IT Tech Packaging(ITP) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of IT Tech Packaging, Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of income and comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a slight decrease in total assets and stockholders' equity from December 31, 2024, to June 30, 2025, while total liabilities increased Condensed Consolidated Balance Sheets | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Total Assets | $175,162,562 | $177,546,786 | | Total Liabilities | $22,844,991 | $21,496,469 | | Total Stockholders' Equity | $152,317,571 | $156,050,317 | | Current Assets | $32,644,518 | $28,461,303 | | Current Liabilities | $21,341,552 | $20,146,767 | - Accounts receivable increased significantly from $287,576 as of December 31, 2024, to $1,841,007 as of June 30, 2025[8] - Inventories increased from $2,351,876 as of December 31, 2024, to $5,094,810 as of June 30, 2025[8] Condensed Consolidated Statements of Income and Comprehensive Income The company reported a net loss for both the three and six months ended June 30, 2025, which significantly worsened compared to the prior year, with revenues decreasing for the three-month period but increasing for the six-month period, while gross profit saw a substantial decline across both periods Condensed Consolidated Statements of Income and Comprehensive Income | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $24,794,641 | $26,249,788 | $35,691,907 | $33,113,629 | | Gross Profit | $1,273,745 | $3,265,300 | $1,357,831 | $3,664,413 | | (Loss) Income from Operations | $(1,763,030) | $547,752 | $(5,140,265) | $(2,953,918) | | Net Loss | $(1,951,826) | $(77,747) | $(5,455,611) | $(3,824,283) | | Basic and Diluted Losses per Share | $(0.16) | $(0.01) | $(0.46) | $(0.38) | - Net loss for the three months ended June 30, 2025, increased by 2410.48% to $1,951,826 from $77,747 in the prior year[10] - Gross profit decreased by 60.99% for the three months ended June 30, 2025, and by 62.95% for the six months ended June 30, 2025, compared to the respective prior periods[10] Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased for the six months ended June 30, 2025, primarily due to significant cash provided by financing activities, despite net cash used in operating activities Condensed Consolidated Statements of Cash Flows | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | | Net Cash (Used in) Provided by Operating Activities | $(1,111,313) | $1,346,337 | | Net Cash Used in Investing Activities | $(29,896) | $(62,640) | | Net Cash Provided by Financing Activities | $1,648,262 | $422,096 | | Net Increase in Cash and Cash Equivalents | $558,779 | $1,652,001 | | Cash, Cash Equivalents and Restricted Cash - End of Period | $7,509,355 | $6,043,922 | - Net cash used in operating activities was $1,111,313 for the six months ended June 30, 2025, a decrease of $2,457,650 or 182.54% compared to net cash provided by operating activities in the prior year[13] - Net cash provided by financing activities increased significantly to $1,648,262 in 2025 from $422,096 in 2024, mainly due to proceeds from issuance of shares and short-term bank loans[13] Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from December 31, 2024, to June 30, 2025, primarily due to a net loss, partially offset by the issuance of new shares to an institutional investor Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :---------------- | :-------------- | | Total Stockholders' Equity | $156,050,317 | $152,317,571 | | Common Stock Shares Outstanding | 10,065,920 | 16,965,420 | | Additional Paid-in Capital | $89,172,771 | $90,228,996 | | Retained Earnings | $73,785,892 | $68,330,281 | - The company issued 6,899,500 shares to an institutional investor, increasing common stock and additional paid-in capital[15] - Net loss of $5,455,611 for the six months ended June 30, 2025, reduced retained earnings[15] Notes to Condensed Consolidated Financial Statements These notes provide essential context and detail for the financial statements, covering the company's business structure, significant accounting policies, specific asset and liability breakdowns, related party transactions, and commitments (1) Organization and Business Background IT Tech Packaging, Inc. operates as a holding company for paper product producers in China, primarily through its variable interest entities (VIEs), Dongfang Paper and Tengsheng Paper, which account for nearly all of the company's revenue and assets - IT Tech Packaging, Inc. was incorporated in Nevada in 2005 and became a holding company for Hebei Baoding Dongfang Paper Milling Company Limited ('Dongfang Paper') in 2007[18] - The company controls Dongfang Paper and its subsidiary Tengsheng Paper as variable interest entities (VIEs) through contractual agreements, accounting for 100% of total revenue and over 95% of total assets[31] - Uncertainties in the PRC legal system could challenge the company's control over its VIEs, potentially leading to penalties or deconsolidation, though the company believes this possibility is remote[34][35] (2) Basis of Presentation and Significant Accounting Policies The financial statements are prepared in accordance with GAAP, involving estimates and judgments, with a significant concern being the company's liquidity and going concern status, primarily