UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34577

IT TECH PACKAGING, INC.

(Exact name of registrant as specified in its charter)

Nevada		20-4158835
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		identification No.)

Science Park, Juli Rd, Xushui District, Baoding City

Hebei Province, The People’s Republic of China 072550

(Address of principal executive offices and Zip Code)

011 - (86) 312-8698215

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		ITP		NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

As of November 14, 2024, there were 10,065,920 shares of the registrant’s common stock, par value $0.001, outstanding.

TABLE OF CONTENTS

Part I. - FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

Part II. - OTHER INFORMATION		45

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	46

Item 6.	Exhibits	46

SIGNATURES		47

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023

(unaudited)

	September 30,			December 31,
	2024			2023
ASSETS

Current Assets
Cash and bank balances	$	4,414,848		$	3,918,938
Restricted cash		478,066			472,983
Accounts receivable (net of allowance for doubtful accounts of $42,533 and $11,745 as of September 30, 2024 and December 31, 2023, respectively)		1,727,370			575,526
Inventories		5,732,539			3,555,235
Prepayments and other current assets		19,384,595			18,981,290
Due from related parties		1,237,479			853,929

Total current assets		32,974,897			28,357,901

Operating lease right-of-use assets, net		459,612			528,648
Property, plant, and equipment, net		154,755,386			163,974,022
Value-added tax recoverable		1,828,344			1,883,078

Total Assets	$	190,018,239		$	194,743,649

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Short-term bank loans	$	856,238		$	423,567
Current portion of long-term loans		4,365,385			6,874,497
Lease liability		249,976			100,484
Accounts payable		-			4,991
Advance from customers		37,101			136,167
Due to related parties		732,982			728,869
Accrued payroll and employee benefits		362,996			237,842
Other payables and accrued liabilities		13,800,118			12,912,517
Income taxes payable		349,828			-

Total current liabilities		20,754,624			21,418,934

Long-term loans		4,566,601			4,503,932
Lease liability - non-current		372,966			483,866
Derivative liability		3			54

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $19,074,627 and $20,084,995 as of September 30, 2024 and December 31, 2023, respectively)		25,694,194			26,406,786

Commitments and Contingencies

Stockholders’ Equity
Common stock, 50,000,000 shares authorized, $0.001 par value per share, 10,065,920 shares issued and outstanding as of September 30, 2024 and December, 31, 2023.		10,066			10,066
Additional paid-in capital		89,172,771			89,172,771
Statutory earnings reserve		6,080,574			6,080,574
Accumulated other comprehensive loss		(8,770,123	)		(10,555,534	)
Retained earnings		77,830,757			83,628,986

Total stockholders’ equity		164,324,045			168,336,863

Total Liabilities and Stockholders’ Equity	$	190,018,239		$	194,743,649

See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023

Revenues	$	25,081,500		$	15,771,560		$	58,195,129		$	65,582,351

Cost of sales		(23,164,119	)		(15,924,783	)		(52,613,335	)		(64,832,715	)

Gross Profit (Loss)		1,917,381			(153,223	)		5,581,794			749,636

Selling, general and administrative expenses		(3,381,502	)		(2,334,746	)		(9,999,833	)		(6,153,513	)
Loss on impairment of assets		-			3,456			-			(371,680	)

Loss from Operations		(1,464,121	)		(2,484,513	)		(4,418,039	)		(5,775,557	)

Other Income (Expense):
Interest income		7,313			93,298			12,303			283,203
Interest expense		(171,430	)		(247,818	)		(593,271	)		(767,668	)
Gain on derivative liability		2			660,429			51			646,020

Loss before Income Taxes		(1,628,236	)		(1,978,604	)		(4,998,956	)		(5,614,002	)

Income Tax (Expenses) Benefits		(345,710	)		3,236			(799,273	)		(348,024	)

Net Loss		(1,973,946	)		(1,975,368	)		(5,798,229	)		(5,962,026	)

