IT Tech Packaging(ITP) - 2025 Q1 - Quarterly Report

PART I. - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, cash flow, and equity statements, along with detailed notes on accounting policies and commitments Condensed Consolidated Balance Sheets Total assets and stockholders' equity slightly decreased, while total liabilities increased, driven by changes in cash, accounts receivable, inventories, and short-term bank loans Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Assets | $175,204,130 | $177,546,786 | $(2,342,656) | -1.32% | | Total Liabilities | $22,427,150 | $21,496,469 | $930,681 | 4.33% | | Total Stockholders' Equity | $152,776,980 | $156,050,317 | $(3,273,337) | -2.10% | | Cash and bank balances | $4,034,428 | $5,916,373 | $(1,881,945) | -31.81% | | Accounts receivable | $2,127,629 | $287,576 | $1,840,053 | 639.85% | | Inventories | $4,642,056 | $2,351,876 | $2,290,180 | 97.38% | | Short-term bank loans | $5,043,047 | $4,451,616 | $591,431 | 13.28% | Condensed Consolidated Statements of Income and Comprehensive Income Revenues increased, but a significant decrease in gross profit led to a higher net loss, despite reduced selling, general, and administrative expenses and interest expense Condensed Consolidated Statements of Income and Comprehensive Income Highlights | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenues | $10,897,266 | $6,863,841 | $4,033,425 | 58.76% | | Cost of sales | $(10,813,180) | $(6,464,728) | $(4,348,452) | 67.27% | | Gross Profit | $84,086 | $399,113 | $(315,027) | -78.93% | | Selling, general and administrative expenses | $(3,461,321) | $(3,900,783) | $439,462 | -11.27% | | Loss from Operations | $(3,377,235) | $(3,501,670) | $124,435 | -3.55% | | Interest expense | $(132,847) | $(210,290) | $77,443 | -36.83% | | Net Loss | $(3,503,785) | $(3,746,536) | $242,751 | -6.48% | | Basic and Diluted Losses per Share | $(0.35) | $(0.37) | $0.02 | -5.41% | Condensed Consolidated Statements of Cash Flows A net decrease in cash and cash equivalents resulted from significant net cash used in operating activities, reversing the prior year's inflow Condensed Consolidated Statements of Cash Flows Highlights | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net Cash (Used in) Provided by Operating Activities | $(2,474,978) | $624,420 | $(3,099,398) | -496.36% | | Net Cash Used in Investing Activities | $(8,364) | $(9,027) | $663 | -7.34% | | Net Cash Provided by Financing Activities | $585,456 | $422,488 | $162,968 | 38.57% | | Net (Decrease) Increase in Cash and Cash Equivalents | $(1,880,216) | $1,025,639 | $(2,905,855) | -283.32% | | Cash, Cash Equivalents and Restricted Cash - End of Period | $5,070,360 | $5,417,560 | $(347,200) | -6.41% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased due to the net loss, partially mitigated by a positive foreign currency translation adjustment Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Stockholders' Equity | $152,776,980 | $156,050,317 | $(3,273,337) | -2.10% | | Net loss | $(3,503,785) | N/A | N/A | N/A | | Foreign currency translation adjustment | $230,448 | N/A | N/A | N/A | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies, financial instrument valuations, and specific financial statement line items (1) Organization and Business Background IT Tech Packaging, Inc. operates primarily through its wholly-owned subsidiary and VIEs in the PRC, which account for nearly all of its revenue and assets - IT Tech Packaging, Inc. (ITP) was incorporated in Nevada on December 9, 2005, and became the holding company for Dongfang Paper on October 29, 2007[16] - The company's name changed to IT Tech Packaging, Inc. on August 1, 2018, and its common stock trades under the NYSE symbol 'ITP'[17] - Dongfang Paper and Tengsheng Paper, as VIEs, accounted for 100% of total revenue and approximately 96% of total assets as of March 31, 2025, and December 31, 2024[29] (2) Basis of Presentation and Significant Accounting Policies This section outlines the basis for preparing financial statements, addresses liquidity and going concern status, and details valuation methods for assets and liabilities - As of March 31, 2025, the Company had a working capital deficit of $4,607,992, excluding a VAT recoverable of $13,173,067, which is deemed unrecoverable in the short term[41] - The