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CoverageForm 410-K10-Q8-K13D13G13F

It Tech Packaging, Inc.

CIK 0001358190 · Every Form 4 filed by insiders at this issuer. See financials →

Annual report (10-K)

Latest 10-K filed Apr 11, 2025. Sentiment + YoY language diff vs prior year. Read sections →

Signal:Neutral

Risk Factors:tone -0.0239Δ-0.0000100% similar+2/-2 ¶

MD&A:tone -0.0012Δ-0.000279% similar+54/-71 ¶

Sentiment via Loughran-McDonald lexicon · YoY diff via Jaccard similarity + paragraph set difference.

Recent 8-K announcements

Per-item disclosure feed. Item 2.02 is the earnings release.

Apr 22, 2026no items parsed Apr 20, 2026no items parsed Oct 31, 2025no items parsed Sep 11, 2025no items parsed May 15, 2025no items parsed

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YoY shift: Neutral

Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.01pp more bearish than last year's.

Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.

Tone shift by section

The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.

Risk Factors

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Net-tone change vs last year's 10-K.

MD&A

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On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Measures and five supporting guidelines, which will come into effect on March 31, 2023. According to the Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedures and report relevant information to the CSRC; if a domestic company fails to complete the filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties by the CSRC,, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (2) if the issuer meets both of the following conditions, the overseas offerings and listings shall be determined as an indirect overseas offerings and listings by a domestic company: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic enterprises; and; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, and where an issuer makes an application for initial public offerings or listings in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted; if the issuer submits the application documents for offerings or listings in secret or non-public ways overseas, it may submit an explanation at the time of filing, and the application shall be postponed until the application documents are reported to the CSRC within three business days after the application documents are disclosed overseas.

We believe none of us, our PRC Subsidiaries, the consolidated VIE or its subsidiaries is a CIIO, and we believe that, to date, we, all of our PRC Subsidiaries, the consolidated VIE and its subsidiary are not required to go through cybersecurity review from the CAC to continue to offer our securities or operate the business of the consolidated VIE and its subsidiary. In addition, as of the date of this annual report, we, our PRC Subsidiaries, consolidated VIE and its subsidiary have not received any notice from any authorities identifying us as a CIIO or requiring us to go through cybersecurity review or network data security review by the CAC. We, our PRC Subsidiaries, consolidated VIE and its subsidiary have not been required to obtain any approvals or permits from CAC. When the Cybersecurity Review Measures become effective and if the Security Administration Draft is enacted as proposed, we believe that the operations of the consolidated VIE and its subsidiary and our listing will not be affected and that we, the consolidated VIE and its subsidiary will not be subject to cybersecurity review or network data security review by the CAC, given that: (i) as a company that mainly engages in paper production and distribution, our PRC Subsidiaries, the consolidated VIE and VIE’s subsidiaries are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) we, the consolidated VIE and its subsidiary possess personal data of fewer than one million individual clients in the business operations as of the date of this annual report and do not anticipate that we, the consolidated VIE and its subsidiary will be collecting over one million users’ personal information in the near future, which we understand might otherwise subject us, the consolidated VIE and its subsidiary to the Cybersecurity Review Measures; and (iii) data processed in the business of the consolidated VIE and its subsidiary is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we, the consolidated VIE and its subsidiary will not be subject to cybersecurity review and network data security review in the future. During such reviews, we, the consolidated VIE and its subsidiary may be required to suspend our operation or experience other disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect the business, financial conditions, and results of operations of us, the consolidated VIE and its subsidiary.

The PRC laws and regulations governing our current business operations are sometimes vague and uncertain. The PRC’s legal system is a civil law system based on written statutes, in which system decided legal cases have little value as precedents unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, the enforcement and performance of our contractual arrangements with our VIE, Dongfang Paper, and its shareholders, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Our major operating entity, Dongfang Paper, conducts its operations in China, and as a result, we are required to comply with PRC laws and regulations. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business. If the relevant authorities find that we are in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:

On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect on June 1, 2015. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capital for expenditure beyond their business scopes, providing entrusted loans or repaying loans between nonfinancial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016. Pursuant to SAFE Circular 16, enterprises registered in China may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in China. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted Renminbi shall not be provided as loans to its non-affiliated entities. As this circular is relatively new, there remains uncertainty as to its interpretation and application and any other future foreign exchange related rules. Violations of these Circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to fund the establishment of new entities in China by the VIE, to invest in or acquire any other PRC companies through our PRC Subsidiaries, or to establish new consolidated VIE in China, which may adversely affect our business, financial condition and results of operations.

