IT TECH PACKAGING, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Notice Regarding Forward-Looking Statements The following discussion of the financial condition and results of operations of the Company for the periods ended September 30, 2025 and 2024 should be read in conjunction with the financial statements and the notes to the financial statements that are included elsewhere in this quarterly report. In this quarterly report, references to “the Company,” “we,” “our” and “us” refer to IT Tech Packaging, Inc. and its PRC subsidiary and variable interest entity unless the context requires otherwise. We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our products, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “project”, “target”, “can”, “could”, “may”, “should”, “will”, “would”, and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions may prove to be incorrect. Our actual results and financial position may vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) should be considered in evaluating forward-looking statements. In evaluating the forward-looking statements contained in this report, you should consider various factors, including, without limitation, the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitably, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, and (d) whether we are able to successfully fulfill our primary requirements for cash. We assume no obligation to update forward-looking statements, except as otherwise required under federal securities laws. Results of Operations Comparison of the Three months ended September 30, 2025 and 2024 Revenue for the three months ended September 30, 2025 was $25,601,344, an increase of $519,844, or 2.07%, from $25,081,500 for the same period in the previous year. This was mainly due to the increase of sales volume of corrugating medium paper (“CMP”) and the increase in average selling prices (“ASP”) of CMP. 31 Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products Revenue from sales of offset printing paper, CMP and tissue paper products for the three months ended September 30, 2025 was $25,601,344, representing an increase of $556,969, or 2.22%, from $25,044,375 for the third quarter of 2024. Total offset printing paper, CMP and tissue paper products sold during the three months ended September 30, 2025 amounted to 75,686 tonnes, representing an increase of 802 tonnes, or 1.07%, compared to 74,884 tonnes sold during the comparable period in the previous year. Production of offset printing paper and tissue paper products was suspended from 2024 through September 2025 and is expected to resume at the end of 2025. The changes in revenue dollar amount and in quantity sold for the three months ended September 30, 2025 and 2024 are summarized as follows: Three Months Ended Three Months Ended Percentage September 30, 2025 September 30, 2024 Change in Change Sales Revenue Quantity (Tonne) Amount Quantity (Tonne) Amount Quantity (Tonne) Amount Quantity Amount Regular CMP 62,811 $ 21,337,110 62,121 $ 20,910,061 690 $ 427,049 1.11 % 2.04 % Light-Weight CMP 12,875 $ 4,264,234 12,763 $ 4,134,314 112 $ 129,920 0.88 % 3.14 % Total CMP 75,686 $ 25,601,344 74,884 $ 25,044,375 802 $ 556,969 1.07 % 2.22 % Offset Printing Paper - $ - - $ - - $ - - % - % Tissue Paper Products - $ - - $ - - $ - - % - % Total CMP, Offset Printing Paper and Tissue Paper Revenue 　75,686 $ 25,601,344 　74,884 $ 25,044,375 　802 $ 556,969 　1.07 % 　2.22 % Monthly sales revenue for the 24 months ended September 30, 2025, is summarized below: 32 The average selling prices (ASPs) for our main products in the three months ended September 30, 2025 and 2024 are summarized as follows: Offset Printing Paper ASP Regular CMP ASP Light-Weight CMP ASP Tissue Paper Products ASP Three Months ended September 30, 2025 $ - $ 340 $ 331 $ - Three Months ended September 30, 2024 $ - $ 337 $ 324 $ - Increase from comparable period in the previous year $ - $ 3 $ 7 $ - Increase by percentage - % 0.89 % 2.16 % - % The following chart shows the month-by-month ASPs for the 24-month period ended September 30, 2025: Corrugating Medium Paper Revenue from CMP amounted to $25,601,344 (100.00% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended September 30, 2025, representing an increase of $556,969, or 2.22%, from $25,044,375 for the comparable period in 2024. We sold 75,686 tonnes of CMP in the three months ended September 30, 2025 as compared to 74,884 tonnes for the same period in 2024, representing a 1.07% increase in quantity sold. 33 The ASP for regular CMP increased from $337/tonne for the three months ended September 30, 2024, to $340/tonne for the three months ended September 30, 2025, representing a 0.89% increase. ASP in RMB for regular CMP for the