ITP 10-K & 10-Q changes, risk factors and insider trading

For the year ended December 31, 2023,2024, the cash flows occurred between IT Tech Packaging, its subsidiaries and the VIE included (i) loans in the amount of $4,233,999$1,059,480 provided by Baoding Shengde to Tengsheng Paper; (ii) loans in the amount of $2,822,666 provided by Baoding Shengde to Dongfang Paper; (iii) the payment in the amount of 5,468,122 made by Dongfang Paper to Baoding Shengde for purchase of raw materials; and (ivii) funding throughrepayment Shengdeof Holdingsshareholder Inc.loans toin Qianrong,the with antotal amount of $500,000$727,433 ason capitalbehalf contributions.of IT Tech Packaging Inc. We do not have an established cash management policy that dictates how funds are transferred between us, our PRC Subsidiaries, consolidated VIE and its subsidiary. We do not, at this time, intend to distribute earnings or settle amounts owed under the VIE Agreements.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. According to the Bureau of the Fiscal Service, as of December 31, 2023,2024, $1 is converted into 7.08277.1884 Yuan (RMB). As we rely entirely on revenues earned in the PRC, any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for Dongfang Paper’s operations, appreciation of the Renminbi against the U.S. dollar would diminish the value of the proceeds of the offering and this could harm our business, financial condition and results of operations because it would reduce the proceeds available to us for capital investment in proportion to the appreciation of the Renminbi. Thus, if we raise 1,000,000 U.S. dollars and the Renminbi appreciates against the U.S. dollar by 15%, then the proceeds will be worth only RMB6,020,295RMB 6,110,140 as opposed to RMB 7,082,7007,188,400 prior to the appreciation. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced in proportion to the amount the U.S. dollar appreciates. In addition, the depreciation of significant RMB denominated assets could result in a charge to our income statement and a reduction in the dollar value of these assets. Thus, if Dongfang Paper has RMB1,000,000 in assets and Renminbi is depreciated against the U.S. dollar by 15%, then the assets will be valued at $122,773$120,968 as opposed to $141,189$139,113 prior to the depreciation.

As of MarchApril 27,11, 2024,2025, there were 10,065,920 shares of our common stock issued and outstanding. Mr. Zhenyong Liu, our Chief Executive Officer, beneficially owns approximately 5.3% of our common stock. As a result, he is able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions including business combinations. Yet Mr. Liu’s interests may differ from those of other stockholders. Furthermore, ownership of 5.3% of our common stock by Mr. Liu reduces the public float and liquidity, and may affect the market price, of our common stock as traded on the NYSE American.

Revenue for the year ended December 31, 20232024 was $86,546,950,$75,837,943, representing a decrease of $13,805,484,$10,709,007, or 13.76%,12.37%, from $100,352,434$86,546,950 for the previous year. This was mainly due to the decrease in averagesales sellingquantity priceof Corrugating Medium Paper (“CMP”), offset printing paper and tissue paper products and the decrease in Average Selling Price (“ASP”) of CMP.

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 year ended December 31, 20232024 was $86,412,058,$75,702,427, a decrease of $13,669,606,$10,709,631, or 13.66%,12.39%, from $100,081,664$86,412,058 for the year ended December 31, 2022.2023. This was mainly due to the decrease in ASPASPs of CMP,CMP partiallyand offsetthe bydecrease increase in sales volume of regular CMP, light-weight CMP and offset printing paper.paper and tissue paper products.

Total quantities of offset printing paper, CMP and tissue paper products sold during the year ended December 31, 20232024 amounted to 230,601220,552 tonnes, ana increasedecrease of 10,049 10,997 tonnes, or 5.01%,4.36%, compared to 219,604230,601 tonnes sold during the year ended December 31, 2022.2023. Total quantities of CMP and offset printing paper sold increaseddecreased by 11,0658,844 tonnes in the year of 20232024 as compared to 2022.2023. We sold 1,205 tonnesProduction of tissueCMP paperwas productssuspended in theJanuary yearand February of 20232024 asand opposed to 1,273 tonnesresumed in 2022.mid Productionof March 2024, and production of offset printing paper and tissue paper products was resumedsuspended in May 2023.2024. The changes in revenue and quantity sold for the year ended December 31, 20232024 and 20222023 are summarized as follows:

We sold 223,823220,552 tonnes of CMP in the year ended December 31, 20232024 as compared to 218,331223,823 tonnes in the year ended December 31, 2022,2023, representing a 2.52%1.46% increasedecrease in quantity sold.

ASP for light-weight CMP CMP dropped from $440/tonne in 2022 to $355/tonne in 2023,2023 to $333/tonne in 2024, representing a $19.32%$6.2% decrease. ASP in RMB for light-weight CMP in 20222023 and 2024 was RMB2,502 and 2023 was RMB2,972 and RMB2,502,RMB2,368, respectively, representing a 15.82%5.36% decrease. The quantity of light-weight CMP sold increaseddecreased by 3,599 3,373 tonnes, from 37,354 tonnes in 2022, to 40,953 tonnes in 2023.2023, to 37,580 tonnes in 2024.