Other Comprehensive Income (Loss)
Foreign currency translation adjustment		2,843,180			1,143,608			1,785,411			(5,417,331	)

Total Comprehensive Income (Loss)	$	869,234		$	(831,760	)	$	(4,012,818	)	$	(11,379,357	)

Losses Per Share:

Basic and Diluted Losses per Share	$	(0.20	)	$	(0.20	)	$	(0.58	)	$	(0.59	)

Outstanding – Basic and Diluted		10,065,920			10,065,920			10,065,920			10,065,920

See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

	Nine Months Ended
	September 30,
	2024			2023

Cash Flows from Operating Activities:
Net income	$	(5,798,229	)	$	(5,962,026	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,346,181			10,573,288
(Gain) Loss on derivative liability		(51	)		(646,020	)
(Gain) Loss from disposal and impairment of property, plant and equipment		-			956,406
(Recovery from) Allowance for bad debts		30,262			(815,317	)
Allowances for inventories, net		(2,951	)		-
Changes in operating assets and liabilities:
Accounts receivable		(1,160,996	)		(2,037,003	)
Prepayments and other current assets		(122,747	)		7,968,553
Inventories		(2,108,280	)		(2,631,661	)
Accounts payable		(4,979	)		101,328
Advance from customers		(99,219	)		19,140
Related parties		(365,452	)		120,298
Accrued payroll and employee benefits		121,000			141,773
Other payables and accrued liabilities		1,651,302			119,132
Income taxes payable		345,270			(413,777	)
Net Cash Provided by Operating Activities		2,831,111			7,494,114

Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(315,152	)		(9,211,711	)

Net Cash Used in Investing Activities		(315,152	)		(9,211,711	)

Cash Flows from Financing Activities:
Proceeds from short term bank loans		845,082			852,988
Proceeds from long term loans		-			2,558,963
Repayment of bank loans		(2,957,788	)		(5,549,150	)
Payment of capital lease obligation		-			(130,470	)
Loan to a related party (net)		-			4,264,938

Net Cash (Used in) Provided by Financing Activities		(2,112,706	)		1,997,269

Effect of Exchange Rate Changes on Cash and Cash Equivalents		97,740			(366,599	)

Net Increase (Decrease) in Cash and Cash Equivalents		500,993			(86,927	)

Cash, Cash Equivalents and Restricted Cash - Beginning of Period		4,391,921			9,524,868

Cash, Cash Equivalents and Restricted Cash - End of Period	$	4,892,914		$	9,437,941

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of capitalized interest cost	$	382,493		$	1,118,672
Cash paid for income taxes	$	454,003		$	761,801

Cash and bank balances		4,414,848			9,437,941
Restricted cash		478,066			-
Total cash, cash equivalents and restricted cash shown in the statement of cash flows		4,892,914			9,437,941

See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

									Accumulated
					Additional		Statutory		Other
	Common Stock				Paid-in		Earnings		Comprehensive			Retained
	Shares		Amount		Capital		Reserve		Income (loss)			Earnings			Total

Balance at December 31, 2022		10,065,920	$	10,066	$	89,172,771	$	6,080,574	$	(7,514,540	)	$	93,575,021		$	181,323,892
Foreign currency translation adjustment										(5,417,331	)					(5,417,331	)
Net loss													(5,962,026	)		(5,962,026	)
Balance at September 30, 2023		10,065,920	$	10,066	$	89,172,771	$	6,080,574	$	(12,931,871	)	$	87,612,995		$	169,944,535

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										1,785,411						1,785,411
Net loss													(5,798,229	)		(5,798,229	)
Balance at September 30, 2024		10,065,920	$	10,066	$	89,172,771	$	6,080,574	$	(8,770,123	)	$	77,830,757		$	164,324,045

See accompanying notes to condensed consolidated financial statements.

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.

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 RMB1 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 RMB320 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.