due to losses in subsidiaries from high depreciation, decreased market demand, and elevated material costs - As of June 30, 2025, the company had a working capital of $11,302,966, but excluding VAT recoverable, it had a working capital deficit of $1,906,169[44] - Baoding Shengde and Tengsheng Paper incurred losses due to high depreciation costs, decreased market demand, and elevated material costs, raising substantial doubt about the company's ability to continue as a going concern[44] - Management plans to optimize raw material structure, stabilize manufacturing capacity, explore new products, adjust pricing, and maintain rigorous control over inventory and cash flow to mitigate financial risks[46][47][48] (3) Restricted Cash Restricted cash balances remained stable, primarily due to legal proceedings against Tengsheng Paper and its executive director Restricted Cash | Metric | June 30, 2025 | December 31, 2024 | | :------------- | :-------------- | :---------------- | | Restricted cash | $1,038,874 | $1,034,203 | - The restricted cash is mainly deposited at the Industrial and Commercial Bank of China of Tengsheng Paper, due to a legal proceeding against Tengsheng Paper and Jie Ping[62] (4) Inventories Total net inventory significantly increased by 116.6% from December 31, 2024, to June 30, 2025, driven primarily by a substantial increase in raw materials, particularly recycled paper board, in anticipation of rising purchase prices and expanded production Inventory by Category | Inventory Category | June 30, 2025 | December 31, 2024 | Change (%) | | :----------------- | :-------------- | :---------------- | :--------- | | Raw Materials | $3,923,194 | $1,512,716 | 159.3% | | Semi-finished Goods | $297,024 | $295,792 | 0.4% | | Finished Goods | $1,572,213 | $1,269,487 | 23.8% | | Total inventory, net | $5,094,810 | $2,351,876 | 116.6% | - Recycled paper board, a main raw material, increased by 172.54% to $3,688,955 as of June 30, 2025, from $1,353,543 as of December 31, 2024[63] - The increase in raw material procurement was in anticipation of rising purchase prices and to prepare for expanded production output[203] (5) Prepayments and other current assets Prepayments and other current assets slightly decreased, mainly due to a reduction in prepayments for material purchases, partially offset by an increase in value-added tax recoverable Prepayments and Other Current Assets | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Prepayment for purchase of materials | $4,722,276 | $5,634,870 | | Value-added tax recoverable | $13,209,135 | $13,154,375 | | Total Prepayments and other current assets | $17,282,492 | $17,951,267 | - Allowance for doubtful accounts decreased from $860,601 to $801,284[65] (6) Property, plant and equipment, net Net property, plant, and equipment decreased due to accumulated depreciation, despite minor increases in gross values of land use rights, buildings, and machinery, with certain assets remaining pledged for bank loans Property, Plant and Equipment, Net | Asset Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Totals (Gross) | $304,694,021 | $303,409,386 | | Less: accumulated depreciation and amortization | $(164,258,575) | $(156,497,503) | | Property, Plant and Equipment, net | $140,435,446 | $146,911,883 | - Depreciation and amortization for the six months ended June 30, 2025, was $7,090,582, up from $6,862,883 in the prior year[69] - Certain property, plant, and equipment of Baoding Shengde with net values of $2,650,742 were pledged for short-term loans as of June 30, 2025[68] (7) Leases The company acts as both an operating lease lessor and lessee, primarily leasing plant and production equipment, with lease liabilities calculated using the incremental borrowing rate, a weighted average remaining lease term of 3.1 years, and a discount rate of 7.56% as of June 30, 2025 Lease Metrics | Metric | June 30, 2025 | | :-------------------------------- | :-------------- | | Total operating lease payments | $558,768 | | Present value of lease liabilities | $496,502 | | Weighted average remaining lease term (years) | 3.1 | | Weighted average discount rate | 7.56% | - The company leases space under non-cancelable operating leases for plant and production equipment, with renewal options not included in right-of-use assets and lease liabilities unless reasonably certain of exercise[71][72] (8) Loans Payable Total short-term bank loans increased, with new loans from Bank of Cangzhou and ICBC, while some older ICBC loans were repaid, and long-term loans remained stable with extensions and reduced interest rates on existing agreements, leading to an increased average short-term borrowing rate Loans Payable | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Total short-term bank loans | $5,056,855 | $4,451,616 | | Total long-term loans | $4,692,258 | $4,672,806 | | Current portion of long-term loans | $3,574,721 | $3,559,902 | | Long-term loans (non-current) | $1,117,537 | $1,112,904 | - The average short-term borrowing rate for the three months ended June 30, 2025, was approximately 5.72%, up from 4.45% in the prior year[90] - A long-term loan from Rural Credit Union of Xushui District was extended for another three years, due August 24, 2026, with the interest rate reduced to 6% per annum[92] (9) Related Party Transactions