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 ~~March 31,~~June 30, 2021

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

~~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 ~~May 11,~~August 10, 2021, there were 99,049,900 shares of the registrant’s common stock, par value $0.001, outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

IT TECH PACKAGING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~MARCH 31,~~JUNE 30, 2021 AND DECEMBER 31, 2020

~~(Unaudited)~~

March 31, December 31,
2021 2020
ASSETS

Current Assets
Cash and bank balances $ 37,440,991 $ 4,142,437
Restricted cash - -
Accounts receivable (net of allowance for doubtful accounts of $85,637 and $34,391 as of March 31, 2021 and December 2020, respectively) 5,211,806 2,389,057
Inventories 7,431,502 1,233,801
Prepayments and other current assets 10,655,539 7,051,515
Due from related parties 　 400,650 　 92,795

Total current assets 61,140,488 14,909,605

Prepayment on property, plant and equipment 21,000,411 21,149,749
Finance lease right-of-use assets, net 2,340,142 2,397,653
Property, plant, and equipment, net 140,109,827 145,142,642
Value-added tax recoverable 2,502,526 2,566,195
Deferred tax asset non-current 14,194,939 13,708,630

Total Assets $ 241,288,333 $ 199,874,474

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Short-term bank loans $ 6,389,908 $ 6,435,348
Current portion of long-term loans from credit union 4,960,967 4,996,245
Lease liability 188,723 182,852
Accounts payable 2,355,798 592,391
Advance from customers 82,042 82,625
Due to related parties 727,433 727,433
Accrued payroll and employee benefits 308,838 224,930
Other payables and accrued liabilities 4,715,970 4,838,601
Income taxes payable 　 482,209 　 259,649

Total current liabilities 20,211,888 18,340,074

Loans from credit union 4,565,307 4,597,772
Deferred gain on sale-leaseback 347,158 387,087
Lease liability - non-current 301,654 354,107
Derivative liability 11,581,027 1,115,260

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $19,683,842 and $17,950,224 as of March 31, 2021 and December 31, 2020, respectively) 　 37,007,034 　 24,794,300

Commitments and Contingencies

Stockholders’ Equity
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 99,049,900 and 28,535,816 shares issued and outstanding as of March 31, 2021 and December, 31,2020, respectively 99,050 28,536
Additional paid-in capital 88,927,786 53,989,548
Statutory earnings reserve 6,080,574 6,080,574
Accumulated other comprehensive income 4,271,952 5,740,722
Retained earnings 　 104,901,937 　 109,240,794

Total stockholders’ equity 　 204,281,299 　 175,080,174

Total Liabilities and Stockholders’ Equity $ 241,288,333 $ 199,874,474
~~See accompanying notes to condensed consolidated financial statements.~~ (unaudited)
1
June 30, December 31,
2021 2020
ASSETS

Current Assets
Cash and bank balances $ 30,273,543 $ 4,142,437
Restricted cash - -
Accounts receivable (net of allowance for doubtful accounts of $87,876 and $34,391 as of June 30, 2021 and December 31, 2020, respectively) 5,593,270 2,389,057
Inventories 11,671,350 1,233,801
Prepayments and other current assets 15,247,108 7,051,515
Due from related parties 955,526 92,795

Total current assets 63,740,797 14,909,605

Prepayment on property, plant and equipment 21,361,898 21,149,749
Finance lease right-of-use assets, net 2,339,145 2,397,653
Property, plant, and equipment, net 138,564,893 145,142,642
Value-added tax recoverable 2,537,704 2,566,195
Deferred tax asset non-current 10,076,731 13,708,630

Total Assets $ 238,621,168 $ 199,874,474

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Short-term bank loans $ 6,422,501 $ 6,435,348
Current portion of long-term loans from credit union 3,142,366 4,996,245
Lease liability 199,544 182,852
Accounts payable 742,720 592,391
Advance from customers 83,454 82,625
Due to related parties 727,433 727,433
Accrued payroll and employee benefits 314,223 224,930
Other payables and accrued liabilities 4,867,038 4,838,601
Income taxes payable 688,441 259,649

Total current liabilities 17,187,720 18,340,074

Loans from credit union 6,547,886 4,597,772
Deferred gain on sale-leaseback 315,298 387,087
Lease liability - non-current 254,029 354,107
Derivative liability 7,072,020 1,115,260

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $18,427,033 and $17,950,224 as of June 30, 2021 and December 31, 2020, respectively) 31,376,953 24,794,300

Commitments and Contingencies

Stockholders’ Equity
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 99,049,900 and 28,535,816 shares issued and outstanding as of June 30, 2021 and December, 31,2020, respectively 99,050 28,536
Additional paid-in capital 88,927,787 53,989,548
Statutory earnings reserve 6,080,574 6,080,574
Accumulated other comprehensive income 7,688,114 5,740,722
Retained earnings 104,448,690 109,240,794

Total stockholders’ equity 207,244,215 175,080,174

Total Liabilities and Stockholders’ Equity $ 238,621,168 $ 199,874,474
~~IT TECH PACKAGING, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME~~
~~FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020~~
~~(Unaudited)~~
Three Months Ended
March 31,
2021 2020

Revenues $ 24,209,427 $ 8,743,851

Cost of sales 　 (22,378,422 ) 　 (8,913,570 )

Gross Profit (Loss) 1,831,005 (169,719)

Selling, general and administrative expenses (2,555,318 ) (2,696,963 )
Gain on acquisition of a subsidiary - -

Loss from Operations (724,313 ) (2,866,682 )

Other Income (Expense):
Interest income 4,333 5,790
Subsidy income 196,787 142,998
Interest expense (278,901 ) (244,718 )
Loss on derivative liability 　 (3,636,967 ) 　 -

Loss before Income Taxes (4,439,061 ) (2,962,612 )

Provision for Income Taxes 　 100,205 　 526,325

Net Loss (4,338,856) (2,436,287)

Other Comprehensive Loss
Foreign currency translation adjustment 　 (1,468,770 ) 　 (2,589,754 )

Total Comprehensive Loss $ (5,807,626 ) $ (5,026,041 )

Losses Per Share:

Basic and Diluted Losses per Share $               (0.12 ) $               (0.11 )

Outstanding – Basic and Diluted 　 36,156,280 　 22,054,816
See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020
(Unaudited)

Three Months Ended
March 31,
2021 2020

Cash Flows from Operating Activities:
Net income $ (4,338,856 ) $ (2,436,287 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,092,487 3,774,674
Loss on derivative liability 3,636,967
(Recovery from) Allowance for bad debts 52,018 (22,650 )
Deferred tax (589,094 ) (541,042 )
Changes in operating assets and liabilities:
Accounts receivable (2,920,798 ) 1,315,128
Prepayments and other current assets (3,645,323 ) 5,486,216
Inventories (6,270,151 ) (373,470 )
Accounts payable 1,785,742 (41,405 )
Advance from customers - 54,930
Related parties (311,679 ) 1,814,228
Accrued payroll and employee benefits 86,375 (62,252 )
Other payables and accrued liabilities (84,719 ) (728,633 )
Income taxes payable 226,699 (1,379,130 )
Net Cash (Used in) Provided by Operating Activities 　 (8,280,332 ) 　 6,860,307

Cash Flows from Investing Activities:
Purchases of property, plant and equipment (44,599 ) (756,514 )
　　
Net Cash Used in Investing Activities 　 (44,599 ) 　 (756,514 )

Cash Flows from Financing Activities:
Proceeds from issuance of shares and warrants, net 41,837,553 -
Payment of capital lease obligation (43,230 ) -
　
Net Cash Provided by Financing Activities 　 41,794,323 　 -

Effect of Exchange Rate Changes on Cash and Cash Equivalents 　 (170,838 ) 　 (229,386 )

Net Increase in Cash and Cash Equivalents 33,298,554 5,874,407

Cash, Cash Equivalents and Restricted Cash - Beginning of Period 　 4,142,437 　 5,837,745

Cash, Cash Equivalents and Restricted Cash - End of Period $ 37,440,991 $ 11,712,152

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of capitalized interest cost $ 97,642 $ 116,019
Cash paid for income taxes $ 262,191 $ 1,379,130

Cash and bank balances 37,440,991 11,712,152
Restricted cash - -
Total cash, cash equivalents and restricted cash shown in the statement of cash flows 37,440,991 11,712,152
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020

Revenues $ 46,534,915 $ 26,362,273 $ 70,744,342 $ 35,106,124

Cost of sales (43,505,895 ) (23,803,444 ) (65,884,317 ) (32,717,014 )

Gross Profit 3,029,019 2,558,829 4,860,024 2,389,110

Selling, general and administrative expenses (2,597,611 ) (3,357,472 ) (5,152,929 ) (6,054,435 )

Income (Loss) from Operations 431,408 (798,643 ) (292,905 ) (3,665,325 )

Other Income (Expense):
Interest income 11,719 9,451 16,052 15,241
Subsidy income 1,104 (979 ) 197,891 142,019
Interest expense (283,899 ) (241,436 ) (562,800 ) (486,154 )
Gain (loss) on derivative liability 4,509,007 (27,865 ) 872,040 (27,865 )

Income (Loss) before Income Taxes 4,669,339 (1,059,472 ) 230,278 (4,022,084 )

Provision for Income Taxes (5,122,587 ) 79,441 (5,022,382 ) 605,766

Net Loss (453,248 ) (980,031 ) (4,792,104 ) (3,416,318 )

Other Comprehensive Income (Loss)
Foreign currency translation adjustment 3,416,162 124,179 1,947,392 (2,465,575 )

Total Comprehensive Income (Loss) $ 2,962,914 $ (855,852 ) $ (2,844,712 ) $ (5,881,893 )

Losses Per Share:

Basic and Diluted Losses per Share $ (0.01 ) $ (0.04 ) $ (0.10 ) $ (0.14 )

Outstanding – Basic and Diluted 46,638,550 24,444,761 46,638,550 24,444,761

See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Six Months Ended
June 30,
2021 2020

Cash Flows from Operating Activities:

Net loss $ (4,792,104 ) $ (3,416,318 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,166,403 7,496,314
(Gain) Loss on derivative liability (872,040 ) 27,865
(Recovery from) Allowance for bad debts 53,074 (1,525 )
Share-based compensation and expenses - 1,242,000
Deferred tax 3,764,689 (1,021,699 )
Changes in operating assets and liabilities:
Accounts receivable (3,229,340 ) (89,311 )
Prepayments and other current assets (8,060,524 ) 5,739,395
Inventories (10,412,117 ) (4,291,622 )
Accounts payable 144,206 604,823
Advance from customers - 87,729
Related parties (860,721 ) 1,878,231
Accrued payroll and employee benefits 86,928 (35,990 )
Other payables and accrued liabilities 15,529 (1,394,793 )
Income taxes payable 425,654 (968,474 )
Net Cash (Used in) Provided by Operating Activities (15,570,363 ) 5,856,625

Cash Flows from Investing Activities:
Purchases of property, plant and equipment (171,541 ) (981,150 )

Net Cash Used in Investing Activities (171,541 ) (981,150 )

Cash Flows from Financing Activities:
Proceeds from issuance of shares and warrants, net 41,837,553 2,273,360
Repayment of bank loans (77,301 ) -
Payment of capital lease obligation (88,661 ) -

Net Cash Provided by Financing Activities 41,671,591 2,273,360

Effect of Exchange Rate Changes on Cash and Cash Equivalents 201,419 (158,550 )

Net Increase in Cash and Cash Equivalents 26,131,106 6,990,285

Cash, Cash Equivalents and Restricted Cash - Beginning of Period 4,142,437 5,837,745

Cash, Cash Equivalents and Restricted Cash - End of Period $ 30,273,543 $ 12,828,030

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of capitalized interest cost $ 312,344 $ 288,463
Cash paid for income taxes $ 265,450 $ 1,369,690

Cash and bank balances 30,273,543 12,828,030
Restricted cash - -
Total cash, cash equivalents and restricted cash shown in the statement of cash flows 30,273,543 12,828,030
See accompanying notes to condensed consolidated financial statements.

IT TECH PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021 AND 2020
(Unaudited)

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

Balance at December 31, 2019 22,054,816 $ 22,055 $ 51,155,174 $ 6,080,574 $ (6,057,537 ) $ 114,794,796 $ 165,995,062

Foreign currency translation adjustment (2,589,754 ) (2,589,754 )
Net income (2,436,287 ) (2,436,287 )
Balance at March 31, 2020 22,054,816 $ 22,055 $ 51,155,174 $ 6,080,574 $ (8,647,291 ) $ 112,358,509 $ 160,969,021

Balance at December 31, 2020 28,535,816 $ 28,536 $ 53,989,548 $ 6,080,574 $ 5,740,722 $ 109,240,794 $ 175,080,174
Issuance of shares to institutional investors 26,181,818 26,182 8,002,488 8,028,669
Issuance of shares to public investors 29,277,866 29,278 15,585,867 15,615,144
Exercise of warrants 15,054,400 15,054 11,349,884 11,364,939
Foreign currency translation adjustment (1,468,769 ) (1,468,769 )
Net income (4,338,858 ) (4,338,858 )
Balance at March 31, 2021 99,049,900 $ 99,050 $ 88,927,786 $ 6,080,574 $ 4,271,952 $ 104,901,937 $ 204,281,299
Accumulated
Additional Statutory Other
Common Stock Paid-in Earnings Comprehensive Retained
Shares Amount Capital Reserve Income (loss) Earnings Total

Balance at December 31, 2019 22,054,816 $ 22,055 $ 51,155,174 $ 6,080,574 $ (6,057,537 ) $ 114,794,796 $ 165,995,062

Issuance of shares to officer and directors 2,000,000 2,000 1,198,000 1,200,000
Issuance of shares 4,400,000 4,400 1,579,755 1,584,155
Issuance of shares to a consultant 60,000 60 41,940 42,000
Foreign currency translation adjustment (2,465,575 ) (2,465,575 )
Net loss (3,416,318 ) (3,416,318 )
Balance at June 30, 2020 28,514,816 $ 28,515 $ 53,974,869 $ 6,080,574 $ (8,523,112 ) $ 111,378,478 $ 162,939,324

Balance at December 31, 2020 28,535,816 $ 28,536 $ 53,989,548 $ 6,080,574 $ 5,740,722 $ 109,240,794 $ 175,080,174
Issuance of shares to institutional investors 26,181,818 26,182 8,002,488 8,028,670
Issuance of shares to public investors 29,277,866 29,278 15,585,867 15,615,145
Exercise of warrants 15,054,400 15,054 11,349,884 11,364,938
Foreign currency translation adjustment 1,947,392 1,947,392
Net loss (4,792,104 ) (4,792,104 )
Balance at June 30, 2021 99,049,900 $ 99,050 $ 88,927,787 $ 6,080,574 $ 7,688,114 $ 104,448,690 $ 207,244,215

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.

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 October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired Dongfang Zhiye Holding Limited (“Dongfang Holding”), a corporation formed on November 13, 2006 under the laws of the British Virgin Islands, and issued the shareholders of Dongfang Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse stock split effected in November 2009) shares of our common stock, which shares were distributed pro-rata to the shareholders of Dongfang Holding in accordance with their respective ownership interests in Dongfang Holding. At the time of the Merger Agreement, Dongfang Holding owned all of the issued and outstanding stock and ownership of Dongfang Paper and such shares of Dongfang Paper were held in trust with Zhenyong Liu, Xiaodong Liu and Shuangxi Zhao, for Mr. Liu, Mr. Liu and Mr. Zhao (the original shareholders of Dongfang Paper) to exercise control over the disposition of Dongfang Holding’s shares in Dongfang Paper on Dongfang Holding’s behalf until Dongfang Holding successfully completed the change in registration of Dongfang Paper’s capital with the relevant PRC Administration of Industry and Commerce as the 100% owner of Dongfang Paper’s shares. As a result of the merger transaction, Dongfang Holding became a wholly owned subsidiary of the Company, and Dongfang Holding’s wholly owned subsidiary, Dongfang Paper, became an indirectly owned subsidiary of the Company.