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 September 30, 2024 and 2023 was accounted for 100% and 99.90% of the Company’s total revenue, respectively. The revenue generated from Dongfang Paper and Tengsheng Paper for the nine months ended September 30, 2024 and 2023 was accounted for 100% and 99.86% of the Company’s total revenue, respectively. Dongfang Paper and Tengsheng Paper also accounted for 95.31% and 94.93% of the total assets of the Company as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, 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.

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 September 30, 2024 and December 31, 2023 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.

	September 30,		December 31,
	2024		2023
ASSETS

Current Assets
Cash and bank balances	$	4,006,365	$	2,807,608
Restricted cash		478,066		472,983
Accounts receivable		1,727,370		575,526
Inventories		5,732,539		3,555,235
Prepayments and other current assets		18,476,507		18,617,351
Due from related parties		292,280		289,173

Total current assets		30,713,127		26,317,876

Operating lease right-of-use assets, net		459,612		528,648
Property, plant, and equipment, net		149,936,157		158,027,099

Total Assets	$	181,108,896	$	184,873,623

LIABILITIES

Current Liabilities
Short-term bank loans	$	428,119	$	-
Current portion of long-term loans		2,510,203		2,780,014
Lease liability		249,976		100,484
Accounts payable		-		4,991
Advance from customers		37,101		136,167
Accrued payroll and employee benefits		335,074		231,568
Other payables and accrued liabilities		12,508,059		11,843,973
Income taxes payable		349,828		-

Total current liabilities		16,418,360		15,097,197

Long-term loans		2,283,301		4,503,932
Lease liability - non-current		372,966		483,866

Total liabilities	$	19,074,627	$	20,084,995

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, 2023 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 September 30, 2024 and the results of operations for the nine months ended September 30, 2024 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.

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.

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 September 30, 2024 and December 31, 2023, 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 (12)), 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.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Restricted Cash

Restricted cash of $478,066 and $472,983 as of September 30, 2024 and December 31, 2023 was presented for the cash deposited at the Industrial and Commercial Bank of China of Tengsheng Paper. The deposit was restricted due to the 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 September 30, 2024 and December 31, 2023:

	September 30,		December 31,
	2024		2023
Raw Materials
Recycled paper board	$	3,873,233	$	198,744
Recycled white scrap paper		10,762		10,647
Gas		65,771		21,428
Base paper and other raw materials		160,308		142,149
		4,110,074		372,968
Semi-finished Goods		303,433		300,207
Finished Goods		1,319,032		2,885,019
Total inventory, gross		5,732,539		3,558,194
Inventory reserve		-		(2,959	)
Total inventory, net	$	5,732,539	$	3,555,235

(5) Prepayments and other current assets

Prepayments and other current assets consisted of the following as of September 30, 2024 and December 31, 2023:

	September 30,		December 31,
	2024		2023
Prepaid land lease	$	7,135	$	-
Prepayment for purchase of materials		5,737,653		5,446,823
Value-added tax recoverable		13,494,151		13,409,459
Prepaid gas		134,291		116,372
Others		11,365		8,636
	$	19,384,595	$	18,981,290

(6) Property, plant and equipment, net

As of September 30, 2024 and December 31, 2023, property, plant and equipment consisted of the following:

	September 30,			December 31,
	2024			2023

Land use rights	$	82,380,439		$	81,504,608
Building and improvements		68,300,564			67,939,059
Machinery and equipment		160,198,007			158,629,858
Vehicles		351,950			348,209
Construction in progress		-			-
Totals		311,230,960			308,421,734
Less: accumulated depreciation and amortization		(156,475,574	)		(144,447,712	)
Property, Plant and Equipment, net	$	154,755,386		$	163,974,022