The company has historically engaged in loan agreements with Mr. Liu Zhenyong, its CEO, for working capital purposes, and while no new loans were outstanding as of June 30, 2025, significant accrued interest from past loans remains, recorded in other payables and accrued liabilities - As of June 30, 2025, total loans due to Mr. Liu Zhenyong were $nil, but accrued interest of approximately $305,868 was outstanding[99] - Interest expense incurred for related party loans was $nil for the three and six months ended June 30, 2025 and 2024[99] - An amount of $119,974 was due to Mr. Liu Zhenyong as of June 30, 2025, representing funds for U.S. expenses, due on demand and interest-free[101] (10) Other payables and accrued liabilities Other payables and accrued liabilities increased, primarily driven by a significant increase in accrued electricity and payable for purchase of property, plant and equipment Other Payables and Accrued Liabilities | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Accrued electricity | $114,403 | $2,964 | | Accrued litigation costs | $494,742 | $461,855 | | Payable for purchase of property, plant and equipment | $10,756,269 | $10,711,678 | | Total | $12,053,116 | $11,545,990 | (11) Derivative Liabilities Derivative liabilities, primarily related to warrants, decreased significantly due to a change in fair value, and these liabilities are classified as Level 3 fair value measurements and valued using the Black-Scholes pricing model Derivative Liabilities | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Derivative liability | $303 | $5,651 | - The change in fair value of derivative liability resulted in a gain of $795 for the three months ended June 30, 2025, and $5,348 for the six months ended June 30, 2025[106] - The fair value of derivative liabilities is determined using the Black-Scholes pricing model with Level 3 unobservable inputs[106] (12) Common Stock The company issued 6,899,500 shares of common stock in May 2025 to an institutional investor, generating approximately $1.4 million in gross proceeds - On May 13, 2025, the company issued 6,899,500 shares of common stock at $0.20 per share, raising approximately $1.4 million in gross proceeds[108] - As of June 30, 2025, 16,965,420 shares of common stock were issued and outstanding, compared to 10,065,920 shares as of December 31, 2024[8] (13) Warrants As of June 30, 2025, the company had 3,016,635 warrants outstanding and exercisable, with a weighted average exercise price of $6.6907 and a remaining contractual life of 0.55 years, and the intrinsic value of these warrants was nil Warrants Outstanding | Metric | June 30, 2025 | | :-------------------------------- | :-------------- | | Number of Warrants Outstanding and Exercisable | 3,016,635 | | Weighted Average Exercise Price | $6.6907 | | Weighted Average Remaining Contractual Life (years) | 0.55 | | Intrinsic Value of Warrants | nil | - The company classified warrants as liabilities and accounted for their issuance as a derivative[112] (14) Earnings Per Share The company reported basic and diluted net losses per share for both the three and six months ended June 30, 2025, which significantly increased compared to the prior year, reflecting the overall net loss Basic and Diluted Losses per Share | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic and Diluted Losses per Share | $(0.16) | $(0.01) | $(0.46) | $(0.38) | | Weighted average common stock outstanding | 11,905,787 | 10,065,920 | 11,905,787 | 10,065,920 | (15) Income Taxes The company recorded income tax expenses for both U.S. and PRC operations, with a significant decrease in PRC tax provision for the six months ended June 30, 2025, and negative effective income tax rates for both periods in 2025, influenced by valuation allowances on U.S. deferred tax assets due to limited operating history and continuing losses Income Tax Expenses and Rates | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Income Tax Expenses (Benefits) | $46,828 | $416,770 | $46,828 | $453,563 | | Effective income tax rate (3 months) | -2.5% | 122.9% | N/A | N/A | | Effective income tax rate (6 months) | N/A | N/A | -0.9% | -13.5% | - The company provided a 100% valuation allowance on U.S. deferred tax assets due to limited operating history and continuing losses, believing the realization of benefits is not more than likely[122] - The company does not expect to recognize substantial current U.S. federal or state corporate income tax liability in the near future, as earnings are expected to be indefinitely reinvested offshore[126] (16) Stock Incentive Plans The company adopted the 2023 Omnibus Equity Incentive Plan, reserving 1,500,000 shares of common stock for issuance to directors, officers, employees, and consultants - The 2023 Omnibus Equity Incentive Plan was adopted on October 31, 2023, reserving 1,500,000 shares of common stock for awards[129] (17) Commitments and Contingencies The company has various commitments, including land leases, capital expenditure for a new tissue paper production line, and guarantees for a major supplier, and is also involved in legal proceedings that could materially impact its financial condition - The company leases 32.95 acres of land with a 30-year term expiring in 2031, requiring an annual rental payment of approximately $16,718[131] - Outstanding capital expenditure commitments for a new tissue paper production line (PM10) and industrial building improvements totaled $3,453,189 as of June 30, 2025[136] - The company guaranteed a long-term loan of $4,330,456 for Baoding Huanrun Trading Co., a major raw material supplier, maturing in 2028[137] - Tengsheng Paper is jointly liable for a loan repayment of RMB3,320,000 in a civil loan dispute, with accrued litigation costs of $463,778 recorded[138] (18) Segment Reporting The company operates through three segments: Dongfang Paper and Tengsheng Paper (offset printing, corrugating medium, tissue paper) and Baoding Shengde (face masks, digital photo paper), with performance evaluated based on net income, and all sales to customers in the PRC, with Dongfang Paper generating all reported revenue for the three and six months ended June 30, 2025 - The company manages operations through three segments: Dongfang Paper, Tengsheng Paper, and Baoding Shengde, each with different technologies and marketing strategies[139] - Dongfang Paper generated 100% of the company's total revenue for the three and six months ended June 30, 2025[142] Segment Net Income/Loss | Segment | 3 Months Ended June 30, 2025 (Net Income/Loss) | 6 Months Ended June 30, 2025 (Net Loss) | | :-------------- | :-------------------------------------- | :------------------------------------ | | Dongfang Paper | $629,336 | $(418,771) | | Tengsheng Paper | $(2,218,151) | $(4,414,021) | | Baoding Shengde | $(76,027) | $(141,336) | (19) Concentration and Major Customers and Suppliers The company had no single customer contributing over 10% of total sales for the reported periods, but it relies on a few major suppliers, with two suppliers accounting for 74% and 17% of total purchases for the three months ended June 30, 2025 - No single customer contributed over 10% of total sales for the three and six months ended June 30, 2025 and 2024[146][147] - Two major suppliers accounted for 74% and 17% of total purchases for the three months ended June 30, 2025[146] (20) Concentration of Credit Risk The company faces concentration of credit risk primarily in cash held in PRC financial institutions, where balances exceeding the RMB500,000 deposit insurance limit amounted to $7,144,789 as of June 30, 2025 - Cash balances exceeding the PRC deposit insurance maximum coverage of RMB500,000 amounted to $7,144,789 as of June 30, 2025[148] - The company's U.S. bank accounts are fully covered by FDIC insurance[148] (21) Risks and Uncertainties The company is exposed to substantial risks including intense industry competition, financing and liquidity requirements, rapidly changing customer demands, foreign currency exchange rate fluctuations, and operating under PRC laws and restrictions (22) Subsequent Event No subsequent events were reported 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 for the periods ended June 30, 2025 and 2024, highlighting operational results, liquidity, capital resources, critical accounting policies, and recent accounting pronouncements Cautionary Notice Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements about future operations, financial performance, and strategies, which are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are identified by words like 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'plan', 'project', 'target', 'can', 'could', 'may', 'should', 'will', 'would', and similar expressions[154] - Actual results may differ materially from forward-looking statements due to risks and uncertainties, including general economic conditions, managing growth, generating sufficient revenues, and fulfilling cash requirements[154] Results of Operations The company experienced a decline in gross profit and an increase in net loss for both the three and six months ended June 30, 2025, primarily due to decreased average selling prices and increased unit material costs for Corrugating Medium Paper (CMP), despite an increase in CMP sales volume for the six-month period Comparison of the Three Months Ended June 30, 2025 and 2024 For the three months ended June 30, 2025, revenue decreased by 5.54% due to lower sales volume and average selling prices of CMP, with gross profit declining significantly by 60.99%, leading to an operating loss and a substantial increase in net loss Three Months Ended June 30, 2025 and 2024 Financial Highlights | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $24,794,641 | $26,249,788 | $(1,455,147) | (5.54)% | | Gross Profit | $1,273,745 | $3,265,300 | $(1,991,555) | (60.99)% | | (Loss) Income from Operations | $(1,763,030) | $547,752 | $(2,310,782) | (421.87)% | | Net Loss | $(1,951,826) | $(77,747) | $(1,874,079) | (2410.48)% | Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products (3 Months) Revenue from CMP, the sole product sold, decreased by 5.41% due to a 1.56% decrease in total volume sold and lower average selling prices for both regular and light-weight CMP, while production of offset printing paper and tissue paper products remained suspended CMP Revenue (3 Months) | Product | 3 Months Ended June 30, 2025 (Quantity) | 3 Months Ended June 30, 2025 (Amount) | 3 Months Ended June 30, 2024 (Quantity) | 3 Months Ended June 30, 2024 (Amount) | Quantity Change (%) | Amount Change (%) | | :-------------------- | :-------------------------------------- | :------------------------------------ | :-------------------------------------- | :------------------------------------ | :------------------ | :---------------- | | Regular CMP | 61,554 tonnes | $20,652,429 | 62,813 tonnes | $21,983,621 | (2.00)% | (6.06)% | | Light-Weight CMP | 12,634 tonnes | $4,142,212 | 12,552 tonnes | $4,229,194 | 0.65% | (2.06)% | | Total CMP | 74,188 tonnes | $24,794,641 | 75,365 tonnes | $26,212,815 | (1.56)% | (5.41)% | CMP Average Selling Price (3 Months) | Product | June 30, 2025 ASP | June 30, 2024 ASP | Change ($) | Change (%) | | :-------------------- | :---------------- | :---------------- | :--------- | :--------- | | Regular CMP | $336 | $350 | $(14) | (4.00)% | | Light-Weight CMP | $328 | $337 | $(9) | (2.67)% | - Production of offset printing paper and tissue paper products was suspended from 2024 through the first half of 2025 and is expected to resume in the second half of 2025[156] Cost of Sales (3 Months) Total cost of sales for CMP increased by 2.33% due to a 3.93% increase in the average unit cost of sales, primarily driven by higher average unit purchase costs of recycled paper board, partially offset by decreased sales quantity of regular CMP CMP Cost of Sales (3 Months) | Product | 3 Months Ended June 30, 2025 (Cost of Sales) | 3 Months Ended June 30, 2025 (Cost per Tonne) | 3 Months Ended June 30, 2024 (Cost of Sales) | 3 Months Ended June 30, 2024 (Cost per Tonne) | Cost of Sales Change (%) | Cost per Tonne Change (%) | | :-------------------- | :------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :-------------------------------------------- | :----------------------- | :------------------------ | | Regular CMP | $19,597,979 | $318 | $19,297,669 | $307 | 1.56% | 3.58% | | Light-Weight CMP | $3,922,917 | $311 | $3,686,819 | $294 | 6.40% | 5.78% | | Total CMP | $23,520,896 | $317 | $22,984,488 | $305 | 2.33% | 3.93% | - The average unit purchase cost of recycled paper board increased by 6.10% year-over-year to approximately $174/tonne[168] - Electricity and gas accounted for approximately 5% and 15.1% of total sales, respectively, in Q2 2025, compared to 5% and 12.9% in Q2 2024[171] Gross Profit (3 Months) Gross profit for CMP and related products decreased by 60.54%, with the overall gross profit margin falling by 7.18 percentage points to 5.14%, primarily due to decreased ASPs and increased unit costs of sales for both regular and light-weight CMP Gross Profit (3 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Gross Profit | $1,273,745 | $3,265,300 | $(1,991,555) | (60.99)% | | Gross Profit Margin | 5.14% | 12.44% | (7.30)% | N/A | Gross Profit Margin by Product (3 Months) | Product | June 30, 2025 Gross Profit Margin | June 30, 2024 Gross Profit Margin | Change (pp) | | :-------------------- | :---------------------------------- | :---------------------------------- | :---------- | | Regular CMP | 5.11% | 12.22% | (7.11) | | Light-Weight CMP | 5.29% | 12.82% | (7.53) | Selling, General and Administrative Expenses (3 Months) Selling, general and administrative expenses increased by 11.75% due to higher depreciation of idle fixed assets SG&A Expenses (3 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | SG&A Expenses | $3,036,775 | $2,717,548 | $319,227 | 11.75% | (Loss) Income from Operations (3 Months) Operating results shifted from income to a significant loss, decreasing by 421.87%, primarily due to the decline in gross profit and increased selling, general, and administrative expenses (Loss) Income from Operations (3 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | (Loss) Income from Operations | $(1,763,030) | $547,752 | $(2,310,782) | (421.87)% | Other Income and Expenses (3 Months) Interest expense decreased by $67,580, reflecting a reduction in total interest-bearing loans Interest Expense (3 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | | :---------------- | :-------------- | :-------------- | :--------- | | Interest expense | $143,971 | $211,551 | $(67,580) | - Total interest-bearing loans decreased from $12,149,914 as of June 30, 2024, to $9,749,113 as of June 30, 2025[181] Gain on Derivative Liability (3 Months) The company recognized a gain on derivative liability, which increased significantly compared to the prior year, reflecting changes in the fair market value of warrants Gain on Derivative Liability (3 Months) | Metric | June 30, 2025 | June 30, 2024 | | :------------------------ | :-------------- | :-------------- | | Gain on derivative liability | $795 | $15 | Net Loss (3 Months) Net loss for the quarter ended June 30, 2025, increased by 2410.48% to $1,951,826, primarily due to the factors mentioned above, including decreased gross profit and increased operating expenses Net Loss (3 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :------- | :-------------- | :-------------- | :--------- | :--------- | | Net Loss | $(1,951,826) | $(77,747) | $(1,874,079) | 2410.48% | Comparison of the Six Months Ended June 30, 2025 and 2024 For the six months ended June 30, 2025, revenue increased by 7.79% driven by higher CMP sales volume, despite decreased ASPs, however, gross profit significantly decreased by 62.95%, leading to a 42.66% increase in net loss Six Months Ended June 30, 2025 and 2024 Financial