Dongfang Holding, as the 100% owner of Dongfang Paper, was unable to complete the registration of Dongfang Paper’s capital under its name within the proper time limits set forth under PRC law. In connection with the consummation of the restructuring transactions described below, Dongfang Holding directed the trustees to return the shares of Dongfang Paper to their original shareholders, and the original Dongfang Paper shareholders entered into certain agreements with Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”) to transfer the control of Dongfang Paper over to Baoding Shengde.

On June 24, 2009, the Company consummated a number of restructuring transactions pursuant to which it acquired all of the issued and outstanding shares of Shengde Holdings Inc., a Nevada corporation. Shengde Holdings Inc. was incorporated in the State of Nevada on February 25, 2009. On June 1, 2009, Shengde Holdings Inc. incorporated Baoding Shengde, a limited liability company organized under the laws of the PRC. Because Baoding Shengde is a wholly-owned subsidiary of Shengde Holdings Inc., it is regarded as a wholly foreign-owned entity under PRC law.

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. AnA 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 shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. Upon full payment of the consideration in the amount of RMB 320 million (approximately $45 million), Hebei Tengsheng will gain control over substantial parcels of land that under the possession of Hebei Tengsheng.

The Company has no direct equity interest in Dongfang Paper. However, through the Contractual Agreements described above, the Company is found to be the primary beneficiary (the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective control over Dongfang Paper’s activities that most significantly affect its economic performance, resulting in Dongfang Paper being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”). The revenue generated from Dongfang Paper for the three months ended ~~March 31,~~June 30, 2021 and 2020 was accounted for ~~99.46%~~99.77% and ~~100%~~96.79% of the Company’s total revenue, respectively. The revenue generated from Dongfang Paper for the six months ended June 30, 2021 and 2020 was accounted for 99.66% and 97.59% of the Company’s total revenue, respectively.Dongfang Paper also accounted for ~~78.02%~~81.25% and 90.70% of the total assets of the Company as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

As of ~~March 31,~~June 30, 2021 and December 31, 2020, details of the Company’s subsidiaries and variable interest entities are as follows:

Date of Place of
Incorporation Incorporation or Percentage of
Name or Establishment Establishment Ownership Principal Activity
Subsidiary:
Dongfang Holding November 13, 2006 BVI 100% Inactive investment holding
Shengde Holdings February 25, 2009 State of Nevada 100% Investment holding
Baoding Shengde June 1, 2009 PRC 100% Paper production and distribution

Variable interest entity (“VIE”):
Dongfang Paper March 10, 1996 PRC Control* Paper production and distribution

* Dongfang Paper is treated as a 100% controlled variable interest entity of the Company.

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 ~~March 31,~~June 30, 2021 and December 31, 2020 are as follows:

March 31, December 31,
2021 2020

ASSETS

Current Assets
Cash and bank balances $ 5,607,107 $ 3,315,778
Restricted cash - -
Accounts receivable 5,200,164 2,389,057
Inventories 7,407,625 1,223,020
Prepayments and other current assets 6,663,371 7,051,381
Due from related parties 400,650 92,795

Total current assets 25,278,917 14,072,031

Prepayment on property, plant and equipment 19,478,642 19,617,159
Finance lease right-of-use assets, net 2,340,142 2,397,653
Property, plant, and equipment, net 128,612,757 133,134,932
Deferred tax asset non-current 12,537,630 12,040,962

Total Assets $ 188,248,088 $ 181,262,737

LIABILITIES

Current Liabilities
Short-term bank loans $ 6,389,908 $ 6,435,348
Current portion of long-term loans from credit union 547,837 551,733
Lease liability 188,723 182,852
Accounts payable 2,355,798 592,391
Advance from customers 82,042 82,625
Due to related parties - -
Accrued payroll and employee benefits 300,810 221,482
Other payables and accrued liabilities 4,469,554 4,672,265
Income taxes payable 482,209 259,649

Total current liabilities 14,816,881 12,998,345

Loans from credit union 4,565,307 4,597,772
Lease liability - non-current 301,654 354,107

Total liabilities $ 19,683,842 $ 17,950,224
June 30, December 31,
2021 2020
(Unaudited)
ASSETS

Current Assets
Cash and bank balances $ 6,909,174 $ 3,315,778
Restricted cash - -
Accounts receivable 5,592,109 2,389,057
Inventories 11,345,576 1,223,020
Prepayments and other current assets 11,232,366 7,051,381
Due from related parties 955,526 92,795

Total current assets 36,034,751 14,072,031

Prepayment on property, plant and equipment 19,813,935 19,617,159
Finance lease right-of-use assets, net 2,339,145 2,397,653
Property, plant, and equipment, net 127,303,105 133,134,932
Deferred tax asset non-current 10,076,731 12,040,962

Total Assets $ 193,877,053 $ 181,262,737

LIABILITIES

Current Liabilities
Short-term bank loans $ 6,422,501 $ 6,435,348
Current portion of long-term loans from credit union 665,624 551,733
Lease liability 199,544 182,852
Accounts payable 742,719 592,391
Advance from customers 83,454 82,625
Accrued payroll and employee benefits 302,237 221,482
Other payables and accrued liabilities 4,532,950 4,672,265
Income taxes payable 688,441 259,649

Total current liabilities 13,637,470 12,998,345

Loans from credit union 4,535,534 4,597,772
Lease liability - non-current 254,029 354,107

Total liabilities $ 18,427,033 $ 17,950,224

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.

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-Kfor~~10-K for the year ended December 31, 2020 of the Company, and its subsidiaries and variable interest entity (which we sometimes refer to collectively as “the Company”, “we”, “us” or “our”).

Principles of Consolidation

Our unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of ~~March 31,~~June 30, 2021 and the results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2021 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 ~~March 31,~~June 30, 2021 and December 31, 2020, 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 (10)), 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.
(3) Restricted Cash
Restricted cash was nil as of ~~March 31,~~June 30, 2021 and December 31, 2020.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Inventories
Raw materials inventory includes mainly recycled paper board and recycled white scrap paper. Finished goods include mainly products of corrugating medium paper, offset printing paper and tissue paper products. Inventories consisted of the following as of ~~March 31,~~June 30, 2021 and December 31, 2020:
March 31, December 31,
2021 2020
Raw Materials
Recycled paper board $ 5,040,597 $ 19,459
Recycled white scrap paper 189,976 11,193
Gas 75,620 55,473
Base paper and other raw materials 389,281 181,426
5,695,474 267,551
Semi-finished Goods 259,758 176,703
Finished Goods 1,476,270 789,547
Total inventory, gross 7,431,502 1,233,801
Inventory reserve - -
Total inventory, net $ 7,431,502 $ 1,233,801
June 30, December 31,
2021 2020
Raw Materials
Recycled paper board $ 7,666,162 $ 19,459
Recycled white scrap paper 939,199 11,193
Gas 184,144 55,473
Base paper and other raw materials 479,414 181,426
9,268,919 267,551
Semi-finished Goods 751,286 176,703
Finished Goods 1,651,145 789,547
Total inventory, gross 11,671,350 1,233,801
Inventory reserve - -
Total inventory, net $ 11,671,350 $ 1,233,801
(5) Prepayments and other current assets
Prepayments and other current assets consisted of the following as of ~~March 31,~~June 30, 2021 and December 31, 2020:
March 31, December 31,
2021 2020
Prepaid land lease $ 182,613 $ 183,912
Prepayment for purchase of materials 4,003,350 10,945
Value-added tax recoverable 6,067,438 5,864,989
Others 402,138 991,669
$ 10,655,539 $ 7,051,515
June 30, December 31,
2021 2020
Prepaid land lease $ 185,756 $ 183,912
Prepayment for purchase of materials 8,838,734 10,945
Value-added tax recoverable 5,935,486 5,864,989
Others 287,132 991,669
$ 15,247,108 $ 7,051,515
~~(6) Property, plant and equipment, net~~
As of ~~March 31, 2021 and December 31, 2020, property, plant and equipment consisted of the following:~~
March 31, December 31,
2021 2020
Property, Plant, and Equipment:
Land use rights $ 12,409,356 $ 12,497,601
Building and improvements 80,659,574 81,233,162
Machinery and equipment 162,639,111 163,787,807
Vehicles 655,751 628,462
Construction in progress 582,077 586,216
Totals 256,945,869 258,733,248
Less: accumulated depreciation and amortization (116,836,042 ) (113,590,606 )
Property, Plant and Equipment, net $ 140,109,827 $ 145,142,642
~~As of March 31,~~June 30, 2021 and December 31, 2020, land use rights represented two 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 2066, respectively.
Construction in progress mainly represents payments for paper machine of a new tissue paper production line PM10.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of ~~March 31,~~June 30, 2021 and December 31, 2020, certain property, plant and equipment of Dongfang Paper with net values of ~~$1,882,319~~$1,522,164 and $2,349,796, respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Dongfang Paper with net values of ~~$5,931,823~~$5,997,212 and $6,010,359, respectively, as of ~~March 31,~~June 30, 2021 and December 31, 2020 was pledged for the bank loan from Industrial & Commercial Bank of China. Land use right of Hebei Tengsheng with net value of ~~$5,520,886~~$5,615,919 and $5,560,146, respectively, as of ~~March 31,~~June 30, 2021 and December 31, 2020 was pledged for a long-term loan from credit union of Baoding Shengde. In addition, land use right of Hebei Tengsheng with net value of ~~$8,553,369~~$8,700,601 and $8,614,194, respectively, as of ~~March 31,~~June 30, 2021 and December 31, 2020 was pledged for another long-term loan from credit union of Baoding Shengde. See ” “Short-term bank loans” under Note (7), Loans Payable, for details of the transaction and asset collaterals.
Depreciation and amortization of property, plant and equipment was ~~$4,089,067~~$4,070,458 and ~~$3,774,674~~$3,721,640 for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. Depreciation and amortization of property, plant and equipment was $8,159,525 and $7,496,314 for the six months ended June 30, 2021 and 2020, respectively.
(7) Financing with Sale-Leaseback
The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate of15.6% per annum and stated at $567,099 at the inception of the lease on August 17, 2020.
Hebei Tengsheng made payments due according to the schedule. The balance of Leased Equipment net of amortization was ~~$2,340,142~~$2,339,145 and $2,397,653 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The lease liability was ~~$490,377~~$453,573 and $536,959, and its current portion in the amount of ~~$188,723~~$199,544 and $182,852 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
Amortization of the Leased Equipment was ~~$40,997~~$41,457 and nil for the three months ended ~~March 31,~~June 30, 2021 and 2020. Amortization of the Leased Equipment was $82,454 and nil for the six months ended June 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was ~~$20,418~~$18,932 and nil for the three months ended ~~March 31,~~June 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $39,350 and nil for the six months ended June 30, 2021 and 2020.
As a result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded. The deferred gain is amortized over the lease term and as an offset to amortization of the Leased Equipment.
The future minimum lease payments of the capital lease as of ~~March 31,~~June 30, 2021 were as follows:
March 31, Amount
2022 252,005
2023 252,005
2024 84,002
Less: unearned discount (97,635 )

490,377
Less: Current portion lease liability (188,723 )
$ 301,654
June 30, Amount
2022 256,343
2023 256,343
2024 21,362
Less: unearned discount (80,474 )
453,573
Less: Current portion lease liability (199,544 )
$ 254,029
(8) Loans Payable
Short-term bank loans
June 30, December 31,
2021 2020
Industrial and Commercial Bank of China (“ICBC”) $ 6,422,501 $ 6,435,348

Total short-term bank loans $ 6,422,501 $ 6,435,348
On December 11, 2020, the Company entered into a working capital loan agreement with the ICBC, with a balance of ~~$ $6,389,908~~$6,422,501 and $6,435,348 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785% per annum. The loan will be due and repaid at various installments by December 7, 2021.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of ~~March 31,~~June 30, 2021, there were guaranteed short-term borrowings of ~~$6,389,908~~$6,422,501 and unsecured bank loans of ~~$nil.~~$nil. As of December 31, 2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of ~~$nil.~~$nil.
The average short-term borrowing rates for the three months ended ~~March 31,~~June 30, 2021 and 2020 were approximately 4.79%.

~~IT TECH PACKAGING, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

The average short-term borrowing rates for the six months ended June 30, 2021 and 2020 were approximately 4.79%.
Long-term loans from credit union
As of ~~March 31,~~June 30, 2021 and December 31, 2020, loans payable to Rural Credit Union of Xushui District, amounted to ~~$9,526,274~~$9,690,252 and $9,594,017, respectively.
March 31, December 31,
2021 2020
Rural Credit Union of Xushui District Loan 1 $ 1,308,721 $ 1,318,028
Rural Credit Union of Xushui District Loan 2 3,804,423 3,831,476
Rural Credit Union of Xushui District Loan 3 2,434,830 2,452,145
Rural Credit Union of Xushui District Loan 4 1,978,300 1,992,368
Total 9,526,274 9,594,017
Less: Current portion of long-term loans from credit union (4,960,967 ) (4,996,245 )
Long-term loans from credit union $ 4,565,307 $ 4,597,772
June 30, December 31,
2021 2020
Rural Credit Union of Xushui District Loan 1 $ 1,331,249 $ 1,318,028
Rural Credit Union of Xushui District Loan 2 3,869,908 3,831,476
Rural Credit Union of Xushui District Loan 3 2,476,742 2,452,145
Rural Credit Union of Xushui District Loan 4     2,012,353    1,992,368
Total 9,690,252 9,594,017
Less: Current portion of long-term loans from credit union (3,142,366 ) (4,996,245 )
Long-term loans from credit union $ 6,547,886 $ 4,597,772
As of ~~Mar 31,~~June 30, 2021, the Company’s long-term debt repayments for the next coming years were as follows:
Amount
Fiscal year
Remainder of 2021 $ 4,960,967
2022 1,673,946
2023 2,891,361
Total 9,526,274
Fiscal year Amount
Remainder of 2021 $ 3,142,366
2022 5,928,701
2023 619,185
Total 9,690,252
On April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of ~~March 31,~~June 30, 2021 and December 31, 2020, total outstanding loan balance was ~~$1,308,721~~$1,331,249 and $1,318,028, respectively, Out of the total outstanding loan balance, current portion amounted were ~~$213,048~~$247,674 and $214,563 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of ~~$1,095,673~~$1,083,575 and $11,103,465 are presented as non-current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, 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 will be due and payable in various installments from December 21, 2018 to June 20, 2023. The loan is secured by certain of the Company’s manufacturing equipment with net book value of ~~$1,882,319~~$1,522,164 and $2,349,796 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$3,804,423~~$3,869,908 and $3,831,476, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$334,789~~$417,950 and $337,169 as of ~~March 31,~~June 30, 2021 and December 31, 2020 respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of ~~$3,469,633~~$3,451,959 and $3,494,307 are presented as non-current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6% per month. On March 22, 2021, the loan was renewed for additional one year and the repayments will be due on April 16, 2022. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$2,434,830~~$2,476,742 and $2,452,145, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$2,434,830~~$2,476,742 and $2,452,145 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate of 7.56% per annum. On March 22, 2021, the loan was extended and the repayments will be due on August 18, 2022. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$1,978,300~~$2,012,353 and $1,992,368, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$1,978,300~~$nil and $1,992,368 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
Total interest expenses for the short-term bank loans and long-term loans for the three months ended ~~March 31,~~June 30, 2021 and 2020 were ~~$258,483~~$264,967 and ~~$244,718,~~$241,436, respectively. Total interest expenses for the short-term bank loans and long-term loans for the six months ended June 30, 2021 and 2020 were $523,450 and $486,154, 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 ~~$390,081~~$396,796 and $392,855 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017. During the year of 2016, the Company repaid $6,012,416 to Mr. Zhenyong Liu, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of ~~March 31,~~June 30, 2021 and December 31, 2020, approximately ~~$45,653~~$46,439 and $45,978 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~~Mr. Zhenyong Liu 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~~Company paid off the remaining balance, together with interest of 94,636. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the outstanding interest was ~~$209,148~~$212,748 and $210,635, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.
As of ~~March 31,~~June 30, 2021 and December 31, 2020, total amount of loans due to Mr. Zhenyong Liu were ~~$nil.~~$nil. The interest expense incurred for such related party loans are ~~$nil~~$nil for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. The accrued interest owing to Mr. Zhenyong Liu was approximately ~~$644,882~~$655,983 and $649,468, as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which was recorded in other payables and accrued liabilities.
As of ~~March 31,~~June 30, 2021 and December 31, 2020, 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.
Lease of Headquarters Compound Real Properties from a Related Party
On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million respectively. Sales of the LUR and the Industrial Buildings were completed in year 2013.
In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to three years, with an annual rental payment of approximately ~~$153,740~~$154,603 (RMB1,000,000). The lease agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with Hebei Fangsheng, who agreed to extend the lease term for another four years in total, with the same rental payment as original lease agreement.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(10) Other payables and accrued liabilities
Other payables and accrued liabilities consist of the following:
~~(10) Other payables and accrued liabilities~~
June 30, December 31,
2021 2020
Accrued electricity $ 153,239 $ 14,544
Value-added tax payable 18,722 428,481
Accrued interest to a related party 655,983 649,468
Payable for purchase of equipment 3,259,228 3,262,153
Accrued commission to salesmen 19,047 10,917
Accrued bank loan interest 684,355 429,279
Others 76,464 43,759
Totals $ 4,867,038 $ 4,838,601
~~Other payables and accrued liabilities consist of the following:~~
March 31, December 31,
2021 2020
Accrued electricity $ 190,726 $ 14,544
Value-added tax payable 14,664 428,481
Accrued interest to a related party 644,882 649,468
Payable for purchase of equipment 3,234,511 3,262,153
Accrued commission to salesmen 18,487 10,917
Accrued bank loan interest 605,664 429,279
Others 7,036 43,759
Totals $ 4,715,970 $ 4,838,601
(11) Derivative Liabilities
The Company analyzed ~~the warrant~~warrants for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability since the warrant becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of ~~March 31,~~June 30, 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in the ~~March 31,~~June 30, 2021:
~~Three~~ Six months
ended
~~March 31, 2021~~ June 30,
2021
Expected term ~~2.30~~2.18 - 2.75
Expected average volatility 85% - ~~105%~~105 %
Expected dividend yield -
Risk-free interest rate 0.19% - ~~0.35%~~0.46 %
The following table summarizes the changes in the derivative liabilities during the three months ended ~~March 31,~~June 30, 2021:
Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance at December 31, 2020 $ 1,115,260
Addition of new derivatives recognized as warrant 9,730,919
Addition of new derivatives recognized as loss on derivatives 10,813,347
Exercise of warrants (2,902,119 )
Change in fair value of derivative liability (7,176,380 )
Balance at March 31, 2021 $ 11,581,027
15Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance at December 31, 2020 $ 1,115,260
Addition of new derivatives recognized as warrant 9,730,919
Addition of new derivatives recognized as loss on derivatives 10,813,347
Exercise of warrants (2,902,119 )
Change in fair value of derivative liability (11,685,387 )
Balance at June 30, 2021 $ 7,072,020