third quarter of 2024 and 2025 was RMB2,386 and RMB2,422, respectively, representing a 1.51% increase. The quantity of regular CMP sold increased by 690 tonnes, from 62,121 tonnes in the third quarter of 2024 to 62,811 tonnes in the third quarter of 2025. The ASP for light-weight CMP increased from $324/tonne for the three months ended September 30, 2024 to $331/tonne for the three months ended September 30, 2025, representing a 2.16% increase. ASP in RMB for light-weight CMP for the third quarter of 2024 and 2025 was RMB2,297 and RMB2,362, respectively, representing a 2.84% increase. The quantity of light-weight CMP sold increased by 112 tonnes, from 12,763 tonnes in the third quarter of 2024, to 12,875 tonnes in the third quarter of 2025. Our PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year. The utilization rates for the third quarter of 2025 and 2024 were 69.41% and 68.96%, respectively, representing an increase of 0.45%. 34 Cost of Sales Total cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended September 30, 2025 was $23,579,498, an increase of $415,663, or 1.79%, from $23,163,835 for the comparable period in 2024. This was mainly due to the increase in the sales quantity of CMP. Cost of sales for CMP was $23,579,498 for the quarter ended September 30, 2025, as compared to $23,163,835 for the comparable period in 2024. The increase in the cost of sales of $415,663 for CMP was due to the increase in sales volume of CMP and slight increase in average unit cost of sales of CMP. Average cost of sales per tonne for CMP increased by 0.97%, from $309 in the third quarter of 2024 to $312 in the third quarter of 2025. The increase in average cost of sales was mainly attributable to the higher average unit gas costs in the third quarter of 2025 compared to the third quarter of 2024. Changes in cost of sales and cost per tonne by product for the quarters ended September 30, 2025 and 2024 is summarized below: Three Months Ended Three Months Ended Change in September 30, 2025 September 30, 2024 Change in percentage Cost of Sales Cost per Tonne Cost of Sales Cost per Tonne Cost of Sales Cost per Tonne Cost of Sales Cost per Tone Regular CMP $ 19,649,683 $ 313 $ 19,332,518 $ 311 $ 317,165 $ 2 1.64 % 0.64 % Light-Weight CMP $ 3,929,815 $ 305 $ 3,831,317 $ 300 $ 98,498 $ 5 2.57 % 1.67 % Total CMP $ 23,579,498 $ 312 $ 23,163,835 $ 309 $ 415,663 $ 3 1.79 % 0.97 % Offset Printing Paper $ - $ - $ - $ - $ - $ - - % - % Tissue Paper Products $ - $ - $ - $ - $ - $ - - % - % Total CMP, Offset Printing Paper and Tissue Paper $ 23,579,498 $ n/a $ 23,163,835 $ n/a $ 415,663 $ n/a 1.79 % n/a Our average unit purchase costs (net of applicable value added tax) of recycled paper board and recycled white scrap paper in the three months ended September 30, 2025 were RMB 1,211/tonne (approximately $169/tonne), as compared to RMB 1,214/tonne (approximately $171/tonne) for the three months ended September 30, 2024. These changes (in US dollars) represent a year-over-year decrease of 1.17% for the recycled paper board. We use domestic recycled paper (sourced mainly from the Beijing-Tianjin metropolitan area) exclusively. Although we do not rely on imported recycled paper, the pricing of which tends to be more volatile than domestic recycled paper, our experience suggests that the pricing of domestic recycled paper bears some correlation to the pricing of imported recycled paper. 35 The pricing trends of our major raw materials for the 24-month period from October 2023 to September 2025 are shown below: Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 5% and 14.8% of total sales in the third quarter of 2025, respectively, compared to 5% and 14.3% of total sales in the third quarter of 2024. The monthly energy cost as a percentage of total monthly sales of our main paper products for the 24 months ended September 30, 2025 is summarized as follows: Gross Profit Gross profit for the three months ended September 30, 2025 was $2,021,846 (representing 7.90% of the total revenue), representing an increase of $104,465, or 5.45%, from the gross profit of $1,917,381 (representing 7.64% of the total revenue) for the three months ended September 30, 2024, as a result of the factors described above. 