The practical effect of the PRC legal system on our business operations in the PRC can be viewed from two separate but intertwined considerations. First, as a matter of substantive law, the foreign invested enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate articles and contracts to foreign invested enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are qualitatively different from the general corporation laws of the United States. Similarly, the PRC accounting laws mandate accounting practices, which are not consistent with U.S. generally accepted accounting principles. PRC’s accounting laws require that an annual “statutory audit” be performed in accordance with PRC accounting standards and that the books of account of foreign invested enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law requires a wholly foreign-owned enterprise to submit certain periodic fiscal reports and statements to designated financial and tax authorities, at the risk of business license revocation. While the enforcement of substantive rights may appear less clear than United States procedures, foreign invested enterprises and wholly foreign-owned enterprises are Chinese registered companies, which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Any award rendered by an arbitration tribunal is enforceable in accordance with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of foreign invested enterprises.

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. A company will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was signed into law on December 29, 2022 amends the HFCAA and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize the interim final rules previously adopted in March 2021 to implement the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction. On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the PRC, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. The PCAOB has made such designations as mandated under the HFCAA. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future. On August 26, 2022, the PCAOB signed the Protocol with the CSRC and the MOF of the People’s Republic of China, governing inspections and investigations of audit firms based in mainland China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control. The PCAOB is continuing to demand complete access in China mainland and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. Therefore, the PCAOB may in the future determine that it is unable to inspect or investigate completely registered public accounting firms in mainland China and Hong Kong.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the selected financial data, the financial statements, and the notes to those statements that are included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.” Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the sections in this report entitled “Risk Factors” and “Forward-Looking Statements” . Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Results of Operations

Revenue for the year ended December 31, 2024 was $75,837,943, representing a decrease of $10,709,007, or 12.37%, from $86,546,950 for the previous year. This was mainly due to the decrease in sales quantity of 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, 2024 was $75,702,427, a decrease of $10,709,631, or 12.39%, from $86,412,058 for the year ended December 31, 2023. This was mainly due to the decrease in ASPs of CMP and the decrease in sales volume of offset printing paper and tissue paper products.

Total quantities of offset printing paper, CMP and tissue paper products sold during the year ended December 31, 2024 amounted to 220,552 tonnes, a decrease of 10,049 tonnes, or 4.36%, compared to 230,601 tonnes sold during the year ended December 31, 2023. Total quantities of CMP and offset printing paper sold decreased by 8,844 tonnes in the year of 2024 as compared to 2023. Production of CMP was suspended in January and February of 2024 and resumed in mid of March 2024, and production of offset printing paper and tissue paper products was suspended in 2024. The changes in revenue and quantity sold for the year ended December 31, 2024 and 2023 are summarized as follows:

Year Ended

December 31,

Year Ended

December 31,

Change in

Percentage

Change

Sales Revenue

Quantity (Tonne)

Amount

Quantity (Tonne)

Amount

Quantity (Tonne)

Amount

Quantity

Amount

Regular CMP

Light-Weight CMP

Total CMP

Offset Printing Paper

Tissue Paper Products

Total CMP, Offset Printing Paper and Tissue Paper Revenue

Monthly revenue (excluding revenue of digital photo paper and tissue paper products) for the 24 months ended December 31, 2024, are summarized below:

The average selling price, or ASP, for our major products for the years ended December 31, 2024 and 2023 are summarized as follows:

Offset Printing Paper ASP

Regular CMP ASP

Light-Weight CMP ASP

Tissue Paper Products ASP

Year Ended December 31, 2024

Year Ended December 31, 2023

Decrease from comparable period in the previous year

Decrease by percentage

The following is a chart showing the month-by-month ASPs for the 24 month period ended December 31, 2024:

Corrugating Medium Paper

Revenue from CMP amounted to $75,702,427 (100.00% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended December 31, 2024, representing a decrease of $6,189,249, or 7.56%, from $81,891,676 during 2023.