Highlights | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Revenues | $35,691,907 | $33,113,629 | $2,578,278 | 7.79% | | Gross Profit | $1,357,831 | $3,664,413 | $(2,306,582) | (62.95)% | | Loss from Operations | $(5,140,265) | $(2,953,918) | $(2,186,347) | (74.02)% | | Net Loss | $(5,455,611) | $(3,824,283) | $(1,631,328) | (42.66)% | Revenue of Offset Printing Paper, Corrugating Medium Paper and Tissue Paper Products (6 Months) Revenue from CMP increased by 8.03% due to a 12.51% increase in total volume sold, partially offset by decreased average selling prices for both regular and light-weight CMP, while production of offset printing paper and tissue paper products remained suspended CMP Revenue (6 Months) | Product | 6 Months Ended June 30, 2025 (Quantity) | 6 Months Ended June 30, 2025 (Amount) | 6 Months Ended June 30, 2024 (Quantity) | 6 Months Ended June 30, 2024 (Amount) | Quantity Change (%) | Amount Change (%) | | :-------------------- | :-------------------------------------- | :------------------------------------ | :-------------------------------------- | :------------------------------------ | :------------------ | :---------------- | | Regular CMP | 88,316 tonnes | $29,930,545 | 78,452 tonnes | $27,734,222 | 12.57% | 7.92% | | Light-Weight CMP | 17,479 tonnes | $5,761,362 | 15,582 tonnes | $5,305,393 | 12.17% | 8.59% | | Total CMP | 105,795 tonnes | $35,691,907 | 94,034 tonnes | $33,039,615 | 12.51% | 8.03% | CMP Average Selling Price (6 Months) | Product | June 30, 2025 ASP | June 30, 2024 ASP | Change ($) | Change (%) | | :-------------------- | :---------------- | :---------------- | :--------- | :--------- | | Regular CMP | $339 | $354 | $(15) | (4.24)% | | Light-Weight CMP | $330 | $340 | $(10) | (2.94)% | Cost of Sales (6 Months) Total cost of sales for CMP increased by 16.59% due to higher sales volume and a 3.83% increase in the average unit cost of sales, driven by increased unit material costs CMP Cost of Sales (6 Months) | Product | 6 Months Ended June 30, 2025 (Cost of Sales) | 6 Months Ended June 30, 2025 (Cost per Tonne) | 6 Months Ended June 30, 2024 (Cost of Sales) | 6 Months Ended June 30, 2024 (Cost per Tonne) | Cost of Sales Change (%) | Cost per Tonne Change (%) | | :-------------------- | :------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :-------------------------------------------- | :----------------------- | :------------------------ | | Regular CMP | $28,741,566 | $325 | $24,721,681 | $315 | 16.26% | 3.17% | | Light-Weight CMP | $5,592,510 | $320 | $4,727,272 | $303 | 18.30% | 5.61% | | Total CMP | $34,334,076 | $325 | $29,448,953 | $313 | 16.59% | 3.83% | Gross Profit (6 Months) Gross profit for CMP and related products decreased by 62.95%, with the overall gross profit margin falling by 7.07 percentage points to 3.80%, primarily due to decreased ASPs and increased material costs, partially offset by higher sales volume Gross Profit (6 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Gross Profit | $1,357,831 | $3,664,413 | $(2,306,582) | (62.95)% | | Gross Profit Margin | 3.80% | 11.07% | (7.27)% | N/A | Gross Profit Margin by Product (6 Months) | Product | June 30, 2025 Gross Profit Margin | June 30, 2024 Gross Profit Margin | Change (pp) | | :-------------------- | :---------------------------------- | :---------------------------------- | :---------- | | Regular CMP | 3.97% | 10.86% | (6.89) | | Light-Weight CMP | 2.93% | 10.90% | (7.97) | Selling, General and Administrative Expenses (6 Months) Selling, general and administrative expenses decreased by 1.82%, mainly due to lower manpower costs and reduced depreciation of idle fixed assets during production suspension SG&A Expenses (6 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | SG&A Expenses | $6,498,096 | $6,618,331 | $(120,235) | (1.82)% | Loss from Operations (6 Months) Operating loss for the six months ended June 30, 2025, increased by 74.02%, primarily due to the decrease in gross profit, partially offset by lower selling, general, and administrative expenses Loss from Operations (6 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Loss from Operations | $(5,140,265) | $(2,953,918) | $(2,186,347) | (74.02)% | Other Income and Expenses (6 Months) Interest expense decreased by $145,023, reflecting a reduction in total interest-bearing loans Interest Expense (6 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | | :---------------- | :-------------- | :-------------- | :--------- | | Interest expense | $276,818 | $421,841 | $(145,023) | - Total interest-bearing loans decreased from $12,149,914 as of June 30, 2024, to $9,749,113 as of June 30, 2025[195] Gain on Derivative Liability (6 Months) The company recognized a gain on derivative liability, which increased significantly compared to the prior year, reflecting changes in the fair market value of warrants Gain on Derivative Liability (6 Months) | Metric | June 30, 2025 | June 30, 2024 | | :------------------------ | :-------------- | :-------------- | | Gain on derivative liability | $5,348 | $49 | Net Loss (6 Months) Net loss for the six months ended June 30, 2025, increased by 42.66% to $5,455,611, primarily due to the factors mentioned above, including decreased gross profit Net Loss (6 Months) | Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :------- | :-------------- | :-------------- | :--------- | :--------- | | Net