36 Offset Printing Paper, CMP and Tissue Paper Products Gross profit for offset printing paper, CMP and tissue paper products for the three months ended September 30, 2025 was $2,021,846, representing an increase of $141,306, or 7.51%, from the gross profit of $1,880,540 for the three months ended September 30, 2024. The increase was mainly the result of the factors discussed above. The overall gross profit margin for offset printing paper, CMP and tissue paper products increased by 0.39 percentage points, from 7.51% for the three months ended September 30, 2024, to 7.90% for the three months ended September 30, 2025. The gross profit margin for regular CMP for the three months ended September 30, 2025 was 7.91%, or 0.37 percentage points higher, as compared to gross profit margin of 7.54% for the three months ended September 30, 2024. Such increase was mainly due to the increase in ASP of regular CMP in the third quarter of 2025. The gross profit margin for light-weight CMP for the three months ended September 30, 2025 was 7.84%, or 0.51 percentage points higher, as compared to gross profit margin of 7.33% for the three months ended September 30, 2024. The increase was mainly due to the increase in ASP of light-weight CMP in the third quarter of 2025. Monthly gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended September 30, 2025 are as follows: Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2025 were $3,018,187, a decrease of $363,315, or 10.74% from $3,381,502 for the three months ended September 30, 2024. The decrease was mainly due to the accrued liability of $0.47 million for legal proceedings the Company was jointly liable for repayment of a loan in the third quarter of 2024. Loss from Operations Operating loss for the quarter ended September 30, 2025 was $992,632, a decrease of loss of $471,489, or 32.20%, from $1,464,121 for the quarter ended September 30, 2024. The decrease was primarily due to the increase in gross profit and the decrease in selling, general and administrative expenses. Other Income and Expenses Interest expense for the three months ended September 30, 2025 decreased by $20,728, from $171,430 for the three months ended September 30, 2024, to $150,702. The Company had short-term and long-term interest-bearing loans, related party loans and leasing obligations that aggregated $9,821,969 as of September 30, 2025, as compared to $9,788,224 as of September 30, 2024. 37 Gain on Derivative Liability 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. ASC 815 requires that we assess the fair market value of the derivative liability at the end of each reporting period and recognize any change in fair market value as other income or expense item. The change in fair value of derivative liability for the three months ended September 30, 2025 and 2024 was a gain of $303 and $2, respectively. Net Loss As a result of the factors discussed above, net loss was $1,448,247 for the quarter ended September 30, 2025, representing a decrease of loss of $525,699, or 26.63%, from $1,973,946 for the quarter ended September 30, 2024. Comparison of the Nine months ended September 30, 2025 and 2024 Revenue for the nine months ended September 30, 2025 was $61,293,251, representing an increase of $3,098,122, or 5.32%, from $58,195,129 for the same period in the previous year. This was mainly due to the increase in sales volume of CMP, partially offset by the decrease in ASPs of CMP products. Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products Revenue from sales of offset printing paper, CMP and tissue paper products for the nine months ended September 30, 2025 was $61,293,251, an increase of $3,209,261, or 5.53%, from $58,083,990 for the nine months ended September 30, 2024. This was mainly due to the increase in sales volume of CMP, partially offset by the decrease in ASPs of CMP. Total quantities of offset printing paper, CMP and tissue paper products sold during the nine months ended September 30, 2025 amounted to 181,482 tonnes, an increase of 12,563 tonnes, or 7.44%, compared to 168,919 tonnes sold during the nine months ended September 30, 2024. Production of offset printing paper and tissue paper products was suspended from 2024 through September 2025 and is expected to resume at the end of 2025. The changes in revenue and quantity sold for the nine months ended September 30, 2025 and 2024 are summarized as follows: Nine Months Ended Nine Months Ended Percentage September 30, 2025 September 30, 2024 Change in Change Sales Revenue Quantity (Tonne) Amount Quantity (Tonne) Amount Quantity (Tonne) Amount Quantity Amount Regular CMP 151,127 $ 51,267,655 140,574 $ 48,644,283 10,553 $ 2,623,372 7.51 % 5.39 % Light-Weight CMP 30,355 $ 10,025,596 28,345 $ 9,439,707 2,010 $ 585,889 7.09 % 6.21 % Total CMP 181,482 $ 61,293,251 168,919 $ 58,083,990 12,563 $ 3,209,261 7.44 % 5.53 % Offset Printing Paper - $ - - $ - - $ - - % - % Tissue Paper Products - $ - - $ - - $ - - % - % Total CMP, Offset Printing Paper and Tissue Paper Revenue 181,482 $ 61,293,251 168,919 $ 58,083,990 12,563 $ 3,209,261 7.44 % 5.53 % ASPs for our main products in the nine-month period ended September 30, 2025 and 2024 is summarized as follows: Offset Printing Paper ASP Regular CMP ASP Light-Weight CMP