IT TECH PACKAGING, INC. 10-Q

Item 1. Financial Statements IT TECH PACKAGING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2025 AND DECEMBER 31, 2024 (unaudited) March 31, December 31, 2025 2024 ASSETS Current Assets Cash and bank balances $ 4,034,428 $ 5,916,373 Restricted cash 1,035,932 1,034,203 Accounts receivable (net of allowance for doubtful accounts of $ 90,730 and $ 53,111 as of March 31, 2025 and December 31, 2024, respectively) 2,127,629 287,576 Inventories 4,642,056 2,351,876 Prepayments and other current assets 16,744,643 17,951,267 Due from related parties 914,350 920,008 Total current assets 29,499,038 28,461,303 Prepayment on property, plant and equipment 8,359 - Operating lease right-of-use assets, net 396,418 421,868 Property, plant, and equipment, net 143,575,368 146,911,883 Value-added tax recoverable 1,724,947 1,751,732 Deferred tax asset non-current - - Total Assets $ 175,204,130 $ 177,546,786 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Short-term bank loans $ 5,043,047 $ 4,451,616 Current portion of long-term loans 3,564,961 3,559,902 Lease liability 108,604 245,604 Accounts payable - 1 Advance from customers 11,790 11,773 Due to related parties 55,072 43,468 Accrued payroll and employee benefits 327,022 207,508 Other payables and accrued liabilities 11,823,467 11,545,990 Income taxes payable - 80,905 Total current liabilities 20,933,963 20,146,767 Long-term loans 1,114,486 1,112,904 Lease liability - non-current 377,603 231,147 Derivative liability 1,098 5,651 Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $ 17,753,460 and $ 16,976,765 as of March 31, 2025 and December 31, 2024, respectively) 22,427,150 21,496,469 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 March 31, 2025 and December, 31, 2024. 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 ( 12,768,538 ) ( 12,998,986 ) Retained earnings 70,282,107 73,785,892 Total stockholders’ equity 152,776,980 156,050,317 Total Liabilities and Stockholders’ Equity $ 175,204,130 $ 177,546,786 See accompanying notes to condensed consolidated financial statements. 1 IT TECH PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) Three Months Ended March 31, 2025 2024 Revenues $ 10,897,266 $ 6,863,841 Cost of sales ( 10,813,180 ) ( 6,464,728 ) Gross Profit 84,086 399,113 Selling, general and administrative expenses ( 3,461,321 ) ( 3,900,783 ) Loss from Operations ( 3,377,235 ) ( 3,501,670 ) Other Income (Expense): Interest income 1,744 2,183 Interest expense ( 132,847 ) ( 210,290 ) Gain on derivative liability 4,553 34 Loss before Income Taxes ( 3,503,785 ) ( 3,709,743 ) Income Tax (Expenses) Benefits - ( 36,793 ) Net Loss ( 3,503,785 ) ( 3,746,536 ) Other Comprehensive Income (Loss) Foreign currency translation adjustment 230,448 ( 301,619 ) Total Comprehensive Loss $ ( 3,273,337 ) $ ( 4,048,155 ) Losses Per Share: Basic and Diluted Losses per Share $ ( 0.35 ) $ ( 0.37 ) Outstanding – Basic and Diluted 10,065,920 10,065,920 See accompanying notes to condensed consolidated financial statements. 2 IT TECH PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) Three Months Ended March 31, 2025 2024 Cash Flows from Operating Activities: Net income $ ( 3,503,785 ) $ ( 3,746,536 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,547,398 3,481,788 (Gain) Loss on derivative liability ( 4,553 ) ( 34 ) Allowance for bad debts 37,566 36,942 Allowances for inventories, net ( 31,453 ) ( 2,951 ) Deferred tax - - Changes in operating assets and liabilities: Accounts receivable ( 1,878,313 ) ( 1,847,112 ) Prepayments and other current assets 1,262,163 1,276,805 Inventories ( 2,256,756 ) 59,612 Accounts payable ( 1 ) 236,603 Advance from customers - ( 25,123 ) Notes payable - 246,299 Related parties 19,758 ( 187,484 ) Accrued payroll and employee benefits 119,290 73,213 Other payables and accrued liabilities 294,777 1,022,398 Income taxes payable ( 81,069 ) - Net Cash (Used in) Provided by Operating Activities ( 2,474,978 ) 624,420 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 8,364 ) ( 9,027 ) Net Cash Used in Investing Activities ( 8,364 ) ( 9,027 ) Cash Flows from Financing Activities: Proceeds from short term bank loans 585,456 422,488 Net Cash Provided by Financing Activities 585,456 422,488 Effect of Exchange Rate Changes on Cash and Cash Equivalents 17,670 ( 12,242 ) Net (Decrease) Increase in Cash and Cash Equivalents ( 1,880,216 ) 1,025,639 Cash, Cash Equivalents and Restricted Cash - Beginning of Period 6,950,576 4,391,921 Cash, Cash Equivalents and Restricted Cash - End of Period $ 5,070,360 $ 5,417,560 Supplemental Disclosure of Cash Flow Information: Cash paid for interest, net of capitalized interest cost $ 120,371 $ 137,340 Cash paid for income taxes $ 81,069 $ 36,793 Cash and bank balances 4,034,428 4,514,020 Restricted cash 1,035,932 903,540 Total cash, cash equivalents and restricted cash shown in the statement of cash flows 5,070,360 5,417,560 See accompanying notes to condensed consolidated financial statements. 