Our PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes /year. The utilization rates for the year ended December 31, 2023 2024 and 20222023 were 51.98%49.75% and 49.28%, 51.98%, respectively, representing ana increasedecrease of 2.70%.2.23%.

Revenue generated from selling face masks were $106,064$nil and $257,820$106,064 for the year ended December 31, 20232024 and 2022. We sold 3,383 thousand pieces of face masks in 2023, as compared to 5,625 thousand pieces in 2022, a decrease of 2,242 thousand pieces, or 39.86%.2023.

Total cost of sales for CMP, offset printing paper and tissue paper products in the year ended December 31, 20232024 was $85,418,822,$69,145,658, a decrease of $9,965,512, $16,273,164, or 10.45%,19.05%, from $95,384,334$85,418,822 for the year ended December 31, 2022.2023. This was mainly due to the decrease ofin unit material costs of CMP.CMP and decrease in sales volume of offset printing paper and tissue paper products.

Cost of sales for offset printing paper was $3,134,832 $nil for the year ended December 31, 2024, as compared to $3,137,646 in 2023.

Changes in costCost of sales andfor costtissue paper perproducts tonnewas by product$nil for the year ended December 31, 20232024, andas 2022compared areto summarized$4,318,339 below:in 2023.

Our average unit purchase costs (net of applicable value added tax) of recycled paper board and recycled white scrap paper for the year ended December 31, 2023 were2024 was RMB 1,214/tonne (approximately $171/tonne), as compared to RMB 1,350/tonne (approximately $191/tonne) asin compared to RMB 1,690/tonne (approximately $250/tonne) for the year ended December2023. 31, 2022. These changes (in US dollars) represent a year-over-year decrease of 23.60%10.47% for the unit purchase cost of 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 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.

Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 5% and 13.6% of total sales in 2024, respectively, compared to 5% and 15.3% of total sales in 2023, respectively, compared to 4% and 12.4% of total sales 2022.2023. The monthly energy cost (electricity and gas) as a percentage of total monthly sales of our main paper products for the 24 months ended December 31, 2023are2024 are summarized as follows:

Gross profit for December 31, 20232024 was $999,885$6,691,740 (representing 1.16%8.82% of the total revenue), representing aan decreaseincrease of $3,754,311,$5,691,855, or 78.97%,569.25%, from the gross profit profit of $4,754,196$999,885 (representing 4.74%1.16% of the total revenue) for the year ended December 31, 2022.2023. The decreaseincrease was mainly due to the decrease decrease in ASPunit cost of materials of CMP, partially offset by the decrease ofin material costsASP of CMP, and (ii) the increase in material costs of tissue paper products.CMP.

Gross profit for offset printing printing paper, CMP and tissue paper products for the year ended December 31, 20232024 was $993,236,$6,556,769, aan decreaseincrease of $3,704,094,$5,563,533, or 78.86%,560.14%, from from the gross profit of $4,697,330$993,236 for the year ended December 31, 2022.2023. The decreaseincrease was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products decreasedincreased by 3.547.51 percentage points, from 4.69%1.15% for the year ended December 31, 2022,2023, to 1.158.66% for the year ended December 31, 2023.2024.

Gross profit margin for regular regular CMP for the year ended December 31, 20232024 was 5.27%,8.79%, or 2.123.52 percentage points lower,higher, as compared to gross profit margin of 7.39%5.27% for for the year ended December 31, 2022.2023. Such decreaseincrease was primarily due to the decrease in ASPmaterial of regular CMP,costs, partially offset by the decrease in materialASP costs.of regular CMP.

Gross profit margin for light-weight CMP for the year ended December 31, 20232024 was 2.59%,8.03%, or 6.835.44 percentage points lower,higher, as compared to gross profit margin of of 9.42%2.59% for the year ended December 31, 2022.2023. Such decreaseincrease was primarily due to the decrease in material costs, partially offset by the decrease in ASP of light-weight CMP, partially offset by the decrease in material costs.CMP.

Selling, general and administrative expenses for the year ended December 31, 20232024 were $9,075,475,$14,799,969, aan decreaseincrease of $983,248,$5,724,494, or 9.78%63.08% from $10,058,723$9,075,475 for the year ended December December 31, 2022.2023. The decreaseincrease was mainly due to the decreaseincrease in i) depreciation of idle fixed assets during the production suspension.suspension of $3.9 million; ii) accrued liability related to a legal proceeding in which the Company was jointly liable for repaying a loan of $0.4 million and iii) impairment reserve for obsolete inventory of $0.7 million and allowance for doubtful receivables of $0.9 million.

Operating loss for the year ended December 31, 20232024 was $9,575,888,$8,210,719, a decrease of $4,271,361,loss of $1,365,169, or 80.52%,14.26%, from $5,304,527$9,575,888 for the year ended December 31, 2023. 2022. The decrease was primarily due to the decreaseincrease in gross profit and recognition of impairment and disposal loss on assets,profit, partially offset by the decreaseincrease in selling, general and administrative expenses.