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(12) Common Stock
Issuance of common stock to investors
On August 27, 2014, the Company issued 1,562,500 shares of our common stock and warrants to purchase up to 781,250 shares of our common stock.Each share of common stock and accompanying warrant was sold at a price of $1.60.
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 4,400,000 shares of common stock in a registered direct offering and warrants to purchase up to 4,400,000 shares of the Company’s common stock in a concurrent private placement, for gross proceeds of approximately $2.55 million (net proceeds of approximately 2.27 million). The purchase price for each share of Common Stock and the corresponding warrant was $0.58. The exercise price of the warrant was $0.7425 per share.
On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 26,181,818 shares of common stock and 26,181,818warrants to purchase up to 26,181,818 shares of common stock in a ~~best-efforts~~bestefforts public offering for gross proceeds of approximately $14.4 million. The purchase price for each share of common stock and the corresponding warrant was $0.55. The exercise price of the warrant was $0.55 per share.
On March 1, 2021, the Company offered and sold to the public investors an aggregate of 29,277,866 shares of common stock and 14,638,933 warrants to purchase up to 14,638,933 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 $0.75. The exercise price of the warrant was $0.75 per share,
Issuance of common stock pursuant to the 2012 Incentive Stock Plan, 2015 Omnibus Equity Incentive and 2019 Omnibus Equity Incentive
On January 12, 2016, the Company granted an aggregate of 1,133,916 shares of common stock under its compensatory incentive plans to ~~nine~~9 officers, directors and employees of and a consultant when the stock was at $1.25 per share, as compensation for their services in the past years, of which 168,416 shares of common stock were granted under the 2012 Incentive Stock Plan and 965,500 shares were granted under the 2015 Omnibus Equity Incentive. Please see Note (14), Stock Incentive Plans for more details. Total fair value of the stock was calculated at $1,417,395 as of the date of grant.
On September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock at $0.88 per share to ~~fifteen~~15 officers, directors and employees of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan. Total fair value of the shares of common stock granted was calculated at $470,360 as of the date of issuance.
On April 2, 2020, the compensation committee granted an aggregate of 2,000,000 shares of restricted common stock to ~~fifteen~~15 officers, directors and employees of the Company, which were granted under the 2019 Omnibus Equity Incentive Plan. Total fair value of the shares of common stock granted was calculated at $1,200,000 as of the date of issuance at $0.60 per share.
Issuance of common stock to a consultant
On January 2, 2020, the Company entered into an agreement with a consultant and agreed as compensation to issue to the consultant in the aggregate of 60,000 shares of common stock for merger and acquisition consulting service rendered from January 2, 2020 to January 2, 2021. 60,000 shares of common stock were issued to this consultant on April 28, 2020. Total fair value of the shares of common stock issued was calculated at $42,000 at $0.70 per share.
Issuance of common stock to a consultant
On November 2, 2020, the Company entered into an agreement with a consultant and agreed as compensation to issue to the consultant in the aggregate of 21,000 shares of common stock for investor relations consulting service rendered from November 2, 2020 to November 2, 2021. 21,000 shares of common stock were issued to this consultant on November 30, 2020. Total fair value of the shares of common stock issued was calculated at $14,700 at $0.70 per share.
16

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(13) Warrants
Pursuant to the 2020 Purchase Agreement, the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock and warrants to purchase up to 4,400,000 shares of ~~the Common Stock~~common stock in a concurrent private placement (the “May 2020 Warrants”)... The exercise price of the May 2020 Warrant is $0.7425 per share. These warrants are 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. 880,000 May 2020 Warrants were exercised in February 2021 at the exercise price of $0.7425 per share and 3,520,000 May 2020 Warrants were outstanding as of ~~March 31,~~June 30, 2021. The Company classified warrant as liabilities and accounted for the issuance of the May 2020 Warrants as a derivative.
On January 20, 2021, the Company offered and sold to certain institutional investors an aggregate of 26,181,818 shares of common stock and 26,181,818warrants to purchase up to 26,181,818 shares of common stock (the “January 2021 Warrants”). The January 2021 Warrants are exercisable commencing on January 20, 2021 at an exercise price of $0.55 and will expire on January 20, ~~2026.14,106,900~~2026. 14,106,900 January 2021 Warrants were exercised in January and February of 2021 at the exercise price of $0.55 per share. 12,074,918 January 2021 Warrants were outstanding as of ~~March 31,~~June 30, 2021.
On March 1, 2021, the Company offered and sold to the public investors an aggregate of 29,277,866 shares of common stock and 14,638,933 warrants to purchase up to 14,638,933 shares of common stock (the “March 2021 Warrants”). The March 2021Warrants are exercisable commencing on March 1, 2021 at an exercise price of $0.75 and will expire on March 1, ~~2026.67,500~~2026. 67,500 March 2021 Warrants were exercised in January and March 2021 at the exercise price of $0.75 per share and 14,571,433 March 2021 Warrants were outstanding as of ~~March 31,~~June 30, 2021.
The Company classified warrants as liabilities and accounted for the issuance of the warrants as a derivative.
A summary of ~~stock~~ warrant activities is as below:
Three months Ended
March 31, 2021
Weight
average
exercise
Number price

Outstanding and exercisable at beginning of the period 4,400,000 $ 0.7425
Issued during the period 40,820,751 0.622
Exercised during the period (15,054,400 ) 0.5621
Cancelled or expired during the period - -
Outstanding and exercisable at end of the period 30,166,351 $ 0.6691
Six months Ended
June 30, 2021
Number Weight
average
exercise
price

Outstanding and exercisable at beginning of the period 4,400,000 $ 0.7425
Issued during the period 40,820,751 0.622
Exercised during the period (15,054,400 ) 0.5621
Cancelled or expired during the period - -
Outstanding and exercisable at end of the period 30,166,351 $ 0.6691
17

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes information relating to outstanding and exercisable warrants as of ~~March 31,2021.~~June 30, 2021.
Warrants Outstanding Warrants Exercisable
Weighted Average
Remaining
Number of Contractual life Weighted Average Number of Weighted Average
Shares (in years) Exercise Price Shares Exercise Price
30,166,351 4.84 $ 0.6691 30,166,351 $ 0.6691
Warrants Outstanding Warrants Exercisable
Weighted Average Number of
Number of
Shares Remaining
Contractual life
(in years) Weighted Average
Exercise Price Shares
Underlying
the Warrants Weighted Average
Exercise Price
30,166,351 4.59 $ 0.6691 30,166,351 $ 0.6691
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at December 31, 2020 for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). The intrinsic value of the warrants as of ~~March 31,~~June 30, 2021 is ~~$1,333,071.~~$nil.
(14) Earnings Per Share
For the three months ended ~~March 31,~~June 30, 2021 and 2020, basic and diluted net income per share are calculated as follows:
Three Months Ended
June 30,
2021 2020
Basic income (loss) per share
Net income (loss) for the period - numerator $ (453,248 ) $ (980,031 )
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Net income (loss) per share $ (0.01 ) $ (0.04 )

Diluted income per share
Net income for the period- numerator $ (453,248 ) $ (980,031 )
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Effect of dilution - -
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Diluted income (loss) per share $ (0.01 ) $ (0.04 )

For the six months ended June 30, 2021 and 2020, basic and diluted net income per share are calculated as follows:
Three Months Ended March 31,
2021 2020
Basic loss per share
Net loss for the period - numerator $ (4,338,856 ) $ (2,436,287 )
Weighted average common stock outstanding - denominator 36,156,280 22,054,816

Net loss per share $ (0.12 ) $ (0.11 )

Diluted income per share
Net income for the period- numerator $ (4,338,856 ) $ (2,436,287 )
Weighted average common stock outstanding - denominator 36,156,280 22,054,816

Effect of dilution - -
Weighted average common stock outstanding - denominator 36,156,280 22,054,816

Diluted loss per share $ (0.12 ) $ (0.11 )
Six Months Ended
June 30,
2021 2020
Basic income (loss) per share
Net income (loss) for the period - numerator $ (4,792,104 ) $ (3,416,318 )
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Net income (loss) per share $ (0.10 ) $ (0.14 )

Diluted income (loss) per share
Net income (loss) for the period - numerator $ (4,792,104 ) $ (3,416,318 )
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Effect of dilution - -
Weighted average common stock outstanding - denominator 46,638,550 24,444,761

Diluted income (loss) per share $ (0.10 ) $ (0.14 )

For the three and six months ended ~~March 31,~~June 30, 2021 and 2020 there were no securities with dilutive effect issued and outstanding.
18

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(15) Income Taxes
United States
The Company and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S. federal tax and state statutory tax rates up to 34% and 0%, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “2017 TCJA Act”), which significantly changed U.S. tax law. The Act 2017 TCJA lowered the Company’s U.S. statutory federal income tax rate from the highest rate of 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income which requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for enactment effects of the 2017 TCJA. SAB 118 provides a measurement period of up to one year from the 2017 TCJA’s enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the 2017 TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 TCJA.
Transition tax: The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s non-U.S. subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. The Company was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional income tax expense of approximately $80,000 in the fourth quarter of 2017. However, the Company is continuing to gather additional information and will consider additional technical guidance to more precisely compute and account for the amount of the transition tax. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The 2017 TCJA’s transition tax is payable over eight years beginning in 2018.
PRC
Dongfang Paper and Baoding Shengde are PRC operating companies and are subject to PRC Enterprise Income Tax. Pursuant to the PRC New Enterprise Income Tax Law, Enterprise Income Tax is generally imposed at a statutory rate of 25%.
The provisions for income taxes for three months ended ~~March 31,~~June 30, 2021 and 2020 were as follows:

Three Months Ended
March 31,
2021 2020
Provision for Income Taxes
Current Tax Provision U.S. $ - $ 14,717
Current Tax Provision PRC 488,889 -
Deferred Tax Provision PRC (589,094 ) (541,042 )
Total Provision for (Deferred tax benefit)/ Income Taxes $ (100,205 ) $ (526,325 )
Three Months Ended
June 30,
2021 2020
Provision for Income Taxes
Current Tax Provision U.S. $ 14,717 $ 14,717
Current Tax Provision PRC 754,087 386,499
Deferred Tax Provision PRC 4,353,783 (480,657 )
Total Provision for (Deferred tax benefit)/Income Taxes $ 5,122,587 $ (79,441 )
The provisions for income taxes for six months ended June 30, 2021 and 2020 were as follows:
Six Months Ended
June 30,
2021 2020
Provision for Income Taxes
Current Tax Provision U.S. $ 14,717 $ 14,747
Current Tax Provision PRC 1,242,976 401,186
Deferred Tax Provision PRC 3,764,689 (1,021,699 )
Total Provision for (Deferred tax benefit)/Income Taxes $ 5,022,382 $ (605,766 )

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $2,508,797 and $0 for U.S. income tax purposes for the years ended December 31, 2020 and 2019, respectively. The net operating loss carried forward may be available to reduce future years’ taxable income. These carry forwards would expire, if not utilized, during the period of 2030 through 2035. As of ~~March 31,~~June 30, 2021, management believed that the realization of all the U.S. income tax benefits from these losses, which generally would generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, As of ~~March 31,~~June 30, 2021, 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:
June 30, December 31,
2021 2020
Deferred tax assets (liabilities)
Depreciation and amortization of property, plant and equipment $ 13,703,799 $ 12,397,323
Impairment of property, plant and equipment 730,413 680,800
Miscellaneous 264,576 258,963
Net operating loss carryover of PRC company 377,943 371,544
Total deferred tax assets 15,076,731 13,708,630
Less: Valuation allowance 5,000,000 -
Total deferred tax assets, net $ 10,076,731 13,708,630

March 31, December 31,
2021 2020
Deferred tax assets (liabilities)
Depreciation and amortization of property, plant and equipment $ 12,879,907 $ 12,397,323
Impairment of property, plant and equipment 697,023 680,800
Miscellaneous 249,188 258,963
Net operating loss carryover of PRC company 368,821 371,544
Total deferred tax assets 14,194,939 13,708,630
Less: Valuation allowance - -
Total deferred tax assets, net $ 14,194,939 13,708,630
The following table reconciles the statutory rates to the Company’s effective tax rate:
Three Months Ended
June 30,
2021 2020
PRC Statutory rate 25.0 % 25.0 %
Effect of different tax jurisdiction
Effect of reconciling items in the PRC for tax purposes (22.2 ) (17.5 )
Change in valuation allowance 196.9 -
- -
Effective income tax rate 109.7 % 7.5 %

Three Months Ended
March 31,
2021 2020
PRC Statutory rate
Effect of different tax jurisdiction 25.0 % 25.0 %
Effect of reconciling items in the PRC for tax purposes (22.7 ) (7.2 )
Change in valuation allowance - -
Effective income tax rate - -
2.3 % 17.8 %
Six Months Ended
June 30,
2021 2020
PRC Statutory rate 25.0 % 25.0 %
Effect of different tax jurisdiction
Effect of expenses not deductible for PRC tax purposes (12.6 ) (9.9 )
(Over) Under-provision in previous year - -
Change in valuation allowance 2168.6 -
- -
Effective income tax rate 2181.0 % 15.1 %

During the three months ended ~~March 31,~~June 30, 2021 and 2020, the effective income tax rate was estimated by the Company to be ~~2.3%~~109.7% and ~~17.8%~~7.5%, respectively.