3 IT TECH PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) Accumulated Additional Statutory Other Common Stock Paid-in Earnings Comprehensive Retained Shares Amount Capital Reserve Income (loss) Earnings Total 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 ( 301,619 ) ( 301,619 ) Net loss ( 3,746,536 ) ( 3,746,536 ) Balance at March 31, 2024 10,065,920 $ 10,066 $ 89,172,771 $ 6,080,574 $ ( 10,857,153 ) $ 79,882,450 $ 164,288,708 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 Foreign currency translation adjustment 230,448 230,448 Net loss ( 3,503,785 ) ( 3,503,785 ) Balance at March 31, 2025 10,065,920 $ 10,066 $ 89,172,771 $ 6,080,574 $ ( 12,768,538 ) $ 70,282,107 $ 152,776,980 See accompanying notes to condensed consolidated financial statements. 4 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 is 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 DongfangZhiye 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. 5 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 Tengsheng Paper Co., Ltd. (“Tengsheng Paper”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper would 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, 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. 6 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 and its subsidiary, being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the Accounting Standards Codification (the “ASC”) issued by the FinancialAccounting Standard Board (the “FASB”). The revenue generated from Dongfang Paper and Tengsheng Paper for the three months ended March 31, 2025 and 2024 was accounted for 100 % of the Company’s total revenue. Dongfang Paper and Tengsheng Paper also accounted for 96.27 % and 96.07 % of the total assets of the Company as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, details of the Company’s subsidiaries and variable interest entities are as follows: Name Date of Incorporation or Establishment Place of Incorporation or Establishment Percentage of 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. 7 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Company has aggregated the financial information of Dongfang Paper in the table below. The aggregate carrying value of Dongfang Paper’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024 are as follows: 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. March 31, December 31, 2025 2024 ASSETS Current Assets Cash and bank balances $ 3,990,161 $ 5,850,910 Restricted cash 1,035,932 1,034,203 Accounts receivable 2,127,629 287,576 Inventories 4,616,616 2,351,876 Prepayments and other current assets 16,743,197 17,922,229 Due from related parties - Total current assets 28,513,535 27,446,794 Prepayment on property, plant and equipment 8,359 - Operating lease right-of-use assets, net 396,418 421,868 Property, plant, and equipment, net 139,747,915 142,702,663 Deferred tax asset non-current - - Total Assets $ 168,666,227 $ 170,571,325 LIABILITIES Current Liabilities Short-term bank loans $ 585,105 $ - Current portion of long-term loans 3,564,961 3,559,902 Lease liability 108,604 245,604 Advance from customers 11,790 11,773 Due to related parties 26,281 26,244 Accrued payroll and employee benefits 286,399 172,239 Other payables and accrued liabilities 11,678,231 11,536,047 Income taxes payable - 80,905 Total current liabilities 16,261,371 15,632,714 Long-term loans 1,114,486 1,112,904 Lease liability - non-current 377,603 231,147 Total liabilities $ 17,753,460 $ 16,976,765 8 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (2) Basis of Presentation and Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and notes required by the United States of America generally accepted accounting principles (“GAAP”) for annual financial statements are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2024 of the Company, and its subsidiaries and variable interest entity (which we sometimes refer to collectively as “the Company”, “we”, “us” or “our”). Principles of Consolidation Our unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of March 31, 2025 and the results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for any future period. Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates. Liquidity and Going Concern As of March 31, 2025, the Company had current assets of $ 29,499,038 (including a VAT （“Value Added Tax”）recoverable of Tengsheng Paper in amount of $ 13,173,067 ), and current liabilities of $ 20,933,963 , resulting in a working capital of $ 8,565,075 . However, production of Baoding Shende has been suspended in 2024 and the first quarter of 2025, rendering related VAT unrecoverable in the short term. Net working capital excluding VAT recoverable as of March 31, 2025 was a working capital deficit of $ 4,607,992 . 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 March 31, 2025. 9 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. Valuation of long-lived asset The Company reviews the carrying value of long-lived assets to be held and used when events and circumstances warrants such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose. Fair Value Measurements The Company has adopted ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 10 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 March 31, 2025 and December 31, 2024, the carrying value of the Company’s short term financial instruments, such as cash and cash equivalents, accounts receivable, accounts and notes payable, short-term bank loans, balance due to a related party and obligation under capital lease, approximate at their fair values because of the short maturity of these instruments; while loans from credit union and loans from a related party approximate at their fair value as the interest rates thereon are close to the market rates of interest published by the People’s Bank of China. Management determined that liabilities created by beneficial conversion features associated with the issuance of certain warrants (see “ Derivative liabilities” under Note (11)), meet the criteria of derivatives and are required to be measured at fair value. The fair value of these derivative liabilities was determined based on management’s estimate of the expected future cash flows required to settle the liabilities. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3. Non-Recurring Fair Value Measurements The Company reviews long-lived assets for impairment annually or more frequently if events or changes in circumstances indicate the possibility of impairment. For the continuing operations, long-lived assets are measured at fair value on a nonrecurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. For discontinued operations, long-lived assets are measured at the lower of carrying amount or fair value less cost to sell. The fair value of these assets were determined using models with significant unobservable inputs which were classified as Level 3 inputs, primarily the discounted future cash flow. Share-Based Compensation The Company uses the fair value recognition provision of ASC Topic 718, Compensation-Stock Compensation , which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments over the vesting period. The Company also applies the provisions of ASC Topic 505-50, Equity Based Payments to Non-Employees to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable. 11 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (3) Restricted Cash Restricted cash of $ 1,035,932 and $ 1,034,203 as of March 31, 2025 and December 31, 2024 was presented for the cash deposited at the Industrial and Commercial Bank of China of Tengsheng Paper. The deposit was restricted due to the legal proceeding against Tengsheng Paper and Jie Ping, who served as the executive director and the legal representative of Tengsheng Paper. (4) Inventories Raw materials inventory includes mainly recycled paper board and recycled white scrap paper. Finished goods include mainly products of corrugating medium paper, offset printing paper and tissue paper products. Inventories consisted of the following as of March 31, 2025 and December 31, 2024: March 31, December 31, 2025 2024 Raw Materials Recycled paper board $ 3,244,750 $ 1,353,543 Recycled white scrap paper 10,506 10,491 Gas 107,821 16,334 Base paper and other raw materials 160,989 132,348 3,524,066 1,512,716 Semi-finished Goods 296,213 295,792 Finished Goods 1,517,494 1,269,487 Total inventory, gross 5,337,773 3,077,995 Inventory reserve ( 695,717 ) ( 726,119 ) Total inventory, net $ 4,642,056 $ 2,351,876 The movement of inventory reserve was as follows: Three