Interest expense for the year ended December 31, 20232024 decreased by $43,433,$222,141, from $1,027,951$984,518 for the year ended December 31, 2022,2023, to $984,518.$762,377. The Company had short-term short-term and long-term interest-bearing loans and lease obligation that aggregated $12,386,346$9,124,422 as of December 31, 2023,2024, as compared to $15,442,807$11,801,996 as of December 31, 2022. 2023.

Full allowance for deferred deferred tax asset loss was provided in the year of 20232024 and 2022.2023. Income tax for the year ended December 31, 20232024 iswas $346,954$879,194 as compared to to the income tax $11,711,339$346,954 for the year ended December 31, 2022.2023.

Net accounts receivable wasdecreased by $287,950, or 50.03%, to $287,576 as of December 31, 2024, as compared with $575,526 as of December 31, 2023, as compared with $nil as of December 31, 2022.2023. We usually collect accounts receivable within 30 days of delivery and completion of sales.

Inventories consist of raw materials (accounting for 10.48%59.29% of total value of inventory as of December 31, 20232024), semi-finished goods and finished goods. As of December 31, 2023,2024, the recorded value of inventory increaseddecreased by 23.87%33.85% to $3,558,193$2,351,876 from $2,872,622$3,555,235 as of December 31, 2022. The increase is mainly due to the increase of finished goods, partially offset by the decrease of recycle paper board. More CMP products were produced in December 2023 to mitigate the impact of energy price rise starting from January 2024.2023. As of December 31, 2023, 2024, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $198,744,$1,353,543, approximately $1,059,417, $1,154,799, or 84.20%,581.05%, lowerhigher than the balance as of December 31, 2022.2023. In anticipation of the rising energy prices, we enhanced the production capacity for CMP during the fourth quarter of 2023. As a resultresult, by December 31, 2023, our raw material balance had decreased, whereas the inventory balance of betterour controlfinished overgoods stockhad turnoverincreased significantly, compared to the balances recorded on December 31, 2024. This was due to a substantial portion of the materials being processed and volatilityconverted ofinto recycledfinished papergoods boardduring price,that inventory was kept in a minimum level.period.

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 millionmillion, 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 $141,727$140,515 (RMB1,000,000). The lease agreement was renewed in August 2022 with a term of six years with the same rental payments as provided for in the original lease agreement.

Our cash, cash equivalents and restricted cash as of December 31, 2023 was $4,391,921, a decrease of $5,132,947, from $9,524,868 as of December 31, 2022.2024 was $6,950,576, an increase of $2,558,655, from $4,391,921 as of December 31, 2023. The decrease increase of cash and cash equivalents for the year ended December 31, 20232024 was attributable to a number of factors including:

Net cash provided by operating activities was $12,871,086$6,299,469 for the year ended December 31, 2023.2024. The balance represented ana increasedecrease of cash of $2,151,698,$6,571,617, or 20.07%,51.06%, from from $10,719,388$12,871,086 provided for the year ended December 31, 2022.2023. Net loss for the year ended December 31, 20232024 was $9,946,035,$9,843,094, representing a decrease of loss $6,625,273,of $102,941, or 39.98%,1.03%, from a net loss of $16,571,308$9,946,035 for the year ended December 31, 2022.2023. Changes in various asset and liability account balances throughout the year ended December 31, 20232024 also contributed to the net change in cash from operating activities in year ended December 31, 2023.2024. Chief among such changes is the decrease of accounts receivable in the amount of $280,970$240,346 during the year of 2023.2024. There was also ana increasedecrease of $736,267$432,189 in the ending inventory balance as of December 31, 20232024 (aan decreaseincrease to net cash for the year ended December 31, 20232024 cash flow purposes). In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of $14,225,990.$14,221,082. The Company also had a net decreaseincrease of $9,322,532$6,090 in prepayment and other current assets (ana increasedecrease to net net cash) and a net decrease of $999,812$447,899 in other payables and accrued liabilities and related parties (a decrease to net cash), as well as asan a decreaseincrease in income tax payable of $412,504$81,720 (aan decreaseincrease to net cash) during the year ended December 31, 2023.2024.

iii. Net cash (used in) provided by financing activities

On NovemberDecember 10,24, 2022,2024, the Company entered into a working capital loan agreement with the ICBC.Rural Credit Union of Xushui District to borrow $1,808,469 (RMB13,000,000) to repay the existing long-term loan of the same amount. The loan was secured by the land use rightequipment of DongfangBaoding PaperShengde as collateral for the benefit of the bank and guaranteed by Mr. Liu.bank. The loan borebears a fixed interest rate of 4.785% per annum. The Company repaid $71,743 in May 20236% and paidis offdue thefor remainingrepayment balance of the loan in August 2023. The balance of the loan was $nil and $5,023,978 as ofby December 31, 202323, and 2022, respectively.2025.

On NovemberSeptember 30,15, 2022,2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $287,167$2,824 as of December 31, 20232024 and 2022,2023, respectively. The loan bore ana fixed interest rate of 4.25%3.45% per annum. The loan was fully repaid in MayJune 2023.2024.