As of September 30, 2024 and December 31, 2023, land use rights represented twenty three parcels of state-owned lands located in Xushui District and Wei County of Hebei Province in China, with lease terms of 50 years expiring in 2061 and 2068, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2024 and December 31, 2023, certain property, plant and equipment of Dongfang Paper with net values of $nil, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Tengsheng Paper with net value of $4,875,045 and $4,910,034, respectively, as of September 30, 2024 and December 31, 2023 was pledged for a long-term loan from credit union of Baoding Shengde. In addition, land use right of Tengsheng Paper with net value of $3,744,874 and $3,781,366, respectively, as of September 30, 2024 and December 31, 2023 was pledged for another long-term loan from credit union of Baoding Shengde. Certain property, plant and equipment of Dongfang Paper with net values of $251,593 was pledged for a 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 $3,483,298 and $3,423,231 for the three months ended September 30, 2024 and 2023, respectively. Depreciation and amortization of property, plant and equipment was $10,346,181 and $10,573,288 for the nine months ended September 30, 2024 and 2023, 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.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of the Company’s lease expense are as follows:

	Nine Months Ended
	September 30, 2024
	RMB

Operating lease cost		74,717
Short-term lease cost		-
Lease cost		74,717

Supplemental cash flow information related to its operating leases was as follows for the period ended September 30, 2024:

Cash paid for amounts included in the measurement of lease liabilities:

	Nine Months Ended
	September 30, 2024
	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 September 30, 2024:

September 30,	Amount
2025		285,413
2026		142,706
2027		142,706
2028 & thereafter		142,706
Total operating lease payments	$	713,531
Less: Interest		(90,589	)
Present value of lease liabilities		622,942
Less: current portion, record in current liabilities		(249,976	)
Present value of lease liabilities		372,966

The weighted average remaining lease terms and discount rates for all of its operating leases were as follows as of September 30, 2024:

	September 30,
	2024
	RMB
Remaining lease term and discount rate:
Weighted average remaining lease term (years)		3.9
Weighted average discount rate		7.56	%

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8) Loans Payable

Short-term bank loans

	September 30,		December 31,
	2024		2023
Bank of Cangzhou 1	$	142,706	$	-
Bank of Cangzhou 2		285,413		-
Industrial and Commercial Bank of China (“ICBC”) Loan 1		-		2,824
ICBC Loan 2		-		70,594
ICBC Loan 3		-		350,149
ICBC Loan 4		2,854		-
ICBC Loan 5		142,706		-
ICBC Loan 6		142,706		-
ICBC Loan 7		139,852		-

Total short-term bank loans	$	856,238	$	423,567

On December 31, 2023, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $142,706 at a fixed interest rate of 5.5% per annum. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $251,593 as of September 30, 2024. The loan will be due by December 30, 2024.

On December 31, 2023, the Company entered into a working capital loan agreement with the Bank of Cangzhou, to borrow $285,413 at a fixed interest rate of 5.5% per annum. The loan will be due by December 30, 2024.

On September 15, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $2,824 as of September 30, 2024 and December 31, 2023, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid in June 2024.

On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $70,594 as of September 30, 2024 and December 31, 2023, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid in June 2024.

On September 22, 2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $350,149 as of September 30, 2024 and December 31, 2023, respectively. The loan bore a fixed interest rate of 3.45% per annum. The loan was repaid in June 2024.

On June 11, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,854 as of September 30, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will be due by June 11, 2025.

On June 21, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $142,706 as of September 30, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will be due by June 21, 2025.

On June 22, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $142,706 as of September 30, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will be due by June 22, 2025.

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 $139,852 as of September 30, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will be due by June 24, 2025.

As of September 30, 2024, there were guaranteed short-term borrowings of $142,707 and unsecured bank loans of $713,531. As of December 31, 2023, there were guaranteed short-term borrowings of $nil and unsecured bank loans of $423,567.

The average short-term borrowing rates for the three months ended September 30, 2024 and 2023 were approximately 4.47% and 4.52%. The average short-term borrowing rates for the nine months ended September 30, 2024 and 2023 were approximately 4.47% and 4.66%.

Long-term loans

As of September 30, 2024 and December 31, 2023, long-term loans were $8,931,986 and $11,378,429, respectively.