Months Ended March 31, 2025 2024 Balance at beginning of year $ 726,119 $ 2,959 Additional charge (written off), net ( 31,453 ) 730,490 Foreign currency translation difference 1,051 ( 7,330 ) Balance at the end of year $ 695,717 $ 726,119 12 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (5) Prepayments and other current assets Prepayments and other current assets consisted of the following as of March 31, 2025 and December 31, 2024: March 31, December 31, 2025 2024 Prepayment for purchase of materials $ 4,137,228 $ 5,634,870 Value-added tax recoverable 13,320,909 13,154,375 Prepayment for utilities 139,190 14,096 Others 9,140 8,527 Allowance for doubtful accounts ( 861,824 ) ( 860,601 ) $ 16,744,643 $ 17,951,267 The movement of allowance for doubtful accounts was as follows: Three Months Ended March 31, 2025 2024 Balance at beginning of year $ 860,601 $ - Additional charge (written off), net - 869,272 Foreign currency translation difference 1,223 ( 8,671 ) Balance at the end of year $ 861,824 $ 860,601 (6) Property, plant and equipment, net As of March 31, 2025 and December 31, 2024, property, plant and equipment consisted of the following: March 31, December 31, 2025 2024 Land use rights $ 80,420,257 $ 80,306,144 Building and improvements 66,675,402 66,580,793 Machinery and equipment 156,401,287 156,179,361 Vehicles 343,576 343,088 Construction in progress - - Totals 303,840,522 303,409,386 Less: accumulated depreciation and amortization ( 160,265,154 ) ( 156,497,503 ) Property, Plant and Equipment, net $ 143,575,368 $ 146,911,883 As of March 31, 2025 and December 31, 2024, 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. 13 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) As of March 31, 2025 and December 31, 2024, 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 $ 3,028,097 and $ 3,407,848 , repectively, as of March 31, 2025 and December 31, 2024, have been pledged pursuant two short-term loans from credit union of Baoding Shengde. Certain property, plant and equipment of Dongfang Paper with net values of $ 188,238 was pledged for a short-term loan from Bank of Cangzhou. Certain property, plant and equipment of Dongfang Paper with net values of $ 308,345 was pledged for another short-term loan from Bank of Cangzhou. 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 $ 3,547,398 and $ 3,481,788 for the three months ended March 31, 2025 and 2024, respectively. (7) Leases Operating lease 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. 14 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The components of the Company’s lease expense are as follows: Three Months Ended March 31, 2025 RMB Operating lease cost 26,065 Short-term lease cost - Lease cost 26,065 Supplemental cash flow information related to its operating leases was as follows for the period ended March 31, 2025: Cash paid for amounts included in the measurement of lease liabilities: Three Months Ended March 31, 2025 RMB Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating leases - Maturities of its lease liabilities for all operating leases are as follows as of March 31, 2025: March 31, Amount 2026 139,311 2027 139,311 2028 139,311 2029 139,311 Thereafter - Total operating lease payments $ 557,243 Less: Interest ( 71,036 ) Present value of lease liabilities 486,207 Less: current portion, record in current liabilities ( 108,604 ) Present value of lease liabilities 377,603 The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of March 31, 2025: March 31, 2025 Remaining lease term and discount rate: RMB Weighted average remaining lease term (years) 3.4 Weighted average discount rate 7.56 % 15 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (8) Loans Payable Short-term bank loans March 31, December 31, 2025 2024 Rural Credit Union of Xushui District Loan 1 $ 1,811,039 $ 1,808,469 Rural Credit Union of Xushui District Loan 2 2,228,971 2,225,808 Bank of Cangzhou Loan 1 306,484 - Bank of Cangzhou Loan 2 69,655 - Bank of Cangzhou Loan 3 208,966 - Industrial and Commercial Bank of China (“ICBC”) Loan 1 2,786 2,782 ICBC Loan 2 139,311 139,113 ICBC Loan 3 139,311 139,113 ICBC Loan 4 136,524 136,331 Total short-term bank loans $ 5,043,047 $ 4,451,616 On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $ 1,811,039 and $ 1,808,469 as of March 31, 2025 and December 31, 2024, respectively. The loan is 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, with a balance of $ 2,228,971 and $ 2,225,808 as of March 31, 2025 and December 31, 2024, respectively. The