Loss | $(5,455,611) | $(3,824,283) | $(1,631,328) | 42.66% | Liquidity and Capital Resources The company faces liquidity challenges with a working capital deficit (excluding VAT recoverable) and doubts about its subsidiaries' going concern ability due to losses, planning to optimize costs, explore new products, and utilize capital market financing, with cash and cash equivalents increasing due to financing activities despite cash used in operations - As of June 30, 2025, the company had a working capital deficit of $1,906,169, excluding VAT recoverable, raising substantial doubt about its ability to continue as a going concern[198] - Management plans to optimize raw material structure, stabilize manufacturing capacity, explore new products, adjust pricing, and strategically utilize financing quotas to ensure smooth operations[199][200][201] - Cash, cash equivalents, and restricted cash increased by $558,779 to $7,509,355 as of June 30, 2025, primarily driven by net cash provided by financing activities[208] Accounts Receivable (Liquidity) Net accounts receivable increased significantly by 540.18% from December 31, 2024, to June 30, 2025 Accounts Receivable | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :---------------- | :-------------- | :---------------- | :--------- | :--------- | | Accounts Receivable | $1,841,007 | $287,576 | $1,553,431 | 540.18% | Inventories (Liquidity) Net inventory increased by 116.6%, primarily due to a 159.3% rise in raw materials, especially recycled paper board, procured in anticipation of rising prices and expanded production Inventory (Liquidity) | Inventory Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------- | :-------------- | :---------------- | :--------- | :--------- | | Total Raw Materials | $3,923,194 | $1,512,716 | $2,410,478 | 159.3% | | Total inventory, net | $5,094,810 | $2,351,876 | $2,742,934 | 116.6% | - The inventory of recycled paper board increased by 172.54% to $3,688,955, reflecting increased procurement for future production[203][204] Renewal of Operating Lease (Liquidity) The lease agreement for industrial buildings was renewed in August 2022 for a six-year term with an annual rental payment of approximately $139,318 - The lease for industrial buildings was renewed for a six-year term in August 2022, with an annual rental payment of approximately $139,318[205] Capital Expenditure Commitment (Liquidity) The company has approximately $3.5 million in capital expenditure commitments, mainly for a new tissue paper production line (PM10), expected to be financed by bank loans and business operations - As of June 30, 2025, capital expenditure commitments totaled approximately $3.5 million, primarily for the PM10 paper machine[207] - These commitments are expected to be financed by bank loans and cash flows from business operations[207] Cash and Cash Equivalents (Liquidity) Cash, cash equivalents, and restricted cash increased by $558,779, reaching $7,509,355 as of June 30, 2025, driven by financing activities, despite net cash used in operations Cash, Cash Equivalents and Restricted Cash | Metric | June 30, 2025 | December 31, 2024 | Change ($) | | :--------------------------------------- | :-------------- | :---------------- | :--------- | | Cash, Cash Equivalents and Restricted Cash | $7,509,355 | $6,950,576 | $558,779 | - Net cash used in operating activities was $1,111,313, a decrease of $2,457,650 compared to cash provided in the prior year[208] - Net cash provided by financing activities was $1,648,262, mainly from common stock issuance and short-term bank loans[210] Short-term Bank Loans (Liquidity) Total short-term bank loans increased to $5,056,855 as of June 30, 2025, with new loans from Bank of Cangzhou and ICBC, while several older ICBC loans were repaid, and the average short-term borrowing rate increased to 5.73% for the six months ended June 30, 2025 Short-term Bank Loans | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Total short-term bank loans | $5,056,855 | $4,451,616 | | Guaranteed short-term borrowings | $2,821,781 | $2,225,808 | | Unsecured bank loans | $419,076 | $417,339 | - New working capital loans were secured from Bank of Cangzhou and ICBC in late 2024 and early 2025, with interest rates ranging from 3.00% to 6.00%[213][214][215][220][221] - The average short-term borrowing rate for the six months ended June 30, 2025, was approximately 5.73%, up from 4.46% in the prior year[222] Long-term Loans (Liquidity) Long-term loans remained stable at $4,692,258 as of June 30, 2025, with existing loans from the Rural Credit Union of Xushui District extended and their interest rates reduced to 6% per annum Long-term Loans | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Total long-term loans | $4,692,258 | $4,672,806 | | Current portion of long-term loans | $3,574,721 | $3,559,902 | | Long-term loans (non-current) | $1,117,537 | $1,112,904 | - A loan from the Rural Credit Union of Xushui District was extended to August 24, 2026, with the interest rate reduced to 6% per annum[224] - Total interest expense for short-term and long-term loans for the six months ended June 30, 2025, was $276,818, a decrease from $421,841 in the prior year[226] Shareholder Loans (Liquidity) As of June 30, 2025, there