ASP Tissue Paper Products ASP Nine Months Ended September 30, 2025 $ - $ 339 $ 330 $ - Nine Months Ended September 30, 2024 $ - $ 346 $ 333 $ - Decrease from comparable period in the previous year $ - $ (7 ) $ (3 ) $ - Decrease by percentage - % (2.02 )% (0.90 )% - % 38 Cost of Sales Total cost of sales for CMP, offset printing paper and tissue paper products in the nine months ended September 30, 2025 was $57,913,574, an increase of $5,300,786, or 10.08%, from $52,612,788 for the nine months ended September 30, 2024. This was mainly due to the increase in sales volume and the increase in unit material costs for CMP. The cost of sales for CMP was $57,913,574 for the nine months ended September 30, 2025, as compared to $52,612,788 in the same period of 2024. The increase in the cost of sales of $5,300,786 for CMP was mainly due to the increase in the quantities of CMP sold and the increase in average cost of sales in the nine months of 2025. The average cost of sales per tonne for CMP increased by 2.57%, from $311 for the nine months ended September 30, 2024, to $319 in the same period of 2025. Changes in cost of sales and cost per tonne by product for the nine months ended September 30, 2025 and 2024 are summarized below: Nine Months Ended Nine Months Ended Change in September 30, 2025 September 30, 2024 Change in percentage Cost of Sales Cost per Tonne Cost of Sales Cost per tonne Cost of Sales Cost per Tonne Cost of Sales Cost per Tone Regular CMP $ 48,391,249 $ 320 $ 44,054,200 $ 313 $ 4,337,049 $ 7 9.84 % 2.24 % Light-Weight CMP $ 9,522,325 $ 314 $ 8,558,588 $ 302 $ 963,737 $ 12 11.26 % 3.97 % Total CMP $ 57,913,574 $ 319 $ 52,612,788 $ 311 $ 5,300,786 $ 8 10.08 % 2.57 % Offset Printing Paper $ - $ - $ - $ - $ - $ - - % - % Tissue Paper Products $ - $ - $ - $ - $ - $ - - % - % Total CMP, Offset Printing Paper and Tissue Paper Revenue $ 57,913,574 $ n/a $ 52,612,788 $ n/a $ 5,300,786 $ n/a 10.08 % n/a % Gross Profit Gross profit for the nine months ended September 30, 2025 was $3,379,677 (representing 5.51% of the total revenue), representing a decrease of $2,202,117, or 39.45%, from the gross profit of $5,581,794 (representing 9.59% of the total revenue) for the nine months ended September 30, 2024. The decrease was mainly due to the decline in ASPs of CMP and the increase in unit cost of materials, partially offset by the increase in sales volume of CMP. Offset Printing Paper, CMP and Tissue Paper Products Gross profit for offset printing paper, CMP and tissue paper products for the nine months ended September 30, 2025 was $3,379,677, a decrease of $2,091,525, or 38.23%, from the gross profit of $5,471,202 for the nine months ended September 30, 2024. The decrease was mainly the result of the factors discussed above. The overall gross profit margin for offset printing paper, CMP and tissue paper products decreased by 3.91 percentage points, from 9.42% for the nine months ended September 30, 2024, to 5.51% for the nine months ended September 30, 2025. The gross profit margin for regular CMP for the nine months ended September 30, 2025 was 5.61%, or 3.83 percentage points lower, as compared to gross profit margin of 9.44% for the nine months ended September 30, 2024. This decrease was primarily due to the decrease in ASP and the increase in material costs of regular CMP. The gross profit margin for light-weight CMP for the nine months ended September 30, 2025 was 5.02%, or 4.31 percentage points lower, as compared to gross profit margin of 9.33% for the nine months ended September 30, 2024. This decrease was primarily due to the decrease in ASP and the increase in material costs of light-weight CMP. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 2025 were $9,516,283, a decrease of $483,550, or 4.84% from $9,999,833 for the nine months ended September 30, 2024. The decrease was mainly due to lower manpower costs in the nine months ended September 30 2025 and accrued liability of $0.47 million for legal proceeding the Company was jointly liable for repayment of a loan in the third quarter of 2024. Loss from Operations Operating loss for the nine months ended September 30, 2025 was $6,132,897, an increase of loss of $1,714,858, or 38.81%, from $4,418,039 for the nine months ended September 30, 2024. The increase was primarily due to the decrease in gross profit, partially offset by the decrease in selling, general and administrative expenses. 