company faces substantial doubt about its ability to continue as a going concern due to losses from high depreciation, decreased market demand, and elevated material costs[41] - Management determined derivative liabilities to be a Level 3 fair value measurement, calculated using the Black-Scholes pricing model with unobservable inputs[52] (3) Restricted Cash Restricted cash balances were held at the Industrial and Commercial Bank of China for Tengsheng Paper, primarily due to legal proceedings Restricted Cash Balances | Metric | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Restricted cash | $1,035,932 | $1,034,203 | - The restricted cash is due to legal proceedings against Tengsheng Paper and Jie Ping, its executive director and legal representative[58] (4) Inventories Total net inventory significantly increased, driven by a substantial rise in raw materials in anticipation of increased production Inventory Breakdown | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------- | :------------- | :---------------- | :--------- | :--------- | | Total inventory, net | $4,642,056 | $2,351,876 | $2,290,180 | 97.38% | | Raw Materials | $3,524,066 | $1,512,716 | $2,011,350 | 133.0% | | Recycled paper board | $3,244,750 | $1,353,543 | $1,891,207 | 139.7% | | Finished Goods | $1,517,494 | $1,269,487 | $248,007 | 19.5% | | Inventory reserve | $(695,717) | $(726,119) | $30,402 | -4.19% | (5) Prepayments and other current assets Prepayments and other current assets decreased slightly, mainly due to a reduction in prepayments for material purchases Prepayments and Other Current Assets Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Prepayments and other current assets | $16,744,643 | $17,951,267 | $(1,206,624) | -6.72% | | Prepayment for purchase of materials | $4,137,228 | $5,634,870 | $(1,497,642) | -26.58% | | Value-added tax recoverable | $13,320,909 | $13,154,375 | $166,534 | 1.27% | (6) Property, plant and equipment, net Net property, plant, and equipment decreased slightly due to accumulated depreciation, with certain assets pledged as collateral for loans Property, Plant and Equipment, Net Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Property, Plant and Equipment, net | $143,575,368 | $146,911,883 | $(3,336,515) | -2.27% | | Accumulated depreciation and amortization | $(160,265,154) | $(156,497,503) | $(3,767,651) | 2.41% | | Depreciation and amortization (3 months) | $3,547,398 | $3,481,788 | $65,610 | 1.88% | - Certain property, plant, and equipment of Baoding Shengde and Dongfang Paper are pledged as collateral for short-term and long-term loans[64] (7) Leases The company acts as both an operating lease lessor and lessee, with lease expenses for Q1 2025 at RMB 26,065 Lease Metrics | Metric | March 31, 2025 | | :----------------------------------- | :------------- | | Operating lease cost (RMB) | 26,065 | | Weighted average remaining lease term (years) | 3.4 | | Weighted average discount rate | 7.56% | (8) Loans Payable The company's loans payable consist of increasing short-term and stable long-term bank loans, secured by equipment or guarantees, with varying fixed interest rates Loans Payable Highlights | Loan Type | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total short-term bank loans | $5,043,047 | $4,451,616 | $591,431 | 13.28% | | Total long-term loans | $4,679,447 | $4,672,806 | $6,641 | 0.14% | | Current portion of long-term loans | $3,564,961 | $3,559,902 | $5,059 | 0.14% | | Long-term loans (non-current) | $1,114,486 | $1,112,904 | $1,582 | 0.14% | | Average short-term borrowing rates (Q1 2025) | 5.74% | 4.48% (Q1 2024) | 1.26% | 28.12% | | Total interest expenses (Q1 2025) | $132,847 | $209,586 (Q1 2024) | $(76,739) | -36.62% | - Short-term loans are secured by Baoding Shengde's equipment and guaranteed by a third party or Mr. Zhenyong Liu[74][76][77] - Long-term loans from Rural Credit Union of Xushui District have been extended, with the latest maturity in August 2026 and December 2026[85][87] (9) Related Party Transactions All principal amounts due to Mr. Zhenyong Liu were repaid, but outstanding interest of approximately $305,033 remained recorded in other payables - Total loans due to Mr. Zhenyong Liu were $nil as of March 31, 2025, and December 31, 2024[92] Net Interest Owed to Mr. Zhenyong Liu | Metric | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Net interest owed to Mr. Zhenyong Liu | $305,033 | $304,600 | - Interest expense for related party loans was $nil for the three months ended March 31, 2025 and 2024[92] (10) Other payables and accrued liabilities Other payables and accrued liabilities increased slightly, primarily driven by a rise in accrued electricity and payable for property, plant and equipment Other Payables and Accrued Liabilities Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Totals | $11,823,467 | $11,545,990 | $277,477 | 2.40% | | Accrued electricity | $154,824 | $2,964 | $151,860 | 5123.41% | | Payable for purchase of property, plant and equipment | $10,726,899 | $10,711,678 | $15,221 | 0.14% | | Accrued litigation costs | $462,511 | $461,855 | $656 | 0.14% | (11) Derivative Liabilities Warrants are classified as derivative liabilities and measured at fair value, with a gain of $4,553 recognized in Q1 2025 - Warrants are classified as derivative liabilities and measured at fair value using the Black-Scholes pricing model (Level 3 fair value measurement)[97][99] Derivative Liabilities Balance | Metric | March 31, 2025 | | :----------------------------------- | :------------- | | Balance at December 31, 2024 | $5,651 | | Change in fair value of derivative liability | $(4,553) | | Balance at March 31, 2025 | $1,098 | (12) Common Stock The company issued common stock and warrants in public offerings in 2021, with 10,065,920 shares outstanding as of March 31, 2025 - On January 20, 2021, the Company sold 2,618,182 shares of common stock and warrants for approximately $14.4 million[101] - On March 1, 2021, the Company sold 2,927,786 shares of common stock and warrants for approximately $21.9 million[102] - As of March 31, 2025, 10,065,920 shares of common stock were issued and outstanding[8] (13) Warrants As of March 31, 2025, the company had 3,016,635 outstanding warrants with a weighted average exercise price of $6.6907 and a remaining contractual life of 0.80 years Warrants Outstanding | Metric | March 31, 2025 | | :----------------------------------- | :------------- | | Outstanding and exercisable warrants | 3,016,635 | | Weighted average exercise price | $6.6907 | | Weighted average remaining contractual life (years) | 0.80 | | Intrinsic value of warrants | nil | - The company classified warrants as liabilities and accounted for their issuance as a derivative[106] (14) Earnings Per Share Basic and diluted net loss per share improved to $(0.35) despite an increased net loss, due to the same number of weighted average common shares outstanding Earnings Per Share Highlights | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss for the period | $(3,503,785) | $(3,746,536) | | Weighted average common stock outstanding | 10,065,920 | 10,065,920 | | Basic and Diluted Losses per Share | $(0.35) | $(0.37) | (15) Income Taxes The company's PRC operating companies are subject to a 25% Enterprise Income Tax, with an effective income tax rate of 0% for Q1 2025 Income Tax Expenses and Rates | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total Income Tax Expenses (Benefits) | $0 | $36,793 | | Effective income tax rate | 0% | 1% | | PRC Statutory rate | 25.0% | 25.0% | | Change in valuation allowance | (0.8)% | (22.6)% | - The company has a 100% valuation allowance on U.S. deferred tax assets due to limited operating history and continuing losses[114] (16) Stock Incentive Plans The company adopted the 2023 Omnibus Equity Incentive Plan, reserving 1,500,000 shares of common stock for issuance to eligible participants - The 2023 Omnibus Equity Incentive Plan was adopted on October 31, 2023[121] - A total of 1,500,000 shares of common stock are reserved for issuance under the 2023 ISP[121] (17) Commitments and Contingencies The company has various commitments, including a land lease, a lease-back agreement, capital expenditure for a new production line, and a loan guarantee for a major supplier - The company leases 32.95 acres of land in Xushui District, China, with an annual rental payment of approximately $16,727, expiring December 31, 2031[123] - Capital expenditure commitments totaled $3,443,760 as of March 31, 2025, mainly for a new tissue paper production line (PM10)[128] - The company guarantees a $4,318,631 long-term loan