During the six months ended June 30, 2021 and 2020, the effective income tax rate was estimated by the Company to be 2181.0% and 15.1%, respectively.
As of December 31, 2017, 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.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company has adopted ASC Topic 740-10-05, Income Taxes. To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of ~~March 31,~~June 30, 2021 and December 31, 2020, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities and the major one is the China Tax Authority.

(16) Stock Incentive Plans

~~2015 Incentive Stock Plan~~
On August 29, 2015, the Company’s Annual General Meeting approved the 2015 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc. (the “2015 ISP”) as previously adopted by the Board of Directors on July 10, 2015. Under the 2015 ISP, the Company may grant an aggregate of 1,500,000 shares of the Company’s common stock to the directors, officers, employees and/or consultants of the Company and its subsidiaries. On January 12, 2016, the Compensation Committee granted restricted common shares of 1,133,916, of which 168,416 shares were granted under the 2012 ISP and 965,500 shares under the 2015 ISP, to certain officers, directors, employees and a consultant of the Company as compensation for their services in the past years. Total fair value of the stock was calculated at $1,417,395 as of the date of issuance at $1.25 per share.
On September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock to fifteen officers, directors and employees of the Company, which were granted under the 2015 ISP. Total fair value of the shares of common stock granted was calculated at $470,360 as of the date of issuance at $0.88 per share.
2019 Incentive Stock Plan

On October 31, 2019, the shareholders of the Company at the Company’s Annual Shareholders General Meeting adopted and approved the 2019 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc. (the “2019 ISP”). Under the 2019 ISP, the Company has reserved a total of 2,000,000 shares of common stock for issuance as or under awards to be made to the directors, officers, employees and/or consultants of the Company and its subsidiaries. On April 2, 2020, 2,000,000 shares of common stock were granted under the 2019 ISP. Total fair value of the shares of common stock granted was calculated at $1,200,000 as of the date of issuance at $0.60 per share.

~~IT TECH PACKAGING, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

(17) Commitments and Contingencies

Operating Lease

The Company leases 32.95 acres of land from a local government in Xushui District, Baoding City, Hebei, China through a real estate lease with a 30-year term, which expires on December 31, 2031. The lease requires an annual rental payment of approximately ~~$18,449~~$18,552 (RMB120,000). This operating lease is renewable at the end of the 30-year term.

As mentioned in Note (8) Related Party Transactions, in connection with the sale of Industrial Buildings to Hebei Fangsheng, Hebei Fangsheng agrees to lease the Industrial Buildings back to the Company at an annual rental of ~~$153,740~~$154,603 (RMB1,000,000), for a total term of up to five years.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Future minimum lease payments of all operating leases are as follows:

March 31, Amount
2022 116,342
2023 68,987
2024 18,261
2025 18,261
2026 18,261
Thereafter 105,002
Total operating lease payments $ 345,115
June 30, Amount
2022 157,044
2023 31,475
2024 18,576
2025 18,576
2026 18,576
Thereafter 102,166
Total operating lease payments $ 346,412

Capital commitment

As of ~~December 31, 2020,~~June 30, 2021, the Company has entered ~~into several contracts~~contract for the purchase of paper machine of a new tissue paper production line ~~PM10 and the improvement of Industrial Buildings.~~PM10. Total outstanding commitments under these contracts were ~~$4,528,844~~$4,606,801 and $4,570,331 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The Company expected to pay off all the balances within 1-3 years.

On June 25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. The consideration for the acquisition is RMB320 million (approximately ~~$49~~$49.5 million), of which ~~$20~~$21 million was paid by the Company, and the balance consideration of ~~$29~~$28.5 million is payable by December 31, 2021.

Guarantees and Indemnities

The Company agreed with Baoding Huanrun Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third party, and as of ~~March 31,~~June 30, 2021 and December 31, 2020, the Company guaranteed its long-term loan from financial institutions amounting to ~~$4,717,484~~$4,798,687 (RMB31,000,000) and $4,751,031 (RMB31,000,000), respectively, that matured at various times in 2018-2023. If Huanrun Trading Co., were to become insolvent, the Company could be materially adversely affected.

(18) Segment Reporting

Since March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through ~~two~~2 business operating segments: Dongfang Paper, which produces offset printing paper and corrugating medium paper, and Baoding Shengde, which produces digital photo paper. They are managed separately because each business requires different technology and marketing strategies.

The Company evaluates performance of its operating segments based on net income. Administrative functions such as finance, treasury, and information systems are centralized. However, where applicable, portions of the administrative function expenses are allocated between the operating segments based on gross revenue generated. The operating segments do share facilities in Xushui County, Baoding City, Hebei Province, China. All sales were sold to customers located in the PRC.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for the ~~three~~3 reportable segments is as follows:

Three Months Ended
March 31, 2021
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Revenues $ 22,827,553 $ 1,251,416 $ 130,458 $ - $ - $ 24,209,427
Gross profit 2,262,681 (456,207 ) 24,531 - - 1,831,005
Depreciation and amortization 1,833,101 2,257,067 2,319 - - 4,092,487
Interest income 2,366 206 1,761 - - 4,333
Interest expense 176,386 20,418 82,097 - - 278,901
Income tax expense(benefit) 416,855 (515,629 ) (1,431 ) - - (100,205 )
Net income (loss) 1,087,209 (1,478,604 ) (68,045 ) (3,879,416 ) - (4,338,856 )

As of March 31, 2021
Dongfang Hebei Baoding Not Attributable Elimination Enterprise-wide,
Paper Tengsheng Shengde to Segments of Inter-segment consolidated

Total assets $ 88,412,001 99,836,087 24,493,355 28,546,890 - 241,288,333
Three Months Ended
June 30, 2021
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Revenues $ 43,997,853 $ 2,727,000 $ 2,794,759 $ - $ (2,984,697 ) $ 46,534,915
Gross profit 3,233,548 (232,251 ) 27,722 - - 3,029,019
Depreciation and amortization 927,090 2,283,861 862,965 - - 4,073,916
Interest income 8,614 600 2,505 - - 11,719
Interest expense 181,175 18,932 83,792 - - 283,899
Income tax expense (benefit) 617,975 4,494,672 (4,777 ) 14,717 - 5,122,587
Net income (loss) 1,847,997 (6,482,307 ) (85,776 ) 4,266,838 - (453,248 )
Three Months Ended
June 30, 2020
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Revenues $ 23,136,915 $ 2,379,806 $ 845,552 $ - $         - $ 26,362,273
Gross profit 2,429,407 (373,977 ) 503,399 - - 2,558,829
Depreciation and amortization 1,617,412 2,105,130 -902 - - 3,721,640
Interest income 7,577 464 1,410 - - 9,451
Interest expense 165,416 - 76,020 - - 241,436
Income tax expense (benefit) 357,463 (525,769 ) 88,865 - - (79,441 )
Net income (loss) 1,441,234 (1,349,174 ) 324,495 (1,396,586 ) - (980,031 )
Six Months Ended
June 30, 2021
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Revenues $ 66,825,406 3,978,416 2,925,217 - (2,984,697 ) 70,744,342
Gross profit 5,496,229 (688,458 ) 52,253 - - 4,860,024
Depreciation and amortization 2,760,191 4,540,928 865,284 - - 8,166,403
Interest income 10,980 806 4,266 - - 16,052
Interest expense 357,561 39,350 165,889 - - 562,800
Income tax expense (benefit) 1,034,830 3,979,043 (6,208 ) 14,717 - 5,022,382
Net income (loss) 2,935,206 (7,960,911 ) (153,821 ) 387,422 - (4,792,104 )

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Three Months Ended March 31, 2020
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Revenues $ 7,737,502 $ 1,006,349 $ - $ - $ - $ 8,743,851
Gross profit 542,155 (711,874 ) - - - (169,719 )
Depreciation and amortization 1,506,627 2,135,371 132,676 - - 3,774,674
Interest income 5,517 83 190 - - 5,790 ��
Interest expense 167,581 - 77,137 - - 244,718
Income tax expense(benefit) (8,363 ) (522,916 ) (9,763 ) 14,717 - (526,325 )
Net income (loss) (496,085 ) (1,594,938 ) (200,397 ) (144,867 ) - (2,436,287 )

As of December 31, 2020
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Total assets $ 79,206,447 102,056,291 18,589,570 199,874,474
Six Months Ended
June 30, 2020
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated
Revenues $ 30,874,417 $ 3,386,155 $ 845,552 $ $           35,106,124
Gross profit (loss) 2,971,562 (1,085,851 ) 503,399 2,389,110
Depreciation and amortization 3,124,039 4,240,501 131,774 7,496,314
Interest income 13,094 547 1,600 15,241
Interest expense 332,997 - 153,157 486,154
Income tax expense(benefit) 349,100 (1,048,685 ) 79,102 14,717 (605,766 )
Net income (loss) 945,149 (2,944,112 ) 124,098 (3,416,318 )

As of June 30, 2021
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Total assets $ 97,994,697 95,882,356 35,367,009 9,377,106          - 238,621,168
As of December 31, 2020
Dongfang Hebei Baoding Not Attributable Elimination of Enterprise-wide,
Paper Tengsheng Shengde to Segments Inter-segment consolidated

Total assets $ 79,206,447 102,056,291 18,589,570             -          - 199,874,474
(19) Concentration and Major Customers and Suppliers

For the three months ended ~~March 31,~~June 30, 2021, the Company had no single customer contributed over 10% of total sales.

For the three months ended ~~March 31,~~June 30, 2020, the Company had no single customer contributed over 10% of total sales.

For the three months ended ~~March 31,~~June 30, 2021, the Company had ~~two~~3 major suppliers accounted for ~~81%~~79%, 10% and ~~10%~~3% of total purchases.

For the three months ended ~~March 31,~~June 30, 2020, the Company had ~~three~~4 major suppliers accounted for ~~70%~~74%, 11%, 4% and 9%3% of total purchases.

24For the six months ended June 30, 2021, the Company had 3 major suppliers accounted for 80%, 10% and 2% of total purchases.
For the six months ended June 30, 2020, the Company had 4 major suppliers accounted for 73%, 11%, 4% and 4% of total purchases.

IT TECH PACKAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(20) Concentration of Credit Risk

Financial instruments for which the Company is potentially subject to concentration of credit risk consist principally of cash. The Company places its cash in reputable financial institutions in the PRC and the United States. Although it is generally understood that the PRC central government stands behind all of the banks in China in the event of bank failure, there is no deposit insurance system in China that is similar to the protection provided by the Federal Deposit Insurance Corporation (“FDIC”) of the United States as of as of ~~March 31,~~June 30, 2021 and December 31, 2020. On May 1, 2015, the new “Deposit Insurance Regulations” was effective in the PRC that the maximum protection would be up to RMB500,000 (US$ ~~76,088)~~77,398) per depositor per insured financial intuition, including both principal and interest. For the cash placed in financial institutions in the United States, the Company’s U.S. bank accounts are all fully covered by the FDIC insurance as of ~~March 31,~~June 30 June 30, 2021 and December 31, 2020, respectively, while for the cash placed in financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to ~~RMB55,707,023~~RMB132,244,676 (US$~~8,477,322)~~20,470,995) as of ~~March 31,~~June 30, 2021.

(21) Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange rates, and operating in the PRC under its various laws and restrictions.

(22) Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.

(23) Subsequent Event

None.

25

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 ~~March 31,~~June 30, 2021 and 2020 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.

Impact of COVID-19 on Our Operations and Financial Performance

Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, could have an adverse effect on our business, financial condition, and results of operations. The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. Substantially all of our revenues and workforce are concentrated in China. In response to the intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions, which included extending the Chinese New Year holiday, quarantining individuals suspected of having COVID-19, asking residents in China to stay at home and to avoid public gathering, among other things. During the early part of 2020, COVID-19 caused temporary closure of our CMP production, and as a result, our revenue of CMP decreased by 49.89 % in the first quarter of 2020. It is, however, still unclear how the pandemic will evolve going forward, and we cannot assure you whether the COVID-19 pandemic will again bring about significant negative impact on our business operations, financial condition and operating results, including but not limited to negative impact to our total revenues.

While we have resumed business operations, there remain significant uncertainties surrounding the COVID-19 outbreak and its further development as a global pandemic. Hence, the extent of the business disruption and the related impact on our financial results and outlook for the rest of 2021 cannot be reasonably estimated at this time. The extent to which the COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We are still assessing our business operations and the total impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally.

Recent Development

In November 2020, we completed inviting bids for the 75 tonne per hour biomass boiler procurement for our biomass cogeneration project (the “Cogeneration Project”). Multiple well-known enterprises in the biomass industry participated in tendering opening bids. In February 2021, we completed evaluation on the bidding proposals and announced that Tai Shan Group Co., Ltd., a top manufacturer in the biomass industry in China, has won the bid. Installation of the boilers is expected to commence in the near future. We expect to participate in the bidding process for urban central heating projects. In April 2021,, the Company obtained qualification to supply central heating in industrial parks ~~after month-long review process~~ for the Cogeneration Project.

On April 2021, the Company announced it has completed fundamental constructions on its new tissue paper production line (the “PM10”) and is working on the installation of accessory equipment.

Results of Operations

Comparison of the Three months ended ~~March 31,~~June 30, 2021 and 2020

Revenue for the three months ended ~~March 31,~~June 30, 2021 was ~~$24,209,427,~~$46,534,915, an increase of ~~$15,465,576,~~$20,172,642, or ~~176.87%~~76.52%, from ~~$8,743,851~~$26,362,273 for the same period in the previous year. This was mainly due to the increase in sales volume of corrugating medium paper (“CMP”) and offset printing paper and the increase in Average Selling Prices (ASPs) of CMP and tissue paper products.