On NovemberSeptember 30,22, 2022,2023, the Company entered into a working capital loan agreement with the ICBC, with a balance of $nil and $143,583$70,594 as of December 31, 20232024 and 2022,2023, respectively. The loan bore ana fixed interest rate of 4.25%3.45% per annum. The loan was fully repaid in MayJune 2023.2024.

On JulySeptember 29,22, 2022,2023, the Company Company entered into a working capital loan agreement with the China Construction Bank,ICBC, with a balance of $nil and $143,583$350,149 as of December 31, 2023 2024 and 2022, 2023, respectively. The loan bore a fixed interest rate of 3.95%3.45% per annum. The loan was fully repaid in JulyJune 2023.2024.

On SeptemberJune 15,11, 2023,2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,824$2,782 as of December 31, 2023.2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will beis due for repayment by SeptemberJune 14,11, 2024.2025.

On SeptemberJune 22,21, 2023,2024, the Company Company entered into a working capital loan agreement with the ICBC, with a balance of $ 350,149$139,113 as of December 31, 2023.2024. The loan bears a fixed interest rate of 3.45% per annum. The loan will beis due for repayment by SeptemberJune 21, 2024.2025.

On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and was due and payable in various installments from December 21, 2018 to June 20, 2023. On August 24, 2023, the loan was extended for another 3 years and will be due and payable on August 24, 2026. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $nil and $280,466 as of December 31, 20232024 and 2022, respectively.2023. Interest payment is due monthly and bore a rate of 7.68% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. As of December 31, 20232024 and 2022,2023, the total outstanding loan balance was $3,528,315$3,476,434 and $3,589,582.$3,528,315. Out of the total outstanding loan balance, current portion amounted was $2,641,756 and $1,269,290, which is presented as current liabilities in the consolidated balance sheet and the remaining balance of $834,678 and $2,259,025 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2023.2024 and 2023, respectively.

The following discussion of the financial condition and results of operations of the Company for the periods ended JuneSeptember 30, 2025 and 2024 should be read in conjunction with the financial statements and the notes to the financial statements that are included elsewhere in this quarterly report.

Comparison of the Three Monthsmonths Endedended JuneSeptember 30, 2025 and 2024

Revenue for the three months ended JuneSeptember 30, 2025 2025 was $24,794,641,$25,601,344, aan decreaseincrease of $1,455,147,$519,844, or 5.54%,2.07%, from $26,249,788$25,081,500 for the same period in the previous year. This was mainly due to decreases in the increase of sales volume of corrugating medium paper (“CMP”) and the increase in the average selling prices (“ASP”) of of CMP.

Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products Revenue from sales of offset printing paper, CMP and tissue paper products for the three months ended JuneSeptember 30, 2025 was $24,794,641,$25,601,344, representing an increase a decrease of $1,418,174,$556,969, or 5.41%,2.22%, from $26,212,815$25,044,375 for the secondthird quarter of 2024. The total volume ofTotal offset printing paper, CMP and tissue paper products sold during thisthe periodthree months ended September 30, 2025 amounted to 74,18875,686 tonnes, representing aan decreaseincrease of 1,177802 tonnes, or 1.56%,1.07%, compared to to the 75,36574,884 tonnes sold during the comparable period in the previous year. Production of offset printing paper and tissue paper products was suspended from 2024 through the first half ofSeptember 2025 and is expected to resume inat the second halfend of 2025. The changes in revenue dollar amount and in quantity sold for the three months ended JuneSeptember 30, 2025 and 2024 are summarized as follows:

Monthly sales revenue for the 24 months ended JuneSeptember 30, 2025, is summarized summarized below:

The average selling prices (ASPs) for our main products in the three months ended JuneSeptember 30, 2025 and 2024 are summarized as follows:

The following chart shows the month-by-month ASPs for the 24-month period ended JuneSeptember 30, 2025:

Revenue from CMP amounted to $24,794,641$25,601,344 (100.00% of the total offset printing paper, CMP and tissue paper productproducts revenues) for the three months ended JuneSeptember 30, 30, 2025, representing aan decreaseincrease of $1,418,174,$556,969, or 5.41%,2.22%, from $26,212,815$25,044,375 for the comparable period in 2024.

We sold 74,18875,686 tonnes of CMP in the three months ended JuneSeptember 30, 2025,2025 as compared to 75,36574,884 tonnes for the same period in 2024, representing a 1.56%1.07% decrease increase in quantity sold.

The ASP for light-weightregular CMP decreasedincreased from $337/tonne for the three months ended JuneSeptember 30, 20242024, to $328$340/tonne for the three months ended JuneSeptember 30, 2025, representing a 2.67%0.89% decrease. increase. ASP in RMB for light-weightregular CMP for the secondthird quarter of 2024 and 2025 was RMB2,395RMB2,386 and RMB2,354,RMB2,422, respectively, representing a 1.73%1.51% decrease.increase. The quantity of light-weightregular CMP sold increased by 82690 tonnes, from 12,55262,121 tonnes in the secondthird quarter of 2024,2024 to 12,63462,811 tonnes in the third second quarter of 2025.

Our PM6 production line, which produces regular CMP, has a designated capacity of 360,000 tonnes per /year. The utilization rates for the secondthird quarter of 2025 and 2024 were 68.82%69.41% and 68.96%, 68.02%, respectively, representing an increase of 0.80%.0.45%.