for Baoding Huanrun Trading Co., a major raw material supplier, maturing in 2028[129] - Tengsheng Paper was ordered by a PRC court to repay a loan of RMB3,320,000, with accrued litigation costs of $462,511 recorded as current liabilities[130] (18) Segment Reporting The company manages operations through three segments: Dongfang Paper and Tengsheng Paper (paper products) and Baoding Shengde (face masks and digital photo paper), with all sales to PRC customers Segment Performance (Q1 2025) | Segment | Revenues (Q1 2025) | Net Loss (Q1 2025) | Total Assets (March 31, 2025) | | :---------------- | :----------------- | :----------------- | :---------------------------- | | Dongfang Paper | $10,897,266 | $(1,048,107) | $54,288,217 | | Tengsheng Paper | $0 | $(2,195,870) | $114,378,010 | | Baoding Shengde | $0 | $(65,309) | $5,575,644 | | Consolidated | $10,897,266 | $(3,503,785) | $175,204,130 | - Dongfang Paper and Tengsheng Paper produce offset printing paper, corrugating medium paper, and tissue paper, while Baoding Shengde produces face masks and digital photo paper[131] (19) Concentration and Major Customers and Suppliers For Q1 2025, no single customer contributed over 10% of total sales, but two major suppliers accounted for 77% and 16% of total purchases - No single customer contributed over 10% of total sales for the three months ended March 31, 2025 and 2024[136] - Two major suppliers accounted for 77% and 16% of total purchases for the three months ended March 31, 2025[136] (20) Concentration of Credit Risk The company's primary credit risk concentration is in cash held in PRC financial institutions, with approximately $4.8 million exceeding deposit insurance limits - Cash balances exceeding the PRC deposit insurance maximum coverage (RMB500,000) amounted to RMB34,751,252 (approximately $4,841,221) as of March 31, 2025[137] - U.S. bank accounts are fully covered by FDIC insurance[137] (21) Risks and Uncertainties The company is exposed to substantial risks including intense competition, financing and liquidity requirements, rapidly changing customer demands, and foreign currency exchange rates - Key risks include intense competition, financing/liquidity needs, changing customer requirements, foreign currency exchange rates, and PRC operational restrictions[138] (22) Subsequent Event There were no subsequent events to report after March 31, 2025 - No subsequent events were reported[139] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting increased CMP sales volume, decreased ASP, and lower gross profit margins Cautionary Notice Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and factors that could cause actual results to differ materially from projections - The report contains forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially[142] - The company intends for these statements to be covered by safe harbor provisions of the Securities Act and Exchange Act[142] Results of Operations Revenues increased significantly due to higher sales volume of corrugating medium paper (CMP), but gross profit declined sharply due to decreased average selling prices (ASPs) and increased cost of sales, widening the net loss Results of Operations Highlights | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $10,897,266 | $6,863,841 | $4,033,425 | 58.76% | | Gross Profit | $84,086 | $399,113 | $(315,027) | -78.93% | | Selling, general and administrative expenses | $(3,461,321) | $(3,900,783) | $439,462 | -11.27% | | Loss from Operations | $(3,377,235) | $(3,501,670) | $124,435 | -3.55% | | Net Loss | $(3,503,785) | $(3,746,536) | $242,751 | -6.48% | Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products Revenue from paper products increased by 59.62% year-over-year, primarily driven by a 69.29% increase in Corrugating Medium Paper (CMP) sales volume Revenue by Paper Product | Product | Quantity Sold (2025 Tonnes) | Revenue (2025) | Quantity Sold (2024 Tonnes) | Revenue (2024) | Quantity Change (%) | Revenue Change (%) | | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :------------- | :------------------ | :----------------- | | Regular CMP | 26,762 | $9,278,116 | 15,640 | $5,750,601 | 71.11% | 61.34% | | Light-Weight CMP | 4,845 | $1,619,150 | 3,030 | $1,076,199 | 59.90% | 50.45% | | Total CMP | 31,607 | $10,897,266 | 18,670 | $6,826,800 | 69.29% | 59.62% | | Offset Printing Paper | - | $0 | - | $0 | -% | -% | | Tissue Paper Products | - | $0 | - | $0 | -% | -% | - Production of offset printing paper and tissue paper products was suspended from 2024 through Q1 2025, with resumption expected in H2 2025[144] Corrugating Medium Paper (CMP) CMP revenue increased by 59.62% due to a 69.29% increase in sales volume, despite a decrease in average selling prices (ASPs) for both regular and light-weight CMP Corrugating Medium Paper Average Selling Prices | Product | ASP (Q1 2025) | ASP (Q1 2024) | ASP Change ($) | ASP Change (%) | | :---------------- | :------------ | :------------ | :------------- | :------------- | | Regular CMP | $347/tonne | $368/tonne | $(21) | -5.71% | | Light-Weight CMP | $334/tonne | $355/tonne | $(21) | -5.92% | - Sales volume of CMP increased by 69.29% (12,937 tonnes) to 31,607 tonnes in Q1 2025[149] - PM6 production line utilization rate increased by 15.33% to 30.44% in Q1 2025 from 15.11% in Q1 2024[152] Cost of Sales Total cost of sales for paper products increased by 67.27% due to higher CMP sales volume, partially offset by a decrease in the average unit cost of sales for CMP Cost of Sales Highlights | Metric | Cost of Sales (Q1 2025) | Cost of Sales (Q1 2024) | Change ($) | Change (%) | | :----------------------------------- | :---------------------- | :---------------------- | :--------- | :--------- | | Total cost of sales (CMP, offset, tissue) | $10,813,180 | $6,464,464 | $4,348,716 | 67.27% | | Average cost of sales per tonne for CMP | $342 | $346 | $(4) | -1.16% | | Average unit purchase costs of recycled paper board (USD/tonne) | $184 | $180 | $4 | 2.22% | - The decrease in average cost of sales was mainly due to improved PM6 utilization, reducing unit manufacturing costs, despite higher raw material costs[156] Gross Profit (Loss) Gross profit significantly decreased by 78.93% to $84,086, resulting in a gross profit margin of 0.77%, primarily due to lower ASPs for CMP Gross Profit and Margin Analysis | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Gross Profit | $84,086 | $399,113 | $(315,027) | -78.93% | | Overall gross profit margin | 0.77% | 5.81% | -5.04% | -86.75% | | Gross profit margin for regular CMP | 1.45% | 5.68% | -4.23% | -74.47% | | Gross profit margin for light-weight CMP | -3.12% | 3.32% | -6.44% | -193.98% | Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by 11.27% year-over-year, mainly attributed to a reduction in depreciation of idle fixed assets Selling, General and Administrative Expenses | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Selling, general and administrative expenses | $3,461,321 | $3,900,783 | $(439,462) | -11.27% | - The decrease was mainly due to reduced depreciation of idle fixed assets during production suspension[170] Loss from Operations Operating loss for the quarter ended March 31, 2025, increased by 3.55% to $3,377,235, primarily due to decreased gross profit Operating Loss | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Operating loss | $(3,377,235) | $(3,501,670) | $124,435 | -3.55% | Other Income and Expenses Interest expense decreased by 36.83% due to lower outstanding interest-bearing loans, and the company recognized a gain on derivative liability Other Income and Expenses Highlights | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Interest expense | $(132,847) | $(210,290) | $77,443 | -36.83% | | Gain on derivative liability | $4,553 | $34 | $4,519 | 13291.18% | - Total interest-bearing loans decreased from $12,204,370 as of March 31, 2024, to $9,722,494 as of March 31, 2025[172] Net Loss The net loss for the quarter ended March 31, 2025, was $3,503,785, representing a 6.48% increase from the prior year Net Loss | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net Loss | $(3,503,785) | $(3,746,536) | $242,751 | -6.48% | Liquidity and Capital Resources The company faces substantial doubt about its ability to continue as a going concern due to a working capital deficit and ongoing losses, with management planning various strategies to improve financial stability - As of March 31, 2025, the company had a working capital deficit of $4,607,992, excluding unrecoverable VAT[175] - The company's continued existence as a going concern depends on successful implementation of its