26
Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products

Revenue from sales of offset printing paper, ~~corrugating medium paper (“CMP”)~~CMP and tissue paper products for the three months ended ~~March 31,~~June 30, 2021 was ~~$24,078,969,~~$46,426,045, an increase of ~~$15,335,118,~~$20,909,326, or ~~175.38%~~81.94%, from ~~$8,743,851~~$25,516,720 for the ~~first~~second quarter of 2020. Total offset printing paper, CMP and tissue paper products sold during the three months ended ~~March 31,~~June 30, 2021 amounted to ~~45,558~~86,609 tonnes, an increase of ~~25,696~~21,951 tonnes, or ~~129.37%~~33.95%, compared to ~~19,862~~64,658 tonnes sold in the comparable period in the previous year. The increase was mainly due to the production suspension ~~in the first quarter~~ of ~~2020~~CMP and offset printing paper due to ~~Chines New Year and COVID-19.~~the impact of COVID-19 during mid-January 2020 to early March 2020. Full capacity of CMP production ~~was~~ resumed in May 2020 and the production and sales of offset printing paper resumed in ~~June 2020.~~June2020. The changes in revenue dollar amount and in quantity sold for the three months ended ~~March 31,~~June 30, 2021 and 2020 are summarized as follows:

Three Months Ended Three Months Ended Percentage
March 31, 2021 March 31, 2020 Change in Change
Sales Revenue Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity Amount

Regular CMP 33,626 $ 16,964,038 13,788 $ 5,721,939 19,838 $ 11,242,099 143.88 % 196.47 %
Light-Weight CMP 　 7,670 $ 3,747,733 　 4,889 $ 2,015,563 　　 2,781 $ 1,732,170 　 56.88 % 　 85.94 %
Total CMP 41,296 $ 20,711,771 18,677 $ 7,737,502 22,619 $ 12,974,269 121.11 % 167.68 %
Offset Printing Paper 3,142 $ 2,115,782 - $ - 3,142 $ 2,115,782 % %
Tissue Paper Products 1,120 $ 1,251,416 1,185 $ 1,006,349 (65) $ 245,067 -5.49 % 24.35 %
Total CMP, Offset Printing Paper and Tissue Paper Revenue 　 45,558 $ 24,078,969 　 19,862 $ 8,743,851 　　 25,696 $ 15,335,118 　 129.37 % 　 175.38 %
Three Months Ended Three Months Ended Percentage
June 30, 2021 June 30, 2020 Change in Change
Sales Revenue Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity Amount

Regular CMP 60,507 $ 30,252,256 46,980 $ 17,372,097 13,527 $ 12,880,159 28.79 % 74.14 %
Light-Weight CMP 13,491 $ 6,561,375 12,611 $ 4,502,628 880 $ 2,058,747 6.98 % 45.72 %
Total CMP 73,998 $ 36,813,631 59,591 $ 21,874,725
14,4
07
$ 14,938,906 24.18 % 68.29 %
Offset Printing Paper 10,415 $ 7,184,221 2,183 $ 1,262,188 8,232 $ 5,922,033 377.10 % 469.19 %
Tissue Paper Products 2,196 $ 2,428,193 2,884 $ 2,379,807 (688 ) $ 48,387 -23.86 % 2.03 %
Total CMP, Offset Printing Paper and Tissue Paper Revenue 86,609 $ 46,426,045 64,658 $ 25,516,720 21,951 $ 20,909,326 33.95 % 81.94 %

Monthly sales revenue for the 24 months ended ~~March 31,~~June 30, 2021, are summarized below:

The Average Selling Prices (ASPs) for our main products in the three months ended ~~March 31,~~June 30, 2021 and 2020 are summarized as follows:

Offset
Printing
Paper ASP Regular
CMP ASP Light-Weight
CMP ASP Tissue Paper
Products ASP Offset Printing
Paper ASP Regular
CMP ASP Light-Weight
CMP ASP Tissue Paper
Products ASP
Three Months ended March 31, 2020 $ - $ 415 $ 412 $ 849
Three Months ended March 31, 2021 $ 673 $ 504 $ 489 $ 1,117
Three Months ended June 30, 2020 $ 578 $ 370 $ 357 $ 825
Three Months ended June 30, 2021 $ 690 $ 500 $ 486 $ 1,106
Increase from comparable period in the previous year $ 673 $ 89 $ 77 $ 268 $ 112 $ 130 $ 129 $ 281
Increase by percentage - 21.45 % 18.69 % 31.57 % 19.38 % 35.14 % 36.13 % 34.06 %
The following chart shows the month-by-month ASPs for the 24-month period ended ~~March 31,~~June 30, 2021:

Corrugating Medium Paper

Revenue from CMP amounted to ~~$20,711,771 (86.02%~~$36,813,631 (79.30% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended ~~March 31,~~June 30, 2021, representing an increase of ~~$12,974,269,~~$14,938,906, or ~~167.68%~~68.29%, from ~~$7,737,502~~$21,874,725 for the comparable period in 2020.

We sold ~~41,296~~73,998 tonnes of CMP in the three months ended ~~March 31,~~June 30, 2021 as compared to ~~18,677~~59,591 tonnes for the same period in 2020, representing a ~~121.11%~~24.18% increase in quantity sold.

ASP for regular CMP increased from ~~$415/~~$370/tonne for the three months ended ~~March 31,~~June 30, 2020 to ~~$504/~~$500/tonne for the three months ended ~~March 31,~~June 30, 2021, representing a ~~21.45%~~35.14% increase. ASP in RMB for regular CMP for the ~~first~~second quarter of 2020 and 2021 was ~~RMB2,902~~RMB2,610 and ~~RMB3,282,~~RMB3,224, respectively, representing a ~~13.09%~~23.52% increase. The quantity of regular CMP sold increased by ~~19,838~~13,527 tonnes, from ~~13,788~~46,980 tonnes in the ~~first~~second quarter of 2020 to ~~33,626~~60,507 tonnes in the ~~first~~second quarter of 2021.

ASP for light-weight CMP increased from ~~$412/~~$357/tonne for the three months ended ~~March 31,~~June 30, 2020 to ~~$489/~~$486/tonne for the three months ended ~~March 31,~~June 30, 2021, representing a ~~18.69%~~36.13% increase. ASP in RMB for light-weight CMP for the ~~first~~second quarter of 2020 and 2021 was ~~RMB2,883~~RMB2,522 and ~~RMB3,178,~~RMB3,136, respectively, representing a ~~10.23%~~24.35% increase. The quantity of light-weight CMP sold increased by ~~2,781~~880 tonnes, from ~~4,889~~12,611 tonnes in the ~~first~~second quarter of 2020, to ~~7,670~~13,491 tonnes in the ~~first~~second quarter of 2021.

Our PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year. The utilization rates for the ~~first~~second quarter of 2021 and 2020 were ~~38.42%~~68.20% and ~~14.86%~~52.47%, respectively, representing an increase of ~~23.56%~~15.73%.

28

Quantities sold for regular CMP that was produced by the PM6 production line from ~~April~~July 2019 to ~~March~~June 2021 are as follows:

Tissue Paper Products

We produce tissue paper products, including toilet paper, boxed and soft-packed tissues, handkerchief tissues and paper napkins, as well as bathroom and kitchen paper towels that are marketed and sold under the brand “Qingmu”. In December 2018 and November 2019, we completed the construction, installation and test of operation of our PM8 and PM9 production lines. We launched the complete line of processing base tissue paper with designated capacity of 15,000 tonnes/year, and producing finished tissue paper products with designated capacity of 15,000 tonnes/year.
Revenue from tissue paper products was ~~$1,251,416 (5.20%~~$2,428,193 (5.23% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended ~~March 31,~~June 30, 2021, representing an increase of ~~$245,067,~~$48,387, or ~~24.35%~~2.03%, from ~~$1,006,349~~$2,379,807 for the three months ended ~~March 31,~~June 30, 2020. We sold ~~1,120~~2,196 tonnes of tissue paper in the ~~first~~second quarter of 2021, as compared to ~~1,185~~2,884 tonnes in the comparable period of 2020, representing a decrease of 65688 tonnes, or ~~5.49%~~23.86%.

ASP for tissue paper products increased from ~~$849/~~$825/tonne for the three months ended ~~March 31,~~June 30, 2020 to ~~$1,117/~~$1,106/tonne for the three months ended ~~March 31,~~June 30, 2021, representing a ~~31.57%~~34.06% increase. ASP in RMB for tissue paper products for the ~~first~~second quarter of 2020 and 2021 was ~~RMB5,941~~RMB5,827 and ~~RMB7,267,~~RMB7,130, respectively, representing a ~~22.32%~~22.36% increase.

Offset printing paper

Revenue from offset printing paper was ~~$2,115,782 (8.79%~~$7,184,221 (15.47% of the total offset printing paper, CMP and tissue paper products revenues) for the three months ended ~~March 31,~~June 30, 2021, representing an increase of ~~$2,115,782~~$5,922,033, or 469.19%, from ~~$nil~~$1,262,188 for the three months ended ~~March 31,~~June 30, 2020. We sold ~~3,142~~10,415 tonnes of offset printing paper in the ~~first~~second quarter of 2021, as compared to ~~0 tonne~~2,183 tonnes in the comparable period of ~~2020. ASP~~2020, an increase of 8,232 tonnes, or 377.10%. ASPs for offset printing paper for the ~~first~~second quarter of 2020 and 2021 ~~was $673~~were $578 and $690, respectively, representing a 19.38% increase. ASP in RMB for offset printing paper for the ~~first~~second quarter of 2020 and 2021 was ~~RMB4,381.~~RMB4,071 and RMB4,454, respectively, representing a 9.41% increase.

29

Revenue of Face Mask

On April 29, 2020, we launched production line of non-medical single-use face masks, following completion of raw materials preparation, trial run of the equipment and the sample products inspection. Revenue generated from selling face mask were ~~$130,458~~$108,869 for the three months ended ~~March 31,~~June 30, 2021. We sold ~~3,836~~2,635 thousand pieces of face masks in the ~~first~~second quarter of 2021.

Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended ~~March 31,~~June 30, 2021 was ~~$22,272,495,~~$43,407,855, an increase of ~~$13,358,925,~~$19,946,564, or ~~149.87%~~85.02%, from ~~$8,913,570~~$23,461,291 for the comparable period in 2020. This was mainly due to the increase in sales quantity of CMP and offset printing paper and the increase in material costs.

Cost of sales for CMP was ~~$18,858,935~~$34,838,381 for the quarter ended ~~March 31,~~June 30, 2021, as compared to ~~$7,195,348~~$19,743,977 for the comparable period in 2020. The increase in the cost of sales of ~~$11,663,587~~$15,094,405 for CMP was mainly due to the increase in sales volume of regular ~~CMP and light-Weight~~ CMP and the increase in average cost of sales. Average cost of sales per tonne for CMP increased by ~~18.70%~~42.30%, from ~~$385~~$331 in the ~~first~~second quarter of 2020 to ~~$457~~$471 in the ~~first~~second quarter of 2021. The increase in average cost of sales was mainly attributable to the higher average unit purchase costs (net of applicable value added tax) of recycled paper board in ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020.

Cost of sales for offset printing paper was ~~$1,705,938~~$5,909,029 for the quarter ended ~~March 31, 2021 and average cost of sales per tonne of offset printing paper was $543 in the first quarter of 2021.~~
~~Cost of sales for tissue paper products was $1,707,622 for the quarter ended March 31,~~June 30, 2021, as compared to ~~$1,718,222~~$963,531 for the comparable period in 2020. Average cost of sales per tonne of offset printing paper increased by 28.57%, from $441 in the three months ended June 30, 2020, to $567 during the comparable period in 2021. The increase in average cost of sales of offset printing paper was mainly due to the increase in average unit purchase costs (net of applicable value added tax) of recycled white scrap paper.
Cost of sales for tissue paper products was $2,660,444 for the quarter ended June 30, 2021, as compared to $2,753,783 for the comparable period in 2020. The decrease in the cost of sales of $93,339 for tissue paper products was mainly due to the decrease in sales volume of tissue paper products, partially offset by the increase in average cost of sales. Average cost of sales per tonne of tissue paper products increased by ~~5.17%~~26.81%, from ~~$1,450~~$955 in the three months ended ~~March 31,~~June 30, 2020, to ~~$1,525~~$1,211 for the comparable period in 2021. This is mainly due to the ~~decrease~~increase in cost of tissue base paper.

Changes in cost of sales and cost per tonne by product for the quarters ended ~~March 31,~~June 30, 2021 and 2020 are summarized below:

Three Months Ended
March 31, 2021 Three Months Ended
March 31, 2020 Change in 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 $ 15,521,382 $ 462 $ 5,439,510 $ 395 $ 10,081,872 $ 67 185.35 % 16.96 %
Light-Weight CMP $ 3,337,553 $ 435 $ 1,755,838 $ 359 $ 1,581,715 $ 76 90.08 % 21.17 %
Total CMP $ 18,858,935 $ 457 $ 7,195,348 $ 385 $ 11,663,587 $ 72 162.10 % 18.70 %
Offset Printing Paper $ 1,705,938 $ 543 $ - $ - $ 1,705,938 $ 543 n/a n/a
Tissue Paper Products $ 1,707,622 $ 1,525 　1,718,222 $ 1,450 $ (10,600 ) $ 75 -0.62 % 5.17 %
Total CMP, Offset Printing Paper and Tissue Paper $ 22,272,495 $ n/a $ 8,913,570 $ n/a $ 13,358,925 $ n/a 149.87 % n/a
Three Months Ended Three Months Ended
June 30, 2021 June 30, 2020 Change in 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 $ 28,717,334 $ 475 $ 15,804,679 $ 336 $ 12,912,655 $ 139 81.70 % 41.37
Light-Weight CMP $ 6,121,047 $ 454 $ 3,939,298 $ 312 $ 2,181,750 $ 142 55.38 % 45.51
Total CMP $ 34,838,381 $ 471 $ 19,743,977 $ 331 $ 15,094,405 $ 140 76.45 % 42.30
Offset Printing Paper $ 5,909,029 $ 567 $ 963,531 $ 441 $ 4,945,498 $ 126 513.27 % 28.57
Tissue Paper Products $ 2,660,444 $ 1,211 2,753,783 $ 955 $ (93,339 ) $ 256 -3.39 % 26.81
Total CMP, Offset Printing Paper and Tissue Paper $ 43,407,855 $ n/a $ 23,461,291 $ n/a $ 19,946,564 $ n/a 85.02 % 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 ~~March 31,~~June 30, 2021 ~~was~~were RMB ~~1,878/~~2,112/tonne (approximately ~~$289/~~$327/tonne) and RMB 2,358/tonne (approximately $365/tonne), as compared to RMB ~~1,388/~~1,371/tonne (approximately ~~$198/~~$195/tonne) and RMB 1,947/tonne (approximately $277/tonne) for the three months ended ~~March 31,~~June 30, 2020. These changes (in US dollars) represent a year-over-year increase of ~~45.96%~~67.69% 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.

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The pricing trends of our major raw materials for the 24-month period from ~~April~~July 2019 to ~~March~~June 2021 are shown below:

Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 4% and ~~9.7%~~10.2% of total sales in the ~~first~~second quarter of 2021, respectively, compared to 4% and ~~8.7%~~10.3% of total sales in the ~~first~~second quarter of 2020. The monthly energy cost as a percentage of total monthly sales of our main paper products for the 24 months ended ~~March 31,~~June 30, 2021 are summarized as follows:

Gross Profit

Gross profit for the three months ended ~~March 31,~~June 30, 2021 was ~~$1,831,005 (7.56%~~$3,029,019 (6.51% of the total revenue), representing an increase of ~~$2,000,724,~~$470,190, or ~~1178.84%~~18.38%, from the gross ~~loss~~profit of ~~$169,719 (1.94%~~$2,558,829 (9.71% of the total revenue) for the three months ended ~~March 31,~~June 30, 2020, as a result of factors described above.

Offset Printing Paper, CMP and Tissue Paper Products

Gross profit for offset printing paper, CMP and tissue paper products for the three months ended ~~March 31,~~June 30, 2021 was ~~$1,806,474,~~$3,018,191, an increase of ~~$1,976,193,~~$962,762, or ~~1164.39%~~46.84%, from the gross ~~loss~~profit of ~~$169,719~~$2,055,429 for the three months ended ~~March 31,~~June 30, 2020. 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~~decreased by ~~9.44~~1.56 percentage points, from ~~-1.94%~~8.06% for the three months ended ~~March 31,~~June 30, 2020, to ~~7.50%~~6.50% for the three months ended ~~March 31,~~June 30, 2021.

Gross profit margin for regular CMP for the three months ended ~~March 31,~~June 30, 2021 was ~~8.50%~~5.07%, or ~~3.56~~3.95 percentage points ~~higher,~~lower, as compared to gross profit margin of ~~4.94%~~9.02% for the three months ended ~~March 31,~~June 30, 2020. Such ~~increase~~decrease was mainly due to the increase in cost of recycled paper board, partially offset by the increase of ASP of regular CMP in the ~~first~~second quarter of 2021.

Gross profit margin for light-weight CMP for the three months ended ~~March 31,~~June 30, 2021 was ~~10.94%~~6.71%, or ~~1.95~~5.80 percentage points lower, as compared to gross profit margin of ~~12.89%~~12.51% for the three months ended ~~March 31,~~June 30, 2020. The decrease was mainly due to increase in cost of recycled paper board, partially offset by the increase in ASP of light-weight CMP in the ~~first~~second quarter of 2021.

Gross profit margin for offset printing paper was ~~19.37%~~17.75% for the three months ended ~~March 31,~~June 30, 2021, a decrease of 5.91 percentage points, as compared to 23.66% for the three months ended June 30, 2020. The decrease was mainly due to the increase in cost of recycled white scrap paper, partially offset by the increase in ASP of offset printing paper in the second quarter of 2021.

Gross profit margin for tissue paper products for the three months ended ~~March 31,~~June 30, 2021 was ~~-36.46%~~-9.56%, or ~~34.28~~6.15 percentage points higher, as compared to gross profit margin of ~~-70.74%~~-15.71% for the three months ended ~~March 31,~~June 30, 2020. The ~~increase~~decrease in gross profit margin was mainly due to the increase in ASP of tissue paper products, ~~and decrease~~partially offset by the increase in cost of base paper in the ~~first~~second quarter of 2021.