39 Other Income and Expenses Interest expense for the nine months ended September 30, 2025 decreased by $165,751, from $593,271 for the nine months ended September 30, 2024, to $427,520. The Company had short-term and long-term interest-bearing loans and lease obligations that aggregated $9,821,969 as of September 30, 2025, as compared to $9,788,224 as of September 30, 2024. Gain on Derivative Liability 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. ASC 815 requires that 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 change in fair value of derivative liability for the nine months ended September 30, 2025 and 2024 was a gain of $5,651 and $51, respectively. Net Loss As a result of the above, net loss was $6,903,858 for the nine months ended September 30, 2025, representing an increase of loss of $1,105,629, or 19.07%, from $5,798,229 for the nine months ended September 30, 2024. Liquidity and Capital Resources As of September 30, 2025, we had current assets of $35,764,365 (including a VAT （“Value Added Tax “）recoverable of Tengsheng Paper in amount of $13,307,848), and current liabilities of $18,667,302, resulting in a working capital of $17,097,063. However, production of Tengsheng Paper has been suspended in 2024 and the nine months ended September 30, 2025, rendering related VAT unrecoverable in the short term. Net working capital excluding VAT recoverable as of September 30, 2025 was a working capital of $3,789,215. 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 us to continue as a going concern that we may be unable to realize its assets and discharge its liabilities in the normal course of business as of September 30, 2025. To address these challenges, we plan to optimize our raw material structure and stabilize manufacturing capacity utilization, which will help to reduce procurement and production costs. Additionally, we are actively exploring new products and adjusting pricing strategies in a timely manner to secure a larger market share. Furthermore, we will maintain rigorous control over inventory, working capital, and cash flow to mitigate financial risks. We will also strategically utilize financing quotas from the capital markets to ensure the smooth and healthy operation of the company. Our continued existence as a going concern depends on the successful implementation of our business plan. This includes increasing market acceptance of our 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. Accounts Receivable Net accounts receivable increased by $1,791,614, or 623.01%, to $2,079,190 as of September 30, 2025, as compared with $287,576 as of December 31, 2024. We usually collect accounts receivable within 30 days of delivery and completion of sales. Inventories Inventories consist of raw materials (accounting for 70.5% of total value of inventory as of September 30, 2025), semi-finished goods and finished goods. As of September 30, 2025, the recorded value of inventory increased by 65.8% to $3,899,571 from $2,351,876 as of December 31, 2024. As of September 30, 2025, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $2,630,267, approximately $1,276,724, or 94.3%, higher than the balance as of December 31, 2024. We increased our procurement volume of recycled paper board in 2025 in anticipation of rising purchase prices and preparing for expanded production output as planned. 40 A summary of changes in major inventory items is as follows: September 30, December 31, 2025 2024 $ Change % Change Raw Materials Recycled paper board $ 2,630,267 $ 1,353,543 1,276,724 94.3 % Recycled white scrap paper 10,613 10,491 122 1.2 % Tissue base paper 21,070 20,827 243 1.2 % Gas 50,683 16,334 34,349 210.3 % Mask fabric and other raw materials 156,025 111,521 44,504 39.9 % Total Raw Materials 2,868,658 1,512,716 1,355,942 89.6 % Semi-finished Goods 299,243 295,792 3,451 1.2 % Finished Goods 1,434,505 1,269,487 165,018 13.0 % Total inventory, gross 4,602,406 3,077,995 1,524,411 49.5 % Inventory reserve (702,835 ) (726,119 ) 23,284 (3.2 )% Total inventory, net $ 3,899,571 $ 2,351,876 1,547,695 65.8 % Renewal of Operating Lease On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building, essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million respectively. In connection with the sale, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for their original use for a term of up to three years, with an annual rental payment of approximately $139,698 (RMB1,000,000). The lease agreement was renewed in August 2022 with a six-year term with the same rental payments as provided for in the original lease agreement. Capital Expenditure Commitment On May 5, 2020, the Company announced the planned commercial launch of a new tissue paper production line PM10 and signed an agreement to purchase a paper machine from a supplier. The new tissue paper production line is expected to be launched after the completion of trial runs. As of September 30, 2025, we had approximately $3.5 million in capital expenditure commitments mainly related to the purchase of the PM 10 paper machine. The infrastructure work