business plan, including increasing sales, improving marketing, and controlling costs[178] - Net cash used in operating activities was $2,474,978 for Q1 2025, a significant decrease from $624,420 provided in Q1 2024[185] Accounts Receivable Net accounts receivable increased substantially by 639.85% to $2,127,629 as of March 31, 2025 Net Accounts Receivable | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------- | :---------------- | :--------- | :--------- | | Net accounts receivable | $2,127,629 | $287,576 | $1,840,053 | 639.85% | Inventories Total net inventory increased by 97.4% to $4,642,056, primarily driven by a 139.7% increase in recycled paper board raw materials in anticipation of rising prices and expanded production Inventory Breakdown | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------- | :------------- | :---------------- | :--------- | :--------- | | Total inventory, net | $4,642,056 | $2,351,876 | $2,290,180 | 97.4% | | Recycled paper board | $3,244,750 | $1,353,543 | $1,891,207 | 139.7% | | Total Raw Materials | $3,524,066 | $1,512,716 | $2,011,350 | 133.0% | Renewal of operating lease The lease agreement for the Industrial Buildings was renewed in August 2022 for a term of six years with an annual rental payment of approximately $139,394 - The lease agreement for Industrial Buildings was renewed in August 2022 for six years with an annual rental payment of approximately $139,394 (RMB1,000,000)[182] Capital Expenditure Commitment As of March 31, 2025, the company had approximately $3.4 million in capital expenditure commitments, mainly for the new PM10 tissue paper production line - Capital expenditure commitments totaled approximately $3.4 million as of March 31, 2025, mainly for the PM10 tissue paper production line[184] - These commitments are expected to be financed by bank loans and cash flows from business operations[184] Cash and Cash Equivalents Cash, cash equivalents, and restricted cash decreased by $1,880,216 to $5,070,360, primarily due to net cash used in operating activities Cash and Cash Equivalents Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash, cash equivalents and restricted cash | $5,070,360 | $6,950,576 | $(1,880,216) | -27.05% | | Net cash used in operating activities | $(2,474,978) | $624,420 (Q1 2024) | $(3,099,398) | -496.36% | | Net cash provided by financing activities | $585,456 | $422,488 (Q1 2024) | $162,968 | 38.57% | Short-term bank loans Total short-term bank loans increased by 13.28% to $5,043,047, with new loans from Bank of Cangzhou and existing loans from Rural Credit Union and ICBC Short-term Bank Loans Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total short-term bank loans | $5,043,047 | $4,451,616 | $591,431 | 13.28% | | Guaranteed short-term borrowings | $2,814,076 | $2,225,808 | $588,268 | 26.43% | | Unsecured bank loans | $417,932 | $417,339 | $593 | 0.14% | | Average short-term borrowing rates (Q1 2025) | 5.74% | 4.48% (Q1 2024) | 1.26% | 28.12% | - New working capital loans were obtained from Bank of Cangzhou in December 2024 and March 2025, secured by manufacturing equipment and/or guaranteed by Mr. Zhenyong Liu[190][191][192] Long-term loans Total long-term loans remained stable at $4,679,447, with current portions amounting to $3,564,961, and extended maturities in August and December 2026 Long-term Loans Highlights | Metric | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total long-term loans | $4,679,447 | $4,672,806 | $6,641 | 0.14% | | Current portion of long-term loans | $3,564,961 | $3,559,902 | $5,059 | 0.14% | | Long-term loans (non-current) | $1,114,486 | $1,112,904 | $1,582 | 0.14% | - Long-term loans from the Rural Credit Union of Xushui District were extended, with maturities in August 2026 and December 2026, and bear a 7% annual interest rate[200][201] Shareholder Loans All principal amounts of loans from Mr. Zhenyong Liu have been repaid, but approximately $305,033 in net interest owed remained outstanding - Total loans due to Mr. Zhenyong Liu were $nil as of March 31, 2025, and December 31, 2024[207] Net Interest Owed to Mr. Zhenyong Liu | Metric | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Net interest owed to Mr. Zhenyong Liu | $305,033 | $304,600 | - Interest expense for related party loans was $nil for the three months ended March 