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Monthly gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended ~~March 31,~~June 30, 2021 are as follows:

Face Masks

Gross profit for face masks for the three months ended ~~March 31,~~June 30, 2021 was ~~$24,531,~~$10,829, representing a gross profit margin of ~~18.8%~~9.95%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended ~~March 31,~~June 30, 2021 were ~~$2,555,318,~~$2,597,611, a decrease of ~~$141,645,~~$759,861, or ~~5.25%~~22.63% from ~~$2,696,963~~$3,357,472 for the three months ended ~~March 31,~~June 30, 2020. The decrease was mainly due to the higher share based compensation charge in April 2020, partially offset by the increase of RMB expenses converted to USD as a result of deprecation of USD against RMB.

~~Loss~~Income (Loss) from Operations

Operating ~~loss~~income for the quarter ended ~~March 31,~~June 30, 2021 was ~~$724,313,~~$431,408, an increase of ~~$2,142,369,~~$1,230,051, or ~~74.73%~~154.02%, from ~~$2,866,682~~loss from operations of $798,643 for the quarter ended ~~March 31,~~June 30, 2020. The increase in income from operations was primarily due to the increase in gross ~~profit.~~profit and decrease in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for the three months ended ~~March 31,~~June 30, 2021 increased by ~~$34,183,~~$42,463, from ~~$244,718~~$241,436 in the three months ended ~~March 31,~~June 30, 2020, to ~~$278,901.~~$283,899. The Company had short-term and long-term interest-bearing loans, related party loans and leasing obligations that aggregated ~~$16,406,559~~$16,566,327 as of ~~March 31,~~June 30, 2021, as compared to ~~$14,904,518~~$14,916,307 as of ~~March 31,~~June 30, 2020.

Loss on derivative liability

The Company analyzed the ~~warrant~~warrants 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 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 ~~loss recognized on addition and~~ change in fair value of derivative liability for the three months ended ~~March~~June 30, 2021 was ~~$3,636,967.~~$4,509,007.

Net Loss

As a result and the factors discussed above, net loss was ~~$4,338,856~~$453,248 for the quarter ended ~~March 31,~~June 30, 2021, representing a decrease of ~~income~~loss of ~~$1,902,569,~~$526,783, or ~~78.09%~~53.75%, from ~~$2,436,287~~net loss of $980,031 for the quarter ended ~~March 31,~~June 30, 2020.

33

Comparison of the six months ended June 30, 2021 and 2020
Revenue for the six months ended June 30, 2021 was $70,744,342, an increase of $35,638,218, or 101.52%, from $35,106,124 for the same period in the previous year.
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 six months ended June 30, 2021 was $70,505,015, an increase of $36,244,444, or 105.79%, from $34,260,571 for the six months ended June 30, 2020. This was mainly due to the increase in sales volume of Regular CMP and offset printing paper and the increase in ASP of CMP, offset printing paper and tissue paper products. Total quantities of offset printing paper, CMP and tissue paper products sold during the six months ended June 30, 2021 amounted to 132,168 tonnes, an increase of 47,649 tonnes, or 56.38%, compared to 84,519 tonnes sold during the six months ended June 30, 2020. Total quantities of CMP and offset printing paper sold increased by 48,401 tonnes in the six months of 2021 as compared to the same period of 2020. The increase was mainly due to the production suspension of CMP and offset printing paper due to the impact of COVID-19 in mid-January 2020 to early March 2020. Full capacity of CMP production resumed in May 2020, and the production and sales of offset printing paper resumed in June2020.The changes in revenue and quantity sold for the six months ended June 30, 2021 and 2020 are summarized as follows:
A summary of the above changes and further analyses of the changes in our sales revenue are as follows:
Six Months Ended Six Months Ended Percentage
June 30, 2021 June 30, 2020 Change in Change
Sales Revenue Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity
(Tonne) Amount Quantity Amount

Regular CMP 94,133 $ 47,216,294 60,767 $ 23,094,037 33,366 $ 24,122,258 54.91 % 104.45 %
Light-Weight CMP 21,161 $ 10,309,109 17,500 $ 6,518,191 3,661 $ 3,790,918 20.92 % 58.16 %
Total CMP 115,294 $ 57,525,403 78,267 $ 29,612,228 37,027 $ 27,913,175 47.31 % 94.26 %
Offset Printing Paper 13,557 $ 9,300,003 2,183 $ 1,262,188 11,374 $ 8,037,815 521.03 % 636.82 %
Tissue Paper Products 3,317 $ 3,679,609 4,069 3,386,155 (752 ) $ 293,454 -18.48 % 8.67 %
Total CMP, Offset Printing Paper and Tissue Paper Revenue 132,168 $ 70,505,015 84,519 $ 34,260,571 47,649 $ 36,244,444 56.38 % 105.79 %
ASPs for our main products in the six-month period ended June 30, 2021and 2020 are summarized as follows:
Offset Printing Paper ASP Regular CMP ASP Light-Weight CMP ASP Tissue Paper Products ASP
Six Months Ended June 30, 2020 $ 578 $ 380 $ 372 $ 832
Six Months Ended June 30, 2021 $ 686 $ 502 $ 487 $ 1109
Increase from comparable period in the previous year $ 108 $ 122 $ 115 $ 277
Increase by percentage 18.69 % 32.11 % 30.91 % 33.29 %
Revenue of Face Mask
Revenue generated from selling face masks were $239,327 for the six months ended June 30, 2021. We sold 6,470 thousand pieces of face masks for the six months ended June 30, 2021.

Cost of Sales
Total cost of sales for CMP, offset printing paper and tissue paper products in the six months ended June 30, 2021 was $65,680,350, an increase of $33,305,489, or 102.87%, from $32,374,861 for the six months ended June 30, 2020. This was mainly a result of the increase in sales volume of CMP and offset printing paper and the increase in material costs. Cost of sales for CMP was $53,697,316 for the six months ended June 30, 2021, as compared to $26,939,324 in the same period of 2020. The increase in the cost of sales of $26,757,992 for CMP was mainly due to the increase in the quantities of regular CMP sold and the increase in cost of recycled paper board in the six months of 2021. Average cost of sales per tonne for CMP increased by 35.47%, from $344 for the six months ended June 30, 2020, to $466 in the same period of 2021. This is mainly attributable to the higher average unit purchase costs (net of applicable value added tax) of recycled paper board. Cost of sales for offset printing paper was $7,614,967 for the six months ended June 30, 2021, as compared to $963,531 in the same period of 2020. Average cost of sales per tonne of offset printing paper increased by 27.44%, from $441 for the six months ended June 30, 2020, to $562 in the same period of 2021. The increase was mainly attributable to higher average unit purchase costs (net of applicable value added tax) of recycled white scrap paper. Cost of sales for tissue paper products was $4,368,067 for the six months ended June 30, 2021, as compared to $4,472,006 in the same period of 2020. Average cost of sales per tonne of tissue paper products increased by 19.84%, from $1,099 for the six months ended June 30, 2020, to $1,317 for the same period of 2021.
Changes in cost of sales and cost per tonne by product for the six months ended June 30, 2021 and 2020 are summarized below:
Six Months Ended Six Months Ended
June 30, 2021 June 30, 2020 Change in 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 $ 44,238,716 $ 470 $ 21,244,189 $ 350 $ 22,994,527 $ 120 108.24 % 34.29 %
Light-Weight CMP $ 9,458,600 $ 447 $ 5,695,135 $ 325 $ 3,763,465 $ 122 66.08 % 37.54 %
Total CMP $ 53,697,316 $ 466 $ 26,939,324 $ 344 $ 26,757,992 $ 122 99.33 % 35.47 %
Offset Printing Paper $ 7,614,967 $ 562 $ 963,531 $ 441 $ 6,651,436 $ 121 690.32 % 27.44 %
Tissue Paper Products $ 4,368,067 $ 1,317 $ 4,472,006 $ 1,099 $ (103,939 ) $ 218 -2.32 % 19.84 %
Total CMP, Offset Printing Paper and Tissue Paper Revenue $ 65,680,350 $ n/a $ 32,374,861 $ n/a $ 33,305,489 $ n/a 102.87 % n/a %
Gross Profit
Gross profit for the six months ended June 30, 2021 was $4,860,024 (6.87% of the total revenue), representing an increase of $2,470,914, or 103.42%, from the gross profit of $2,389,110 (6.81% of the total revenue) for the six months ended June 30, 2020. The increase was mainly due to (i) the increase in quantities sold of CMP and offset printing paper and (ii) the increase of ASP of CMP, offset printing paper and tissue paper products, partially offset by the decrease in sales quantities of tissue paper products.
Offset Printing Paper, CMP and Tissue Paper Products
Gross profit for offset printing paper, CMP and tissue paper products for the six months ended June 30, 2021 was $4,824,665, an increase of $2,938,955, or 155.85%, from the gross profit of $1,885,710 for the six months ended June 30, 2020. 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 1.34 percentage points, from 5.50% for the six months ended June 30, 2020, to 6.84% for the six months ended June 30, 2021.
Gross profit margin for regular CMP for the six months ended June 30, 2021 was 6.31%, or 1.70 percentage points lower, as compared to gross profit margin of 8.01% for the six months ended June 30, 2020. Such decrease was primarily due to theincrease in unit cost of sales, partially offset by the increase in ASP of regular CMP.

Gross profit margin for light-weight CMP for the six months ended June 30, 2021 was 8.25%, or 4.38 percentage points lower, as compared to gross profit margin of 12.63% for the six months ended June 30, 2020. Such decrease was primarily due to increase in unit cost of sales, partially offset by the increase in ASP oflight-weight CMP.
Gross profit margin for offset printing paper was 18.12% for the six months ended June 30, 2021, a decrease of 5.54 percentage points, as compared to 23.66% for the six months ended June 30, 2020. Such decrease was mainly due to the increase of purchase price of recycled white scrap paper, partially offset by the increase in ASP of offset printing paper.
Gross profit margin for tissue paper products was -18.71% for the six months ended June 30, 2021, an increase of 13.36 percentage points, as compared to -32.07% for the six months ended June 30, 2020.
Face Mask
Gross profit for face mask for the six months ended June 30, 2021was $35,359, representing a gross profit margin of 14.77%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30, 2021were $5,152,929, a decrease of $901,506, or 14.89% from $6,054,435 for the six months ended June 30, 2020. The decrease was mainly due to higher share based compensation charge and expenses in April 2020, partially offset by the increase of RMB expenses converted to USD as a result of the deprecation of USD against RMB.
Loss from Operations
Operating loss for the six months ended June 30, 2021 was $292,905, a decrease of $3,372,420, or 92.01%, from $3,665,325 for the six months ended June 30, 2020. The decrease in loss was primarily due to the increase in gross profit and decrease in selling, general and administrative expenses.
Other Income and Expenses
Interest expense for the six months ended June 30, 2021 increased by $76,646, from $486,154 for the six months ended June 30, 2020, to $562,800. The Company had short-term and long-term interest-bearing loans and lease obligation that aggregated $16,566,327 as of June 30, 2021, as compared to $14,916,307 as of June 30, 2020.
Loss on derivative liability
The Company analyzed warrants 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 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 six months ended June 30, 2021 was $ 872,040.
Net Loss
As a result of the above, net loss was $4,792,104 for the six months ended June 30, 2021, representing an increase of loss of $1,375,786, or 40.27%, from net loss of $3,416,318 for six months ended June 30, 2020.
Accounts Receivable
Net accounts receivable increased by ~~$2,822,749,~~$3,204,213, or ~~118.15%~~134.12%, to ~~$5,211,806~~$5,593,270 as of ~~March 31,~~June 30, 2021, as compared with $2,389,057 as of December 31, 2020. We usually collect accounts receivable within 30 days of delivery and completion of sales.
Inventories
Inventories consist of raw materials (accounting for ~~76.64%~~79.42% of total value of inventory as of ~~March 31,~~June 30, 2021), semi-finished goods and finished goods. As of ~~March 31,~~June 30, 2021, the recorded value of inventory increased by ~~502.33%~~845.97% to ~~$7,431,502~~$11,671,350 from $1,233,801 as of December 31, 2020. As of ~~March 31,~~June 30, 2021, the inventory of recycled paper board, which is the main raw material for the production of CMP, was ~~$5,040,597,~~$7,666,163, approximately ~~$5,021,138,~~$7,646,704, or ~~25803.68%~~39296.49%, higher than the balance as of December 31, 2020. Due to the volatility of recycled paper board price and recycled white scrap paper, a minimum level of inventory was maintained at the end of 2020.

A summary of changes in major inventory items is as follows:
March 31,
2021 December 31,
2020 $ Change % Change
Raw Materials
Recycled paper board $ 5,040,597 $ 19,459 5,021,138 25803.20 %
Recycled white scrap paper 189,976 11,193 178,783 1597.24 %
Tissue base paper 205,718 14,027 191,691 1366.59 %
Gas 75,620 55,473 20,147 36.32 %
Mask fabric and other raw materials 183,563 167,399 16,164 9.66 %
Total Raw Materials 5,695,474 267,551 5,427,923 2028.74 %
Semi-finished Goods 259,758 176,703 83,055 47.00 %
Finished Goods 1,476,270 789,547 686,723 86.98 %
Total inventory, gross 7,431,502 1,233,801 6,197,701 502.33 %
Inventory reserve - - -
Total inventory, net $ 7,431,502 $ 1,233,801 6,197,701 502.33 %

June 30, December 31,
2021 2020 $ Change % Change
Raw Materials
Recycled paper board $ 7,666,163 $ 19,459 7,646,704 39295.76 %
Recycled white scrap paper 939,199 11,193 928,006 8290.78 %
Tissue base paper 268,785 14,027 254,758 1816.20 %
Gas 184,144 55,473 128,671 231.95 %
Mask fabric and other raw materials 210,629 167,399 43,230 25.82 %
Total Raw Materials 9,268,919 267,551 9,001,368 3364.35 %

Semi-finished Goods 751,286 176,703 574,583 325.17 %
Finished Goods 1,651,145 789,547 861,599 109.13 %
Total inventory, gross 11,671,350 1,233,801 10,437,549 845.97 %
Inventory reserve - - -
Total inventory, net $ 11,671,350 $ 1,233,801 10,437,549 845.97 %
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 and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million respectively. In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to three years, with an annual rental payment of approximately ~~$153,740~~$154,603 (RMB1,000,000). The lease agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with Hebei Fangsheng, who agreed to extend the lease term to August 9, 2022 with the same rental payment as original lease agreement.
Capital Expenditure Commitment as of ~~March 31,~~June 30, 2021
On May 5, 2020, the Company announced it planned the commercial launch of a new tissue paper production line PM10. In connection with the PM10, ~~and~~ the Company signed an agreement to purchase paper machine with a paper machine supplier. The Company expected the new tissue paper production line to be launched after the completion of trial run.
As of ~~March 31,~~June 30, 2021, we had approximately ~~$4.5~~$4.6 million in capital expenditure commitments that were mainly related to the purchase of paper machine of PM10. The infrastructure work of PM10 has been completed and the associated ancillary facilities are working in the progress. These commitments are expected to be financed by bank loans and cash flows generated from our business operations.
In February 2021, we completed evaluation on the bidding proposals and announced that Tai Shan Group Co., Ltd., a top manufacturer in the biomass industry in China, has won the bid for the 75 tonne per hour biomass boiler procurement for the Cogeneration Project. Installation of the boilers is expected to commence in the near future. We expect to participate in the bidding process for urban central heating projects. In April 2021, the Company obtained qualification to supply central heating in industrial parks for the Cogeneration Project.
Financing with Sale-Leaseback
The Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co., Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately US$~~2.4~~2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for RMB 16 million (approximately US$~~2.4~~2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100 (approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as ~~right-of-use~~right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated with TLCL’s implicit interest rate ~~of 15.6%~~of15.6% per annum and stated at $567,099 at the inception of the lease on August 17, 2020.
Hebei Tengsheng made payments due according to the schedule. The balance of Leased Equipment net of amortization was ~~$2,340,142~~$2,339,145 and $2,397,653 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The lease liability was ~~$490,377~~$453,573 and $536,959, and its current portion in the amount of ~~$188,723~~$199,544 and $182,852 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