We sold 220,552 tonnes of CMP in the year ended December 31, 2024 as compared to 223,823 tonnes in the year ended December 31, 2023, representing a 1.46% decrease in quantity sold.

ASP for regular CMP dropped from $368/tonne in 2023 to $345/tonne in 2024, representing a 6.25% decrease. ASP in RMB for regular CMP in 2023 and 2024 was RMB2,599 and RMB2,458, respectively, representing a 5.43% decrease. The quantity of regular CMP sold increased by 102 tonnes, from 182,870 tonnes in 2023 to 182,972 tonnes in 2024.

ASP for light-weight CMP dropped from $355/tonne in 2023 to $333/tonne in 2024, representing a $6.2% decrease. ASP in RMB for light-weight CMP in 2023 and 2024 was RMB2,502 and RMB2,368, respectively, representing a 5.36% decrease. The quantity of light-weight CMP sold decreased by 3,373 tonnes, from 40,953 tonnes in 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, 2024 and 2023 were 49.75% and 51.98%, respectively, representing a decrease of 2.23%.

Quantities sold for regular CMP that was produced by the PM6 production line from January 2023 to December 2024 are as follows:

Revenue of Face Mask

Revenue generated from selling face masks were $nil and $106,064 for the year ended December 31, 2024 and 2023.

Cost of Sales

Total cost of sales for CMP, offset printing paper and tissue paper products in the year ended December 31, 2024 was $69,145,658, a decrease of $16,273,164, or 19.05%, from $85,418,822 for the year ended December 31, 2023. This was mainly due to the decrease in unit material costs of CMP and decrease in sales volume of offset printing paper and tissue paper products.

Cost of sales for CMP was $69,145,658 for the year ended December 31, 2024, as compared to $77,962,837 in 2023. The decrease in the cost of sales of $8,817,179 for CMP was mainly due to the decrease in average cost of sales, partially offset by the increase in the quantities of regular CMP sold in the year of 2024. Average cost of sales per tonne for CMP decreased by 9.77%, from $348 for the year ended December 31, 2023, to $314 in 2024. This was mainly attributable to the lower average unit purchase costs (net of applicable value added tax) of recycled paper board.

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

Cost of sales for tissue paper products was $nil for the year ended December 31, 2024, as compared to $4,318,339 in 2023.

Changes in cost of sales and cost per tonne by product for the year ended December 31, 2024 and 2023 are summarized below:

Year Ended

Year Ended

December 31,

December 31,

Change in

Change in percentage

Cost of

Sales

Cost per

Tonne

Cost of

Sales

Cost per

tonne

Cost of

Sales

Cost per

Tonne

Cost of

Sales

Cost per

Tone

Regular CMP

Light-Weight CMP

Total CMP

Offset Printing Paper

Tissue Paper Products

Total CMP, Offset Printing Paper and Tissue Paper Revenue

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, 2024 was RMB 1,214/tonne (approximately $171/tonne), as compared to RMB 1,350/tonne (approximately $191/tonne) in 2023. These changes (in US dollars) represent a year-over-year decrease of 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 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.

The pricing trends of our major raw materials for the 24-month period from January 2023 to December 2024 are shown below:

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. 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, 2024 are summarized as follows:

Gross Profit

Gross profit for December 31, 2024 was $6,691,740 (representing 8.82% of the total revenue), representing an increase of $5,691,855, or 569.25%, from the gross profit of $999,885 (representing 1.16% of the total revenue) for the year ended December 31, 2023. The increase was mainly due to the decrease in unit cost of materials of CMP, partially offset by the decrease in ASP of CMP.