Total cost of sales for CMP, offset printing paper and tissue paper products for the quarter ended JuneSeptember 30, 2025 was $23,520,896,$23,579,498, an increase of $536,408,$415,663, or 2.33%,1.79%, from $22,984,488$23,163,835 for for the comparable period in 2024. This was mainly due to the increase in unit material cost of CMP, partially offset by the decrease in the sales quantity of regular CMP.

The costCost of sales for CMP was $23,520,896$23,579,498 for the the quarter ended JuneSeptember 30, 2025, as compared to $22,984,488$23,163,835 for the comparable period in 2024. The increase in the cost of $536,408sales of $415,663 for CMP was mainlydue due to the increase in thesales volume of CMP and slight increase in average unit cost of sales of CMP, partially offset by the decrease in sales volume of regular CMP. TheAverage average cost of sales per tonne for CMP increased by 3.93%,0.97%, from $305$309 in the secondthird quarter of 2024 to $317$312 in the secondthird quarter of 2025. ThisThe increase in average increasecost of sales was mainly attributable to the higher average unit purchasegas costs (netin of applicable value-added tax) of recycled paper board in the secondthird quarter of 2025 compared to the secondthird quarter of 2024. Changes in cost of sales and cost per tonne by product for the quarters ended JuneSeptember 30, 2025 and 2024 is summarized below:

Our average unit purchase costcosts (net of applicable applicablevalue value-addedadded tax) of recycled paper board and recycled white scrap paper in the three months ended JuneSeptember 30, 2025 waswere RMB 1,2501,211/tonne (approximately $174 $169/tonne), as compared to RMB 1,1671,214/tonne (approximately $164$171/tonne) for the three months ended JuneSeptember 30, 2024. These changes (in US dollars) represent a year-over-year increasedecrease of 6.10%1.17% for the recycled paper board. We use domestic recycled paper (sourced mainly from the Beijing-Tianjin metropolitan area) exclusively. Although we do not rely on imported recycled paper, whosethe 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 thatthe pricing of imported recycled paper.

The pricing trends of our major raw materials for the 24-month period from JulyOctober 2023 to JuneSeptember 2025 are shown below:

Electricity and gas are our two main energy sources. Electricity and gas accounted for approximately 5% and 15.1%14.8% of total sales in the secondthird quarter of 2025, respectively, compared to 5% and 12.9%14.3% of total sales in the secondthird quarter of 2024. The monthly energy cost as a percentage of total monthly monthly sales of our main paper products for the 24 months ended JuneSeptember 30, 2025 is summarized as follows:

Gross profit for the three months ended JuneSeptember 30, 30, 2025 was $1,273,745$2,021,846 (representing 5.14%7.90% of the total revenue), representing aan decreaseincrease of $1,991,555,$104,465, or 60.99%,5.45%, from the gross profit of of $3,265,300$1,917,381 (representing 12.44%7.64% of the total revenue) for the three months ended JuneSeptember 30, 2024, as a result of the factors described above.

Gross profit for offset printing paper, CMP and tissue paper products for the three months ended JuneSeptember 30, 2025 was $1,273,745,$2,021,846, representing aan decreaseincrease of $1,954,582,$141,306, or 60.54%,7.51%, from the gross profit of $3,228,327$1,880,540 for the three months ended JuneSeptember 30, 2024. The decreaseincrease was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products decreasedincreased by 7.180.39 percentage points, from 12.32%7.51% for the three months ended JuneSeptember 30, 2024, to 7.90% 5.14% for the three months ended JuneSeptember 30, 2025.

The gross profit margin for regular CMP for the three months ended JuneSeptember 30, 2025 was 5.11%,7.91%, or 7.110.37 percentage points lower,higher, as compared to gross profit margin of 12.22%7.54% for the three months ended JuneSeptember 30, 2024. ThisSuch decreaseincrease was mainly due to decreasedthe increase in ASP of regular CMP and increased unit cost of sales in the secondthird quarter of 2025.

The gross profit margin for light-weight CMP for the three months ended JuneSeptember 30, 2025 was 5.29%,7.84%, or 7.530.51 percentage points lower,higher, as compared to the gross profit margin of 12.82%7.33% for the the three months ended JuneSeptember 30, 2024. SuchThe decreaseincrease was mainly due to the decreaseincrease in ASP of light-weight CMP and the increase in unit cost of sales in the secondthird quarter of 2025.

Monthly gross profit margins on the sales of our CMP and offset printing paper for the 24-month period ended JuneSeptember 30, 2025 are as follows:

Selling, general and administrative expenses for the three months ended JuneSeptember 30, 2025 were $3,036,775,$3,018,187, ana increasedecrease of $319,227,$363,315, or 11.75%10.74% from $2,717,548$3,381,502 for the three months ended September June 30, 2024. The increasedecrease was mainly due to increasedthe depreciationaccrued liability of idle$0.47 fixedmillion assets.for legal proceedings the Company was jointly liable for repayment of a loan in the third quarter of 2024.