Amortization of the Leased Equipment was ~~$40,997~~$41,457 and nil for the three months ended ~~March 31,~~June 30, 2021 and 2020. Amortization of the Leased Equipment was $82,454 and nil for the six months ended June 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was ~~$20,418~~$18,932 and nil for the three months ended ~~March 31,~~June 30, 2021 and 2020. Total interest expenses for the sale-leaseback arrangement was $39,350 and nil for the six months ended June 30, 2021 and 2020.
As a result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded. The deferred gain is amortized over the lease term and as an offset to amortization of the Leased Equipment.
Cash and Cash Equivalents
Our cash, cash equivalents and restricted cash as of ~~March 31,~~June 30, 2021 was ~~$37,440,991,~~$30,273,543, an increase of ~~$33,298,554,~~$26,131,106, from $4,142,437 as of December 31, 2020. The increase of cash and cash equivalents for the ~~three~~six months ended ~~March 31,~~June 30, 2021 was attributable to a number of factors:
i. Net cash provided by (used in) operating activities
Net cash used in operating activities was ~~$8,280,332~~$15,570,363 for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The balance represented a decrease of cash of ~~$15,140,639,~~$21,426,988, or ~~220.70%~~365.86%, from ~~$6,860,307~~$5,856,625 of net cash provided for the ~~three~~six months ended ~~March 31,~~June 30, 2020. Net loss for the ~~three~~six months ended ~~March 31,~~June 30, 2021 was ~~$4,338,856,~~$4,792,104, representing ~~a decrease~~an increase of ~~income~~loss of ~~$1,902,569,~~$1,375,786, or ~~-78.09%~~40.27%, from a net loss of ~~$2,436,287~~$3,416,318 for the ~~three~~six months ended ~~March 31,~~June 30, 2020. Changes in various asset and liability account balances throughout the ~~three~~six months ended ~~March 31,~~June 30, 2021 also contributed to the net change in cash from operating activities in ~~three~~six months ended ~~March 31,~~June 30, 2021. Chief among such changes is the increase of accounts receivable in the amount of ~~$2,920,798~~$3,229,340 during the ~~first three~~six months of ~~2021.~~2021 (a decrease to net cash). There was also an increase of ~~$6,270,151~~$10,412,117 in the ending inventory balance as of ~~March 31,~~June 30, 2021 (a decrease to net ~~cash for the three months ended March 31, 2021 cash flow purposes)~~cash). ~~An increase of $1,785,742 in accounts payable (an increase to net cash) in the three months ended March 2021.~~ In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of ~~$4,092,487 and loss on derivative liability of $3,636,967.~~$8,166,403. The Company also had a net increase of ~~$3,645,323~~$8,060,524 in prepayment and other current assets (a decrease to net cash) and a net ~~decrease~~increase of ~~$310,023~~$758,264 in other payables and accrued liabilities and related parties (a decrease to net cash), as well as an increase in income tax payable of ~~$226,699~~$425,654 (an increase to net cash) during the ~~three~~six months ended ~~March 31,~~June 30, 2021.

ii. Net cash used in investing activities
We incurred ~~$44,599~~$171,541 in net cash expenditures for investing activities during the three months ended ~~March 31,~~June 30, 2021, as compared to ~~$756,514~~$981,150 for the same period of 2020. Payments in the three months ended ~~March 31,~~June 30, 2021 were for the payments for purchase of ~~vehicles.~~vehicles and paper machine equipment.
iii. Net cash provided by financing activities
Net cash provided by financing activities was proceeds from issuance of shares and warrants ~~and~~net of repayment of loans and lease ~~liability~~obligation of ~~$41,794,323~~$41,671,591 for the ~~three~~six months ended ~~March 31,~~June 30, 2021, as compared to net cash provided by financing activities in the amount of ~~$nil~~$ 2,273,360 for the ~~three~~six months ended ~~March 31,~~June 30, 2020.
Short-term bank loans
March 31, December 31,
2021 2020
Industrial and Commercial Bank of China (“ICBC”) $ 6,389,908 $ 6,435,348
June 30, December 31,
2021 2020
Industrial and Commercial Bank of China (“ICBC”) $ 6,422,501 $ 6,435,348

Total short-term bank loans $ 6,422,501 $ 6,435,348
On December 11, 2020, the Company entered into a working capital loan agreement with the ICBC, with a balance of ~~$ $6,389,908~~$6,422,501 and $6,435,348 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785% per annum. The loan will be due and repaid at various installments by December 7, 2021.
As of ~~March 31,~~June 30, 2021, there were guaranteed short-term borrowings of ~~$6,389,908~~$6,422,501 and unsecured bank loans of $nil. As of December 31, 2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of $nil.
The average short-term borrowing rates for the three months ended ~~March 31,~~June 30, 2021 and 2020 were approximately 4.79%.
The average short-term borrowing rates for the six months ended June 30, 2021 and 2020 were approximately 4.79%.

Long-term loans from credit union
As of ~~March 31,~~June 30, 2021 and December 31, 2020, loans payable to Rural Credit Union of Xushui District, amounted to ~~$9,526,274 and~~$9,690,252and $9,594,017, respectively.
36
On April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of ~~March 31,~~June 30, 2021 and December 31, 2020, total outstanding loan balance was ~~$1,308,721~~$1,331,249 and $1,318,028, respectively, Out of the total outstanding loan balance, current portion amounted were ~~$213,048~~$247,674 and $214,563 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of ~~$1,095,673~~$1,083,575 and $11,103,465 are presented as non-current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, 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 will be due and payable in various installments from December 21, 2018 to June 20, 2023. The loan is secured by certain of the Company’s manufacturing equipment with net book value of ~~$1,882,319~~$1,522,164 and $2,349,796 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$3,804,423~~$3,869,909 and $3,831,476, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$334,789~~$417,950 and $337,169 as of ~~March 31,~~June 30, 2021 and December 31, 2020 respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of ~~$3,469,633~~$3,451,959 and $3,494,307 are presented as non-current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6% per month. On March 22, 2021, the loan was renewed for additional one year and the repayments will be due on April 16, 2022. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$2,434,830~~$2,476,742 and $2,452,145, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$2,434,830~~$2,476,742 and $2,452,145 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate of 7.56% per ~~annum.~~annum.On March 22, 2021, the loan was extendedand the repayments will be due on August 18, 2022. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the total outstanding loan balance was ~~$1,978,300~~$2,012,353 and $1,992,368, respectively. Out of the total outstanding loan balance, current portion amounted were ~~$1,978,300~~$nil and $1,992,368 as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which are presented as current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
Total interest expenses for the short-term bank loans and long-term loans for the three months ended ~~March 31,~~June 30, 2021 and 2020 were ~~$258,483~~$264,967 and ~~$244,718,~~$241,436, respectively. Total interest expenses for the short-term bank loans and long-term loans for the six months ended June 30, 2021 and 2020 were $523,450 and $486,154, respectively.

Shareholder Loans
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 ~~$390,081~~$396,796 and $392,855 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.
On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017. During the year of 2016, the Company repaid $6,012,416 to Mr. Zhenyong Liu, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of ~~March 31,~~June 30, 2021 and December 31, 2020, approximately ~~$45,653~~$46,439 and $45,978 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~~Mr. Zhenyong Liu 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~~Company paid off the remaining balance, together with interest of 94,636. As of ~~March 31,~~June 30, 2021 and December 31, 2020, the outstanding interest was ~~$209,148~~$212,748 and $210,635, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.
As of ~~March 31,~~June 30, 2021 and December 31, 2020, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans are $nil for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. The accrued interest owing to ~~the CEO~~Mr. Zhenyong Liu was approximately ~~$644,882~~$655,983 and $649,468, as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, which was recorded in other payables and accrued liabilities.
As of ~~March 31,~~June 30, 2021 and December 31, 2020, 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.

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 three months ended ~~March 31,~~June 30, 2021 and 2020, 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 ~~March 31,~~June 30, 2021 and December 31, 2020 to translate the Chinese RMB to the U.S. Dollars are ~~6.5713:~~6.4601:1 and 6.5249:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at ~~6.5045:~~6.4682:1 and 6.9931:1 for the three months ended ~~March 31,~~June 30, 2021 and 2020, 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 ~~$4,717,484~~$4,798,687 (RMB31,000,000), which matures at various times in 2023. 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 for 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.
39

Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Foreign Exchange Risk
While our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange risks as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
Inflation
Although we are generally able to pass along minor incremental cost inflation to our customers, inflation such as increases in the costs of our products and overhead costs may adversely affect our operating results. We do not believe that inflation in China has had a material impact on our financial position or results of operations to date, however, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase in line with the increased costs.
Item 4. Controls and Procedures.
As required by Rule 13a-15 of the Securities Exchange Act, as amended (the “Securities Act”), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, which were designed to provide reasonable assurance of achieving their objectives. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of ~~March 31,~~June 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (2) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting in the quarterly period ended ~~March 31,~~June 30, 2021.

PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.

~~None.~~
Item 6. Exhibits.
~~(a) Exhibits~~
(a) Exhibits
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Schema Document
101.CAL Inline XBRL Calculation Linkbase Document
101.LAB Inline XBRL Label Linkbase Document
101.PRE Inline XBRL Presentation Linkbase Document
101.DEF Inline XBRL Definition Linkbase Document
104. Cover Page Interactive Data File - The cover page iXBRL tags are embedded within the inline XBRL document.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IT TECH PACKAGING, INC.
~~Date: May 11, 2021~~ ~~/s/ Zhenyong Liu~~
~~Name:~~ ~~Zhenyong Liu~~
~~Title:~~   ~~Chief Executive Officer~~
~~(Principal Executive Officer)~~
Date: August 10, 2021 /s/ Zhenyong Liu
Name:
~~Date: May 11, 2021~~ ~~/s/ Jing Hao~~Zhenyong Liu
~~Name:~~Title: ~~Jing Hao~~
~~Title:~~   Chief ~~Financial~~Executive Officer
(Principal Executive Officer)
Date: August 10, 2021 /s/ Jing Hao
Name: Jing Hao
Title: Chief Financial Officer
(Principal Financial Officer)

42
45
iso4217:CNY xbrli:shares

Part I. - FINANCIAL INFORMATION
	~~TABLE OF CONTENTS~~	1

~~Part I. - FINANCIAL INFORMATION~~Item 1. Financial Statements	1

~~Item 1. Financial Statements~~	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4042

Item 4. Controls and Procedures	4042

Part II. - OTHER INFORMATION	4143

Item 1. Legal Proceedings	4143

Item 1A. Risk Factors	4143

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41

~~Item 3.Defaults Upon Senior Securities~~		41

~~Item 4.Mine Safety Disclosures~~		41

~~Item 5.Other Information~~		41

~~Item 6.Exhibits~~		4143

~~SIGNATURES~~Item 3. Defaults Upon Senior Securities	4243

Item 4. Mine Safety Disclosures	43

Item 5. Other Information	43

Item 6. Exhibits	44

SIGNATURES	45

	March 31,		December 31,
	2021		2020
ASSETS

Current Assets
Cash and bank balances	$	37,440,991	$	4,142,437
Restricted cash		-		-
Accounts receivable (net of allowance for doubtful accounts of $85,637 and $34,391 as of March 31, 2021 and December 2020, respectively)		5,211,806		2,389,057
Inventories		7,431,502		1,233,801
Prepayments and other current assets		10,655,539		7,051,515
Due from related parties		400,650		92,795

Total current assets		61,140,488		14,909,605

Prepayment on property, plant and equipment		21,000,411		21,149,749
Finance lease right-of-use assets, net		2,340,142		2,397,653
Property, plant, and equipment, net		140,109,827		145,142,642
Value-added tax recoverable		2,502,526		2,566,195
Deferred tax asset non-current		14,194,939		13,708,630

Total Assets	$	241,288,333	$	199,874,474

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Short-term bank loans	$	6,389,908	$	6,435,348
Current portion of long-term loans from credit union		4,960,967		4,996,245
Lease liability		188,723		182,852
Accounts payable		2,355,798		592,391
Advance from customers		82,042		82,625
Due to related parties		727,433		727,433
Accrued payroll and employee benefits		308,838		224,930
Other payables and accrued liabilities		4,715,970		4,838,601
Income taxes payable		482,209		259,649

Total current liabilities		20,211,888		18,340,074

Loans from credit union		4,565,307		4,597,772
Deferred gain on sale-leaseback		347,158		387,087
Lease liability - non-current		301,654		354,107
Derivative liability		11,581,027		1,115,260

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $19,683,842 and $17,950,224 as of March 31, 2021 and December 31, 2020, respectively)		37,007,034		24,794,300

Commitments and Contingencies

Stockholders’ Equity
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 99,049,900 and 28,535,816 shares issued and outstanding as of March 31, 2021 and December, 31,2020, respectively		99,050		28,536
Additional paid-in capital		88,927,786		53,989,548
Statutory earnings reserve		6,080,574		6,080,574
Accumulated other comprehensive income		4,271,952		5,740,722
Retained earnings		104,901,937		109,240,794

Total stockholders’ equity		204,281,299		175,080,174

Total Liabilities and Stockholders’ Equity	$	241,288,333	$	199,874,474

	June 30,		December 31,
	2021		2020
ASSETS

Current Assets
Cash and bank balances	$	30,273,543	$	4,142,437
Restricted cash		-		-
Accounts receivable (net of allowance for doubtful accounts of $87,876 and $34,391 as of June 30, 2021 and December 31, 2020, respectively)		5,593,270		2,389,057
Inventories		11,671,350		1,233,801
Prepayments and other current assets		15,247,108		7,051,515
Due from related parties		955,526		92,795

Total current assets		63,740,797		14,909,605

Prepayment on property, plant and equipment		21,361,898		21,149,749
Finance lease right-of-use assets, net		2,339,145		2,397,653
Property, plant, and equipment, net		138,564,893		145,142,642
Value-added tax recoverable		2,537,704		2,566,195
Deferred tax asset non-current		10,076,731		13,708,630

Total Assets	$	238,621,168	$	199,874,474

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Short-term bank loans	$	6,422,501	$	6,435,348
Current portion of long-term loans from credit union		3,142,366		4,996,245
Lease liability		199,544		182,852
Accounts payable		742,720		592,391
Advance from customers		83,454		82,625
Due to related parties		727,433		727,433
Accrued payroll and employee benefits		314,223		224,930
Other payables and accrued liabilities		4,867,038		4,838,601
Income taxes payable		688,441		259,649

Total current liabilities		17,187,720		18,340,074

Loans from credit union		6,547,886		4,597,772
Deferred gain on sale-leaseback		315,298		387,087
Lease liability - non-current		254,029		354,107
Derivative liability		7,072,020		1,115,260

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $18,427,033 and $17,950,224 as of June 30, 2021 and December 31, 2020, respectively)		31,376,953		24,794,300

Commitments and Contingencies

Stockholders’ Equity
Common stock, 500,000,000 shares authorized, $0.001 par value per share, 99,049,900 and 28,535,816 shares issued and outstanding as of June 30, 2021 and December, 31,2020, respectively		99,050		28,536
Additional paid-in capital		88,927,787		53,989,548
Statutory earnings reserve		6,080,574		6,080,574
Accumulated other comprehensive income		7,688,114		5,740,722
Retained earnings		104,448,690		109,240,794

Total stockholders’ equity		207,244,215		175,080,174

Total Liabilities and Stockholders’ Equity	$	238,621,168	$	199,874,474

	Three Months Ended
	March 31,
	2021			2020

Revenues	$	24,209,427		$	8,743,851

Cost of sales		(22,378,422	)		(8,913,570	)

Gross Profit (Loss)		1,831,005			(169,719)

Selling, general and administrative expenses		(2,555,318	)		(2,696,963	)
Gain on acquisition of a subsidiary		-			-

Loss from Operations		(724,313	)		(2,866,682	)

Other Income (Expense):
Interest income		4,333			5,790
Subsidy income		196,787			142,998
Interest expense		(278,901	)		(244,718	)
Loss on derivative liability		(3,636,967	)		-