for PM10 is complete, while work on related ancillary facilities is ongoing. These commitments are expected to be financed by bank loans and cash flows generated from our business operations. Cash and Cash Equivalents Our cash, cash equivalents and restricted cash as of September 30, 2025 was $9,119,707, an increase of $2,169,131, from $6,950,576 as of December 31, 2024. The increase of cash and cash equivalents for the nine months ended September 30, 2025 was attributable to a number of factors including: i. Net cash provided by operating activities Net cash provided by operating activities was $388,450 for the nine months ended September 30, 2025. The balance represented a decrease of cash of $2,442,661, or 86.28%, from $2,831,111 provided for the nine months ended September 30, 2024. Net loss for the nine months ended September 30, 2025 was $6,903,85, representing an increase of loss of $1,105,629, or 19.07%, from $5,798,229 for the nine months ended September 30, 2024. Changes in various asset and liability account balances throughout the nine months ended September 30, 2025 also contributed to the net change in cash from operating activities in nine months ended September 30, 2025. Chief among such changes is the increase of accounts receivable in the amount of $1,811,293 during the nine months of 2025, an increase of $1,477,521 in the ending inventory balance as of September 30, 2025 (a decrease to net cash for the nine months ended September 30, 2025 cash flow purposes) , non-cash expenses relating to depreciation and amortization in the amount of $10,664,999, an increase of $1,319,298 in prepayment and other current assets (a decrease to net cash) and a net increase of $1,077,867 in other payables and accrued liabilities and related parties (an increase to net cash), as well as an increase in income tax payable of $225,114 (an increase to net cash) during the nine months ended September 30, 2025. 41 ii. Net cash used in investing activities We incurred $25,786 in net cash expenditures for purchases of property, plant and equipment during the nine months ended September 30, 2025, as compared to $315,152 for the same period in 2024. iii. Net cash provided by financing activities Net cash provided by financing activities was $1,649,855 for the nine months ended September 30, 2025, compared to net cash used in financing activities of $2,112,706 for the same period in 2024. The cash inflow was mainly attributable to proceeds from the issuance of common stock in May 2025 and from short term bank loans. Short-term Bank Loans September 30, December 31, 2025 2024 Rural Credit Union of Xushui District Loan 1 $ - $ 1,808,469 Rural Credit Union of Xushui District Loan 2 - 2,225,808 Rural Credit Union of Xushui District Loan 3 1,829,569 - Rural Credit Union of Xushui District Loan 4 2,251,777 - Bank of Cangzhou Loan 1 309,619 - Bank of Cangzhou Loan 2 70,368 - Bank of Cangzhou Loan 3 211,104 - Industrial and Commercial Bank of China (“ICBC”) Loan 1 - 2,782 ICBC Loan 2 - 139,113 ICBC Loan 3 - 139,113 ICBC Loan 4 - 136,331 ICBC Loan 5 2,815 - ICBC Loan 6 140,736 - ICBC Loan 7 140,736 - ICBC Loan 8 137,921 - Total short-term bank loans $ 5,094,645 $ 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 $nil and $1,808,469 as of September 30, 2025 and December 31, 2024, respectively. The loan was secured by the equipment of Baoding Shengde as collateral for the benefit of the bank. The loan bore a fixed rate of 6%. The loan was repaid on September 30, 2025. On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $nil and $2,225,808 as of September 30, 2025 and December 31, 2024, respectively. 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 bore a fixed rate of 6%. The loan was repaid on September 30, 2025. On September 30, 2025, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $1,829,569 as of September 30, 2025. The loan is guaranteed by Mr. Liu Zhenyong and 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 September 29, 2026. On September 30, 2025, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $2,251,777 as of September 30, 2025. 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 September 29, 2026. On December 28, 2024, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $309,619 at a fixed interest rate of 5.5% per annum. The loan is guaranteed by Mr. Liu Zhenyong. The loan will be due by December 27, 2025. 42 On December 28, 2024, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $70,368 at a fixed interest rate of 5.5% per annum. The loan is secured by the Company’s manufacturing equipment and guaranteed by Mr. Liu Zhenyong. 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 $211,104 at a fixed interest rate of 5.5% per annum. The loan is secured by the Company’s manufacturing equipment and guaranteed by Mr. Liu Zhenyong. 