Corrugating Medium Paper, Offset Printing Paper and Tissue Paper Products

Gross profit for offset printing paper, CMP and tissue paper products for the year ended December 31, 2024 was $6,556,769, an increase of $5,563,533, or 560.14%, from the gross profit of $993,236 for the year ended December 31, 2023. The increase was mainly the result of the factors discussed above.

The overall gross profit margin for offset printing paper, CMP and tissue paper products increased by 7.51 percentage points, from 1.15% for the year ended December 31, 2023, to 8.66% for the year ended December 31, 2024.

Gross profit margin for regular CMP for the year ended December 31, 2024 was 8.79%, or 3.52 percentage points higher, as compared to gross profit margin of 5.27% for the year ended December 31, 2023. Such increase was primarily due to the decrease in material costs, partially offset by the decrease in ASP of regular CMP.

Gross profit margin for light-weight CMP for the year ended December 31, 2024 was 8.03%, or 5.44 percentage points higher, as compared to gross profit margin of 2.59% for the year ended December 31, 2023. Such increase was primarily due to the decrease in material costs, partially offset by the decrease in ASP of light-weight CMP.

Monthly gross profit margins for our corrugating medium paper and offset printing paper for the 24-month period ended December 31, 2024 are as follows:

Face Masks

Gross loss for face mask for the year ended December 31, 2024 and 2023 was $nil and $11,127, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2024 were $14,799,969, an increase of $5,724,494, or 63.08% from $9,075,475 for the year ended December 31, 2023. The increase was mainly due to the increase in i) depreciation of idle fixed assets during the production 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.

Loss from Operations

Operating loss for the year ended December 31, 2024 was $8,210,719, a decrease of loss of $1,365,169, or 14.26%, from $9,575,888 for the year ended December 31, 2023. The decrease was primarily due to the increase in gross profit, partially offset by the increase in selling, general and administrative expenses.

Other Income and Expenses

Interest expense for the year ended December 31, 2024 decreased by $222,141, from $984,518 for the year ended December 31, 2023, to $762,377. The Company had short-term and long-term interest-bearing loans that aggregated $9,124,422 as of December 31, 2024, as compared to $11,801,996 as of December 31, 2023.

Provision for Income Taxes

Full allowance for deferred tax asset loss was provided in the year of 2024 and 2023. Income tax for the year ended December 31, 2024 was $879,194 as compared to the income tax $346,954 for the year ended December 31, 2023.

Net Loss

As a result of the above, net loss was $9,843,094 for the year ended December 31, 2024, representing a decrease of loss of $102,941, or 1.03%, from $9,946,035 for the year ended December 31, 2023.

Accounts Receivable

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

Inventories

Inventories consist of raw materials (accounting for 59.29% of total value of inventory as of December 31, 2024), semi-finished goods and finished goods. As of December 31, 2024, the recorded value of inventory decreased by 33.85% to $2,351,876 from $3,555,235 as of December 31, 2023. As of December 31, 2024, the inventory of recycled paper board, which is the main raw material for the production of CMP, was $1,353,543, approximately $1,154,799, or 581.05%, higher than the balance as of December 31, 2023. In anticipation of the rising energy prices, we enhanced the production capacity for CMP during the fourth quarter of 2023. As a result, by December 31, 2023, our raw material balance had decreased, whereas the inventory balance of our finished goods had increased significantly, compared to the balances recorded on December 31, 2024. This was due to a substantial portion of the materials being processed and converted into finished goods during that period.

A summary of changes in major inventory items is as follows:

December 31,

December 31,

$ Change

% Change

Raw Materials

Recycled paper board

Recycled white scrap paper

Tissue base paper

Gas

Mask fabric and other raw materials

Total Raw Materials

Semi-finished Goods

Finished Goods

Total inventory, gross

Inventory reserve

Total inventory, net

Renewal of operating lease

On August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound (the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million, respectively. In connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company for its original use for a term of up to three years, with an annual rental payment of approximately $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.

Capital Expenditure Commitment as of December 31, 2024

On May 5, 2020, the Company announced it planned the commercial launch of a new tissue paper production line PM10 and the Company signed an agreement to purchase paper machine with paper machine supplier. The Company expected the new tissue paper production line to be launched after the completion of trial run.