(Loss) Income from Operations

Operating loss for the quarter ended JuneSeptember 30, 30, 2025 was $1,763,030,$992,632, a decrease of $2,310,782,loss of $471,489, or 421.87%,32.20%, from income from operations of $547,752$1,464,121 for the quarter ended JuneSeptember 30, 2024. The decrease was primarily due to the declineincrease in gross profit and the increasedecrease in selling, general and administrative expenses.

Interest expense for the three months ended JuneSeptember 30, 2025 decreased by $67,580,$20,728, from $211,551$171,430 for the three months ended JuneSeptember 30, 2024, to $143,971.$150,702. The Company had short-term and long-term long-term interest-bearing loans, related party loans and leasing obligations that aggregated $9,749,113$9,821,969 as of JuneSeptember 30, 2025, as compared to $12,149,914$9,788,224 as of JuneSeptember 30, 2024.

The Company analyzed the warrant for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability. ASC 815 requires that we assess the fair market value of the derivative liability at the end of each reporting period and recognize any change in fair market value as other income or expense item. The change in fair value of derivative liability for the three months ended JuneSeptember 30, 2025 and 2024 was a gain of $795$303 and $15,$2, respectively.

As a result of the abovefactors factors,discussed above, net loss was $1,951,826 $1,448,247 for the quarter ended JuneSeptember 30, 2025, representing a decrease of $1,874,079,loss of $525,699, or 2410.48%,26.63%, from $77,747 $1,973,946 for the quarter ended June September 30, 2024.

Comparison of the SixNine Monthsmonths Endedended JuneSeptember 30, 30, 2025 and 2024

Revenue for the sixnine months ended JuneSeptember 30, 2025 2025 was $35,691,907,$61,293,251, representing an increase of $2,578,278,$3,098,122, or 7.79%,5.32%, from $33,113,629$58,195,129 for the same period in the previous year. This was was mainly due to the increase in sales volume of CMP, partially offset by decreasedthe decrease in ASPs of CMP products.

Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products Revenue from sales of offset printing paper, CMP and tissue paper products for the sixnine months ended JuneSeptember 30, 2025 was $35,691,907,$61,293,251, an increase of $2,652,292,$3,209,261, or 8.03%,5.53%, from $33,039,615$58,083,990 for the sixnine months ended JuneSeptember 30, 2024. This was mainly due to the increase in sales volume of CMP, partially offset by the decrease in in ASPs of CMP. The totalTotal quantities of offset printing paper, CMP and tissue paper products sold during the sixnine months ended JuneSeptember 30, 2025 2025 amounted to 105,795181,482 tonnes, an increase of 11,76112,563 tonnes, or 12.51%,7.44%, compared to 94,034168,919 tonnes sold during the sixnine months ended June September 30, 2024. Production of offset printing paper and tissue paper products was suspended from 2024 through the first half ofSeptember 2025 and is expected expected to resume inat the second halfend of 2025. The changes in revenue and quantity sold for the sixnine months ended JuneSeptember 30, 2025 and 2024 is are summarized as follows:

ASPs for our main products in the six-monthnine-month period ended JuneSeptember 30, 2025 and 2024 is summarized as follows:

Total cost of sales for CMP, offset printing paper and tissue paper products in the sixnine months ended JuneSeptember 30, 2025 was $34,334,076,$57,913,574, an increase of $4,885,123,$5,300,786, or 16.59%,10.08%, from $29,448,953$52,612,788 for the sixnine months ended JuneSeptember 30, 2024. This was mainly due to the increase in sales volume and the increase in unit material costs for of CMP.

The cost of sales for CMP was $34,334,076$57,913,574 for the sixnine months ended JuneSeptember 30, 2025, as compared to $29,448,953$52,612,788 in the same period of 2024. The increase in the cost of $4,885,123sales of $5,300,786 for CMP was mainly due to the increase in the quantities of CMP sold and the increase in the average cost of sales in the first six nine months of 2025. The average cost of sales per tonne for CMP increased by 3.83%,2.57%, from $313$311 for the sixnine months ended JuneSeptember 30, 2024, to $325$319 in the same period of 2025. Changes in cost of sales and cost per tonne by product for the sixnine months ended JuneSeptember 30, 2025 and 2024 are summarized below:

Gross profit for the sixnine months ended JuneSeptember 30, 30, 2025 was $1,357,831$3,379,677 (representing 3.80%5.51% of the total revenue), representing a decrease of $2,306,582,$2,202,117, or 62.95%,39.45%, from $3,664,413the gross profit of $5,581,794 (representing 11.07% 9.59% of the total revenue) for the sixnine months ended JuneSeptember 30, 2024. The decrease was mainly due to the decline in ASPs of CMP and increased the increase in unit cost of materials, partially offset by the increase in sales volume of CMP.

Gross profit for offset printing paper, CMP and tissue paper products for the sixnine months ended JuneSeptember 30, 2025 was $1,357,831,$3,379,677, a decrease of $2,232,831,$2,091,525, or 62.18%,38.23%, from the gross profit profit of $3,590,662$5,471,202 for the sixnine months ended JuneSeptember 30, 2024. The decrease was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products decreased by 7.073.91 percentage points, from 10.87%9.42% for the sixnine months ended JuneSeptember 30, 2024, to 5.51% 3.80% for the sixnine months ended JuneSeptember 30, 2025.