	September 30,			December 31,
	2024			2023
Rural Credit Union of Xushui District Loan 1	$	3,566,229		$	3,528,315
Rural Credit Union of Xushui District Loan 2		2,283,301			2,259,026
Rural Credit Union of Xushui District Loan 3		1,855,182			1,835,458
Rural Credit Union of Xushui District Loan 4		-			2,541,404
Rural Credit Union of Xushui District Loan 5		1,227,274			1,214,226
Total		8,931,986			11,378,429
Less: Current portion of long-term loans		(4,365,385	)		(6,874,497	)
Long-term loans	$	4,566,601		$	4,503,932

As of September 30, 2024, the Company’s long-term debt repayments for the next coming years were as follows:

Fiscal year	Amount
Remainder of 2024	$	4,365,385
2025		4,281,188
2026 & after		285,413
Total		8,931,986

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, 2024 and December 31, 2023. Interest payment is due monthly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2024 and December 31, 2023, the total outstanding loan balance was $3,566,229 and $3,528,315. Out of the total outstanding loan balance, current portion amounted was $1,996,460 and $1,269,290, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $1,569,769 and $2,259,025 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan was renewed on March 22, 2021, December 24, 2021 and April 16, 2024 and extended for additional 5 years in total, which is due on April 15, 2026 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2024 and December 31, 2023, the total outstanding loan balance was $2,283,301 and $2,259,026, respectively, which are presented as non-current liabilities and current liabilities, respectively, in the consolidated balance sheet as of September 30, 2024 and December 31, 2023.

On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which will be due on December 11, 2024 according to the new schedule. The loan is secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7.56% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of September 30, 2024 and December 31, 2023, the total outstanding loan balance was $1,855,182 and $1,835,458, respectively, which are presented as current liabilities in the consolidated balance sheet as of September 30, 2024 and December 31, 2023.

On February 26, 2023, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from August 21, 2023 to February 24, 2025. The loan is secured by Dongfang Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7% per annum. The loan was repaid in July 2024. As of September 30, 2024 and December 31, 2023, the total outstanding loan balance was $nil and $2,541,404. Out of the total outstanding loan balance, current portion amounted was $nil and $1,284,820, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and $1,256,584 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.

On December 5, 2023, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 3 years, which was due in various installments from June 21, 2024 to December 5, 2026. The loan was guaranteed by an independent third party. Interest payment was due monthly and bore a rate of 7% per annum. As of September 30, 2024 and December 31, 2023, total outstanding loan balance was $1,227,274 and $1,214,226, respectively. Out of the total outstanding loan balance, current portion amounted $513,743 and $225,903, which is presented as current liabilities and the remaining balance of $713,531 and $988,323 is presented as non-current liabilities in the consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the three months ended September 30, 2024 and 2023 were $171,430 and $247,628, respectively. Total interest expenses for the short-term bank loans and long-term loans for the nine months ended September 30, 2024 and 2023 were $593,271 and $760,807, respectively.

(9) Related Party Transactions

Mr. Zhenyong Liu, the Company’s CEO 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 $365,804 and $361,915 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 September 30, 2024 and December 31, 2023, approximately $42,812 and $42,357 of interest, respectively, 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 (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. 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 September 30, 2024 and December 31, 2023, the outstanding interest was $196,132 and $194,047, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

As of September 30, 2024 and December 31, 2023, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans were $nil for the three and nine months ended September 30, 2024 and 2023. The accrued interest owing to Mr. Zhenyong Liu was approximately $604,748 and $598,319, as of September 30, 2024 and December 31, 2023, respectively, which was recorded in other payables and accrued liabilities.

In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of $7,059,455 (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. Zhengyong Liu in August 2023 and the remaining balance was repaid in December 2023. Interest income of the loan for the nine months ended September 30, 2024 and 2023 were $nil and $263,342.