As of December 31, 2024, we had approximately $3.4 million in capital expenditure commitments that were mainly related to the purchase of paper machine of PM10. The infrastructure work of PM10 has been completed and the associated ancillary facilities are working in progress. These commitments are expected to be financed by bank loans and cash flows generated from our business operations.

Cash, Cash Equivalents and restricted cash

Our cash, cash equivalents and restricted cash as of December 31, 2024 was $6,950,576, an increase of $2,558,655, from $4,391,921 as of December 31, 2023. The increase of cash and cash equivalents for the year ended December 31, 2024 was attributable to a number of factors including:

i. Net cash provided by operating activities

Net cash provided by operating activities was $6,299,469 for the year ended December 31, 2024. The balance represented a decrease of cash of $6,571,617, or 51.06%, from $12,871,086 provided for the year ended December 31, 2023. Net loss for the year ended December 31, 2024 was $9,843,094, representing a decrease of loss of $102,941, or 1.03%, from a net loss of $9,946,035 for the year ended December 31, 2023. Changes in various asset and liability account balances throughout the year ended December 31, 2024 also contributed to the net change in cash from operating activities in year ended December 31, 2024. Chief among such changes is the decrease of accounts receivable in the amount of $240,346 during the year of 2024. There was also a decrease of $432,189 in the ending inventory balance as of December 31, 2024 (an increase to net cash for the year ended December 31, 2024 cash flow purposes). In addition, the Company had non-cash expenses relating to depreciation and amortization in the amount of $14,221,082. The Company also had a net increase of $6,090 in prepayment and other current assets (a decrease to net cash) and a net decrease of $447,899 in other payables and accrued liabilities and related parties (a decrease to net cash), as well as an increase in income tax payable of $81,720 (an increase to net cash) during the year ended December 31, 2024.

ii. Net cash used in investing activities

We incurred $329,611 in net cash expenditures for investing activities during the year ended December 31, 2024, as compared to $22,239,297 for the year ended December 31, 2023. Payments in 2023 were mainly for the payment for land use right.

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

Net cash used in financing activities was $3,256,696 for the year ended December 31, 2024, as compared to net cash provided by financing activities in the amount of $4,410,099 for the year ended December 31, 2023.

In December 2024, we refinanced $4 million existing long-term debt by securing new loans at lower market rates, to repay our obligations to Rural Credit Union. This refinancing transaction did not involve any cash inflows or outflows. As a result, it was not reflected in the financing activities in the cash flow statement. Although the new loans have distinct terms and interest rates compared to the old ones, they do not qualify as a traditional debt restructuring according to U.S. GAAP. We anticipate financial benefits from this refinancing, particularly lower interest expenses over the loan’s remaining term.

December 31,

December 31,

Rural Credit Union of Xushui District Loan 1

Rural Credit Union of Xushui District Loan 2

Industrial and Commercial Bank of China (“ICBC”) Loan 1

ICBC Loan 2

ICBC Loan 3

ICBC Loan 4

ICBC Loan 5

ICBC Loan 6

ICBC Loan 7

Total short-term bank loans

On December 24, 2024, the Company entered into a loan agreement with the 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 equipment of Baoding Shengde as collateral for the benefit of the bank. The loan bears a fixed rate of 6% and is due for repayment by December 23, 2025.

On December 24, 2024, the Company entered into a loan agreement with the Rural Credit Union of Xushui District to borrow $2,225,808(RMB16,000,000) to repay the existing long-term loan of the same amount. The loan was secured by the equipment of Baoding Shengde as collateral for the benefit of the bank and guaranteed by a third party company. The loan bears a fixed rate of 6% and is due for repayment by December 23, 2025.

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

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

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

On June 11, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $2,782 as of December 31, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan is due for repayment by June 11, 2025.

On June 21, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $139,113 as of December 31, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan is due for repayment by June 21, 2025.

On June 22, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $139,113 as of December 31, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan is due for repayment by June 22, 2025.

On June 24, 2024, the Company entered into a working capital loan agreement with the ICBC, with a balance of $136,331 as of December 31, 2024. The loan bears a fixed interest rate of 3.45% per annum. The loan is due for repayment by June 24, 2025.