were no outstanding loans from Mr. Liu Zhenyong, the CEO, to the company, however, accrued interest from past loans totaling $305,868 remains, and a separate interest-free amount of $119,974 was due to Mr. Liu Zhenyong for U.S. expenses - No loans were outstanding to Mr. Liu Zhenyong as of June 30, 2025, and December 31, 2024[230] - Net interest owed to Mr. Liu Zhenyong was approximately $305,868 as of June 30, 2025, recorded in other payables and accrued liabilities[230] - An amount of $119,974 was due to Mr. Liu Zhenyong as of June 30, 2025, for U.S. expenses, which is interest-free and due on demand[233] Critical Accounting Policies and Estimates The company's financial statements rely on critical accounting policies and estimates, particularly for revenue recognition, valuation of long-lived assets, and foreign currency translation, with management continuously evaluating these estimates, and no impairment of long-lived assets identified for the reported periods - Revenue is recognized upon goods delivery, fixed price, and assured collectability[235] - Long-lived assets are reviewed for impairment when circumstances warrant, with fair value determined by discounted cash flows; no impairment was required for the six months ended June 30, 2025 and 2024[236] - The functional currency of PRC subsidiaries is RMB, with assets and liabilities translated at current exchange rates and revenues/expenses at average rates, with adjustments in other comprehensive income (loss)[237] Off-Balance Sheet Arrangements The company has a significant off-balance sheet arrangement as a guarantor for a major raw material supplier's long-term bank loans totaling $4,330,456, which could materially affect the company if the supplier becomes insolvent - The company guaranteed $4,330,456 in long-term bank loans for Baoding Huanrun Trading Co., a major raw material supplier, maturing in 2028[238] - Insolvency of the guaranteed supplier could materially and adversely affect the company[238] Recent Accounting Pronouncements The company is evaluating the impact of new FASB ASUs on income tax disclosures (ASU 2023-09, effective after December 15, 2024) and expense disaggregation (ASU 2024-03, effective after December 15, 2026), which aim to enhance transparency and comparability in financial reporting - ASU 2023-09 (Income Taxes) requires annual disclosure of specific categories in rate reconciliation and additional information for significant reconciling items, effective for annual periods beginning after December 15, 2024[239] - ASU 2024-03 (Expense Disaggregation Disclosures) mandates disaggregation of expenses by nature and function on the income statement, effective for annual periods beginning after December 15, 2026[240] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign exchange risk due to its operations primarily in RMB while reporting in USD, and inflation risk, which could adversely affect operating results if cost increases are not passed on to customers - The company is exposed to foreign exchange risk as most revenues, costs, and assets are denominated in RMB, while the reporting currency is USD[241] - Depreciation of the RMB against the USD would reduce the value of RMB-denominated revenues, earnings, and assets in USD financial statements[241] - Inflation, particularly in product and overhead costs, could adversely affect operating results if selling prices do not keep pace with increased costs[242] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting occurring during the quarter - As of June 30, 2025, disclosure controls and procedures were deemed effective at a reasonable assurance level[243] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[244] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in two significant legal proceedings: a breach of contract lawsuit by FT Global Capital, Inc., where a default judgment on liability was granted against the company, and a civil loan dispute in China involving Tengsheng Paper, which was ordered to repay RMB3,320,000 - FT Global Capital, Inc. filed a breach of contract lawsuit against the company, resulting in a default judgment on liability against the company as of August 20, 2024[246] - Tengsheng Paper is jointly liable for a loan repayment of RMB3,320,000 in a civil loan dispute, with property preservation measures freezing RMB3.35 million worth of bank deposits[247] - 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[248] Item 1A. Risk Factors As a smaller reporting company, the registrant is not required to provide information under this item - The company is a smaller reporting company and is not required to provide risk factors under this item[249] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities and use of proceeds were reported[250] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[252] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[254] Item 5. Other Information No directors or officers reported the adoption or termination of Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No directors or officers reported adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements[255] 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)[256] SIGNATURES SIGNATURES The report was duly signed on August 14, 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 August 14, 2025[260]