000,000 ). The lease was recorded in lease assets and liabilities in the consolidated balance sheet as of December 31, 2024. Capital commitment As of December 31, 2024, 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 $ 3,436,091 and $ 3,499,936 as of December 31, 2024 and 2023, 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, 2024, and 2023, the Company guaranteed its long-term loan from financial institutions amounting to $ 4,312,503 (RMB 31,000,000 ) and $ 4,376,862 (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. Pending legal proceeding of Jie Ping In November 2023, an individual plaintiff involved in a civil loan dispute filed a lawsuit against the defendants including Tengsheng Paper and Jie Ping, who served as the executive director and the legal representative of Tengsheng Paper, at the Lianchi District People’s Court of Baoding City, China. On December 1, 2023, the plaintiff sought property preservation measures, requesting the PRC Court to freeze RMB 3.35 million worth of bank deposits held by Jie Ping and Tengsheng Paper. Following this request, on the same day, the PRC Court issued a ruling to immediately freeze the RMB 3.35 million worth of bank deposits of Jie Ping and Tengsheng Paper. On June 14, 2024, the PRC Court ordered the defendants to repay the principal of the loan in the amount of RMB 3,320,000 to the plaintiff, and Tengsheng Paper was jointly liable for repayment. Accrued litigation costs of $ 461,855 was recorded as current liabilities of consolidated balance sheet as of December 31, 2024. F- 26 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, 2024 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Revenues $ 75,702,427 135,516 - - - 75,837,943 Gross profit 6,556,487 135,253 - - - 6,691,740 Depreciation and amortization 3,842,408 8,814,279 1,564,395 - - 14,221,082 Loss on impairment of assets - - 102,490 - - 102,490 Interest income 12,316 1,845 598 34 - 14,793 Interest expense 356,788 94,334 296,891 14,364 - 762,377 Income tax expense 842,401 - - 36,793 - 879,194 Net income (loss) 2,161,939 ( 10,051,366 ) ( 440,633 ) ( 1,513,034 ) - ( 9,843,094 ) 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 ) As of December 31, 2024 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Total assets $ 54,180,471 116,390,854 6,020,713 954,748 - 177,546,786 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 F- 27 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (19) Concentration and Major Customers and Suppliers For the years ended December 31, 2024, and 2023, the Company had no single customer contributed over 10% of total sales. For the year ended December 31, 2024, the Company had three major suppliers that accounted for 73 %, 17 % and 7 % of total purchases by the Company. 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. (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, 2024 and 2023. 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$ 69,557 ) 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, 2024, and 2023, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB 500,000 amounted to RMB 47,952,082 (US$ 6,670,759 ) as of December 31, 2024. (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- 28 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (22) Subsequent Event None. (23) Summarized Quarterly Financial Data (Unaudited) Quarter 2024 First Second Third Fourth Revenues $ 6,863,841 $ 26,249,788 $ 25,081,500 $ 17,642,814 Gross profit 399,113 3,265,300 1,917,381 1,109,946 (Loss) income from operations ( 3,501,670 ) 547,752 ( 1,464,121 ) ( 3,792,680 ) Net loss ( 3,746,536 ) ( 77,747 ) ( 1,973,946 ) ( 4,044,865 ) Net loss per share Basic $ ( 0.37 ) $ ( 0.01 ) $ ( 0.20 ) $ ( 0.40 ) Diluted $ ( 0.37 ) $ ( 0.01 ) $ ( 0.20 ) $ ( 0.40 ) 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 ) F- 29 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 $ 82,691,643 and $ 82,641,643 as of December 31, 2024, and 2023. The following represents condensed unconsolidated financial information of the parent company only: December 31, December 31, 2024 2023 ASSETS Current Assets Cash and cash equivalents $ 1,694 $ 678,347 Prepayments and other current assets - - Total current assets 1,694 678,347 Investment in subsidiaries 160,751,140 172,382,428 Total Assets $ 160,752,834 $ 173,060,775 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Inter-company payable $ 4,726,897 $ 4,026,904 Due to related parties - 727,433 Income tax payable - - Total current liabilities 4,726,897 4,754,337 Derivative liability 5,651 54 Total liabilities $ 4,732,548 $ 4,754,391 Total stockholders’ equity 156,020,286 168,306,384 Total Liabilities and Stockholders’ Equity $ 160,752,834 $ 173,060,775 F- 30 IT TECH PACKAGING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2024 2023 Revenue - - Selling, general and administrative expenses $ 562,421 $ 708,638 Loss from Operations ( 562,421 ) ( 708,638 ) Equity in earnings of unconsolidated subsidiaries ( 9,238,283 ) ( 9,883,626 ) Loss on derivative liability ( 5,597 ) 646,229 Other Income (Expense) - - Income before Income Taxes ( 9,806,301 ) ( 9,946,035 ) Provision for Income Taxes ( 36,793 ) - Net Income $ ( 9,843,094 ) $ ( 9,946,035 ) Other comprehensive income /(loss) ( 2,443,452 ) ( 3,040,994 ) Total Comprehensive Income (loss) $ ( 12,286,546 ) $ ( 12,987,029 ) Year Ended December 31, 2024 2023 Net Cash Used in Operating Activities $ ( 591,173 ) $ ( 708,641 ) Net Cash Used in Investing Activities ( 50,000 ) ( 500,000 ) Net Cash Provided by Financing Activities ( 35,480 ) ( 43,253 ) Net Increase (Decrease) in Cash and Cash Equivalents ( 676,653 ) ( 1,251,894 ) Cash and Cash Equivalents - Beginning of Year 678,347 1,930,241 Cash and Cash Equivalents - End of Year $ 1,694 $ 678,347 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- 31 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.