31, 2025 and 2024[207] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant estimates and assumptions in revenue recognition, long-lived asset valuation, and foreign currency translation - Revenue is recognized upon goods delivery, fixed price, and assured collectability[211] - Long-lived assets are reviewed for impairment when circumstances indicate carrying value may not be recoverable, based on undiscounted cash flows[212] - The functional currency for Dongfang Paper and Baoding Shengde is RMB, with translation adjustments included in other comprehensive income (loss)[213] Off-Balance Sheet Arrangements The company has one material off-balance sheet arrangement: a guarantee for Baoding Huanrun Trading Co.'s long-term bank loans amounting to $4,318,631 - The company guarantees $4,318,631 (RMB31,000,000) in long-term bank loans for Baoding Huanrun Trading Co., a major supplier, maturing in 2028[214] - Insolvency of Baoding Huanrun Trading Co. could materially adversely affect the company[214] Recent Accounting Pronouncements The company is evaluating the impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), which require enhanced disclosures in future periods - ASU 2023-09 (Income Taxes) requires specific categories in rate reconciliation and additional information for significant reconciling items, effective for annual periods beginning after December 15, 2024[215] - ASU 2024-03 (Expense Disaggregation Disclosures) mandates disaggregation of expenses by nature and function, effective for annual periods beginning after December 15, 2026[216] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign exchange risk due to its PRC-based operations and is subject to inflation risk, which could affect operating results - The company is exposed to foreign exchange risk as most consolidated revenues, costs, expenses, and assets are denominated in RMB, while the reporting currency is USD[217] - Depreciation of RMB against USD would reduce the value of RMB-denominated revenues, earnings, and assets in USD financial statements[217] - The company is subject to inflation risk, which could adversely affect operating results if product selling prices do not keep pace with increased costs[218] Item 4. Controls and Procedures As of March 31, 2025, the company's disclosure controls and procedures were deemed effective at a reasonable assurance level, with no material changes to internal control over financial reporting - Disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2025[219] - No material changes occurred in internal control over financial reporting during the quarter ended March 31, 2025[220] PART II. - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in two significant legal proceedings: a breach of contract lawsuit in New York and a civil loan dispute in China - FT Global Capital, Inc. filed a breach of contract lawsuit against the company in New York, resulting in a default judgment on liability against the company[222] - Tengsheng Paper was ordered by a PRC court to repay a loan of RMB3,320,000 in a civil loan dispute[223] - The ultimate resolution of these proceedings may have a material adverse impact on the company's business, financial condition, results of operations, or cash flows[224] Item 1A. Risk Factors As a smaller reporting company, IT Tech Packaging, Inc. is not required to provide specific information under this item - The company is a smaller reporting company and is not required to provide information under Item 1A. Risk Factors[225] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds occurred[226] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - No defaults upon senior securities occurred[227] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[228] Item 5. Other Information No directors or officers informed the company of the adoption or termination of any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2025 - No directors or officers reported adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[229] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[230] SIGNATURES The report was duly signed on May 9, 2025, by Zhenyong Liu, Chief Executive Officer, and Jing Hao, Chief Financial Officer, on behalf of IT Tech Packaging, Inc. - The report was signed by Zhenyong Liu (CEO) and Jing Hao (CFO) on May 9, 2025[234]