loan is 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 December 28, 2024, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $ 306,484 at a fixed interest rate of 5.5 % per annum. The loan is guaranteed by Mr. Zhenyong Liu. The loan will be due by December 27, 2025. On December 28, 2024, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $ 69,655 at a fixed interest rate of 5.5 % per annum. The loan is secured by the Company’s manufacturing equipment and guaranteed by Mr. Zhenyong Liu. The loan will be due by December 27, 2025. On March 10, 2025, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $ 208,966 at a fixed interest rate of 5.5 % per annum. The loan is secured by the Company’s manufacturing equipment and guaranteed by Mr. Zhenyong Liu. The loan will be due by March 9, 2026. On June 11, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 2,786 and $ 2,782 as of March 31, 2025 and December 31, 2024, respectively. 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 $ 139,311 and $ 139,113 as of March 31, 2025 and December 31, 2024, respectively. 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 $ 139,311 and $ 139,113 as of March 31, 2025 and December 31, 2024, respectively. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 22, 2025. 16 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On June 24, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $ 136,524 and $ 136,331 as of as of March 31, 2025 and December 31, 2024, respectively. The loan bears a fixed interest rate of 3.45 % per annum. The loan is due for repayment by June 24, 2025. As of March 31, 2025, there were guaranteed short-term borrowings of $ 2,814,076 and unsecured bank loans of $ 417,932 . As of December 31, 2024, there were guaranteed short-term borrowings of $ 2,225,808 and unsecured bank loans of $ 417,339 . The average short-term borrowing rates for the three months ended March 31, 2025 and 2024 were approximately 5.74 % and 4.48 %, respectively. Long-term loans As of March 31, 2025 and December 31, 2024, long-term loans were $ 4,679,447 and $ 4,672,806 , respectively. March 31, December 31, 2025 2024 Rural Credit Union of Xushui District Loan 1 $ 3,481,375 $ 3,476,434 Rural Credit Union of Xushui District Loan 2 1,198,072 1,196,372 Total 4,679,447 4,672,806 Less: Current portion of long-term loans ( 3,564,961 ) ( 3,559,902 ) Long-term loans $ 1,114,486 $ 1,112,904 As of March 31, 2025, the Company’s long-term debt repayments for the next coming years were as follows: Amount Fiscal year Remainder of 2025 $ 3,564,961 2026 & after 1,114,486 Total 4,679,447 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 March 31, 2025 and December 31, 2024. 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 March 31, 2025 and December 31, 2024, the total outstanding loan balance was $ 3,481,375 and $ 3,476,434 . Out of the total outstanding loan balance, current portion amounted was $ 2,645,510 and $ 2,641,756 , which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $ 835,865 and $ 834,678 is presented as non-current liabilities in the consolidated balance sheet as of March 31, 2025 and December 31, 2024, respectively. 17 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 March 31, 2025 and December 31, 2024, total outstanding loan balance was $ 1,198,072 and $ 1,196,372 , respectively. Out of the total outstanding loan balance, current portion amounted $ 919,451 and $ 918,146 , which is presented as current liabilities and the remaining balance of $ 278,621 and $ 278,226 is presented as non-current liabilities in the consolidated balance sheet as of March 31, 2025 and December 31, 2024, respectively. Total interest expenses for the short-term bank loans and long-term loans for the three months ended March 31, 2025 and 2024 were $ 132,847 and $ 209,586 , respectively. (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 $ 357,100 and $ 356,594 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, approximately $ 41,793 and $ 41,734 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 March 31, 2025 and December 31, 2024, the outstanding interest was $ 191,465 and $ 191,193 , respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet. As of March 31, 2025 and December 31, 2024, total amount of loans due to Mr. Zhenyong Liu were $ nil . The interest expense incurred for such related party loans were $ nil for the three months ended March 31, 2025 and 2024. The net interest owed to Mr. Zhenyong Liu was approximately $ 305,033 and $ 304,600 , as of March 