As of December 31, 2024, there were guaranteed short-term borrowings of $2,225,808 and unsecured bank loans of $417,339. As of December 31, 2023, there were guaranteed short-term borrowings of $nil and unsecured bank loans of $423,567.

The average short-term borrowing rates for the years ended December 31, 2024, and 2023 were approximately 4.6% and 4.48%, respectively.

Long-term loans

As of December 31, 2024, and 2023, long-term loan balance is $4,672,806 and $11,378,429, respectively.

On July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended for additional 5 years and was due and payable in various installments from December 21, 2018 to June 20, 2023. On August 24, 2023, the loan was extended for another 3 years and will be due and payable on August 24, 2026. The loan is secured by certain of the Company’s manufacturing equipment with net book value of $nil as of December 31, 2024 and 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, 2024 and 2023, the total outstanding loan balance was $3,476,434 and $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, 2024 and 2023, respectively.

On April 17, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various installments from August 21, 2019 to April 16, 2021. The loan was renewed on March 22, 2021, December 24, 2021 and April 16, 2024 and extended for additional 5 years in total, which is due on April 15, 2026 according to the new schedule. The loan was secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment was due quarterly and bore a rate of 7.2% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. On December 24, 2024, the Company entered into a one-year loan agreement with the Rural Credit Union of Xushui District for same amount to repay the loan. This refinancing arrangement secured a lower market rate and did not involve any cash inflows or outflows. As of December 31, 2024 and 2023, the total outstanding loan balance was $nil and $2,259,026, respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023.

On December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan was renewed on March 22, 2021 and December 24, 2021 and extended for additional 3 years in total, which was due on December 11, 2024 according to the new schedule. The loan was secured by Tengsheng Paper with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bore a rate of 7.56% per annum. Effective from November 15, 2022, the interest rate was reduced to 7% per annum. On December 24, 2024, the Company entered into a one-year loan agreement with the Rural Credit Union of Xushui District for same amount to repay the loan. This refinancing arrangement secured a lower market rate and did not involve any cash inflows or outflows. As of December 31, 2024 and 2023, the total outstanding loan balance was $nil and $1,835,458, respectively, which are presented as current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, respectively.

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

On December 5, 2023, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 3 years, which was due in various installments from June 21, 2024 to December 5, 2026. The loan is guaranteed by an independent third party. Interest payment is due monthly and bears a rate of 7% per annum. As of December 31, 2024 and 2023, total outstanding loan balance was $1,196,372 and $1,214,226, respectively. Out of the total outstanding loan balance, current portion amounted $918,146 and $225,903, which is presented as current liabilities and the remaining balance of $278,226 and $988,323 is presented as non-current liabilities in the consolidated balance sheet as of December 31, 2024 and 2023, respectively.

Total interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2024, and 2023 were $762,377 and $977,678, respectively.

Shareholder Loans

Mr. Zhenyong Liu has loaned money to Dongfang Paper for working capital purposes over a period of time. On January 1, 2013, Dongfang Paper and Mr. Zhenyong Liu renewed the three-year term loan previously entered on January 1, 2010, and extended the maturity date further to December 31, 2015. On December 31, 2015, the Company paid off the loan of $2,249,279, together with interest of $391,374 for the period from 2013 to 2015. Approximately $356,594 and $361,915 of interest were outstanding to Mr. Zhenyong Liu, which were recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet as of December 31, 2024, and 2023, respectively.