Loss before Income Taxes		(4,439,061	)		(2,962,612	)

Provision for Income Taxes		100,205			526,325

Net Loss		(4,338,856)			(2,436,287)

Other Comprehensive Loss
Foreign currency translation adjustment		(1,468,770	)		(2,589,754	)

Total Comprehensive Loss	$	(5,807,626	)	$	(5,026,041	)

Losses Per Share:

Basic and Diluted Losses per Share	$	(0.12	)	$	(0.11	)

Outstanding – Basic and Diluted		36,156,280			22,054,816

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020

Revenues	$	46,534,915		$	26,362,273		$	70,744,342		$	35,106,124

Cost of sales		(43,505,895	)		(23,803,444	)		(65,884,317	)		(32,717,014	)

Gross Profit		3,029,019			2,558,829			4,860,024			2,389,110

Selling, general and administrative expenses		(2,597,611	)		(3,357,472	)		(5,152,929	)		(6,054,435	)

Income (Loss) from Operations		431,408			(798,643	)		(292,905	)		(3,665,325	)

Other Income (Expense):
Interest income		11,719			9,451			16,052			15,241
Subsidy income		1,104			(979	)		197,891			142,019
Interest expense		(283,899	)		(241,436	)		(562,800	)		(486,154	)
Gain (loss) on derivative liability		4,509,007			(27,865	)		872,040			(27,865	)

Income (Loss) before Income Taxes		4,669,339			(1,059,472	)		230,278			(4,022,084	)

Provision for Income Taxes		(5,122,587	)		79,441			(5,022,382	)		605,766

Net Loss		(453,248	)		(980,031	)		(4,792,104	)		(3,416,318	)

Other Comprehensive Income (Loss)
Foreign currency translation adjustment		3,416,162			124,179			1,947,392			(2,465,575	)

Total Comprehensive Income (Loss)	$	2,962,914		$	(855,852	)	$	(2,844,712	)	$	(5,881,893	)

Losses Per Share:

Basic and Diluted Losses per Share	$	(0.01	)	$	(0.04	)	$	(0.10	)	$	(0.14	)

Outstanding – Basic and Diluted		46,638,550			24,444,761			46,638,550			24,444,761

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

Balance at December 31, 2019		22,054,816	$	22,055	$	51,155,174	$	6,080,574	$	(6,057,537	)	$	114,794,796		$	165,995,062

Foreign currency translation adjustment										(2,589,754	)					(2,589,754	)
Net income													(2,436,287	)		(2,436,287	)
Balance at March 31, 2020		22,054,816	$	22,055	$	51,155,174	$	6,080,574	$	(8,647,291	)	$	112,358,509		$	160,969,021

Balance at December 31, 2020		28,535,816	$	28,536	$	53,989,548	$	6,080,574	$	5,740,722		$	109,240,794		$	175,080,174
Issuance of shares to institutional investors		26,181,818		26,182		8,002,488										8,028,669
Issuance of shares to public investors		29,277,866		29,278		15,585,867										15,615,144
Exercise of warrants		15,054,400		15,054		11,349,884										11,364,939
Foreign currency translation adjustment										(1,468,769	)					(1,468,769	)
Net income													(4,338,858	)		(4,338,858	)
Balance at March 31, 2021		99,049,900	$	99,050	$	88,927,786	$	6,080,574	$	4,271,952		$	104,901,937		$	204,281,299

	Date of	Place of
	Incorporation	Incorporation or	Percentage of
Name	or Establishment	Establishment	Ownership		Principal Activity
Subsidiary:
Dongfang Holding	November 13, 2006	BVI		100%	Inactive investment holding
Shengde Holdings	February 25, 2009	State of Nevada		100%	Investment holding
Baoding Shengde	June 1, 2009	PRC		100%	Paper production and distribution

Variable interest entity (“VIE”):
Dongfang Paper	March 10, 1996	PRC		Control*	Paper production and distribution

March 31,	Amount
2022		252,005
2023		252,005
2024		84,002
Less: unearned discount		(97,635	)

		490,377
Less: Current portion lease liability		(188,723	)
	$	301,654

	June 30,		December 31,
	2021		2020
Industrial and Commercial Bank of China (“ICBC”)	$	6,422,501	$	6,435,348

Total short-term bank loans	$	6,422,501	$	6,435,348

	June 30,			December 31,
	2021			2020
Rural Credit Union of Xushui District Loan 1	$	1,331,249		$	1,318,028
Rural Credit Union of Xushui District Loan 2		3,869,908			3,831,476
Rural Credit Union of Xushui District Loan 3		2,476,742			2,452,145
Rural Credit Union of Xushui District Loan 4		2,012,353			1,992,368
Total		9,690,252			9,594,017
Less: Current portion of long-term loans from credit union		(3,142,366	)		(4,996,245	)
Long-term loans from credit union	$	6,547,886		$	4,597,772

	Amount
Fiscal year
Remainder of 2021	$	4,960,967
2022		1,673,946
2023		2,891,361
Total		9,526,274

Fiscal year	Amount
Remainder of 2021	$	3,142,366
2022		5,928,701
2023		619,185
Total		9,690,252

	~~Three~~	Six months ended
	~~March 31, 2021~~	June 30, 2021
Expected term		~~2.30~~2.18 - 2.75
Expected average volatility		85% - ~~105%~~105	%
Expected dividend yield		-
Risk-free interest rate		0.19% - ~~0.35%~~0.46	%

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance at December 31, 2020	$	1,115,260
Addition of new derivatives recognized as warrant		9,730,919
Addition of new derivatives recognized as loss on derivatives		10,813,347
Exercise of warrants		(2,902,119	)
Change in fair value of derivative liability		(7,176,380	)
Balance at March 31, 2021	$	11,581,027

	Three months Ended
	March 31, 2021
				Weight
				average
				exercise
	Number			price

Outstanding and exercisable at beginning of the period		4,400,000		$	0.7425
Issued during the period		40,820,751			0.622
Exercised during the period		(15,054,400	)		0.5621
Cancelled or expired during the period		-			-
Outstanding and exercisable at end of the period		30,166,351		$	0.6691

	Six months Ended June 30, 2021
	Number			Weight average exercise price

Outstanding and exercisable at beginning of the period		4,400,000		$	0.7425
Issued during the period		40,820,751			0.622
Exercised during the period		(15,054,400	)		0.5621
Cancelled or expired during the period		-			-
Outstanding and exercisable at end of the period		30,166,351		$	0.6691

Warrants Outstanding						Warrants Exercisable
		Weighted Average				Number of
Number of Shares		Remaining Contractual life (in years)		Weighted Average Exercise Price		Shares Underlying the Warrants		Weighted Average Exercise Price
	30,166,351		4.59	$	0.6691		30,166,351	$	0.6691

	Three Months Ended June 30,
	2021			2020
Basic income (loss) per share
Net income (loss) for the period - numerator	$	(453,248	)	$	(980,031	)
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Net income (loss) per share	$	(0.01	)	$	(0.04	)

Diluted income per share
Net income for the period- numerator	$	(453,248	)	$	(980,031	)
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Effect of dilution		-			-
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Diluted income (loss) per share	$	(0.01	)	$	(0.04	)

	Three Months Ended March 31,
	2021			2020
Basic loss per share
Net loss for the period - numerator	$	(4,338,856	)	$	(2,436,287	)
Weighted average common stock outstanding - denominator		36,156,280			22,054,816

Net loss per share	$	(0.12	)	$	(0.11	)

Diluted income per share
Net income for the period- numerator	$	(4,338,856	)	$	(2,436,287	)
Weighted average common stock outstanding - denominator		36,156,280			22,054,816

Effect of dilution		-			-
Weighted average common stock outstanding - denominator		36,156,280			22,054,816

Diluted loss per share	$	(0.12	)	$	(0.11	)

	Six Months Ended June 30,
	2021			2020
Basic income (loss) per share
Net income (loss) for the period - numerator	$	(4,792,104	)	$	(3,416,318	)
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Net income (loss) per share	$	(0.10	)	$	(0.14	)

Diluted income (loss) per share
Net income (loss) for the period - numerator	$	(4,792,104	)	$	(3,416,318	)
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Effect of dilution		-			-
Weighted average common stock outstanding - denominator		46,638,550			24,444,761

Diluted income (loss) per share	$	(0.10	)	$	(0.14	)

	Three Months Ended
	June 30,
	2021			2020
PRC Statutory rate	25.0		%	25.0		%
Effect of different tax jurisdiction
Effect of reconciling items in the PRC for tax purposes		(22.2	)		(17.5	)
Change in valuation allowance		196.9			-
		-			-
Effective income tax rate		109.7	%		7.5	%

	Six Months Ended
	June 30,
	2021			2020
PRC Statutory rate	25.0		%	25.0		%
Effect of different tax jurisdiction
Effect of expenses not deductible for PRC tax purposes		(12.6	)		(9.9	)
(Over) Under-provision in previous year		-			-
Change in valuation allowance		2168.6			-
		-			-
Effective income tax rate		2181.0	%		15.1	%

	Three Months Ended
	March 31, 2021
	Dongfang		Hebei			Baoding			Not Attributable			Elimination of		Enterprise-wide,
	Paper		Tengsheng			Shengde			to Segments			Inter-segment		consolidated

Revenues	$	22,827,553	$	1,251,416		$	130,458		$	-		$	-	$	24,209,427
Gross profit		2,262,681		(456,207	)		24,531			-			-		1,831,005
Depreciation and amortization		1,833,101		2,257,067			2,319			-			-		4,092,487
Interest income		2,366		206			1,761			-			-		4,333
Interest expense		176,386		20,418			82,097			-			-		278,901
Income tax expense(benefit)		416,855		(515,629	)		(1,431	)		-			-		(100,205	)
Net income (loss)		1,087,209		(1,478,604	)		(68,045	)		(3,879,416	)		-		(4,338,856	)

	As of March 31, 2021
	Dongfang		Hebei			Baoding			Not Attributable			Elimination		Enterprise-wide,
	Paper		Tengsheng			Shengde			to Segments			of Inter-segment		consolidated

Total assets	$	88,412,001		99,836,087			24,493,355			28,546,890			-		241,288,333

	Three Months Ended
	June 30, 2021
	Dongfang		Hebei			Baoding			Not Attributable		Elimination of			Enterprise-wide,
	Paper		Tengsheng			Shengde			to Segments		Inter-segment			consolidated

Revenues	$	43,997,853	$	2,727,000		$	2,794,759		$	-	$	(2,984,697	)	$	46,534,915
Gross profit		3,233,548		(232,251	)		27,722			-		-			3,029,019
Depreciation and amortization		927,090		2,283,861			862,965			-		-			4,073,916
Interest income		8,614		600			2,505			-		-			11,719
Interest expense		181,175		18,932			83,792			-		-			283,899
Income tax expense (benefit)		617,975		4,494,672			(4,777	)		14,717		-			5,122,587
Net income (loss)		1,847,997		(6,482,307	)		(85,776	)		4,266,838		-			(453,248	)

	Three Months Ended
	June 30, 2020
	Dongfang		Hebei			Baoding		Not Attributable			Elimination of		Enterprise-wide,
	Paper		Tengsheng			Shengde		to Segments			Inter-segment		consolidated

Revenues	$	23,136,915	$	2,379,806		$	845,552	$	-		$	-	$	26,362,273
Gross profit		2,429,407		(373,977	)		503,399		-			-		2,558,829
Depreciation and amortization		1,617,412		2,105,130			-902		-			-		3,721,640
Interest income		7,577		464			1,410		-			-		9,451
Interest expense		165,416		-			76,020		-			-		241,436
Income tax expense (benefit)		357,463		(525,769	)		88,865		-			-		(79,441	)
Net income (loss)		1,441,234		(1,349,174	)		324,495		(1,396,586	)		-		(980,031	)

	Three Months Ended March 31, 2020
	Dongfang			Hebei			Baoding			Not Attributable			Elimination of		Enterprise-wide,
	Paper			Tengsheng			Shengde			to Segments			Inter-segment		consolidated

Revenues	$	7,737,502		$	1,006,349		$	-		$	-		$	-	$	8,743,851
Gross profit		542,155			(711,874	)		-			-			-		(169,719	)
Depreciation and amortization		1,506,627			2,135,371			132,676			-			-		3,774,674
Interest income		5,517			83			190			-			-		5,790	��
Interest expense		167,581			-			77,137			-			-		244,718
Income tax expense(benefit)		(8,363	)		(522,916	)		(9,763	)		14,717			-		(526,325	)
Net income (loss)		(496,085	)		(1,594,938	)		(200,397	)		(144,867	)		-		(2,436,287	)

	As of December 31, 2020
	Dongfang			Hebei			Baoding			Not Attributable			Elimination of		Enterprise-wide,
	Paper			Tengsheng			Shengde			to Segments			Inter-segment		consolidated

Total assets	$	79,206,447			102,056,291			18,589,570								199,874,474

	Three Months Ended				Three Months Ended								Percentage
	March 31, 2021				March 31, 2020				Change in				Change
Sales Revenue	Quantity (Tonne)		Amount		Quantity (Tonne)		Amount		Quantity (Tonne)		Amount		Quantity			Amount

Regular CMP		33,626	$	16,964,038		13,788	$	5,721,939		19,838	$	11,242,099		143.88	%		196.47	%
Light-Weight CMP		7,670	$	3,747,733		4,889	$	2,015,563		2,781	$	1,732,170		56.88	%		85.94	%
Total CMP		41,296	$	20,711,771		18,677	$	7,737,502		22,619	$	12,974,269		121.11	%		167.68	%
Offset Printing Paper		3,142	$	2,115,782		-	$	-		3,142	$	2,115,782			%			%
Tissue Paper Products		1,120	$	1,251,416		1,185	$	1,006,349		(65)	$	245,067		-5.49	%		24.35	%
Total CMP, Offset Printing Paper and Tissue Paper Revenue		45,558	$	24,078,969		19,862	$	8,743,851		25,696	$	15,335,118		129.37	%		175.38	%

	Offset Printing Paper ASP		Regular CMP ASP			Light-Weight CMP ASP			Tissue Paper Products ASP			Offset Printing Paper ASP			Regular CMP ASP			Light-Weight CMP ASP			Tissue Paper Products ASP
Three Months ended March 31, 2020	$	-	$	415		$	412		$	849
Three Months ended March 31, 2021	$	673	$	504		$	489		$	1,117
Three Months ended June 30, 2020												$	578		$	370		$	357		$	825
Three Months ended June 30, 2021												$	690		$	500		$	486		$	1,106
Increase from comparable period in the previous year	$	673	$	89		$	77		$	268		$	112		$	130		$	129		$	281
Increase by percentage		-		21.45	%		18.69	%		31.57	%		19.38	%		35.14	%		36.13	%		34.06	%

	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020				Change in					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	$	15,521,382	$	462	$	5,439,510	$	395	$	10,081,872		$	67		185.35	%		16.96	%
Light-Weight CMP	$	3,337,553	$	435	$	1,755,838	$	359	$	1,581,715		$	76		90.08	%		21.17	%
Total CMP	$	18,858,935	$	457	$	7,195,348	$	385	$	11,663,587		$	72		162.10	%		18.70	%
Offset Printing Paper	$	1,705,938	$	543	$	-	$	-	$	1,705,938		$	543		n/a			n/a
Tissue Paper Products	$	1,707,622	$	1,525		1,718,222	$	1,450	$	(10,600	)	$	75		-0.62	%		5.17	%
Total CMP, Offset Printing Paper and Tissue Paper	$	22,272,495		$ n/a	$	8,913,570		$ n/a	$	13,358,925			$ n/a		149.87	%		n/a

	Offset Printing Paper ASP			Regular CMP ASP			Light-Weight CMP ASP			Tissue Paper Products ASP
Six Months Ended June 30, 2020	$	578		$	380		$	372		$	832
Six Months Ended June 30, 2021	$	686		$	502		$	487		$	1109
Increase from comparable period in the previous year	$	108		$	122		$	115		$	277
Increase by percentage		18.69	%		32.11	%		30.91	%		33.29	%