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 $nil and $2,782 as of September 30, 2025 and December 31, 2024, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid on June 10, 2025. On June 21, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $139,113 as of September 30, 2025 and December 31, 2024, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan is was repaid on June 3, 2025. On June 22, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $139,113 as of September 30, 2025 and December 31, 2024, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid on June 10, 2025. On June 24, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $136,331 as of as of September 30, 2025 and December 31, 2024, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid on June 9, 2025. On June 10, 2025, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,815 as of September 30, 2025. The loan bears a fixed interest rate of 3.00% per annum. The loan is due for repayment by June 10, 2026. On June 3, 2025, the Company entered into a working capital loan agreement with the ICBC, with a balance of $140,736 as of September 30, 2025. The loan bears a fixed interest rate of 3.00% per annum. The loan is due for repayment by June 3, 2026. On June 10, 2025, the Company entered into a working capital loan agreement with the ICBC, with a balance of $140,736 as of September 30, 2025. The loan bears a fixed interest rate of 3.00% per annum. The loan is due for repayment by June 10, 2026. On June 9, 2025, the Company entered into a working capital loan agreement with the ICBC, with a balance of $137,921 as of September 30, 2025. The loan bears a fixed interest rate of 3.00% per annum. The loan is due for repayment by June 9, 2026. As of September 30, 2025, there were guaranteed short-term borrowings of $4,672,437 and unsecured bank loans of $422,208. 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 September 30, 2025 and 2024 were approximately 5.71% and 4.47%, respectively. The average short-term borrowing rates for the nine months ended September 30, 2025 and 2024 were approximately 5.72% and 4.47%, respectively. Long-term Loans As of September 30, 2025 and December 31, 2024, long-term loans were $4,727,324 and $4,672,806, respectively. On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and 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 September 30, 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. Effective from December 3, 2024, the interest rate was reduced to 6% per annum. The loan was fully repaid on August 15, 2025. As of September 30, 2025 and December 31, 2024, the total outstanding loan balance was $nil and $3,476,434. Out of the total outstanding loan balance, current portion amounted was $nil and $2,641,756, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and $834,678 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2025 and December 31, 2024, 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 is 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. Effective from December 3, 2024, the interest rate was reduced to 6% per annum. The loan was fully repaid on August 15, 2025. As of September 30, 2025 and December 31, 2024, total outstanding loan balance was $nil and $1,196,372, respectively. Out of the total outstanding loan balance, current portion amounted $nil and $918,146, which is presented as current liabilities and the remaining balance of $nil and $278,226 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2025 and December 31, 2024, respectively. 43 On August 15, 2025, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 3 years, which is due and payable on August 14, 2028. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $nil as of September 30, 2025. Interest payment is due monthly and bore a rate of 6% per annum. As of September 30, 2025, the total outstanding loan balance was $3,516,994, which is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2025. On August 15, 2025, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 3 years, which is due and payable on August 14, 2028. The loan is guaranteed by an independent third party. Interest payment is due monthly and bore a rate of 6% per annum. As of September 30, 2025, the total outstanding loan balance was $1,210,330, which is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2025. Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2025 and 2024 were $150,701 and $171,430, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2025 and 2024 were $427,520 and $593,271, respectively. Shareholder Loans Mr. Liu Zhenyong had loaned money to Dongfang Paper for working capital purposes over a period of time. On January 1, 2013, Dongfang Paper and Mr. Liu Zhenyong 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 $360,754 and $356,594 of interest were outstanding to Mr. Liu Zhenyong, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of September 30, 2025 and December 31, 2024, respectively. On December 10, 2014, Mr. Liu Zhenyong 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 2016, the Company repaid $6,012,416 to Mr. Liu Zhenyong, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of September 30, 2025 and December 31, 2024, approximately $42,221 and $41,734 of interest were outstanding to Mr. Liu Zhenyong, 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. Liu Zhenyong which allows Dongfang Paper to borrow from the CEO an amount up to $17,201,342 (RMB120,000,000) for working capital purposes. The advances or funding under the agreement are due three years from the date each amount is funded. The loan is unsecured and carries an annual interest rate set on the basis of the primary lending rate of the People’s Bank of China at the time of the borrowing. On July 13, 2015, an unsecured amount of $4,324,636 was drawn from the 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. Liu Zhenyong. The loan would be originally due on July 12, 2018. Mr. Liu Zhenyong 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. Liu Zhenyong, together with interest of $158,651. In December 2019, the Company paid off the remaining balance, together with interest of 94,636. As of September 30, 2025 and December 31, 2024, the outstanding interest was $193,424 and $191,193, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet. In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Liu Zhenyong to borrow from the Company an amount of $7,059,455 (RMB50,000,000) in total. The loans were unsecured and carried a fixed interest rate of 4.35% per annum. $4,235,673 (RMB30,000,000) was repaid by Mr. Liu Zhengyong in August 2023 and the remaining balance was repaid in December 2023. Interest income of the loan for the three and nine months ended September 30, 2025 and 2024 were $nil. As of September 30, 2025 and December 31, 2024, total amount of loans due to Mr. Liu Zhenyong was $nil. The interest expense incurred for such related party loans were $nil for the three and nine months ended September 30, 2025 and 2024. The net interest owed to Mr. Liu Zhenyong was approximately $308,154 and $304,600, as of September 30, 2025 and December 31, 2024, respectively, which was recorded in other payables and accrued liabilities. 44 As of September 30, 2025 and December 31, 2024, amount due to Mr. Liu Zhenyong was $189,948 and $1,242, respectively, which mainly represents funds from Mr. Liu Zhenyong to pay for various expenses incurred in the U.S. The amount is due on demand with interest free. Critical Accounting Policies and Estimates The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates. The most critical accounting policies are listed below: Revenue Recognition Policy The Company recognizes revenue when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured. Goods are considered delivered when the customer’s truck picks up goods at our finished goods inventory warehouse. Long-Lived Assets The Company evaluates the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. In such circumstances, those assets are written down to estimated fair value. Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry. For the nine months ended September 30, 2025 and 2024, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required. We are currently not aware of any events or circumstances that may indicate any need to record such impairment in the future. Foreign Currency Translation The functional currency of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. The current exchange rates used by the Company as of September 30, 2025 and December 31, 2024 to translate the Chinese RMB to the U.S. Dollars are 7.1055:1 and 7.1884:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 7.1583:1 and 7.0999:1 for the nine months ended September 30, 2025 and 2024, respectively. Translation adjustments are included in other comprehensive income (loss). Off-Balance Sheet Arrangements We were the guarantor for Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,362,818 (RMB31,000,000), which matures at various times in 2026. Baoding Huanrun Trading Co. is one of our major suppliers of raw materials. This helps us to maintain a good relationship with the supplier and negotiate better terms in payment for materials. If Huanrun Trading Co. were to become insolvent, the Company could be materially adversely affected. Except as aforesaid, we have no material off-balance sheet transactions. 45 Recent 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.