The gross profit margin for regular CMP for the sixnine months ended JuneSeptember 30, 2025 was 3.97%,5.61%, or 6.893.83 percentage points lower, as compared to the gross profit margin of 10.86%9.44% for the sixnine months ended JuneSeptember 30, 2024. This decrease was primarily due to the decrease in ASP and the increase in material costs of regular CMP.

The gross profit margin for light-weight CMP for the sixnine months ended JuneSeptember 30, 2025 was 2.93%,5.02%, or 7.974.31 percentage points lower, as compared to the gross profit margin of 10.90%9.33% for the nine six months ended JuneSeptember 30, 2024. This decrease was primarily due to the decrease in ASP and the increase in material costs of light-weight CMP.

Selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2025 were $6,498,096,$9,516,283, a decrease of $120,235,$483,550, or 1.82%4.84% from $6,618,331$9,999,833 for the sixnine months ended JuneSeptember 30, 30, 2024. The decrease was mainly due to lower manpower costs in the nine months ended September 30 2025 and reducedaccrued depreciationliability of idle$0.47 million fixedfor assetslegal duringproceeding the productionCompany suspension.was jointly liable for repayment of a loan in the third quarter of 2024.

Operating loss for the sixnine months ended JuneSeptember 30, 30, 2025 was $5,140,265,$6,132,897, aan decreaseincrease of $2,186,347,loss of $1,714,858, or 74.02%,38.81%, from $2,953,918$4,418,039 for the sixnine months ended JuneSeptember 30, 2024. The decrease increase was primarily due to the decrease in gross profit, partially offset by the decrease in selling, general and administrative expenses.

Interest expense for the sixnine months ended JuneSeptember 30, 2025 decreased by $145,023,$165,751, from $421,841$593,271 for the sixnine months ended JuneSeptember 30, 2024, to $276,818.$427,520. The Company had short-term and long-term long-term interest-bearing loans and lease obligations that aggregated $9,749,113$9,821,969 as of JuneSeptember 30, 2025, as compared to $12,149,914 $9,788,224 as of JuneSeptember 30, 2024.

The Company analyzed the warrant for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,” and determined that the instrument should be classified as a liability. ASC 815 requires that we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The change in fair value of derivative liability for the sixnine months ended JuneSeptember 30, 2025 and 2024 was a gain of $5,348$5,651 and $49,$51, respectively.

As a result of the above, net loss was $5,455,611$6,903,858 for the sixnine months ended JuneSeptember 30, 2025, representing aan decreaseincrease of $1,631,328,loss of $1,105,629, or 42.66%,19.07%, from $3,824,283$5,798,229 for the six nine months ended June September 30, 2024.

As of JuneSeptember 30, 2025, we had current assets of of $32,644,518$35,764,365 (including a VAT （“Value-AddedValue Added Tax” “） recoverable of Tengsheng Paper in the amount of $13,209,135$13,307,848), and current liabilities of $21,341,552,$18,667,302, resulting in a working capital of $11,302,966.$17,097,063. However, the production of BaodingTengsheng ShendePaper washas been suspended in 2024 and the firstnine halfmonths ofended September 30, 2025, rendering the related VAT unrecoverable in the short term. Net working capital excluding VAT recoverable as of JuneSeptember 30, 2025 was a working capital deficit of $1,906,169.$3,789,215. Baoding Shengde and Tengsheng Paper have incurred loss losses,that raisingthere is doubt about these subsidiaries’ ability to continue as going concerns. The main reasonsreason for theseof losses werewas due to high depreciation costs, decreased market demand, and elevated material costs. OurTherefore, futurethere sustainabilitywas dependsa onsubstantial ourdoubt about the ability to generate cash from our operationalof endeavors and secure additional capitalus to fundcontinue ongoingas activities.a Shouldgoing weconcern fail to secure necessary funding,that we may be unable to realize our its assets and discharge ourits liabilities in the normal course of business.business as of September 30, 2025.

Net accounts receivable increased by $1,553,431,$1,791,614, or 540.18%,623.01%, to $1,841,007$2,079,190 as of JuneSeptember 30, 2025, as compared with $287,576 as of December 31, 2024. We usually collect accounts receivable within 30 days of delivery and completion of sales.

Inventories consist of raw materials (accounting for 74.7%70.5% of the total value of inventory value as of JuneSeptember 30, 2025), semi-finished goods and finished goods. As of JuneSeptember 30, 2025, the recorded recorded value of inventory increased by 116.6%65.8% to $5,094,810$3,899,571 from $2,351,876 as of December 31, 2024. As of JuneSeptember 30, 2025, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $3,688,955,$2,630,267, approximately $2,335,412,$1,276,724, or 172.54%, 94.3%, higher than the balance as of December 31, 2024. In May and June 2025, weWe increased our procurement volume of recycled paper board in 2025 in anticipation of of rising purchase prices and to preparepreparing for expanded production output as planned for the upcoming quarter.planned.