On December 10, 2014, Mr. Zhenyong Liu provided a loan to the Company, amounted to $8,742,278 to Dongfang Paper for working capital purpose with an interest rate of 4.35% per annum, which was based on the primary lending rate of People’s Bank of China. The unsecured loan was provided on December 10, 2014, and would be originally due on December 10, 2017. During the year of 2016, the Company repaid $6,012,416 to Mr. Zhenyong Liu, together with interest of $288,596. In February 2018, the company paid off the remaining balance, together with interest of $20,400. As of December 31, 2024, and 2023, approximately $41,734 and $42,357 of interest were outstanding to Mr. Zhenyong Liu, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

On March 1, 2015, the Company entered an agreement with Mr. Zhenyong Liu which allows Dongfang Paper to borrow from the CEO an amount up to $17,201,342 (RMB120,000,000) for working capital purposes. The advances or funding under the agreement are due three years from the date each amount is funded. The loan is unsecured and carries an annual interest rate set on the basis of the primary lending rate of the People’s Bank of China at the time of the borrowing. On July 13, 2015, an unsecured amount of $4,324,636 was drawn from the facility. On October 14, 2016 an unsecured amount of $2,883,091 was drawn from the facility. In February 2018, the company repaid $1,507,432 to Mr. Zhenyong Liu. The loan would be originally due on July 12, 2018. Mr. Zhenyong Liu agreed to extend the loan for additional 3 years and the remaining balance will be due on July 12, 2021. On November 23, 2018, the company repaid $3,768,579 to Mr. Zhenyong Liu, together with interest of $158,651. In December 2019, the Company paid off the remaining balance, together with interest of 94,636. As of December 2024, and 2023, the outstanding interest was $191,193 and $194,047, respectively, which was recorded in other payables and accrued liabilities as part of the current liabilities in the consolidated balance sheet.

As of December 31, 2024, and 2023, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party loans were $nil for the years ended December 31, 2024, and 2023. The net interest owe to Mr. Zhenyong Liu was approximately $304,600 and $598,319, as of December 31, 2024, and 2023, respectively, which was recorded in other payables and accrued liabilities.

In October 2022 and November 2022, the Company entered into two agreements with Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of $7,059,455 (RMB50,000,000) in total. The loans were unsecured and carried a fixed interest rate of 4.35% per annum. $4,235,673 (RMB30,000,000) was repaid by Mr. Zhengyong Liu in August 2023 and the remaining balance was repaid in December 2023. Interest income of the loan for the years ended December 31, 2024 and 2023 were $nil and $290,275.

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

Critical Accounting Policies and Estimates

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates. The most critical accounting policies are listed below:

Revenue Recognition Policy

The Company recognizes revenue when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist, and collectability is reasonably assured. Goods are considered delivered when the customer’s truck picks up goods at our finished goods inventory warehouse.

Long-Lived Assets

The Company evaluates the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. In such circumstances, those assets are written down to estimated fair value. Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry. For the years ended December 31, 2024 and 2023, we recorded $102,490 and $292,922 loss from impairment of property, plant and equipment, respectively.

Foreign Currency Translation

The functional currency of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all assets and liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. The current exchange rates used by the Company as of December 31, 2024 and 2023 to translate the Chinese RMB to the U.S. Dollars are 7.1884:1 and 7.0827:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 7.1167:1, and 7.0558:1 for the years ended December 31, 2024 and 2023, respectively. Translation adjustments are included in other comprehensive income (loss).

Off-Balance Sheet Arrangements

We were the guarantor for Baoding Huanrun Trading Co., for its long-term bank loans in an amount of $4,312,503 (RMB31,000,000), which matures at various times in 2028. Baoding Huanrun Trading Co. is one of our major suppliers of raw materials. This helps us to maintain a good relationship with the supplier and negotiate for better terms in payment for materials. If Huanrun Trading Co. were to become insolvent, the Company could be materially adversely affected. Except as aforesaid, we have no material off-balance sheet transactions.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU’s amendments are effective for all entities that are subject to Topic 740, Income Taxes, for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this pronouncement on our disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, which emphasizes the importance of providing more granular and detailed expense information in financial statements. The update requires entities to disaggregate expenses by nature and function on the income statement, offering a clearer picture of an entity’s cost structure and operational efficiency. This enhanced disclosure is intended to improve the transparency and comparability of financial reporting. Entities must apply the new guidance retrospectively to all periods presented in the financial statements. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is in the process of assessing the impact of these changes on its financial reporting and will implement the necessary adjustments to comply with the updated standards.

https://insiderdelta.com/issuers/0001358190/10-k/0001213900-25-031072