31, 2025 and December 31, 2024, 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 three months ended March 31, 2025 and 2024 were $ nil . As of March 31, 2025 and December 31, 2024, amount due to shareholder was $ 10,000 and $ nil , respectively, which represents funds from shareholders to pay for various expenses incurred in the U.S. The amount is due on demand with interest free. 18 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (10) Other payables and accrued liabilities March 31, December 31, 2025 2024 Accrued electricity $ 154,824 $ 2,964 Accrued litigation costs 462,511 461,855 Value-added tax payable 687 21,868 Accrued interest to a related party 305,033 304,600 Payable for purchase of property, plant and equipment 10,726,899 10,711,678 Accrued commission to salesmen 12,477 3,877 Accrued bank loan interest 27,444 14,955 Others 133,592 24,193 Totals $ 11,823,467 $ 11,545,990 (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 its derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2025. 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 March 31, 2025: Three months ended March 31, 2025 Expected term 0.3 - 2.75 Expected average volatility 85 % - 184 % Expected dividend yield - Risk-free interest rate 0.13 % - 4.03 % The following table summarizes the changes in the derivative liabilities during the three months ended March 31, 2025: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance at December 31, 2024 $ 5,651 Change in fair value of derivative liability ( 4,553 ) Balance at March 31, 2025 $ 1,098 19 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 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 March 31, 2025. 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 March 31, 2025. 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 March 31, 2025. The Company classified warrants as liabilities and accounted for the issuance of the warrants as a derivative. 20 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A summary of stock warrant activities is as below: Three months ended March 31, 2025 Number Weight average exercise 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 March 31, 2025: Warrants Outstanding Warrants Exercisable Number of Shares Weighted Average Remaining Contractual life (in years) Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price 3,016,635 0.80 $ 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 March 31, 2025 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 March 31, 2025 and December 31, 2024 are nil . (14) Earnings Per Share For the three months ended March 31, 2025 and 2024, basic and diluted net loss per share are calculated as follows: Three Months Ended March 31, 2025 2024 Basic loss per share Net loss for the period - numerator $ ( 3,503,785 ) $ ( 3,746,536 ) Weighted average common stock outstanding - denominator 10,065,920 10,065,920 Net loss per share $ ( 0.35 ) $ ( 0.37 ) Diluted income per share Net income for the period- numerator $ ( 3,503,785 ) $ ( 3,746,536 ) 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 $ ( 0.35 ) $ ( 0.37 ) 21 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (15) Income Taxes United States The Company may be subject to the United States of America Tax laws at a tax rate of 21 %. No provision for the US federal income taxes has been made as the Company had no US taxable income for the first quarter ended March 31, 2025, and management believes that its earnings are permanently invested in the PRC. 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 three months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 2024 Provision for Income Taxes Current Tax Provision U.S. $ - $ 36,793 Current Tax Provision PRC - - Deferred Tax Provision PRC - - Total Income Tax Expenses (Benefits) $ - $ 36,793 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 March 31, 2025, 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 March 31, 2025 and December 31, 2024, 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: March 31, December 31, 2025 2024 Deferred tax assets (liabilities) Depreciation and amortization of property, plant and equipment $ 18,901,983 $ 18,875,162 Impairment of property, plant and equipment 602,995 602,139 Impairment of inventory 181,788 181,530 Provision for doubtful debts 446,698 446,064 Miscellaneous 248,322 247,969 Net operating loss carryover of PRC company 432,979 432,365 (Gain) Loss on asset disposal ( 63,213 ) ( 63,123 ) Total deferred tax assets 20,751,552 20,722,106 Less: Valuation allowance ( 20,751,552 ) ( 20,722,106 ) Total deferred tax assets, net $ - - 22 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) During the three months ended March 31, 2025 and 2024, the effective income tax rate was estimated by the Company to be 0% and 1 %, respectively. Three Months Ended March 31, 2025 2024 PRC Statutory rate 25.0 % 25.0 % Effect of different tax jurisdiction Effect of tax and book difference ( 24.2 )% ( 3.4 )% Change in valuation allowance ( 0.8 )% ( 22.6 )% Effective income tax rate - ( 1.0 )% As of March 31, 2025, 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 March 31, 2025 and December 31, 2024, 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 three months ended March 31, 2025 and 2024, 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. 23 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 March 31, 2025, have been reserved. (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 $ 16,727 (RMB 120,000 ). This lease is renewable at the end of the 30 -year term. March 31, Amount 2026 16,717 2027 16,717 2028 16,717 2029 16,717 2030 16,717 Thereafter 29,255 Total operating lease payments $ 112,840 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 $ 139,394 (RMB 1,000,000 ). The lease was recorded in lease assets and liabilities in the consolidated balance sheet as of March 31, 2025. 24 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Capital commitment As of March 31, 2025, 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 $ 3,443,760 and $ 3,436,091 as of March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, the Company guaranteed its long-term loan from financial institutions amounting to $ 4,318,631 (RMB 31,000,000 ) that will mature 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 (the “PRC Court”). From December 2023 through 2024, the plaintiff sought property preservation measures, requesting the PRC Court to freeze totaling RMB 6.70 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 $ 462,511 was recorded as current liabilities of consolidated balance sheet as of March 31, 2025. (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. 25 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Summarized financial information for the three reportable segments is as follows: Three Months Ended March 31, 2025 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Revenues $ 10,897,266 $ - $ - $ - $ - $ 10,897,266 Gross profit 84,086 - - - - 84,086 Depreciation and amortization 1,361,449 2,185,949 - - - 3,547,398 Interest income 1,464 259 20 1 - 1,744 Interest expense 73,694 - 55,546 3,607 - 132,847 Income tax expense (benefit) - - - - - - Net loss ( 1,048,107 ) ( 2,195,870 ) ( 65,309 ) ( 194,499 ) - ( 3,503,785 ) Three Months Ended March 31, 2024 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Revenues $ 6,826,799 $ 37,042 $ - $ - $ - $ 6,863,841 Gross profit 362,335 36,778 - - - 399,113 Depreciation and amortization 989,272 2,100,541 391,975 - - 3,481,788 Interest income 1,462 536 173 12 - 2,183 Interest expense 89,507 44,854 72,245 3,684 - 210,290 Income tax expense - - - 36,793 - 36,793 Net loss ( 1,134,241 ) ( 2,122,757 ) ( 54,512 ) ( 435,026 ) - ( 3,746,536 ) As of March 31, 2025 Dongfang Tengsheng Baoding Not Attributable Elimination of Enterprise-wide, Paper Paper Shengde to Segments Inter-segment consolidated Total assets $ 54,288,217 114,378,010 5,575,644 962,259 - 175,204,130 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 26 IT TECH PACKAGING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (19) Concentration and Major Customers and Suppliers For the three months ended March 31, 2025 and 2024, the Company had no single customer contributed over 10% of total sales. For the three months ended March 31, 2025, the Company had two major suppliers accounted for 77 % and 16 % of total purchases. For the three months ended March 31, 2024, the Company had two major suppliers accounted for 75 % and 15 % of total purchases. (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 as of March 31, 2025 and December 31, 2024. 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 ($ 69,655 ) 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 March 31, 2025 and December 31, 2024, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB 500,000 amounted to RMB 34,751,252 ($ 4,841,221 ) as of March 31, 2025. (21) Risks and Uncertainties The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange rates, and operating in the PRC under its various laws and restrictions. (22) Subsequent Event None. 27