As of September 30, 2024 and December 31, 2023, amount due to shareholder was $727,433, which represents funds from shareholders to pay for various expenses incurred in the U.S. The amount is due on demand with interest free.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(10) Other payables and accrued liabilities

	September 30,		December 31,
	2024		2023
Accrued electricity	$	117,171	$	3,054
Value-added tax payable		226,354		696
Accrued interest to a related party		604,748		598,319
Payable for purchase of property, plant and equipment		10,988,359		11,175,858
Accrued commission to salesmen		15,185		47,040
Accrued bank loan interest		1,295,773		1,070,708
Others		552,528		16,842
Totals	$	13,800,118	$	12,912,517

Others mainly included $473,785 accrued liability for the legal proceeding which Hebei Tengsheng was jointly liable for repayment of a loan. For details please refer to Item 1. Legal Proceedings.

(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 September 30, 2024. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the September 30, 2024:

			Nine months ended
			September 30, 2024
Expected term			0.55 - 2.75
Expected average volatility			77% - 102%
Expected dividend yield			-
Risk-free interest rate			0.13% - 3.66%

The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2024: Fair

Value Measurements Using Significant Observable Inputs (Level 3)

Balance at December 31, 2023	$	54
Change in fair value of derivative liability		(51	)
Balance at September 30, 2024	$	3

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 and six months from the date of issuance till July 23, 2025. 88,000 May 2020 Warrants were exercised in February 2021 at the exercise price of $7.425 per share and 352,000 May 2020 Warrants were outstanding as of September 30, 2024.

On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 2,618,182 shares of common stock and 2,618,182 warrants to purchase up to 2,618,182 shares of common stock (the “January 2021 Warrants”). The January 2021 Warrants became exercisable on January 20, 2021 at an exercise price of $5.5 and will expire on January 20, 2026. 1,410,690 January 2021 Warrants were exercised in January and February of 2021 at the exercise price of $5.5 per share. 1,207,492 January 2021 Warrants were outstanding as of September 30, 2024.

On March 1, 2021, the Company offered and sold to the public investors an aggregate of 2,927,786 shares of common stock and 1,463,893 warrants to purchase up to 1,463,893 shares of common stock (the “March 2021 Warrants”). The March 2021 Warrants became exercisable on March 1, 2021 at an exercise price of $7.5 and will expire on March 1, 2026. 6,750 March 2021 Warrants were exercised in January and March 2021 at the exercise price of $7.5 per share and 1,457,143 March 2021 Warrants were outstanding as of September 30, 2024.

The Company classified warrants as liabilities and accounted for the issuance of the warrants as a derivative.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of stock warrant activities is as below:

	Nine months ended September 30, 2024
	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 September 30, 2024.

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		1.33	$	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 September 30, 2024 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). The intrinsic value of the warrants as of September 30, 2024 and December 31, 2023 are nil.

(14) Earnings Per Share

For the three months ended September 30, 2024 and 2023, basic and diluted net loss per share are calculated as follows:

	Three Months Ended September 30,
	2024			2023
Basic loss per share
Net loss for the period - numerator	$	(1,973,946	)	$	(1,975,368	)
Weighted average common stock outstanding - denominator		10,065,920			10,065,920
Net loss per share	$	(0.20	)	$	(0.20	)

Diluted loss per share
Net loss for the period- numerator	$	(1,973,946	)	$	(1,975,368	)
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	$	(0.20	)	$	(0.20	)

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended September 30, 2024 and 2023, basic and diluted net loss per share are calculated as follows:

	Nine Months Ended September 30,
	2024			2023
Basic loss per share
Net loss for the period - numerator	$	(5,798,229	)	$	(5,962,026	)
Weighted average common stock outstanding - denominator		10,065,920			10,065,920
Net loss per share	$	(0.58	)	$	(0.59	)

Diluted loss per share
Net loss for the period - numerator	$	(5,798,229	)	$	(5,962,026	)
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	$	(0.58	)	$	(0.59	)

For the three and nine months ended September 30, 2024 and 2023 there were no securities with dilutive effect issued and outstanding.

(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 second quarter ended September 30, 2024 and 2023, 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%.