As of JuneSeptember 30, 2025, we had approximately $3.5 $3.5 million in capital expenditure commitments mainly related to the purchase of the PM 10 paper machine. The infrastructure work for PM10 PM10 is complete, while work on related ancillary facilities is ongoing. These commitments are expected to be financed by bank loans and cash cash flows generated from our business operations.

Our cash, cash equivalents and restricted cash as of JuneSeptember 30, 2025 totaledwas $7,509,355,$9,119,707, an increase of $558,779$2,169,131, from $6,950,576 as of December 31, 2024. The increase inof cash and cash cash equivalents for the sixnine months ended JuneSeptember 30, 2025 was attributable to severala number of factors including:

Net cash usedprovided inby operating activities was $388,450 $1,111,313 for the sixnine months ended JuneSeptember 30, 2025. The balance represented a decrease inof cash of $2,457,650,$2,442,661, or 182.54%,86.28%, comparedfrom to net cash $2,831,111 provided by operating activities of $1,346,337 for the sixnine months ended JuneSeptember 30, 2024. Net loss for the sixnine months ended JuneSeptember 30, 2025 was $5,455,611,$6,903,85, representing representingan a decreaseincrease of $1,631,328,loss of $1,105,629, or 42.66%,19.07%, from $3,824,283$5,798,229 for the sixnine months ended JuneSeptember 30, 2024. Changes in various asset and liability account balances duringthroughout the sixnine months ended JuneSeptember 30, 2025 also contributed to the net change in cash from operating activities activities in sixnine months ended JuneSeptember 30, 2025. Chief among such changes wereis anthe increase inof accounts receivable in the amount of $1,579,675 $1,811,293 during the sixnine months of 2025, an increase of $2,694,397$1,477,521 in the ending inventory balance as of JuneSeptember 30, 2025 (a decrease to net cash for the sixnine months ended June September 30, 2025 cash flow purposes) , non-cash expenses forrelating to depreciation and amortization ofin the $7,090,582, a decreaseamount of $860,449$10,664,999, an increase of $1,319,298 in prepayment and other current assets (ana increasedecrease to net cash) and a net increase of $816,287$1,077,867 in other payables and accrued liabilities and related parties (an increase to net cash), andas awell decreaseas an increase in income tax payable of $81,025$225,114 (aan decreaseincrease to net cash) during the sixnine months ended June September 30, 2025.

We incurred $29,896$25,786 in net cash expenditures for purchases of property, plant and equipment during the sixnine months ended JuneSeptember 30, 2025, as compared to $62,640$315,152 for the same period in 2024.

Net cash provided by financing activities was $1,648,262$1,649,855 for the sixnine months ended JuneSeptember 30, 2025, compared to $422,096net cash used in financing activities of $2,112,706 for the same period in 2024. The cash inflow was mainly attributable to proceeds from the issuance of common stock in May 2025 and from short term bank loans.

On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $1,815,998$nil and $1,808,469 as of JuneSeptember 30, 2025 and December 31, 2024, respectively. The loan iswas secured by the equipment of Baoding Shengde as collateral for the benefit of the bank. The loan bearsbore a fixed rate of 6%6%. andThe willloan bewas duerepaid byon DecemberSeptember 23,30, 2025.

On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District, with a balance of $2,235,074$nil and $2,225,808 as of JuneSeptember 30, 2025 and December 31, 2024, respectively. The loan iswas secured by the equipment of Baoding Shengde as collateral for the benefit of the bank and guaranteed by a third partythird-party company. The loan bearsbore a fixed rate of 6%6%. andThe willloan bewas duerepaid byon DecemberSeptember 23,30, 2025.

On DecemberSeptember 28,30, 2024,2025, the Company entered into a working capital loan agreement with the BankRural Credit Union of Cangzhou,Xushui toDistrict, borrow $307,323 atwith a fixed interest ratebalance of 5.5%$1,829,569 peras annum.of September 30, 2025. The loan is guaranteed by Mr. Liu Zhenyong.Zhenyong and secured by the equipment of Baoding Shengde as collateral for the benefit of the bank. The loan bears a fixed rate of 6% and will be due by DecemberSeptember 27,29, 2025.2026.

On DecemberSeptember 28,30, 2024,2025, the Company entered into a working capital loan agreement with the BankRural Credit Union of Cangzhou,Xushui toDistrict, borrow $69,846 atwith a fixed interest ratebalance of 5.5%$2,251,777 peras annum.of September 30, 2025. The loan is secured by the Company’sequipment of manufacturingBaoding equipmentShengde as collateral for the benefit of the bank and guaranteed by Mr.a Liuthird Zhenyong.party company. The loan bears a fixed rate of 6% and will be due by DecemberSeptember 27,29, 2025.2026.

On MarchDecember 10,28, 2025,2024, the Company entered into a a working capital loan agreement with the Bank of Cangzhou, to borrow $209,538$309,619 at a fixed interest rate of 5.5% per annum. The loan is secured by the Company’s manufacturing equipment and guaranteed by Mr. Liu Zhenyong. The loan will be due by MarchDecember 9,27, 2026.2025.