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The provisions for income taxes for three months ended September 30, 2024 and 2023 were as follows:

	Three Months Ended
	September 30,
	2024		2023
Provision for Income Taxes
Current Tax Provision U.S.	$	-	$	-
Current Tax Provision PRC		345,710		(3,236	)
Deferred Tax Provision PRC		-		-
Total Income Tax Expenses (Benefits)	$	345,710	$	(3,236	)

The provisions for income taxes for nine months ended September 30, 2024 and 2023 were as follows:

	Nine Months Ended
	September 30,
	2024		2023
Provision for Income Taxes
Current Tax Provision U.S.	$	36,793	$	-
Current Tax Provision PRC		762,480		348,024
Deferred Tax Provision PRC		-		-
Total Income Tax Expenses (Benefits)	$	799,273	$	348,024

In addition to the reversible future PRC income tax benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset depreciation, the Company was incorporated in the United States and incurred net operating losses of approximately $62,499 and $530,581 for U.S. income tax purposes for the years ended December 31, 2023 and 2022, respectively. The net operating loss carried forward may be available to reduce future years’ taxable income. These carry forwards would expire, if not utilized, during the period of 2030 through 2035. As of September 30, 2024, management believed that the realization of all the U.S. income tax benefits from these losses, which generally would generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, As of September 30, 2024 and December 31, 2023, the Company provided a 100% valuation allowance on the U.S. deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable for the PRC income tax purposes. Management reviews this valuation allowance periodically and will make adjustments as warranted. A summary of the otherwise deductible (or taxable) deferred tax items is as follows:

	September 30,			December 31,
	2024			2023
Deferred tax assets (liabilities)
Depreciation and amortization of property, plant and equipment	$	18,523,562		$	16,922,756
Impairment of property, plant and equipment		591,670			585,380
Miscellaneous		788,086			135,714
Net operating loss carryover of PRC company		168,315			274,525
(Gain) Loss on asset disposal		(64,754	)		(64,065	)
Total deferred tax assets		20,006,879			17,854,310
Less: Valuation allowance		(20,006,879	)		(17,854,310	)
Total deferred tax assets, net	$	-			-

IT TECH PACKAGING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three months ended September 30, 2024 and 2023, the effective income tax rate was estimated by the Company to be -21.2% and 0.2%, respectively

	Three Months Ended
	September 30,
	2024			2023
PRC Statutory rate		25.0	%		25.0	%
Effect of different tax jurisdiction
Effect of tax and book difference		10.9	%		(2.6	)%
Change in valuation allowance		(57.1	)%		(22.2	)%
Effective income tax rate		(21.2	)%		0.2	%

During the nine months ended September 30, 2024 and 2023, the effective income tax rate was estimated by the Company to be -16.0% and -6.2%, respectively

	Nine Months Ended
	September 30,
	2024			2023
PRC Statutory rate		25.0	%		25.0	%
Effect of different tax jurisdiction
Effect of tax and book difference		2.1	%		(28.6	)%
Change in valuation allowance		(43.1	)%		(2.6	)%
Effective income tax rate		(16.0	)%		(6.2	)%

As of September 30, 2024, except for the one-time transition tax under the 2017 TCJA which imposes a U.S. tax liability on all unrepatriated foreign E&Ps, the Company does not believe that its future dividend policy and the available U.S. tax deductions and net operating losses will cause the Company to recognize any other substantial current U.S. federal or state corporate income tax liability in the near future. Nor does it believe that the amount of the repatriation of the VIE’s earnings and profits for purposes of paying dividends will change the Company’s position that its PRC subsidiary Baoding Shengde and the VIE, Dongfang Paper are considered or are expected to be indefinitely reinvested offshore to support our future capacity expansion. If these earnings are repatriated to the U.S. resulting in U.S. taxable income in the future, or if it is determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required.

The Company has adopted ASC Topic 740-10-05, Income Taxes. To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2024 and December 31, 2023, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the nine months ended September 30, 2024 and December 31, 2023, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.

IT TECH PACKAGING, INC.

SEC Form 10-Q filed by IT Tech Packaging Inc.